May be defined the science which relates to the production, multiplication and distribution of Wealth.

HISTORY.

The acquisition of wealth must at all times have been an object of interest and attention to mankind. Yet it was not for a long time reduced into a science, but was left merely to the industry and practical observation of men engaged in the different branches of industry. We find little or nothing in the ancient writers which can be considered as belonging to this department of science. Among them agriculture appears to have been more honoured and attended to, than either trade or manufactures. The latter especially were considered as unworthy of freemen, and were abandoned entirely to slaves. Yet the ancient world had its commercial states; and perhaps had the monuments of Phenician or Carthaginian literature come down to us, they might in some measure have supplied this blank.

During the middle ages, the reign of disorder and violence checked the practical, and still more the theoretical pursuit of these important objects. The feudal system, in which the lordly baron ruled with licentious sway over his little territory, and carried on almost perpetual war with his neighbours, was hostile to all improved agriculture, and absolutely precluded any progress in manufactures and commerce. These took refuge in the large maritime towns, where fortifications secured the inhabitants from lawless inroads, and a regular police placed person and property in safety. The gradual growth of these cities constituted the grand caule which induced the civilization of modern Europe. The models of beautiful workmanship which were produced, and the various means which ingenuity discovered for multiplying the accommodations of life, gradually brought about a complete change in the habits of landed proprietors. Power, not wealth, had formerly been their object; and to promote this power, they spent almost all their revenues in maintaining a crowd of idle retainers. But when, by the improvement of arts, they had got a taste for luxury, the gratification of which required an augmentation of wealth, their object came to be, how to turn their estates to the best account. This could only be done by granting the farmer a longer lease, which, enabling him to make improvements, led to a better system of agriculture. The same taste drew them to large cities, and thus led them into extravagant habits, which often brought their estates to market, and placed them in the hands of the commercial and industrious. Thus the improvement of modern Europe, contrary to the natural course of things, began with the manufacturing and commercial classes, and was from them reflected to the agricultural part of the community. The consequence was, that commerce and manufactures were long looked upon as the grand source of wealth, and were the objects of peculiar favour to the legislator. Hence arose the mercantile system, which, till about the middle of the last century, was completely predominant in Europe. A sketch of its leading principles will be introduced in the course of the present treaty, and they are fully detailed and supported in the writings of Davenant, Petty, Child, and other writers by whom its tenets were adopted.

This system had a powerful influence on the legislation of the different European nations, England not excepted. But in France, above all, it reigned with absolute sway. Colbert, the celebrated minister of Lewis XIV., in his zeal for the promotion of trade and manufactures, not only neglected, but even deprived agriculture, by laying absurd restraints on the exportation of corn. One extreme leads to another. Thinking men in France, observing the pernicious consequences of this system, were led to the adoption of one directly opposite. According to them, agriculture formed the only real source of wealth. This opinion was first advanced by M. Quenay, a physician of Paris; he was followed by a multitude of philosophers, who espoused his opinion with all the union and zeal of a sect. Accordingly they went under the name of Economists, and the Economical Sect. The Encyclopédie of Diderot and D'Alembert was conducted entirely upon their principles, and tended to give them a wide circulation. Turgot, in the reforms which he undertook during his short administration, was chiefly guided by the principles of the Economists.

Soon after this, Scotland had the honour of producing a system, which has obtained the general approbation of thinking men, and has gradually superseded all others. Adam Smith, being professor in the first commercial city of Scotland, had his attention naturally drawn to these subjects. In his class he had already begun to illustrate the true principles of political economy. Travelling afterwards in France, he became acquainted with the leading members of the Economical school. On his return he spent nine years in maturing his ideas, and preparing his great work "On the Wealth of Nations," which was published in 1776. Here, like the Economists, he shewed the errors of the mercantile system, but in a much more solid and satisfactory manner. He shewed also their own principles to be in many respects erroneous; and he investigated the effects of the division of labour, and various other circumstances which had not occurred to any former writer.

Although the system of Smith gave general satisfaction to all who were able to investigate the subject, and though it was even adopted by Mr Pitt as the basis of his financial and commercial arrangements, yet it did not for a long time acquire a very general currency with the public. It was adopted by the learned only, and not always by them (A). In this respect, the publication of the Edinburgh Review may be considered as forming an era in the history of this science. This celebrated journal, by illustrating in a popular manner the leading subjects of political economy, and by beating down, with its keen powers of ridicule, the opinions of those who still adhered to the obsolete system, has done more towards diffusing the true principles of the science, than any former publication. Lord Lauderdale also has recently published a work, in which, with some paradoxes, he has made also some important additions and corrections to the doctrine of Smith.

In the following sketch, considering Smith as the father of political economy, we shall closely follow his steps, adopting however a somewhat different arrangement, and including such improvements as the science has received since his time.

The subject, it appears to us, may be treated with advantage under the following heads:

I. The nature and different species of wealth. II. The sources of wealth. III. The manner in which wealth is produced and distributed. IV. View of the mercantile and economical systems. V. Public revenue.

These topics will form the subjects of the following chapters.

CHAP. I. On the Nature and different Species of Wealth.

SECT. I. Of the Definition of Wealth; and of Price.

Wealth has been defined to consist of every thing which can be exchanged for another. Lord Lauderdale gives a more general definition, and considers it as consisting of every thing which is useful or agreeable to man*. We conceive, however, that this must be limited to objects of external accommodation; for knowledge dale on mental qualifications of every kind, though most useful and agreeable, cannot be said to constitute wealth, nor to form the subject of political economy. Again, view, No external accommodations, which are in complete and universal abundance, the air we breathe, the light of heaven, are not wealth. To constitute this, the article must exist in some degree of scarcity. It is then only that it can possess an exchangeable value, that its possessor can procure other commodities in return for it. Thus there are two circumstances to be considered in any commodity; its value in use, and its value in exchange. Water, air, &c. are of the greatest use; but from their great abundance, nothing can be got in exchange for them. Diamonds, on the contrary, are of very little use; but from their great rarity, their exchangeable value, or price, is beyond that of any other substance.

The price of an article depends entirely upon two circumstances. 1. The demand, or the number of persons who desire to possess it, and have something to give in exchange. 2. The supply, or the quantity brought to market. The price is directly as the demand, and inversely as the supply; the former raises, the latter sinks it. Where there are many bidders, and where the quantity is small, the competition must be increased, each must seek to outbid the other, and the price of the commodity must rise. On the contrary, if the bidders are few, and the commodity in great abundance, the possessor, in order to dispose of it, will be under the necessity of offering it at a low price.

(A) In the scarcity of 1799 or 1800, the university of Cambridge was announced in the newspapers as having subscribed 50l. to be employed in the apprehension of regaters and forefathers!! Sect. II. Of Capital.

Every man's wealth is of two kinds; the one which he lays aside for immediate consumption; the other which he reserves for the supply of future wants, or employs in such a manner as to make it produce new wealth. The former is called his income, the latter his capital. In proportion as he devotes his property to the former of these purposes, his wealth is diminished; in proportion as he devotes it to the latter, it is increased. This evidently takes place in the case of an individual; and Smith seems to consider it as taking place equally in the case of a nation*. Later inquirers, however, seem to have proved, that there is here a difference. Extreme parsimony throughout a nation, by preventing the production of all articles but those of the first necessity, would induce general poverty†. Still, however, it is essential to the prosperity of a people, that their annual produce should not be all consumed, but that a considerable portion should be set aside and converted into capital.

Capital is divided into fixed and circulating. Fixed capital consists of all those articles, which, without being themselves calculated for exchange or consumption, tend to increase the production of those articles which are so. Such are all kinds of machinery, farming stock, erections for the purpose of mining or manufacture, ships, &c. These form a most valuable part of the property of the nation, and make its revenue much greater than it would otherwise be. At the same time, as they are of no use in themselves, provided the same effects can be produced without them, or by cheaper instruments, their disuse, by saving expense, forms a real addition to the national wealth.

Circulating capital consists of all those commodities which are produced or purchased for the purpose of being wrought upon, or transported elsewhere, and again sold. It comprises almost all the wealth not included under fixed capital. The seed corn of the farmer, the materials of the manufacturer, the goods purchased by the merchant, come all under this description. Lands, mines, and fisheries, are the sources from which circulating capital originally proceeds; whence, after passing through various hands, it arrives at length, and is lost, in those of the consumer.

Sect. III. Of Money.*

Barter, or the exchange of one thing for another of equal value, is essential to the supply of the varied wants of man, and is the grand principle on which commerce depends. Thus it is that men, while merely consulting their own interests, minister to each other's necessities. It is attended, however, with an obvious inconvenience. A man may have goods to exchange, which do not suit his neighbour. The farmer has a sheep, and is in want of cloth; but the cloth merchant may not be in want of mutton, or at least may not wish for large a quantity. Hence the necessity of finding some commodity which may at all times be in demand, and which every one may be ready to receive in exchange for every other article. This commodity ought evidently to possess some quality which may render it an object of universal estimation; it ought also to possess great value in a small compass, so as to be portable, and not to encumber its possessor; it ought to be divisible into the smallest portions; and it ought to be durable, so as to be capable of being treasured up till wanted. All these qualities are united in the precious metals. Their beauty, their durability, their very scarcity, render them better fitted than any other commodity for being the standard of value and the medium of exchange. All nations, accordingly, after a trial of some ruder expedients, have finally had recourse to them for this purpose.

Money is in one view a fixed, and in another a circulating capital. To the individual it stands in the latter capacity, for no one receives money unless for the purpose of loan or latter exchanging it for something else. To the nation, however, it is a fixed capital; being not destined for consumption, but merely an instrument for transacting business with greater facility and advantage.

