No More Learning

It is to be understood that I am speaking of profits generally. I have
already remarked that the market price of a commodity may exceed its
natural or necessary price, as it may be produced in less abundance than
the new demand for it requires. This however is but a temporary effect.
The high profits on capital employed in producing that commodity will
naturally attract capital to that trade; and as soon as the requisite
funds are supplied, and the quantity of the commodity is duly increased,
its price will fall, and the profits of the trade will conform to the
general level. A fall in the general rate of profits is by no means
incompatible with a partial rise of profits in particular employments.
It is through the inequality of profits, that capital is moved from one
employment to another. Whilst then general profits are falling, and
gradually settling at a lower level in consequence of the rise of wages,
and the increasing difficulty of supplying the increasing population
with necessaries, the profits of the farmer, may, for an interval of
some little duration, be above the former level. An extraordinary
stimulus may be also given for a certain time, to a particular branch of
foreign and colonial trade; but the admission of this fact by no means
invalidates the theory, that profits depend on high or low wages, wages
on the price of necessaries, and the price of necessaries chiefly on the
price of food, because all other requisites may be increased almost
without limit.

It should be recollected that prices always vary in the market, and in
the first instance, through the comparative state of demand and supply.
Although cloth could be furnished at 40_s. _ per yard, and give the usual
profits of stock, it may rise to 60 or 80_s. _ from a general change of
fashion, or from any other cause which should suddenly and unexpectedly
increase the demand, or diminish the supply of it. The makers of cloth
will for a time have unusual profits, but capital will naturally flow to
that manufacture, till the supply and demand are again at their fair
level, when the price of cloth will again sink to 40_s. _, its natural or
necessary price. In the same manner, with every increased demand for
corn, it may rise so high as to afford more than the general profits to
the farmer. If there be plenty of fertile land, the price of corn will
again fall to its former standard, after the requisite quantity of
capital has been employed in producing it, and profits will be as
before; but if there be not plenty of fertile land, if, to produce this
additional quantity, more than the usual quantity of capital and labour
be required, corn will not fall to its former level. Its natural price
will be raised, and the farmer, instead of obtaining permanently larger
profits, will find himself obliged to be satisfied with the diminished
rate which is the inevitable consequence of the rise of wages, produced
by the rise of necessaries.

The natural tendency of profits then is to fall; for, in the progress of
society and wealth, the additional quantity of food required is obtained
by the sacrifice of more and more labour. This tendency, this
gravitation as it were of profits, is happily checked at repeated
intervals by the improvements in machinery, connected with the
production of necessaries, as well as by discoveries in the science of
agriculture which enable us to relinquish a portion of labour before
required, and therefore to lower the price of the prime necessary of the
labourer. The rise in the price of necessaries and in the wages of
labour is however limited; for as soon as wages should be equal (as in
the case formerly stated) to 720_l. _, the whole receipts of the farmer,
there must be an end of accumulation; for no capital can then yield any
profit whatever, and no additional labour can be demanded, and
consequently population will have reached its highest point. Long indeed
before this period, the very low rate of profits will have arrested all
accumulation, and almost the whole produce of the country, after paying
the labourers, will be the property of the owners of land and the
receivers of tithes and taxes.

Thus, taking the former very imperfect basis as the grounds of my
calculation, it would appear that when corn was at 20_l. _ per quarter,
the whole net income of the country would belong to the landlords, for
then the same quantity of labour that was originally necessary to
produce 180 quarters, would be necessary to produce 36; since 20_l. _ :
4_l. _ :: 180 : 36. The farmer then, who originally produced 180
quarters, (if any such there were, for the old and new capital employed
on the land would be so blended, that it could in no way be
distinguished,) would sell the

180 qrs. at 20_l. _ per qr. or £3600
the value of 144 qrs. {to landlord for rent, being the }
--- {difference between 36 and 180 qrs. } 2880
36 qrs. 720
the value of 36 qrs. to labourers ten in number 720
---
leaving nothing whatever for profit.

At this price of 20_l. _ the labourers would continue to consume
three quarters each per annum or £60

And on other commodities they would expend 12
--
72 for each labourer.
--
And therefore ten labourers would cost 720_l. _ per annum.

In all these calculations I have been desirous only to elucidate the
principle, and it is scarcely necessary to observe, that my whole basis
is assumed at random, and merely for the purpose of exemplification. The
results though different in degree, would have been the same in
principle, however accurately I might have set out in stating the
difference in the number of labourers necessary to obtain the successive
quantities of corn required by an increasing population, the quantity
consumed by the labourer's family, &c. &c. My object has been to
simplify the subject, and I have therefore made no allowance for the
increasing price of the other necessaries, besides food, of the
labourer; an increase which would be the consequence of the increased
value of the raw material from which they are made, and which would of
course further increase wages, and lower profits.

I have already said, that long before this state of prices was become
permanent, there would be no motive for accumulation; for no one
accumulates but with a view to make his accumulation productive, and it
is only when so employed that it operates on profits. Without a motive
there could be no accumulation, and consequently such a state of prices
never could take place. The farmer and manufacturer can no more live
without profit, than the labourer without wages. Their motive for
accumulation will diminish with every diminution of profit, and will
cease altogether when their profits are so low as not to afford them an
adequate compensation for their trouble, and the risk which they must
necessarily encounter in employing their capital productively.

