agree, is perfectly just and right: but this means no more, than that
you are to abstain from acting to its prejudice, even though your own
private interest should demand it; that is, you should abstain from
unlawful gain. Count Julian, for example, who, from private resentment,
it is said, brought the Moors into Spain, and ruined his country,
transgressed this maxim. A spy in an army, or in a cabinet, who betrays
the secrets of his country, and he who sells his trust, are in the same
case: defrauding the state is, among many others, a notorious example of
this. To suppose men, in general, honest in such matters, would be
absurd. The legislature therefore ought to make good laws, and those who
transgress them ought to be speedily, severely, and most certainly
punished. This belongs to the coercive part of government, and falling
beyond the limits of my subject, is ever taken for granted.

Were the principle of public spirit carried farther; were a people to
become quite disinterested, there would be no possibility of governing
them. Every one might consider the interest of his country in a
different light, and many might join in the ruin of it, by endeavouring
to promote its advantages. Were a rich merchant to begin and sell his
goods without profit, what would become of trade? Were another to defray
the extraordinary expence of some workmen in a hard year, in order to
enable them to carry on their industry, without raising their price,
what would become of others, who had not the like advantages? Were a man
of a large landed estate to distribute his corn rents at a low price in
a year of scarcity, what would become of the poor farmers? Were people
to feed all who would ask charity, what would become of industry? These
operations of public spirit ought to be left to the public, and all that
is required of individuals is, not to endeavour to defeat them.

This is the regular distribution of things, and it is only this which
comes under my consideration.

In ill-administred governments I admire as much as any one every act of
public spirit, every sentiment of disinterestedness, and nobody can have
a higher esteem for every person remarkable for them.

The less attentive any government is to do their duty, the more
essential it is that every individual be animated by _that_ spirit,
which then languishes in the very part where it ought to flourish with
the greatest strength and vigour; and on the other hand, the more public
spirit is shewn in the administration of public affairs, the less
occasion has the state for assistance from individuals.

Now as I suppose my statesman to do his duty in the most minute
particulars, so I allow every one of his subjects to follow the dictates
of his private interest. All I require is an exact obedience to the
laws. This also is the interest of every one; for he who transgresses
ought most undoubtedly to be punished: and this is all the public spirit
which any perfect government has occasion for.

                                CHAP. I.
      _Of the reciprocal Connections between Trade and Industry._

I am now going to treat of trade and industry, two different subjects,
but which are as thoroughly blended together, as those we have discussed
in the first book. Similar to these in their mutual operations, they are
reciprocally aiding and assisting to each other, and it is by the
constant vibration of the balance between them, that both are carried to
their height of perfection and refinement.

_TRADE_ _is an operation, by which the wealth, or work, either of
individuals, or of societies, may be exchanged, by a set of men called
merchants, for an equivalent, proper for supplying every want, without
any interruption to industry, or any check upon consumption_.

_INDUSTRY_ _is the application to ingenious labour in a free man, in
order to procure, by the means of trade, an equivalent, fit for the
supplying every want_.

I must observe, that these definitions are only just, relatively to my
subject, and to one another: for _trade_ may exist without _industry_,
because things produced partly by nature may be exchanged between men;
_industry_ may be exercised without _trade_, because a man may be very
ingenious in working to supply his own consumption, and where there is
no exchange, there can be no _trade_. _Industry_ likewise is different
from _labour_. _Industry_, as I understand the term, must be voluntary;
_labour_ may be forced: the one and the other may produce the same
effect, but the political consequences are vastly different.

_Industry_, therefore, is only applicable to free men; _labour_ may be
performed by slaves.

Let me examine this last distinction a little more closely, the better
to try whether it be just, and to point out the consequences which
result from it.

I have said, that without the assistance of one of the three principles
of multiplication, to wit, slavery, industry, or charity, there was no
possibility of making mankind subsist, so as to be serviceable to one
another, in greater numbers than those proportioned to the spontaneous
fruits of the earth. Slavery and industry are quite compatible with the
selfish nature of man, and may therefore be generally established in any
society: charity again is a refinement upon humanity, and therefore, I
apprehend, it must ever be precarious.

Now I take slavery and industry to be equally compatible with great
multiplication, but incompatible with one another, without great
restrictions laid upon the first. It is a very hard matter to introduce
industry into a country where slavery is established; because of the
unequal competition between the work of slaves and that of free men,
supposing both equally admitted to market. Here is the reason:

The slaves have all their particular masters, who can take better care
of _them_, than any statesman can take of the industrious freemen;
because their liberty is an obstacle to his care. The slaves have all
their wants supplied by the master, who may keep them within the limits
of sobriety. He may either recruit their numbers from abroad, or take
care of the children, just as he finds it his advantage. If the latter
should prove unprofitable, either the children die for want of care, or
by promiscuous living few are born, or by keeping the sexes asunder,
they are prevented from breeding at all. A troop of manufacturing
slaves, considered in a political light, will be found all employed, all
provided for, and their work, when brought to market by the master, may
be afforded much cheaper, than the like performed by freemen, who must
every one provide for himself, and who may perhaps have a separate
house, a wife, and children, to maintain, and all this from an industry,
which produces no more, nay not so much, as that of a single slave, who
has no avocation from labour. Why do large undertakings in the
manufacturing way ruin private industry, but by coming nearer to the
simplicity of slaves. Could the sugar islands be cultivated to any
advantage by hired labour? Were not the expences of rearing children
supposed to be great, would slaves ever be imported? Certainly not: and
yet it is still a doubt with me, whether or not a proper regulation for
bringing up the children of slaves might not turn this expedient to a
better account, than the constant importation of them. But this is
foreign to the present purpose. All I intend here to observe is, the
consequences of a _competition_ between the work of slaves and of free
men; from which competition I infer, that, without judicious
regulations, it must be impossible for industry ever to get the better
of the disadvantages to which it will necessarily be exposed at first,
in a state where slavery is already introduced.

These regulations ought to prevent the competition between the
industrious freemen and the masters of slaves, by appropriating the
occupation of each to different objects: to confine slavery, for
example, to the country; that is, to set the slaves apart for
agriculture, and to exclude them from every other service of work. With
such a regulation _perhaps_ industry might succeed. This was not the
case of old; industry did not succeed as at present: and to this I
attribute the simplicity of those times.

It is not so difficult to introduce slavery into a state where liberty
is established; because such a revolution might be brought about by
force and violence, which make every thing give way; and, for the
reasons above-mentioned, I must conclude, that the consequences of such
a revolution would tend to extinguish, or at least, without the greatest
precaution, greatly check the progress of industry: but were such
precautions properly taken; were slavery reduced to a temporary and
conditional service, and put under proper regulations; it might prove,
of all others, the most excellent expedient for rendering the lower
classes of a people happy and flourishing; and for preventing that
vitious procreation, from which the great misery to which they are
exposed at present chiefly proceeds. But as every modification of
slavery is quite contrary to the spirit of modern times, I shall carry
such speculations no farther. Thus much I have thought it necessary to
observe, only by the way, for the sake of some principles which I shall
have occasion afterwards to apply to our own oeconomy; for wherever any
notable advantage is found accompanying slavery, it is the duty of a
modern statesman to fall upon a method of profiting by it, without
wounding the spirit of European liberty. And this he may accomplish in a
thousand ways, by the aid of good laws, calculated to cut off from the
lower classes of a people any interest they can have in involving
themselves in want and misery, opening to them at the same time an easy
progress towards prosperity and ease.

Here follows an exposition of the principles, from which I was led to
say, in a former chapter, that the failure of the slavish form of feudal
government, and the extension thereby given to civil and domestic
liberty, were the source from which the whole system of modern polity
has sprung.

Under the feudal form, the higher classes were perhaps more free than at
present, but the lower classes were either slaves, or under a most
servile dependence, which is entirely the same thing as to the
consequence of interrupting the progress of private industry.

I cannot pretend to advance, as a confirmation of this doctrine, that
the establishment of slavery in our colonies in America was made with a
view to promote agriculture, and to curb manufactures in the new world,
because I do not know much of the sentiments of politicians at that
time: but if it be true, that slavery has the effect of advancing
agriculture, and other laborious operations which are of a simple
nature, and at the same time of discouraging invention and ingenuity;
and if the mother-country has occasion for the produce of the first, in
order to provide or to employ those who are taken up at home in the
prosecution of the latter; then I must conclude, that slavery _has been_
very _luckily_, if not _politically_, established to compass such an
end: and therefore, if any colony, where slavery is not common, shall
ever begin to rival the industry of the mother-country, a very good way
of frustrating the attempt will be, to encourage the introduction of
slaves into such colonies without any restrictions, and allow it to work
its natural effect.

Having given the definition of trade and industry, as relative to my
inquiry, I come now to examine their immediate connections, the better
to cement the subject of this book, with the principles deduced in the
former.

In treating of the reciprocal wants of a society, and in shewing how
their being supplied by labour and ingenuity naturally tends to increase
population on one hand, and agriculture on the other, the better to
simplify our ideas, we supposed the transition to be direct from the
manufacturer to the consumer, and both to be members of the same
society. Matters now become more complex, by the introduction of trade
among different nations, which is a method of collecting and
distributing the produce of industry, by the interposition of a third
principle. Trade receives from a thousand hands, and distributes to as
many.

To ask, whether trade owes its beginning to industry, or industry to
trade, is like asking, whether the motion of the heart is owing to the
blood, or the motion of the blood to the heart. Both the one and the
other, I suppose, are formed by such insensible degrees, that it is
impossible to determine where the motion begins. But so soon as the body
comes to be perfectly formed, I have little doubt of the heart’s being
the principle of circulation. Let me apply this to the present question.

A man must first exist, before he can feel want; he must want, that is,
desire, before he will demand; and he must demand, before he can
receive. This is a natural chain, and from it we have concluded in Book
I. that population is the cause, and agriculture the effect.

By a parallel reason it may be alledged, that as wants excite to
industry, and are considered as the cause of it; and as the produce of
industry cannot be exchanged without trade; so trade must be an effect
of industry. To this I agree: but I must observe, that this exchange
does not convey my idea of trade, although I admit, that it is the root
from which the other springs; it is the seed, but not the plant; and
trade, as we have defined it, conveys another idea. The workman must not
be interrupted, in order to seek for an exchange, nor the consumer put
to the trouble of finding out the manufacturer. The object of trade
therefore is no more than a new want, which calls for a set of men to
supply it; and trade has a powerful effect in promoting industry, by
facilitating the consumption of its produce.

While wants continue simple and few, a workman finds time enough to
distribute all his work: when wants become more multiplied, men must
work harder; time becomes precious; hence trade is introduced. They who
want to consume, send the merchant, in a manner, to the workman, for his
labour, and do not go themselves; the workman sells to this interposed
person, and does not look out for a consumer. Let me now take a familiar
instance of infant trade, in order to shew how it grows and refines:
this will illustrate what I have been saying.

I walk out of the gates of a city in a morning, and meet with five
hundred persons, men and women, every one bringing to market a small
parcel of herbs, chickens, eggs, fruit, &c. It occurs to me immediately,
that these people must have little to do at home, since they come to
market for so small a value. Some years afterwards, I find nothing but
horses, carts, and waggons, carrying the same provisions. I must then
conclude, that either those I met before are no more in the country, but
purged off, as being found useless, after a method has been found of
collecting all their burdens into a few carts; or that they have found
out a more profitable employment than carrying eggs and greens to
market. Which ever happens to be the case, there will be the
introduction of what I call trade; to wit, this collecting of eggs,
fruit, fowl, &c. from twenty hands, in order to distribute it to as many
more within the walls. The consequence is, that a great deal of labour
is saved; that is to say, the cart gives time to twenty people to
labour, if they incline; and when wants increase, they will be ready to
supply them.

We cannot therefore say, that trade will force industry, or that
industry will force trade; but we may say, that trade will facilitate
industry, and that industry will support trade. Both the one and the
other however depend upon a third principle; to wit, a taste for
superfluity, in those who have an equivalent to give for it. This taste
will produce demand, and this again will become the main spring of the
whole operation.

