 Chapter 3, Part A of the Wealth of Nations, Book 4. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith, Book 4, Chapter 3, Part A, 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. Part 1 of the unreasonableness of those restraints even upon the principles of the commercial system. To lay extraordinary restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade is supposed to be disadvantageous is the second expedient by which the commercial system proposes to increase the quantity of gold and silver. Thus, in Great Britain, salicia lawns may be imported for home consumption upon paying certain duties, but French cambricks and lawns are prohibited to be imported except into the Port of London, there to be warehoused for exportation. Higher duties are imposed upon the wines of France than upon those of Portugal or indeed of any other country. By what is called the Impost 1692, a duty of five and twenty percent of the rate or value was laid upon all French goods, while the goods of other nations were, the greater part of them, subjected to much lighter duties, seldom exceeding five percent. The wine, brandy, salt and vinegar of France were indeed accepted, these commodities being subjected to other heavy duties either by other laws or by particular clauses of the same law. In 1696, a second duty of twenty five percent, the first not having been thought a sufficient discouragement, was imposed upon all French goods except brandy, together with a new duty of five and twenty pounds upon the ton of French wine and another of fifteen pounds upon the ton of French vinegar. French goods have never been omitted in any of those general subsidies or duties of five percent which have been imposed upon all or the greater part of the goods enumerated in the books of rates. If we count the one third and two third subsidies as making a complete subsidy between them, there have been five of these general subsidies, so that, before the commencement of the present war, seventy-five percent may be considered as the lowest duty to which the greater part of the goods of the growth, produce, or manufacture of France were liable. But upon the greater part of goods, those duties are equivalent to a prohibition. The French, in their turn, have, I believe, treated our goods and manufacturers just as hardly, though I am not so well acquainted with the particular hardships which they have imposed upon them. Those mutual restraints have put an end to almost all fair commerce between the two nations, and smugglers are now the principal importers, either of British goods into France or of French goods into Great Britain. The principles which I have been examining in the foregoing chapter took their origin from private interest and the spirit of monopoly, those which I am going to examine in this, from national prejudice and animosity. They are, accordingly, as might well be expected, still more unreasonable. They are so, even upon the principles of the commercial system. First, though it were certain that in the case of a free trade between France and England, for example, the balance would be in favor of France, it would by no means follow that such a trade would be disadvantageous to England, or that the general balance of its whole trade would thereby be turned more against it. If the wines of France are better and cheaper than those of Portugal, or its linens, than those of Germany, it would be more advantageous for Great Britain to purchase both the wine and the foreign linen which it had occasion for of France, than of Portugal and Germany. Though the value of the annual importations from France would thereby be greatly augmented, the value of the whole annual importations would be diminished, in proportion as the French goods of the same quality were cheaper than those of the other two countries. This would be the case, even upon the supposition that the whole French goods imported were to be consumed in Great Britain. But secondly, a great part of them might be re-exported to other countries, where, being sold with profit, they might bring back a return equal in value perhaps to the prime cost of the whole French goods imported. One has frequently been said of the East India trade might possibly be true of the French, that though the greater part of East India goods were bought with gold and silver, the re-exportation of a part of them to other countries brought back more gold and silver to that which carried on the trade, than the prime cost of the whole amounted to. One of the most important branches of the Dutch trade at present consists in the carriage of French goods to other European countries. Some part, even of the French wine, drank in Great Britain, is clandestinely imported from Holland and Zealand. If there was either a free trade between France and England, or if French goods could be imported upon paying only the same duties as those of other European nations to be drawn back upon exportation, England might have some share of a trade which is found so advantageous to Holland. Thirdly, and lastly, there is no certain criterion by which we can determine on which side what is called the balance between any two countries lies, or which of them exports to the greatest value. National prejudice and animosity prompted always by the private interests of particular traders are the principles which generally direct our judgment upon all questions concerning it. There are two criterion, however, which have frequently been appealed to upon such occasions, the Custom House books and the course of exchange. The Custom House books, I think it is now generally acknowledged, are a very uncertain criterion on account of the inaccuracy of the valuation at which the greater part of goods are rated in them. The course of exchange is, perhaps, almost equally so. When the exchange between two places, such as London and Paris, is at par, it is said to be a sign that the debts due from London to Paris are compensated by those due from Paris to London. On the contrary, when a premium is paid at London for a bill upon Paris, it is said to be a sign that the debts due from London to Paris are not compensated by those due from Paris to London, but that a balance in money must be sent out from the latter place, for the risk, trouble, and expense of exporting which the premium is both demanded and given. But the ordinary state of debt and credit between those two cities must necessarily be regulated, it is said, by the ordinary course of their dealings with one another. When neither of them imports from the other to a greater amount than it exports to that other, the debts and credits of each may compensate one another. But when one of them imports from the other to a greater value than it exports to that other, the former necessarily becomes indebted to the latter, and a greater sum than the latter becomes indebted to it. The debts and credits of each do not compensate one another, and money must be sent out from that place of which the debts overbalance the credits. The ordinary course of exchange, therefore, being an indication of the ordinary state of debt and credit between two places, must likewise be an indication of the ordinary course of their exports and imports, as these necessarily regulate that state. But though the ordinary course of exchange shall be allowed to be a sufficient indication of the ordinary state of debt and credit between any two places, it would not from thence follow that the balance of trade was in favor of that place which had the ordinary state of debt and credit in its favor. The ordinary state of debt and credit between any two places is not always entirely regulated by the ordinary course of their dealings with one another, but is often influenced by that of the dealings of either with many other places. If it is usual, for example, for the merchants of England to pay for the goods which they buy of Hamburg, Danzig, Riga, etc., by bills upon Holland, the ordinary state of debt and credit between England and Holland will not be regulated entirely by the ordinary course of the dealings of those two countries with one another, but will be influenced by that of the dealings in England with those other places. England may be obliged to send out every year money to Holland, though its annual exports to that country may exceed very much the annual value of its imports from thence, and though what is called the balance of trade may be very much in favor of England. In the way besides in which the par of exchange has hitherto been computed, the ordinary course of exchange can afford no sufficient indication that the ordinary state of debt and credit is in favor of that country which seems to have, or which is supposed to have, the ordinary course of exchange in its favor, or in other words, the real exchange may be and in fact often is, so very different from the computed one that, from the course of the latter, no certain conclusion can, upon many occasions, be drawn concerning that of the former. When for a sum of money paid in England, containing, according to the standard of the English mint, a certain number of ounces of pure silver, you receive a bill for a sum of money to be paid in France, containing, according to the standard of the French mint, an equal number of ounces of pure silver, exchange is said to be at par between England and France. When you pay more, you are supposed to give a premium, and exchange is said to be against England and in favor of France. When you pay less, you are supposed to get a premium, and exchange is said to be against France and in favor of England. At first we cannot always judge of the value of the current money of different countries by the standard of their respective mints. In some it is more, in others it is less worn, clipped, and otherwise degenerated from that standard. But the value of the current coin of every country, compared with that of any other country, is in proportion not to the quantity of pure silver which it ought to contain, but to that which it actually does contain. Before the reformation of the silver coin in King William's time, exchange between England and Holland, computed in the usual manner, according to the standard of their respective mints, was five and twenty percent against England. But the value of the current coin of England, as we learned from Mr. Laundice, was at that time rather more than five and twenty percent below its standard value. The real exchange, therefore, may even at that time have been in favor of England, but withstanding the computed exchange was so much against it. A smaller number, or ounces of pure silver, actually paid in England, may have purchased a bill for a greater number of ounces of pure silver to be paid in Holland, and the man who is supposed to give, may in reality, have got the premium. The French coin was, before the late reformation of the English gold coin, much less worn than the English, and was perhaps two or three percent nearer its standard. If the computed exchange with France, therefore, was not more than two or three percent against England, the real exchange might have been in its favor. Since the reformation of the gold coin, the exchange has been constantly in favor of England and against France. Secondly, in some countries the expense of coinage is defrayed by the government, in others it is defrayed by the private people, who carry their bullion to the mint, and the government even derives some revenue from the coinage. In England it is defrayed by the government, and if you carry a pound weight of standard silver to the mint, you get back sixty-two shillings, containing a pound weight of the like standard silver. In France, a duty of eight percent is deducted for the coinage, which not only defrains the expense of it, but affords a small revenue to the government. In England, as the coinage costs nothing, the current coin can never be much more valuable than the quantity of bullion which it actually contains. In France, the workmanship, as you pay for it, adds to the value, in the same manner as to that of wrought plate. A sum