Thoughts on the mechanism of societies

I am not ashamed to own the prejudice I entertain against a diminution in the price of any thing whatever, when I observe that discouragement, at least in the part affected, would be the consequence of such a diminution; whilst, on the contrary, a gradual, general, and proportioned advance in the prices of every thing, is constantly followed by a greater activity in all the branches of labour, which really increases the quantity of its productions, in a proportion far superior to the advance on that imaginary, nominal value, acquired by fermentation; my intention, therefore, cannot be to declaim against one of the most potent causes of the high prices prevailing in England, and which nobody, I think, has yet mentioned. This last expression shews, that I do not mean here, that quantity of paper-money, to which many people, in more than one kingdom, ascribe all the evil, of which the sole real part is the work of monopoly. I think I have proved, that it is impossible there should long remain in circulation any paper above the necessary quantity: all would flock to the Bank to be paid in cash, had not the Bank enough of it to discharge her notes, when presented, with such readiness as to leave no doubt of the validity of those other notes, which, in the natural course of things, would not be presented there to be paid in money. The Bank would derive very little advantage from the momentary cheat of paying off large sums in sixpences; this legerdemain is admirable, but can suffice only to correspond to the wanton tricks sometimes played by great politicians, to give the Bank a momentary trouble. It is, then, necessary to rock those children, whom great men make it their amusement to scare; and they must be rocked till they are fast asleep, or till the great men are tired of making faces at them. After the farce is over, the children wake, and do not even remember to have been frightened; money is found wherever it is necessary, and every thing returns to that order which it is every one’s interest to maintain.

What then is that other cause, so active, so cogent, not of that extravagant price which monopoly alone can occasion, but of that price rather above the necessary one, which gives to every thing an increase of vigour? It is credit. It is that prodigious talisman which realises all that it conceives, since all that it conceives has the same advantage as reality. How many capitals would never have existed, had not credit supposed them several years before they did really exist? How fill up the real chasm of capitals, which may, in an instant, suspend a hundred manufactories in a kingdom, and, by that suspension, ruin, starve, the trader, the merchant, the manufacturer, the mechanic, all, except the farmer, whether proprietor or tenant, who, by the counter-blow, could not die of hunger, but in real misery on his stacks of wheat, which he would no longer attempt to reproduce.

That man is ignorant of his own value, who, pen in hand, weighs, calculates, measures time, distances, expenditure, obstacles, facilities, occurrences; and whose signature, on account of the supposed exactness of his combinations, will soon after produce, at two or three hundred leagues distance, and in fifty places on the road, the same effect which would have resulted from the real possession of the object of which this signature is the pledge. If he shares with all those whom he makes easy, re-animates, or puts in action, the benefit which they derive from the speed, as well as from the supposed certainty of his operations, undoubtedly no one will dispute his title to the reward; and yet we shall see presently, that this medal is not without its reverse, supposing an advance in prices to be an inconvenience.

I shall apply the principle to a fact very well known in England.

In the year 1762, about 2000l. sterling, carried to the island of Grenada, was there received with that veneration due to gold when we have been years without seeing any, and have not yet forgot its virtues.

The above sum regulated the markets; coffee was set up at eight or ten pence per pound; sugars sold per quintal thirty or forty shillings currency; the inhabitants were in perfect ecstacy: I shall say nothing of the device practised in order to hook in, by means of those 2000l. about thirty times the value of that sum, and yet satisfy every body: that is foreign to my subject; but I will say, with pleasure, that an honest gentleman, moved at the distressed situation of another who was dunned by merciless creditors, gave him in hard cash a trifling part of the sum he wanted, and for the remainder furnished him with his own bills of exchange on London, assuring him that those to whom they might be presented would take them for cash without any demur. Those bills had fully the promised effect; the same gentleman obliged several other persons; the benefactor soon met with competitors, all difficulties disappeared by means of scraps of paper on London, and the debtor who, on the landing of the precious metal, had deemed himself too lucky to sell his coffee at ten-pence and his sugar at 40 shillings, now offered impudently his bill on London, indorsed by some patron, if a creditor refused to give him 45 shillings for his sugar, and twelve-pence for his coffee.

Gold, attracted by the first homage paid to it, came in plenty, and fell in value by the establishment of credit; it afterwards took another course, and went, no doubt, somewhere else to supply the want of credit, and pave the way to it. From that moment very little money came to Grenada, and no one ever wished for more; but then the price of commodities was advanced, and the readiness with which goods, to the amount of several thousand pounds sterling, were delivered to such a planter as, six months before, would not have presumed to demand the sixth part of them, did not permit him to start any objection against the prices set on the goods he stood in need of, when he thought himself indemnified for the excess in those prices, by that at which his were rated, and by the time granted him to make good his payments. The Grenadians abused this credit, as they did in Scotland, and unfortunately at the same period. But this is not the matter in point; the present object is, that the establishment of credit in Grenada enhanced the price of every thing there, and that the encouragement and activity resulting from that increase doubled, in the space of six years, the real quantity of the products in that colony, whilst credit had, in the end, increased its nominal value hardly one tenth. In 1764 the exports of Grenada amounted to 206,889l.; in 1770, they were at 433,421l.; two years after, they rose as high as 492,974l.: it may be added, that in England, thanks to the extension of that miracle wrought by credit, the benefit arising from those new products, and the necessity of furnishing the balance thereof in merchandise, propagated, if I may be allowed the expression, from county to county, the necessary means of consuming, that is to say, of realising, that augmentation of wealth, whose price was constantly kept up by the additional consumption of all kinds which followed it: such is the usual chain.

In effect, do but observe how easily a creditable merchant buys from the manufacturer, payable at twelve months, an enormous stock of goods, which he is himself obliged to sell, either to the consumer or to the retailer, at twelve, eighteen, or twenty-four months credit, and which often are not totally paid for at the end of three years. What difference in the prices must be the consequence of that series of facilities! Are high prices an evil? Put an end to credit, nothing more easy; nothing more is required, than to suffer to lie dormant all those laws, which secure to the creditor, the payment of his advances at the precise time when they become demandable: it is that certitude of being repaid, at the needful hour, that often induces the creditor himself to borrow, in order to extricate a debtor, whom he knows to be indiscreet, but from whose custom he derives a considerable yearly profit, upon a prodigious consumption; a profit he would lose, by being less indulgent: take away from the creditor the certainty of extorting his repayment, if it should be refused at a moment when a critical event should render such rigour indispensable, credit is destroyed, as well as the consumption which followed it, as well as the production of the earth which could not be paid, but by those manufactories annihilated by the want of consumption: cross the Straits of Calais, and (in order to console the worshippers of the balance) add, as well as thousands of acres of vineyards in France, the produce of which strips England annually of so vast a sum! as well as thousands of acres in Italy, set apart for the rearing of silk-worms, and the culture of olive-trees, which swallow up a prodigious sum of English money; as well as thousands of acres in Silesia, where they cultivate the hemp which English money buys in that country; as well as thousands of acres in Russia and in Sweden, whence we are obliged to import, at the expence of so much English money, that immense quantity of timber, iron, canvass—articles which would become useless by the extinction of credit, and the destruction of that trade, of which credit was the very soul;—the chain would lead us too far. It is sufficiently evident, that then all the goods remaining unsold could not be purchased but with ready money, and then indeed every thing would be excessively cheap. Would all that be for the best?—In a word, give up all thoughts of riches, or submit to the highest prices; but let those high prices come to you from the profusion of wealth universally diffused, and not from the tyranny of your own monopoly.