                               CHAP. II.
                              _Of Demand._

This is no new subject; it is only going over what has been treated of
very extensively in the first book under another name, and relatively to
other circumstances. _These_ ideas were there kept as simple as
possible; _here_ they take on a more complex form, and appear in a new
dress.

The wants of mankind were said to promote their multiplication, by
augmenting the demand for the food of the free hands, who, by supplying
those wants, are enabled to offer an equivalent for their food, to the
farmers who produced it; and as this way of bartering is a
representation of trade in its infancy, it is no wonder that trade, when
grown up, should still preserve a resemblance to it.

_Demand_, considered as a term appropriated to trade, will now be used
in place of _wants_, the term used in the first book relatively to
bartering; we must therefore expect, that the operations of the same
principle, under different appellations, will constantly appear similar,
in every application we can make of it, to different circumstances and
combinations.

Whether this term be applied to bartering or to trade, it must
constantly appear reciprocal. If I demand a pair of shoes, the shoemaker
either demands money, or something else for his own use. To prevent
therefore the ambiguity of a term, which, from the sterility of
language, is taken in different acceptations, according to the
circumstances which are supposed to accompany it, I shall endeavour
shortly to analyze it.

_1mo._ Demand is ever understood to be relative to merchandize. A demand
for money, except in bills of exchange, is never called demand. When
those who have merchandize upon hand, are desirous of converting them
into money, they are said to offer to sale; and if, in order to find a
buyer, they lower their price, then, in place of saying the demand for
money is high, we say the demand for goods is low.

_2do._ Suppose a ship to arrive at a port loaded with goods, with an
intention to purchase others in return, the operation only becomes
double. The ship offers to sale, and the demand of the port is said to
be high or low, according to the height of the price offered, not
according to the quantity demanded, or number of demanders. When all is
sold, then the ship becomes demander; and if his demand be
proportionally higher than the former, we say upon the whole, that the
demand is for the commodities of the port; that is, the port offers, and
the ship demands. This I call reciprocal demand.

_3tio._ Demand is either simple or compound. Simple, when the demander
is but _one_, compound, when _they are more_. But this is not so much
relative to persons as to interests. Twenty people demanding from the
same determined interest form but a simple demand; it becomes compound
or high, when different interests produce a competition. It may
therefore be said, that when there is no competition among buyers,
demand is simple, let the quantity demanded be great or small, let the
buyers be few or many. When therefore in the contract of barter the
demand upon one side is simple, upon the other compound, that which is
compound is constantly called the demand, the other not.

_4to._ Demand is either great or small: great, when the _quantity_
demanded is great; small, when the _quantity_ demanded is small.

_5to._ Demand is either high or low: high, when the competition among
the _buyers_ is great; low, when the competition among the _sellers_ is
great. From these definitions it follows, that the consequence of a
great demand, is a great sale; the consequence of a high demand, is a
great price. The consequence of a small demand, is a small sale; the
consequence of a low demand, is a small price.

_6to._ The nature of demand is to encourage industry; and when it is
regularly made, the effect of it is, that the supply for the most part
is found to be in proportion to it, and then the demand is commonly
simple. It becomes compound from other circumstances. As when it is
irregular, that is, unexpected, or when the usual supply fails; the
consequence of which is, that the provision made for the demand, falling
short of the just proportion, occasions a competition among the buyers,
and raises the current, that is, the ordinary prices. From this it is,
that we commonly say, demand raises prices. Prices are high or low
according to demand. These expressions are just; because the sterility
of language obliges us there to attend to circumstances which are only
implied.

Demand is understood to be _high_ or _low_, relatively to the common
rate of it, or to the competition of buyers, to obtain the provision
made for it. When demand is relative to the quantity demanded, it must
be called great or small, as has been said.

_7mo._ Demand has not always the same effect in raising prices: we must
therefore carefully attend to the difference between a demand for things
of the first necessity for life, and for things indifferent; also
between a demand made by the immediate consumers, and one made by
merchants, who buy in order to sell again. In both cases the competition
will have different effects. Things of absolute necessity must be
procured, let the price be ever so great: consumers who have no view to
profit, but to satisfy their desires, will enter into a stronger
competition than merchants, who are animated by no passion, and who are
regulated in what they offer by their prospect of gain. Hence the great
difference in the price of grain in different years; hence the uniform
standard of the price of merchandize, in fairs of distribution, such as
Frankfort, Beaucaire, &c. hence, also, the advantage which consumers
find in making their provision at the same time that merchants make
theirs; hence the sudden rise and fall in the price of labouring cattle
in country markets, where every one provides for himself.

Let what has been said suffice at setting out: this principle will be
much better explained by its application as we advance, than by all the
abstract distinctions I am capable to give of it.

                               CHAP. III.
 _Of the first Principles of bartering, and how this grows into Trade._

I must now begin by tracing trade to its source, in order to reduce it
to its first principles.

The most simple of all trade, is that which is carried on by bartering
the necessary articles of subsistence. If we suppose the earth free to
the first possessor, this person who cultivates it will first draw from
it his food, and the surplus will be the object of barter: he will give
this in exchange to any one who will supply his other wants. This (as
has been said) naturally supposes both a surplus quantity of food
produced by labour, and also free hands; for he who makes a trade of
agriculture cannot supply himself with all other necessaries, as well as
food; and he who makes a trade of supplying the farmers with such
necessaries, in exchange for his surplus of food, cannot be employed in
producing that food. The more the necessities of man increase, _cæteris
paribus_, the more free hands are required to supply them; and the more
free hands are required, the more surplus food must be produced by
additional labour, to supply their demand.

This is the least complex kind of trade, and may be carried on to a
greater or less extent, in different countries, according to the
different degrees of the wants to be supplied. In a country where there
is no money, nor any thing equivalent to it, I imagine the wants of
mankind will be confined to few objects; to wit, the removing the
inconveniencies of hunger, thirst, cold, heat, danger, and the like. A
free man who by his industry can procure all the comforts of a simple
life, will enjoy his rest, and work no more: And, in general, all
increase of work will cease, so soon as the demand for the purposes
mentioned comes to be satisfied. There is a plain reason for this. When
the free hands have procured, by their labour, wherewithal to supply
their wants, their ambition is satisfied: so soon as the husbandmen have
produced the necessary surplus for relieving theirs, they work no more.
Here then is a natural stop put to industry, consequently to bartering.
This, in the first book, we have called _the moral impossibility of
augmenting numbers._

The next thing to be examined, is, how bartering grows into trade,
properly so called and understood, according to the definition given of
it above; how trade comes to be extended among men; how manufactures,
more ornamental than useful, come to be established; and how men come to
submit to labour, in order to acquire what is not absolutely necessary
for them.

This, in a free society, I take to be chiefly owing to the introduction
of money, and a taste for superfluities in those who possess it.

In antient times, money was not wanting; but the taste for superfluities
not being in proportion to it, the specie was locked up. This was the
case in Europe four hundred years ago. A new taste for superfluity has
drawn, perhaps, more money into circulation, from our own treasures,
than from the mines of the new world. The poor opinion we entertain of
the riches of our forefathers, is founded upon the modern way of
estimating wealth, by the quantity of coin in circulation, from which we
conclude, that the greatest part of the specie now in our hands must
have come from America.

It is more, therefore, through the taste of superfluity, than in
consequence of the quantity of coin, that trade comes to be established;
and it is only in consequence of trade that we see industry carry things
in our days to so high a pitch of refinement and delicacy. Let me
illustrate this by comparing together the different operations of
barter, sale, and commerce.

When reciprocal wants are supplied by barter, there is not the smallest
occasion for money: this is the most simple of all combinations.

When wants are multiplied, bartering becomes (for obvious reasons) more
difficult; upon this money is introduced. This is the common price of
all things: it is a proper equivalent in the hands of those who want,
perfectly calculated to supply the occasions of those who, by industry,
can relieve them. This operation of buying and selling is a little more
complex than the former; but still we have here no idea of trade,
because we have not introduced the merchant, by whose industry it is
carried on.

Let this third person be brought into play, and the whole operation
becomes clear. What before we called wants, is here represented by the
consumer; what we called industry, by the manufacturer; what we called
money, by the merchant. The merchant here represents the money, by
substituting credit in its place; and as the money was invented to
facilitate barter, so the merchant, with his credit, is a new refinement
upon the use of money. This renders it still more effectual in
performing the operations of buying and selling. This operation is
trade: it relieves both parties of the whole trouble of transportation,
and adjusting wants to wants, or wants to money; the merchant represents
by turns both the consumer, the manufacturer, and the money. To the
consumer he appears as the whole body of manufacturers; to the
manufacturers as the whole body of consumers; and to the one and the
other class his credit supplies the use of money. This is sufficient at
present for an illustration. I must now return to the simple operations
of money in the hands of the two contracting parties, the buyer and the
seller, in order to show how men come to submit to labour in order to
acquire superfluities.

So soon as money is introduced into a country it becomes, as we have
said above, an universal object of want to all the inhabitants. The
consequence is, that the free hands of the state, who before stopt
working, because all their wants were provided for, having this new
object of ambition before their eyes, endeavour, by refinements upon
their labour, to remove the smaller inconveniencies which result from a
simplicity of manners. People, I shall suppose, who formerly knew but
one sort of cloathing for all seasons, willingly part with a little
money to procure for themselves different sorts of apparel properly
adapted to summer and winter, which the ingenuity of manufacturers, and
their desire of getting money, may have suggested to their invention.

I shall not here pursue the gradual progress of industry, in bringing
manufactures to perfection; nor interrupt my subject with any further
observations upon the advantages resulting to industry, from the
establishment of civil and domestic liberty, but shall only suggest,
that these refinements seem more generally owing to the industry and
invention of the manufacturers (who by their ingenuity daily contrive
means of softening or relieving inconveniencies, which mankind seldom
perceive to be such, till the way of removing them is contrived) than to
the taste for luxury in the rich, who, to indulge their ease, engage the
poor to become industrious.

Let any man make an experiment of this nature upon himself, by entring
into the first shop. He will no where so quickly discover his wants as
there. Every thing he sees appears either necessary, or at least highly
convenient; and he begins to wonder (especially if he be rich) how he
could have been so long without that which the ingenuity of the workman
alone had invented, in order that from the novelty it might excite his
desire; for perhaps when it is bought, he will never once think of it
more, nor ever apply it to the use for which it at first appeared so
necessary.

Here then is a reason why mankind labour though not in want. They become
desirous of possessing the very instruments of luxury, which their
avarice or ambition prompted them to invent for the use of others.

What has been said represents trade in its infancy, or rather the
materials with which that great fabric is built.

We have formed an idea of the wants of mankind multiplied even to
luxury, and abundantly supplied by the employment of all the free hands
set apart for that purpose. But if we suppose the workman himself
disposing of his work, and purchasing, with it, food from the farmer,
cloaths from the clothier, and in general seeking for the supply of
every want from the hands of the person directly employed for the
purpose of relieving it; this will not convey an idea of trade,
according to our definition.

Trade and commerce are an abbreviation of this long process; a scheme
invented and set on foot by merchants, from a principle of gain,
supported and extended among men, from a principle of general utility to
every individual, rich or poor, to every society, great or small.

Instead of a pin-maker exchanging his pins with fifty different persons,
for whose labour he has occasion, he sells all to the merchant for money
or for credit; and, as occasion offers, he purchases all his wants,
either directly from those who supply them, or from other merchants who
deal with manufacturers in the same way his merchant dealt with him.

Another advantage of trade is, that industrious people in one part of
the country, may supply customers in another, though distant. They may
establish themselves in the most commodious places for their respective
business, and help one another reciprocally, without making the distant
parts of the country suffer for want of their labour. They are likewise
exposed to no avocation from their work, by seeking for customers.

Trade produces many excellent advantages; it marks out to the
manufacturers when their branch is under or overstocked with hands. If
it is understocked, they will find more demand than they can answer: if
it is overstocked, the sale will be slow.

Intelligent men, in every profession, will easily discover when these
appearances are accidental, and when they proceed from the real
principles of trade; which are here the object of our inquiry.