of French money, therefore, containing an equal weight of pure silver, is more valuable than a sum of English money containing an equal weight of pure silver, and must require more bullion or other commodities to purchase it. Though the current coin of the two countries, therefore, were equally near the standards of their respective mints, a sum of English money could not well purchase a sum of French money containing an equal number of ounces of pure silver, nor, consequently, a bill upon France for such a sum. If for such a bill no more additional money was paid than what was sufficient to compensate the expense of the French coinage, the real exchange might be at par between the two countries. Their debts and credits might mutually compensate one another, while the computed exchange was considerably in favor of France. If less than this was paid, the real exchange might be in favor of England, while the computed was in favor of France. Thirdly, and lastly, in some places, as at Amsterdam, Hamburg, Venice, etc., foreign bills of exchange are paid in what they call bank money, while in others, as at London, Lisbon, Antwerp, Leghorn, etc., they are paid in the common currency of the country. What is called bank money is always of more value than the same nominal sum of common currency. A thousand guilders in the Bank of Amsterdam, for example, are of more value than a thousand guilders of Amsterdam currency. The difference between them is called the agio of the bank, which at Amsterdam is generally about 5%. Supposing the current money of the two countries equally near to the standard of their respective ments, and that the one pays foreign bills in this common currency, while the other pays them in bank money, it is evident that the computed exchange may be in favor of that which pays in bank money, though the real exchange should be in favor of that which pays in current money. For the same reason that the computed exchange may be in favor of that which pays in better money, or in money nearer to its own standard, though the real exchange should be in favor of that which pays in worse. The computed exchange, before the late reformation of the gold coin, was generally against London with Amsterdam, Hamburg, Venice, and I believe with all other places which pay in what is called bank money. It will, by no means follow, however, that the real exchange was against it. Since the reformation of the gold coin, it has been in favor of London, even with those places. The computed exchange has generally been in favor of London with Lisbon, Antwerp, Leghorn, and, if you accept France, I believe with most other parts of Europe that pay in common currency, and it is not improbable that the real exchange was so too. The aggression concerning banks of deposit, particularly concerning that of Amsterdam. The currency of a great state, such as France or England, generally consists almost entirely of its own coin. Should this currency therefore be at any time worn, clipped, or otherwise degraded below its standard value, the state, by a reformation of its coin, can effectually re-establish its currency. But the currency of a small state, such as Genoa or Hamburg, can seldom consist altogether in its own coin, but must be made up in a great measure of the coins of all the neighboring states with which its inhabitants have a continual intercourse. Such a state therefore, by reforming its coin, will not always be able to reform its currency. If foreign bills of exchange are paid in this currency, the uncertain value of any sum of what is in its own nature so uncertain, must render the exchange always very much against such a state, its currency being in all foreign states necessarily valued even below what it is worth. In order to remedy the inconvenience to which this disadvantageous exchange must have subjected their merchants, such small states, when they began to attend to the interest of trade, have frequently enacted that foreign bills of exchange of a certain value should be paid not in common currency, but by an order upon, or by a transfer in the books of a certain bank established upon the credit and under the protection of the state, this bank being always obliged to pay in good and true money exactly according to the standard of the state. The banks of Venice, Genoa, Amsterdam, Hamburg, and Nuremberg seem to have been all originally established with this view, though some of them may have afterwards been made subservient to other purposes. The money of such banks being better than the common currency of the country necessarily bore an agio, which was greater or smaller according as the currency was supposed to be more or less degraded below the standard of the state. The agio of the Bank of Hamburg, for example, which is said to be commonly about fourteen percent, is the supposed difference between the good standard money of the state and the clipped, worn, and diminished currency poured into it from all the neighboring states. Before 1609, the great quantity of clipped and worn foreign coin which the extensive trade of Amsterdam brought from all parts of Europe reduced the value of its currency about nine percent below that of good money fresh from the mint. Such money no sooner appeared than it was melted down or carried away as it always is in such circumstances. The merchants, with plenty of currency, could not always find a sufficient quantity of good money to pay their bills of exchange, and the value of those bills, in spite of several regulations which were made to prevent it, became in a great measure uncertain. In order to remedy these inconveniences a bank was established in 1609 under the guarantee of the city. This bank received both foreign coin and the light and worn coin of the country at its real and transit value in the good standard money of the country, deducting only so much as was necessary for defraying the expense of coinage and the other necessary expense of management. For the value which remained after this small deduction was made it gave it credit in its books. This credit was called bank money, which, as it represented money exactly according to the standard of the mint, was always of the same real value and intrinsically worth more than current money. It was at the same time enacted that all bills drawn upon or negotiated at Amsterdam of the value of six hundred guilders and upwards should be paid in bank money, which at once took away all uncertainty in the value of those bills. Every merchant and consequence of this regulation was obliged to keep an account with the bank in order to pay his foreign bills of exchange which necessarily occasioned a certain demand for bank money. Bank money over and above both its intrinsic superiority to currency and the additional value which this demand necessarily gives it has likewise some other advantages. It is secure from fire, robbery, and other accidents. The city of Amsterdam is bound for it. It can be paid away by a simple transfer without the trouble of counting or the risk of transporting it from one place to another. In consequence of those different advantages it seems from the beginning to have borne an agio, and it is generally believed that all the money originally deposited in the bank was allowed to remain there, nobody caring to demand payment of a debt which he could sell for a premium in the market. By demanding payment of the bank the owner of a bank credit would lose this premium. As a shilling fresh from the mint will buy no more goods in the market than one of our common worn shillings, so the good and true money which might be brought from the coffers of the bank into those of a private person being mixed and confounded with the common currency of the country would be of no more value than that currency from which it could no longer be readily distinguished. While it remained in the coffers of the bank its superiority was known and ascertained. When it had come into those of a private person its superiority could not well be ascertained without more trouble than perhaps the difference was worth. By being brought from the coffers of the bank besides it lost all the other advantages of bank money. Its security, its easy and safe transferability, its use in paying foreign bills of exchange. Over and above all this it could not be brought from those coffers as will appear by and by without previously paying for the keeping. Those deposits of coin or those deposits which the bank was bound to restore in coin constituted the original capital of the bank or the whole value of what was represented by what is called bank money. At present they are supposed to constitute but a very small part of it. In order to facilitate the trade and bullion the bank has been for these many years in the practice of giving credit in its books upon deposits of gold and silver bullion. This credit is generally about five percent below the mint price of such bullion. The bank grants at the same time what is called a recipes or receipt entitling the person who makes the deposit or the bearer to take out the bullion again at any time within six months upon transferring to the bank a quantity of bank money equal to that for which credit had been given in its books when the deposit was made and upon paying one fourth percent for the keeping if the deposit was in silver and one half percent if it was in gold. But at the same time declaring that in default of such payment and upon the expiration of this term the deposit should belong to the bank at the price at which it had been received or for which credit had been given in the transfer books. What is thus paid for the keeping of the deposit may be considered as a sort of warehouse rent and why this warehouse rent should be so much dearer for gold than for silver several different reasons have been assigned. The fineness of gold it has been said is more difficult to be ascertained than that of silver. Frauds are more easily practiced and occasion at greater loss in the most precious metal. Silver besides being the standard metal the state it has been said wishes to encourage more the making of deposits of silver than those of gold. Deposits of bullion are most commonly made when the price is somewhat lower than ordinary and they are taken out again when it happens to rise. In Holland the market price of bullion is generally above the mint price for the same reason that it was so in England before the late reformation of the gold coin. The difference is said to be commonly from about six to sixteen stivers upon the mark or eight ounces of silver of eleven parts of fine and one part alloy. The bank price or the credit which the bank gives for the deposits of such silver when made in foreign coin of which the fineness is well known and ascertained such as Mexico dollars is twenty two guilders the mark. The mint price is about twenty three guilders and the market price is from twenty three guilders six to twenty three guilders sixteen stivers or from two to three percent above the mint price. Bar or ingot gold is received in proportion to its fineness compared with the above foreign gold coin. Upon fine bars the bank gives three hundred and forty per mark and general however something more is given upon coin of a known fineness than upon gold and silver bars of which the fineness cannot be ascertained but by a process of melting and the same. The proportions between the bank price the mint price and the market price of gold bullion are nearly the same. A person can generally sell his receipt for the difference between the mint price of bullion and the market price. A receipt for bullion is almost always worth something and it very seldom happens therefore that anybody suffers his receipts to expire or allows his bullion to fall to the bank at the price at which it had been received either by not taking it out before the end of the six months or by neglecting to pay one fourth or one half percent in order to obtain a new receipt for another six months. This however though it happens seldom is said to happen sometimes and more frequently with regard to gold