I must again observe, that the rate of profits would fall much more
rapidly than I have estimated in my calculation: for the value of the
produce being what I have stated it under the circumstances supposed,
the value of the farmer's stock would be greatly increased from its
necessarily consisting of many of the commodities which had risen in
value. Before corn could rise from 4_l. _ to 12_l. _ his capital would
probably be doubled in exchangeable value, and be worth 6000_l. _ instead
of 3000_l. _ If then his profit were 180_l. _, or 6 per cent. on his
original capital, profits would not at that time be really at a higher
_rate_ than 3 per cent. ; for 6000_l. _ at 3 per cent. gives 180_l. _; and
on those terms only could a new farmer with 6000_l. _ money in his pocket
enter into the farming business.

Many trades would derive some advantage, more or less, from the same
source. The brewer, the distiller, the clothier, the linen manufacturer,
would be partly compensated for the diminution of their profits, by the
rise in the value of their stock of raw and finished materials; but a
manufacturer of hardware, of jewellery, and of many other commodities,
as well as those whose capitals uniformly consisted of money, would be
subject to the whole fall in the rate of profits, without any
compensation whatever.

We should also expect that, however the rate of the profits of stock
might diminish in consequence of the accumulation of capital on the
land, and the rise of wages, yet the aggregate amount of profits would
increase. Thus supposing that, with repeated accumulations of
100,000_l. _, the rate of profit should fall from 20 to 19, to 18, to 17
per cent. , a constantly diminishing rate, we should expect that the
whole amount of profits received by those successive owners of capital
would be always progressive; that it would be greater when the capital
was 200,000_l. _, than when 100,000_l. _; still greater when 300,000_l. _;
and so on, increasing, though at a diminishing rate, with every increase
of capital. This progression however is only true for a certain time:
thus 19 per cent. on 200,000_l. _ is more than 20 on 100,000_l. _; again
18 per cent. on 300,000_l. _ is more than 19 per cent. on 200,000_l. _;
but after capital has accumulated to a large amount, and profits have
fallen, the further accumulation diminishes the aggregate of profits.
Thus suppose the accumulation should be 1,000,000_l. _, and the profits 7
per cent. the whole amount of profits will be 70,000_l. _; now if an
addition of 100,000_l. _ capital be made to the million, and profits
should fall to 6 per cent. , 66,000_l. _ or a diminution of 4000_l. _ will
be received by the owners of stock, although the whole amount of stock
will be increased from 1,000,000_l. _ to 1,100,000_l. _

There can, however, be no accumulation of capital, so long as stock
yields any profit at all, without its yielding not only an increase of
produce, but an increase of value. By employing 100,000_l. _ additional
capital, no part of the former capital will be rendered less productive.
The produce of the land and labour of the country must increase, and its
value will be raised, not only by the value of the addition which is
made to the former quantity of productions, but by the new value which
is given to the whole produce of the land, by the increased difficulty
of producing the last portion of it, which new value always goes to
rent. When the accumulation of capital, however, becomes very great,
notwithstanding this increased value, it will be so distributed that a
less value than before will be appropriated to profits, while that which
is devoted to rent and wages will be increased. Thus with successive
additions of 100,000_l. _ to capital, with a fall in the rate of profits,
from 20 to 19, to 18, to 17 per cent. &c. the productions annually
obtained will increase in quantity, and be of more than the whole
additional value, which the additional capital is calculated to produce.
From 20,000_l. _ it will rise to more than 39,000_l. _ and then to more
than 57,000_l. _, and when the capital employed is a million, as we
before supposed, if 100,000_l. _ more be added to it, and the aggregate
of profits is actually lower than before, more than 6000_l. _ will
nevertheless be added to the revenue of the country, but it will be to
the revenue of the landlords; they will obtain more than the additional
produce, and will from their situation be enabled to encroach even on
the former gains of the capitalist. Thus, suppose the price of corn to
be 4_l. _ per quarter, and that therefore, as we before calculated, of
every 720_l. _ remaining to the farmer after payment of his rent, 480_l. _
were retained by him, and 240_l. _ were paid to his labourers; when the
price rose to 6_l. _ per quarter, he would be obliged to pay his
labourers 300_l. _ and retain only 420_l. _ for profits. Now if the
capital employed were so large as to yield a hundred thousand times
720_l. _ or 72,000,000_l. _ the aggregate of profits would be
48,000,000_l. _ when wheat was at 4_l. _ per quarter; and if by employing
a larger capital, 105,000 times 720_l. _ were obtained when wheat was at
6_l. _, or 75,600,000_l. _, profits would actually fall from
48,000,000_l. _ to 44,100,000_l. _ or 105,000 times 420_l. _, and wages
would rise from 24,000,000_l. _ to 31,500,000_l. _ Wages would rise
because more labourers would be employed, in proportion to capital; and
each labourer would receive more money wages; but the condition of the
labourer, as we have already shewn, would be worse, inasmuch as he would
be able to command a less quantity of the produce of the country. The
only real gainers would be the landlords; they would receive higher
rents, first, because produce would be of a higher value, and secondly,
because they would have a greatly increased proportion.

Although a greater value is produced, a greater proportion of what
remains of that value, after paying rent, is consumed by the producers,
and it is this, and this alone, which regulates profits. Whilst the land
yields abundantly, wages may temporarily rise, and the producers may
consume more than their accustomed proportion; but the stimulus which
will thus be given to population, will speedily reduce the labourers to
their usual consumption. But when poor lands are taken into cultivation,
or when more capital and labour are expended on the old land, with a
less return of produce, the effect must be permanent. A greater
proportion of that part of the produce which remains to be divided,
after paying rent, between the owners of stock and the labourers, will
be apportioned to the latter. Each man may, and probably will, have a
less absolute quantity; but as more labourers are employed in proportion
to the whole produce retained by the farmer, the value of a greater
proportion of the whole produce will be absorbed by wages, and
consequently the value of a smaller proportion will be devoted to
profits. This will necessarily be rendered permanent by the laws of
nature, which have limited the productive powers of the land.

