Chapter XXIV: Introduction (13)

While the interest of companies is in few hands, the union of the members is more intimate, and their affairs are carried on with more secrecy. This is always the case in the infancy of such undertakings. But the want of experience frequently occasions considerable losses; and while this continues to be the case, no complaints are heard against such associations. Few pretend to rival their undertaking, and it becomes at first more commonly the object of raillery than of jealousy. During this period, the statesman should lay the foundation of his authority; he ought to spare no pains nor encouragement to support the undertaking; he ought to inquire into the capacity of those at the head of it; order their projects to be laid before him; and when he finds them reasonable, and well planned, he ought to take unforeseen losses upon himself: he is working for the public, not for the company; and the more care and expence he is at in setting the undertaking on foot, the more he has a right to direct the prosecution of it towards the general good. This kind of assistance given, entitles him to the inspection of their books; and from this, more than any thing, he will come at an exact knowledge of every circumstance relating to their trade. By this method of proceeding, there will be no complaints on the side of the adventurers, they will engage with chearfulness, being made certain of the public assistance, in every reasonable undertaking; their stock becomes in a manner insured, individuals are encouraged to give them credit, and from creditors they will naturally become associates in the undertaking. So soon as the project comes to such a bearing as to draw jealousy, the bottom may be enlarged by opening the doors to new associates, in place of permitting the original proprietors to augment their stock with borrowed money; and thus the fund of the company may be increased in proportion to the employment found for it, and every one will be satisfied.

When things are conducted in this way, the authority of public inspection is no curb upon trade; the individuals who serve the company are cut off from the possibility of defrauding: no mysteries, no secrets, from which abuses arise, will be encouraged; trade will become honourable and secure, not fraudulent and precarious; because it will grow under the inspection of its protector, who only protects it for the public good.

Why do companies demand exclusive privileges, and why are they ever granted, but as a recompense to those who have been at great expence in acquiring a knowledge which has cost nothing to the state? And why do they exert their utmost efforts to conceal the secrets of their trade, and to be the only sharers in the profits of it, but to make the public refund tenfold the expence of their undertaking.

When companies are once firmly established, the next care of a statesman, is, to prevent the profits of their trade from rising above a certain standard. We speak at present of those only, who, by exclusive privileges, are exposed to no competition at their sales. One very good method to keep down prices, is, to lay companies under a necessity of increasing their stock as their trade can bear it, by the admission of new associates; for by increasing the company’s stock, you increase, I suppose, the quantity of goods they dispose of, and consequently diminish the competition of those who demand of them: but as even this will not have the effect, of reducing prices to the adequate value of the merchandize (a thing only to be done by competition) the statesman himself may interpose an extraordinary operation. He may support high profits to the company, upon all articles of luxury consumed at home, in favour of keeping down the prices of such goods as are either for exportation or manufacture.

This can only be done when he has companies to deal with: in every other case, the principles of competition between different merchants, trading in the same goods, upon separate interests, makes the thing impossible. But where the interests of the sellers, which are the company, are united, and where there is no competition, they are masters of their price, according to the principles laid down in the seventh chapter. Now, provided the dividend upon the whole stock be a sufficient recompense both for the value of the fund, and the industry of those who are employed to turn it to account, the end is accomplished. Extraordinary profits upon any particular species of trade cast a discouragement upon all others.

We very frequently see that great trading companies become the means of establishing public credit; on which occasions, it is proper to distinguish between the trading stock of the company, which remains in their possession, and the actions, bonds, annuities, contracts, &c. which carry their name, and which have nothing but the name in common. The price of the first is constantly regulated by the profits upon the trade; the price of the other, by the current value of money.

Let me next observe the advantage which might result to a nation, from a prudent interposition of the statesman, in the regulation of a tarif of prices for such goods as are put to sale without any competition on the side of the sellers.

The principles we have laid down, direct us to proscribe, as much as possible, all foreign consumption, especially that of work; and to encourage as much as possible the exportation of it. Now, if what the India company of England, for example, sells to strangers, and exports for a return in money, is equal to the money she herself has formerly exported, the balance upon the India trade will stand even. But if the competition of the French and Dutch is found hurtful to the English company in her outward sales, may not the government of that nation lend a hand towards raising the profits of the company, upon tea, china, and japan wares, which are articles of superfluity consumed by the rich, in order to enable the company to afford her silk and cotton stuffs to strangers, at a more reasonable rate? These operations, I say, are practicable, where a company sells without competition, but are never to be undertaken, but when the state of its affairs are perfectly well known; because the prices of exportable goods might, perhaps, be kept up by abuse and mismanagement, and not by the superior advantages which other nations have in carrying on a like commerce. The only remedy against abuse is reformation. But how often do we see a people laid under contribution in order to support that evil!