than with regard to silver on account of the higher warehouse rent which is paid for the keeping of the more precious metal. The person who by making a deposit of bullion obtains both a bank credit and a receipt pays his bills of exchange as they became due with his bank credit and either sells or keeps his receipt according as he judges that the price of bullion is likely to rise or to fall. The receipt and the bank credit seldom keep long together and there is no occasion that they should. The person who has a receipt and who wants to take out bullion finds always plenty of bank credits or bank money to buy at the ordinary price and the person who has bank money and wants to take out bullion finds receipts always in equal abundance. The owners of bank credits and the holders of receipts constitute two different sorts of creditors against the bank. The holder of a receipt cannot draw out the bullion for which it is granted without reassigning to the bank a sum of bank money equal to the price at which the bullion had been received. If he has no bank money of his own he must purchase it of those who have it. The owner of bank money cannot draw out bullion without producing to the bank receipts for the quantity which he wants. If he has none of his own he must buy them of those who have them. The holder of a receipt when he purchases bank money purchases the power of taking out a quantity of bullion of which the mint price is 5% above the bank price. The azeo of 5% therefore which he commonly pays for it is paid not for an imaginary but for a real value. The owner of bank money when he purchases a receipt purchases the power of taking out a quantity of bullion of which the market price is commonly from 2% to 3% above the mint price. The price which he pays for it therefore is paid likewise for a real value. The price of the receipt and the price of the bank money compound or make up between them the full value or price of the bullion. Upon deposits of the coin current in the country the bank grants receipts likewise as well as bank credits but those receipts are frequently of no value and will bring no price in the market. Upon Ducatunes for example which in the currency pass for three guilders three stivers each the bank gives a credit of three guilders only or 5% below their current value. It grants a receipt likewise entitling the bearer to take out the number of Ducatunes deposited at any time within six months upon paying 1 fourth percent for the keeping. This receipt will frequently bring no price in the market. Three guilders bank money generally sell in the market for three guilders three stivers the full value of the Ducatunes if they were taken out of the bank and before they can be taken out one fourth percent must be paid for the keeping which would be mere loss to the holder of the receipt. If the audio of the bank however should at any time fall to 3% such receipts might bring some price in the market and might sell for one and three fourths percent. But the audio of the bank being now generally about 5% such receipts are frequently allowed to expire or as they express it to fall to the bank. The receipts which are given for deposits of gold Ducats fall to it yet more frequently because a higher warehouse rent or one half percent must be paid for the keeping of them before they can be taken out again. The 5% which the bank gains when deposits either of coin or bullion are allowed to fall to it may be considered as the warehouse rent for the perpetual keeping of such deposits. The sum of bank money for which the receipts are expired must be very considerable. It must comprehend the whole original capital of the bank which it is generally supposed has been allowed to remain there from the time it was first deposited nobody carrying either to renew his receipt or to take out his deposit as for the reasons already assigned neither the one nor the other could be done without loss. But whatever may be the amount of this sum the proportion which it bears to the whole mass of bank money is supposed to be very small. The Bank of Amsterdam has for these many years past been the great warehouse of Europe for bullion for which the receipts are very seldom allowed to expire or as they express it to fall to the bank. The far greater part of the bank money or of the credits upon the books of the bank is supposed to have been created for these many years past by such deposits which the dealers in bullion are continually both making and withdrawing. No demand can be made upon the bank but by means of a recipes or receipt. The smaller mass of bank money for which the receipts are expired is mixed and confounded with the much greater mass for which they are still in force so that though there may be a considerable sum of bank money for which there are no receipts there is no specific sum or portion of it which may not at any time be demanded by one. The bank cannot be debtor to two persons for the same thing and the owner of bank money who has no receipt cannot demand payment of the bank till he buys one. In ordinary and quiet times he can find no difficulty in getting one to buy at the market price which generally corresponds with the price at which he can sell the coin or bullion it entitles him to take out of the bank. It might be otherwise during a public calamity an invasion for example such as that of the French in 1672. The owners of bank money being then all eager to draw it out of the bank in order to have it in their own keeping the demand for receipts might raise their price to an exorbitant height. The holders of them might form extravagant expectations and instead of two or 3% demand half the bank money for which credit had been given upon the deposits that the receipts had respectively been granted for. The enemy and formed of the constitution of the bank might even buy them up in order to prevent the carrying away of the treasure. In such emergencies the bank it is supposed would break through its ordinary rule of making payment only to the holders of receipts. The holders of receipts who had no bank money must have received within two or 3% of the value of the deposit for which their respective receipts had been granted. The bank therefore it is said would in this case make no scruple of paying either with money or bullion the full value of what the owners of bank money who could get no receipts or credited for in its books. Paying at the same time two or 3% to such holders of receipts has had no bank money that being the whole value which in this state of things could justly be supposed to do them. Even in the ordinary and quiet times it is the interest of the holders of receipts to depress the agio in order either to buy bank money and consequently the bullion which their receipts would then enable them to take out of the bank so much cheaper or to sell their receipts to those who have bank money and who want to take out bullion so much dearer. The price of a receipt being generally equal to the difference between the market price of bank money and that of the coin or bullion for which the receipt had been granted. It is the interest of the owners of bank money on the contrary to raise the agio in order either to sell the bank money so much dearer or to buy a receipt so much cheaper. To prevent the stock-jobbing tricks which those opposite interests might sometimes occasion the bank has of late years come to the resolution to sell at all times bank money for currency at 5% agio and to buy it again at 4% agio. In consequence of this resolution the agio can never either rise above 5 or sink below 4% and the proportion between the market price of bank and that of current money is kept at all times very near the proportion between their intrinsic values. Before this resolution was taken the market price of bank money used sometimes to rise so high as 9% agio and sometimes to sink so low as par according as opposite interests happen to influence the market. The Bank of Amsterdam professes to lend out no part of what is deposited with it but for every gilder for which it gives credit and its books to keep in its repositories the value of a gilder either in money or bullion. That it keeps in its repositories all the money or bullion for which there are receipts and force for which it is at all times liable to be called upon and which in reality is continually going from it and returning to it again cannot well be doubted. But whether it does so likewise with regard to that part of its capital for which the receipts are long ago expired for which in ordinary and quiet times it cannot be called upon and which in reality is very likely to remain with it forever or as long as the States of the United Provinces subsist may perhaps appear more uncertain. At Amsterdam however no point of faith is better established than that for every gilder circulated as bank money there is a correspondent gilder in gold or silver to be found in the treasures of the bank. The city is guaranteed that it should be so. The bank is under the direction of the four reigning burglemasters who are changed every year. Each new set of burglemasters visits the treasure, compares it with the books, receives it upon oath and delivers it over with the same awful solemnity to the set which succeeds. And in that sober and religious country oaths are not yet disregarded. A rotation of this kind seems alone a sufficient security against any practices which cannot be avowed. Amidst all the revolutions which faction has ever occasioned in the government of Amsterdam the prevailing party has at no time accused their predecessors of infidelity in the administration of the bank. No accusation could have affected more deeply the reputation and fortune of the disgraced party. And if such an accusation could have been supported we may be assured that it would have been brought. In 1672 when the French king was at Utrecht the bank of Amsterdam paid so readily as left no doubt of the fidelity with which it had observed its engagements. Some of the pieces which were then brought from its repositories appear to have been scorched with the fire which happened in the townhouse soon after the bank was established. Those pieces therefore must have lain there from that time. What may be the amount of the treasure in the bank is a question which has long employed the speculations of the curious. Nothing but conjecture can be offered concerning it. It is generally reckoned that there are about 2,000 people who keep accounts with the bank and allowing them to have one with another the value of 1,500 pound sterling lying upon their respective accounts a very large allowance. The whole quantity of bank money and consequently of treasure in the bank will amount to about 3 million pound sterling or at 11 guilders the pound sterling 33 million of guilders. A great sum and sufficient to carry on a very extensive circulation but vastly below the extravagant ideas which some people have formed of this treasure. The city of Amsterdam derives a considerable revenue from the bank. Besides what may be called the warehouse rent above mentioned each person upon first opening an account with the bank pays a fee of 10 guilders and for every new account three guilders, three stevers. For every transfer, two stevers. And if the transfer is for less than 300 guilders six stevers in order to discourage the multiplicity of small transactions. The person who orders a transfer from more than is upon his account is obliged to pay 3% for the sum overdrawn and his order is set aside into the bargain. The bank is supposed to, to make a considerable profit by the sale of the foreign coin or bullion which sometimes falls to it by the expiring of receipts and which is always kept till it can be sold with advantage. It makes a profit likewise by selling bank money at 5% azio and buying it in at four. These different emoluments amount to a good deal more than what is necessary for paying the salaries of officers and defraying the expense of management. What is paid for the keeping of bullion upon receipts is a loan supposed to amount to a neat annual revenue of between 150,000 and 200,000 guilders. Public utility however and not revenue was the original object of this institution. Its object was to relieve the merchants from the inconvenience of a disadvantageous exchange. The revenue which has arisen from it was unforeseen and may be considered accidental but it is now time to return from this long digression into which I have been insensibly led in endeavoring to explain the reasons why the exchange between the countries which pay in what is called bank money and those which pay in common currency should generally appear to be in favor of the former and against the latter. The former pay in a species of money of which the intrinsic value is always the same and exactly agreeable to the standard of their respective mints. The latter is a species of money of which the intrinsic value is continually varying and there's almost always more or less below that standard. End of book four, chapter three, part A. Chapter three, part B of the Wealth of Nations book four. