No More Learning

This perhaps would be more particularly the case with respect to a metal
used for money, than any other commodity, because the demand for money
is not for a definite quantity, as is the demand for clothes, or for
food. The demand for money is regulated entirely by its value, and its
value by its quantity. If gold were of double the value, half the
quantity would perform the same functions in circulation, and if it were
of half the value, double the quantity would be required. If the market
value of corn be increased one tenth by taxation, or by difficulty of
production, it is doubtful, whether any effect whatever would be
produced on the quantity consumed, because every man's want is for a
definite quantity, and, therefore, if he has the means of purchasing, he
will continue to consume as before; but for money, the demand is
exactly proportioned to its value. No man could consume twice the
quantity of corn, which is usually necessary for his support, but every
man purchasing and selling only the same quantity of goods, may be
obliged to employ twice, thrice, or any number of times the same
quantity of money.

The argument which I have just been using, applies only to those states
of society in which the precious metals are used for money, and where
paper credit is not established. The metal gold like all other
commodities has its value in the market ultimately regulated by the
comparative facility or difficulty of producing it; and although from
its durable nature, and from the difficulty of reducing its quantity, it
does not readily bend to variations in its market value, yet that
difficulty is much increased from the circumstance of its being used as
money. If the quantity of gold in the market for the purpose of commerce
only, were 10,000 ounces, and the consumption in our manufactures were
2000 ounces annually, it might be raised one fourth, or 25 per cent. in
its value, in one year, by withholding the annual supply; but if in
consequence of its being used as money, the quantity employed were
100,000 ounces, it would not be raised one fourth in value in less than
ten years. As money made of paper may be readily reduced in quantity,
its value, though its standard were gold, would be increased as rapidly
as that of the metal itself would be increased if it had no connexion
whatever with money.

If gold were the produce of one country only, and it were used
universally for money, a very considerable tax might be imposed on it,
which would not fall on any country, except in proportion as they used
it in manufactures, and for utensils; upon that portion which was used
for money, though a large tax might be received, nobody would pay it.
This is a quality peculiar to money. All other commodities of which
there exists a limited quantity, and which cannot be increased by
competition, are dependant for their value, on the tastes, the caprice,
and the power of purchasers; but money is a commodity which no country
has any wish or necessity to increase: no more advantage results from
using twenty millions, than from using ten millions of currency. A
country might have a monopoly of silk, or of wine, and yet the prices of
silks and wine might fall, because from caprice or fashion, or taste,
cloth and brandy might be preferred, and substituted; the same effect
might in a degree take place with gold, as far as its use is confined to
manufactures: but while money is the general medium of exchange, the
demand for it is never a matter of choice, but always of necessity; you
must take it in exchange for your goods, and therefore there are no
limits to the quantity which may be forced on you by foreign trade, if
it fall in value; and no reduction to which you must not submit, if it
rise. You may indeed substitute paper money, but by this you do not, and
cannot lessen the quantity of money; it is only by the rise of the price
of commodities, that you can prevent them from being exported from a
country where they are purchased with little money, to a country where
they can be sold for more, and this rise can only be effected by an
importation of metallic money from abroad, or by the creation or
addition of paper money at home. If then the King of Spain, supposing
him to be in exclusive possession of the mines, and gold alone to be
used for money, were to lay a considerable tax on gold, he would very
much raise its natural value; and as its market value in Europe is
ultimately regulated by its natural value in Spanish America, more
commodities would be given by Europe for a given quantity of gold. But
the same quantity of gold would not be produced in America, as its value
would only be increased in proportion to the diminution of quantity
consequent on its increased cost of production. No more goods then would
be obtained in America, in exchange for all their gold exported, than
before; and it may be asked, where then would be the benefit to Spain
and her colonies? The benefit would be this, that if less gold were
produced, less capital would be employed in producing it; the same value
of goods from Europe would be imported by the employment of the smaller
capital, that was before obtained by the employment of the larger; and
therefore all the productions obtained by the employment of the capital
withdrawn from the mines, would be a benefit which Spain would derive
from the imposition of the tax, and which she could not obtain in such
abundance, or with such certainty, by possessing the monopoly of any
other commodity whatever. From such a tax, as far as money was
concerned, the nations of Europe would suffer no injury whatever; they
would have the same quantity of goods, and consequently the same means
of enjoyment as before, but these goods would be circulated with a less
quantity of money.

If in consequence of the tax, only one tenth of the present quantity of
gold were obtained from the mines, that tenth would be of equal value
with the ten tenths now produced. But the King of Spain is not
exclusively in possession of the mines of the precious metals; and if he
were, his advantage from their possession, and the power of taxation,
would be very much reduced by the limitation of demand and consumption
in Europe, in consequence of the universal substitution, in a greater or
less degree, of paper money. The agreement of the market and natural
prices of all commodities, depends at all times on the facility with
which the supply can be increased or diminished. In the case of gold,
houses, and labour, as well as many other things, this effect cannot,
under some circumstances, be speedily produced. But it is different with
those commodities which are consumed and reproduced from year to year,
such as hats, shoes, corn, and cloth; they may be reduced if necessary,
and the interval cannot be long before the supply is contracted in
proportion to the increased charge of producing them.

A tax on raw produce from the surface of the earth, will, as we have
seen, fall on the consumer, and will in no way affect rent; unless, by
diminishing the funds for the maintenance of labour, it lowers wages,
reduces the population, and diminishes the demand for corn. But a tax on
the produce of gold mines must, by enhancing the value of that metal,
necessarily reduce the demand for it, and must therefore necessarily
displace capital from the employment to which it was applied.
Notwithstanding then, that Spain would derive all the benefits which I
have stated from a tax on gold, the proprietors of mines from which
capital was withdrawn would lose all their rent. This would be a loss
to individuals, but not a national loss; rent being not a creation, but
merely a transfer of wealth: the King of Spain, and the proprietors of
the mines which continued to be worked, would together receive not only
all that the liberated capital produced, but all that the other
proprietors lost.

