In taxes, again, upon consumption, a particular attention is to be had, not to confound those which are paid by people who consume to gratify their desires, with those which are paid by such as consume in order to produce; that is to say, those which affect the rich, with those which affect the industrious.
Farther, a statesman must see with perspicuity how far the imposition of taxes may influence the prices of exportable goods; and in so far as prices are influenced by them, they must be refunded with interest, and even when that is not sufficient to support the foreign competition, premiums or bounties are to be thrown in, at the expence of new impositions upon domestic consumption.
As all augmentations must at last come to a stop, so must these expedients for the support of foreign trade against the influence of domestic abuse; but when trade comes to a stop, taxes may be increased; because the considerations in favour of exportation are removed. The statesman then must change his plan, and make use of the power and influence he acquires by an opulent exchequer, to root out the abuses which have dried up the spring from which his country used to receive a continual augmentation of wealth.
I conclude my chapter with this reflection: That under a wise administration, every vice in a state carries a proper antidote along with it.
If luxury extinguishes foreign trade it gives birth to taxation; and money in the hands of a good statesman is an irresistible engine for correcting every abuse.
In treating of taxes, I frequently look no farther than my pen, when I raise my head and look about, I find the politics of my closet very different from those of the century in which I live. I agree that the difference is striking; but still reason is reason, and there is no impossibility in the supposition of its becoming practice.
Chap. XXVIII. Prices imply alienation for money, and frequent and familiar alienations only can fix a standard.
The price of articles of the first necessity regulate, in a great measure, the price of every thing else. Now the frequent and familiar alienation of such articles implies industry, and a numerous class of free hands; because these only are the buyers. No alienation is implied in the consumption of necessaries, by those whose occupation it is to produce them for themselves. Did every one, therefore, supply himself with necessaries, there would be no alienation of them; consequently, no price fixed. From hence it follows, that the price of necessaries depends on the occupations of a people, and not on the quantity of their specie.
The standard price of subsistence is in the compound proportion of the number of those who are obliged to buy, and of the demand found for their labour. Subsistence never can rise above the level of the faculties of the numerous classes of a people; because so soon as a price rises above the faculties of the buyer, his demand is withdrawn; and when the demand of a numerous class is withdrawn, subsistence is found in too great plenty for the rich, to bear a high price.
The more equal, therefore, the faculties of the industrious populace of any country are, the less distress will follow upon scarcity, and those only, whose means cannot reach that standard price, run any risk of starving.
The faculties, therefore, of the physical-necessarians (as we have taken the liberty to call them) will, in countries of industry, determine the standard value of subsistence; and the value, in money, which they receive for their work, will determine the standard of those faculties; consequently, the price of subsistence must rise and fall according to the number of workmen, and demand for their work: that is to say, the price of subsistence must be in the compound proportion above mentioned.
Here I am led into an examination of the opinion of Messrs. De Montesquieu and Hume, who think that the price of every thing depends upon the quantity of specie in the country, which they consider as the representation of every thing vendible; as if these two quantities, the commodities, and the specie, were divided into aliquot parts, exactly proportioned to one another. I do my endeavour to investigate the meaning of these propositionspropositions, in order to shew in what respect they lead to error, in place of throwing light upon an intricate question: and then I propose another doctrine, which is, that nothing can determine the value of a vendible commodity, any where, but the complicated operations of demand and competition, which however frequently influenced by wealth, yet never can be regulated by it.
Chap. XXIX. In this chapter I follow the succession of Mr. Hume’s ideas, in his political discourses; and as he is led from his principles to believe, that there is no such thing as a wrong balance of trade against a nation, but on the contrary thinks that the nature of money resembles that of a fluid, which tends every where to a level: In pursuing the consequences of our former reasoning, I shew, that nothing is so easy, or more common than a right or a wrong balance of trade; and I observe, that what we mean by a balance, is not the bringing the fluid to a level, but either the accumulating or raising it in some countries, by the means of national industry and frugality, which is a right balance; or the depressing it in others, by national luxury and dissipation, which is a wrong one. Thus the general doctrine of the level can only take place, on the supposition that all nations are equally frugal and industrious; or rather, that they have an equal mixture of these and their opposite qualities, together with a reciprocal trade entirely laid open. When the ideas of different people are fairly exposed, every question comes to be resolved without disputation: vices in reasoning seldom take place but when terms are not rightly understood.