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith. Book four, chapter three, part B. 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. Part two, of the unreasonableness of those extraordinary restraints upon other principles. In the foregoing part of this chapter, I have endeavored to show, even upon the principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous. Nothing, however, can be more absurd than this whole doctrine of the balance of trade upon which not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that if the balance be even, neither of them either loses or gains. But if it leans in any degree to one side that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade, which is forced by means of bounties and monopolies, may be and commonly is disadvantageous to the country in whose favor it is meant to be established, as I shall endeavor to show hereafter. But that trade, which without force or constraint is naturally and regularly carried on between any two places is always advantageous, though not always equally so to both. By advantage or gain, I understand not the increase of the quantity of gold and silver, but that of the exchangeable value of the annual produce of the land and labor of the country, or the increase of the annual revenue of its inhabitants. If the balance be even, and if the trade between the two places consists altogether in the exchange of their native commodities, they will upon most occasions not only both gain, but they will gain equally or very nearly equally. Each will in this case afford a market for a part of the surplus produce of the other. Each will replace a capital which had been employed in raising and preparing for the market, this part of the surplus produce of the other, and which had been distributed among and given revenue and maintenance to a certain number of its inhabitants. Some part of the inhabitants of each therefore will directly derive their revenue and maintenance from the other. As the commodities exchanged to are supposed to be of equal value, so the two capitals employed in the trade will upon most occasions be equal or very nearly equal, and both being employed in raising the native commodities of the two countries, the revenue and maintenance which their distribution will afford to the inhabitants of each will be equal or very nearly equal. This revenue and maintenance thus mutually afforded will be greater or smaller in proportion to the extent of their dealings. If these should annually amount to 100,000 pounds for example, or to one million pounds on each side, each of them will afford an annual revenue in the one case of 100,000 pounds and in the other of one million pounds to the inhabitants of the other. If their trade should be of such a nature that one of them exported to the other nothing but native commodities, while the returns of that other consisted altogether in foreign goods, the balance in this case would still be supposed even, commodities being paid for with commodities. They would in this case too, both gain, but they would not gain equally. And the inhabitants of the country which exported nothing but native commodities would derive the greatest revenue from the trade. If England for example, should import from France nothing but the native commodities of that country and not having such commodities of its own as were in demand there, should annually repay them by sending further a large quantity of foreign goods, tobacco we shall suppose, and East India goods, this trade though it would give some revenue to the inhabitants of both countries, would give more to those of France than to those of England. The whole French capital annually employed in it would annually be distributed among the people of France. But that part of the English capital only which was employed in producing the English commodities with which those foreign goods were purchased would be annually distributed among the people of England. The greater part of it would replace the capitals which had been employed in Virginia, India, and China in which had given revenue and maintenance to the inhabitants of those distant countries. If the capitals were equal or nearly equal therefore this employment of the French capital would augment much more the revenue of the people of France than that of the English capital would the revenue of the people of England. France would in this case carry on a direct foreign trade of consumption with England. Whereas England would carry on a roundabout trade of the same kind with France. The different effects of a capital employed in the direct and of one employed in the roundabout foreign trade of consumption have already been fully explained. There is not probably between any two countries a trade which consists altogether in the exchange either of native commodities on both sides or of native commodities on one side and of foreign goods on the other. Almost all countries exchange with one another partly native and partly foreign goods. That country however in whose cargoes there is the greatest proportion of native and the least of foreign goods will always be the principal gainer. If it was not with tobacco and East India goods but with gold and silver that England paid for the commodities annually imported from France the balance in this case would be supposed uneven commodities not being paid for with commodities but with gold and silver. The trade however would in this case as in the foregoing give some revenue to the inhabitants of both countries but more to those of France than to those of England. It would give some revenue to those of England. The capital which had been employed in producing the English goods that purchased this gold and silver the capital which had been distributed among and given revenue to certain inhabitants of England would thereby be replaced and enabled to continue that employment. The whole capital of England would no more be diminished by this exportation of gold and silver than by the exportation of an equal value of any other goods. On the contrary it would in most cases be augmented. No goods are sent abroad but those for which the demand is supposed to be greater abroad than at home and of which the returns consequently it is expected will be of more value at home than the commodities exported. If the tobacco which in England is worth only 100,000 pounds when sent to France will purchase wine which is in England worth 110,000 pounds the exchange will augment the capital of England by 10,000 pounds. If 100,000 pounds of English gold in the same manner purchase French wine which in England is worth 110,000 pounds this exchange will equally augment the capital of England by 10,000 pounds. As a merchant who has 110,000 pounds worth of wine in his cellar is a richer man than he who has only 100,000 pounds worth of tobacco in his warehouse so is he likewise a richer man than he who has only 100,000 pounds worth of gold in his coffers. He can put into motion a greater quantity of industry and give revenue, maintenance and employment to a greater number of people than either of the other two. But the capital of the country is equal to the capital of all its different inhabitants and the quantity of industry which can be annually maintained in it is equal to what all those different capitals can maintain. Both the capital of the country therefore and the quantity of industry which can be annually maintained in it must generally be augmented by this exchange. It would indeed be more advantageous for England that it could purchase the wines of France with its own hardware and broad cloth then with either the tobacco of Virginia or the gold and silver of Brazil and Peru. A direct foreign trade of consumption is always more advantageous than a roundabout one. But a roundabout foreign trade of consumption which is carried on with gold and silver does not seem to be less advantageous than any other equally roundabout one. Neither is a country which has no mines more likely to be exhausted of gold and silver by this annual exportation of those metals than one which does not grow tobacco by the like annual exportation of that plant. As a country which has wherewithal to buy tobacco will never be long in want of it so neither will one be long in want of gold and silver which has wherewithal to purchase those metals. It is a losing trade, it is said which a workman carries on with the alehouse and the trade which a manufacturing nation would naturally carry on with the wine country may be considered as a trade of the same nature. I answer that the trade with the alehouse is not necessarily a losing trade. In its own nature it is just as advantageous as any other though perhaps somewhat more liable to be abused. The employment of a brewer and even that of a retailer of fermented liquors are as necessary divisions of labor as any other. It will generally be more advantageous for a workman to buy of the brewer the quantity he has occasion for than to brew it himself and if he is a poor workman it will generally be more advantageous for him to buy it by little and little of the retailer than a large quantity of the brewer. He may no doubt buy too much of either as he may of any other dealers in his neighborhood of the butcher if he is a glutton or of the draper if he affects to be a beau among his companions. It is advantageous to the great body of workman notwithstanding that all these trades should be free though this freedom may be abused in all of them and is more likely to be so perhaps and some than in others. Though individuals besides may sometimes ruin their fortunes by an excessive consumption of fermented liquors there seems to be no risk that a nation should do so. Though in every country there are many people who spend upon such liquors more than they can afford there are always many more who spend less. It deserves to be remarked too that if we consult experience the cheapness of wine seems to be a cause not of drunkenness but of sobriety. The inhabitants of the wine countries are in general the soberest people of Europe witness the Spaniards, the Italians and the inhabitants of the southern provinces of France. People are seldom guilty of excess in what is their daily fare. Nobody affects the character of liberality and good fellowship by being profuse of a liquor which is as cheap as small beer. On the contrary in the countries which either from excessive heat or cold produce no grapes and where wine consequently is dear and a rarity drunkenness is a common vice as among the northern nations and all those who live between the tropics the Negroes for example on the coast of Guinea. When a French regiment comes from some of the northern provinces of France where wine is somewhat dear to be quartered in the southern where it is very cheap the soldiers I have frequently heard it observed are at first debauched by the cheapness and novelty of good wine. But after a few months resonance the greater part of them become as sober as the rest of the inhabitants. Were the duties upon foreign wines and the excises upon malt, beer and ale to be taken away all at once it might in the same manner occasion in Great Britain a pretty general and temporary drunkenness among the middling and inferior ranks of people which would probably be soon followed by a permanent and almost universal sobriety. At present drunkenness is by no means the vice of people of fashion or of those who can easily afford the most expensive liquors. A gentleman drunk with ale has scarce ever been seen among us. The restraints upon the wine trade in Great Britain besides do not so much seem calculated to hinder the people from going if I may say so, to the alehouse as from going where they can buy the best and cheapest liquor. They favor the wine trade of Portugal and discourage that of France. The Portuguese it is said indeed are better customers for our manufacturers than the French and should therefore be encouraged in preference to them. As they give us their custom it is pretended we should give them ours. The sneaking arts of underling tradesmen are thus erected into political maxims for the conduct of a great empire for it is the most underling tradesmen only who make it a rule to employ chiefly their own customers. A great trader purchases his goods always where they are cheapest and best without regard to any little interest of this kind. By such maxims as these however nations have been taught that their interest consisted in beggaring all their neighbors. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades and to consider their gain as its own loss. Commerce which ought naturally to be among nations as among individuals a bond of union and friendship has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not during the present and the preceding century been more fatal to the repose of Europe than the impertinent jealousy of merchants and manufacturers. The violence and injustice of the rulers of mankind is an ancient evil for which I'm afraid the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers who neither are nor ought to be the rulers of mankind though it cannot perhaps be corrected may very easily be prevented from disturbing the tranquility of anybody but themselves. That it was the spirit of monopoly which originally both invented and propagated this doctrine cannot be doubted and those who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it nor could it ever have been called in question had not the interest of sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is in this respect directly opposite to that of the great body of the people as it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves. So it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. Hence in Great Britain and in most other European countries the extraordinary duties upon almost all goods imported by alien merchants. Hence in Great Britain and in most other European countries the extraordinary duties upon almost all goods imported by alien merchants. Hence the high duties and prohibitions upon all those foreign manufacturers which can come into competition with our own. Hence too the extraordinary restraints upon the importation of almost all sorts of goods from those countries with which the balance of trade is supposed to be disadvantageous. That is from those against whom national animosity happens to be most violently inflamed. The wealth of neighboring nations however though dangerous in war and politics is certainly advantageous in trade. In a state of hostility it may enable our enemies to maintain fleets and armies superior to our own. But in a state of peace and commerce it must likewise enable them to exchange with us to a greater value and to afford a better market either for the immediate produce of our own industry or for whatever is purchased with that produce. As a rich man is likely to be a better customer to the industrious people and his neighborhood that are poor so is likewise a rich nation. A rich man indeed who is himself a manufacturer is a very dangerous neighbor to all those who deal in the same way. All the rest of the neighborhood however by far the greatest number profit by the good market which his expense affords them. They even profit by his underselling the poorer workmen who deal in the same way with him. The manufacturers of a rich nation in the same manner may no doubt be very dangerous rivals to those of their neighbors. This very competition however is advantageous to the great body of the people who profit greatly besides by the good market which the great expense of such a nation affords them in every other way. Private people who want to make a fortune never think of retiring to the remote and poor provinces of the country but resort either to the capital or to some of the great commercial towns. They know that where little wealth circulates there is little to be got but that where a great deal is in motion some share of it may fall to them. The same maxim which would in this manner direct the common sense of one or 10 or 20 individuals should regulate the judgment of one or 10 or 20 millions and should make a whole nation regard the riches of its neighbors as a probable cause and occasion for itself to acquire riches. A nation that would enrich itself by foreign trade is certainly most likely to do so when its neighbors are all rich, industrious and commercial nations. A great nation surrounded on all sides by wandering savages and poor barbarians might no doubt acquire riches by the cultivation of its own lands and by its own interior commerce but not by foreign trade. It seems to have been in this manner that the ancient Egyptians and the modern Chinese acquired their great wealth. The ancient Egyptians it is said neglected foreign commerce and the modern Chinese it is known hold it in the utmost contempt and scarce day to afford it the decent protection of the laws. The modern maxims of foreign commerce by aiming at the impoverishment of all our neighbors so far as they are capable of producing their intended effect tend to render that very commerce insignificant and contemptible. It is in consequence of these maxims that the commerce between France and England has in both countries been subjected to so many discouragements and restraints. If those two countries however were to consider their real interest without either mercantile jealousy or national animosity the commerce of France might be more advantageous to Great Britain than that of any other country and for the same reason that of Great Britain to France. France is the nearest neighbor to Great Britain. In the trade between the southern coast of England and the northern and northwest coast of France the returns might be expected in the same manner as in the inland trade four, five or six times in the year. The capital therefore employed in this trade could in each of the two countries keep in motion four, five or six times the quantity of industry and afford employment and subsistence to four, five or six times the number of people which all equal capital could do in the greater part of the other branches of foreign trade. Between the parts of France and Great Britain most remote from one another the returns might be expected at least once in the year and even this trade would so far be at least equally advantageous as the greater part of the other branches of our foreign European trade. It would be at least three times more advantageous than the boasted trade with our North American colonies in which the returns were seldom made in less than three years frequently not in less than four or five years. France besides is supposed to contain 24 million of inhabitants. Our North American colonies were never supposed to contain more than three million and France is a much richer country than North America. Though on account of the more unequal distribution of riches there is more poverty and beggary in the one country than in the other. France therefore could afford a market at least eight times more extensive and on account of the superior frequency of the returns four and 20 times more advantageous than that which our North American colonies ever afforded. The trade of Great Britain would be just as advantageous to France and in proportion to the wealth, population and proximity of the respective countries would have the same superiority over that which France carries on with her own colonies. Such is the very great difference between that trade which the wisdom of both nations has thought proper to discourage and that which it has favored the most. But the very same circumstances which would have rendered an open and free commerce between the two countries so advantageous to both have occasioned the principal obstructions to that commerce. Being neighbors they are necessarily enemies and the wealth and power of each becomes upon that account more formidable to the other and what would increase the advantage of national friendship serves only to inflame the violence of national animosity. They are both rich and industrious nations and the merchants and manufacturers of each dread the competition of the skill and activity of those of the other. Mercantile jealousy is excited and both inflames and is itself inflamed by the violence of national animosity and the traders of both countries have announced with all the passionate confidence of interested falsehood the certain ruin of each and consequence of that unfavorable balance of trade which they pretend would be the infallible effect of an unrestrained commerce with the other. There is no commercial country in Europe of which the approaching ruin has not frequently been foretold by the pretended doctors of this system from all unfavorable balance of trade. After all the anxiety however which they have excited about this after all the vain attempts of almost all trading nations to turn that balance in their own favor and against their neighbors it does not appear that any one nation in Europe has been in any respect impoverished by this cause. Every town and country on the contrary in proportion as they have opened their ports to all nations instead of being ruined by this free trade as the principles of the commercial system would lead us to expect have been enriched by it. Though there are in Europe indeed a few towns which in some respects deserve the name of free ports there is no country which does so. Holland perhaps approaches the nearest to this character of any though still very remote from it and Holland it is acknowledged not only derives its whole wealth but a great part of its necessary subsistence from foreign trade. There is another balance indeed which has already been explained very different from the balance of trade and which accordingly as it happens to be either favorable or unfavorable necessarily occasions the prosperity or decay of every nation. This is the balance of the annual produce and consumption. If the exchangeable value of the annual produce it has already been observed exceeds that of the annual consumption the capital of the society must annually increase in proportion to this excess. The society in this case lives within its revenue and what is annually saved out of its revenue is naturally added to its capital and employed so as to increase still further the annual produce. If the exchangeable value of the annual produce on the contrary falls short of the annual consumption the capital of the society must annually decay in proportion to this deficiency. The expense of the society in this case exceeds its revenue and necessarily encroaches upon its capital. Its capital therefore must necessarily decay and together with it the exchangeable value of the annual produce of its industry. This balance of produce and consumption is entirely different from what is called the balance of trade. It might take place in a nation which had no foreign trade but which was entirely separated from all the world. It may take place in the whole globe of the earth of which the wealth, population and improvement may be either gradually increasing or gradually decaying. The balance of produce and consumption may be constantly in favor of a nation though what is called the balance of trade be generally against it. A nation may import to a greater value than it exports for half a century perhaps together. The gold and silver which comes into it during all this time may be all immediately sent out of it. Its circulating coin may gradually decay. Different sorts of paper money mean substituted in its place and even the debts too which it contracts in the principal nations with whom it deals may be gradually increasing. And yet its real wealth, the exchangeable value of the annual produce of its lands and labor may during the same period have been increasing in a much greater proportion. The state of our North American colonies and of the trade which they carried on with Great Britain before the commencement of the present disturbances may serve as a proof that this is by no means an impossible supposition. End of book four, chapter three, part B. Chapter four of the Wealth of Nations, book four. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith. Book four, chapter four of Drawbacks. Merchants and manufacturers are not contented with the monopoly of the home market but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations and therefore can seldom procure them any monopoly there. They are generally obliged therefore to content themselves with petitioning for certain encouragements to exportation. Of these encouragements, what are called drawbacks seem to be the most reasonable. To allow the merchant to draw back upon exportation either the whole or a part of whatever excise or inland duty is imposed upon domestic industry can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed. Such encouragements do not tend to turn towards any particular employment a greater share of the capital of the country than what would go to that employment of its own accord but only to hinder the duty from driving away any part of that share to other employment. They tend not to overturn that balance which naturally establishes itself among all the various employments of the society but to hinder it from being overturned by the duty. They tend not to destroy but to preserve what it is in most cases advantageous to preserve the natural division and distribution of labor in the society. The same thing may be said of the drawbacks upon the re-exportation of foreign goods imported which in Great Britain generally amount to by much the largest part of the duty upon importation. By the second of the rules annexed to the act of parliament which imposed what is now called the old subsidy every merchant whether English or alien was allowed to draw back half that duty upon exportation. The English merchant provided the exportation took place within 12 months the alien provided it took place within nine months. Wines, currents and wrought silks were the only goods which did not fall within this rule having other and more advantageous allowances. The duties imposed by this act of parliament were at that time the only duties upon the importation of foreign goods. The term within which this and all other drawbacks could be claimed was afterwards extended to three years. The duties which have been imposed since the old subsidy are the greater part of them wholly drawn back upon exportation. This general rule however is liable to a great number of exceptions and the doctrine of drawbacks has become a much less simple matter than it was at their first institution. Upon the exportation of some foreign goods of which it was expected that the importation would greatly exceed what was necessary for the home consumption. The whole duties are drawn back without retaining even half the old subsidy. Before the revolt of our North American colonies we had the monopoly of the tobacco of Maryland and Virginia. We imported about 96,000 hogsheads and the home consumption was not supposed to exceed 14,000. To facilitate the great exportation which was necessary in order to rid us of the rest the whole duties were drawn back provided the exportation took place within three years. We still have though not altogether yet very nearly the monopoly of the sugars of our West Indian islands. If sugars are exported within a year therefore all the duties upon importation are drawn back and if exported within three years all the duties except half the old subsidy which still continues to be retained upon the exportation of the greater part of goods. Though the importation of sugar exceeds a good deal what is necessary for the home consumption the excess is inconsiderable in comparison of what it used to be in tobacco. Some goods the particular objects of the jealousy of our own manufacturers are prohibited to be imported for home consumption. They may however upon paying certain duties be imported and warehoused for exportation. But upon such exportation no part of these duties is drawn back. Our manufacturers are unwilling it seems that even this restricted importation should be encouraged and are afraid lest some part of these goods should be stolen out of the warehouse and thus come into competition with their own. It is under these regulations only that we can import wrought silks, French cambricks and lawns, calicoes, painted, printed, stained or dyed, et cetera. We are unwilling even to be the carriers of French goods and choose rather to forgo a profit to ourselves than to suffer those whom we consider as our enemies to make any profit by our means. Not only half the old subsidy but the second 25% is retained upon the exportation of all French goods. By the fourth of the rules annexed to the old subsidy the drawback allowed upon the exportation of all wines amounted to a great deal more than half the duties which were at that time paid upon the importation. And it seems at that time to have been the object of the legislature to give somewhat more than ordinary encouragement to the carrying trade in wine. Several of the other duties too which were imposed either at the same time or subsequent to the old subsidy what is called the additional duty, the new subsidy, the one third and two third subsidy, the impost 1692, the tonnage on wine were allowed to be wholly drawn back upon exportation. All those duties however accept the additional duty and impost 1692 being paid down in ready money upon importation. The interest of so large a sum occasioned an expense which made it unreasonable to expect any profitable carrying trade in this article. Only a part therefore of the duty called the impost on wine and no part of the 25 pounds the ton upon French wines or of the duties imposed in 1745 in 1763 and in 1778 were allowed to be drawn back upon exportation. The two imposts of 5% imposed in 1779 and 1781 upon all the former duties of customs being allowed to be wholly drawn back upon the exportation of all other goods were likewise allowed to be drawn back upon that of wine. The last duty that has been particularly imposed upon wine that of 1780 is allowed to be wholly drawn back and indulgence which when so many heavy duties are retained most probably it could never occasion the exportation of a single ton of wine. These rules took place with regard to all places of lawful exportation except the British colonies in America. The 15th of Charles II chapter 7 called an act for the encouragement of trade had given Great Britain the monopoly of supplying the colonies with all the commodities of the growth or manufacture of Europe and consequently with wines. In a country of so extensive a coast as our North American and West Indian colonies where our authority was always so very slender and where the inhabitants were allowed to carry out in their own ships their non enumerated commodities at first to all parts of Europe and afterwards to all parts of Europe south of Cape Finastera it is not very probable that this monopoly could ever be much respected and they probably at all times found means of bringing back some cargo from the countries to which they were allowed to carry out one. They seem however to have found some difficulty in importing European wines from the places of their growth and they could not well import them from Great Britain where they were loaded with many heavy duties of which a considerable part was not drawn back upon exportation. Madeiro wine not being a European commodity could be imported directly into America and the West Indies countries which in all their non enumerated commodities enjoyed a free trade to the island of Madeira. These circumstances had probably introduced that general taste for Madeiro wine which our officers found established in all our colonies at the commencement of the war which began in 1755 and which they brought back with them to the mother country where that wine had not been much in fashion before. Upon the conclusion of that war in 1763 all the duties except three pound, 10 shillings were allowed to be drawn back upon the exportation to the colonies of all wines except French wines to the commerce and consumption of which national prejudice would allow no sort of encouragement. The period between the granting of this indulgence and the revolt of our North American colonies was probably too short to admit of any considerable change in the customs of those countries. The same act which in the drawbacks upon all wines except French wines thus favored the colonies so much more than other countries and those upon the greater part of other commodities favored them much less. Upon the exportation of the greater part of commodities to other countries half the old subsidy was drawn back. But this law enacted that no part of that duty should be drawn back upon the exportation to the colonies of any commodities of the growth or manufacture either of Europe or the East Indies except wines, white calicoes, and Muslims. Drawbacks were perhaps originally granted for the encouragement of the carrying trade which as the freight of the ship is frequently paid by foreigners and money was supposed to be peculiarly fitted for bringing gold and silver into the country. But though the carrying trade certainly deserves no peculiar encouragement, though the motive of the institution was perhaps abundantly foolish, the institution itself seems reasonable enough. Such drawbacks cannot force into this trade a greater share of the capital of the country than what would have gone to it of its own accord had there been no duties upon importation. They only prevent its being excluded altogether by those duties. The carrying trade though it deserves no preference ought not to be precluded but to be left free like all other trades. It is a necessary resource to those capitals which cannot find employment either in the agriculture or in the manufacturers of the country either in its home trade or in its foreign trade of consumption. The revenue of the customs instead of suffering profits from such drawbacks by that part of the duty which is retained. If the whole duties had been retained the foreign goods upon which they were paid could seldom have been exported nor consequently imported for want of a market. The duties therefore of which a part is retained would never have been paid. These reasons seem sufficiently to justify drawbacks and would justify them though the whole duties whether upon the produce of domestic industry or upon foreign goods were always drawn back upon exportation. The revenue of excise would in this case indeed suffer a little and that of the customs a good deal more. But the natural balance of industry the natural division and distribution of labor which is always more or less disturbed by such duties would be more nearly reestablished by such a regulation. These reasons however will justify drawbacks only upon exporting goods to those countries which are altogether foreign and independent not to those in which our merchants and manufacturers enjoy a monopoly. A drawback for example upon the exportation of European goods to our American colonies will not always occasion a greater exportation than what would have taken place without it. By means of the monopoly which our merchants and manufacturers enjoy there the same quantity might frequently perhaps be sent thither though the whole duties were retained. The drawback therefore may frequently be pure loss to the revenue of excise and customs without altering the state of the trade or rendering it in any respect more extensive. How far such drawbacks can be justified as a proper encouragement to the industry of our colonies or how far it is advantageous to the mother country that they should be exempted from taxes which are paid by all the rest of their fellow subjects will appear hereafter when I come to treat of colonies. Drawbacks however it must always be understood are useful only in those cases in which the goods for the exportation of which they are given are really exported to some foreign country and not clandestinely re-imported into our own. That some drawbacks particularly those upon tobacco have frequently been abused in this manner and have given occasion to many frauds equally hurtful both to the revenue and to the fair trader is well known. End of book four chapter four. Chapter five part A of the wealth of nations book four. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org. Recording by Stephen Escalara. The Wealth of Nations by Adam Smith. Book four chapter five part A of Bounties. Bounties upon exportation are in Great Britain frequently petitioned for and sometimes granted to the produce of particular branches of domestic industry. By means of them our merchants and manufacturers it is pretended will be enabled to sell their goods as cheap or cheaper than their rivals in the foreign market. A greater quantity it is said will thus be exported and the balance of trade consequently turned more in favor of our own country. We cannot give our workmen a monopoly in the foreign as we have done in the home market. We cannot force foreigners to buy their goods as we have done our own countrymen. The next best expedient it has been thought therefore is to pay them for buying. It is in this manner that the mercantile system proposes to enrich the whole country and to put money into all our pockets by means of the balance of trade. Bounties it is allowed ought to be given to those branches of trade only which cannot be carried on without them. But every branch of trade in which the merchant can sell his goods for a price which replaces to him with the ordinary profits of stock, the whole capital employed in preparing and sending them to market can be carried on without a bounty. Every such branch is evidently upon a level with all the other branches of trade which are carried on without bounties and cannot therefore require one more than they. Those trades only require bounties in which the merchant is obliged to sell his goods for a price which does not replace to him his capital together with the ordinary profit or in which he is obliged to sell them for less than it really cost him to send them to market. The bounty is given in order to make up this loss and to encourage him to continue or perhaps to begin a trade of which the expense is supposed to be greater than the returns, of which every operation eats up a part of the capital employed in it and which is of such a nature that if all other trades resembled it there would soon be no capital left in the country. The trades it is to be observed which are carried on by means of bounties are the only ones which can be carried on between two nations for any considerable time together in such a manner as that one of them shall always and regularly lose or sell its goods for less than it really cost to send them to market. But if the bounty did not repay to the merchant what he would otherwise lose upon the price of his goods his own interest would soon oblige him to employ his stock in another way or to find out a trade in which the price of the goods would replace to him with the ordinary profit the capital employed in sending them to market. The effect of bounties like that of all the other expedients of the mercantile system can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord. The ingenious and well-informed author of The Tracks Upon the Corn Trade has shown very clearly that since the bounty upon the exportation of corn was first established the price of the corn exported, valued moderately enough has exceeded that of the corn imported, valued very high by a much greater sum than the amount of the whole bounties which have been paid during that period. This he imagines upon the true principles of the mercantile system is a clear proof that this forced corn trade is beneficial to the nation the value of the exportation exceeding that of the importation by a much greater sum than the whole extraordinary expense which the public has been at in order to get it exported. He does not consider that this extraordinary expense or the bounty is the smallest part of the expense which the exportation of corn really cost the society. The capital which the farmer employed in raising it must likewise be taken into the account. Unless the price of the corn when sold in the foreign markets replaces not only the bounty but this capital together with the ordinary profits of stock the society is a loser by the difference or the national stock is so much diminished. But the very reason for which it has been thought necessary to grant a bounty is the supposed insufficiency of the price to do this. The average price of corn it has been said has fallen considerably since the establishment of the bounty that the average price of corn began to fall somewhat towards the end of the last century and has continued to do so during the course of the sixty-four first years of the present I have already endeavored to show. But this event supposing it to be real as I believe it to be must have happened in spite of the bounty and cannot possibly have happened in consequence of it. It has happened in France as well as in England. Though in France there was not only no bounty but till 1764 the exportation of corn was subjected to a general prohibition. This gradual fall in the average price of grain it is probable therefore is ultimately owing neither to the one regulation nor to the other but to that gradual and insensible rise in the real value of silver which in the first book of this discourse I have endeavored to show has taken place in the general market of Europe during the course of the present century. It seems to be altogether impossible that the bounty could ever contribute to lower the price of grain. In years of plenty it has already been observed the bounty by occasioning an extraordinary exportation necessarily keeps up the price of corn in the home market above what it would naturally fall to. To do so was the avowed purpose of the institution. In years of scarcity though the bounty is frequently suspended yet the great exportation which it occasions in years of plenty must frequently hinder more or less the plenty of one year from relieving the scarcity of another. Both in years of plenty and in years of scarcity therefore the bounty necessarily tends to raise the money price of corn somewhat higher than it otherwise would be in the home market. That in the actual state of tillage the bounty must necessarily have this tendency will not I apprehend be disputed by any reasonable person. But it has been thought by many people that it tends to encourage tillage and that in two different ways. First by opening a more extensive foreign market to the corn of the farmer it tends they imagine to increase the demand for and consequently the production of that commodity. And secondly by securing to him a better price than he could otherwise expect in the actual state of tillage it tends they suppose to encourage tillage. This double encouragement must they imagine in a long period of years occasion such an increase in the production of corn as may lower its price in the home market much more than the bounty can raise it in the actual state which tillage may at the end of that period happen to be in. I answer that whatever extension of the foreign market can be occasioned by the bounty must in every particular year be altogether at the expense of the home market. As every bushel of corn which is exported by means of the bounty and which would not have been exported without the bounty would have remained in the home market to increase the consumption and to lower the price of that commodity. The corn bounty it is to be observed as well as every other bounty upon exportation imposes two different taxes upon the people. First the tax which they are obliged to contribute in order to pay the bounty. And secondly the tax which arises from the advanced price of the commodity in the home market and which as the whole body of the people are purchasers of corn must in this particular commodity be paid by the whole body of the people. In this particular commodity therefore this second tax is by much the heaviest of the two. Let us suppose that taking one year with another the bounty of five shillings upon the exportation of the quarter of wheat raises the price of that commodity in the home market only six pints the bushel or four shillings the quarter higher than it otherwise would have been in the actual state of the crop. Even upon this very moderate supposition the great body of the people over and above contributing the tax which pays the bounty of five shillings upon every quarter of wheat exported must pay another of four shillings upon every quarter which they themselves consume. But according to the very well informed author of the tracks upon the corn trade the average proportion of the corn exported to that consumed at home is not more than that of one to thirty one. For every five shillings therefore which they contribute to the payment of the first tax they must contribute six pounds four shillings to the payment of the second. So very heavy a tax upon the first necessary of life must either reduce the subsistence of the laboring poor or it must occasion some augmentation of their pecuniary wages proportionable to that in the pecuniary price of their subsistence. So far as it operates in the one way it must reduce the ability of the laboring poor to educate and bring up their children and must so far tend to restrain the population of the country. So far as it operates in the other it must reduce the ability of the employers of the poor to employ so great a number as they otherwise might do and must so far tend to restrain the industry of the country. The extraordinary exportation of corn therefore occasioned by the bounty not only in every particular year diminishes the home just as much as it extends the foreign market and consumption but by restraining the population and industry of the country its final tendency is to stint and restrain the gradual extension of the home market and thereby in the long run rather to diminish than to augment the whole market and consumption of corn. This enhancement of the money price of corn however it has been thought by rendering that commodity more profitable to the farmer must necessarily encourage its production. I answer that this might be the case if the effect of the bounty was to raise the real price of corn or to enable the farmer with an equal quantity of it to maintain a greater number of laborers in the same manner whether liberal, moderate or scanty then other laborers are commonly maintained in his neighborhood but neither the bounty it is evident nor any other human institution can have any such effect. It is not the real but the nominal price of corn which can in any considerable degree be affected by the bounty and though the tax which that institution imposes upon the whole body of the people may be very burdensome to those who pay it it is a very little advantage to those who receive it. The real effect of the bounty is not so much to raise the real value of corn as to degrade the real value of silver or to make an equal quantity of it exchange for a smaller quantity not only of corn but of all other homemade commodities for the money price of corn regulates that of all other homemade