Suppose the mines of the 1st, 2nd, and 3rd quality to be worked, and to
produce respectively 100, 80, and 70 pounds weight of gold, and
therefore the rent of No. 1 to be thirty pounds, and that of No. 2 ten
pounds. Suppose now the tax to be seventy pounds of gold per annum on
each mine worked; and consequently that No. 1 alone could be profitably
worked; it is evident that all rent would immediately disappear. Before
the imposition of the tax, out of the 100 pounds produced on No. 1, a
rent was paid of thirty pounds, and the worker of the mine retained
seventy, a sum equal to the produce of the least productive mine. The
value then of what remains to the capitalist of the mine No. 1 must be
the same as before, or he would not obtain the common profits of stock;
and consequently, after paying seventy out of his 100 pounds for tax,
the value of the remaining thirty must be as great as seventy were
before, and therefore the value of the whole hundred as great as 233
pounds before. Its value might be higher, but it could not be lower, or
even this mine would cease to be worked. Being a monopolised commodity,
it could exceed its natural value, and then it would pay a rent equal to
that excess; but no funds would be employed in the mine, if it were
below this value. In return for one-third of the labour and capital
employed in the mines, Spain would obtain as much gold as would exchange
for the same, or very nearly the same, quantity of commodities as
before. She would be richer by the produce of the two thirds liberated
from the mines. If the value of the 100 pounds of gold should be equal
to that of the 250 pounds extracted before; the king of Spain's portion,
his seventy pounds, would be equal to 175 at the former value: a small
part of the king's tax only would fall on his own subjects, the greater
part being obtained by the better distribution of capital.

The account of Spain would stand thus:

_Formerly produced_:

Gold 250 pounds, of the value of (suppose) 10,000 yards of
cloth.
_Now produced_:

By the two capitalists who quitted the mines,} 5,600 yards of
the value of 140 pounds of gold, or } cloth.
By the capitalist who works the mine, No. 1, }
thirty pounds of gold increased in value, } 3,000 yards of
as 1 to 2-1/2, and therefore now of the } cloth.
value of }
Tax to the king seventy pounds, now of the } 7,000 yards of
value of } cloth.
------
15,600
------

Of the 7000 received by the king, the people of Spain would contribute
only 1400, and 5600 would be pure gain, effected by the liberated
capital.

If the tax, instead of being a fixed sum per mine worked, were a certain
portion of its produce, the quantity would not be reduced in
consequence. If a half, a fourth, or a third of each mine were taken for
the tax, it would nevertheless be the interest of the proprietors to
make their mines yield as abundantly as before; but if the quantity were
not reduced, but only a part of it transferred from the proprietor to
the king, its value would not rise; the tax would fall on the people of
the colonies, and no advantage would be gained. A tax of this kind would
have the effect that Adam Smith supposes taxes on raw produce would have
on the rent of land--it would fall entirely on the rent of the mine. If
pushed a little further, the tax would not only absorb the whole rent,
but would deprive the worker of the mine of the common profits of stock,
and he would consequently withdraw his capital from the production of
gold. If still further extended, the rent of still better mines would be
absorbed, and capital would be further withdrawn; and thus the quantity
would be continually reduced, and its value raised, and the same effects
would take place as we have already pointed out; a part of the tax would
be paid by the people of the Spanish colonies, and the other part would
be a new creation of produce, by increasing the power of the instrument
used as a medium of exchange. Taxes on gold are of two kinds, one on the
actual quantity of gold in circulation, the other on the quantity that
is annually produced from the mines. Both have a tendency to reduce the
quantity, and to raise the value of gold; but by neither will its value
be raised till the quantity is reduced, and therefore such taxes will
fall for a time, until the supply is diminished, on the proprietors of
money, but ultimately they will be paid by the owner of the mine in the
reduction of rent, and by the purchasers of that portion of gold, which
is used as a commodity contributing to the enjoyments of mankind, and
not set apart exclusively for a circulating medium.




CHAPTER XII.

TAXES ON HOUSES.


There are also other commodities besides gold which cannot be speedily
reduced in quantity; any tax on which will therefore fall on the
proprietor, if the increase of price should lessen the demand.

Taxes on houses are of this description; though laid on the occupier,
they will frequently fall by a diminution of rent on the landlord. The
produce of the land is consumed and reproduced from year to year, and so
are many other commodities; as they may therefore be speedily brought to
a level with the demand, they cannot long exceed their natural price.
But as a tax on houses may be considered in the light of an additional
rent paid by the tenant, its tendency will be to diminish the demand
for houses of the same annual rent, without diminishing their supply.
Rent will therefore fall, and a part of the tax will be paid indirectly
by the landlord.

"The rent of a house," says Adam Smith, "may be distinguished into two
parts, of which the one may very properly be called the building rent,
the other is commonly called the ground rent. The building rent is the
interest or profit of the capital expended in building the house. In
order to put the trade of a builder upon a level with other trades, it
is necessary that this rent should be sufficient first to pay the same
interest which he would have got for his capital, if he had lent it upon
good security; and secondly, to keep the house in constant repair, or
what comes to the same thing, to replace within a certain term of years
the capital which had been employed in building it. " "If in proportion
to the interest of money, the trade of the builder affords at any time a
much greater profit than this, it will soon draw so much capital from
other trades, as will reduce the profit to its proper level. If it
affords at any time much less than this, other trades will soon draw so
much capital from it as will again raise that profit. Whatever part of
the whole rent of a house is over and above what is sufficient for
affording this reasonable profit, naturally goes to the ground rent; and
where the owner of the ground, and the owner of the building are two
different persons, it is in most cases completely paid to the former. In
country houses, at a distance from any great town, where there is a
plentiful choice of ground, the ground rent is scarcely any thing, or no
more than what the space upon which the house stands, would pay if
employed in agriculture. In country villas, in the neighbourhood of some
great town, it is sometimes a good deal higher, and the peculiar
conveniency, or beauty of situation, is there frequently very highly
paid for. Ground rents are generally highest in the capital, and in
those particular parts of it, where there happens to be the greatest
demand for houses, whatever be the reason for that demand, whether for
trade and business, for pleasure and society, or for mere vanity and
fashion. " A tax on the rent of houses may either fall on the occupier,
on the ground landlord, or on the building landlord. In ordinary cases
it may be presumed, that the whole tax would be paid both immediately
and finally by the occupier.

If the tax be moderate, and the circumstances of the country such, that
it is either stationary or advancing, there would be little motive for
the occupier of a house to content himself with one of a worse
description. But if the tax be high, or any other circumstances should
diminish the demand for houses, the landlord's income would fall, for
the occupier would be partly compensated for the tax by a diminution of
rent. It is, however, difficult to say, in what proportions that part of
the tax, which was saved by the occupier by a fall of rent, would fall
on the building rent and the ground rent. It is probable, that in the
first instance, both would be affected; but as houses are, though
slowly, yet certainly perishable, and as no more would be built, till
the profits of the builder were restored to the general level, building
rent, would, after an interval, be restored to its natural price. As the
builder receives rent only whilst the building endures, he could pay no
part of the tax, under the most disastrous circumstances, for any longer
period.