Thus we again arrive at the same conclusion which we have before
attempted to establish:--that in all countries, and at all times,
profits depend on the quantity of labour requisite to provide
necessaries for the labourers, on that land or with that capital which
yields no rent. The effects then of accumulation will be different in
different countries, and will depend chiefly on the fertility of the
land. However extensive a country may be where the land is of a poor
quality, and where the importation of food is prohibited, the most
moderate accumulations of capital will be attended with great reductions
in the rate of profit, and a rapid rise in rent; and on the contrary a
small but fertile country, particularly if it freely permits the
importation of food, may accumulate a large stock of capital without any
great diminution in the rate of profits, or any great increase in the
rent of land. In the Chapter on Wages, we have endeavoured to shew that
the money price of commodities would not be raised by a rise of wages,
either on the supposition that gold, the standard of money, was the
produce of this country, or that it was imported from abroad. But if it
were otherwise, if the prices of commodities were permanently raised by
high wages, the proposition would not be less true, which asserts that
high wages invariably affect the employers of labour, by depriving them
of a portion of their real profits. Supposing the hatter, the hosier,
and the shoemaker, each paid 10_l. _ more wages in the manufacture of a
particular quantity of their commodities, and that the price of hats,
stockings, and shoes, rose by a sum sufficient to repay the manufacturer
the 10_l. _; their situation would be no better than if no such rise took
place. If the hosier sold his stockings for 110_l. _ instead of 100_l. _,
his profits would be precisely the same money amount as before; but as
he would obtain in exchange for this equal sum, one tenth less of hats,
shoes, and every other commodity, and as he could with his former amount
of savings employ fewer labourers at the increased wages, and purchase
fewer raw materials at the increased prices, he would be in no better
situation than if his money profits had been really diminished in
amount, and every thing had remained at its former price. Thus then I
have endeavoured to shew, first, that a rise of wages would not raise
the price of commodities, but would invariably lower profits; and
secondly, that if the prices of commodities could be raised, still the
effect on profits would be the same; and that in fact the value of the
medium only in which prices and profits are estimated would be lowered.




CHAPTER VI.

ON FOREIGN TRADE.


No extension of foreign trade will immediately increase the amount of
value in a country, although it will very powerfully contribute to
increase the mass of commodities, and therefore the sum of enjoyments.
As the value of all foreign goods is measured by the quantity of the
produce of our land and labour, which is given in exchange for them, we
should have no greater value, if by the discovery of new markets, we
obtained double the quantity of foreign goods in exchange for a given
quantity of ours. If by the purchase of English goods to the amount of
1000_l. _ a merchant can obtain a quantity of foreign goods, which he can
sell in the English market for 1,200_l. _, he will obtain 20 per cent.
profit by such an employment of his capital; but neither his gains, nor
the value of the commodities imported, will be increased or diminished
by the greater or smaller quantity of foreign goods obtained. Whether,
for example, he imports twenty-five or fifty pipes of wine, his interest
can be no way affected, if at one time the twenty-five pipes, and at
another the fifty pipes, equally sell for 1,200_l. _ In either case his
profit will be limited to 200_l. _, or 20 per cent. on his capital; and
in either case the same value will be imported into England. If the
fifty pipes sold for more than 1,200_l. _, the profits of this individual
merchant would exceed the general rate of profits, and capital would
naturally flow into this advantageous trade, till the fall of the price
of wine had brought every thing to the former level.

It has indeed been contended, that the great profits which are sometimes
made by particular merchants in foreign trade, will elevate the general
rate of profits in the country, and that the abstraction of capital from
other employments, to partake of the new and beneficial foreign
commerce, will raise prices generally, and thereby increase profits. It
has been said, by high authority, that less capital being necessarily
devoted to the growth of corn, to the manufacture of cloth, hats, shoes,
&c. while the demand continues the same, the price of these commodities
will be so increased, that the farmer, hatter, clothier, and shoemaker,
will have an increase of profits, as well as the foreign merchant. [13]

They who hold this argument agree with me, that the profits of different
employments have a tendency to conform to one another; to advance and
recede together. Our variance consists in this: They contend, that the
equality of profits will be brought about by the general rise of
profits; and I am of opinion, that the profits of the favoured trade
will speedily subside to the general level.

For, first, I deny that less capital will necessarily be devoted to the
growth of corn, to the manufacture of cloth, hats, shoes, &c. , unless
the demand for these commodities be diminished; and if so, their price
will not rise. In the purchase of foreign commodities, either the same,
a larger, or a less portion of the produce of the land and labour of
England will be employed. If the same portion be so employed, then will
the same demand exist for cloth, shoes, corn, and hats, as before, and
the same portion of capital will be devoted to their production. If, in
consequence of the price of foreign commodities being cheaper, a less
portion of the annual produce of the land and labour of England is
employed in the purchase of foreign commodities, more will remain for
the purchase of other things. If there be a greater demand for hats,
shoes, corn, &c. than before, which there may be, the consumers of
foreign commodities having an additional portion of their revenue
disposable, the capital is also disposable with which the greater value
of foreign commodities was before purchased; so that with the increased
demand for corn, shoes, &c. there exists also the means of procuring an
increased supply, and therefore neither prices nor profits can
permanently rise. If more of the produce of the land and labour of
England be employed in the purchase of foreign commodities, less can be
employed in the purchase of other things, and therefore fewer hats,
shoes, &c. will be required. At the same time that capital is liberated
from the production of shoes, hats, &c. more must be employed in
manufacturing those commodities with which foreign commodities are
purchased; and consequently in all cases the demand for foreign and home
commodities together, as far as regards value, is limited by the revenue
and capital of the country. If one increases, the other must diminish.
If the importation of wine, given in exchange for the same quantity of
English commodities be doubled, the people of England can either consume
double the quantity of wine that they did before, or the same quantity
of wine and a greater quantity of English commodities. If my revenue had
been 1000_l. _, with which I purchased annually one pipe of wine for
100_l. _ and a certain quantity of English commodities for 900_l. _; when
wine fell to 50_l. _ per pipe, I might lay out the 50_l. _ saved, either
in the purchase of an additional pipe of wine, or in the purchase of
more English commodities. If I bought more wine, and every wine-drinker
did the same, the foreign trade would not be in the least disturbed;
the same quantity of English commodities would be exported in exchange
for wine, and we should receive double the quantity, though not double
the value of wine. But if I, and others contented ourselves with the
same quantity of wine as before, fewer English commodities would be
exported, and the wine-drinkers might either consume the commodities
which were before exported, or any others for which they had an
inclination. The capital required for their production would be supplied
by the capital liberated from the foreign trade.