As the facility of exchanging the precious metals for every other commodity, renders the demand for them constant and universal, their price depends almost wholly on the supply. This, too, is more uniform than that of most other commodities. A great revolution, however, took place at the beginning of the 16th century, in consequence of the discovery of America. For some time before, the value of silver seems rather to have been rising. But the immense mines of Mexico and Peru furnished such a copious supply, as soon reduced it to about one-third of its former value. Smith is of opinion, that since that time there has been rather a rise in the value of these metals. The East Indies, where they still continue scarcer than in Europe, forms a constant drain. The mines, in the course of working, approach nearer to an exhaustion; accordingly, the king of Spain, who originally levied a tax amounting to half the produce of silver, has found it necessary to reduce it successively to one-third, one-fifth, and at last, to one-tenth. The tax on gold is reduced to one-twentieth. The annual importation of gold and silver into Spain is estimated at about six millions.

It has been a frequent practice with sovereigns to reduce the quantity of bullion in any given denomination of coin, and thus to pay their debts with a smaller amount of gold and silver. To such an extent has this practice been carried, that in England the pound sterling is not quite a third of the real pound of silver, and in France the depreciation is far greater. This practice is completely fraudulent and dishonourable. No power of the sovereign can really make this debased coin pass for as much as it formerly did; the consequence is, an immediate rise in the nominal or money price of every commodity. All those, however, who are in the pay of government, suffer, and to do all creditors both public and private; for though the law cannot compel the nation to set the same value on the new coin as on the old, it can compel the creditor to accept it in payment of the sums which he has previously advanced in good coin.

All states reserve to themselves the privilege of coining money. Some, as England, perform this office gratis; while others, as France, impose a small seigniorage at the mint. The latter mode seems rather preferable: for when the circulating coin, as frequently happens, is reduced by long use and attrition beneath its Sect. IV. Of Paper Money.

Money, we have had occasion to observe, considered in a national point of view, is fixed capital. Like other fixed capitals, therefore, although its functions be most essential to the maintenance of trade, yet if any less costly substitute can be found, by which the same functions may be equally well performed, the public is decidedly a gainer. Such a substitute is paper money. By employing it, a nation saves the expense of gold and silver, and at the same time derives all the commercial advantages which money can afford. It is even in some respects more convenient, as being more easily transported, and less liable to accident.

There are, however, extraordinary dangers attending the excessive and incautious use of this instrument, and no cause perhaps has been productive of more signal commercial disasters. The apparent facility of thus creating wealth, as it were, tempts banks and other public bodies to an excessive issue of it. The circulation of the country, however, can absorb only a certain quantity; and as soon as more is thrown in, it immediately returns upon the issuer, in a quantity for which he is probably unprepared. As soon as he shows any hesitation in discharging the demand, the whole rushes in, and bankruptcy and ruin ensue. Where the paper indeed has been issued by the government, payment may be refused; but in this case an immediate depreciation takes place in the value of the notes, and a deep injury is sustained by all who are possessed of them. From this cause it was that the French assignats fell so far below their original value; and for the same reason the American currency is considerably beneath its nominal value.

Where, however, peculiar circumstances have produced an accidental scarcity of money, a temporary suspension of payment may become necessary, and with due caution may be productive of no serious bad consequences; such has been lately the case of the bank of England.

Banks can with no propriety advance to merchants the whole capital on which they trade, but only that part of it which they would otherwise be obliged to keep by them for the purpose of answering occasional demands. This they do in two ways. 1. By discounting bills. 2. By granting cash accounts. The former only of these is practised in England. The latter is peculiar to Scotland. It is managed thus. Two persons of respectable, commonly of landed, property, becoming caution to the extent of a certain sum, the merchant is allowed to draw to the extent of that sum. Merchants, however, do not always content themselves with the degree of affluence above pointed out. They endeavour to carry on extensive speculations merely on paper money. For this purpose they draw fictitious bills for the mere purpose of having them discounted; and by drawing a second before the first becomes due, they delay still farther the repayment of the original advance. Banks ought always, if possible, to avoid the discounting of fictitious bills; and should take care, in cash accounts, that the advances and repayments nearly keep pace with each other.

In this case there is little danger of an over-issue of notes.

It does not appear eligible, however, that gold and silver should be entirely supplanted by paper money. In all transactions with foreign nations, the former becomes necessary; and even domestic inconveniences would arise from its absolute exclusion. For the prevention of this, it is advisable not to issue notes below a certain value. In England, this, till of late, was fixed at five or ten pounds; though in a recent scarcity, notes for twenty shillings began to be issued. In Scotland these have long been in circulation; and notes even for five shillings were some time ago introduced, though these, as soon as the pressure of necessity admitted, have been discontinued.

Sect. V. Of the Variations in the Price of Commodities.

The price of commodities fundamentally depends on the capacity which they possess, of ministering to the use and pleasure of man. Great variations, however, are keen to take place; and in this country particularly, in consequence of national prosperity, a great rise has occurred in a variety of articles. This is vulgarly ascribed to the greater plenty of money; an assertion every way vague, and which has no foundation in fact. Had the increase taken place in consequence of any remarkable increase in the supply of gold and silver, through the discovery of new mines, the assertion would have been just. No such general increase, however, has taken place, at least to any very sensible degree. The increase in this particular country has been owing to the augmentation in the number and value of all other commodities, for the circulation of which a greater quantity of this instrument of exchange becomes necessary. The relation, however, between it and other commodities, continues unaltered; and the quantity of any particular commodity, for which a certain quantity of it can be exchanged, remains the same. Indeed the augmentation has taken place, not so much in gold and silver, as in paper money, the substitute of those metals. The same arguments would hold against a rise occasioned by the use of this instrument, which can happen only where it is depreciated, as in some government paper, by the refusal of payment on demand. This case, however, would be indicated by a difference between its value, and that of gold and silver; a difference which has no place in this country.

Smith has illustrated*, in a most able and satisfactory manner, the source of those variations of price, which take place in consequence of advancing cultivation. He divides commodities into three kinds, which are as follows:

The first consists of those productions of nature which human efforts have no power of multiplying. Such are a variety of rare birds and fishes, most kinds of game, and particularly birds of passage. The growth of wealth and population has a natural tendency to increase the demand for these articles; and as the supply cannot be made to meet this demand, the price must consequently rise. Accordingly, in a highly opulent state of society, it becomes, in some instances, enormous. The Roman epicures are said sometimes to have given 60l. or 80l. for a single bird. The second sort is of those which human industry can multiply in proportion to the demand. Where the commodity, as corn, is such as cannot be produced but by human industry, the price is more uniform than in almost any other case. The increasing scarcity and consequently value of land, tends indeed to raise it; but this is counteracted by the invention of machinery, and improved methods of labour. The opposite agency of these two causes has a constant tendency to preserve uniformity in the value of grain; though we cannot, with Smith, consider this uniformity as likely to be so complete, as to render the price of grain a sure standard for the value of silver.

There are other commodities, however, which nature produces in abundance, or which, where land is plentiful, can be multiplied with little or no cultivation. Of these the principal is butcher meat. Lands can be covered with cattle or sheep by the labour of few hands, and sometimes without any labour at all. Hence, in rude times, butcher meat is always cheaper than corn; in improved periods, the reverse is the case. For a long time the price continues constantly to rise, as we have seen it do throughout Great Britain, the pasture lands being more and more converted into arable. At last, however, it becomes so high as to make it an object for the farmer to stall his cattle, and to cultivate ground for the purpose of feeding them. After this era, the price is likely to experience a certain diminution, from the improved modes of feeding and rearing, which, in consequence of this new attention, are likely to be discovered and adopted.

There are certain animals, as hogs, poultry, &c., which are fed on mere offals, and in a rude state, therefore, are still cheaper than butcher meat. In an improved state they are dearer; for they have not as yet, at least in this country, become an object of separate cultivation.

The third sort consists of those, in the multiplication of which the power of man is either limited or uncertain. In these the rule is various. Some commodities are not cultivated on their own account, but are appendages to others; as wool and hides to the carcass of the ox or sheep. Both these commodities are much more portable, and more easily preserved, than the flesh of the animals from which they are taken; the market for them is thus much more extensive, and the demand more equal at all times. Hence, in rude periods, when the flesh of animals, from its abundance, is of small value, these appendages equal or surpass it in price. At Buenos Ayres frequently, and sometimes even in Spain, an ox is killed for the sake of the hide and tallow. In an improved state of society, on the contrary, the hide and fleece become considerably inferior in value to the carcass.

Fish is an article, the supply of which is considerably limited, as man has no power of production in respect to it, though, by the exertion of industry, he can collect a greater quantity. Shoals of fish are generally copious, but uncertain.

Metals and minerals are articles, the supply of which is not precisely limited, but extremely uncertain. The discovery of new mines, or the continuance of fertility in the old, are equally beyond the reach of calculation.

All wealth arises from three sources; it is either produced by the spontaneous bounty of nature, or it is the fruit of human industry, or it is generated by the judicious employment of a quantity of wealth previously accumulated. To these three heads then of land, labour, and capital, all national wealth may be referred.

Smith has treated of the revenue derived from these three sources as forming the constituent parts of the price of commodities; and with regard to labour in particular, repeatedly considers it as the only source of wealth*. According to the view, however, given above,* Book i. the price of all commodities depends entirely on the proportion between the demand and the supply. Labour, therefore, (and the same may be said of land and capital), is only a means of furnishing or increasing a supply of those articles for which there already exists a demand, and unless it be successful in doing so, the most severe labours will meet with no remuneration whatever. We shall therefore proceed to consider the revenue which arises from these different sources, and the circumstances by which it is increased or diminished.

Sect. I. Land.

All land which is not naturally barren, and is cultivated with any ease, affords something more than is necessary to pay the expense of labouring it. This surplus goes as a rent to the landlord, who, in consideration of receiving it without risk or trouble, relinquishes to the farmer the profits of cultivation.