The payment of this tax, then, would ultimately fall on the occupier and
ground landlord, but "in what proportion, this final payment would be
divided between them," says Adam Smith, "it is not perhaps very easy to
ascertain. The division would probably be very different in different
circumstances, and a tax of this kind might, according to those
different circumstances, affect very unequally both the inhabitant of
the house, and the owner of the ground. "[15]

Adam Smith considers ground rents as peculiarly fit subjects for
taxation. "Both ground rents, and the ordinary rent of land," he says,
"are a species of revenue, which the owner in many cases enjoys, without
any care or attention of his own. Though a part of this revenue should
be taken from him, in order to defray the expenses of the state, no
discouragement will thereby be given to any sort of industry. The annual
produce of the land and labour of the society, the real wealth and
revenue of the great body of the people, might be the same after such a
tax as before. Ground rents, and the ordinary rent of land, are,
therefore, perhaps the species of revenue, which can best bear to have a
peculiar tax imposed upon them. " It must be admitted that the effects of
these taxes would be such as Adam Smith has described; but it would
surely be very unjust, to tax exclusively the revenue of any particular
class of a community. The burdens of the state should be borne by all in
proportion to their means: this is one of the four maxims mentioned by
Adam Smith, which should govern all taxation. Rent often belongs to
those who after many years of toil, have realised their gains, and
expended their fortunes in the purchase of land; and it certainly would
be an infringement of that principle which should ever be held sacred,
the security of property, to subject it to unequal taxation. It is to be
lamented, that the duty by stamps, with which the transfer of landed
property is loaded, materially impedes the conveyance of it into those
hands, where it would probably be made most productive. And if it be
considered, that land, regarded as a fit subject for exclusive
taxation, would not only be reduced in price, to compensate for the risk
of that taxation, but in proportion to the indefinite nature and
uncertain value of the risk, would become a fit subject for
speculations, partaking more of the nature of gambling, than of sober
trade, it will appear probable, that the hands into which land would in
that case be most apt to fall, would be the hands of those, who possess
more of the qualities of the gambler, than of the qualities of the
sober-minded proprietor, who is likely to employ his land to the
greatest advantage.




CHAPTER XIII.

TAXES ON PROFITS.


Taxes on those commodities, which are generally denominated luxuries,
fall on those only who make use of them. A tax on wine is paid by the
consumer of wine. A tax on pleasure horses, or on coaches, is paid by
those who provide for themselves such enjoyments, and in exact
proportion as they provide them. But taxes on necessaries do not affect
the consumers of necessaries, in proportion to the quantity that may be
consumed by them, but often in a much higher proportion. A tax on corn,
we have observed, not only affects a manufacturer in the proportion that
he and his family may consume corn, but it alters the rate of profits of
stock, and therefore also affects his income. Whatever raises the wages
of labour, lowers the profits of stock; therefore every tax on any
commodity consumed by the labourer, has a tendency to lower the rate of
profits.

A tax on hats will raise the price of hats; a tax on shoes, the price of
shoes; if this were not the case, the tax would be finally paid by the
manufacturer; his profits would be reduced below the general level, and
he would quit his trade. A partial tax on profits will raise the price
of the commodity on which it falls: a tax, for example, on the profits
of the hatter, would raise the price of hats; for if his profits were
taxed, and not those of any other trade, his profits, unless he raised
the price of his hats, would be below the general rate of profits, and
he would quit his employment for another.

In the same manner a tax on the profits of the farmer would raise the
price of corn; a tax on the profits of the clothier, the price of cloth;
and if a tax in proportion to profits were laid on all trades, every
commodity would be raised in price. But if the mine, which supplied us
with the standard of our money, were in this country, and the profits of
the miner were also taxed, the price of no commodity would rise, each
man would give an equal proportion of his income, and every thing would
be as before.

If money be not taxed, and therefore be permitted to preserve its value,
whilst every thing else is taxed, and is raised in value, the hatter,
the farmer, and clothier, each employing the same capitals, and
obtaining the same profits, will pay the same amount of tax. If the tax
be 100_l. _, the hats, the cloth, and the corn, will each be increased in
value 100_l. _ If the hatter gain by his hats 1100_l. _, instead of
1000_l. _, he will pay 100_l. _ to Government for the tax; and therefore
will still have 1000_l. _ to lay out on goods for his own consumption.
But as the cloth, corn, and all other commodities, will be raised in
price from the same cause, he will not obtain more for his 1000_l. _ than
he before obtained for 910_l. _, and thus will he contribute by his
diminished expenditure to the exigencies of the state; he will, by the
payment of the tax, have placed a portion of the produce of the land and
labour of the country at the disposal of Government, instead of using
that portion himself. If instead of expending his 1000_l. _, he adds it
to his capital, he will find in the rise of wages, and in the increased
cost of the raw material and machinery, that his saving of 1000_l. _ does
not amount to more than a saving of 910_l. _ amounted to before.

If money be taxed, or if by any other cause its value be altered, and
all commodities remain precisely at the same price as before, the
profits of the manufacturer and farmer will also be the same as before,
they will continue to be 1000_l. _; and as they will each have to pay
100_l. _ to Government, they will retain only 900_l. _, which will give
them a less command over the produce of the land and labour of the
country, whether they expend it in productive or unproductive labour.
Precisely what they lose, Government will gain. In the first case the
contributor to the tax would, for 1000_l. _, have as great a quantity of
goods as he before had for 910_l. _; in the second, he would have only as
much as he before had for 900_l. _ This proceeds from the difference in
the amount of the tax; in the first case it is only an eleventh of his
income, in the second it is a tenth; money in the two cases being of a
different value.