There are two ways in which capital may be accumulated: it may be saved
either in consequence of increased revenue, or of diminished
consumption. If my profits are raised from 1000_l. _ to 1200_l. _ while my
expenditure continues the same, I accumulate annually 200_l. _ more than
I did before. If I save 200_l. _ out of my expenditure while my profits
continue the same, the same effect will be produced; 200_l. _ per annum
will be added to my capital. The merchant who imported wine after
profits had been raised from 20 per cent. to 40 per cent. , instead of
purchasing his English goods for 1000_l. _, must purchase them for
857_l. _ 2_s. _ 10_d. _, still selling the wine which he imports in return
for those goods for 1200_l. _; or, if he continued to purchase his
English goods for 1000_l. _, must raise the price of his wine to
1400_l. _; he would thus obtain 40 instead of 20 per cent.
profit on his
capital; but if, in consequence of the cheapness of all the commodities
on which his revenue was expended, he and all other consumers could save
the value of 200_l. _ out of every 1000_l. _ they before expended, they
would more effectually add to the real wealth of the country; in one
case, the savings would be made in consequence of an increase of
revenue, in the other in consequence of diminished expenditure.

If, by the introduction of machinery, the generality of the commodities
on which revenue was expended fell 20 per cent. in value, I should be
enabled to save as effectually as if my revenue had been raised 20 per
cent. ; but in one case the rate of profits is stationary, in the other
it is raised 20 per cent. --If, by the introduction of cheap foreign
goods, I can save 20 per cent. from my expenditure, the effect will be
precisely the same as if machinery had lowered the expense of their
production, but profits would not be raised.

It is not, therefore, in consequence of the extension of the market that
the rate of profits is raised, although such extension may be equally
efficacious in increasing the mass of commodities, and may thereby
enable us to augment the funds destined for the maintenance of labour,
and the materials on which labour may be employed. It is quite as
important to the happiness of mankind, that our enjoyments should be
increased by the better distribution of labour, by each country
producing those commodities for which by its situation, its climate, and
its other natural or artificial advantages it is adapted, and by their
exchanging them for the commodities of other countries, as that they
should be augmented by a rise in the rate of profits.

It has been my endeavour to shew throughout this work, that the rate of
profits can never be increased but by a fall in wages, and that there
can be no permanent fall of wages but in consequence of a fall of the
necessaries on which wages are expended. If, therefore, by the extension
of foreign trade, or by improvements in machinery, the food and
necessaries of the labourer can be brought to market at a reduced price,
profits will rise. If, instead of growing our own corn, or manufacturing
the clothing and other necessaries of the labourer, we discover a new
market from which we can supply ourselves with these commodities at a
cheaper price, wages will fall and profits rise; but if the commodities
obtained at a cheaper rate, by the extension of foreign commerce, or by
the improvement of machinery, be exclusively the commodities consumed by
the rich, no alteration will take place in the rate of profits. The rate
of wages would not be affected, although wine, velvets, silks, and other
expensive commodities, should fall 50 per cent. , and consequently
profits would continue unaltered.

Foreign trade, then, though highly beneficial to a country, as it
increases the amount and variety of the objects on which revenue may be
expended, and affords, by the abundance and cheapness of commodities,
incentives to saving, and to the accumulation of capital, has no
tendency to raise the profits of stock, unless the commodities imported
be of that description on which the wages of labour are expended.

The remarks which have been made respecting foreign trade, apply equally
to home trade. The rate of profits is never increased by a better
distribution of labour, by the invention of machinery, by the
establishment of roads and canals, or by any means of abridging labour
either in the manufacture or in the conveyance of goods. These are
causes which operate on price, and never fail to be highly beneficial to
consumers; since they enable them with the same labour, or with the
value of the produce of the same labour, to obtain in exchange a greater
quantity of the commodity to which the improvement is applied; but they
have no effect whatever on profit. On the other hand, every diminution
in the wages of labour raises profits, but produces no effect on the
price of commodities. One is advantageous to all classes, for all
classes are consumers; the other is beneficial only to producers; they
gain more, but every thing remains at its former price. In the first
case, they get the same as before; but every thing on which their gains
are expended, is diminished in exchangeable value.

The same rule which regulates the relative value of commodities in one
country, does not regulate the relative value of the commodities
exchanged between two or more countries.

Under a system of perfectly free commerce, each country naturally
devotes its capital and labour to such employments as are most
beneficial to each. This pursuit of individual advantage is admirably
connected with the universal good of the whole. By stimulating industry,
by rewarding ingenuity, and by using most efficaciously the peculiar
powers bestowed by nature, it distributes labour most effectively and
most economically: while, by increasing the general mass of productions,
it diffuses general benefit, and binds together by one common tie of
interest and intercourse, the universal society of nations throughout
the civilized world. It is this principle which determines that wine
shall be made in France and Portugal, that corn shall be grown in
America and Poland, and that hardware and other goods shall be
manufactured in England.