Posts, and correspondence by letters, are a consequence of trade, by the
means of which merchants are regularly informed of every augmentation or
diminution of industry in every branch, in every part of the country.
From this knowledge they regulate the prices they offer; and as they are
many, they serve as a check upon one another, from the principles of
competition which we shall hereafter examine.

From the current prices the manufacturers are as well informed as if
they kept the correspondence themselves: the statesman feels perfectly
where hands are wanting, and young people destined to industry, obey, in
a manner, the call of the public, and fall naturally in to supply the
demand.

Two great assistances to merchants, especially in the infancy of trade,
are public markets for collecting the work of small dealers, and large
undertakings in the manufacturing way by private hands. By these means
the merchants come at the knowledge of the quantity of work in the
market, as on the other hand the manufacturers learn, by the sale of the
goods, the extent of the demand for them. These two things being justly
known, the price of goods is easily fixt, as we shall presently see.

Public sales serve to correct the small inconveniencies which proceed
from the operations of trade. A set of manufacturers got all together
into one town, and entirely taken up with their industry, are thereby as
well informed of the rate of the market as if every one of them carried
thither his work, and upon the arrival of the merchant, who readily
takes it off their hands, he has not the least advantage over them from
his knowledge of the state of demand. This man both buys and sells in
what is called wholesale (that is by large parcels) and from him
retailers purchase, who distribute the goods to every consumer
throughout the country. These last buy from wholesale merchants in every
branch, that proportion of every kind of merchandize which is suitable
to the demand of their borough, city, or province.

Thus all inconveniencies are prevented, at some additional cost to the
consumer, who, for reasons we shall afterwards point out, must naturally
reimburse the whole expence. The distance of the manufacturer, the
obscurity of his dwelling, the caprice in selling his work, are quite
removed; the retailer has all in his shop, and the public buys at a
current price.

                               CHAP. IV.
           _How the Prices of Goods are determined by Trade._

In the price of goods, I consider two things as really existing, and
quite different from one another; to wit, the real value of the
commodity, and the profit upon alienation. The intention of this chapter
is to establish this distinction, and to shew how the operation of trade
severally influences the standard of the one and the other; that is to
say, how trade has the effect of rendering fixt and determined, two
things which would otherwise be quite vague and uncertain.

I. The first thing to be known of any manufacture when it comes to be
sold, is, how much of it a person can perform in a day, a week, a month,
according to the nature of the work, which may require more or less time
to bring it to perfection. In making such estimates, regard is to be had
only to what, upon an average, a workman of the country in general may
perform, without supposing him the best or the worst in his profession;
or having any peculiar advantage or disadvantage as to the place where
he works.

Hence the reason why some people thrive by their industry, and others
not; why some manufactures flourish in one place and not in another.

II. The second thing to be known, is the value of the workman’s
subsistence and necessary expence, both for supplying his personal
wants, and providing the instruments belonging to his profession, which
must be taken upon an average as above; except when the nature of the
work requires the presence of the workman in the place of consumption:
for although some trades, and almost every manufacture, may be carried
on in places at a distance, and therefore may fall under one general
regulation as to prices, yet others there are which, by their nature,
require the presence of the workman in the place of consumption; and in
that case the prices must be regulated by circumstances relative to
every particular place.

III. The third and last thing to be known, is the value of the
materials, that is the first matter employed by the workman; and if the
object of his industry be the manufacture of another, the same process
of inquiry must be gone through with regard to the first, as with regard
to the second: and thus the most complex manufactures may be at last
reduced to the greatest simplicity. I have been more particular in this
analysis of manufactures than was absolutely necessary in this place,
that I might afterwards with the greater ease point out the methods of
diminishing the prices of them.

These three articles being known, the price of manufacture is
determined. It cannot be lower than the amount of all the three, that
is, than the real value; whatever it is higher, is the manufacturer’s
profit. This will ever be in proportion to demand, and therefore will
fluctuate according to circumstances.

Hence appears the necessity of a great demand, in order to promote
flourishing manufactures.

By the extensive dealings of merchants, and their constant application
to the study of the balance of work and demand, all the above
circumstances are known to them, and are made known to the industrious,
who regulate their living and expence according to their certain profit.
I call it certain, because under these circumstances they seldom
overvalue their work, and by not overvaluing it, they are sure of a
sale: a proof of this may be had from daily experience.

Employ a workman in a country where there is little trade or industry,
he proportions his price always to the urgency of your want, or your
capacity to pay; but seldom to his own labour. Employ another in a
country of trade, he will not impose upon you, unless perhaps you be a
stranger, which supposes your being ignorant of the value; but employ
the same workman in a work not usual in the country, consequently not
demanded, consequently not regulated as to the value, he will proportion
his price as in the first supposition.

We may therefore conclude from what has been said, that in a country
where trade is established, manufactures must flourish, from the ready
sale, the regulated price of work, and certain profit resulting from
industry. Let us next inquire into the consequences of such a situation.

                                CHAP. V.
_How foreign Trade opens to an industrious People, and the consequences
             of it to_ the Merchants _who set it on foot_.

The first consequence of the situation described in the preceding
chapter, is, that wants are easily supplied, for the adequate value of
the thing wanted.

The next consequence is, the opening of foreign trade under its two
denominations of passive and active. Strangers and people of distant
countries finding the difficulty of having their wants supplied at home,
and the ease of having them supplied from this country, immediately have
recourse to it. This is passive trade. The active is when merchants, who
have executed this plan at home with success, begin to transport the
labour of their countrymen into other regions, which either produce, or
are capable of producing such articles of consumption, proper to be
manufactured, as are most demanded at home; and consequently will meet
with the readiest sale, and fetch the largest profits.

Here then is the opening of foreign trade, under its two denominations
of active and passive: but as our present point of view is the
consequences of this revolution to the merchants, we shall take no
farther notice, in this place, of that division: it will naturally come
in afterwards.

What then are the consequences of this new commerce to our merchants,
who have left their homes in quest of gain abroad?

The first is, that arriving in any new country, they find themselves in
the same situation, with regard to the inhabitants, as the workman in
the country of no trade, with regard to those who employed him; that is,
they proportion the price of their goods to the eagerness of acquiring,
or the capacity of paying, in the inhabitants, but never to their real
value.

The first profits then, upon this trade, must be very considerable; and
the demand from such a country will be _high_ or _low_, _great_ or
_small_, according to the spirit, not the real wants of the people: for
these in all countries, as has been said, must first be supplied by the
inhabitants themselves, before they cease to labour.

If the people of this not-trading country (as we shall now call it) be
abundantly furnished with commodities useful to the traders, they will
easily part with them, at first, for the instruments of luxury and ease;
but the great profit of the traders will insensibly increase the demand
for the productions of their new correspondents; this will have the
effect of producing a competition between themselves, and thereby of
throwing the demand on their side, from the principles I shall
afterwards explain. This is perpetually a disadvantage in traffic: the
most unpolished nations in the world quickly perceive the effects of it;
and are taught to profit of the discovery, in spite of the address of
those who are the most expert in commerce.

The traders will, therefore, be very fond of falling upon every method
and contrivance to inspire this people with a taste of refinement and
delicacy. Abundance of fine presents, consisting of every instrument of
luxury and superfluity, the best adapted to the genius of the people,
will be given to the prince and leading men among them. Workmen will
even be employed at home to study the taste of the strangers, and to
captivate their desires by every possible means. The more eager they are
of presents, the more lavish the traders will be in bestowing and
diversifying them. It is an animal put up to fatten, the more he eats
the sooner he is fit for slaughter. When their taste for superfluity is
fully formed, when the relish for their former simplicity is
sophisticated, poisoned, and obliterated, then they are surely in the
fetters of the traders, and the deeper they go, the less possibility
there is of their getting out. The presents then will die away, having
served their purpose; and if afterwards they are found to be continued,
it will probably be to support the competition against other nations,
who will incline to share of the profits.

If, on the contrary, this not-trading nation does not abound with
commodities useful to the traders, these will make little account of
trading with them, whatever their turn may be; but if we suppose this
country inhabited by a laborious people, who, having taken a taste for
refinement from the traders, apply themselves to agriculture, in order
to produce articles of subsistence, they will sollicit the merchants to
give them part of their manufactures in exchange for those; and this
trade will undoubtedly have the effect of multiplying numbers in the
trading nation. But if food cannot be furnished, nor any other branch of
production found out to support the correspondence, the taste for
refinement will soon die away, and trade will stop in this quarter.

Had it not been for the furs in those countries adjacent to Hudson’s
Bay, and in Canada, the Europeans never would have thought of supplying
instruments of luxury to those nations; and if the inhabitants of those
regions had not taken a taste for the instruments of luxury furnished to
them by the Europeans, they never would have become so indefatigable nor
so dexterous hunters. At the same time we are not to suppose, that ever
these Americans would have come to Europe in quest of our manufactures.
It is therefore owing to our merchants, that these nations are become in
any degree fond of refinement; and this taste, in all probability, will
not soon exceed the proportion of the productions of their country. From
these beginnings of foreign trade it is easy to trace its increase.

One step towards this, is the establishing correspondences in foreign
countries; and these are more or less necessary in proportion as the
country where they are established is more or less polished or
acquainted with trade. They supply the want of posts, and point out to
the merchants what proportion the productions of the country bear to the
demand of the inhabitants for manufactures. This communicates an idea of
commerce to the not-trading nation, and they insensibly begin to fix a
determined value upon their own productions, which perhaps bore no
determined value at all before.

Let me trace a little the progress of this refinement in the savages, in
order to shew how it has the effect of throwing the demand upon the
traders, and of creating a competition among them, for the productions
of the new country.

Experience shews, that in a new discovered country, merchants constantly
find some article or other of its productions, which turns out to a
great account in commerce; and we see that the longer such a trade
subsists, and the more the inhabitants take a taste for European
manufactures, the more their own productions rise in their value, and
the less profit is made by trading with them, even in cases where the
trade is carried on by companies; which is a very wise institution for
one reason, that it cuts off a competition between our merchants.

This we shall shew, in its proper place, to be the best means of keeping
prices low in favour of the nation; however it may work a contrary
effect with respect to individuals who must buy from these monopolies.

When companies are not established, and when trade is open, our
merchants, by their eagerness to profit of the new trade, betray the
secrets of it, they enter into competition for the purchase of the
foreign produce, and this raises prices and favours the commerce of the
most ignorant savages.

Some account for this in a different manner. They alledge that it is not
this competition which raises prices; because there is also a
competition among the savages as to which of them shall get the
merchandize; and this may be sufficient to counterbalance the other, and
in proportion as the quantity of goods demanded by the savages, as an
exchange for the produce of their country, becomes greater, a less
quantity of this produce must be given for every parcel of the goods.

To this I answer, That I cannot admit this apparent reason to be
consistent with the principles of trade, however ingenious the conceit
may be.

The merchant constantly considers his own profit in parting with his
goods, and is not influenced by the reasons of expediency which the
savages may find, to offer him less than formerly; for were this
principle of proportion admitted generally, the price of merchandize
would always be at the discretion of the buyers.

The objection here stated is abundantly plain; but it must be resolved
in a very different manner. Here are two solutions:

1. Prices, I have said, are made to rise, according as demand is _high_,
not according as it is _great_. Now, in the objection, it is said, that,
in proportion as the demand is _great_, a less proportion of the
equivalent must go to every parcel of the merchandize; which I apprehend
to be false: and this shews the necessity of making a distinction
between the _high_ and the _great_ demand, which things are different in
trade, and communicate quite different ideas.

2. In all trade there is an exchange, and in all exchange, we have said,
there is a reciprocal demand implied: it must therefore be exactly
inquired into, on which hand the competition between the demanders is
found; that is to say, on which hand it is _strongest_; according to the
distinction in the second chapter.

If the inhabitants of the country be in competition for the
manufactures, goods will rise in their price most undoubtedly, let the
quantity of the produce they have to offer be large or small; but so
soon as these prices rise above the faculties, or desire of buying, in
certain individuals, their demand will stop, and their equivalent will
be prevented from coming into commerce. This will disappoint the
traders; and therefore, as their gains are supposed to be great, either
a competition will take place among themselves, who shall carry off the
quantity remaining, supposing them to have separate interests; or, if
they are united, they may, from a view of expediency, voluntarily sink
their price, in order to bring it within the compass of the faculties,
or intention, to buy in those who are still possessed of a portion of
what they want.