But although, if money be not taxed, and do not alter in value, all
commodities will rise in price, they will not rise in the same
proportion; they will not after the tax bear the same relative value to
each other which they did before the tax. In a former part of this work,
we discussed the effects of the division of capital into fixed and
circulating, or rather into durable and perishable capital, on the
prices of commodities. We shewed that two manufacturers might employ
precisely the same amount of capital, and might derive from it precisely
the same amount of profits, but that they would sell their commodities
for very different sums of money, according as the capitals they
employed were rapidly, or slowly, consumed and reproduced. The one might
sell his goods for 4000_l. _, the other for 10,000_l. _, and they might
both employ 10,000_l. _ of capital, and obtain 20 per cent. profit, or
2000_l. _ The capital of one might consist for example of 2000_l. _
circulating capital, to be reproduced, and 8000_l. _ fixed, in buildings
and machinery; the capital of the other on the contrary might consist of
8000_l. _ of circulating, and of only 2000_l. _ fixed capital in machinery
and buildings. Now if each of these persons were to be taxed 10 per
cent. on his income, or 200_l. _, the one, to make his business yield him
the general rate of profit, must raise his goods from 10,000_l. _ to
10,200_l. _; the other would also be obliged to raise the price of his
goods from 4000_l. _ to 4200_l. _ Before the tax, the goods sold by one of
these manufacturers were 2-1/2 times more valuable than the goods of the
other; after the tax they will be 2. 42 times more valuable: the one kind
will have risen 2 per cent. ; the other 5 per cent. : consequently a tax
upon income, whilst money continued unaltered in value, would alter the
relative prices and value of commodities. This is true, if the tax
instead of being laid on the profits were laid on the commodities
themselves: provided they were taxed in proportion to the value of the
capital employed on their production, they would rise equally, whatever
might be their value, and therefore they would not preserve the same
proportion as before. A commodity, which rose from ten to eleven
thousand pounds, would not bear the same relation as before, to another
which rose from 2 to 3000_l. _ If under these circumstances money rose in
value, from whatever cause it might proceed, it would not affect the
prices of commodities in the same proportion. The same cause which would
lower the price of one from 10,200_l. _ to 10,000_l. _ or less than 2 per
cent. , would lower the price of the other from 4200_l. _ to 4000_l. _ or
4-3/4 per cent. If they fell in any different proportion, profits would
not be equal; for to make them equal, when the price of the first
commodity was 10,000_l. _, the price of the second should be 4000_l. _;
and when the price of the first was 10,200_l. _, the price of the other
should be 4200_l. _

The consideration of this fact will lead to the understanding of a very
important principle, which I believe has never been adverted to. It is
this; that in a country where no taxation subsists, the alteration in
the value of money arising from scarcity or abundance will operate in an
equal proportion on the prices of all commodities; that if a commodity
of 1000_l. _ value rise to 1200_l. _, or fall to 800_l. _, a commodity of
10,000_l. _ value will rise to 12,000_l. _ or fall to 8000_l. _; but in a
country where prices are artificially raised by taxation, the abundance
of money from an influx, or the exportation and consequent scarcity of
it from foreign demand, will not operate in the same proportion on the
prices of all commodities; some it will raise or lower 5, 6, or 12 per
cent. , others 3, 4, or 7 per cent. If a country were not taxed, and
money should fall in value, its abundance in every market would produce
similar effects in each. If meat rose 20 per cent. , bread, beer, shoes,
labour, and every commodity, would also rise 20 per cent. ; it is
necessary they should do so, to secure to each trade the same rate of
profits. But this is no longer true when any of these commodities is
taxed; if in that case they should all rise in proportion to the fall in
the value of money, profits would be rendered unequal; in the case of
the commodities taxed profits would be raised above the general level,
and capital would be removed from one employment to another, till an
equilibrium of profits was restored, which could only be, after the
relative prices were altered.

Will not this principle account for the different effects, which it was
remarked were produced on the prices of commodities, from the altered
value of money during the Bank-restriction? It was objected to those who
contended that the currency was at that period depreciated, from the too
great abundance of the paper circulation, that, if that were the fact,
all commodities ought to have risen in the same proportion; but it was
found that many had varied considerably more than others, and thence it
was inferred that the rise of prices was owing to something affecting
the value of commodities, and not to any alteration in the value of the
currency. It appears however, as we have just seen, that in a country
where commodities are taxed, they will not all vary in price in the same
proportion, either in consequence of a rise or of a fall in the value of
currency.

If the profits of all trades were taxed, excepting the profits of the
farmer, all goods would rise in money value, excepting raw produce. The
farmer would have the same corn income as before, and would sell his
corn also for the same money price; but as he would be obliged to pay an
additional price for all the commodities, except corn, which he
consumed, it would be to him a tax on expenditure. Nor would he be
relieved from this tax by an alteration in the value of money, for an
alteration in the value of money might sink all the taxed commodities to
their former price, but the untaxed one would sink below its former
level; and therefore, though the farmer would purchase his commodities
at the same price as before, he would have less money with which to
purchase them.

The landlord too would be precisely in the same situation, he would have
the same corn, and the same money rent as before, if all commodities
rose in price, and money remained at the same value; and he would have
the same corn, but a less money rent, if all commodities remained at the
same price: so that in either case, though his income were not directly
taxed, he would indirectly contribute towards the money raised.

But suppose the profits of the farmer to be also taxed, he then would be
in the same situation as other traders; his raw produce would rise, so
that he would have the same money revenue, after paying the tax, but he
would pay an additional price for all the commodities he consumed, raw
produce included.

His landlord however would be differently situated, he would be
benefited by the tax on his tenant's profits, as he would be compensated
for the additional price at which he would purchase his manufactured
commodities, if they rose in price; and he would have the same money
revenue, if in consequence of a rise in the value of money, commodities
sold at their former price. A tax on the profits of the farmer, is not a
tax proportioned to the gross produce of the land, but to its net
produce, after the payment of rent, wages, and all other charges. As the
cultivators of the different kinds of land, No. 1, 2, and 3, employ
precisely the same capitals, they will get precisely the same profits,
whatever may be the quantity of gross produce, which one may obtain more
than the other; and consequently they will be all taxed alike. Suppose
the gross produce of the land of the quality No. 1, to be 180 qrs. , that
of No. 2, 170 qrs. , and of No 3, 160, and each to be taxed 10 quarters,
the difference between the produce of No. 1, No. 2, and No. 3, after
paying the tax, will be the same as before; for if No. 1 be reduced to
170, No. 2 to 160, and No. 3 to 150 qrs.
; the difference between 3 and 1
will be as before, 20 qrs. ; and of No. 3 and No. 2, 10 qrs. If after the
tax the prices of corn and of every other commodity should remain the
same as before, money rent as well as corn rent, would continue
unaltered; but if the price of corn, and every other commodity should
rise in consequence of the tax, money rent will also rise in the same
proportion. If the price of corn were 4_l. _ per quarter, the rent of No.
1 would have been 80_l. _, and that of No. 2, 40_l. _; but if corn rose
ten per cent. , or to 4_l. _ 8_s. _, rent would also rise ten per cent. ,
for twenty quarters of corn would then be worth 88_l. _, and ten quarters
44_l. _; so that in every case the landlord will be unaffected by such a
tax. A tax on the profits of stock always leaves corn rent unaltered,
and therefore money rent varies with the price of corn; but a tax on raw
produce, or tithes, never leaves corn rent unaltered, but generally
leaves money rent the same as before. In another part of this work I
have observed, that if a land-tax of the same money amount, were laid on
every kind of land in cultivation, without any allowance for difference
of fertility, it would be very unequal in its operation, as it would be
a profit to the landlord of the more fertile lands. It would raise the
price of corn in proportion to the burden borne by the farmer of the
worst land; but this additional price being obtained for the greater
quantity of produce yielded by the better land, farmers of such land
would be benefited during their leases, and afterwards, the advantage
would go to the landlord in the form of an increase of rent. The effect
of an equal tax on the profits of the farmer is precisely the same; it
raises the money rent of the landlords, if money retains the same value;
but as the profits of all other trades are taxed, as well as those of
the farmer, and consequently the prices of all goods, as well as corn,
are raised, the landlord loses as much by the increased money price of
the goods and corn on which his rent is expended, as he gains by the
rise of his rent. If money should rise in value, and all things should,
after a tax on the profits of stock, fall to their former prices, rent
also would be the same as before. The landlord would receive the same
money rent, and would obtain all the commodities on which it was
expended at their former price; so that under all circumstances he would
continue untaxed.

