OF THE BALANCE OF TRADE.

It is very usual in nations ignorant of the nature of commerce to prohibit the exportation of commodities, and to preserve among themselves whatever they think valuable and useful. They consider not that in this prohibition they act directly contrary to their intention, and that the more is exported of any commodity the more will be raised at home, of which they themselves will always have the first offer.

It is well known to the learned that the ancient laws of Athens rendered the exportation of figs criminal, that being supposed a species of fruit so excellent in Attica that the Athenians esteemed it too delicious for the palate of any foreigner; and in this ridiculous prohibition they were so much in earnest that informers were thence called “sycophants” among them, from two Greek words which signify figs and discoverer. There are proofs in many old Acts of Parliament of the same ignorance in the nature of commerce, particularly in the reign of Edward III.; and to this day in France the exportation of corn is almost always prohibited—in order, as they say, to prevent famines, though it is evident that nothing contributes more to the frequent famines which so much distress that fertile country.

The same jealous fear with regard to money has also prevailed among several nations, and it required both reason and experience to convince any people that these prohibitions serve to no other purpose than to raise the exchange against them and produce a still greater exportation.

These errors, one may say, are gross and palpable; but there still prevails, even in nations well acquainted with commerce, a strong jealousy with regard to the balance of trade, and a fear that all their gold and silver may be leaving them. This seems to me, almost in every case, a very groundless apprehension, and I should as soon {p52} dread that all our springs and rivers should be exhausted as that money should abandon a kingdom where there are people and industry. Let us carefully preserve these latter advantages, and we need never be apprehensive of losing the former.

It is easy to observe that all calculations concerning the balance of trade are founded on very uncertain facts and suppositions. The custom-house books are allowed to be an insufficient ground of reasoning; nor is the rate of exchange much better, unless we consider it with all nations, and know also the proportion of the several sums remitted, which one may safely pronounce impossible. Every man who has ever reasoned on this subject has always proved his theory, whatever it was, by facts and calculations, and by an enumeration of all the commodities sent to all foreign kingdoms.

The writings of Mr. Gee struck the nation with a universal panic when they saw it plainly demonstrated by a detail of particulars that the balance was against them for so considerable a sum as must leave them without a single shilling in five or six years. But luckily twenty years have since elapsed, with an expensive foreign war, and yet it is commonly supposed that money is still more plentiful among us than in any former period.

Nothing can be more entertaining on this head than Dr. Swift, an author so quick in discerning the mistakes and absurdities of others. He says, in his Short View of the State of Ireland, that the whole cash of that kingdom amounted but to £500,000; that out of this they remitted every year a neat million to England, and had scarce any other source from which they could compensate themselves, and little other foreign trade but the importation of French wines, for which they paid ready money. The consequence of this situation, which must be owned to be disadvantageous, was that in a course of three years the current money of Ireland from £500,000 was reduced to less than two; and at present, I suppose, in a course of thirty years, it is absolutely nothing. Yet I know not how {p53} that opinion of the advance of riches in Ireland, which gave the Doctor so much indignation, seems still to continue and gain ground with everybody.

In short, this apprehension of the wrong balance of trade appears of such a nature that it discovers itself wherever one is out of humour with the ministry, or is in low spirits; and as it can never be refuted by a particular detail of all the exports which counterbalance the imports, it may here be proper to form a general argument which may prove the impossibility of that event as long as we preserve our people and our industry.

Suppose four-fifths of all the money in Britain to be annihilated in one night, and the nation reduced to the same condition, with regard to specie, as in the reigns of the Harrys and Edwards, what would be the consequence? Must not the price of all labour and commodities sink in proportion, and everything be sold as cheap as they were in those ages? What nation could then dispute with us in any foreign market, or pretend to navigate or to sell manufactures at the same price which to us would afford sufficient profit? In how little time, therefore, must this bring back the money which we had lost, and raise us to the level of all the neighbouring nations? where, after we have arrived, we immediately lose the advantage of the cheapness of labour and commodities, and the further flowing in of money is stopped by our fulness and repletion.