It is from the effects of competition among sellers that I apprehend
prices are brought down, not from any imaginary proportion of quantity
to quantity in the market. But of this more afterwards, in its proper
place.

So soon as the price of manufactures is brought as low as possible, in
the new nation; if the surplus of their commodities does not suffice to
purchase a quantity of manufactures proportioned to their wants, this
people must begin to labour: for labour is the necessary consequence of
want, real or imaginary; and by labour it will be supplied.

When this comes to be the case, we immediately find two trading nations
in place of one; the balance of which trade will always be in favour of
the most industrious and frugal; as shall be fully explained in another
place.

Let me now direct my inquiry more particularly towards the consequences
of this new revolution produced by commerce, relative to the not-trading
nation, in order to shew the effect of a passive foreign trade. I shall
spare no pains in illustrating, upon every occasion, as I go along, the
fundamental principles of commerce, demand, and competition, even
perhaps at the expence of appearing tiresome to some of my readers.

                               CHAP. VI.
  _Consequences of the introduction of a passive foreign Trade among a
              People who live in Simplicity and Idleness._

We now suppose the arrival of traders, all in one interest, with
instruments of luxury and refinement, at a port in a country of great
simplicity of manners, abundantly provided by nature with great
advantages for commerce, and peopled by a nation capable of adopting a
taste for superfluities.

The first thing the merchants do, is to expose their goods, and point
out the advantages of many things, either agreeable or useful to mankind
in general, such as wines, spirits, instruments of agriculture, arms,
and ammunition for hunting, nets for fishing, manufactures for clothing,
and the like. The advantages of these are presently perceived, and such
commodities are eagerly sought after.

The natives on their side produce what they most esteem, generally
something superfluous or ornamental. The traders, after examining all
circumstances, determine the object of their demand, giving the least
quantity possible in return for this superfluity, in order to impress
the inhabitants with a high notion of the value of their own
commodities; but as this parsimony may do more hurt than good to their
interest, they are very generous in making presents, from the principles
mentioned above.

When the exchange is completed, and the traders depart, regret is
commonly mutual; the one and the other are sorry that the superfluities
of the country fall short. A return is promised by the traders, and
assurances are given by the natives, of a better provision another time.

What are the first consequences of this revolution?

It is not evident, that, in order to supply an equivalent for this new
want, more hands must be set to work than formerly. And it is evident
also, that this augmentation of industry will not essentially increase
numbers, as was supposed to be the effect of it through the whole train
of our reasoning in the first book. Why? Because _there_ the produce of
the industry was supposed to be consumed at home; and _here_ it is
intended to be exported. But if we can find out any additional
consumption at home even implied by this new trade, I think it will have
the effect of augmenting numbers. An example will make this plain.

Let me suppose the superfluity of this country to be the skins of wild
beasts, not proper for food; the manufacture sought for, brandy. The
brandy is sold for furs. He who has furs, or he who can spare time to
hunt for them, will drink brandy in proportion: but I cannot find out
any reason to conclude from this simple operation, that one man more in
the country must necessarily be fed, (for I have taken care to suppose,
that the flesh of the animals is not proper for food) or that any
augmentation of agriculture must of consequence ensue from this new
traffic.

But let me throw in a circumstance which may imply an additional
consumption at home, and then examine the consequences.

A poor creature, who has no equivalent to offer for food, who is
miserable, and ready to perish for want of subsistence, goes a-hunting,
and kills a wolf; he comes to a farmer with the skin, and says; You are
well fed, but you have no brandy; if you will give me a loaf, I will
give you this skin, which the strangers are so fond of, and they will
give you brandy. But, says the farmer, I have no more bread than what is
sufficient for my own family. As for that, replies the other, I will
come and dig in your ground, and you and I will settle our account as to
the small quantity I desire of you. The bargain is made; the poor fellow
gets his loaf, and lives at least; perhaps he marries, and the farmer
gets a dram. But had it not been for this dram, (that is, this new want)
which was purchased by the industry of this poor fellow, by what
argument could he have induced the farmer, to part with a loaf.

I here exclude the sentiment of charity. This alone, as I have often
observed, is a principle of multiplication, and if it was admitted here,
it would ruin all my supposition; but as true it is, on the other hand,
that could the poor fellow have got bread by begging, he would not
probably have gone a-hunting.

Here then it appears, that the very dawning of trade, in the most
unpolished countries, implies a multiplication. This is enough to point
out the first step, and to connect the subject of our present inquiries
with what has been already discussed in relation to other circumstances.
I proceed.

So soon as all the furs are disposed of, and a taste for superfluity
introduced, both the traders and the natives will be equally interested
in the advancement of industry in this country. Many new objects of
profit for the first will be discovered, which the proper employment of
the inhabitants, in reaping the natural advantages of their soil and
climate, will make effectual. The traders will therefore endeavour to
set on foot many branches of industry among the savages, and the
allurements of brandy, arms, and clothing, will animate these in the
pursuit of them. Let me here digress for a few lines.

If we suppose slavery to be established in this country, then all the
slaves will be set to work, in order to provide furs and other things
demanded by the traders, that the masters may thereby be enabled to
indulge themselves in the superfluities brought to them by the
merchants. When liberty is the system, every one, according to his
disposition, becomes industrious, in order to procure such enjoyments
for himself.

In the first supposition, it is the head of the master which conducts
the labour of the slave, and turns it towards ingenuity: in the second,
every head is at work, and every hand is improving in dexterity. Where
hands therefore are principally necessary, the slaves have the
advantage; where heads are principally necessary, the advantage lies in
favour of the free. Set a man to labour at so much a day, he will go on
at a regular rate, and never seek to improve his method: let him be
hired by the piece, he will find a thousand expedients to extend his
industry. This is exactly the difference between the slave and the free
man. From this I account for the difference between the progress of
industry in antient and modern times. Why was a _peculium_ given to
slaves, but to engage them to become dextrous? Had there been no
_peculium_ and no _libertini_, or free men, who had been trained to
labour, there would have been little more industry any where, than there
was in the republic of Lycurgus, where, I apprehend, neither the one or
the other was to be found. I return.

When once this revolution is brought about; when those who formerly
lived in simplicity become industrious; matters put on a new face. Is
not this operation quite similar to that represented in the fifth
chapter of the first book? There I found the greatest difficulty, in
shewing how the mutual operations of supplying food and other wants
could have the effect of promoting population and agriculture, among a
people who were supposed to have no idea of the system proposed to be
put in execution. Here the plan appears familiar and easy. The
difference between them seems to resemble that of a child’s learning a
language by grammar, or learning it by the ear in the country where it
is spoken. In the first case, many throw the book aside, but in the
other none ever fail of success.

I have said, that matters put on a new face; that is to say, we now find
two trading nations instead of one, with this difference, however, that
as hitherto we have supposed the merchants all in one interest, the
compound demand, that is, the competition of the buyers, has been, and
must still continue on the side of the natives. This is a great
prejudice to their interest, but as it is not supposed sufficient to
check their industry, nor to restrain their consumption of the
manufactures, let me here examine a little more particularly the
consequences of the principle of demand in such a situation; for
although I allow, that it can never change sides, yet it may admit of
different modifications, and produce different effects, as we shall
presently perceive.

The merchants we suppose all in one interest, consequently there can be
no competition among them; consequently no check can be put upon their
raising their prices, as long as the prices they demand are complied
with. So soon as they are raised to the full extent of the abilities of
the natives, or of their inclination to buy, the merchants have the
choice of three things, which are all perfectly in their option, and the
preference to be given to the one or the other depends intirely upon
themselves, and upon the circumstances I am going to point out.

First, they may support the _high_ demand; that is, not lower their
price; which will preserve a high estimation of the manufactures in the
opinion of the inhabitants, and render the profits upon their trade the
greatest possible. This part they may possibly take, if they perceive
the natives doubling their diligence, in order to become able, in time,
to purchase considerable cargoes at a high value; from which supposition
is implied a strong disposition in the people to become luxurious, since
nothing but want of ability prevents them from complying with the
highest demand: but still another circumstance must concur, to engage
the merchants not to lower their price. The great proportion of the
goods they seek for, in return, must be found in the hands of a few.
This will be the case if slavery be established; for then there must be
many poor, and few rich: and they are commonly the rich consumers who
proportion the price they offer, rather to their desires, than to the
value of the thing.

The second thing which may be done is, to open the door to a _great_
demand; that is, to lower their prices. This will sink the value of the
manufactures in the opinion of the inhabitants, and render profits less
in proportion, although indeed, upon the voyage, the profits may be
greater.

This part they will take, if they perceive the inhabitants do not
incline to consume great quantities of the merchandize at a high value,
either from want of abilities or inclination; and also, if the profits
upon the trade depend upon a large consumption, as is the case in
merchandize of a low value, and suited chiefly to the occasions of the
lower sort. Such motives of expediency will be sufficient to make them
neglect a _high_ demand, and prefer a _great_ one; and the more, when
there is a likelihood that the consumption of low-priced goods in the
beginning may beget a taste for others of a higher value, and thus
extend in general the taste of superfluity.

A third part to be taken, is the least politic, and perhaps the most
familiar. It is to profit by the competition between the buyers, and
encourage the rising of demand as long as possible; when this comes to a
stop, to make a kind of auction, by first bringing down the prices to
the level of the highest bidders, and so to descend by degrees, in
proportion as demand sinks. Thus we may say with propriety, according to
our definitions of demand, that it commonly becomes _great_, in
proportion as prices sink. By this operation, the traders will profit as
much as possible, and sell off as much of their goods as the profits
will permit.

I say, this plan, in a new discovered country, is not politic, as it
both discovers a covetousness and a want of faith in the merchants, and
also throws open the secrets of their trade to those who ought to be
kept ignorant of them.

Let me next suppose, that the large profits of our merchants shall be
discovered by others, who arrive at the same ports in a separate
interest, and who enter into no combination which might prevent the
natural effects of competition.

Let the state of demand among the natives be supposed the same as
formerly, both as to _height_ and _greatness_, in consequence of the
operation of the different principles, which might have induced our
merchants to follow one or other of the plans we have been describing;
we must however still suppose, that they have been careful to preserve
considerable profits upon every branch.

If we suppose the inhabitants to have increased in numbers, wealth, and
taste for superfluity, since the last voyage, demand will be found
rather on the rising hand. Upon the arrival of the merchants in
competition with the former, both will offer to sale; but if both stand
to the same prices, it is very natural to suppose, that the former
dealers will obtain a preference; as _cæteris paribus_, it is always an
advantage to know and to be known. The last comers, therefore, have no
other way left to counterbalance this advantage, but to lower their
prices.

This is a new phoenomenon: here the fall of prices is not voluntary as
formerly; not consented to from expediency; not owing to a failure of
demand, but to the influence of a new principle of commerce, to wit, a
double competition. This I shall now examine with all the care I am
capable of.

                               CHAP. VII.
                        _Of double Competition._

When _competition_ is much stronger on one side of the contract than on
the other, I call it _simple_, and then it is a term synonimous with
what I have called _compound demand_. This is the species of competition
which is implied in the term _high demand_, or when it is said, that
_demand raises prices_.

_Double competition_ is, when, in a certain degree, it takes place on
both sides of the contract at once, or vibrates alternately from one to
the other. This is what restrains prices to the adequate value of the
merchandize.

I frankly confess I feel a great want of language to express my ideas,
and it is for this reason I employ so many examples, the better to
communicate certain combinations of them, which otherwise would be
inextricable.

The great difficulty is to distinguish clearly between the principles of
_demand_, and those of _competition_: here then follows the principal
differences between the two, relatively to the effects they produce
severally in the mercantile contract of buying and selling, which I here
express shortly by the word _contract_.