A tax on the profits of stock would also affect the stockholder, if all
commodities were to rise in proportion to the tax; but if from the
alteration in the value of money, all commodities were to sink to their
former price, the stockholder would pay nothing towards the tax; he
would purchase all his commodities at the same price, but would still
receive the same money dividend.

If it be agreed, that by taxing the profits of one manufacturer only,
the price of his goods would rise, to put him on an equality with all
other manufacturers; and that by taxing the profits of two
manufacturers, the prices of two descriptions of goods must rise, I do
not see how it can be disputed, that by taxing the profits of all
manufacturers, the prices of all goods would rise, provided the mine
which supplied us with money, were in the country taxed. But as money,
or the standard of money, is a commodity imported from abroad, the
prices of all goods could not rise; for such an effect could not take
place without an additional quantity of money, which could not be
obtained in exchange for dear goods, as was shewn in page 108. If
however, such a rise could take place, it could not be permanent, for it
would have a powerful influence on foreign trade. In return for
commodities imported, those dear goods could not be exported, and
therefore we should for a time continue to buy, although we ceased to
sell; and should export money, or bullion, till the relative prices of
commodities were nearly the same as before. It appears to me absolutely
certain, that a well regulated tax on profits, would ultimately restore
commodities both of home and foreign manufacture, to the same money
price which they bore before the tax was imposed.

As taxes on raw produce, tithes, taxes on wages, and on the necessaries
of the labourer, will, by raising wages, lower profits, they will all,
though not in an equal degree, be attended with the same effects.

The discovery of machinery, which materially improves home manufactures,
always tends to raise the relative value of money, and therefore to
encourage its importation. All taxation, all increased impediments,
either to the manufacturer, or the grower of commodities, tend on the
contrary to lower the relative value of money, and therefore to
encourage its exportation.




CHAPTER XIV.

TAXES ON WAGES.


Taxes on wages will raise wages, and therefore will diminish the rate of
the profits of stock. We have already seen that a tax on necessaries
will raise their prices, and will be followed by a rise of wages. The
only difference between a tax on necessaries, and a tax on wages is,
that the former will necessarily be accompanied by a rise in the price
of necessaries, but the latter will not; towards a tax on wages,
consequently, neither the stockholder, the landlord, nor any other
class but the employers of labour will contribute. A tax on wages is
wholly a tax on profits, a tax on necessaries is partly a tax on
profits, and partly a tax on rich consumers. The ultimate effects which
will result from such taxes then are precisely the same as those which
result from a direct tax on profits.

"The wages of the inferior classes of workmen," says Adam Smith, "I have
endeavoured to shew in the first book, are every where necessarily
regulated by two different circumstances; the demand for labour, and the
ordinary or average price of provisions. The demand for labour,
according as it happens to be either increasing, stationary, or
declining, or to require an increasing, stationary, or declining
population, regulates the subsistence of the labourer, and determines in
what degree it shall be either liberal, moderate, or scanty. The
_ordinary or average_ price of provisions determines the quantity of
money which must be paid to the workman, in order to enable him one year
with another to purchase this liberal, moderate, or scanty subsistence.
While the demand for labour, and the price of provisions, therefore
remain the same, a direct tax upon the wages of labour can have no other
effect than to raise them somewhat higher than the tax. "

To the proposition, as it is here advanced by Dr. Smith, Mr. Buchanan
offers two objections. First, he denies that the money wages of labour
are regulated by the price of provisions; and secondly, he denies that a
tax on the wages of labour would raise the price of labour. On the first
point, Mr. Buchanan's argument is as follows, page 59: "The wages of
labour, it has already been remarked, consist not in money, but in what
money purchases, namely, provisions and other necessaries; and the
allowance of the labourer out of the common stock, will always be in
proportion to the supply. Where provisions are _cheap and abundant_, his
share will be the larger; and where they are _scarce and dear_, it will
be the less. His wages will always give him his just share, and they
cannot give him more. It is an opinion indeed, adopted by Dr. Smith and
most other writers, that the money price of labour is regulated by the
money price of provisions, and that when provisions rise in price, wages
rise in proportion. But it is clear that the price of labour has no
necessary connexion with the price of food, since it depends entirely on
the supply of labourers compared with the demand. Besides, it is to be
observed, that the high price of provisions is a certain indication of a
deficient supply, and arises in the natural course of things, for the
purpose of retarding the consumption. A smaller supply of food, shared
among the same number of consumers, will evidently leave a smaller
portion to each, and the labourer must bear his share of the common
want. To distribute this burden equally, and to prevent the labourer
from consuming subsistence so freely as before, the price rises. But
wages it seems must rise along with it, that he may still use the same
quantity of a scarcer commodity; and thus nature is represented as
counteracting her own purposes: first, raising the price of food, to
diminish the consumption, and afterwards, raising wages to give the
labourer the same supply as before. "

In this argument of Mr. Buchanan, there appears to me, to be a great
mixture of truth and error. Because a high price of provisions is
sometimes occasioned by a deficient supply, Mr. Buchanan assumes it as a
certain indication of a deficient supply. He attributes to one cause
exclusively, that which may arise from many. It is undoubtedly true,
that in the case of a deficient supply, a smaller quantity will be
shared among the same number of consumers, and a smaller portion will
fall to each. To distribute this privation equally, and to prevent the
labourer from consuming subsistence so freely as before, the price
rises. It must therefore be conceded to Mr. Buchanan, that any rise in
the price of provisions, occasioned by a deficient supply, will not
necessarily raise the money wages of labour; as the consumption must be
retarded; which can only be effected by diminishing the power of the
consumers to purchase. But, because the price of provisions is raised by
a deficient supply, we are by no means warranted in concluding, as Mr.
Buchanan appears to do, that there may not be an abundant supply, with a
high price; not a high price with regard to money only, but with regard
to all other things.