Again, suppose that all the money of Britain were multiplied fivefold in a night, must not the contrary effect follow? Must not labour and commodities rise to such an exorbitant height that no neighbouring nations could afford to buy from us, while their commodities, on the other hand, became so cheap in comparison that, in spite of all the laws which could be formed, they would be run in upon us, and our money flow out till we come to a level with foreigners, and lose that great superiority of riches which had laid us under such disadvantages?

Now, it is evident that the same causes which would correct these exorbitant inequalities, were they to happen {p54} miraculously, must prevent their happening in the common course of nature, and must for ever, in all the neighbouring nations, preserve money nearly proportionable to the art and industry of each nation. All water, wherever it communicates, remains always at a level. Ask naturalists the reason: they tell you that were it to be raised in any one place, the superior gravity of that part not being balanced, must depress it till it meets a counterpoise; and that the same cause which redresses the inequality when it happens must for ever prevent it without some violent external operation.​[17]

Can one imagine that it had ever been possible, by any laws, or even by any art or industry, to have kept all the money in Spain which the galleons have brought from the Indies? or that all commodities could be sold in France for a tenth of the price which they would yield on the other side of the Pyrenees, without finding their way thither, and draining from that immense treasure? What other reason, indeed, is there why all nations at present gain in their trade with Spain and Portugal, but because it is impossible to heap up money, more than any fluid, beyond its proper level? The sovereigns of these countries have shown that they wanted not inclination to keep their gold and silver to themselves had it been in any degree practicable.

But as any body of water may be raised above the level of the surrounding element, if the former has no communication with the latter, so in money, if the communication be cut off by any material or physical impediment (for all laws alone are ineffectual), there may, in such a case, be a very great inequality of money. Thus the immense distance of China, together with the monopolies of our India {p55} companies, obstructing the communication, preserve in Europe the gold and silver, especially the latter, in much greater plenty than they are found in that kingdom. But, notwithstanding this great obstruction, the force of the causes above-mentioned is still evident. The skill and ingenuity of Europe in general surpasses perhaps that of China with regard to manual arts and manufactures, yet are we never able to trade thither without great disadvantage; and were it not for the continual recruits which we receive from America, money would very soon sink in Europe and rise in China, till it came nearly to a level in both places. Nor can any reasonable man doubt but that industrious nation, were they as near us as Poland or Barbary, would drain us of the overplus of our specie, and draw to themselves a larger share of the West Indian treasures. We need have no recourse to a physical attraction to explain the necessity of this operation; there is a moral attraction arising from the interests and passions of men which is full as potent and infallible.

How is the balance kept in the provinces of every kingdom among themselves but by the force of this principle, which makes it impossible for money to lose its level, and either to rise or sink beyond the proportion of the labour and commodities which is in each province? Did not long experience make people easy on this head, what a fund of gloomy reflections might calculations afford a melancholy Yorkshireman while he computed and magnified the sums drawn to London by taxes, absentees, commodities, and found on comparison the opposite articles so much inferior? And no doubt, had the Heptarchy subsisted in England, the legislature of each state had been continually alarmed by the fear of a wrong balance; and it is probable that the mutual hatred of these states would have been extremely violent on account of their close neighbourhood; they would have loaded and oppressed all commerce by a jealous and superfluous caution. Since the Union has removed the barriers between Scotland and England, which of these nations gains from the other by this free commerce? Or if {p56} the former kingdom has received any increase of riches, can it be reasonably accounted for by anything but the increase of its art and industry? It was a common apprehension in England before the Union, as we learn from L’Abbe du Bos, that Scotland would soon drain them of their treasure were an open trade allowed; and on the other side of the Tweed a contrary apprehension prevailed—with what justice in both time has shown.