Companies, we have said, owe their beginning to the difficulties to which an infant commerce is exposed: these difficulties once surmounted, and the company established upon a solid foundation, new objects of profit present themselves daily; so much, that the original institution is frequently eclipsed, by the accessary interests of the society. It is therefore the business of a statesman to take care that the exclusive privileges granted to a society, for a certain purpose, be not extended to other interests, nowise relative to that which set the society on foot, and gave it a name. And when exclusive privileges are given, a statesman should never fail to stipulate for himself, a particular privilege of inspection into all the affairs of the company, in order to be able to take measures which effectually prevent bad consequences to the general, interest of the nation, or to that of particular classes.

Let this suffice at present, as to the privileges enjoyed by companies in foreign trade. Let me now examine the nature of such societies in general, in order to discover their influence on the mercantile interests of a nation, and how they tend to bring every branch of trade to perfection, when they are established and carried on under the eye of a wise administration.

Besides the advantages and disadvantages above mentioned, there are others found to follow the establishment of trading companies. The first proceed from _union_, that is, a common interest; the last from _disunion_, that is, from separate interests.

A common interest unites, and a separate interest disunites the members of every society; and did not the first preponderate among mankind, there would be no society at all. Those of the same nation may have a common interest relative to foreigners, and a separate interest relative to one another; those of the same profession may have a common interest relative to the object of their industry, and a separate interest relative to the carrying it on: the members of the same mercantile company may have the same interest in the dividend, and a separate interest in the administration of the fund which produces it. The children of the same family; nay even a man and his wife, though tied by the bonds of a common interest, may be disjoined by the effects of a separate one. Mankind are like loadstones, they draw by one pole, and repel by another. And a statesman, in order to cement his society, should know how to engage every one, as far as possible, to turn his attracting pole towards the particular center of common good.

From this emblematical representation of human society, I infer, that it is dangerous to the common interest, to permit too close an union between the members of any subaltern society. When the members of these are bound together, as it were by every articulation, they in some measure become independent of the great body; when the union is less intimate, they admit of other connections, which cement them to the general mass[O].

Footnote O:

This was writ before the society of Jesuits was suppressed in France.

Companies ought to be permitted, consistently with these principles. Their mercantile interests alone ought to be united, in so far as union is required to carry on their undertaking with reasonable profits; but beyond this, every subaltern advantage by which the associates might profit, in consequence of their union, ought to be cut off; and the public should take care to support the interest of any private person against them, on all occasions, where they take advantage of their union to hurt the right of individuals. Let me illustrate this by an example. Several weavers, fishermen, or those of any other class of the industrious, unite their stocks, in order to overcome those difficulties to which single workmen are exposed, from a multiplication of expences, which might be saved by their association. This company makes a great demand for the materials necessary for carrying on their business. By this demand they attach to themselves a great many of the industrious not incorporated, who thereby get bread and employment. So far these find an advantage: but in proportion as the undertaking is extended, and the society becomes able to engross the whole, or a considerable part of such a manufacture, they destroy their competitors; and by forming a single interest, in the purchase of the materials requisite, and in the sale of their manufactures, they profit in the first case, by reducing the gains of their subaltern assistants below the proper standard; and in the second, they raise their own profits too far above what is necessary.

The method, therefore, to prevent such abuses, is, for a statesman to interpose; not by restraining the operations of the company, but by opposing the force of principles similar to those by which they profit, in such a manner as to render their unjust dealings ineffectual. If the weavers oppress the spinners, for instance, methods may be fallen upon, if not by incorporating the last, at least by uniting their interests, so as to prevent a hurtful competition among them. He may discourage too extensive companies, by establishing and supporting others, which may serve to preserve competition; and he may punish, severely, every transgression of the laws, tending to establish an arbitrary dependence on the company. In short, while such societies are forming, he ought to be their protector; and when they are formed, he ought to take those whom they might be apt to oppress under his protection.

In establishing companies for manufactures, it is a good expedient to employ, in such undertakings, none but those who have been bred to the different branches of their business. When people of fortune, ignorant and projecting, interest themselves in infant manufactures, with a view to become suddenly rich, they are so bent upon making vast profits, proportioned to their stock, that their hopes are generally disappointed, and the undertaking fails. Pains-taking people, bred to frugality, content themselves with smaller gains; but under the public protection, these will swell into a large sum, and the accumulation of small profits will form a new class of opulent people, who adopt, or rather retain the sentiments of frugality with which they were born.

Thus, for instance, in establishing fisheries, in place of private subscriptions from those who put in their money from public spirit, and partly with a view to draw an interest for it; or from those who are allured by the hopes of being great gainers in the end, (the last I call projectors) the public should be at the great expence requisite; and coopers, sail-makers, rope-makers, ship-carpenters, net-makers; in short, every one useful to the undertaking, should be gratuitously taken in for a small share of the profits; and by their being lodged together in a building, or town, proper for carrying it on, every workman becomes an undertaker to the company, for the articles of his own work. No man concerned directly in the enterprize, should reside elsewhere than in the place: any one of the associates may undertake to furnish what cannot be manufactured at home at fixed prices. Thus the whole expence of the public in the support of the undertaking, may circulate through the hands of those who carry it on; and every one becomes a check upon another, for the sake of the dividend upon the general profits. One great advantage in carrying on undertakings in this manner, is, that although those concerned draw no profit at all upon the undertaking itself, they find their account in it, upon the several branches of their own industry. The herring trade was at first set on foot in Holland by a company of merchants, who failed; and their stock of busses, stores, &c. being sold at an under value, were bought by private people, who had been instructed (at the expence of the company’s miscarriage) in every part of the trade, and who carried it on with success. Had the company been set up at first in the manner here mentioned, their trade would never have suffered any check.