The proportion of the produce of a field which is to go for rent, varies with different circumstances. The chief of these is the fertility of the soil, the extent of the market, which enables the produce to be disposed of to greater advantage, the prosperity or poverty of the country, which causes a greater or less demand for that produce, and the average skill and activity of the farmers, which will enable them to turn the fertility of the ground to better account. It is almost needless to observe, were it not for the vague language often made use of upon this subject, that the rate at which farms let, must, like all other commodities, depend altogether upon the demand and the supply. If much is to be made by farming, many will bid for farms, and the rent will be raised by their competition, and vice versa. The idea that all the landlords of an extensive country may combine to raise their rents, is altogether chimerical. Even could it take place, it could be accomplished only by a certain number of them allowing their lands to lie waste, which, diminishing the supply, would doubtless raise the rent of the cultivated lands. But we need not fear that any landlord should leave his lands in this condition, from a culpable scheme of aggrandizing the rest of his body at his own expense, as well as that of the public.

Land which produces food for man will at all times afford rent to the landlord, in proportion to its fertility, and the other circumstances mentioned above. Men multiply in proportion to the means of subsistence; they have even a constant tendency to multiply beyond these means; hence there is always a full demand for this species. Nature of species of produce. The rent, therefore, afforded by Wealth, the ground which is employed in cultivating whatever &c. is the staple food of the community, regulates the rent of all other ground. No one, unless forced to it by peculiarities of soil, would cultivate any article which afforded less rent than this. There may be soils indeed which are only fit for the production of an inferior article, and there are others which are fitted for the production of those of higher value. In vine countries, the rent of an ordinary vineyard seems to be nearly on a level with that of corn. But there are others, whose wines being regarded as superior, make them yield a much higher rent. The West India islands, before the late depreciation of their produce, seem to have been nearly in the same predicament.

These observations, however, apply chiefly to that produce of land which is the result of human labour. In regard to the spontaneous produce of land, it depends upon circumstances, whether or not it yields any rent at all. In a rude state of society, above all, the demand is often slender, that, unless through the intervention of foreign commerce, this produce will bear scarcely any value. Such countries are often covered with immense natural woods, the cutting down of which is a burden instead of an advantage. In an improved country this wood would afford a large revenue. Most of the materials of clothing and lodging are of this nature. In the infancy of society, the great object is food; and provided men can procure that, they are satisfied with very moderate accommodations in other respects. The hides and furs of their cattle, and of the wild animals whom they kill in hunting, are more than sufficient to supply them with coverings. But as society becomes opulent, and luxury is introduced, clothes are among the favourite objects on which this luxury is vented. A great increase therefore takes place in the demand for its materials. The same may be said of those of lodging and furniture.

Miner, in political economy, may be considered in the same light as land. Like it, they yield a rent, which, however, from the difficulty of working, is generally less than that of land. Coal, an important article, is kept down both by its great bulk, which narrows the market, and by its relation to the price of wood, which price it cannot exceed, otherwise wood would be preferred as fuel. A fifth of the whole produce is reckoned a great rent for a coal mine; a tenth is the most common. Metals, even the coarsest, and still more the fine, will bear very extensive carriage. In general, however, their rent is not very high. The tin mines of Cornwall, said to be the richest in the world, yield on an average only a fifth part of their gross produce. The king of Spain's tax of a fifth on the silver mines in America, formed indeed the rent of those mines; but this tax he was obliged to reduce to one tenth. It is said to be ill paid.

Fisheries form another source of wealth similar to land and mines. The sea, however, has never yet been appropriated, nor a rent exacted for its use. The right of fishing, however, in some seas of peculiar fertility, has been claimed as national property. River fisheries let frequently at a very high rent.

Sect. II. Labour.

The great source of exchangeable commodities, is the labour of man. Even those powers of nature for which rent is paid, rarely afford any thing valuable unless aided by human efforts. Capital, however powerful an instrument, consists merely of accumulated labour. Originally the fruit of every man's industry would belong entirely to himself. Soon, however, the proprietor of the land from which he drew food, would claim a share. As the structure of society became more complicated, and markets more remote, something more would be found requisite. It would be necessary to have subsistence while the article was producing and carrying to market, to be able to purchase materials on which to work, and to command machinery or fixed capital in order to render labour more productive. For all these purposes, capital would become necessary; and the person who had accumulated a portion of it would be able to command the services of several others, to whom he would advance subsistence and the materials of working, and would receive in return the fruits of their labour. As capitals accumulate, this becomes almost universally the case; in a commercial state, few independent workmen are to be found.

The price of labour or wages is regulated, like everything else, by the demand and the supply. If there are many who want and can employ workmen, and if few can be found, the competition of the masters will raise the wages, until the whole capital, not otherwise employed, is distributed among that small number. In the opposite circumstance, workmen, glad to work for anything rather than starve, will bid against each other till all are employed, at however small a recompense. The combinations among workmen, so much complained of, can never have any permanent effect, unless accompanied by those circumstances which necessarily lead to a rise. The combination of masters, though less heard of, is more to be feared. Their numbers are smaller, and from their greater command of property, they can hold out for a longer time. From the above causes, however, there is no reason whatever to dread any serious or lasting consequences from such a measure.

The supply of labour, or the population, has a natural tendency to suit itself to the demand. High wages, by encouraging early marriage, and enabling the labourer to take better care of his children, soon cause an addition to the numbers of a state, which, in its turn, brings down the wages. Hence uncommonly high wages take place chiefly in an advancing state of society, when a number of employments are open, for which a sufficiency of labourers cannot be found. When the wealth of a country is stationary, the wages will be moderate, sufficient to admit of the rearing of such a number of children, as may keep up the population, but not such as to admit of any increase. When the country is in a declining state, the wages will fall even below this. They will scarcely enable the labourer to subsist; comparatively few will be able to rear families, and population will decline.

From what has been said above, there will appear no reason to suppose, that the price of subsistence has any immediate influence on the wages of labour; an idea which even Smith seems strangely to have entertained. The demand for labour, the funds by which it is paid, and the number of labourers continuing the same, no alteration in its price can take place. For masters to give higher wages on account of scarcity, is, we suspect, a very injudicious benevolence. The funds for the maintenance tenance of labour, far from being increased by a dearth, are rather diminished; so that the giving a greater proportion of them than before to some, must be the means of throwing others altogether out of employment; and to this cause we suspect that the want of work usually complained of at these periods, is very much to be ascribed. Where the rise of provisions is permanent, however, that of labour, though not immediate, takes place ultimately, in consequence of a diminution of the supply. The difficulty of subsistence prevents labourers from rearing such numerous families; population is thinned; and the diminished competition causes a rise in the price of wages.

Wages in general are nearly the same over a country; for if they are higher in any one place, this proves a natural attraction to those of other districts, who soon reduce the rate to its proper level. This free circulation of labour, however, may be prevented by artificial restraints, as was the case, till of late, in England, by means of the poor laws. These authorized the parish officers to prevent anyone who was ever likely to become a burden on the parish from settling in it. The most obnoxious part of these laws, however, has been done away, chiefly through the exertions of Mr Rofe.

Wages are generally higher in cities than in the country. The capitals there are greater. The country too is more prolific, while few towns keep up their own numbers. Many indeed migrate from the former to the latter; but the predilection for their native spot, and to more wholesome and cheerful occupations, prevents this migration from being so great as completely to equalize the rate. Another cause arises, in modern Europe, from the corporation system which has generally prevailed. Almost every trade has some regulations to limit the number of its members, and thus, by restraining competition, to increase their wages. The principal of these regulations are those regarding the duration of apprenticeship. By the fifth of Elizabeth, no trade can be exercised in England, till after an apprenticeship of seven years; and the only freedom from this statute is in the case of those trades which were at that time unknown. In Scotland, apprenticeships are in general much shorter.

Wages, however, vary not only from local causes, but from others connected with the nature of the trades by which they are earned. There seem to be five circumstances which tend to raise the wages of any class of men above the ordinary level.

Firstly, When any employment is of an unwholesome and disagreeable nature. Thus miners, blacksmiths, butchers, and innkeepers, earn higher wages than those whose occupation is not liable to the same objections. On the other hand, hunting and fishing, being naturally agreeable, and pursued by many for mere amusement, are by no means profitable.

Secondly, Where a profession is difficult to learn, as in the fine arts and liberal professions, which require many years study before a man is qualified to exercise them.

Thirdly, Where employment is precarious. Thus masons whose employment depends on the weather, and all workmen who are liable to be called upon and dismissed at a moment's warning, receive higher wages to compensate for this uncertainty in the means of their subsistence.

Fourthly, Where great trust is reposed in the work- Sect. III. Of Capital.

Capital or stock, as already hinted, is merely the produce of land and labour accumulated, and employed in such a manner as to cause an augmentation of the wealth of the community. It acts, however, too important a part, not to deserve separate consideration. We have already, considering it as one of the divisions of wealth, explained, at some length, its nature and office. We shall now consider it in the relation which it bears to revenue, which, when arising from this source, is usually called the profits of stock.

It is difficult to obtain direct information with regard to the rate of profit in any particular country; but it may be inferred with considerable certainty from the rate of interest, which always bears a certain relation to these profits. The more advantageously a man can employ stock, the more will he be inclined to pay for the use of it. Profit is generally supposed to be about double of the interest.

In poor but advancing communities profits are high. There is a great demand for stock, and little to be had; hence men are glad to pay a high premium for the use of it. In North America interest is from six to eight per cent. New colonies afford almost the only instances in which both profit and wages are high at the same time. The employment is so ample as to demand at once more men, and more stock, than can be supplied to it. As the country advances in wealth, stock becomes more abundant, and the competition of different stocks lowers the profit of each. Hence, in a rich country, profits are low. In England the current rate of interest is (or at least was, before the immense loans of the present war) from four to four and a half per cent. In Holland, the richest country perhaps in the world, interest is two or three per cent, and the Dutch are observed to trade on lower profits than any other people. But when a country is in a state of decline, in consequence of its property being plundered or destroyed, stock, from its scarcity, acquires often an enormous value. In Bengal money is said to be lent to the farmer at forty per cent, and upwards. We must observe, however, that even in opulent countries the opening of new channels of employment, by increasing the demand, tends to raise the profits of stock, while the shutting of former channels has the contrary effect.