In one and the same country, profits are, generally speaking, always on
the same level; or differ only as the employment of capital may be more
or less secure and agreeable. It is not so between different countries.
If the profits of capital employed in Yorkshire, should exceed those of
capital employed in London, capital would speedily move from London to
Yorkshire, and an equality of profits would be effected; but if in
consequence of the diminished rate of production in the lands of
England, from the increase of capital and population, wages should rise,
and profits fall, it would not follow that capital and population would
necessarily move from England to Holland, or Spain, or Russia, where
profits might be higher.

If Portugal had no commercial connexion with other countries, instead of
employing a great part of her capital and industry in the production of
wines, with which she purchases for her own use the cloth and hardware
of other countries, she would be obliged to devote a part of that
capital to the manufacture of those commodities, which she would thus
obtain probably inferior in quality as well as quantity.

The quantity of wine which she shall give in exchange for the cloth of
England, is not determined by the respective quantities of labour
devoted to the production of each, as it would be, if both commodities
were manufactured in England, or both in Portugal.

England may be so circumstanced, that to produce the cloth may require
the labour of 100 men for one year; and if she attempted to make the
wine, it might require the labour of 120 men for the same time. England
would therefore find it her interest to import wine, and to purchase it
by the exportation of cloth.

To produce the wine in Portugal, might require only the labour of eighty
men for one year, and to produce the cloth in the same country, might
require the labour of ninety men for the same time. It would therefore
be advantageous for her to export wine in exchange for cloth. This
exchange might even take place, notwithstanding that the commodity
imported by Portugal could be produced there with less labour than in
England. Though she could make the cloth with the labour of ninety men,
she would import it from a country where it required the labour of 100
men to produce it, because it would be advantageous to her rather to
employ her capital in the production of wine, for which she would obtain
more cloth from England, than she could produce by diverting a portion
of her capital from the cultivation of vines to the manufacture of
cloth.

Thus, England would give the produce of the labour of 100 men for the
produce of the labour of 80. Such an exchange could not take place
between the individuals of the same country. The labour of 100
Englishmen cannot be given for that of 80 Englishmen, but the produce of
the labour of 100 Englishmen may be given for the produce of the labour
of 80 Portuguese, 60 Russians, or 120 East Indians. The difference in
this respect, between a single country and many, is easily accounted
for, by considering the difficulty with which capital moves from one
country to another, to seek a more profitable employment, and the
activity with which it invariably passes from one province to another in
the same country. [14]

It would undoubtedly be advantageous to the capitalists of England, and
to the consumers in both countries, that under such circumstances, the
wine and the cloth should both be made in Portugal, and therefore that
the capital and labour of England employed in making cloth, should be
removed to Portugal for that purpose. In that case, the relative value
of these commodities would be regulated by the same principle, as if one
were the produce of Yorkshire, and the other of London; and in every
other case, if capital freely flowed towards those countries where it
could be most profitably employed, there could be no difference in the
rate of profit, and no other difference in the real or labour price of
commodities, than the additional quantity of labour required to convey
them to the various markets where they were to be sold.

Experience however shews, that the fancied or real insecurity of
capital, when not under the immediate control of its owner, together
with the natural disinclination which every man has to quit the country
of his birth and connexions, and intrust himself with all his habits
fixed, to a strange government and new laws, check the emigration of
capital. These feelings, which I should be sorry to see weakened, induce
most men of property to be satisfied with a low rate of profits in
their own country, rather than seek a more advantageous employment for
their wealth in foreign nations.

Gold and silver having been chosen for the general medium of
circulation, they are, by the competition of commerce, distributed in
such proportions amongst the different countries of the world, as to
accommodate themselves to the natural traffic which would take place if
no such metals existed, and the trade between countries were purely a
trade of barter.

Thus, cloth cannot be imported into Portugal, unless it sell there for
more gold than it cost in the country from which it was imported; and
wine cannot be imported into England, unless it will sell for more there
than it cost in Portugal. If the trade were purely a trade of barter, it
could only continue whilst England could make cloth so cheap as to
obtain a greater quantity of wine with a given quantity of labour, by
manufacturing cloth than by growing vines; and also whilst the industry
of Portugal were attended by the reverse effects. Now suppose England
to discover a process for making wine, so that it should become her
interest rather to grow it than import it: she would naturally divert a
portion of her capital from the foreign trade to the home trade; she
would cease to manufacture cloth for exportation, and would grow wine
for herself. The money price of these commodities would be regulated
accordingly; wine would fall here while cloth continued at its former
price, and in Portugal no alteration would take place in the price of
either commodity. Cloth would continue for some time to be exported from
this country, because its price would continue to be higher in Portugal
than here; but money instead of wine would be given in exchange for it,
till the accumulation of money here, and its diminution abroad, should
so operate on the relative value of cloth in the two countries, that it
would cease to be profitable to export it. If the improvement in making
wine were of a very important description, it might become profitable
for the two countries to exchange employments; for England to make all
the wine, and Portugal all the cloth, consumed by them: but this could
be effected only by a new distribution of the precious metals, which
should raise the price of cloth in England, and lower it in Portugal.
The relative price of wine would fall in England in consequence of the
real advantage from the improvement of its manufacture; that is to say,
its natural price would fall: the relative price of cloth would rise
there from the accumulation of money.