_Simple demand_ is what brings the quantity of a commodity to market.
Many demand, who do not buy; many offer, who do not sell. This demand is
called _great_ or _small_; it is said to _increase_, to _augment_, to
_swell_; and is expressed by these and other synonimous terms, which
mark an augmentation or diminution of quantity. In this species, two
people never demand the same thing, but a part of the same thing, or
things quite alike.

_Compound demand_ is the principle which raises prices, and never can
make them sink; because in this case more than one demands the very same
thing. It is solely applicable to the buyers, in relation to the price
they offer. This demand is called _high_ or _low_, and is said to
_rise_, to _fall_, to _mount_, to _sink_, and is expressed by these and
other synonimous terms.

_Simple competition_, when between buyers, is the same as _compound_ or
_high demand_, but differs from it in so far, as this may equally take
place among sellers, which _compound demand_ cannot, and then it works a
contrary effect: it makes prices _sink_, and is synonimous with _low
demand_: it is this competition which overturns the balance of work and
demand; of which afterwards.

_Double competition_ is what is understood to take place in almost every
operation of trade; it is this which prevents the excessive rise of
prices; it is this which prevents their excessive fall. While _double
competition_ prevails, the balance is perfect, trade and industry
flourish.

The capital distinction, therefore, between the terms _demand_ and
_competition_ is, that _demand_ is constantly relative to the buyers,
and when money is not the price, as in barter, then it is relative to
that side upon which the greatest _competition_ is found.

We therefore say, with regard to _prices_, demand is _high_ or _low_.
With regard _to the quantity of merchandize_, demand is _great_ or
_small_. With regard _to competition_, it is always called _great_ or
_small_, _strong_ or _weak_.

_Competition_, I have said, is, with equal propriety, applicable to both
parties in the contract. A _competition_ among buyers is a proper
expression; a _competition_ among sellers, who have the merchandize, is
fully as easily understood, though it be not quite so striking, for
reasons which an example will make plain.

You come to a fair, where you find a great variety of every kind of
merchandize, in the possession of different merchants. These, by
offering their goods to sale, constitute a tacit competition; every one
of them wishes to sell in preference to another, and at the same time
with the best advantage to himself.

The buyers begin, by cheapning at every shop. The first price asked
marks the covetousness of the seller; the first price offered, the
avarice of the buyer. From this operation, I say, competition begins to
work its effects on both sides, and so becomes double. The principles
which influence this operation are now to be deduced.

It is impossible to suppose the same degree of eagerness, either to buy
or to sell, among several merchants; because the degree of eagerness I
take to be exactly in proportion to their view of profit; and as these
must necessarily be influenced and regulated by different circumstances,
that buyer, who has the best prospect of selling again with profit,
obliges him, whose prospect is not so good, to content himself with
less; and that seller, who has bought to the best advantage, obliges
him, who has paid dearer for the merchandize, to moderate his desire of
gain.

It is from these principles, that competition among buyers and sellers
must take place. This is what confines the fluctuation of prices within
limits which are compatible with the reasonable profits of both buyers
and sellers; for, as has been said, in treating of trade, we must
constantly suppose the whole operation of buying and selling to be
performed by merchants; the buyer cannot be supposed to give so high a
price as that which he expects to receive, when he distributes to the
consumers, nor can the seller be supposed to accept of a lower than that
which he paid to the manufacturer. This competition is properly called
double, because of the difficulty to determine upon which side it
stands; the same merchant may have it in his favour upon certain
articles, and against him upon others; it is continually in vibration,
and the arrival of every post may less or more pull down the heavy
scale.

In every transaction between merchants, the profit resulting from the
sale must be exactly distinguished from the value of the merchandize.
The first _may_ vary, the last never _can_. It is this profit alone
which can be influenced by competition; and it is for that reason we
find such uniformity every where in the prices of goods of the same
quality.

The competition between sellers does not appear so striking, as that
between buyers; because he who offers to sale, appears only passive in
the first operation; whereas the buyers present themselves one after
another; they make a demand, and when the merchandize is refused to one
at a certain price, a second either offers more, or does not offer at
all: but so soon as another seller finds his account in accepting the
price the first had refused, then the first enters into competition,
providing his profits will admit his lowering the first price, and thus
competition takes place among the sellers, until the profits upon their
trade prevent prices from falling lower.

In all markets, I have said, this competition is varying, though
insensibly, on many occasions; but in others, the vibrations are very
perceptible. Sometimes it is found strongest on the side of the buyers,
and in proportion as this grows, the competition between the sellers
diminishes. When the competition between the former has raised prices to
a certain standard, it comes to a stop; then the competition changes
sides, and takes place among the sellers, eager to profit of the highest
price. This makes prices fall, and according as they fall, the
competition among the buyers diminishes. They still wait for the lowest
period. At last it comes; and then perhaps some new circumstance, by
giving the balance a kick, disappoints their hopes. If therefore it ever
happens, that there is but one interest upon one side of the contract,
as in the example in the former chapter, where we supposed the sellers
united, you perceive, that the rise of the price, occasioned by the
competition of the buyers, and even its coming to a stop, could not
possibly have the effect of producing any competition on the other side;
and therefore, if prices come afterwards to sink, the fall must have
proceeded from the prudential considerations of adapting the price to
the faculties of those, who, from the height of it, had withdrawn their
demand.

From these principles of competition, the forestalling of markets is
made a crime, because it diminishes the competition which ought to take
place between different people, who have the same merchandize to offer
to sale. The forestaller buys all up, with an intention to sell with
more profit, as he has by that means taken other competitors out of the
way, and appears with a single interest on one side of the contract, in
the face of many competitors on the other. This person is punished by
the state, because he has prevented the price of the merchandize from
becoming justly proportioned to the real value; he has robbed the
public, and enriched himself; and in the punishment, he makes
restitution. Here occur two questions to be resolved, for the sake of
illustration.

Can competition among buyers possibly take place, when the provision
made is more than sufficient to supply the quantity demanded? On the
other hand, can competition take place among the sellers, when the
quantity demanded exceeds the total provision made for it?

I think it may in both cases; because in the one and the other, there is
a competition implied on one side of the contract, and the very nature
of this competition implies a possibility of its coming on the other,
provided separate interests be found upon both sides. But to be more
particular.

1. Experience shews, that however justly the proportion between the
demand and the supply may be determined in fact, it is still next to
impossible to discover it exactly, and therefore buyers can only
regulate the prices they offer, by what they may reasonably expect to
sell for again. The sellers, on the other hand, can only regulate the
prices they expect, by what the merchandize has cost them when brought
to market. We have already shewn, how, under such circumstances, the
several interests of individuals affect each other, and make the balance
vibrate.

2. The proportion between the supply and the demand is seldom other than
_relative_ among merchants, who are supposed to buy and sell, not from
necessity, but from a view to profit. What I mean by _relative_ is, that
their demand is _great_ or _small_, according to prices: there may be a
great demand for grain at 35 shillings _per_ quarter, and no demand at
all for it at 40 shillings; I say, among merchants.

Here I must observe, how essential it is, to attend to the smallest
circumstance in matters of this kind. The circumstance I here have in my
eye, is the difference I find in the effect of competition, when it
takes place purely among merchants on both sides of the contract, and
when it happens, that either the consumers mingle themselves with the
merchant-buyers, or the manufacturers, that is, the furnishers, mingle
themselves with the merchant-sellers. This combination I shall
illustrate, by the solution of another question, and then conclude my
chapter with a few reflections upon the whole.

Can there be no case formed, where the competition upon one side may
subsist, without a possibility of its taking place on the other,
although there should be separate interests upon both?

I answer. The case is hardly supposable among merchants, who buy and
sell with a view to profit; but it is absolutely supposable, and that is
all, when the direct consumers are the buyers; when the circumstances of
one of the parties is perfectly known; and when the competition is so
strong upon one side, as to prevent a possibility of its becoming
double, before the whole provision is sold off, or the demand satisfied.
Let me have recourse to examples.

Grain arriving in a small quantity, at a port where the inhabitants are
starving, produces so great a competition among the consumers, who are
the buyers, that their necessity becomes evident; all the grain is
generally bought up before prices can rise so high as to come to a stop;
because nothing but want of money, that is, an impossibility of
complying with the prices demanded by the merchants, can restrain them:
but if you suppose, even here, that prices come naturally to a stop; or
that, after some time, they fall lower, from prudential considerations,
then there is a possibility of a competition taking place among the
sellers, from the principles above deduced. If, on the contrary, the
stop is not natural, but occasioned by the interposition of the
magistrate, from humanity, or the like, there will be no competition,
because then the principles of commerce are suspended; the sellers are
restrained on one side, and they restrain the buyers on the other. Or
rather, indeed, it is the magistrate, or compassion, who in a manner
fixes the price, and performs the office of both buyer and seller.

A better example still may be found, in a competition among sellers;
where it may be so strong, as to render a commodity in a manner of no
value at all, as in the case of an uncommon and unexpected draught of
fish, in a place of small consumption, when no preparations have been
made for salting them. There can be then no competition among the
buyers; because the market cannot last, and they find themselves
entirely masters, to give what price they please, being sure the sellers
must accept of it, or lose their merchandize. In the first example,
humanity commonly stops the activity of the principle of competition; in
the other it is stopt by a certain degree of fair-dealing, which forbids
the accepting of a merchandize for nothing.

In proportion therefore as the rising of prices can stop demand, or the
sinking of prices can increase it, in the same proportion will
competition prevent either the rise or the fall from being carried
beyond a certain length: and if such a case can be put, where the rising
of prices cannot stop demand, nor the lowering of prices augment it, in
such cases double competition has no effect; because these circumstances
unite the most separate interests of buyers and sellers in the
mercantile contract, and when upon one side there is no separate
interest, there can then be no competition.

From what has been said, we may form a judgment of the various degrees
of competition. A book not worth a shilling, a fish of a few pounds
weight, are often sold for considerable sums. The buyers here are not
merchants. When an ambassador leaves a court in a hurry, things are sold
for less than the half of their value: he is no merchant, and his
situation is known. When, at a public market, there are found consumers,
who make their provision; or manufacturers, who dispose of their goods
for present subsistence; the merchants, who are respectively upon the
opposite side of the contract to these, profit of their competition; and
those who are respectively upon the same side with them, stand by with
patience, until they have finished their business. Then matters come to
be carried on between merchant and merchant, and then, I allow, that
profits may rise and fall, in the proportion of quantity to demand; that
is to say, if the provision is less than the demand, the competition
among the demanders, or the rise of the price, will be in the compound
proportion of the falling short of the commodity, and of the prospect of
selling again with profit. It is this combination which regulates the
competition, and keeps it within bounds. It can affect but the profits
upon the transaction; the intrinsic value of the commodity stands
immoveable: nothing is ever sold below the real value; nothing is ever
bought for more than it may probably bring. I mean in general. Whereas
so soon as consumers and needy manufacturers mingle in the operation,
all proportion is lost. The competition between them is too strong for
the merchants; the balance vibrates by jerks. In such markets merchants
seldom appear: the principal objects there, are the fruits and
productions of the earth, and articles of the first necessity for life,
not manufactures strictly so called. A poor fellow often sells, to
purchase bread to eat; not to pay what he did eat, while he was employed
in the work he disposes of. The consumer often measures the value of
what he is about to purchase, by the weight of his purse, and his desire
to consume.

As these distinctions cannot be conveyed in the terms by which we are
obliged to express them, and as they must frequently be implied, in
treating of matters relating to trade and industry, I thought the best
way was, to clear up my own ideas concerning them, and to lay them in
order before my reader, before I entred farther into my subject.

All difference of opinion upon matters of this nature proceeds, as I
believe, from our language being inadequate to express our ideas, from
our inattention, in using terms which appear synonimous, and from our
natural propensity to include, under general rules, things which, upon
some occasions, common reason requires to be set asunder.

                              CHAP. VIII.
             _Of what is called Expence, Profit, and Loss._

As we have been employed in explaining of terms, it will not be amiss to
say a word concerning those which stand in the title of this chapter.

The term _expence_, when simply expressed, without any particular
relation, is always understood to be relative to money. This kind I
distinguish under the three heads, of _private_, _public_, and
_national_.