Profit does not vary nearly so much as labour, according to the different modes in which it is employed. Scarcely any of the five circumstances mentioned under that head, except the last, affect it at all. Smith seems indeed to consider the first, viz. the agreeableness or disagreeableness of the employment, as somewhat affecting it; but this it appears to us to do, only from the labour with which it is accompanied. It is by the drudgery and inconvenience of constant attendance on his guests that the employment of an inn-keeper is rendered disagreeable.

The safety or risk, however, attendant on the different modes of employing a capital, is a most serious consideration. A man will not, without some temptation of extraordinary profit, embark in a concern where a part or the whole of his capital may be lost. We are disposed, indeed, to consider this as the only circumstance which raises the profits of stock above the market rate of interest. In almost all modes of employing capital, there is some risk; and it may be supposed, that where that risk is greatest, the profit should be greatest also. Yet employments attended with very great risk, provided that risk be compensated by the chance of very great gains, are the most crowded. Such is the sanguine and adventurous spirit of men, that speculation, as it is called in trade, as well as such uncertain trades as that of the corn-merchant or the smuggler, are always overstocked; and though productive of occasional gains, prove commonly ruinous in the end.

In some of the Asiatic countries, where property is remarkably insecure, the accumulation of capital is thereby much discouraged as to render it scarce, even where the annual produce of the land and labour is considerable. Even the quantity which is accumulated, instead of being employed in trade, is concealed or buried in the earth. The same was the case anciently in European kingdoms, before the establishment of law and order; accordingly, at that time, treasure-trove formed an important part of the revenue of the sovereign.

It may be observed, that what goes under the denomination of profit is often merely wages. A merchant or shopkeeper who conducts his own business, besides the profit of his stock, must receive some remuneration for the portion of time and attention he devotes to the employment. Thus, especially in a country town, a grocer or apothecary will, on a small stock, make 50 or 100 per cent.; but this may be no more than sufficient to repay him for that skill and knowledge which are equally necessary for conducting these employments on a small as on a great scale.

Although, however, the variations in the profits of stock occasioned by the nature of the employment be not considerable, it is otherwise with those which have been occasioned by the policy of modern Europe. As the improvements introduced into it have been chiefly by cities, and by the mercantile part of the community, that part has been extravagantly favoured. The interest of the agriculturist and of the consumer has, till of late, been uniformly sacrificed to theirs. The regulations prompted by this system have not indeed been of any real service to trade; but, by narrowing the competition, they have secured to some commercial bodies a certain monopoly of the articles in which they dealt, and thereby enabled them to raise their profits above the natural level. This they do sometimes directly, by vesting the privilege of conducting certain trades altogether in the hands of an exclusive company, who can set their own price on commodities which are produced or imported by them alone. At other times, they impose prohibitions or high duties on the importation of certain articles from abroad. Bounties are given for the encouragement of certain favourite branches of agriculture, or manufactures. These regulations form what is called the mercantile system, which we shall have occasion hereafter to consider at large, and to show its entire fallacy. The exclusive privileges of corporations operate to raise the profits of stock, as well as the wages of labour; They exclude all such as have not certain qualifications from employing their stock within the corporation. Those, therefore, who possess these qualifications enjoy some degree of monopoly against the rest of the society. From all these causes the profits derived from manufactures and commerce have been on the whole greater than those of agriculture. The instances of great fortunes raised out of nothing in the former lines are frequent; in the latter, they are rare. We may observe, however, that since the general diffusion of the writings of Smith and of the economists, this system has, in a great degree, ceased to influence the legislatures of Europe; and what remains of it arises rather from the force of habit than from design. Perhaps there is now a tendency to the opposite error; to undervalue trade too much, and to grant to agriculture those exclusive privileges which were formerly lavished on manufactures and commerce.

The profits of stock are equally, with the wages of labour, liable to be affected by the introduction of new trades, and by alterations in the demand. These variations, however, like the causes which produced them, will be only of a temporary nature.

**Sect. IV. The Interest of Money.**

It may often happen, that persons are possessed of stock who want inclination or talents for engaging in trade. On the other hand, some may possess this inclination and capacity, who have no stock. In this case a natural arrangement takes place. The person possessed of the stock, which he does not employ, lends it to the other who is in want of it, and who, in consideration of the profit he derives from its use, is willing to give an annual premium to the lender. This is called the interest of money; for money, being the common exchangeable medium, is the form in which stock generally appears, when it is collected by its possessor for the purposes either of hoarding or lending.

In order to prevent the ignorant or necessitous from being imposed upon, governments have generally fixed a certain rate, which the interest of money should not be allowed to exceed. This rate ought always to be regulated by the market rate. An attempt to keep down the interest below that rate, tends only to raise it higher. The consideration given for the use of money must still be regulated, like every such transaction, by the supply and the demand; and the borrower must give a compensation to the lender, not only for the use of his money, but also for the risks which he incurs by the violation of the law. The regulated rate, however, ought to be somewhat above the market rate; though, were it too much so, its operation would become nugatory.

**Chap. III. Of the manner in which Wealth is produced and distributed.**

Among the three sources of wealth above enumerated, labour is pre-eminent, not only as the most abundant, but as necessary in order to give efficacy to the rest; neither land nor stock, unless in some rare instances, being of any value, unless labour be added. The result, however, of rude and unassisted labour is exceedingly small, when compared with what it becomes by means of certain artificial aids, which it gradually receives in an opulent and improved society. These aids are chiefly the division of labour, and machinery.

**Sect. I. The Division of Labour.**

The division of labour, by which one employment, or one branch of that employment, forms the sole occupation of one man, produces the most wonderful effects in augmenting the productive powers of labour. The oftener that a man performs any operation, the greater power he acquires of performing it skilfully and rapidly; and when his whole life is spent in the performance of any single process, this power becomes almost incredible. Thus, too, he saves the time which is spent in passing from one work to another. He saves more indeed than the mere time, for at first beginning the new one, he commonly faunsters and trifles a little, and does not at first go on heartily and vigorously.

A striking instance of the effects of division of labour is afforded in the manufacture of pin-making. The important occupation of making a pin affords employment to eighteen persons; one man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top to receive the head, which two or three are employed in making. To put it on, to whiten the pin, to put it into the paper, form all distinct occupations. Smith saw a manufactory where only ten were employed, and where some consequently performed two or three operations, yet they made forty-eight thousand pins a day, or four thousand eight hundred each; whereas a single man, performing the whole process by himself, would not probably make twenty. These effects would be equally perceptible in manufactures of greater consequence, were all their processes capable of being brought as close to each other as in this small one.

The division of labour is capable of being carried farther in manufactures than in agriculture. In the latter, a change of employment is dictated by the change of seasons; the same man must successively sow, reap, and thresh out the grain. Although, therefore, an improved society excels a rude one in agriculture, it does not, in general, excel so much as in manufactures, where man, making all the arrangements himself, can carry the division of labour as far as the extent of his undertaking will admit of.

**Sect. II. Machinery.**

As improvement advances, and the invention of man exerts itself in every direction, the labour of man is more and more seconded by the aid of machinery. This source of improvement is clasped by Smith under the head of the division of labour, to which he conceives it to be indebted for its origin. We rather incline, however, to agree with Lord Lauderdale, in judging it worthy of ranking as a separate and independent principle. Some rude machinery for domestic and agricultural purposes must have been invented prior to any considerable division of labour; while those wonderful machines which have excited the admiration of the present age, the cotton mill, the steam engine, &c., are the invention of ingenious men, not the casual discovery of workmen; though they may have received some improvement from the latter source.

Machinery is, in many instances, not less powerful than the division of labour, in multiplying the productions of human industry. It has besides this advantage, that there are many operations to which it is essential, and which, without it, cannot, in any degree, be performed. Without the plough or spade, the saw, the flour-mill, or some instruments corresponding to these, the unassisted efforts of man would be of no avail to effect the purposes for which they are intended.

When any machine is first introduced, the immediate consequence is, that a number of labourers are thrown out of employment; hence, according to the idea of the vulgar, which has been hastily adopted by some philosophers, such innovations are pernicious, tending to distress the poor, and to check population. There seems no good reason for this complaint. The population of a country must always depend upon the abundance of the means of subsistence; while, therefore, improved machinery has no tendency to diminish these, it cannot be injurious to population. The manufacturer, being enabled to produce the same quantity of goods, with only part of the stock before employed, will employ the other part in extending his concerns, either in the same or in other branches of industry; and even the part of his stock which is spent in the purchase of machinery, will give employment to workmen in framing that machinery. The only effect, therefore, will be that of adding, in proportion to the power of this machinery, to the comforts and conveniences of the society. A certain degree of inconvenience may no doubt be experienced by those workmen who have been accustomed to this species of employment, and are less qualified for any other. But this is merely a temporary disadvantage, such as may be expected to accompany all changes, however beneficial.

Machinery, like the division of labour, can be introduced to a much greater extent in manufactures than in agriculture. Nothing on a great scale, seems hitherto to have been introduced into the latter, except the threshing machine.

Sect. III. Of the different Employments of Labour and Stock.

All these seem to be included under four heads: agriculture, including mines and fisheries; manufactures; trade by wholesale; and trade by retail. Each of these will present some objects for our consideration.

Sect. IV. Agriculture.

Of all modes of employing labour and stock, this is the most productive. It is not here, as in other employments where everything is to be done by man. Nature labours along with him. His object is to direct rather than to augment those powers of vegetation which the earth already possesses and exercises. No other employment yields that surplus produce obtained without labour or effort, which is called rent. However, therefore, things are allowed to take their natural course, agriculture is the first object to which the labour of the society is directed. Till it has made considerable advances, manufactures are either rudely executed as a by-work, or, where opportunity offers, are imported from abroad, in exchange for the rude produce of land. This last, where practicable, appears evidently to be the most advantageous system. The adoption of it has been one great cause of the rapid progress of the North American colonies.

