An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith [e book reader pdf TXT] 📗
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chuse rather to employ their capitals in a country where trade is in disgrace, than in one where
it is highly respected. The wages of labour are lower in France than in England. When you go
from Scotland to England, the difference which you may remark between the dress and
countenance of the common people in the one country and in the other, sufficiently indicates
the difference in their condition. The contrast is still greater when you return from France.
France, though no doubt a richer country than Scotland, seems not to be going forward so fast.
It is a common and even a popular opinion in the country, that it is going backwards ; an
opinion which I apprehend, is ill-founded, even with regard to France, but which nobody can
possibly entertain with regard to Scotland, who sees the country now, and who saw it twenty
or thirty years ago.
The province of Holland, on the other hand, in proportion to the extent of
its territory and the number of its people, is a richer country than
England. The government there borrow at two per cent. and private people of
good credit at three. The wages of labour are said to be higher in Holland
than in England, and the Dutch, it is well known, trade upon lower profits
than any people in Europe. The trade of Holland, it has been pretended by
some people, is decaying, and it may perhaps be true that some particular
branches of it are so; but these symptoms seem to indicate sufficiently that
there is no general decay. When profit diminishes, merchants are very apt to
complain that trade decays, though the diminution of profit is the natural
effect of its prosperity, or of a greater stock being employed in it than
before. During the late war, the Dutch gained the whole carrying trade of
France, of which they still retain a very large share. The great property
which they possess both in French and English funds, about forty millions,
it is said in the latter (in which, I suspect, however, there is a
considerable exaggeration ), the great sums which they lend to private
people, in countries where the rate of interest is higher than in their own,
are circumstances which no doubt demonstrate the redundancy of their stock,
or that it has increased beyond what they can employ with tolerable profit
in the proper business of their own country; but they do not demonstrate
that that business has decreased. As the capital of a private man, though
acquired by a particular trade, may increase beyond what he can employ in
it, and yet that trade continue to increase too, so may likewise the capital
of a great nation.
In our North American and West Indian colonies, not only the wages of
labour, but the interest of money, and consequently the profits of stock,
are higher than in England. In the different colonies, both the legal and
the market rate of interest run from six to eight percent. High wages of
labour and high profits of stock, however, are things, perhaps, which scarce
ever go together, except in the peculiar circumstances of new colonies. A
new colony must always, for some time, be more understocked in proportion to
the extent of its territory, and more underpeopled in proportion to the
extent of its stock, than the greater part of other countries. They have
more land than they have stock to cultivate. What they have, therefore, is
applied to the cultivation only of what is most fertile and most favourably
situated, the land near the sea-shore, and along the banks of navigable
rivers. Such land, too, is frequently purchased at a price below the value
even of its natural produce. Stock employed in the purchase and improvement
of such lands, must yield a very large profit, and, consequently, afford to
pay a very large interest. Its rapid accumulation in so profitable an
employment enables the planter to increase the number of his hands faster
than he can find them in a new settlement. Those whom he can find,
therefore, are very liberally rewarded. As the colony increases, the profits
of stock gradually diminish. When the most fertile and best situated lands
have been all occupied, less profit can be made by the cultivation of what
is inferior both in soil and situation, and less interest can be afforded
for the stock which is so employed. In the greater part of our colonies,
accordingly, both the legal and the market rate of interest have been
considerably reduced during the course of the present century. As riches,
improvement, and population, have increased, interest has declined. The
wages of labour do not sink with the profits of stock. The demand for labour
increases with the increase of stock, whatever be its profits; and after
these are diminished, stock may not only continue to increase, but to
increase much faster than before. It is with industrious nations, who are
advancing in the acquisition of riches, as with industrious individuals. A
great stock, though with small profits, generally increases faster than a
small stock with great profits. Money, says the proverb, makes money. When
you have got a little, it is often easy to get more. The great difficulty is
to get that little. The connection between the increase of stock and that of
industry, or of the demand for useful labour, has partly been explained
already, but will be explained more fully hereafter, in treating of the
accumulation of stock.