1. _Private_ expence is, what a private person, or private society, lays
out, either to provide articles of consumption, or something more
permanent, which may be conducive to their ease, convenience, or
advantage. Thus we say, _a large domestic expence_, relative to one who
spends a great income. We say, a merchant has been at _great expence_
for magazines, for living, for clerks, &c. but never that he has been at
any in buying goods. In the same way a manufacturer may expend for
building, machines, horses, and carriages, but never for the matter he
manufactures. When a thing is bought, in order to be sold again, the sum
employed is called money _advanced_; when it is bought not to be sold,
it may be said to be _expended_.

2. _Public expence_ is, the employment of that money, which has been
contributed by individuals, for the current service of the state. The
contribution, or gathering it together, represents the effects of many
articles of _private expence_; the laying it out when collected, is
_public expence_.

3. _National expence_, is what is expended out of the country: this is
what diminishes national wealth. The principal distinction to be here
attended to, is between _public expence_, or the laying out of public
money, and _national expence_, which is the alienating the nation’s
wealth in favour of strangers. Thus the greatest _public expence_
imaginable, may be no national expence; because the money may remain at
home. On the other hand, the smallest _public_, or even _private
expence_, may be a national expence; because the money may go abroad.

_Profit_, and _loss_, I divide into _positive_, _relative_, and
_compound_. _Positive profit_, implies no loss to any body; it results
from an augmentation of labour, industry, or ingenuity, and has the
effect of swelling or augmenting the public good.

_Positive loss_, implies no profit to any body; it is what results from
the cessation of the former, or of the effects resulting from it, and
may be said to diminish the public good.

_Relative profit_, is what implies a loss to some body; it marks a
vibration of the balance of wealth between parties, but implies no
addition to the general stock.

_Relative loss_, is what, on the contrary, implies a profit to some
body; it also marks a vibration of the balance, but takes nothing from
the general stock.

The _compound_ is easily understood; it is that species of profit and
loss which is partly _relative_, and partly _positive_. I call it
compound, because both kinds may subsist inseparably in the same
transaction.

                               CHAP. IX.
   _The general consequences resulting to a trading Nation, upon the
                opening of an active foreign Commerce._

Did I not intend to confine myself to very general topics in this
chapter, I might in a manner exhaust the whole subject of modern
oeconomy under this title; for I apprehend that the whole system of
modern politics is founded upon the basis of an active foreign trade.

A nation which remains passive in her commerce, is at the mercy of those
who are active, and must be greatly favoured, indeed, by natural
advantages, or by a constant flux of gold and silver from her mines, to
be able to support a correspondence, not entirely hurtful to the
augmentation of her wealth.

These things shall be more enlarged upon as we go along: the point in
hand, is, to consider the consequences of this trade, relatively to
those who are the actors in the operation.

When I look upon the wide field which here opens to my view, I am
perplexed with too great a variety of objects. In one part, I see a
decent and comely beginning of industry; wealth flowing gently in, to
recompence ingenuity; numbers both augmenting, and every one becoming
daily more useful to another; agriculture proportionally extending
itself; no violent revolutions; no exorbitant profits; no insolence
among the rich; no excessive misery among the poor; multitudes employed
in producing; great oeconomy upon consumption; and all the instruments
of luxury, daily produced by the hands of the diligent, going out of the
country for the service of strangers; not remaining at home for the
gratification of sensuality. At last the augmentations come insensibly
to a stop. Then these rivers of wealth, which were in brisk circulation
through the whole world, and which returned to this trading nation as
blood returns to the heart, only to be thrown out again by new
pulsations, begin to be obstructed in their course; and flowing abroad
more slowly than before, come to form stagnations at home. These,
impatient of restraint, soon burst out into domestic circulation. Upon
this cities swell in magnificence of buildings; the face of the country
is adorned with palaces, and becomes covered with groves; luxury shines
triumphant in every part; inequality becomes more striking to the eye;
and want and misery appear more deformed, from the contrast: even
fortune grows more whimsical in her inconstancy; the beggar of the other
day, now rides in his coach; and he who was born in a bed of state, is
seen to die in a gaol, or in an alms-house. Such are the effects of
great domestic circulation.

The statesman looks about with amazement; he, who was wont to consider
himself as the first man in the society in every respect, perceives
himself, perhaps, eclipsed by the lustre of private wealth, which avoids
his grasp when he attempts to seize it. This makes his government more
complex and more difficult to be carried on; he must now avail himself
of art and address as well as of power and force. By the help of
cajoling and intrigues, he gets a little into debt; this lays a
foundation for public credit, which, growing by degrees, and in its
progress assuming many new forms, becomes, from the most tender
beginnings, a most formidable monster, striking terror into those who
cherished it in its infancy. Upon this, as upon a triumphant war-horse,
the statesman gets a-stride, he then appears formidable a-new; his head
turns giddy; he is choaked with the dust he has raised; and at the
moment he is ready to fall, to his utter astonishment and surprize, he
finds a strong monied interest, of his own creating, which, instead of
swallowing him up as he apprehended, flies to his support. Through this
he gets the better of all opposition, he establishes taxes, multiplies
them, mortgages his fund of subsistence, either becomes a bankrupt, and
rises again from his ashes; or if he be less audacious, he stands
trembling and tottering for a while on the brink of the political
precipice. From one or the other of these perilous situations, he begins
to discover an endless path which, after a multitude of windings, still
returns into its self, and continues an equal course through this vast
labyrinth: but of this last part, more in the fourth book.

It is now full time to leave off rhapsody, and return to reasoning and
cool inquiry, concerning the more immediate and more general effects and
revolutions produced by the opening of a foreign trade in a nation of
industry.

The first and most sensible alteration will be an increase of demand for
manufacturers, because by supplying the wants of strangers, the number
of consumers will now be considerably augmented. What again will follow
upon this, must depend upon circumstances.

If this revolution in the state of demand should prove too violent, the
consequence of it will be to _raise_ demand; if it should prove gradual,
it will _increase_ it. I hope this distinction is well understood, and
that the consequence appears just: for, if the supply do not increase in
proportion to the demand, a competition will ensue among the demanders;
which is the common effect of such sudden revolutions. If, on the other
hand, a gentle increase of demand should be accompanied with a
proportional supply, the whole industrious society will grow in vigour,
and in wholsome stature, without being sensible of any great advantage
or inconveniency; the change of their circumstances will even be
imperceptible.

The immediate effects of the violent revolution will, in this example,
be flattering to some, and disagreeable to others. Wealth will be found
daily to augment, from the rising of prices, in many branches of
industry. This will encourage the industrious classes, and the idle
consumers at home will complain. I have already dwelt abundantly long
upon the effects resulting from this to the lower classes of the people,
in providing them with a certain means of subsistence. Let me now
examine in what respect even the higher classes will be made likewise to
feel the good effects of this general change, although at first they may
suffer a temporary inconveniency from it.

Farmers, as has been observed, will have a greater difficulty in finding
servants, who, instead of labouring the ground, will choose to turn
themselves to manufactures. This we have considered in the light of
purging the lands of superfluous mouths; but every consequence in this
great chain of politics draws other consequences after it, and as they
follow one another, things put on different faces, which affect classes
differently. The purging of the land is but one of the first; here
follows another.

The desertion of the hands employed in a trifling agriculture will at
first, no doubt, embarrass the farmers; but in a little time every thing
becomes balanced in a trading nation, because _here_ every _industrious_
man must advance in prosperity, in spite of all general combinations of
circumstances.

In the case before us, the relative profits upon farming must soon
become greater than formerly, because of this additional expence which
must affect the whole class of farmers; consequently, this additional
expence, instead of turning out to be a loss to either landlord or
farmer, will, after some little time, turn out to the advantage of both:
because the produce of the ground, being indispensably necessary to
every body, must in every article increase in its value. Thus in a short
time accounts will be nearly balanced on all hands; that is to say, the
same proportion of wealth will, _cæteris paribus_, continue the same
among the industrious. I say among the industrious; for those who are
either idle, or even negligent, will be great losers.

A proprietor of land, inattentive to the causes of his farmer’s
additional expence, may very imprudently suffer his rents to fall,
instead of assisting him on a proper occasion, in order to make them
afterwards rise the higher.

Those who live upon a determined income in money, and who are nowise
employed in traffic, nor in any scheme of industry, will, by the
augmentation of prices, be found in worse circumstances than before.

In a trading nation every man must turn his talents to account, or he
will undoubtedly be left behind in this universal emulation, in which
the most industrious, the most ingenious, and the most frugal will
constantly carry off the prize.

This consideration ought to be a spur to every body. The richest men in
a trading nation have no security against poverty, I mean proportional
poverty; for though they diminish nothing of their income, yet by not
increasing it in proportion to others, they lose their rank in wealth,
and from the first class in which they stood, they will slide insensibly
down to a lower.

There is one consequence of an additional beneficial trade, which raises
demand and increases wealth; but if we suppose no proportional
augmentation of supply, it will prove at best but an airy dream which
lasts for a moment, and when the gilded scene is passed away, numberless
are the inconveniencies which are seen to follow.

I shall now point out the natural consequences of this augmentation of
wealth drawn from foreign nations, when the statesman remains
inattentive to increase the supply both of food and manufactures, in
proportion to the augmentation of mouths, and of the demand for the
produce of industry.

In such a situation profits will daily swell, and every scheme for
reducing them within the bounds of moderation, will be looked upon as a
hurtful and unpopular measure: be it so; but let us examine the
consequences.

We have said, that the rise of demand for manufactures naturally
increases the value of work: now I must add, that under such
circumstances, the augmentation of riches, _in a country, either not
capable of improvement as to the soil, or where precautions have not
been taken for facilitating a multiplication of inhabitants, by the
importation of subsistence_, will be productive of the most calamitous
consequences.

On one side, this wealth will effectually diminish the mass of the food
before produced; and on the other, will increase the number of useless
consumers. The first of these circumstances will raise the demand for
food; and the second will diminish the number of useful free hands, and
consequently raise the price of manufactures: here are shortly the
outlines of this progress.

The more rich and luxurious a people are, the more delicate they become
in their manner of living; if they fed on bread formerly, they will now
feed on meat; if they fed on meat, they will now feed on fowl. The same
ground which feeds a hundred with bread, and a proportional quantity of
animal food, will not maintain an equal number of delicate livers. Food
must then become more scarce; demand for it rises; the rich are always
the strongest in the market; they consume the food, and the poor are
forced to starve. Here the wide door to modern distress opens; to wit, a
hurtful competition for subsistence. Farther, when a people become rich,
they think less of oeconomy; a number of useless servants are hired, to
become an additional dead weight on consumption; and when their starving
countrymen cannot supply the extravagance of the rich so cheaply as
other nations, they either import instruments of foreign luxury, or seek
to enjoy them out of their own country, and thereby make restitution of
their gains.

Is it not therefore evident, that if, before things come to this pass,
additional subsistence be not provided by one method or other, the
number of inhabitants must diminish; although riches may daily increase
by a balance of additional matter, supposed to be brought into the
country in consequence of the hitherto beneficial foreign trade. This is
not all. I say farther, that the beneficial trade will last for a time
only. For the infallible consequence of the rise of prices at home will
be, that those nations which at first consumed your manufactures,
perceiving the gradual increase of their price, will begin to work for
themselves; or finding out your rivals who can supply them cheaper, will
open their doors to them. These again, perceiving the great advantages
gained by your traders, will begin to supply the market; and since every
thing must be cheaper in countries where we do not suppose the
concurrence of all the circumstances mentioned above, these nations will
supplant you, and be enriched in their turn.

Here comes a new revolution. Trade is come to a stop: what then becomes
of all the hands which were formerly employed in supplying the foreign
demands?

Were revolutions so sudden as we are obliged to represent them, all
would go to wreck; in proportion as they happen by quicker or slower
degrees, the inconveniencies are greater or smaller.