Agriculture gives employment to a greater number of men than any other species of industry. These men also, are likely to be the most sound, healthy, uncorrupted part of the population; and from its local nature, they must all reside within the society, and form a constituent part of it.

Sect. V. Manufactures.

Manufactures do not actually produce any new commodity; but they modify in such a manner the produce of land or mines, as to increase its exchangeable value. Few things, especially in a highly cultivated state of society, are fit for use as they come out of the hands of nature, till they have been operated upon by human art. Even corn, the staple produce of land, must pass through the hands of the miller and the baker, before it can be used as food. Some manufactures add comparatively little to the value of the original article; while, in others, the latter becomes little or nothing when compared with the additional value stamped on it by the manufacture. Thus half a crown's worth of flax, when wrought into the finest cambric, will be raised perhaps to the value of twenty pounds.

Manufactures employ fewer men than agriculture, but more than any other species of industry. These men, too, must evidently reside in the country where the manufacture is carried on; though that may be different from the country where the rude material is produced, as well as from that where the finished manufacture is consumed. The cotton of America and the West Indies is imported into Britain, and after being there wrought into cloth, is re-exported to those countries.

Manufactures, as already observed, give scope beyond any other employment to the productive powers arising from machinery and the division of labour. They can be collected into the smallest space, and the intruments are completely under the control of man. A poor nation may rival, or even surpass a rich one, in the cheapness and abundance of its corn; but in manufactures it is always inferior.

It is a general rule, that the manufactures in which a country excels, are those which are suited to the wants of her inhabitants. These she comes to produce, not only better, but cheaper, than other countries, to whom therefore those articles become, for her, the most advantageous subject of export. In France, before the revolution, the consumers were chiefly persons of very large fortune, to whom the finest manufactures and articles of ornament were alone suited. In England, on the other hand, the greater proportion of the consumers are persons of moderate fortune, and in the middling rank. Substantial articles, of moderate price, are, therefore, chiefly demanded in this country. The effect of these different habits appeared clearly in the discussions respecting the commercial treaty concluded by Mr Pitt. It appeared, that millinery, jewellery, fine manufactu- turers of all kinds, were made both better and cheaper in France; but in hardware, cloth, common articles of every sort, the was completely underfled by England.

Although woollens be the staple of England, yet in the finest woollen cloth she was surpassed by France; and though silks be the staple of France, yet common silks were sold cheaper by England. Several other curious instances are given by Lord Lauderdale, in the concluding chapter of his work on public wealth.

Sect. VI. Commerce.

Commerce is the grand source of all improvement in the productive powers of industry. It is founded on the principle of barter. The butcher has a quantity of beef, and the baker of bread, more than either can consume himself; but each is in want of the other's commodity. And exchange therefore being made, both the beef and the bread acquire a value which they did not possess before. Thus it is that commerce, consisting in the exchange of two articles, raises the value of both.

It is only by means of extensive commerce, that both the division of labour and machinery can be carried to any great extent. A manufactory, established for the supply of a small neighbourhood, can never be conducted on that great scale which is requisite for these improvements. The division of labour must depend on the numbers employed; and an extensive sale is necessary to repay the expense of complicated and powerful machinery. Land carriage would probably be the first employed; but as soon as navigation was invented, the cheapness and facility of water carriage would give it a decided preference. In the infancy of the art, the inland navigation of rivers would experience a preference; and it is still possessed of peculiar advantages. All the earliest improved countries have been those which possessed an extensive inland navigation; Egypt, by the Nile, Indostan by the Ganges, and China, by several great rivers which perforate it. Africa, an unbroken mass of continent, is still barbarous; the only part which affords any exception to this remark, is that situated along the Senegal and Niger. Hence the great advantage which a country derives from good roads, and still more from navigable canals, which facilitate the communication between its different parts, and extend the market of the farmer and manufacturer.

Commerce is of three kinds; the home trade, the foreign trade, and the carrying trade*.

The home trade is of all others the most advantageous. In the exchange which takes place here, both the commodities, whose value is raised, belong to the same country, and consequently a double benefit accrues to the society. The returns, also, of such a commerce are much more quick. With the same capital, therefore, a much greater number of transactions will take place in a given time. Smith calculates that the foreign trade of Great Britain does not exceed a fortieth of its home trade. The grand branch of internal trade is that between the country and the town, in which the farmer supplies provisions and raw materials, and receives in return manufactured produce.

When all the channels of domestic trade are filled, a nation naturally turns to a foreign market. Here, however, it does not trade with equal advantage. Of the two commodities whose value is raised, one only belongs to it; and consequently it reaps only half the benefit which it reaped from the home trade. Nor is this all. The market being more distant, the returns are slower. With the same capital, twelve operations may frequently be performed in the one, in the same time that a single one was performing in the other. In this case, the former will be twenty-four times more advantageous to the country. It does not follow, however, that foreign trade is not really and greatly advantageous, when the capital is sufficient to carry it on, in addition to the home trade.

The foreign trade is sometimes modified as follows. A country exports to another some commodity, and then, with the commodity which it receives in return, purchases some article of a third country. Thus, England sends to Virginia woollens, and having received in return tobacco, exports it to the Baltic to exchange for naval stores. This roundabout trade differs from a common foreign trade in no respect, except that its returns are likely to be slower, and consequently its effects still less beneficial to the community.

When all other branches are filled, the only resource of overflowing capital is in the carrying trade. Here the merchant merely exports the produce of one foreign country to another foreign country. The country to which he belongs gains nothing but the mere profits of the trade. It receives no encouragement to its agriculture, or its manufactures. Neither of the goods whose value is raised belong to it. The carrying trade is the least advantageous of all modes of employing the national capital. It is the symptom, however, of a great and almost overgrown commercial prosperity; for it is not till capital is extremely abundant, that it turns into this direction. Seeing the carrying trade, therefore, the accompaniment of great national prosperity, legislators have mistaken it as a cause, and have held out peculiar encouragements with the view of forcing part of the national capital prematurely into this direction; which, from the view now given, must be evidently hurtful.

Commerce employs fewer men than either manufactures or agriculture; it employs merely the merchant, who transacts the business, and the sailors and carriers who transport the goods. These, too, may belong indifferently either to one country or the other, or even to a different one from either; and this, from the smallness of their number, is a matter of little consequence.

Sect. VII. The Retail Trade.

The last species of industry is the retail trade. The convenience, and indeed necessity of this, is obvious. It would be extremely troublesome if a man were obliged to purchase a whole ox or sheep at a time; if he were obliged to lay in at once six or eight months provision of every different article. Part of his stock would thus constantly lie dead, and the commodities besides would often perish in his hands. Hence the use of shop-keepers, from whom we may purchase any article in as small a quantity as suits us. Some persons have apprehended bad consequences from the multiplication of retailers, but with no good reason; for the greater the competition, on the better terms will the public public be served, each being anxious to underfell his rivals. Their multiplication might ruin themselves, which, in general, we may be sure of their guarding against; but it must be for the benefit of their customers.

Sect. VIII. On the Coincidence between Public and Private Interest.

As the wealth of a society consists merely of the aggregate wealth of its members, every thing which tends to increase the property of an individual, without injuring that of others, that is, every species of lawful industry, tends to augment also the riches of the society. Those branches also which are most productive to the society, will be equally so to the individual who conducts them. Such branches have, besides, peculiar recommendations, which will lead men, upon equal profits, to prefer them to others of a nature less generally beneficial.

The improvement and cultivation of land is the mode in which the greatest produce may be raised with the least capital: it has, besides, other recommendations. It is the way in which a man's property is most completely under his own eye, and most secure from accident. The pleasures of a country life, the independence by which it is generally accompanied, the healthful and animating nature of its occupations, secure it a certain preference over most other employments.

Manufactures, again, possess many advantages above commerce, at least in that early state of improvement where capitals are moderate. The capital employed in it is more secure, and more under the inspection of its owner, than that which is sent to a distance, and committed to the winds and the waves. Some trade indeed must always exist for the exchange of the surplus produce, which even the rudest society possesses. But, in the earlier period of society, it is more advantageous to allow foreigners to carry on this trade, and even to supply all the finer manufactures. The opportunities of this kind possessed by the North American colonies, have been one great cause of their rapid prosperity.

It is evident, that, in commerce, both domestic and foreign, the merchant, with equal profits, will prefer the shorter voyage, which places the business more under his own superintendence, yields him quicker returns, and subjects him to less risk. Above all, the carrying trade, the whole of which must be transacted abroad, will have little attraction for him, unless strong temptation be presented.

Thus we see, that in all instances, the private interest of the individual leads him to adopt that species of employment which is most conducive to the interests of the public. In leaving him, therefore, to find out and choose the most advantageous employment for his own industry and stock, we are certainly doing that which is also best for the general good. This principle ought to be the polar star to guide the steps of the legislator in political economy. His object should be, to secure to every individual the fruit of his industry, and then to leave him at liberty to exert it in any manner he may judge advantageous. All regulations of an opposite nature, are as contrary to the interests of the society, as they are injurious to the individual.

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Chap. IV. Of the Mercantile and Economical Systems.

Sect. I. General View of the Mercantile System.