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CHAP. XXXI.
_Recapitulation of the Second Book._

Having paved the way in the first book, for a particular inquiry into the principles of modern political oeconomy; in the introduction to this, I shew that the ruling principle of the science, in all ages, has been to proceed upon the supposition that every one will act, in what regards the public, from a motive of private interest; and that the only public spirited sentiment any statesman has a right to exact of his subjects, is their strict obedience to the laws. The union of every private interest makes the common good: this it is the duty of a statesman to promote; this consequently ought to be the motive of all his actions; because the goodness of an action depends on the conformity between the motive and the duty of the agent. We can, therefore, no more subject the actions of a statesman to the laws of private morality, than we can judge of the dispensations of providence by what _we_ think right and wrong[P].

Footnote P:

From the want of attending duly to this distinction, some have been
led into the blasphemy of imputing evil to the Supreme Being. There is
no such thing as evil in the universe; all is good, all is absolutely
perfect. The most flagitious actions tend to universal good: even
these, in one respect, may be called the actions of God, as all that
is done is done by him; but with respect to the _motive_ which God had
in doing them, it is pure in the most sublime degree; the action is
impious and wicked, with respect only to the agent; and his wickedness
does not proceed from the action itself, but from the want of
conformity between his duty and his motive in acting. Now if the
punishment of such a transgression (which is also considered as the
action of the Supreme Being) enters into the system of general good,
is it not a monstrous folly to call it unjust? We know the duties of
man, we know the duties of governors, but we know not the duties of
God, if we may be allowed to make use of so very improper an
expression, and it is for this reason only, that we cannot judge of
the goodness of his providence. We must therefore take it for granted;
and this is one object of what divines call _faith_, the belief of
things not seen, when the disbelief of them would imply an absurdity.

_CHAP._ I. In treating the principles of any science, many things must be blended together, at first, which in themselves are very different. In the first book I considered multiplication and agriculture as the same subject; in the second, trade and industry are represented as mutually depending on one another. To point out this relation, I give a definition of the one and the other, by which it appears, that to constitute trade, there must be a consumer, a manufacturer, and a merchant. To constitute their industry, there must be freedom in the industrious. His motive to work must be in order to procure for himself, by the means of trade, an equivalent, with which he may purchase every necessary, and remain with something over, as the reward of his diligence. Consequently, industry differs from labour, which may be forced, and which draws no other recompence, commonly, than bare subsistence. Here I take occasion to shew the hurtful effects of slavery on the progress of industry; from which I conclude, that its progress was in a great measure prevented by the subordination of classes under the feudal government; and that the dissolution of that system established it. Whether trade be the cause of industry, or industry the cause of trade, is a question of little importance, but the principle upon which both depend is a taste for superfluity in those who have an equivalent to give; this taste is what produces _demand_, and this again is the main spring of the whole operation.

_CHAP._ II. We have substituted throughout this book, the term _demand_, to express the idea we conveyed in the last by that of _wants_; and since the subject becomes more complex, and that we have many more relations to take in, I must make a recapitulation of all the different acceptations of this term _demand_.

_Demand_, in the first place, is always relative to _merchandize_; it is the buyer who demands; the seller offers to sale. 2. It is said to be _reciprocal_, when there is a double operation, that is, when the seller in the first, becomes the buyer in the second case; and then, taking the two operations in one view, we call those _demanders_ who have paid the highest price. 3. Demand is _simple_, or _compound_; _simple_, when there is no competition among the buyers; _compound_, when there is. 4. It is _great_ or _small_, according to the _quantity_ demanded. And 5. _high_ or _low_, according to the _price_ offered. The nature of a _gradual_ increase of demand, is to encourage industry, by augmenting the supply; that of a _sudden_ increase, is to make prices rise. This principle has not every where the same efficacy in producing these varieties: it is checked in its operations between merchants, who seek their profit; and it is accelerated among private people, who seek for subsistence, necessaries, or luxurious gratifications.