Thus, suppose before the improvement in making wine in England, the
price of wine here were 50_l. _ per pipe, and the price of a certain
quantity of cloth were 45_l. _, whilst in Portugal the price of the same
quantity of wine was 45_l. _, and that of the same quantity of cloth
50_l. _; wine would be exported from Portugal with a profit of 5_l. _, and
cloth from England with a profit of the same amount.

Suppose that, after the improvement, wine falls to 45_l. _ in England,
the cloth continuing at the same price. Every transaction in commerce is
an independent transaction. Whilst a merchant can buy cloth in England
for 45_l. _, and sell it with the usual profit in Portugal, he will
continue to export it from England. His business is simply to purchase
English cloth, and to pay for it by a bill of exchange, which he
purchases with Portuguese money. It is to him of no importance what
becomes of this money; he has discharged his debt by the remittance of
the bill. His transaction is undoubtedly regulated by the terms on which
he can obtain this bill, but they are known to him at the time; and the
causes which may influence the market price of bills, or the rate of
exchange, is no consideration of his.

If the markets be favourable for the exportation of wine from Portugal
to England, the exporter of the wine will be a seller of a bill, which
will be purchased either by the importer of the cloth, or by the person
who sold him his bill; and thus without the necessity of money passing
from either country, the exporters in each country will be paid for
their goods. Without having any direct transaction with each other, the
money paid in Portugal by the importer of cloth will be paid to the
Portuguese exporter of wine; and in England by the negociation of the
same bill, the exporter of the cloth will be authorized to receive its
value from the importer of wine.

But if the prices of wine were such that no wine could be exported to
England, the importer of cloth would equally purchase a bill; but the
price of that bill would be higher, from the knowledge which the seller
of it would possess, that there was no counter bill in the market by
which he could ultimately settle the transactions between the two
countries: he might know that the gold or silver money which he received
in exchange for his bill, must be actually exported to his correspondent
in England, to enable him to pay the demand which he had authorized to
be made upon him, and he might therefore charge in the price of his bill
all the expenses to be incurred, together with his fair and usual
profit.

If then this premium for a bill on England should be equal to the profit
on importing cloth, the importation would of course cease; but if the
premium on the bill were only 2 per cent. , if to be enabled to pay a
debt in England of 100_l. _, 102_l. _ should be paid in Portugal, whilst
cloth which cost 45_l. _ would sell for 50_l. _, cloth would be imported,
bills would be bought, and money would be exported, till the diminution
of money in Portugal, and its accumulation in England, had produced such
a state of prices, as would make it no longer profitable to continue
these transactions.

But the diminution of money in one country, and its increase in another,
do not operate on the price of one commodity only, but on the prices of
all, and therefore the price of wine and cloth will be both raised in
England, and both lowered in Portugal. The price of cloth from being
45_l. _ in one country, and 50_l. _ in the other, would probably fall to
49_l. _ or 48_l. _ in Portugal, and rise to 46_l. _ or 47_l. _ in England,
and not afford a sufficient profit after paying a premium for a bill, to
induce any merchant to import that commodity.

It is thus that the money of each country is apportioned to it in such
quantities only as may be necessary to regulate a profitable trade of
barter. England exported cloth in exchange for wine, because by so
doing, her industry was rendered more productive to her; she had more
cloth and wine than if she had manufactured both for herself; and
Portugal imported cloth, and exported wine, because the industry of
Portugal could be more beneficially employed for both countries in
producing wine. Let there be more difficulty in England in producing
cloth, or in Portugal in producing wine, or let there be more facility
in England in producing wine, or in Portugal in producing cloth, and the
trade must immediately cease.

No change whatever takes place in the circumstances of Portugal; but
England finds that she can employ her labour more productively in the
manufacture of wine, and instantly the trade of barter between the two
countries changes. Not only is the exportation of wine from Portugal
stopped, but a new distribution of the precious metals takes place, and
her importation of cloth is also prevented.

Both countries would probably find it their interest to make their own
wine and their own cloth; but this singular result would take place: in
England, though wine would be cheaper, cloth would be elevated in price,
more would be paid for it by the consumer; while in Portugal the
consumers, both of cloth and of wine, would be able to purchase those
commodities cheaper. In the country where the improvement was made,
prices would be enhanced; in that where no change had taken place, but
where they had been deprived of a profitable branch of foreign trade,
prices would fall.

This, however, is only a seeming advantage to Portugal, for the quantity
of cloth and wine together produced in that country would be diminished,
while the quantity produced in England would be increased. Money would
in some degree have changed its value in the two countries--it would be
lowered in England, and raised in Portugal. Estimated in money, the
whole revenue of Portugal would be diminished; estimated in the same
medium, the whole revenue of England would be increased.

Thus then it appears, that the improvement of a manufacture in any
country tends to alter the distribution of the precious metals amongst
the nations of the world: it tends to increase the quantity of
commodities, at the same time that it raises general prices in the
country where the improvement takes place.

To simplify the question, I have been supposing the trade between two
countries to be confined to two commodities, to wine and cloth, but it
is well known that many and various articles enter into the list of
exports and imports. By the abstraction of money from one country, and
the accumulation of it in another, all commodities are affected in
price, and consequently encouragement is given to the exportation of
many more commodities besides money, which will therefore prevent so
great an effect from taking place on the value of money in the two
countries, as might otherwise be expected.

Beside the improvements in arts and machinery, there are various other
causes which are constantly operating on the natural course of trade,
and which interfere with the equilibrium, and the relative value of
money. Bounties on exportation or importation, new taxes on
commodities, sometimes by their direct, and at other times by their
indirect operation, disturb the natural trade of barter, and produce a
consequent necessity of importing or exporting money, in order that
prices may be accommodated to the natural course of commerce; and this
effect is produced not only in the country where the disturbing cause
takes place, but, in a greater or less degree, in every country of the
commercial world.