What happens in small portions of mankind must take place in greater. The provinces of the Roman empire no doubt kept their balance with each other, and with Italy, independent of the legislature, as much as the several counties of Britain or the several parishes of each county. And any man who travels over Europe at this day may see by the prices of commodities that money, in spite of the absurd jealousy of princes and states, has brought itself nearly to a level, and that the difference between one kingdom and another is not greater in this respect than it is often between different provinces of the same kingdom. Men naturally flock to capital cities, seaports, and navigable rivers. There we find more men, more industry, more commodities, and consequently more money; but still the latter difference holds proportion with the former, and the level is preserved.​[18]

Our jealousy and our hatred of France are without bounds, and the former sentiment at least must be {p57} acknowledged very reasonable and well-grounded. These passions have occasioned innumerable barriers and obstructions upon commerce, where we are accused of being commonly the aggressors. But what have we gained by the bargain? We lost the French market for our woollen manufactures, and transferred the commerce of wine to Spain and Portugal, where we buy much worse liquor at a higher price. There are few Englishmen who would not think their country absolutely ruined were French wines sold in England so cheap and in such abundance as to supplant, in some measure, all ale and home-brewed liquors; but would we lay aside prejudice, it would not be difficult to prove that nothing could be more innocent, perhaps advantageous. Each new acre of vineyard planted in France, in order to supply England with wine, would make it requisite for the French to take the produce of an English acre, sown in wheat or barley, in order to subsist themselves; and it is evident that we have thereby got command of the better commodity.

There are many edicts of the French King prohibiting the planting of new vineyards, and ordering all those already planted to be grubbed up, so sensible are they in that country of the superior value of corn above every other product.

Mareschal Vauban complains often, and with reason, of the absurd duties which load the entry of those wines of Languedoc, Guienne, and other southern provinces that are imported into Brittany and Normandy. He entertained no doubt but these latter provinces could preserve their balance notwithstanding the open commerce which he recommends. And it is evident that a few leagues more navigation to England would make no difference; or if it did, that it must operate alike on the commodities of both kingdoms.

There is indeed one expedient by which it is possible to sink, and another by which we may raise, money beyond its natural level in any kingdom; but these cases, when examined, will be found to resolve into our general theory, and to bring additional authority to it. {p58}

I scarce know any method of sinking money below its level but those institutions of banks, funds, and paper-credit which are so much practised in this kingdom. These render paper equivalent to money, circulate it through the whole state, make it supply the place of gold and silver, raise proportionally the price of labour and commodities, and by that means either banish a great part of those precious metals, or prevent their further increase. What can be more short-sighted than our reasonings on this head? We fancy, because an individual would be much richer were his stock of money doubled, that the same good effect would follow were the money of every one increased, not considering that this would raise as much the price of every commodity, and reduce every man in time to the same condition as before. It is only in our public negotiations and transactions with foreigners that a greater stock of money is advantageous; and as our paper is there absolutely insignificant, we feel, by its means, all the ill effects arising from a great abundance of money without reaping any of the advantages.​[19]

Suppose that there are twelve millions of paper which circulate in the kingdom as money (for we are not to imagine that all our enormous funds are employed in that shape), and suppose the real cash of the kingdom to be eighteen millions: here is a state which is found by experience able to hold a stock of thirty millions. I say, if it be able to hold it, it must of necessity have acquired it in gold and silver had we not obstructed the entrance of these metals by this new invention of paper. Whence would it have acquired that sum? From all the kingdoms of the world. But why? Because, if you remove these twelve millions, money in this state is below its level compared with our {p59} neighbours; and we must immediately draw from all of them till we be full and saturate, so to speak, and can hold no more. By our present politics we are as careful to stuff the nation with this fine commodity of bank-bills and chequer notes as if we were afraid of being overburdened with the precious metals.

It is not to be doubted but the great plenty of bullion in France is, in a great measure, owing to the want of paper-credit. The French have no banks; merchants’ bills do not there circulate as with us; usury or lending on interest is not directly permitted, so that many have large sums in their coffers; great quantities of plate are used in private houses, and all the churches are full of it. By this means provision and labour still remain much cheaper among them than in nations that are not half so rich in gold and silver. The advantages of this situation in point of trade, as well as in great public emergencies, are too evident to be disputed.