_CHAP._ III. I come next to deduce the origin of trade and industry, which I discover from the principles of the first book, where bartering of necessaries was understood to be trade; and I find that the progress of this is owing to the progress of multiplication and agriculture. When a people arrive at a moral impossibility of increasing in numbers, there is a stop put to the progress of barter. This grows into trade, by the introduction of a new want (money) which is the universal object of desire to all men. While the desires of man are regulated by their physical wants, they are circumscribed within certain limits. So soon as they form to themselves others of a political nature, then all bounds are broken down. The difficulty of adapting wants to wants, naturally introduces money, which is an adequate equivalent for every thing. This constitutes sale, which is a refinement on barter. Trade is only a step farther; it is a double sale, the merchant buys, not for himself, but for others. A merchant is a machine of a complex nature. Do you want, he supplies you; have you any superfluities, he relieves you of them; do you want some of the universal equivalent money, he gives it you, by creating in you a credit in proportion to your circumstances. The introduction of so useful a machine, prompts every one to wish for the power of using it; and this is the reason why mankind extend their labour beyond the mere supply of their physical wants.

Trade therefore abridges the tedious operations of sale and barter, and brings to light many things highly important for individuals, who live by relieving the wants of others, to know. It marks the standard of _demand_, which is, in a manner, the voice of the statesman, conducting the operations of industry towards the relief of wants; and directing the circulation of subsistence towards the habitations of the necessitous.

_CHAP._ IV. The consequence of this, is to determine the value of commodities, and to mark the difference between _prime cost_ and _selling prices_. The first depends upon the time employed, the expence of the workman, and the value of the materials. The second is the sum of these, added to the profit upon alienation. It is of consequence to distinguish exactly between these two constituent parts of price, the cost and the profit: the first is invariable after the first determination, but the second is constantly increasing, either from delay in selling off, or by the multiplicity of alienations; and the more exactly every circumstance with regard to the whole analysis of manufactures is examined, the easier it is for a statesman to correct every vice or abuse which tends to carry prices beyond the proper standard.

_CHAP._ V. Nothing tends to introduce an advantageous foreign trade more than low and determined prices. In the first place, it draws strangers to market. This we call _passive commerce_. Secondly, it gives merchants an opportunity to distribute the productions of their country with greater advantage among other nations, which is what we call _active foreign trade_. In this chapter, I trace the effects of the last species. I shew how merchants profit at first of the ignorance of their correspondents; how they engage them to become luxurious; how the competition between themselves, when profits are high, make them betray one another; and how the most ignorant savages are taught to take advantage of the discovery; how this intercourse tends to unite the most distant nations, as well as to improve them; and how naturally their mutual interest leads them to endeavour to become serviceable to one another.

_CHAP._ VI. I next endeavour to shew the effects of trade upon those nations who are passive in the operation. Here I take an opportunity of bringing in a connexion between the principles of trade, and those of agriculture, and I shew on what occasions passive trade may tend to advance the cultivation of lands, and when it cannot. Upon this, I build a principle, that when passive trade implies an augmentation of the domestic consumption of subsistence, in order to carry it on, then will agriculture be advanced by it, and not otherwise; and as the first is commonly the case, from this I conclude, that trade naturally has the effect of increasing the numbers of mankind in every country where it is established. I next trace the consequences of a growing taste for superfluity, among nations living in simplicity; and I shew how naturally it tends to promote industry among the lower classes, providing they be free; or to make them more laborious, supposing them to be slaves: from which I conclude, that where the advancement of refinement requires the head, that is, the ingenuity and invention of man, those who are free have the advantage; and where it requires hands, that is to say labour, that the advantage is on the side of the slaves: slavery, for example, might have made Holland; but liberty alone could have made the Dutch.

_CHAP._ VII. Having given a rough idea of trade in general, I come to a more accurate examination of the principles which a statesman must keep in view, in order to carry it to perfection, by rendring it a means of promoting ease and affluence at home, as well as power and superiority abroad. As a private person becomes easy in his circumstances in proportion to his industry, and so rises above the level of his fellows, in like manner, does an industrious nation become wealthy, and acquires a superiority over all her less industrious neighbours.

The principle which set trade on foot we have shewn to be _demand_, what supports it and carries it to its perfection is _competition_. These terms are often confounded, or at least so blended together as to produce ideas incorrect, dark, and often contradictory: for this reason I have judged an analysis of them necessary, comparing them together, and pointing out their relations, differences, and coincidences.

_Demand_ and _competition_ are both relative to buying and selling; but _demand_ can only be applied to _buying_, and _competition_ may be applied to _either_.

_Demand_ marks an inclination to have, _competition_ an emulation to obtain a preference.

_Demand_ can exist without _competition_, but _competition_ must constantly imply _demand_.

_Demand_ is called _simple_, when there appears only one interest on the side of the buyers.

_Competition_ is called _simple_, when it takes place on one side of the contract only, or when the emulation is at least much stronger on one side than on the other.

_Demand_ is called _compound_, when more interests than one are found among those who desire to buy.

_Competition_ is called _compound_, when an emulation is found to prevail on both sides of the contract at once.

_Simple competition_ raises prices; _double competition_ restrains them to the adequate value of the merchandize.

While _double competition_ prevails, the balance of work and demand stands even, under a gentle vibration; _simple competition_ destroys and overturns it.