Prices, we have said, are made to rise by competition. If the
competition of the strangers was what raised them, the distress upon the
manufacturers will be in proportion to the suddenness of their deserting
the market. If the competition was divided between the strangers and the
home consumers, the inconveniencies which ensue will be less; because
the desertion of the strangers will be in some measure made up by an
increase of home consumption which will follow upon the fall of prices.
And if, in the third case, the natives have been so imprudent as not
only to support a competition with the strangers, and thereby disgust
them from coming any more to market, but even to continue the
competition between themselves, the whole _loss_ sustained by the
revolution will be national. Wealth will cease to augment, but the
inconveniencies, in place of being felt by the manufacturers, will only
affect the state; those will continue in affluence, extolling the
generosity of their countrymen, and despising the poverty of the
strangers who had enriched them.

Domestic luxury will here prove an expedient for preserving from ruin
the industrious part of a people, who, in subsisting themselves, had
enriched their country. No change will follow in their condition; they
will go on with a painful assiduity to labour, and if the consequences
of it become now hurtful to one part of the state, they must, at least,
be allowed to be essentially necessary for the support of the other.

But that luxury is no necessary concomitant of foreign trade, in a
nation where the true principles of it are understood, will appear very
plain, from a contrast I am now going to point out, in the example of a
modern state, renowned for its commerce and frugality. The country I
mean, is Holland.

A set of industrious and frugal people were assembled in a country, by
nature subject to many inconveniencies, the removing of which
necessarily employed abundance of hands. Their situation upon the
continent, the power of their former masters, and the ambition of their
neighbours, obliged them to keep great bodies of troops. These two
articles added to the numbers of the community, without either enriching
the state by their labour exported, or producing food for themselves or
countrymen.

The scheme of a commonwealth was calculated to draw together the
industrious; but it has been still more useful in subsisting them: the
republican form of government, being there greatly subdivided, vests
authority sufficient in every part of it, to make suitable provision for
their own subsistence; and the tye which unites them, regards only
matters of public concern. Had the whole been governed by one sovereign,
or by one council, this important matter never could have been
effectuated.

I imagine it would be impossible for the most able minister that ever
lived, to provide nourishment for a country so extended as France, or
even as England, supposing these as fully peopled as Holland is: even
although it should be admitted that a sufficient quantity of food might
be found in other countries for their subsistence. The enterprise would
be too great, abuses would multiply; the consequence would be, that the
inhabitants would die for want. But in Holland the case is different,
every little town takes care of its own inhabitants; and this care,
being the object of application and profit to so many persons, is
accomplished with success.

When once it is laid down as a maxim in a country, that food must of
necessity be got from abroad, in order to feed the inhabitants at home,
the corn trade becomes considerable, and at the same time certain,
regular, and permanent. This was the case in Holland: as the inhabitants
were industrious, the necessary consequence has been, a very
extraordinary multiplication; and at the same time such an abundance of
grain, that instead of being in want themselves, they often supply their
neighbours. There are many examples of England’s being supplied with
grain from thence, and, which is still more extraordinary, from the
re-exportation of the very produce of its own fruitful soil.

It is therefore evident, that the only way to support industry, is to
provide a supply of subsistence, constantly proportional to the demand
that may be made for it. This is a precaution indispensably necessary
for preventing hurtful competition. This is the particular care of the
Dutch: so long as it can be effectual, their state can fear no decline;
but whenever they come to be distressed in the markets, upon which they
depend for subsistence, they will sink into ruin. It is by mere dint of
frugality, cheap and parsimonious living, that the navigation of this
industrious people is supported. Constant employment, and an
accumulation of almost imperceptible gains, fills their coffers with
wealth, in spight of the large outgoings to which their own proper
nourishment yearly forces them. The large profits upon industry in other
countries, which are no proof of generosity, but a fatal effect of a
scanty subsistence, is far from dazzling their eyes. They seldom are
found in the list of competitors at any foreign port; if they have their
cargo to dispose of, they wait with pleasure in their own vessels,
consuming their own provisions, and at last accept of what others have
left. It may be said, that many other circumstances concur in favour of
the Dutch, besides the article of subsistence. I shall not dispute this
matter; but only remind my reader of what was said in the first book; to
wit, that if a computation be made of the hands employed in providing
subsistence, and of those who are severally taken up in supplying every
other want, their numbers will be found nearly to balance one another in
the most luxurious countries. From this I conclude, that the article of
food, among the lower classes, must bear a very high proportion to all
the other articles of their consumption; and therefore a diminution upon
the price of subsistence, must be of infinite consequence to
manufacturers, who are obliged to buy it. From this consideration, let
us judge of the consequence of such augmentations upon the price of
grain, as are familiar to us; 30 or 40 _per cent._ seems nothing. Now
this augmentation operates upon two thirds, at least, of the whole
expence of a labouring man: let any one who lives in tolerable affluence
make the application of this to himself, and examine how he would manage
his affairs if, by accidents of rains or winds, his expences were to
rise 30 _per cent._ without a possibility of restraining them; for this
is unfortunately the case with all the lower classes. From whence I
conclude, that the keeping food cheap, and still more the preserving it
at all times at an equal standard, is the fountain of the wealth of
Holland; and that any hurtful competition in this article must beget a
disorder which will affect the whole of the manufacturers of a state.

                                CHAP. X.
                  _Of the Balance of Work and Demand._

It is quite impossible to go methodically through the subject of
political oeconomy, without being led into anticipations. We have
frequently mentioned this balance of work and demand, and shewed how
important a matter it is for a statesman to attend to it. The thing,
therefore, in general is well understood; and all that remains to be
done, is to render our ideas more determined concerning it, and more
adequate, if possible, to the principles we have been laying down.

We have treated fully of demand, and likewise of competition. We have
observed how different circumstances influence these terms, so as to
make them represent ideas entirely different; and we have said that
double competition supports the balance we are now to speak of, and that
single competition overturns it.

The word demand in this chapter is taken in the most simple acceptation;
and when we say that the balance between work and demand is to be
sustained in equilibrio, as far as possible, we mean that the quantity
supplied should be in proportion to the quantity _demanded_, that is,
_wanted_. While the balance stands justly poised, prices are found in
the adequate proportion of the real expence of making the goods, with a
small addition for profit to the manufacturer and merchant.

I have, in the fourth chapter, observed how necessary a thing it is to
distinguish the two constituent parts of every price; the value, and the
profit. Let the number of persons be ever so great, who, upon the sale
of a piece of goods, share in the profits; it is still essential, in
such enquiries as these, to suppose them distinctly separate from the
real value of the commodity; and the best way possible to discover
exactly the proportion between the one and the other, is by a scrupulous
watchfulness over the balance we are now treating of, as we shall
presently see.

The value and profits, combined in the price of a manufacture produced
by one man, are easily distinguished, by means of the analysis we have
laid down in the fourth chapter. As long as any market is _fully_
supplied with this sort of work, and _no more_; those who are employed
in it live by their trade, and gain no unreasonable profit: because
there is then no violent competition upon one side only, neither between
the workmen, nor between those who buy from them, and the balance gently
vibrates under the influence of a double competition. This is the
representation of a perfect balance.

This balance is overturned in four different ways.

Either the demand diminishes, and the work remains the same:

Or the work diminishes, and the demand remains:

Or the demand increases, and the work remains:

Or the work increases, and the demand remains.

Now each of these four combinations may, or may not, produce a
competition upon one side of the contract only. This must be explained.

If demand diminishes, and work remains the same, which is the first
case, either those who furnish the work will enter into competition, in
which case they will hurt each other, and prices will fall below the
reasonable standard of the even balance; or they will not enter into
competition, and then prices continuing as formerly, the whole demand
will be supplied, and the remainder of the work will lie upon hand.

This is a symptom of decaying trade.

Let us now, on the other hand, suppose demand to increase, and work to
remain as before.

This example points out no diminution on either side, as was the case
before, but an augmentation upon one; and is either a symptom of growing
luxury at home, or of an increase in foreign trade.

Here the same alternation of circumstances occurs. The demanders will
either enter into competition and raise the price of work, or they will
enter into no competition; but being determined not to exceed the
ordinary standard of the perfect balance, will defer making their
provision till another time, or supply themselves in another market;
that is to say, the new demand will cease as soon as it is made, for
want of a supply.

Whenever, therefore, this perfect balance of work and demand is
overturned by the force of a simple competition, or by one of the scales
preponderating, one of two things must happen; either a part of the
demand is not answered, or a part of the goods is not sold.

These are the immediate effects of the overturning of the balance.

Let me next point out the object of the statesman’s care, relatively to
such effects, and shew the consequences of their being neglected.

We may now simplify our ideas, and instead of the former combinations,
make use of other expressions which may convey them.

Let us therefore say, that the _fall_ or _rise_ upon either side of the
balance, is _positive_, or _relative_. _Positive_, when the side we talk
of really augments beyond, or diminishes below the usual standard.
_Relative_, when there is no alteration upon the side we speak of, and
that the subversion of the balance is owing to an alteration on the
other side. As for example:

Instead of saying demand diminishes, and work remains the same, let us
say, demand diminishes _positively_, or work increases _relatively_;
according as the subject may lead us to speak either of the one or of
the other. This being premised,

If the scale of work shall preponderate _positively_, it should be
inquired, whether the quantity furnished has really swelled, in all
respects, beyond the proportion of the consumption, (in which case the
statesman should diminish the number of hands, by throwing a part of
them into a new channel) or whether the imprudence of the workmen has
only made them produce their work unseasonably; in which case, proper
information, and even assistance should be given them, to prevent
merchants from taking the advantage of their want of experience: but
these last precautions are necessary only in the infancy of industry.

If a statesman should be negligent on this occasion; if he should allow
natural consequences to follow upon one another; just as circumstances
shall determine; then it may happen, that workmen will keep upon hand
that part of their goods which exceeds the demand, until necessity
forces them to enter into competition with one another, and sell for
what they can get. Now this competition is hurtful, because it is all on
one side, and because we have supposed the preponderating of the scale
of work to be an overturning of a perfect balance, which can by no means
be set right, consistently with a scheme of thriving, but by the scale
of demand becoming heavier, and re-establishing a double competition.
Were this to happen before the workmen come to sell in competition, then
the balance would again be even, after what I call _a short vibration_,
which is no _subversion_; but when the scale of work remains too long in
the same position, and occasions a strong, hurtful, and lasting
competition, upon one side only, then, I say, the balance is
_overturned_; because this diminishes the reasonable profits, or
perhaps, indeed, obliges the workmen to sell below prime cost. The
effect of this is, that the workmen fall into distress, and that
industry suffers a discouragement; and this effect is certain.

But it may be asked, Whether, by this fall of prices, demand will not be
increased? That is to say, will not the whole of the goods be sold off?

I answer, That this may, or may not, be the effect of the fall,
according to circumstances: it is a contingent consequence of the
simple, but not the effect of the double competition: the distress of
the workmen is a certain and unavoidable consequence of the first.

But supposing this contingent consequence to happen, will it not set the
balance even, by increasing the demand? I answer, the balance is then
made even by a violent shock given to industry, but it is not set even
from any principle which can support it, or make it flourish. Here is
the criterion of a perfect balance: _A positive moderate profit must
balance a positive moderate profit; the balance must vibrate, and no
loss must be found on either side_. In the example before us, the
balance stands even, it is true; the work and the demand are equally
poised as to quantity; but it is a _relative profit_, which hangs in the
scale, opposite to a _relative loss_. I wish this may be well
understood; farther illustrations will make it clear.

Next, let me suppose the scale of _demand_ to preponderate positively.
In this case, the statesman should be still more upon his guard, to
provide a proportional supply; because the danger here may at first put
on a shew of profit, and deceive him.