Chap. XXX. As the intention of this inquiry is not to treat of population, agriculture, trade, industry, &c. as particular subjects, but as objects influencing the political œconomy of modern states, my end is answered, so soon as I find the general principles relating to each sufficiently deduced and ranged under general heads. The use, therefore, of a chapter of miscellaneous questions and observations, is to serve as an exercise on what is gone before; to introduce, without a direct connection, questions analogous to the subject of the book, or to give a further extension to such as I have treated, in the course of the chapters, with too much brevity.
In the first and second questions, I endeavour to shew, that the quantity of coin in any country, is no sufficient rule for judging of the state of her foreign trade; because money may be acquired and expended by operations nowise mercantile. A nation, may borrow from foreigners more than the amount of the balance against her: she may pay away, in subsidies, and foreign wars, sums greatly beyond the value of a right balance on her trade. She may call in her specie, and trade with it abroad, while paper is made to circulate in its place at home: or she may lock it up in banks, where it never may appear. In short, the riches of a trading nation may resemble those of a trading man; who may be immensely rich, with very little specie in his possession.
On the other hand, the riches of a prodigal nation may resemble those of a prodigal man; who may be full of money, borrowed from all hands, upon the credit of a large fund of solid property.
The third question concerns the effects of riches in those countries where trade and industry are little known. Under such circumstances, coin must be locked up, or virtue will go to wreck. Why? Because, if coin circulate where there is no industry, it must circulate for no adequate equivalent in work or service; that is, for the gratification of the passions, or in monstrous prodigality. Experience demonstrated the truth of this principle. While the Greek Monarchs of Asia and Ægypt remained in possession of their vast treasures, virtue and simplicity stood their ground; when those riches were thrown into circulation, under the first Roman Emperors, we see the horrible consequences which ensued. What could produce such monsters, except a taste of dissipation, without rational objects to discharge their wealth upon? All the money in the universe, thrown into the hands of an extravagant modern Prince, would not affect his morals; the taste of luxury would soon discharge him of it; and the consequence would be, to enrich those who gratified his desires, and that nearly in proportion to their service. But in antient times, the violence of government stopped the progress of industry: the consequence of which was, that the few productions of it were sold for the most exorbitant prices, and the wealth accumulated by private people commonly occasioned their destruction; because rapine was the only expedient Princes had fallen upon to draw back money into their coffers.
Comparing the antient with our modern œconomy, I find both are curious and entertaining. A contrast often makes us reflect upon circumstances which otherwise might escape our observation.
In the fourth and fifth questions, I apply the principles we have laid down, in order to discover why the establishment of trade and industry has naturally given rise to an established system of taxation, and regular standing armies.
This leads me to compare circumstances relative to the œconomy of Europe some centuries ago, when taxes were almost unknown, with the present times, when they are becoming daily more familiar; and I shew that they are, in a great part, paid in lieu of the personal service to which the subjects were formerly bound, and by the means of which states were supported; and if they are extended beyond this proportion, it is in consequence of a new circulation opened between the state and those who serve it: so that the effect of taxes, spent within a country well governed, is to draw money gratuitously from those who have a superfluity of it, in order to bestow it upon those who are willing and capable to advance the service of the state; that is, in other words, to oblige private people to lay out their money for the service of their country.
From the same principles, and from a very succinct historical deduction of the facts relating to the state of the militia of Europe, from the time of the Romans, I endeavour to shew, that standing armies in our days are become necessary, while Princes have the rage of making war; because, without keeping up such bodies of men in time of peace, the call of the luxurious would provide employment for them, which they would not choose to quit, when the will of their sovereign might command their attendance.