The objects of _competition_ frequently determine its force. Merchants buy in order to sell; consequently, their _competition_ is in proportion to their views of profit. Hungry people buy to eat, and their _competition_ is in proportion to their funds. The luxurious buy to gratify their desires, their _competition_ is in proportion to these. Strong _competition_ on one side, makes it diminish on the other; and when it becomes so strong as effectually to unite the interests on one side of the contract, then it becomes absolutely _simple_; this totally overturns the balance, and must in a short time destroy the divided interest.

_CHAP._ VIII. I next examine the relative terms of _expence_, _profit_ and _loss_. The relations they bear, are often not expressed, which involves those who use them in ambiguities proper to be avoided. I therefore call expence _national_, when the national stock is diminished by it, in favour of other states; it is _public_, when the money proceeding from a national contribution is expended by the state within the country; and _private expence_ is the laying out of money belonging to private people or private interests: this has no other effect than to promote domestic circulation. I farther distinguish between what we call _spending_, and what is called _advancing of money_; the first marks an intention to consume; the second marks a view to a subsequent alienation.

Profit is either _positive_, _relative_, or _compound_.

_Positive_, when some body gains and no body loses; _relative_, when some body gains exactly what is lost by another; and _compound_, when the gain of one implies a loss to another, but not equal to the full value of the gain. The same distinction may be applied to loss.

_CHAP._ IX. Having laid down the fundamental principles which influence the operations of trade and industry, I take a view of their political consequences, and of the effects resulting to a state, which has begun to subject her political oeconomy to the interests of commerce; and such a state I call a _trading nation_.

The first consequence is an augmentation of demand for the work of the people; because they begin now to supply strangers. If this augmentation is sudden, it will _raise_ demand; if it be gradual, it will _increase_ it. If prices rise upon one extensive branch of industry, they must rise upon all; because a competition for hands must take place: the farmer looks out for servants, and must dispute them with the loom; and the first must draw back his additional expence upon the sale of his articles of the first necessity. Upon this revolution, wo to those who cannot increase their fund of subsistence in proportion to the augmentation of their expence! Nothing is so agreeable as the gradual rise of profits upon industry, and nothing so melancholy as the stop, which is the necessary consequence of all augmentations. When prices rise high, the market is deserted, and other nations profit of this circumstance to obtain a preference. From hence I conclude, that the _rise_ of demand is the forerunner of decay in trade; and the _augmentation_ of it, the true foundation of lasting opulence. But as an augmentation of supply may imply an augmentation of inhabitants, the statesman must constantly keep subsistence in an easy proportion to the demand for it: on this the whole depends. Plentiful subsistence is the infallible means of keeping prices low; and sudden and violent revolutions in the value of it, must ruin industry, in spite of a combination of every other favourable circumstance. The reason is plain: that article alone, comprehends two thirds of the whole expence of all the lower classes, and their gains must be in proportion to their expence; but as the gains of those who work for exportation are fixed, in a trading nation, by the effects of foreign competition, if their subsistence is not kept at an equal standard, they must live precariously, or in a perpetual vicissitude between plenty and want. From this may be gathered the infinite importance of distinguishing, in every trading nation, where the prices of subsistence are liable to great and sudden variations, these who supply strangers from those who supply their countrymen. As also the inconceivable advantage which would result from such a police upon grain, as might keep the price of it within determined limits.

_CHAP._ X. This doctrine leads me naturally to consider the proportions between _demand_ and _supply_, and for the better conveying my ideas, I have considered them as two quantities suspended in the scales of a political balance, which I call that _of work and demand_; preferring the word _work_ to that of _supply_, because it is the interests of the workmen which chiefly come under our consideration.

When the _work_ is proportioned to the _demand_, the balance vibrates under the influence of double competition; trade and industry flourish: but as the operation of natural causes must destroy this equilibrium, the hand of a statesman becomes constantly necessary to preserve it.

After representing the different ways in which the balance comes to be subverted (by the _positive_ or _relative_ preponderancy of either scale) I point out the consequences of this neglect in the statesman’s administration. If the scale of _work_ should preponderate, that is, if there be more work than demand, either the workmen enter into a hurtful competition, which reduces their profit below the proper standard and makes them starve; or a part of the goods lie upon their hands, to the discouragement of industry. If the scale of demand should preponderate, then either prices will rise and profits consolidate, which prepares the way for establishing foreign rivalship, or the demand will immediately cease, which marks a check given to the growth of industry.

Every subversion, therefore, of this balance, implies one of four inconveniencies, either the industrious starve one another; or a part of their work provided lies upon hand; or their profits rise and consolidate; or a part of the demand made, is not answered by them. These I call the immediate effects of the subversion of this balance. I next point out the farther consequences which they draw along with them, when the statesman is not on his guard to prevent them.