The consequences of this subversion of the balance are either,

1st, That a competition will take place among the demanders only, which
will raise profits. Now if, after a short vibration, the supply comes to
be increased by the statesman’s care, no harm will ensue; competition
will change sides, and profits will come down again to the perfect
standard. But if the scale of demand remains preponderating, and so
keeps profits high, the consequence will be, that, in a little time, not
only the immediate seller of the goods, but also every one who has
contributed to the manufacture, will insist upon sharing these new
profits. Now the evil is not, that every one should share, or that the
profits should swell, as long as they are supported by demand, and as
long as they can truly be considered as precarious; but the mischief is,
that, in consequence of this wide repartition, and by such profits
subsisting for a long time, they insensibly become _consolidated_, or,
as it were, transformed into the intrinsic value of the goods. This, I
say, is brought about by time; because the habitual extraordinary gains
of every one employed induce the more luxurious among them to change
their way of life insensibly, and fall into the habit of making greater
consumptions, and engage the more slothful to remain idle, till they are
exhausted. When therefore it happens, that large profits have been made
for a considerable time, and that they have had the effect of forming a
taste for a more expensive way of living among the industrious, it will
not be the cessation of the demand, nor the swelling of the supply,
which will engage them to part with their gains. Nothing will operate
this effect but sharp necessity; and the bringing down of their profits,
and the throwing the workmen into distress, are then simultaneous; which
proves the truth of what I have said, that these profits become, by long
habit, virtually _consolidated_ with the real value of the merchandize.
These are the consequences of a neglected simple competition, which
raises the profits upon industry, and keeps the balance overturned for a
considerable time.

2dly, Let me examine the consequences of this overturn in the actual
preponderancy of demand, when it does not occasion a competition among
the demanders, and consequently, when it does not increase the profits
upon industry.

This case can only happen, when the commodity is not a matter of great
necessity, or even of great use; since the desire of procuring it is not
sufficient to engage the buyers to raise their price; unless, indeed,
this difference should proceed from the ease of providing the same, in
other markets, as cheap as formerly. This last is a dangerous
circumstance, and loudly calls for the attention of the statesman. He
must prevent, by all possible means, the desertion of the market, by a
speedy supply for all the demand, and must even perhaps give
encouragements to manufacturers, to enable them to diminish the prices
fixed by the regular standard. This is the situation of a nation which
is in the way of losing branches of her foreign trade; of which
afterwards.

Whatever therefore be the consequence of the actual preponderancy of the
scale of demand; that is, whether it tend to raise profits, or to
discredit the market; the statesman’s care should be directed
immediately towards making the balance come even of itself, without any
shock, and that as soon as possible, by increasing the supply. For if it
be allowed to stand long in this overturned state, natural consequences
will operate a forced restitution; that is, the rise in the price, or
the call of a foreign market, will effectually cut off a proportional
part of the demand, and leave the balance in an equilibrium,
disadvantageous to trade and industry.

In the former case, the manufacturers were forced to starve, by an
unnatural restitution, when the relative profit and loss of individuals
balanced one another. Here the manufacturers are inriched for a little
time, by a rise of profits, relative to the loss the nation sustains, by
not supplying the whole demand. This results from the competition of
their customers; but so soon as these profits become _consolidated_ with
the intrinsic value, they will cease to have the advantage of profits,
and, becoming in a manner necessary to the existence of the goods, will
cease to be considered as advantageous. These forced restitutions then,
brought about, as we have said, by selling goods below their value, by
cutting off a part of the demand, or by sending it to another market,
resembles the operation of a carrier, who sets his ass’s burden even, by
laying a stone upon the lightest end of it. He however loses none of his
merchandize; but the absurdity of the statesman is still greater, for he
appears willingly to open the heavy end of the load, and to throw part
of his merchandize into the high-way.

I hope, by this time, I have sufficiently shewn the difference in effect
between the _simple_ and the _double_ competition; between the
_vibrations_ of this balance of work and demand, and the _overturning_
of it. When it vibrates in moderation, and by short alternate risings
and sinkings, then industry and trade go on prosperously, and are in
harmony with each other; because both parties gain. The industrious man
is recompenced in proportion to his ingenuity; the intrinsic value of
goods does not vary, nor deceive the merchant; profits on both sides
fluctuate according to demand, but never get time to consolidate with,
and swell the real value, and never altogether disappear, and starve the
workman.

This happy state cannot be supported but by the care of the statesman;
and when he is found negligent in the discharge of this part of his
duty, the consequence is, that either the spirit of industry, which, it
is supposed, has cost him much pains to cultivate, is extinguished, or
the produce of it rises to so high a value, as to be out of the reach of
a multitude of purchasers.

The progress towards the one or the other of these extremes is easily
perceived, by attending to the successive overturnings of the balance.
When these are often repeated on the same side, and the balance set
right, by a succession of forced restitutions only, the same scale
preponderating a-new, then is the last period soon accomplished. When,
on the contrary, the overturnings are alternate, sometimes the scale of
demand overturning the balance, sometimes the scale of work, the last
period is more distant. Trade and industry subsist longer, but they
remain in a state of perpetual convulsion. On the other hand, when the
balance gently vibrates, then work and demand, that is, trade and
industry, like agriculture and population, prove mutually assisting to
each other, in promoting their reciprocal augmentation.

In order therefore to preserve a trading state from decline, the
greatest care must be taken, to support a perfect balance between the
hands employed in work and the demand for their labour. That is to say,
according to former definitions, to prevent demand from ever standing
long at an immoderate height, by providing at all times a supply,
sufficient to answer the greatest that ever can be made: or, in other
words, still, in order to accustom my readers to certain expressions, to
encourage the _great_, and to discourage the _high_ demand. In this
case, competition will never be found too strong on either side of the
contract, and profits will be moderate, but sure, on both.

If, on the contrary, there be found too many hands for the demand, work
will fall too low for workmen to be able to live; or, if there be too
few, work will rise, and manufactures will not be exported.

For want of this just balance, no trading state has ever been of long
duration, after arriving at a certain height of prosperity. We perceive
in history the rise, progress, grandeur, and decline of Sydon, Tyre,
Carthage, Alexandria, and Venice, not to come nearer home. While these
states were on the growing hand, they were powerful; when once they came
to their height, they immediately found themselves labouring under their
own greatness. The reason of this appears from what has been said.

While there is a demand for the trade of any country, inhabitants are
always on the increasing hand. This is evident from what has been so
often repeated in the first book, and confirmed by thousands of
examples. There never was any branch of trade established in any
kingdom, province, city, or even village; but such kingdom, province,
&c. increased in inhabitants. While this gradual increase of people is
in proportion to the growing demand for hands, the balance between work
and demand is exactly kept up: but as all augmentations must at last
come to a stop, when this happens, inconveniencies must ensue, greater
or less, according to the negligence of the statesman, and the violence
or suddenness of the revolution.

                               CHAP. XI.
                _Why in Time this Balance is destroyed._

Now let us examine what may be the reason why, in a trading and
industrious nation, time necessarily destroys the perfect balance
between work and demand.

We have already pointed out one general cause, to wit, the natural stop
which must at last be put to augmentations of every kind.

Let us now apply this to circumstances, in order to discover in what
manner natural causes operate this stop, either by preventing the
increase of work, on one side of the balance, or the increase of demand,
on the other. When once we discover how the stop is put to
augmentations, we may safely conclude, that the continuation of the
same, or similar causes, will soon produce a diminution, and operate a
decline.

We have traced the progress of industry, and shewn how it goes hand in
hand with the augmentation of subsistence, which is the principal
allurement to labour. Now the augmentation of food is relative to the
soil, and as long as this can be brought to produce, at an expence
proportioned to the value of the returns, agriculture, without any
doubt, will go forward in every country of industry. But so soon as the
progress of agriculture demands an additional expence, which the natural
return, at the stated prices of subsistence, will not defray,
agriculture comes to a stop, and so would numbers, did not the
consequences of industry push them forward, in spite of small
difficulties. The industrious then, I say, continue to multiply, and the
consequence is, that food becomes scarce, and that the inhabitants enter
into competition for it.

This is no contingent consequence, it is an infallible one; because food
is an article of the first necessity, and here the provision is supposed
to fall short of the demand. This raises the profits of those who have
food ready to sell; and as the balance upon this article must remain
overturned for some time, without the interposition of the statesman,
these profits will be consolidated with the price, and give
encouragement to a more expensive improvement of the soil. I shall here
interrupt the examination of the consequences of this revolution as to
agriculture, until I have examined the effects which the rise of the
price of food produces on industry, and on the demand for it.

This augmentation on the value of subsistence must necessarily raise the
price of all work, because we are here speaking of an industrious people
fully employed, and because subsistence is one of the three articles
which compose the intrinsic value of their work, as has been said.

The rise therefore, upon the price of work, not being any augmentation
of that part of the price which we call profits, as happens to be the
case when a rise in demand has produced a competition among the buyers,
cannot be brought down but by increasing the supply of subsistence; and
were a statesman to mistake the real cause of the rise, and apply the
remedy of increasing the quantity of work, in order to bring down the
market, instead of augmenting the subsistence, he would occasion a great
disorder; he would introduce the hurtful simple competition between
people who labour for moderate profits, mentioned in the last chapter,
and would throw such a discouragement upon their industry, as would
quickly extinguish it altogether.

On the other hand, did he imprudently augment the subsistence, by large
importations, he would put an end to the expensive improvements of the
soil, and this whole enterprize would fall to nothing. Here then is a
dilemma, out of which he can extricate himself by a right application of
public money, only.

Such a necessary rise in the price of labour may either affect foreign
exportation, or it may not, according to circumstances. If it does, the
price of subsistence, at any rate, must be brought down at least to
those who supply the foreign demand; if it does not affect foreign
exportation, matters may be allowed to go on; but still the remedy must
be ready at hand, to be applied the moment it becomes expedient.

There is one necessary augmentation upon the prices of industry, brought
about by a very natural cause, viz. the increase of population, which
may imply a more expensive improvement of the soil; that is, an
extension of agriculture. This augmentation may very probably put a stop
to the augmentation of demand for many branches of manufactures,
consequently may stop the progress of industry; and if the same causes
continue to operate in a greater degree, it may also cut off a part of
the former demand, may discredit the market, open a door to foreign
consumption, and produce the inconveniencies of poverty and distress, in
proportion to the degree of negligence in the statesman.

I shall now give another example, of a very natural augmentation upon
the intrinsic value of work, which does not proceed from the increase of
population, but from the progress of industry itself; which implies no
internal vice in a state, but which is the necessary consequence of the
reformation of a very great one. This augmentation must be felt less or
more in every country, in proportion as industry becomes extended.

We have said, that the introduction of manufactures naturally tends to
purge the lands of superfluous mouths: now this is a very slow and
gradual operation. A consequence of it was said to be (Book I. Chap.
xx.) an augmentation of the price of labour, because those who have been
purged off, must begin to gain their whole subsistence at the expence of
those who employ them.

If therefore, in the infancy of industry, any branch of it shall find
itself assisted in a particular province, by the cheap labour of those
mouths superfluously fed by the land, examples of which are very
frequent, this advantage must diminish, in proportion as the cause of it
ceases; that is, in proportion as industry is extended, and as the
superfluous mouths are of consequence purged off.

This circumstance is of the last importance to be attended to by a
statesman. Perhaps it was entirely owing to it, that industry was
enabled to set up its head in this corner. How many examples could I
give, of this assistance given to manufactures in different provinces,
where I have found the value of a day’s work, of spinning, for example,
not equal to half the nourishment of the person. This is a great
encouragement to the making of cloths; and accordingly we see some
infant manufactures dispute the market with the produce of the greatest
dexterity; the distaff dispute prices with the wheel. But when these
provinces come to be purged of their superfluous mouths, spinning
becomes a trade, and the spinners must live by it. Must not then prices
naturally rise? And if these are not supported by the statesman, or if
assistance is not given to these poor manufacturers, to enable them to
increase their dexterity, in order to compensate what they are losing in
cheapness, will not their industry fail? Will not the poor spinners be
extinguished? For it is not to be expected, that the landlord will
receive them back again from a principle of charity, after he has
discovered their former uselesness.

A third cause of a necessary augmentation upon the intrinsic value of
goods proceeds from taxes. A statesman must be very negligent indeed, if
he does not attend to the immediate consequences of his own proper
operations. I shall not enlarge on this at present, as it would be an
unnecessary anticipation; but I shall return, to resume the part of my
reasoning which I broke off abruptly.

I have observed, how the same cause which stops the progress of
industry, gives an encouragement to agriculture: how the rise in the