The fundamental principle of the mercantile system, and that which its supporters are accustomed to treat as a self-evident axiom, is, that wealth consists in money, or in gold and silver. The facility of exchanging these metals for any other commodity, the habit thence derived, of calculating, according to their standard, the wealth belonging to each individual, has made this a natural and general error. Having laid down this principle, the next question comes to be, how the money of any nation was to be increased? Where it was possessed of gold and silver mines, the obvious policy was, to lock up the whole produce of these within itself, and to prohibit its exportation under the severest penalties. Where the nation possessed no mines of its own, gold and silver could be obtained only by giving other commodities in exchange. Suppose a nation to export to the value of a million, while it imported only to the value of half a million, the other half, it was conceived, must be paid in money, and must go to increase the wealth of the nation. To export much, and to import little, were therefore conceived to be the great means of enriching a nation. The difference between the exports and imports was called the balance of trade, and considered as the grand criterion of commercial prosperity. If the exports exceeded the imports, it was called a favourable balance; if the contrary, an unfavourable balance. It so happened, to the great consolation of our mercantile politicians, that the former of these cases always took place. A certain annual supply of gold and silver was actually imported for the maintenance of the current coin, and for some ornamental manufactures; and, besides, as duties are rarely levied on articles exported, the vanity or convenience of merchants led them often to enter more than they actually shipped. But though this was the case in general, it was otherwise with regard to some particular countries. If, in the case of Spain, America and the West Indies, the result was as favourable as could be desired, many a rueful look was cast upon the statements of the German, Baltic, and East India commerce; in all which the balance, as it is called, was decidedly against this country. To check this great evil, every expedient was employed which might diminish importation and encourage exportation in general, and particularly in regard to those countries with whom our balance was unfavourable. What the nature and effects of these measures really are, we shall presently have occasion to consider. We shall now make some remarks on the general principle on which they are founded.

1. Restrictions upon the intercourse with a particular country, which is supposed to have a balance against us, are unreasonable, even supposing the general principle to be found. For if we get commodities cheaper from that nation, and sell ours to it with greater advantage, the balance will, on the whole, be more in our favour, than if we carried on the same transactions with any other nation. If we can get wine cheaper from France than from Portugal, the annual value of our imports for wine... wine will be diminished, by dealing with the former country. Besides, what is imported may often be so, only for the purpose of re-exportation to some other country.

2. The whole idea of the balance of trade is quite fanciful and chimerical. By every exchange which takes place with a foreign country, the nation gains as well as the individual; nor does it make any difference whether goods or money be received in return. If indeed the legislature could succeed in forcing a greater importation of gold and silver than would naturally take place, it would do the country a serious injury. These metals, when converted into money, form, as above observed, a part of the fixed capital of the society, a most useful and necessary part, but still one which is merely instrumental, and does not make any direct addition to the wealth of the society. If we could have the same functions performed without it, the society would gain the whole of what it has been accustomed to pay for it. On the contrary, when a government forces upon the nation more than is requisite for the purposes of circulation, it makes it incur an expense which would otherwise have been saved. It does not appear, in the case of nations which have no mines, that any of the boasted regulations respecting import and export, will have the least effect in enlarging the importation of gold and silver. But where a people have mines within themselves, a strict prohibition, such as is usually imposed, against the export of these metals, though it will be far from absolutely preventing that export, will yet keep within the country a somewhat greater quantity than would otherwise have remained. This appears to be (or at least to have been) actually the case with Spain and Portugal, occasioning a considerable loss to both these countries.

As the principle of the mercantile system naturally leads to the supposition, that whatever is gained by one nation, is lost to another, it generally leads to violent commercial jealousies between neighbouring countries. The nearer they are to each other, the more are restrictions and prohibitions multiplied. This is altogether unreasonable. The nearer a country, the more advantageous is its trade. It approaches the more nearly to the home trade, in the quickness of its returns, and can be carried on with a smaller capital. The plan, therefore, of making our neighbours as poor as possible, is completely unwise. The richer they are, they will be the better customers for our commodities, and the greater will be the benefit which we derive from their trade.

Having thus proved, that the regulations of the mercantile system are altogether unfitting for attaining their end, and that the end, were it attainable, is useless, and even pernicious, we shall now consider what is the real effect of these regulations. With this view they may be classed under two heads, restraints upon importation, and encouragements to exportation.

Sect. II. Restraints upon Importation.

These are either high duties or prohibitions.

It has been an universal principle of modern taxation, that duties are to be levied only on articles imported, and not on those which are exported. This principle is founded. The taxes imposed by any community ought to fall upon its own members, not upon those of other communities. To attempt acting otherwise, would be not only unjust, but impolitic. These articles of produce and manufacture, on which the export duty was imposed, would not, in the general market of the world, keep their ground against the same commodities from other nations, which imposed no such duty. The mercantile system, however, goes much farther. With the view of encouraging internal industry, and preventing importation, it lays higher duties upon certain articles imported, than upon the same when manufactured within the country; thus securing to the latter, a certain advantage in the home market, independent of any superiority of skill. It thus turns to certain branches of industry a greater proportion of the national industry and capital than would naturally have gone to them. Now, we have proved, that in all cases, the direction which individual interest spontaneously gives to the national industry, is the best and most useful direction. Everything, therefore, which tends to disturb it, to turn industry into channels into which it would not naturally have gone, is injurious to the public, and tends to render that industry less productive. Such is precisely the operation of the duties in question, which, therefore, though they may augment the productive industry of the nation in some particular branches, tend to diminish its whole amount. Thus, in an agricultural nation, if duties are imposed upon the importation of manufactured goods, a part of the national capital which was employed in the more profitable employment of agriculture, will be forced into the less advantageous one of manufactures. The misfortune is, that in the mercantile system, from a very natural prejudice of those with whom it originates, the less advantageous branch is always rated higher than the more advantageous; manufactures than agriculture, commerce than manufactures, and foreign trade than domestic. Its operations are pernicious, not only in their general principle, but still more in their particular application.

In regard to prohibitions, their effect is the same as high duties, only greater in degree. They are seldom completely effectual, unless in the case of very bulky goods; but their operation must always be equal to the highest duty, and must therefore be equally injurious, without bringing any advantage to the revenue.

Sect. III. Encouragements to Exportation.

The expedients which the mercantile system employs to encourage exportation are drawbacks and bounties. As to drawbacks, they are extremely reasonable. No government we observe, can properly, or without imprudence, attempt to tax the consumption of other nations. When, therefore, it has imposed a duty on any article produced within itself, it is quite expedient that this should be repaid on exportation; otherwise the articles, when carried to a foreign market, could not meet the competition of others, which had paid no such duty. In the same manner, when an article has paid a duty at importation, it is perfectly fair that the duty should be repaid, in the case of the article being re-exported; otherwise a severe check would be put both upon the carrying trade, and the foreign trade of consumption. Still, indeed, the merchant has the disadvantage of having advanced the tax, and consequently been deprived, Bounties are expedients of a different nature. They are given upon the production and exportation of certain articles, which, it is conceived, would not otherwise pay the expense. Their tendency is, therefore, to force capital and industry into the channels which, it is admitted, are disadvantageous to the individual, and which according to the principles above explained, must be equally so to the society. Their effect, therefore, is nearly the same as that produced by restraints upon importation. Premiums are not liable to the same objections: Being only given to one or two specimens of peculiar merit, they merely stimulate to excellence in any branch of industry, without having much tendency to turn towards it a disproportionate share of the national capital.

The bounty on corn is the most important of those granted in Great Britain; and as the whole system of corn laws is not only of the utmost importance, but closely connected with the views of the mercantile system, it may not be unseasonable to introduce our sketch of them in this place.

Sect. IV. Of the Corn Laws.

To render the necessaries of life cheap, is a grand object of the mercantile system, since it thus expects to lower the wages of labour, and thereby lessen the expense of manufacturing. The expedients it adopts, however, are by no means judicious. The object of the legislator, on this subject, has been to prevent as much as possible all trade in corn; to urge the farmer to bring it to market as soon as possible, and to discourage the utmost its passing through any intermediate hands between him and the consumer. All such intermediate persons are stigmatized by the opprobrious names of regaters and forefullers, and the severest penalties are enacted against them. Let us consider on what grounds these proceedings can be justified.

The great evil in the price of grain is the variations to which it is liable, which at one time produce superfluous plenty, and at another threaten the community with absolute want. The production of it being only once a year, there is a constant danger, that before next harvest, the supply may run out. Crops too vary, and sometimes fail to a distressing degree. It is most desirable, therefore, that the superabundance of one period should, if possible, be made to supply the deficiency of another. The grand interest of the public, in regard to grain, is to distribute, as equally as possible, over different years, and over different parts of the same year, the supply of grain, so that the plenty of one period may relieve the want of another, and the general price be kept as equal as possible. This is precisely what the merchant does. He buys when it is cheap, and sells again when it is dear. If he buys it even when it bears a high price, it is only from the expectation of its rising still higher, that is, of the scarcity becoming still greater; and unless this expectation be well grounded, he loses instead of gaining by the transaction. He may miscalculate indeed; but in this case, he suffers severely for his mistake; and he has the constant stimulus of private interest to guard him against it.

It follows, therefore, that the freer we leave the trade in corn, the better will the public be guarded against the evils of famine, and that the vulgar outcry upon this subject has no real foundation.

With regard to the bounty, it has been defended as being an artificial mode of obviating that irregularity of price, to which grain is liable. The increased quantity which the bounty tends to produce, may, it is alleged, be employed, in a year of scarcity, to alleviate the evils of dearth.

Sect. V. Of Exclusive Companies.

At the first introduction of commercial enterprise in Europe, it was frequently the practice of governments to vest particular trades, supposed to be of a peculiarly arduous nature, in the hands of an exclusive company. Such a measure is almost always hurtful to the public. The interest of all traders is to buy cheap and sell dear, and is thereby hostile to the interest, both of the producers and consumers. But an exclusive company, having no competition to dread, can carry this system into effect to a much greater extent than the private trader. It is even found that the selling a small quantity at a high price, is more profitable than the selling a large quantity at a moderate price. The Dutch East India Company are said to have destroyed a number of their plantations in the Spice islands, with the view of diminishing the supply, and thereby raising the price.

It is supposed that some very extensive branches of trade could not be carried on by individuals with safety; but in this case, either the capital of the country is not yet sufficient for such undertakings, or a company will be formed to carry them on, without the necessity of any exclusive privilege. It may be observed, that such companies, from the waste and negligence attending a large concern, managed often by persons who have no deep interest in it, and not stimulated by the dread of competitors, prove generally as ruinous to those concerned in it, as to the public. Almost all the exclusive companies, established in this and the neighbouring countries, have ended in bankruptcy.

Sect. VI. Of Colonial Policy.