A statesman must be constantly attentive, and so soon as he perceives a too frequent tendency in any one of the scales to preponderate, he ought gently to load the opposite scale, but never except in cases of the greatest necessity, take any thing out of the heavy one. Thus when the scale of demand is found to preponderate, he ought to give encouragement to the establishment of new undertakings, for augmenting the supply, and for preserving prices at their former standard: when the scale of work is on the preponderating hand, then every expedient for increasing exportation must be employed, in order to prevent profits from falling below the price of subsistence.

_CHAP._ XI. I next examine how this equal balance comes at last to be destroyed.

_1mo._ The constant increase of work implies an augmentation of numbers, and consequently of food; but the quantity of food depends on the extent and fertility of the soil: so soon therefore as the soil refuses to give more food, it must be sought for from abroad, and when the expence of procuring it rises above a certain standard, subsistence becomes dear; this raises the prices, the market is deserted, and the scale of work is made to preponderate, until the industrious enter into a hurtful competition and starve one another: here the application of public money becomes necessary.

_2do._ When an idle people, abundantly fed, betake themselves to industry, they can afford, for a while, manufactures at the cheapest rate; because they do not _live_ by their industry, but _amuse themselves_ with it. Hence the cheapness of all sorts of country work, in former times, and of Nuns work in those we live in. But when the lands become purged of superfluous mouths, and when those purged off come to be obliged to live by their industry alone, then prices rise, and the market is deserted.

_3tio._ When a statesman imprudently imposes taxes, in such a way as to oblige strangers to refund that part paid by the industrious who supply them; this also raises prices, and the market is deserted. Thus the operation of natural causes must bring every augmentation to a stop, unless the hand of a statesman be employed to check their immediate bad effects. When subsistence becomes scarce, and the improvement of lands too expensive, he must make the public contribute towards the improvement of the soil: when the price of subsistence still rises, from farther augmentations, he must keep it down with public money: and when this operation becomes too extensive, he must content himself with effectuating a diminution of price upon that part of subsistence which is consumed by those who supply foreign markets.

_CHAP._ XII. Domestic vices alone are not sufficient to undo a trading nation; she must have rivals who are able to profit of them.

While her balance of _work_ and _demand_ is made to vibrate by alternate _augmentations_, she marches on triumphant, and has nothing to fear: when these come to a stop, she must learn how to stand still, by the help of alternate _augmentations_ and _diminutions_, until the abuses in other nations shall enable her again to vibrate by _augmentations_. But so soon as a preponderancy of the scale of work is rectified, by retrenching the number of the industrious, and that the vibrations of the balance are carried on by alternate _diminutions_, in favour of supporting high profits upon industry, then all goes to wreck, and foreign nations, in spite of every disadvantage attending new undertakings, establish a successful rivalship: they take the bread out of the mouths of those who formerly served them; and profiting of the advantages formerly enjoyed by the traders, they make their own balance vibrate by augmentations, which sink the trade of the others by slow degrees, until it becomes extinct.

_CHAP._ XIII. The rivalship between nations, leads me to inquire how far the form of their government may be favourable or unfavourable to the competition between them. Here I am led into a digression concerning the origin of power and subordination among men, so far as it is rational and consistent with natural equity; and I conclude, that all _subordination_ between man and man, in whatever relation they stand to one another, ought to be in proportion to their _mutual dependence_. The degrees of which are as various as the shades of a colour. I divide them however into four. 1. That of slaves upon their masters. 2. That of children upon their parents. 3. That of labourers upon the proprietors of lands. 4. That of the free hands, employed in trades and manufactures, upon their customers. And ascending a moment beyond my sphere, I say, that the subordination of subjects to their sovereigns, in all free governments, extends no farther than to a punctual obedience to the laws. I then proceed to an examination of former principles, and from a confrontation of the politics of our ancestors with the modern system, I conclude, that the great political impediment to the progress of trade and industry, proceeds more from an arbitrary, irregular, and undetermined subordination between classes, and between individuals, than from differences in the regular and established form of their government, legislation, and execution or administration of the supreme authority. While laws only govern, it is of the less importance who makes them, or who puts them in execution.

_CHAP._ XIV. In this chapter I endeavour to amuse my reader with an application of our principles to the political oeconomy of the Lacedemonian commonwealth, where I shew, that trade and industry are not essential to security and happiness. By making an analysis of Lycurgus’s plan, I shew that its perfection was entirely owing to the simplicity of the institution.

_CHAP._ XV. I come next to the application of general principles to particular modifications of trade.

The balance of work and demand promotes the _foreign_ and _domestic_ interests of a nation, equally. The _first_, by advancing her power and superiority abroad; the _last_, by keeping every one employed and subsisted at home. These interests are influenced by principles entirely different; and this opens a new combination highly proper to be attended to.