The same fashion a few years ago prevailed in Genoa which still has place in England and Holland, of using services of china ware instead of plate; but the Senate, wisely foreseeing the consequence, prohibited the use of that brittle commodity beyond a certain extent, while the use of silver plate was left unlimited. And I suppose, in their late distresses, they felt the good effect of this ordinance. Our tax on plate is, perhaps, in this view, somewhat impolitic.

Before the introduction of paper-money into our colonies, they had gold and silver sufficient for their circulation. Since the introduction of that commodity, the least inconveniency that has followed is the total banishment of the precious metals. And after the abolition of paper, can it be doubted but money will return, while these colonies possess manufactures and commodities, the only thing valuable in commerce, and for whose sake alone all men desire money?

What pity Lycurgus did not think of paper-credit when he wanted to banish gold and silver from Sparta! It would {p60} have served his purpose better than the lumps of iron he made use of as money, and would also have prevented more effectually all commerce with strangers, as being of so much less real and intrinsic value.

It must, however, be confessed that, as all these questions of trade and money are extremely complicated, there are certain lights in which this subject may be placed so as to represent the advantages of paper-credit and banks to be superior to their disadvantages. That they banish specie and bullion from a state is undoubtedly true, and whoever looks no farther than this circumstance does well to condemn them; but specie and bullion are not of so great consequence as not to admit of a compensation, and even an overbalance from the increase of industry and of credit which may be promoted by the right use of paper-money. It is well known of what advantage it is to a merchant to be able to discount his bills upon occasion; and everything that facilitates this species of traffic is favourable to the general commerce of a state. But private bankers are enabled to give such credit by the credit they receive from the depositing of money in their shops; and the Bank of England in the same manner, from the liberty they have to issue their notes in all payments. There was an invention of this kind which was fallen upon some years ago by the banks of Edinburgh, and which, as it is one of the most ingenious ideas that has been executed in commerce, has also been found very advantageous to Scotland. It is there called a bank-credit, and is of this nature: A man goes to the bank and finds surety to the amount, we shall suppose, of five thousand pounds. This money, or any part of it, he has the liberty of drawing out whenever he pleases, and he pays only the ordinary interest for it while it is in his hands. He may, when he pleases, repay any sum so small as twenty pounds, and the interest is discounted from the very day of the repayment. The advantages resulting from this contrivance are manifold. As a man may find surety nearly to the amount of his substance, and his bank-credit is equivalent to ready money, {p61} a merchant does hereby in a manner coin his houses, his household furniture, the goods in his warehouse, the foreign debts due to him, his ships at sea; and can, upon occasion, employ them in all payments as if they were the current money of the country. If a man borrows five thousand pounds from a private hand, besides that it is not always to be found when required, he pays interest for it whether he be using it or not; his bank-credit costs him nothing except during the very moment in which it is of service to him, and this circumstance is of equal advantage as if he had borrowed money at much lower interest. Merchants likewise from this invention acquire a great facility in supporting each other’s credit, which is a considerable security against bankruptcies. A man, when his own bank-credit is exhausted, goes to any of his neighbours who is not in the same condition, and he gets the money, which he replaces at his convenience.

After this practice had taken place during some years at Edinburgh, several companies of merchants at Glasgow carried the matter farther. They associated themselves into different banks and issued notes so low as ten shillings, which they used in all payments for goods, manufactures, tradesmen, labour of all kinds; and these notes, from the established credit of the companies, passed as money in all payments throughout the country. By this means a stock of five thousand pounds was able to perform the same operations as if it were ten, and merchants were thereby enabled to trade to a greater extent, and to require less profit in all their transactions. In Newcastle and Bristol, as well as other trading places, the merchants have since instituted banks of a like nature, in imitation of those in Glasgow. But whatever other advantages result from these inventions, it must still be allowed that they banish the precious metals; and nothing can be a more evident proof of it than a comparison of the past and present condition of Scotland in that particular. It was found, upon the recoinage made after the Union, that there was near a million of specie in that country; but notwithstanding the great increase of {p62} riches, commerce and manufactures of all kinds, it is thought that, even where there is no extraordinary drain made by England, the current specie will not now amount to a fifth of that sum.