This will in some measure account for the different value of money in
different countries; it will explain to us why the prices of home
commodities, and those of great bulk, are, independently of other
causes, higher in those countries where manufactures flourish. Of two
countries having precisely the same population, and the same quantity of
land of equal fertility in cultivation, with the same knowledge too of
agriculture, the prices of raw produce will be highest in that where the
greater skill, and the better machinery is used in the manufacture of
exportable commodities. The rate of profits will probably differ but
little; for wages, or the real reward of the labourer, may be the same
in both; but those wages, as well as raw produce, will be rated higher
in money in that country, into which, from the advantages attending
their skill and machinery, an abundance of money is imported in exchange
for their goods.

Of these two countries, if one had the advantage in the manufacture of
goods of one quality, and the other in the manufacture of goods of
another quality, there would be no decided influx of the precious metals
into either; but if the advantage very heavily preponderated in favour
of either, that effect would be inevitable.

In the former part of this work, we have assumed for the purpose of
argument, that money always continued of the same value; we are now
endeavouring to shew that besides the ordinary variations in the value
of money, and those which are common to the whole commercial world,
there are also partial variations to which money is subject in
particular countries; and in fact, that the value of money is never the
same in any two countries, depending as it does on relative taxation,
on manufacturing skill, on the advantages of climate, natural
productions, and many other causes.

Although, however, money is subject to such perpetual variations, and
consequently the prices of the commodities which are common to most
countries, are also subject to considerable difference, yet no effect
will be produced on the rate of profits, either from the influx or
efflux of money. Capital will not be increased, because the circulating
medium is augmented. If the rent paid by the farmer to his landlord, and
the wages to his labourers, be 20 per cent. higher in one country than
another, and if at the same time the nominal value of the farmer's
capital be 20 per cent. more, he will receive precisely the same rate of
profits, although he should sell his raw produce 20 per cent. higher.

Profits, it cannot be too often repeated, depend on wages; not on
nominal, but real wages; not on the number of pounds that may be
annually paid to the labourer, but on the number of days' work necessary
to obtain those pounds. Wages may therefore be precisely the same in
two countries: they may bear too the same proportion to rent, and to the
whole produce obtained from the land, although in one of those countries
the labourer should receive ten shillings per week, and in the other
twelve.

In the early states of society, when manufactures have made little
progress, and the produce of all countries is nearly similar, consisting
of the bulky and most useful commodities, the value of money in
different countries will be chiefly regulated by their distance from the
mines which supply the precious metals; but as the arts and improvements
of society advance, and different nations excel in particular
manufactures, although distance will still enter into the calculation,
the value of the precious metals will be chiefly regulated by the
superiority of those manufactures.

Suppose all nations to produce corn, cattle, and coarse clothing only,
and that it was by the exportation of such commodities that gold could
be obtained from the countries which produced them, or from those who
held them in subjection; gold would naturally be of greater exchangeable
value in Poland than in England, on account of the greater expense of
sending such a bulky commodity as corn the more distant voyage, and also
the greater expense attending the conveying of gold to Poland.

This difference in the value of gold, or which is the same thing, this
difference in the price of corn in the two countries, would exist
although the facilities of producing corn in England should far exceed
those of Poland, from the greater fertility of the land, and the
superiority in the skill and implements of the labourer.

If however Poland should be the first to improve her manufactures, if
she should succeed in making a commodity which was generally desirable,
including great value in little bulk, or if she should be exclusively
blessed with some natural production, generally desirable, and not
possessed by other countries, she would obtain an additional quantity of
gold in exchange for this commodity, which would operate on the price
of her corn, cattle, and coarse clothing. The disadvantage of distance
would probably be more than compensated by the advantage of having an
exportable commodity of great value, and money would be permanently of
lower value in Poland than in England. If on the contrary, the advantage
of skill and machinery were possessed by England, another reason would
be added to that which before existed, why gold should be less valuable
in England than in Poland, and why corn, cattle, and clothing, should be
at a higher price in the former country.

These I believe to be the only two causes which regulate the comparative
value of money in the different countries of the world; for although
taxation occasions a disturbance of the equilibrium of money, it does so
by depriving the country in which it is imposed of some of the
advantages attending skill, industry, and climate.

It has been my endeavour carefully to distinguish between a low value of
money, and a high value of corn, or any other commodity with which
money may be compared. These have been generally considered as meaning
the same thing; but it is evident, that when corn rises from five to ten
shillings a bushel, it may be owing either to a fall in the value of
money, or to a rise in the value of corn. Thus we have seen, that from
the necessity of having recourse successively to land of a worse and
worse quality, in order to feed an increasing population, corn must rise
in relative value to other things. If therefore money continue
permanently of the same value, corn will exchange for more of such
money, that is to say, it will rise in price. The same rise in the price
of corn will be produced by such improvement of machinery in
manufactures, as shall enable us to manufacture commodities with
peculiar advantages: for the influx of money will be the consequence; it
will fall in value, and therefore exchange for less corn. But the
effects resulting from a high price of corn when produced by the rise in
the value of corn, and when caused by a fall in the value of money, are
totally different. In both cases the money price of wages will rise, but
if it be in consequence of the fall in the value of money, not only
wages and corn, but all other commodities will rise. If the manufacturer
has more to pay for wages, he will receive more for his manufactured
goods, and the rate of profits will remain unaffected. But when the rise
in the price of corn is the effect of the difficulty of production,
profits will fall; for the manufacturer will be obliged to pay more
wages, and will not be enabled to remunerate himself by raising the
price of his manufactured commodity.