In the first book, we considered the consumers and suppliers as members of the same society, and as having their interests blended together; but the moment that a question about foreign trade arises, they become entirely separated. Every country appears to be put under the direction of a particular statesman, and these must play against one another as if they were playing at chess. He who governs the consumers, must use his utmost endeavours to teach his people how to supply themselves. He who is at the head of the suppliers, must do what _he_ can to render the efforts of the other ineffectual, by selling cheap, and by making it the immediate interest of the subjects of his rival to employ the suppliers preferably to his own countrymen. Here then are two plans, opposite and contrary, to be executed; and we endeavour to point out the principles which ought to influence the conduct of the respective undertakers, in every stage of their prosperity or decline. We lay down the methods of improving every favourable circumstance, so as to advance the end proposed, and shew how to season every unavoidable inconvenience with the best palliatives, when a perfect remedy becomes impracticable.

_CHAP._ XVI. In this chapter I continue the thread of my reasoning, in order to draw the attention of my readers to the difference between the principles of _foreign_ and _domestic_ commerce; and setting the latter apart for a subsequent examination, I enter upon an inquiry into the difference between those branches of foreign trade which make nations depend on one another _necessarily_, and those where the dependence is only _contingent_. The first may be reckoned upon, but the last being of a precarious nature, the preservation of them ought to be the particular care of the statesman.

The method to be followed for this purpose, is, to keep the price of every article of exportation at a standard, proportioned to the possibility of furnishing it; and never to allow it to rise higher, let the foreign demand afford ever so favourable an opportunity. The danger to be avoided, is not the high profits, but the _consolidation_ of them; this consideration, therefore, must direct the statesman’s conduct in this particular. On the other hand, he must take care that the great classes of the industrious, who supply foreign demand, and who, from political considerations, are reduced to the _minimum_ of profits, be not by an accidental diminution of that foreign demand reduced below this necessary standard: he therefore must supply the want of foreign demand, by procuring a sale, in one way or other, for whatever part of this industry is found to lie upon hand; and if loss be incurred in this operation, it is better that it should fall on the whole community, who may be able to bear it, than on a single class, who must be crushed under the burthen.

_CHAP._ XVII. When manufacturers are found without employment, the first thing to be done is to inquire minutely into the cause of it. It may proceed from a rise in the price of subsistence, from a diminution of demand from abroad, or from new establishments of manufactures at home; for each of which the proper remedy must be applied. The complaints of manufacturers are not the infallible sign of a decaying trade; they complain most when their exorbitant profits are cut off. The complaints of the real sufferers, those who lose _the necessary_, are feeble, and seldom extend farther than the sphere of their own misery. The true symptoms of a decaying trade, is to be sought for in the mansions of the rich, where foreign consumption makes its first appearance. A statesman will judge of the decay of _that_ trade _which supports and enriches the people_, more certainly from the _ease_ of the industrious classes, than from their _distress_. Foreign nations will willingly give _bread_ to those who serve them, but very seldom _any thing more_; and from hence I conclude, that the more manufacturers are at their ease, the more a statesman ought to be upon his guard to prevent this temporary advantage from bringing on both national poverty and private distress.

When home consumption begins to be supplied from abroad, and when foreigners desert the market, or refuse our merchandize when we carry it to them, then we have an infallible proof of declining commerce; although the increase of home demand may immediately relieve every industrious person made idle, and even furnish them with better employment than ever, in supplying the luxury of their countrymen.

A statesman ought to be provided with remedies against every disease. When luxury is on the road of rooting out foreign trade, let him lie upon the catch to pick up every workman made idle from the caprice of fashions, in order to give him useful employment: he may set his own example in opposition to that of the more luxurious, and in proportion as he gains ground upon them, he must open every channel to carry off the manufactures of those he has set to work for the re-establishment of foreign trade. If, on the other hand, he himself be of a luxurious disposition, and that he inclines to encourage it, he ought to take care that the example of dissipation he gives, may not have the effect of diminishing the hands employed for supplying both home consumption and foreign demand. This is accomplished by preserving a plentiful subsistence in the country, and by keeping down the prices of every species of manufacture, by gradually augmenting the hands employed, in proportion to the augmentation of demand; thus his luxury will increase his numbers, without hurting his foreign trade: the great art, therefore, is to adapt administration to circumstances, and to regulate it according to invariable principles.

_CHAP._ XVIII. But as a statesman is not always the architect of that oeconomy by which his people must be governed, he should know how to remove inconveniencies as well as to prevent them; because he is answerable, in a great measure, for the consequences of the faults of those who have gone before him. Thus when his predecessors have allowed the operation of natural causes to raise prices, and to destroy foreign trade, he must descend into the most minute analysis of every circumstance relating to industry, in order to pluck up by the root the real cause of such augmentations. Mistaken remedies, applied in a disease not rightly understood, produce frequently the most fatal consequences.

If a statesman, for instance, should apply the remedy against _consolidated profits_, by multiplying the hands employed in a manufacture, at a time when high prices proceed only from the dearness of living, by this simple mistake he will ruin all: those who really gain no more than a physical-necessary, will then enter into a hurtful competition, and starve one another. But if instead of multiplying hands he augments subsistence, prices will fall; and then by keeping hands rightly proportioned to demand, they will naturally and gradually come down to the lowest standard; and exportation will go on prosperously.

