An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith [e book reader pdf TXT] 📗

>in France than in England ; and it is no doubt upon this account, that many British subjects

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