But as our projects of paper-credit are almost the only expedient by which we can sink money below its level, so, in my opinion, the only expedient by which we can raise money above its level is a practice which we should all exclaim against as destructive—viz., the gathering large sums into a public treasure, locking them up, and absolutely preventing their circulation. The fluid not communicating with the neighbouring element may, by such an artifice, be raised to what height we please. To prove this we need only return to our first supposition of the annihilating the half or any part of our cash, where we found that the immediate consequence of such an event would be the attraction of an equal sum from all the neighbouring kingdoms. Nor does there seem to be any necessary bounds set by the nature of things to this practice of hoarding. A small city like Geneva, continuing this policy for ages, might engross nine-tenths of the money of Europe. There seems, indeed, in the nature of man an invincible obstacle to that immense growth of riches. A weak state with an enormous treasure will soon become a prey to some of its poorer but more powerful neighbours; a great state would dissipate its wealth in dangerous and ill-concerted projects, and probably destroy with it what is much more valuable—the industry, morals, and number of its people. The fluid in this case, raised to too great a height, bursts and destroys the vessel that contains it, and mixing itself with the surrounding element, soon falls to its proper level.

So little are we commonly acquainted with this principle that, though all historians agree in relating uniformly so recent an event as the immense treasure amassed by Harry VII. (which they make amount to £1,700,000), we rather reject their concurring testimony than admit of a fact which agrees so ill with our inveterate prejudices. It is indeed probable that that sum might be {p63} three-fourths of all the money in England; but where is the difficulty that such a sum might be amassed in twenty years by a cunning, rapacious, frugal, and almost absolute monarch? Nor is it probable that the diminution of circulating money was ever sensibly felt by the people, or ever did them any prejudice. The sinking of the prices of all commodities would immediately replace it, by giving England the advantage in its commerce with all the neighbouring kingdoms.

Have we not an instance in the small republic of Athens with its allies, who in about fifty years between the Median and Peloponnesian Wars amassed a sum greater than that of Harry VII.?​[20] for all the Greek historians and orators agree that the Athenians collected in the citadel more than 10,000 talents, which they afterwards dissipated, to their own ruin, in rash and imprudent enterprises. But when this money was set a-running, and began to communicate with the surrounding fluid, what was the consequence? Did it remain in the state? No; for we find by the memorable census mentioned by Demosthenes and Polybius that, in about fifty years afterwards, the whole value of the republic, comprehending lands, houses, commodities, slaves, and money was less than 6000 talents.

What an ambitious, high-spirited people was this, to collect and keep in their treasury, with a view to conquests, a sum which it was every day in the power of the citizens, by a single vote, to distribute among themselves, and which would go near to triple the riches of every individual; for we must observe that the numbers and private riches of the Athenians are said by ancient writers to have been no greater at the beginning of the Peloponnesian War than at the beginning of the Macedonian.

Money was little more plentiful in Greece during the age of Philip and Perseus than in England during that of Harry VII., yet these two monarchs in thirty years {p64} collected from the small kingdom of Macedon a much larger treasure than that of the English monarch. Paulus Æmilius brought to Rome about £1,700,000 sterling—Pliny says £2,400,000—and that was but a part of the Macedonian treasure; the rest was dissipated by the resistance and flight of Perseus.

