An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader with highlighter txt) 📖

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prevented by a proper attention to what they called the balance

of trade. That when the country exported to a greater value than

it imported, a balance became due to it from foreign nations,

which was necessarily paid to it in gold and silver, and thereby

increased the quantity of those metals in the kingdom. But that

when it imported to a greater value than it exported, a contrary

balance became due to foreign nations, which was necessarily paid

to them in the same manner, and thereby diminished that quantity

: that in this case, to prohibit the exportation of those metals,

could not prevent it, but only, by making it more dangerous,

render it more expensive: that the exchange was thereby turned

more against the country which owed the balance, than it

otherwise might have been; the merchant who purchased a bill upon

the foreign country being obliged to pay the banker who sold it,

not only for the natural risk, trouble, and expense of sending

the money thither, but for the extraordinary risk arising from

the prohibition; but that the more the exchange was against any

country, the more the balance of trade became necessarily against

it; the money of that country becoming necessarily of so much

less value, in comparison with that of the country to which the

balance was due. That if the exchange between England and

Holland, for example, was five per cent. against England, it

would require 105 ounces of silver in England to purchase a bill

for 100 ounces of silver in Holland: that 105 ounces of silver in

England, therefore, would be worth only 100 ounces of silver in

Holland, and would purchase only a proportionable quantity of

Dutch goods ; but that 100 ounces of silver in Holland, on the

contrary, would be worth 105 ounces in England, and would

purchase a proportionable quantity of English goods; that the

English goods which were sold to Holland would be sold so much

cheaper, and the Dutch goods which were sold to England so much

dearer, by the difference of the exchange : that the one would

draw so much less Dutch money to England, and the other so much

more English money to Holland, as this difference amounted to:

and that the balance of trade, therefore, would necessarily be so

much more against England, and would require a greater balance of

gold and silver to be exported to Holland.

 

Those arguments were partly solid and partly sophistical. They

were solid, so far as they asserted that the exportation of gold

and silver in trade might frequently be advantageous to the

country. They were solid, too, in asserting that no prohibition

could prevent their exportation, when private people found any

advantage in exporting them. But they were sophistical, in

supposing, that either to preserve or to augment the quantity of

those metals required more the attention of government, than to

preserve or to augment the quantity of any other useful

commodities, which the freedom of trade, without any such

attention, never fails to supply in the proper quantity. They

were sophistical, too, perhaps, in asserting that the high price

of exchange necessarily increased what they called the

unfavourable balance of trade, or occasioned the exportation of a

greater quantity of gold and silver. That high price, indeed, was

extremely disadvantageous to the merchants who had any money to

pay in foreign countries. They paid so much dearer for the bills

which their bankers granted them upon those countries. But though

the risk arising from the prohibition might occasion some

extraordinary expense to the bankers, it would not necessarily

carry any more money out of the country. This expense would

generally be all laid out in the country, in smuggling the money

out of it, and could seldom occasion the exportation of a single

sixpence beyond the precise sum drawn for. The high price of

exchange, too, would naturally dispose the merchants to endeavour

to make their exports nearly balance their imports, in order that

they might have this high exchange to pay upon as small a sum as

possible. The high price of exchange, besides, must necessarily

have operated as a tax, in raising the price of foreign goods,

and thereby diminishing their consumption. It would tend,

therefore, not to increase, but to diminish, what they called the

unfavourable balance of trade, and consequently the exportation

of gold and silver.

 