As countries increase in populousness, and as cultivation is carried to a greater extent, the means of subsistence become continually more and more difficult. The evil most felt is a scarcity of land, of that grand source from which all revenue must originally flow. But while there are other countries comparatively unimproved, an obvious remedy presents itself. A certain portion of the inhabitants of the cultivated country removes into that which is still uncultivated, where they find land cheap, and the means of subsistence easy. Of all societies, these generally make the most rapid strides towards improvement. To the abundance and cheapness of land, which is peculiar to uncultivated countries, they join the arts and industrious habits of cultivated society. They are thus enabled to make a much more rapid progress than either. All the Grecian colonies, in Asia Minor, Italy, and... Mercantile and Sicily, enjoyed an unexampled degree of prosperity.

The North American colonies doubled their numbers every twenty years; and in South America, notwithstanding the injudicious restraints with which its commerce was fettered, the increase has not been much less considerable.

In spite of the temptation thus held out to colonize, men are in general not easily induced to leave their native country, till they are driven by some compulsory motive. In the ancient republics, colonies were formed by men who had been driven from their homes by civil war and faction. The North American states were peopled by refugees, criminals, and other refuse of the mother country. The case was somewhat different in the southern part of the continent, where a false but glittering lure was thrown out by the immense mines of gold and silver which it contained.

In pursuance of the monopolizing and trafficking spirit of modern Europe, each country has referred to itself the exclusive trade of its colonies. This restriction evidently tends to cramp the improvement of the latter, and to divert the trade of the former into a less natural and advantageous channel. To Britain, and to the British colonies, however, the restriction has been little injurious. The former was in a state to carry on, and to need, the whole of this commerce; while the latter, from their infant state, could confine themselves with much more advantage to agriculture. The French colonies have probably suffered something from the restriction; but to the Spanish and Portuguese it has been very ruinous, as their mother countries were wholly unfit for carrying on so extensive a commerce.

Sect. VIII. Of the Economical System.

We have already noticed, in our historical introduction, the circumstances in which, and the persons from whom, this system originated. According to it, agriculture is the only real source of wealth, and the persons employed in it are alone to be honoured with the appellation of productive labourers. The capital spent by the landlord in improvements, and that employed by the farmer in cultivation, are in like manner represented as the only capitals which are productive of wealth. In support of this position they argue, that manufacturers merely repay what has been spent upon them; the expense of materials, and the subsistence of the labourers. The only part which is gain to the nation is the profit of the manufacturer, and the portion of their wages (probably a very small portion), which the labourers save, and convert into capital. It does not follow, however, that traders and manufacturers, though under this system they receive the name of unproductive labourers, are useless to the society. They are valuable servants to the proprietors and cultivators of lands. They save them the trouble of performing a variety of operations, which would distract their attention, and which they could not do equally well. By giving a greater quantity of manufactured commodities in exchange for the produce of land, they raise the value of that produce. Still, however, they act altogether a subordinate part to the agricultural portion of the community, by whom they are fed and supported.

A very little consideration will shew us the fallacy of this system. The wealth of a nation, as we observed above, consists in the total amount of external conveniences and comforts which are produced and enjoyed in it. Now every commodity, with every increase in its value, which is produced by manufactures and commerce, is so much added to national convenience and comfort, that is, to national wealth. It is of no consequence, that, while the labourer is producing it, he is also consuming a certain portion of corn and other necessaries of life. These were produced for the purpose of being consumed, and if they have perished, they have not done so without having performed their office, without having ministered to the benefit of the society, and enlarged the amount of its comforts. The whole, therefore, of what the manufacturer produces in any given time, is clear gain to the public. To be convinced of this, we have only to suppose, that in this time, he had consumed the same quantity of goods, without working at all.

We admit indeed, and have already observed, that agriculture is more productive than any other species of industry, and alone, besides paying the labour and capital employed in it, affords a surplus as rent to the landlord. It does not follow, however, because the one employment is more productive, that the other is not productive at all. Besides manufactures, over and above the labour and circulating capital employed in them, pay often a very large fixed capital. Now land, we conceive, is merely to be considered as a great fixed capital provided by nature, and rent as a consideration given for the use of that fixed capital.

The Economists conceive the rent of land to be the fund on which all taxes must ultimately fall. They therefore recommend a land-tax to be substituted instead of all others. The propriety of this system will come to be considered in the course of the following chapter.

Chap. V. Of Public Revenue.

As the whole society derives from government their protection against evils internal and external, the regular administration of justice, and a variety of other benefits, without which they could not subsist, it is perfectly equitable that each, in proportion to his means, should contribute to the extent which is necessary for fulfilling these different objects. Regular government is even indispensable to the production of public wealth, as it alone affords that security of property which is the life of industry. In this view, the officers of government cannot, even upon Smith's principle, be considered as unproductive labourers. They might more properly be considered as a part of the fixed capital of the society.

Sect. I. Of Taxes in general.

In the composition of taxes there are four circumstances, which ought, as far as possible, to be constantly kept in view, and the observance of which forms the criterion of the propriety or impropriety of each particular tax.

1. They ought to fall as equally as possible on every member of the society, in proportion to his means of contribution. As all derive equal benefits from the establishment... blightment of regular government, all ought to contribute equally for its support. The rich, however, ought to contribute not only more, but in a greater proportion, than the poor. As by far the greater part of their expenditure is on luxuries, they can retrench a part of it much better than those who, to pay the tax, must deprive themselves of the necessaries or first comforts of life.

2. The sum paid by each person ought to be fixed, and not left to the arbitrary appointment of the collecting officers. In this last case, the security of property is in a great measure done away, and room is left for the most grievous oppression. This is a still greater evil than inequality.

3. A tax ought to be payable at the time when a man can best afford it.

4. In proportion to what it brings into the treasury, it ought to take as little as possible from the people; that is, the expense of collection ought to be as moderate as possible. There ought also to be care taken to avoid trouble and inconvenience to the people, in the way of domiciliary visits, fines, &c.

Some persons have fancied, that taxes were beneficial. They allege, that the merchant derives a profit, not only for his advance upon the article, but also for his advance upon the tax. In this way, doubtless, he is no loser; but neither is he a gainer; for in consequence of the increased price, the public must retrench in their use of the article, and consequently the extent of his dealings in it be diminished. Even should they not retrench in this, they must in some other article, which will fall heavy on some other class of merchants. But it is the interest, not of the merchant, but of the consumer, which ought to be the grand object in political economy; and this interest infallibly suffers. The consumers of the article taxed must inevitably have their comforts, that is, their wealth, abridged.

We admit, indeed, that taxes, where they are not so heavy as to intrench on the capital of the country, do not essentially encroach on its wealth. They merely transfer income out of the pockets of one class of men into those of another. The money which a man of fortune would spend in maintaining menial servants and other instruments of luxury, when placed in the hands of government, is employed in maintaining soldiers and sailors. The amount of national income is not diminished. They have the disadvantage, however, that the money is taken out of the hands of those by whom it was earned, and put into the hands of those who contributed nothing to its production. If taxes come to fall upon capital, or to diminish its accumulation, they are then ruinous.

Sect. II. Taxes upon Rent.

The rent of land has always been considered as a proper object of taxation. In most of the eastern empires, the whole land belongs to the sovereign, who draws the rent of every farm throughout his dominions*. In most of the European kingdoms, a certain portion of land belongs to the sovereign, under the name of crown lands. These, however, are seldom managed in that economical manner, which would be necessary to render them productive. The only lands which a government ought to possess, are lands for the purpose of pleasure and magnificence.

The rent of land is a very proper subject of taxation. It comes to the possessors without care or trouble, and it depends, more than any other source of income, on the protection of government. The chief difficulty arises from its being so variable. Thus the English land-tax was imposed in the reign of King William. Since that time, the value of all the lands in England has risen, but that of some much more than others; so that the tax, even had it been equal at first, must now have become very unequal. The only remedies are by making a survey at certain intervals, or by keeping a register of leases. To this it is objected, that it would discourage the landlord from laying out money on improvements; but the objection might be obviated by making liberal deductions on that account.

The rent of houses is of a very different nature from the rent of land. It is a commodity produced by art; and as the builder must have his profit, the rent will be raised in consequence of the tax. The rise, however, does not take place immediately. Houses are so durable an article, that for some time there will be no diminution of the supply; the rent will continue the same; and the loss will fall on the proprietor. As a certain number of houses, however, fall to ruin, undertakers will not build new ones without adequate profits; and the rents will rise to their proper level. It is singular that this should have been overlooked by Smith†.

Taxes are sometimes imposed, not on the rent, but on the produce of land. Such is that levied for the support of the church, both in England and Ireland. Such taxes are pernicious. They discourage industry. The farmer feels that the more he raises, the more will be taken from him. It would be of great advantage, therefore, to the country, if tithes were commuted for a fixed annual sum. It would then completely be the interest of the cultivator to raise as much produce as possible. The difficulty, no doubt, lies in making such an arrangement as would enable the clergy to benefit by the improvement of agriculture; but expedients might doubtless be found out, similar to those which were proposed above, in the case of land-tax.

The economists, as above observed, contend that all taxes fall finally on the rent of land; and therefore recommend that they should be laid directly upon that subject. The only argument which they allege in support of this opinion is, that taxes cannot fall either upon the profit of stock, or the wages of labour. Now we shall, in treating of these subjects, endeavour to prove, that taxes may most readily fall upon both.

Sect. III. Of Taxes on the Profit of Stock.

What are usually called the profits of stock, may be divided into three parts. The first is equal to the market rate of interest, and constitutes what any one is willing to give for the mere use of the stock; the second is a compensation for the risk incurred; the third is a compensation for the trouble of carrying on the business. Of these, the last appears to us to belong more properly to the wages of labour, and will be considered under that head. The second evidently is not taxable, because a man would rather not employ his stock at all, than not receive a full compensation for the risk he runs in so doing. But the first (which perhaps ought alone to be considered, strictly speaking, as the profits of stock), is, to almost its whole extent, completely taxable. Although, out of five per cent. government should take four, it would still remain the interest of the capitalist, to lend, or to employ his stock, rather than lose the remaining one. The profits of stock, however, are a less proper subject of taxation, than the rent of land. They are not so easily ascertained; the capital from which they are derived has been accumulated by industry and frugality; and it is the interest of the public to encourage this accumulation. There would be a danger of driving the capitals into other countries where they would be liable to no such imposition, to the great detriment of the country which they left.