We may learn from Stanyan that the Canton of Berne had £300,000 lent at interest, and had above six times as much in their treasury. Here, then, is a sum hoarded of £1,800,000 sterling, which is at least quadruple of what should naturally circulate in such a petty state; and yet no one who travels into the Pais de Vaux, or any part of that canton, observes any want of money more than could be supposed in a country of that extent, soil, and situation. On the contrary, there are scarce any inland provinces in the countries of France or Germany where the inhabitants are at this time so opulent, though that canton has vastly increased its treasure since 1714, the time when Stanyan wrote his judicious account of Switzerland.​[21]

The account given by Appian of the treasure of the Ptolemies is so prodigious that one cannot admit of it, and so much the less because the historian says the other successors of Alexander were all so frugal, and had many of them treasures not much inferior; for this saving humour of the neighbouring princes must necessarily have checked the frugality of the Egyptian monarchs, according to the foregoing theory. The sum he mentions is 740,000 talents, or £191,166,666 13s. 4d., according to Dr. Arbuthnot’s computation; and yet Appian says that he extracted his account from the public records, and he was himself a native of Alexandria.

From these principles we may learn what judgment we ought to form of those numberless bars, obstructions, and imposts which all nations of Europe, and none more than {p65} England, have put upon trade, from an exorbitant desire of amassing money, which never will heap up beyond its level while it circulates; or from an ill-grounded apprehension of losing their specie, which never will sink below it. Could anything scatter our riches, it would be such impolitic contrivances. But this general ill effect, however, results from them, that they deprive neighbouring nations of that free communication and exchange which the Author of the world has intended, by giving them soils, climates, and geniuses so different from each other.

Our modern politics embrace the only method of banishing money—the using paper-credit; they reject the only method of amassing it, the practice of hoarding; and they adopt a hundred contrivances which serve to no purpose but to check industry, and rob ourselves and our neighbours of the common benefits of art and nature.

All taxes, however, upon foreign commodities are not to be regarded as prejudicial or useless, but those only which are founded on the jealousy above mentioned. A tax on German linen encourages home manufactures, and thereby multiplies our people and industry; a tax on brandy increases the sale of rum, and supports our southern colonies. And as it is necessary imposts should be levied for the support of government, it may be thought more convenient to lay them on foreign commodities, which can easily be intercepted at the port and subjected to the impost. We ought, however, always to remember the maxim of Dr. Swift, that, in the arithmetic of the customs, two and two make not four, but often make only one. It can scarcely be doubted but if the duties on wine were lowered to a third, they would yield much more to the Government than at present; our people might thereby afford to drink commonly a better and more wholesome liquor, and no prejudice would ensue to the balance of trade, of which we are so jealous. The manufacture of ale beyond the agriculture is but inconsiderable, and gives employment to few hands. The transport of wine and corn would not be much inferior. {p66}

But are there not frequent instances, you will say, of states and kingdoms which were formerly rich and opulent, and are now poor and beggarly? Has not the money left them with which they formerly abounded? I answer, if they lose their trade, industry, and people, they cannot expect to keep their gold and silver, for these precious metals will hold proportion to the former advantages. When Lisbon and Amsterdam got the East India trade from Venice and Genoa, they also got the profits and money which arose from it. Where the seat of government is transferred, where expensive armies are maintained at a distance, where great funds are possessed by foreigners, there naturally follows from these causes a diminution of the specie. But these, we may observe, are violent and forcible methods of carrying away money, and are in time commonly attended with the transport of people and industry; but where these remain, and the drain is not continued, the money always finds its way back again, by a hundred canals of which we have no notion or suspicion. What immense treasures have been spent, by so many nations, in Flanders since the revolution, in the course of three long wars! More money perhaps than the half of what is at present in all Europe. But what has now become of it? Is it in the narrow compass of the Austrian provinces? No, surely; it has most of it returned to the several countries whence it came, and has followed that art and industry by which at first it was acquired. For above a thousand years the money of Europe has been flowing to Rome by an open and sensible current; but it has been emptied by many secret and insensible canals, and the want of industry and commerce renders at present the papal dominions the poorest territories in all Italy.

In short, a government has great reason to preserve with care its people and its manufactures. Its money it may safely trust to the course of human affairs, without fear or jealousy; or if it ever give attention to this latter circumstance, it ought only to be so far as it affects the former.