The acquisition of new territory, or of new branches of trade, may sometimes
raise the profits of stock, and with them the interest of money, even in a
country which is fast advancing in the acquisition of riches. The stock of
the country, not being sufficient for the whole accession of business which
such acquisitions present to the different people among whom it is divided,
is applied to those particular branches only which afford the greatest
profit. Part of what had before been employed in other trades, is
necessarily withdrawn from them, and turned into some of the new and more
profitable ones. In all those old trades, therefore, the competition comes
to be Jess than before. The market comes to be less fully supplied with many
different sorts of goods. Their price necessarily rises more or less, and
yields a greater profit to those who deal in them, who can, therefore,
afford to borrow at a higher interest. For some time after the conclusion of
the late war, not only private people of the best credit, but some of the
greatest companies in London, commonly borrowed at five per cent. who,
before that, had not been used to pay more than four, and four and a half
per cent. The great accession both of territory and trade by our
acquisitions in North America and the West Indies, will sufficiently account
for this, without supposing any diminution in the capital stock of the
society. So great an accession of new business to be carried on by the old
stock, must necessarily have diminished the quantity employed in a great
number of particular branches, in which the competition being less, the
profits must have been greater. I shall hereafter have occasion to mention
the reasons which dispose me to believe that the capital stock of Great
Britain was not diminished, even by the enormous expense of the late war.
The diminution of the capital stock of the society, or of the funds destined
for the maintenance of industry, however, as it lowers the wages of labour,
so it raises the profits of stock, and consequently the interest of money.
By the wages of labour being lowered, the owners of what stock remains in
the society can bring their goods at less expense to market than before ;
and less stock being employed in supplying the market than before, they can
sell them dearer. Their goods cost them less, and they get more for them.
Their profits, therefore, being augmented at both ends, can well afford a
large interest. The great fortunes so suddenly and so easily acquired in
Bengal and the other British settlements in the East Indies, may satisfy us,
that as the wages of labour are very low, so the profits of stock are very
high in those ruined countries. The interest of money is proportionably so.
In Bengal, money is frequently lent to the farmers at forty, fifty, and
sixty per cent. and the succeeding crop is mortgaged for the payment. As the
profits which can afford such an interest must eat up almost the whole rent
of the landlord, so such enormous usury must in its turn eat up the greater
part of those profits. Before the fall of the Roman republic, a usury of the
same kind seems to have been common in the provinces, under the ruinous
administration of their proconsuls. The virtuous Brutus lent money in Cyprus
at eight-and-forty per cent. as we learn from the letters of Cicero.
In a country which had acquired that full complement of riches which the
nature of its soil and climate, and its situation with respect to other
countries, allowed it to acquire, which could, therefore, advance no
further, and which was not going backwards, both the wages of labour and the
profits of stock would probably be very low. In a country fully peopled in
proportion to what either its territory could maintain, or its stock employ,
the competition for employment would necessarily be so great as to reduce
the wages of labour to what was barely sufficient to keep up the number of
labourers, and the country being already fully peopled, that number could
never be augmented. In a country fully stocked in proportion to all the
business it had to transact, as great a quantity of stock would be employed
in every particular branch as the nature and extent of the trade would
admit. The competition, therefore, would everywhere be as great, and,
consequently, the ordinary profit as low as possible.
But, perhaps, no country has ever yet arrived at this degree of opulence.
China seems to have been long stationary, and had, probably, long ago
acquired that full complement of riches which is consistent with the nature
of its laws and institutions. But this complement may be much inferior to
what, with other laws and institutions, the nature of its soil, climate, and
situation, might admit of. A country which neglects or despises foreign
commerce, and which admits the vessel of foreign nations into one or two of
its ports only, cannot transact the same quantity of business which it might
do with different laws and institutions. In a country, too, where, though
the rich, or the owners of large capitals, enjoy a good deal of security,
the poor, or the owners of small capitals, enjoy scarce any, but are liable,
under the pretence of justice, to be pillaged and plundered at any time by
the inferior mandarins, the quantity of stock employed in all the different
branches of business transacted within it, can never be equal to what the
nature and extent of that business might admit. In every different branch,
the oppression of the poor must establish the monopoly of the rich, who, by
engrossing the whole trade to themselves, will be able to make very large
profits. Twelve per cent. accordingly, is said to be the common interest of
money in China, and the ordinary profits of stock must be sufficient to
afford this large interest.
A defect in the law may sometimes raise the rate of interest considerably
above what the condition of the country, as to wealth or poverty, would
require. When the law does not enforce the performance of contracts, it puts
all borrowers nearly upon the same footing
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