The natural price of commodities, which always ultimately governs their
market price, depends on the facility of production; but the quantity
produced is not in proportion to that facility. Although the lands,
which are now taken into cultivation, are much inferior to the lands in
cultivation three centuries ago, and therefore the difficulty of
production is increased, who can entertain any doubt, but that the
quantity produced now, very far exceeds the quantity then produced? Not
only is a high price compatible with an increased supply, but it rarely
fails to accompany it. If, then, in consequence of taxation, or of
difficulty of production, the price of provisions be raised, and the
quantity be not diminished, the money wages of labour will rise; for as
Mr. Buchanan has justly observed, "The wages of labour consist not in
money, but in what money purchases, namely, provisions and other
necessaries; and the allowance of the labourer out of the common stock,
will always be in proportion to the supply. "

With respect to the second point, whether a tax on the wages of labour
would raise the price of labour, Mr. Buchanan says, "After the labourer
has received the fair recompense of his labour, how can he have recourse
on his employer, for what he is afterwards compelled to pay away in
taxes? There is no law or principle in human affairs to warrant such a
conclusion. After the labourer has received his wages, they are in his
own keeping, and he must, as far as he is able, bear the burthen of
whatever exactions he may ever afterwards be exposed to: for he has
clearly no way of compelling those to reimburse him, who have already
paid him the fair price of his work. " Mr. Buchanan has quoted with great
approbation, the following able passage from Mr. Malthus's work on
population, which appears to me completely to answer his objection. "The
price of labour, when left to find its natural level, is a most
important political barometer, expressing the relation between the
supply of provisions, and the demand for them, between the quantity to
be consumed, and the number of consumers; and, taken on the average,
independently of accidental circumstances, it further expresses,
clearly, the wants of the society respecting population, that is,
whatever may be the number of children to a marriage necessary to
maintain exactly the present population, the price of labour will be
just sufficient to support this number, or be above it, or below it,
according to the state of the real funds, for the maintenance of labour,
whether stationary, progressive, or retrograde. Instead, however, of
considering it in this light, we consider it as something which we may
raise or depress at pleasure, something which depends principally on his
majesty's justices of the peace. When an advance in the price of
provisions already expresses that the demand is too great for the
supply, in order to put the labourer in the same condition as before, we
raise the price of labour, that is, we increase the demand, and are then
much surprised, that the price of provisions continues rising. In this,
we act much in the same manner, as if, when the quicksilver in the
common weather glass, stood at _stormy_, we were to raise it by some
forcible pressure to settled fair, and then be greatly astonished that
it continued raining. "

"The price of labour will express, clearly, the wants of the society
respecting population;" it will be just sufficient to support the
population, which at that time the state of the funds for the
maintenance of labourers, requires. If the labourer's wages were before
only adequate to supply the requisite population, they will, after the
tax, be inadequate to that supply, for he will not have the same funds
to expend on his family. Labour will therefore rise, because the demand
continues, and it is only by raising the price, that the supply is not
checked.

Nothing is more common, than to see hats or malt rise when taxed; they
rise because the requisite supply would not be afforded if they did not
rise: so with labour, when wages are taxed, its price rises, because, if
it did not, the requisite population would not be kept up. Does not Mr.
Buchanan allow all that is contended for, when he says, that "were he
(the labourer) indeed reduced to a bare allowance of necessaries, he
would then suffer no further abatement of his wages, as he could not on
such conditions continue his race? " Suppose the circumstances of the
country to be such, that the lowest labourers are not only called upon
to continue their race, but to increase it; their wages would have been
regulated accordingly. Can they multiply, if a tax takes from them a
part of their wages, and reduces them to bare necessaries?

It is undoubtedly true, that a taxed commodity will not rise in
proportion to the tax, if the demand for it will diminish, and if the
quantity cannot be reduced. If metallic money were in general use, its
value would not for a considerable time be increased by a tax, in
proportion to the amount of the tax, because at a higher price, the
demand would be diminished, and the quantity would not be diminished;
and unquestionably the same cause frequently influences the wages of
labour, the number of labourers cannot be rapidly increased or
diminished in proportion to the increase or diminution of the fund,
which is to employ them; but in the case supposed, there is no necessary
diminution of demand for labour, and if diminished, the demand does not
abate in proportion to the tax. Mr. Buchanan forgets that the fund
raised by the tax is employed by Government in maintaining labourers,
unproductive indeed, but still labourers. If labour were not to rise
when wages are taxed, there would be a great increase in the competition
for labour, because the owners of capital, who would have nothing to pay
towards such a tax, would have the same funds for imploying labour;
whilst the Government who received the tax would have an additional
fund for the same purpose. Government and the people thus become
competitors, and the consequence of their competition is a rise in the
price of labour. The same number of men only will be employed, but they
will be employed at additional wages.

If the tax had been laid at once on the people, their fund for the
maintenance of labour would have been diminished in the very same degree
that the fund of Government for that purpose had been increased; and
therefore there would have been no rise in wages; for though there would
be the same demand, there would not be the same competition. If when the
tax were levied, Government at once exported the produce of it as a
subsidy to a foreign state, and if therefore these funds were devoted to
the maintenance of foreign, and not of English labourers, such as
soldiers, sailors, &c. &c. ; then, indeed, there would be a diminished
demand for labour, and wages might not increase although they were
taxed; but the same thing would happen if the tax had been laid on
consumable commodities, on the profits of stock, or if in any other
manner the same sum had been raised to supply this subsidy: less labour
could be employed at home. In one case wages are prevented from rising,
in the other they must absolutely fall. But suppose the amount of a tax
on wages were, after being raised on the labourers, paid gratuitously to
their employers, it would increase their money fund for the maintenance
of labour, but it would not increase either commodities or labour. It
would consequently increase the competition amongst the employers of
labour, and the tax would be ultimately attended with no loss either to
master or labourer. The master would pay an increased price for labour;
the addition which the labourer received would be paid as a tax to
Government, and would be again returned to the masters. It must however
not be forgotten that the produce of taxes is often wastefully expended,
and that by diminishing capital they tend to diminish the real fund
destined for the maintenance of labour; and therefore to diminish the
real demand for it. Taxes then, generally, as far as they impair the
real capital of the country, diminish the demand for labour, and
therefore it is a probable, but not a necessary, nor a peculiar
consequence of a tax on wages, that though wages would rise, they would
not rise by a sum precisely equal to the tax.