These questions lead me to inquireinquire into the method of estimating the relative power of different states in making war.
Here I reduce power to the two principles of men and money; the men at the command of a state, are those who have a poor and precarious living, or at least a worse condition than that which the state can offer for their military service; consequently, the more a people are usefully employed, the less they are calculated for filling armies. From hence it is that luxury is said to render a nation effeminate: a true proposition, when rightly understood, relatively to the industrious, not to the luxurious classes of the people.
The annual revenue of a state is in proportion to the circulation; because it is at the time of circulation only that national contributions can be levied with the fewest inconveniencies. Money which does not circulate is of no use to the proprietors, and consequently can be of no utility to the state.
Credit is in proportion to the capacity of paying the interest of money borrowed.
Having abundantly insisted on the advantages of industry in providing for the poor, I now come to consider its permanent effects, after the first end has been accomplished. If a thousand pounds are bestowed upon making a fire-work, a number of people are thereby employed, and gain a temporary livelihood. If the same sum is bestowed for making a canal for watering the fields of a province, a like number of people may reap the same benefit, and hitherto accounts stand even: but the fire-work played off, what remains, but the smoke and stink of the powder? Whereas the consequence of the canal is a perpetual fertility to a formerly barren soil. Here I enter again into an examination and confrontation of antient and modern oeconomy. I shew that the magnificence of the antients had not the same tendency to destroy simplicity, as the luxury of modern times has; because they owed their magnificence to the slavery of the inferior classes of people, who got no return for their labour farther than bare subsistence. Whereas modern magnificence depends upon industry; which draws after it such a retribution in money, as soon enables those who at first contributed to the luxury of others, to call for the like services from an inferior class, who are entering on the course which the more wealthy abandon.
I conclude this chapter with an inquiry into the principles which ought to regulate the establishment of trading companies. Those principles relate to the advantages and disadvantages which severally attend them. The principal advantage in common to all, proceeds from the union of private stocks; consequently, the statesman ought to protect companies so far only as this union promotes the end for which they were instituted: but whenever he finds that the strength of united stocks is made use of to oppress the unincorporated industrious, he ought to take these under his protection, by providing an outlet for their industry, by which he will frustrate any attempt of turning that into a monopoly, which was intended only to extend trade and industry.
The second advantage is peculiar to such companies as trade to foreign parts under exclusive privileges. By these a state reaps the benefit of keeping prices low in foreign markets; because the company is freed from the competition of their own countrymen. But the inconvenience resulting in consequence of this, is, that as the company buys, so they also sell without competition. The method, therefore, of preventing the bad consequence of this, is, for the state constantly to be at the great expence of every such settlement in favour of foreign trade; and to grant the exclusive privilege in favour of commerce in general, and not in the common way, as an indemnification to particular people for the expence of making the settlement, or from other political considerations. When an exclusive privilege is granted upon such principles, the state may retain a power of inspection into all their affairs, and may open the doors of the company to new subscribers, in proportion to the demand for the trade, in place of allowing the company to swell their stock with borrowed money. By such means frauds are prevented; a foundation is laid for several mercantile operations, which advance the prosperity of the state, without hurting the company; and jealousy is taken away, by preventing the too close connection between the members of it, when few in number, from degenerating into an oppressive and scandalous monopoly.
End of the Second Book.
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This book, which treats of money, contains such variety of matter, that I have found an advantage in dividing it into two parts. In the first, the principles are deduced and applied principally to the domestic circumstances of Great Britain in the year 1760, when this book was written. In the second, the interests of foreign trade, and state of coin in the two great commercial nations with whom we are in correspondence are taken in.
Instead of a chapter of recapitulation at the end of the book, I found here that a full table of contents would give the reader a general view of the subject, and serve the purpose of recollection better.