Any improvement in the facility of working the mines, by which the
precious metals may be produced with a less quantity of labour, will
sink the value of money generally. It will then exchange for fewer
commodities in all countries; but when any particular country excels in
manufactures, so as to occasion an influx of money towards it, the value
of money will be lower, and the prices of corn and labour will be
relatively higher in that country, than in any other.

This higher value of money will not be indicated by the exchange; bills
may continue to be negotiated at par, although the prices of corn and
labour should be 10, 20, or 30 per cent. higher in one country than
another. Under the circumstances supposed, such a difference of prices
is the natural order of things, and the exchange can only be at par when
a sufficient quantity of money is introduced into the country excelling
in manufactures, so as to raise the price of its corn and labour. If
foreign countries should prohibit the exportation of money, and could
successfully enforce obedience to such a law, they might indeed prevent
the rise in the prices of the corn and labour of the manufacturing
country; for such rise can only take place after the influx of the
precious metals, supposing paper money not to be used; but they could
not prevent the exchange from being very unfavourable to them. If
England were the manufacturing country, and it were possible to prevent
the importation of money, the exchange with France, Holland, and Spain,
might be 5, 10, or 20 per cent. against those countries.

Whenever the current of money is forcibly stopped, and when money is
prevented from settling at its just level, there are no limits to the
possible variations of the exchange. The effects are similar to those
which follow, when a paper money, not exchangeable for specie at the
will of the holder, is forced into circulation. Such a currency is
necessarily confined to the country where it is issued: it cannot, when
too abundant, diffuse itself generally amongst other countries. The
level of circulation is destroyed, and the exchange will inevitably be
unfavourable to the country where it is excessive in quantity: just so
would be the effects of a metallic circulation, if by forcible means, by
laws which could not be evaded, money should be detained in a country,
when the stream of trade gave it an impetus towards other countries.

When each country has precisely the quantity of money which it ought to
have, money will not indeed be of the same value in each, for with
respect to many commodities it may differ 5, 10, or even 20 per cent. ,
but the exchange will be at par. One hundred pounds in England, or the
silver which is in 100_l. _, will purchase a bill of 100_l. _, or an
equal quantity of silver in France, Spain, or Holland.

In speaking of the exchange and the comparative value of money in
different countries, we must not in the least refer to the value of
money estimated in commodities, in either country. The exchange is never
ascertained by estimating the comparative value of money in corn, cloth,
or any commodity whatever, but by estimating the value of the currency
of one country, in the currency of another.

It may also be ascertained by comparing it with some standard common to
both countries. If a bill on England for 100_l. _ will purchase the same
quantity of goods in France or Spain, that a bill on Hamburgh for the
same sum will do, the exchange between Hamburgh and England is at par;
but if a bill on England for 130_l. _, will purchase no more than a bill
on Hamburgh for 100_l. _, the exchange is 30 per cent. against England.

In England 100_l. _ may purchase a bill, or the right of receiving
101_l. _ in Holland, 102_l. _ in France, and 105_l. _ in Spain. The
exchange with England is, in that case, said to be 1 per cent. against
Holland, 2 per cent. against France, and 5 per cent. against Spain. It
indicates that the level of currency is higher than it should be in
those countries, and the comparative value of their currencies, and that
of England, would be immediately restored to par, by abstracting from
theirs, or by adding to that of England.

Those who maintained that our currency was depreciated during the last
ten years, when the exchange varied from 20 to 30 per cent. against this
country, have never contended, as they have been accused of doing, that
money could not be more valuable in one country than another, as
compared with various commodities; but they did contend, that 130_l. _
could not be detained in England, when it was of no more value,
estimated in the money of Hamburgh, or of Holland, than 100_l. _

By sending 130_l. _ good English pounds sterling to Hamburgh, even at an
expense of 5_l. _, I should be possessed there of 125_l. _; what then
could make me consent to give 130_l. _ for a bill which would give me
100_l. _ in Hamburgh, but that my pounds were not good pounds
sterling? --they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually sent there, at an
expense of 5_l. _, would sell only for 100_l. _ With metallic pounds
sterling, it is not denied that my 130_l. _ would procure me 125_l. _ in
Hamburgh, but with paper pounds sterling I can only obtain 100_l. _; and
yet it is maintained that 130_l. _ in paper, is of equal value with
130_l. _ in silver or gold.

Some indeed more reasonably maintained, that 130_l. _ in paper was not of
equal value with 130_l. _ in metallic money; but they said that it was
the metallic money which had changed its value, and not the paper money.
They wished to confine the meaning of the word depreciation to an actual
fall of value, and not to a comparative difference between the value of
money, and the standard by which by law it is regulated. One hundred
pounds of English money was formerly of equal value with, and could
purchase 100_l. _ of Hamburgh money: in any other country a bill of
100_l. _ on England, or on Hamburgh, could purchase precisely the same
quantity of commodities. To obtain the same things, I was lately obliged
to give 130_l. _ English money, when Hamburgh could obtain them for
100_l. _ Hamburgh money. If English money was of the same value then as
before, Hamburgh money must have risen in value. But where is the proof
of this? How is it to be ascertained whether English money has fallen,
or Hamburgh money has risen? there is no standard by which this can be
determined. It is a plea which admits of no proof, and can neither be
positively affirmed, nor positively contradicted. The nations of the
world must have been early convinced, that there was no standard of
value in nature, to which we might unerringly refer, and therefore chose
a medium, which, on the whole appeared to them less variable than any
other commodity.

To this standard we must conform till the law is changed, and till some
other commodity is discovered, by the use of which we shall obtain a
more perfect standard, than that which we have established. While gold
is exclusively the standard in this country, money will be depreciated,
when a pound sterling is not of equal value with 5 dwts. and 3 grs. of
standard gold, and that, whether gold rises or falls in general value.