Adam Smith, as we have seen, has fully allowed that the effect of a tax
on wages would be to raise wages by a sum at least equal to the tax, and
would be finally, if not immediately, paid by the employer of labour.
Thus far we fully agree; but we essentially differ in our views of the
subsequent operation of such a tax.

"A direct tax upon the wages of labour, therefore," says Adam Smith,
"though the labourer might perhaps pay it out of his hand, could not
properly be said to be even advanced by him; at least if the demand for
labour and the average price of provisions remained the same after the
tax as before it. In all such cases, not only the tax, but something
more than the tax, would in reality be advanced by the person who
immediately employed him. The final payment would in different cases
fall upon different persons. The rise which such a tax might occasion
in the wages of manufacturing labour, would be advanced by the master
manufacturer, _who would be entitled and obliged to charge it with a
profit, upon the price of his goods_. The rise which such a tax might
occasion in country labour would be advanced by the farmer, who, in
order to maintain the same number of labourers as before, would be
obliged to employ a greater capital. In order to get back this greater
capital, _together with the ordinary profits of stock_, it would be
necessary that he should retain a larger portion, or what comes to the
same thing, the price of a larger portion of the produce of the land,
and consequently that he should pay less rent to the landlord. The final
payment of this rise of wages, therefore, would in this case fall upon
the landlord, _together with the additional profits of the farmer who
had advanced it_. In all cases a direct tax upon the wages of labour
must, in the long run, occasion both a greater reduction in the rent of
land, and a greater rise in the price of manufactured goods, than would
have followed, from the proper assessment of a sum equal to the produce
of the tax, partly upon the rent of land, and partly upon consumable
commodities. " Vol. iii. p. 337. In this passage it is asserted that the
additional wages paid by farmers will ultimately fall on the landlords,
who will receive a diminished rent; but that the additional wages paid
by manufacturers will occasion a rise in the price of manufactured
goods, and will therefore fall on the consumers of those commodities.

Now suppose a society to consist of landlords, manufacturers, farmers,
and labourers. The labourers, it is agreed, would be recompensed for the
tax;--but by whom? --who would pay that portion which did not fall on the
landlords? --the manufacturers could pay no part of it; for if the price
of their commodities should rise in proportion to the additional wages
they paid, they would be in a better situation after than before the
tax. If the clothier, the hatter, the shoemaker, &c. , should be each
able to raise the price of their goods 10 per cent. ,--supposing 10 per
cent. to recompense them completely for the additional wages they
paid,--if, as Adam Smith says, "they would be entitled and obliged to
charge the additional wages _with a profit_ upon the price of their
goods," they could each consume as much as before of each other's
goods, and therefore they would pay nothing towards the tax. If the
clothier paid more for his hats and shoes, he would receive more for his
cloth, and if the hatter paid more for his cloth and shoes, he would
receive more for his hats. All manufactured commodities then would be
bought by them with as much advantage as before, and inasmuch as corn
would not be raised in price whilst they had an additional sum to lay
out upon its purchase, they would be benefited, and not injured by such
a tax.

If then neither the labourers nor the manufacturers would contribute
towards such a tax; if the farmers would be also recompensed by a fall
of rent, landlords alone must not only bear its whole weight, but they
must also contribute to the increased gains of the manufacturers. To do
this, however, they should consume all the manufactured commodities in
the country, for the additional price charged on the whole mass is
little more than the tax originally imposed on the labourers in
manufactures.

Now it will not be disputed that the clothier, the hatter, and all other
manufacturers, are consumers of each other's goods; it will not be
disputed that labourers of all descriptions consume soap, cloth, shoes,
candles, and various other commodities: it is therefore impossible that
the whole weight of these taxes should fall on landlords only.

But if the labourers pay no part of the tax, and yet manufactured
commodities rise in price, wages must rise, not only to compensate them
for the tax, but for the increased price of manufactured necessaries,
which, as far as it affects agricultural labour, will be a new cause for
the fall of rent; and, as far as it affects manufacturing labour, for a
further rise in the price of goods. This rise in the price of goods will
again operate on wages, and the action and re-action, first of wages on
goods, and then of goods on wages, will be extended without any
assignable limits. The arguments by which this theory is supported, lead
to such absurd conclusions that it may at once be seen that the
principle is wholly indefensible.

All the effects which are produced on the profits of stock and the wages
of labour, by a rise of rent and a rise of necessaries, in the natural
progress of society, and increasing difficulty of production, will be
produced by a rise of wages in consequence of taxation; and therefore
the enjoyments of the labourer, as well as those of his employers, will
be curtailed by the tax; and not by this tax particularly, but by any
other which should raise an equal amount.

The error of Adam Smith proceeds in the first place from supposing, that
all taxes paid by the farmer must necessarily fall on the landlord, in
the shape of a deduction from rent. On this subject I have explained
myself most fully, and I trust that it has been shewn, to the
satisfaction of the reader, that since much capital is employed on the
land which pays no rent, and since it is the result obtained by this
capital which regulates the price of raw produce, no deduction can be
made from rent; and consequently either no remuneration will be made to
the farmer for a tax on wages, or if made, it must be made by an
addition to the price of raw produce.

If taxes press unequally on the farmer, he will be enabled to raise the
price of raw produce, to place himself on a level with those who carry
on other trades; but a tax on wages, which would not affect him more
than it would affect any other trade, could not be removed or
compensated by a high price of raw produce; for, the same reason which
should induce him to raise the price of corn, namely, to remunerate
himself for the tax, would induce the clothier to raise the price of
cloth, the shoemaker, hatter, and upholsterer, to raise the price of
shoes, hats, and furniture.

If they could all raise the price of their goods, so as to remunerate
themselves, with a profit, for the tax; as they are all consumers of
each other's commodities, it is obvious that the tax could never be
paid; for who would be the contributors if all were compensated?

I hope then that I have succeeded in shewing, that any tax which shall
have the effect of raising wages, will be paid by a diminution of
profits, and therefore that a tax on wages is in fact a tax on profits.