commodities. It regulates the money price of labor which must always be such as to enable the laborer to purchase a quantity of corn sufficient to maintain him and his family either in the liberal, moderate or scanty manner in which the advancing, stationary or declining circumstances of the society oblige his employers to maintain him. It regulates the money price of all the other parts of the rude produce of land which in every period of improvement must bear a certain proportion to that of corn though this proportion is different in different periods. It regulates for example the money price of grass and hay of butcher's meat of horses and the maintenance of horses of land carriage consequently or of the greater part of the inland commerce of the country. By regulating the money price of all the other parts of the rude produce of land it regulates that of the materials of almost all manufacturers. By regulating the money price of labor it regulates that of manufacturing, art and industry and by regulating both it regulates that of the complete manufacture. The money price of labor and of everything that is the produce either of land or labor must necessarily either rise or fall in proportion to the money price of corn. Though in consequence of the bounty therefore the farmer should be enabled to sell his corn for four shillings the bushel instead of three shillings sixpence and to pay his landlord a money rent proportionable to this rise in the money price of his produce yet if in consequence of this rise in the price of corn four shillings will purchase no more homemade goods of any other kind than three shillings sixpence would have done before neither the circumstances of the farmer nor those of the land lord will be much mended by this change. The farmer will not be able to cultivate much better the landlord will not be able to live much better. In the purchase of foreign commodities this enhancement in the price of corn may give them some little advantage. In that of homemade commodities it can give them none at all and almost the whole expense of the farmer and the far greater part even of that of the landlord is in homemade commodities. That degradation in the value of silver which is the effect of the fertility of the mines and which operates equally or very nearly equally through the greater part of the commercial world is a matter of very little consequence to any particular country. The consequent rise of all money prices though it does not make those who receive them really richer does not make them really poorer. A service of plate becomes really cheaper and everything else remains precisely of the same real value as before. But that degradation in the value of silver which being the effect either of the peculiar situation or of the political institutions of a particular country takes place only in that country is a matter of very great consequence which far from tending to make anybody really richer tends to make everybody really poorer. The rise in the money price of all commodities which is in this case peculiar to that country tends to discourage more or less every sort of industry which is carried on within it and to enable foreign nations by furnishing almost all sorts of goods for a smaller quantity of silver than its own workmen can afford to do to undersell them not only in the foreign but even in the home market. It is the peculiar situation of Spain and Portugal as proprietors of the mines to be the distributors of gold and silver to all the other countries of Europe. Those metals ought naturally therefore to be somewhat cheaper in Spain and Portugal than in any other part of Europe. The difference however should be no more than the amount of the freight and insurance and on account of the great value and small bulk of those metals their freight is no great matter and their insurance is the same as that of any other goods of equal value. Spain and Portugal therefore could suffer very little from their peculiar situation if they did not aggravate its disadvantages by their political institutions. Spain by taxing and Portugal by prohibiting the exportation of gold and silver load that exportation with the expense of smuggling and raise the value of those metals in other countries so much more above what it is in their own by the whole amount of this expense. When you dam up a stream of water as soon as the dam is full as much water must run over the dam head as if there was no dam at all. The prohibition of exportation cannot detain a greater quantity of gold and silver in Spain and Portugal than what they can afford to employ than what the annual produce of their land and labor will allow them to employ in coin, plate, gilding and other ornaments of gold and silver. When they have got this quantity the dam is full and the whole stream which flows in afterwards must run over. The annual exportation of gold and silver from Spain and Portugal accordingly is by all accounts notwithstanding these restraints very near equal to the whole annual importation. As the water however must always be deeper behind the dam head than before it so the quantity of gold and silver which these restraints detain in Spain and Portugal must, in proportion to the annual produce of their land and labor be greater than what is to be found in other countries. The higher and stronger the dam head the greater must be the difference in the depth of water behind and before it. The higher the tax the higher the penalties with which the prohibition is guarded the more vigilant and severe the police which looks after the execution of the law the greater must be the difference in the proportion of gold and silver to the annual produce of the land and labor of Spain and Portugal and to that of other countries. It is said accordingly to be very considerable and that you frequently find there is a profusion of plate in houses where there is nothing else which would in other countries be thought suitable or correspondent to this sort of magnificence. The cheapness of gold and silver or what is the same thing the dearness of all commodities which is the necessary effect of this redundancy of the precious metals discourages both the agriculture and manufacturers of Spain and Portugal and enables foreign nations to supply them with many sorts of rude and with almost all sorts of manufactured produce for a smaller quantity of gold and silver than what they themselves can either raise or make them for at home. The tax and prohibition operate in two different ways. They not only lower very much the value of the precious metals in Spain and Portugal but by detaining there a certain quantity of those metals which would otherwise flow over other countries they keep up their value in those other countries somewhat above what it otherwise would be and thereby give those countries a double advantage in their commerce with Spain and Portugal. Open the floodgates and there will presently be less water above and more below the dam head and it will soon come to a level in both places. Remove the tax and the prohibition and as the quantity of gold and silver will diminish considerably in Spain and Portugal so it will increase somewhat in other countries and the value of those metals their proportion to the annual produce of land and labor will soon come to a level or very near to a level in all. The loss which Spain and Portugal could sustain by this exportation of their gold and silver would be altogether nominal and imaginary. The nominal value of their goods and of the annual produce of their land and labor would fall and would be expressed or represented by a smaller quantity of silver than before but their real value would be the same as before and would be sufficient to maintain, command, and employ the same quantity of labor. As the nominal value of their goods would fall the real value of what remain of their gold and silver would rise and a smaller quantity of those metals would answer all the same purposes of commerce and circulation which had employed a greater quantity before. The gold and silver which would go abroad would not go abroad for nothing but would bring back an equal value of goods of some kind or other. Those goods too would not be all matters of mere luxury and expense to be consumed by idle people who produced nothing in return for their consumption. As the real wealth and revenue of idle people would not be augmented by this extraordinary exportation of gold and silver so neither would their consumption be much augmented by it. Those goods would probably be the greater part of them and certainly some part of them consist in materials, tools, and provisions for the employment and maintenance of industrious people who would reproduce, with a profit, the full value of their consumption. A part of the dead stock of the society would thus be turned into active stock and would put into motion a greater quantity of industry than had been employed before. The annual produce of their land and labor would immediately be augmented a little and in a few years would probably be augmented a great deal. Their industry being thus relieved from one of the most oppressive burdens which it at present labors under. The bounty upon the exportation of corn necessarily operates exactly in the same way as this absurd policy of Spain and Portugal. Whatever be the actual state of tillage it renders our corn somewhat dearer in the home market than it otherwise would be in that state and somewhat cheaper in the foreign and as the average money price of corn regulates more or less that of all other commodities it lowers the value of silver considerably in the one and tends to raise it a little in the other. It enables foreigners, the Dutch in particular, not only to eat our corn cheaper than they otherwise could do but sometimes to eat it cheaper than even our own people can do upon the same occasions. As we are assured by an excellent authority that of Sir Matthew Decker it hinders our own workmen from furnishing their goods for so small a quantity of silver as they otherwise might do and enables the Dutch to furnish theirs for a smaller. It tends to render our manufacturers somewhat dearer in every market and theirs somewhat cheaper than they otherwise would be and consequently to give their industry a double advantage over our own. The bounty as it raises in the home market not so much the real as the nominal price of our corn as it augments not the quantity of labor which a certain quantity of corn can maintain and employ but only the quantity of silver which it will exchange for it discourages our manufacturers without rendering any considerable service either to our farmers or country gentlemen. It puts indeed a little more money into the pockets of both and will perhaps be somewhat difficult to persuade the greater part of them that this is not rendering them a very considerable service. But if this money sinks in its value in the quantity of labor, provisions, and homemade commodities of all different kinds which it is capable of purchasing as much as it rises in its quantity the service will be little more than nominal and imaginary. There is perhaps but one set of men in the whole commonwealth to whom the bounty either was or could be essentially serviceable. These were the corn merchants the exporters and importers of corn. In years of plenty the bounty necessarily occasioned a greater exportation than would otherwise have taken place. And by hindering the plenty of the one year from relieving the scarcity of another it occasioned in years of scarcity a greater importation than would otherwise have been necessary. It increased the business of the corn merchant in both and in the years of scarcity it not only enabled him to import a greater quantity but to sell it for a better price and consequently with a greater profit than he could otherwise have made if the plenty of one year had not been more or less hindered from relieving the scarcity of another. It is in this set of men accordingly that I have observed the greatest zeal for the continuance or renewal of the bounty.