Such as they were, however, those arguments convinced the people

to whom they were addressed. They were addressed by merchants to

parliaments and to the councils of princes, to nobles, and to

country gentlemen; by those who were supposed to understand

trade, to those who were conscious to them selves that they knew

nothing about the matter. That foreign trade enriched the

country, experience demonstrated to the nobles and country

gentlemen, as well as to the merchants ; but how, or in what

manner, none of them well knew. The merchants knew perfectly in

what manner it enriched themselves, it was their business to know

it. But to know in what manner it enriched the country, was no

part of their business. The subject never came into their

consideration, but when they had occasion to apply to their

country for some change in the laws relating to foreign trade. It

then became necessary to say something about the beneficial

effects of foreign trade, and the manner in which those effects

were obstructed by the laws as they then stood. To the judges who

were to decide the business, it appeared a most satisfactory

account of the matter, when they were told that foreign trade

brought money into the country, but that the laws in question

hindered it from bringing so much as it otherwise would do. Those

arguments, therefore, produced the wished-for effect. The

prohibition of exporting gold and silver was, in France and

England, confined to the coin of those respective countries. The

exportation of foreign coin and of bullion was made free. In

Holland, and in some other places, this liberty was extended even

to the coin of the country. The attention of government was

turned away from guarding against the exportation of gold and

silver, to watch over the balance of trade, as the only cause

which could occasion any augmentation or diminution of those

metals. From one fruitless care, it was turned away to another

care much more intricate, much more embarrassing, and just

equally fruitless. The title of Mun’s book, England’s Treasure in

Foreign Trade, became a fundamental maxim in the political

economy, not of England only, but of all other commercial

countries. The inland or home trade, the most important of all,

the trade in which an equal capital affords the greatest revenue,

and creates the greatest employment to the people of the country,

was considered as subsidiary only to foreign trade. It neither

brought money into the country, it was said, nor carried any out

of it. The country, therefore, could never become either richer

or poorer by means of it, except so far as its prosperity or

decay might indirectly influence the state of foreign trade.

 

A country that has no mines of its own, must undoubtedly draw its

gold and silver from foreign countries, in the same manner as one

that has no vineyards of its own must draw its wines. It does not

seem necessary, however, that the attention of government should

he more turned towards the one than towards the other object. A

country that has wherewithal to buy wine, will always get the

wine which it has occasion for ; and a country that has

wherewithal to buy gold and silver, will never be in want of

those metals. They are to be bought for a certain price, like all

other commodities; and as they are the price of all other

commodities, so all other commodities are the price of those

metals. We trust, with perfect security, that the freedom of

trade, without any attention of government, will always supply us

with the wine which we have occasion for; and we may trust, with

equal security, that it will always supply us with all the gold

and silver which we can afford to purchase or to employ, either

in circulating our commodities or in other uses.

 

The quantity of every commodity which human industry can either

purchace or produce, naturally regulates itself in every country

according to the effectual demand, or according to the demand of

those who are willing to pay the whole rent, labour, and profits,

which must be paid in order to prepare and bring it to market.

But no commodities regulate themselves more easily or more

exactly, according to this effectual demand, than gold and silver

; because, on account of the small bulk and great value of those

metals, no commodities can be more easily transported from one

place to another ; from the places where they are cheap, to those

where they are dear ; from the places where they exceed, to those

where they fall short of this effectual demand. If there were in

England, for example, an effectual demand for an additional

quantity of gold, a packet-boat could bring from Lisbon, or from

wherever else it was to be had, fifty tons of gold, which could

be coined into more than five millions of guineas. But if there

were an effectual demand for grain to the same value, to import

it would require, at five guineas a-ton, a million of tons of

shipping, or a thousand ships of a thousand tons each. The navy

of England would not be sufficient.

 

When the quantity of gold and silver imported into any country

exceeds the effectual demand, no vigilance of government can

prevent their exportation. All the sanguinary laws of Spain and

Portugal are not able to keep their gold and silver at home. The

continual importations from Peru and Brazil exceed the effectual

demand of those countries, and sink the price of those metals

there below that in the neighbouring countries. If, on the

contrary, in any particular country, their quantity fell short of

the effectual demand, so as to raise their price above that of

the neighbouring countries, the government would have no occasion

to take any pains to import them. If it were even to take pains

to prevent their importation, it would not be able to effectuate

it. Those metals, when the Spartans had got wherewithal to

purchase them, broke through all the barriers which the laws of

Lycurgus opposed to their entrance into Lacedaemon. All the

sanguinary laws of the customs are not able to prevent the

importation of the teas of the Dutch and Gottenburg East India

comnpanies; because somewhat cheaper than those of the British

company. A pound of tea, however, is about a hundred times the

bulk of one of the highest prices, sixteen shillings, that is

commonly paid for it in silver, and more than two thousand times

the bulk of the same price in gold, and, consequently, just so

many times more difficult to smuggle.

 

It is partly owing to the easy transportation of gold and silver,

from the places where they abound to those where they are wanted,

that the price of those metals does not fluctuate continually,

like that of the greater part of other commodities, which are

hindered by their bulk from shifting their situation, when the

market happens to be either over or understocked with them. The

price of those metals, indeed, is not altogether exempted from

variation ; but the changes to which it is liable are generally

slow, gradual, and uniform. In Europe, for example, it is

supposed, without much foundation, perhaps, that during the

course of the present and preceding century, they have been

constantly, but gradually, sinking in their value, on account of

the continual importations from the Spanish West Indies. But to

make any sudden change in the price