This principle of the division of the produce of labour and capital
between wages and profits, which I have attempted to establish, appears
to me so certain, that excepting in the immediate effects, I should
think it of little importance whether the profits of stock, or the wages
of labour, were taxed. By taxing the profits of stock, you would
probably alter the rate at which the funds for the maintenance of labour
increase, and wages would be disproportioned to the state of that fund,
by being too high. By taxing wages, the reward paid to the labourer
would also be disproportioned to the state of that fund, by being too
low. In the one case by a fall, and in the other by a rise in money
wages, the natural equilibrium between profits and wages would be
restored. A tax on wages then does not fall on the landlord, but it
falls on the profits of stock: it does not "entitle and oblige the
master manufacturer to charge it with a profit on the prices of his
goods," for he will be unable to increase their price, and therefore he
must himself wholly and without compensation pay such a tax. [16]

If the effect of taxes on wages be such as I have described, they do not
merit the censure cast upon them by Dr. Smith. He observes of such
taxes, "These, and some other taxes of the same kind, by raising the
price of labour, are said to have ruined the greater part of the
manufactures of Holland. Similar taxes, though not quite so heavy, take
place in the Milanese, in the states of Genoa, in the duchy of Modena,
in the duchies of Parma, Placentia, and Guastalla, and in the
ecclesiastical states. A French author of some note, has proposed to
reform the finances of his country, by substituting in the room of other
taxes, this most ruinous of all taxes. 'There is nothing so absurd,'
says Cicero, 'which has not sometimes been asserted by some
philosophers. '" And in another place he says: "taxes upon necessaries,
by raising the wages of labour, necessarily tend to raise the price of
all manufactures, and consequently to diminish the extent of their sale
and consumption. " They would not merit this censure; even if Dr. Smith's
principle were correct that such taxes would enhance the prices of
manufactured commodities; for such an effect could be only temporary,
and would subject us to no disadvantage in our foreign trade. If any
cause should raise the price of a few manufactured commodities, it would
prevent or check their exportation; but if the same cause operated
generally on all, the effect would be merely nominal, and would neither
interfere with their relative value, nor in any degree diminish the
stimulus to a trade of barter; which all commerce, both foreign and
domestic, really is.

I have already attempted to shew, that when any cause raises the prices
of all commodities in general, the effects are nearly similar to a fall
in the value of money. If money falls in value, all commodities rise in
price; and if the effect is confined to one country, it will affect its
foreign commerce in the same way as a high price of commodities caused
by general taxation; and therefore in examining the effects of a low
value of money confined to one country, we are also examining the
effects of a high price of commodities confined to one country. Indeed
Adam Smith was fully aware of the resemblance between these two cases,
and consistently maintained that the low value of money, or, as he calls
it, of silver in Spain, in consequence of the prohibition against its
exportation, was very highly prejudicial to the manufactures and foreign
commerce of Spain. "But that degradation in the value of silver, which
being the effect either of the peculiar situation, or of the political
institutions of a particular country, takes place only in that country,
is a matter of very great consequence, which, far from tending to make
any body really richer, tends to make every body really poorer. The rise
in the money price of all commodities, which is in this case peculiar to
that county, tends to discourage more or less every sort of industry
which is carried on within it, and to enable foreign nations, by
furnishing almost all sorts of goods for a smaller quantity of silver
than its own workmen can afford to do, to undersell them not only in
the foreign, but even in the home market. " Vol. ii. page 278.

One, and I think the only one of the disadvantages of a low value of
silver in a country, proceeding from a forced abundance, has been ably
explained by Dr. Smith. If the trade in gold and silver were free, "the
gold and silver which would go abroad, would not go abroad for nothing,
but would bring back an equal value of goods of some kind or another.
Those goods too would not be all matters of mere luxury and expense, to
be consumed by idle people, who produce nothing in return for their
consumption. As the real wealth and revenue of idle people would not be
augmented by this extraordinary exportation of gold and silver, so would
neither their consumption be augmented by it. Those goods would,
probably the greater part of them, and certainly some part of them,
consist in materials, tools, and provisions, for the employment and
maintenance of industrious people, who would reproduce with a profit,
the full value of their consumption. A part of the dead stock of the
society would thus be turned into active stock, and would put into
motion a greater quantity of industry than had been employed before. "

By not allowing a free trade in the precious metals when the prices of
commodities are raised, either by taxation, or by the influx of the
precious metals, you prevent a part of the dead stock of the society
from being turned into active stock--you prevent a greater quantity of
industry from being employed. But this is the whole amount of the evil;
an evil never felt by those countries where the exportation of silver is
either allowed or connived at.

The exchanges between countries are at par only, whilst they have
precisely that quantity of currency which in the actual situation of
things they should have to carry on the circulation of their
commodities. If the trade in the precious metals were perfectly free,
and money could be exported without any expense whatever, the exchanges
could be no otherwise in every country than at par. If the trade in the
precious metals were perfectly free, if they were generally used in
circulation, even with the expenses of transporting them, the exchange
could never in any of them deviate more from par, than by these
expenses. These principles I believe are now no where disputed. If a
country used paper money not exchangeable for specie, and therefore not
regulated by any fixed standard, the exchanges in that country might
deviate as much from par, as its money might be multiplied beyond that
quantity which would have been allotted to it by general commerce, if
the trade in money had been free, and the precious metals had been used,
either for money, or for the standard of money.

If by the general operations of commerce, 10 millions of pounds
sterling, of a known weight and fineness of bullion, should be the
portion of England, and 10 millions of paper pounds were substituted, no
effect would be produced on the exchange; but if by the abuse of the
power of issuing paper money, 11 millions of pounds should be employed
in the circulation, the exchange would be 9 per cent. against England;
if 12 millions were employed, the exchange would be 16 per cent. ; and if
20 millions, the exchange would be 50 per cent. against England. To
produce this effect it is not however necessary that paper money should
be employed: any cause which retains in circulation a greater quantity
of pounds than would have circulated, if commerce had been free, and the
precious metals of a known weight and fineness had been used, either for
money, or for the standard of money, would exactly produce the same
effects. Suppose that by clipping the money, each pound did not contain
the quantity of gold or silver which by law it should contain, a greater
number of such pounds might be employed in the circulation, than if they
were not clipped. If from each pound one tenth were taken away, 11
millions of such pounds might be used instead of 10; if two tenths were
taken away, 12 millions might be employed; and if one half were taken
away, 20 millions might not be found superfluous. If the latter sum were
used instead of 10 millions, every commodity in England would be raised
to double its former price, and the exchange would be 50 per cent.
against England, but this would occasion no disturbance in foreign
commerce, nor discourage the manufacture of any one commodity. If for
example, cloth rose in England from 20_l. _ to 40_l. _ per piece, we
should just as freely export it after as before the rise, for a
compensation of 50 per cent. would be made to the foreign purchaser in
the exchange; so that with 20_l. _ of his money, he could purchase a bill
which would enable him to pay a debt of 40_l. _ in England. In the same
manner if he exported a commodity which cost 20_l. _ at home, and which
sold in England for 40_l.