I consider _consolidated profits_, and _high prices of subsistence_, as vices in a state, within the compass of a statesman’s care to redress. But there is a third cause of high prices, (that is relatively high, when compared with those in other countries) which will equally ruin foreign trade, in spite of all precautions.

This happens when other nations have learned to profit of their superior natural advantages. I have shewn how vices at home enable foreigners to become our rivals; but without this assistance, every nation well governed, will be able to profit of its own natural superiority, in spite of the best management on the other side. The only remedy in such a case, is, for the nation whose trade begins to decline, in consequence of the natural superiority of other nations, to adhere closely to her _frugality_; to leave no stone unturned to inspire a luxurious taste in her rivals; and to wait with patience until the unwary beginners shall, from that cause, fall into the inconveniencies of dear living, and consolidated profits. Besides this expedient, there are others which depend on a judicious application of public money: an irresistible engine in trade, capable of ruining the commerce of any other nation, (not supporting it by similar operations) and of carrying on exportation, in spite of great natural disadvantages. But these principles are reserved for the fifth book, when we come to treat of the application of taxes.

Having pointed out the methods of preserving a foreign trade already established, I next examine how those nations which have been contributing inadvertently to the exaltation of others more industrious, by carrying on with them a trade hurtful to themselves, may put a stop to the exhausting of their own treasures; may learn to supply themselves with every thing necessary; and may be taught to profit of their own natural advantages, so as to become the rivals of those who have perhaps reduced them to poverty; and even to recover, not only their former rank, but to lay the foundation of a political oeconomy capable of raising them to the level of the most flourishing states.

I conclude my chapter, by calling for the attention of my reader to the wide difference there is between _theory_, where all the vices to be corrected appear clear and uncompounded; and _practice_, where they are often difficult to be discovered, and so complicated with one another, that it is hardly possible to apply any remedy which will not be productive of very great inconveniencies. Were the remedies for abuse as easily applied as theory seems to suggest, they would quickly be corrected every where.

Let theorists, therefore, beware of trusting to their science, when in matters of administration, they either advise those who are disposed blindly to follow them; or when they undertake to meddle in it themselves. An old practitioner feels difficulties which he cannot reduce to principles, nor render intelligible to every body; and the theorist who boldly undertakes to remedy every evil, and who foresees none on the opposite side, will most probably miscarry, and then give a very rational account for his ill success. A good theorist, therefore, may be excellent in deliberation, but without a long and confirmed practice, he will ever make a blundering statesman in practice.

_CHAP._ XIX. Having treated of the fundamental principles of _trade_ and _industry_; having explained the doctrine of _demand_ and _competition_; the theory of _prices_, with the causes of their _rise_ and _fall_; the difference between _prime cost_ and _profits_; the _consolidation_ of these; and the effects of such _consolidation_ in any branch of manufacture; I set my subject in a new light, and present it to my readers under a more extended view. Having, as I may say, studied the map of every province, we are now to look at that of the whole country. Here the principal rivers and cities are marked; but all brooks, villages, &c. are suppressed. This is no more than a short recapitulation of what has been gone through already. Trade, considered in this view, divides itself into three districts, or into three stages of life, as it were, _infancy_, _manhood_, and _old age_.

During the _infancy_ of trade, the statesman should lay the foundation of _industry_. He ought to multiply wants, encourage the supply of them; in short, pursue the principles of the first book, with this addition, that he must exclude all importation of foreign work. While luxury tends only to banish idleness, to give bread to those who are in want, and to advance dexterity, it is productive of the best effects.

When a people have fairly taken a laborious turn, when sloth is despised, and dexterity carried to perfection, then the statesman must endeavour to remove the incumbrances which must have proceeded from the execution of the first part of his plan. The scaffolding must be taken away when the fabric is compleated. These incumbrances are high prices, at which he has been obliged to wink, while he was inspiring a taste for industry in the advancement of agriculture and of manufactures; but now that he intends to supply foreign markets, he must multiply hands; set them in competition; bring down the price both of subsistence and work; and when the luxury of his people render this difficult, he must attack the manners of the rich, and give a check to the domestic consumption of superfluity, in order to have the more hands for the supply of strangers.

The last stage of trade is by far the most brilliant; when, upon the extinction of foreign trade, the wealth acquired comes to circulate at home. The variety of new principles which arise upon this revolution, makes the subject of what remains to be examined in the succeeding chapters.

_CHAP._ XX. Before I enter upon the principles of inland commerce, I prepare the way, by a short dissertation upon the term luxury. I endeavour to analyse the word to the bottom, to discover, and to range in order, every idea which can be conveyed by it. In this way I vindicate the definition I have given of it (which is the consumption of superfluity) and shew that luxury, as I recommend it, is free from the imputation either of being vicious or abusive.