A tax is sometimes imposed upon the profit of particular employments. Such a tax can never fall finally upon these profits. The persons engaged in this employment must have the usual profits for their stock, otherwise they will carry it into some other. Where these taxes, however, are unequal, they may favour certain classes of traders. Thus all licences, being the same whether the trader deals to a greater or less extent, fall heavier on the small than on the great dealer.

Taxes on the transference of property, stamp duties, duties of registration, &c., have been carried to a considerable extent in modern financial systems. The facility of raising a revenue by this method, has encouraged its adoption. Such taxes are unequal; for the frequency of transference has no connection with the value of property. We may conceive an estate coming so often to market, that these duties may absorb the whole of it; while another of the same value, from remaining long in the same hand, may pay nothing whatever. These taxes, too, fall chiefly upon the national capital, the fund by which its industry is supported. In many cases, they may prove a bar to the frequency and facility of mercantile exchange. Upon the whole, therefore, it is to be regretted, that they should prevail to so great an extent.

**Sect. IV. Taxes on the Wages of Labour.**

Dr Smith is of opinion, that no tax can fall upon the wages of labour; that wages, in consequence of such taxes, must immediately rise; and that the only effect will be a rise in the price of every species of produce. But how this effect can follow, we confess we do not see. A tax on the wages of labour has no tendency to increase the funds for the maintenance of labour; so far as it has any effect, it tends to diminish them. The supply and the demand will still remain the same. The only way in which, such taxes can raise the price of labour, is by diminishing the supply of it, that is, the population; which, in process of time, they are very likely to do. The same funds being then distributed among a smaller number, the wages of labourers will be higher; after paying the tax, they will still subsist as well as formerly; but still a portion will remain to go into the pockets of government. It is to be fully admitted, however, that such taxes are oppressive, and by all means to be avoided. When they diminish, too, the population and raise wages, they produce all the bad effects which Smith imputes to them, in raising the price of every manufactured commodity.

**Sect. V. Of Capitation Taxes.**

The taxes already noticed, are destined to fall on some particular source of revenue; this, and the rest of which we are now to treat, fall indifferently on all.

Capitation taxes are obviously unequal. The same sum is paid by the richest and poorest. They must fall chiefly, too, on the labouring classes; and what may be most oppressive to them will be scarcely felt by the more opulent. They are not arbitrary, however; they are easily levied; and in absolute governments, where the comfort of the people is little considered, they are pretty frequent. A capitation on slaves must be paid by the masters, and forms a tax on his farming or manufacturing stock.

**Sect. VI. Of Income Tax.**

A well regulated income tax is, in many respects, the most equal which can be imposed. It falls upon every one according to his ability, and it affords no one an opportunity of exempting himself from bearing a share in the public burdens. The expense of collection is small, and it takes as little as possible out of the pockets of the people, in proportion to what it places in those of the government. At the same time, it is liable to serious objections. It demands a disclosure of private circumstances, which must often be a hardship. It affords considerable room for evasion. The payment of a large sum at once is felt much more grievously than the same would be, if paid gradually and infensibly, by taxes on commodities. These causes have hitherto prevented its adoption, unless in a few rare instances, where reliance, it was supposed, could be placed on the good faith of the contributors. This seems to have happened only in some small republics, where the connection between public and private interest was very evident. By this means, however, under the present exigency, a very large sum is now raised in this country, more easily perhaps than it could be raised by any other method. To render it an equal tax, however, some further modification would still be necessary. One broad distinction is that of income which perishes with its owner, and income arising from land or capital. The last is evidently of considerably greater value, yet, under the present system, it is taxed equally. Land, indeed, pays the land tax. We observed above, that the larger a man's income, the greater proportion of it can he afford to pay, since he spends the more on superfluities. In regard to the lower ranks, this is sufficiently provided for by the present income tax; but by levying 10 per cent. on all who have £50l. a-year and upwards, it falls heavy on the middling ranks.

**Sect. VII. Of Taxes on Consumable Commodities.**

Of all taxes these are the least felt. Being directly paid by the merchant, they are felt by the consumers only. only in the increased price of the goods. They are thus paid gradually and piecemeal, and every one has the power of paying or not as he chooses. These advantages, especially in countries where the comfort of the subject is much attended to, lead to the very extensive adoption of such taxes. They are attended, however, with very serious drawbacks. No taxes take too much out of the pocket of individuals, in proportion to what they put into that of government. The tax being advanced by the merchant, he expects not only to have it repaid to him in the price of his goods, but to have it repaid with a profit. The commodity will therefore be raised, not merely by the amount of the tax, but by somewhat more than that amount. These taxes also require an host of collecting officers, whose salaries considerably diminish their amount. The visits which these officers must be allowed to make into the warehouse, workshop, and even private house of the merchant and manufacturer, form also a very serious grievance.

Such taxes may be either on necessaries or luxuries. The former are avoided as much as possible, by all wise legislators, as oppressive, falling chiefly on the poor, and having at least an ultimate tendency to raise the wages of labour. In Great Britain, the only taxes on necessaries are those on salt, soap, leather, and candles.

It is of the utmost importance that these duties should be levied in such a manner as not to impede the free transference of commodities from one place to another. In France, before the Revolution, and in other European countries, duties were to be paid almost constantly in passing from one province to another. The alcavala of Spain, the most ruinous of all taxes, levied ten, though afterwards only five per cent, every time a commodity was sold; which amounted almost to an absolute prohibition of all trade.

**Sect. VIII. Of Public Debts.**

Governments are seldom economical; and besides the large expense which is regularly incurred in supporting their establishment, they are liable to great occasional demands, which their ordinary revenue is quite unable to answer. Of these demands the most frequent and pressing is war, whether offensive or defensive; nor is there any cause which so frequently disturbs the finances of a nation.

In rude times, when no great capitals are accumulated, and when, from the unsettled state of things, those who have, would be unwilling to lend them, the only resource is in amassing a treasure. This was the policy of the sovereigns and great barons in the middle ages; and it still is that of most of the Asiatic princes. In a commercial state of society, however, sovereigns find ample means and temptation to spend the whole of their ordinary revenue in the luxuries which abound; while, at the same time, the great accumulation of capital enables the merchants easily to advance very large sums to government. In this transaction, they of course receive advantageous terms, and by selling their share of the public debt (thus converting it into a species of commodity, called stock), they are enabled to replace their capitals, and carry on their business as before.

Loans made by the government have this disadvantage, that whereas taxes are drawn from the income of the nation, these are drawn from its capital; from the fund by which its industry is supported. They have also the disadvantage, that from the facility with which money may be borrowed, they are apt to increase to an enormous and ruinous amount. To the credit of a private person, there are limits in the extent of his fortune; but these limits do not exist in the case of a government, which possesses an unlimited, or at least indefinite, power of augmenting its means. The interest of the present funded debt of Great Britain would be nearly sufficient for carrying on the most expensive war. In such a case the only remedy is by a sinking fund. A certain annual sum is appropriated to the purpose of paying off the national debt; and the interest which consequently falls in, is added to the original sum, which thus accumulating at compound interest, will increase, after a certain period, with immense rapidity. Before the time of Mr Pitt, there was always, during peace, something in the shape of a sinking fund in Great Britain. It was frequently devoted, however, to other purposes, and never paid off any considerable portion of the debt of the preceding war. He was the first who steadily set aside, in peace and war, a million for this purpose, and allowed it to accumulate at compound interest. Whenever a new loan was raised, he laid on one per cent. as a sinking fund. In consequence of a steady perseverance in this system, there is now a fair prospect of the country being gradually relieved from the burden which pressed upon it.

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**POLITICS,** the first part of economy or ethics, consisting in the well governing and regulating the affairs of a state for the maintenance of the public safety, order, tranquillity, and morals.

Lord Bacon divides politics into three parts, viz. the preservation of the state, its happiness and flourishing, and its enlargement. Of the first two he informs us, various authors have treated, but the last has never been handled; and he has given a specimen of an essay to supply the want.

**POLITY,** or **POLICY,** denotes the peculiar form and constitution of the government of any state or nation; or the laws, orders, and regulations, relating thereto. Polity differs only from politics, as the theory from the practice of any art.

Of the nature of our social duties, both private and political, we have already spoken at some length (see Moral Philosophy, Part II., chap. iii., and particularly sect. vii.) and we shall have occasion to take a view of the origin and nature of the several political establishments of Europe, &c. hereafter. (See Civil Society.) We shall only further remark in this place upon the necessity... cessity of always joining politics and morality together. This view of the subject is indeed antiquated and neglected; but the connection has always been externally respected, even by those who have separated them the most widely. Politics and morality, far from standing in opposition to each other, have the most intimate connection, and exhibit the relation which the part bears to the whole; that is to say, that politics are only a part or a branch of morality. No truth can be more evident than this; for as morality is the guide of human life, the principle of order, and the universal source of real improvement and genuine happiness to all mankind, everything relative to the direction of individuals, or the government of nations, must be comprehended within its sphere, and must be subservient to its laws. All the schemes and projects of pretended political wisdom, that deviate from or violate the rules of this master-science, turn out in the issue often to the detriment of their contrivers, always to that of the nation; and it is a palpable and absurd error to think of advancing the happiness of one country at the expense of the general good of mankind. The experience of ages, and the history of the world, confirm these assertions; from which, and from daily observation, we obtain a convincing proof of the wisdom of the good old maxim, both in its application to individuals and to nations, that "honesty is the best policy." See Baron Dahlberg's Considerations on the Connection between Morality and Politics, read by himself to the Academy of Sciences at Erfurt.