Essai sur la Nature du Commerce in Général (Essay on the Nature of Trade in General)

Part II, Chapter V

Of the inequality of the circulation of hard money in a State

The City always supplies various merchandises to the Country, and the Landowners who reside in the City should always receive there about a third of the produce of their Land. The Country thus owes to the City more than half the produce of the Land. This debt would always exceed one half if all Landowners lived in the City, but as several of the least important live in the Country I suppose that the balance or debt which continually returns from the Country to the City is equal to half the produce of the Land and is paid in the City by half the products of the Country transported to it and sold to pay this debt.

But all the Countryside of a State or Kingdom owes a constant balance to the Capital, as well for the Rents of the more considerable Landowners who reside there as for the taxes of the State or Crown, most of which are spent in the Capital. All the provincial Cities owe a constant balance to the Capital, either for the State, upon houses or consumption, or for the different commodities which they draw from the Capital. It happens also that several individuals and Landowners who live in the provincial Cities go to spend some time in the Capital, for pleasure, or for the judgment of their Lawsuits in final appeal, or because they send their children thither for a fashionable education. Consequently all these expenses incurred in the Capital are drawn from the provincial Cities.

It may therefore be said that all the Countryside and all the Cities of a State owe regularly and annually a balance or debt to the Capital. But as it is all paid in money it is evident that the Provinces always owe considerable sums to the Capital; for the products and commodities which the Provinces send to the Capital are sold there for money, and with this money the debt or balance in question is paid.

Suppose now that the circulation of money in the provinces and in the Capital is equal both in quantity of money and speed of circulation. The balance will be first sent to the Capital in cash and this will diminish the quantity of money in the Provinces and increase it in the Capital, and consequently the raw material and commodities will be dearer in the Capital than in the Provinces, on account of the greater abundance of money in the Capital. The difference of prices in the Capital and in the Provinces must pay for the costs and risks of transport, otherwise cash will be sent to the Capital to pay the balance and this will go on till the prices in the Capital and the Provinces come to the level of these costs and risks. Then the Merchants or Undertakers of the Market Towns will buy at a low price the products of the Villages and will have them carried to the Capital to be sold there at a higher price: and this difference of price will necessarily pay for the upkeep of the Horses and Menservants and the profit of the Undertaker, or else he would cease his enterprise.

It will follow from this that the price of raw Produce of equal quality will always be higher in the Country places which are nearest the Capital than in those more distant in proportion to the costs and risks of transport; and that the countries adjacent to Seas and Rivers flowing into the Capital will get a better price for their Produce in proportion than those which are distant (other things being equal) because water transport is less expensive than Land transport. On the other hand the Products and small wares which cannot be consumed in the Capital, because they are not suitable or cannot be sent thither on account of their bulk, or because they would be spoiled on the way, will be infinitely cheaper in the Country and distant Provinces than in the Capital, owing to the amount of money circulating for them which is much smaller in the distant Provinces.

So it is that new laid eggs, game, fresh butter, wood fuel, etc. will generally be much cheaper in the district of Poitou, whilst Corn, Cattle and Horses will be dearer at Paris only by the difference of the cost and risk of carriage and the dues for entering the City.

It would be easy to make an infinite number of inductions of the same kind to justify by experience the necessity of an inequality in the circulation of money in the different Provinces of a great State or Kingdom, and to shew that this inequality is always relative to the balance or debt which belongs to the Capital.

If we suppose that the balance due to the Capital amounts to one fourth of the produce of the Land of all the Provinces of the State the best use that can be made of the Land would be to employ the Country bordering on the Capital to produce the kinds of produce which could not be drawn from distant Provinces without much expense or deterioration. This is in fact what always takes place. The market Prices of the Capital serving as a standard for the Farmers to employ the Land for such or such a purpose they use the nearest, when suitable, for market gardens, pasture, etc.

So far as possible Manufactures of Cloth, Linen, Lace, etc. ought to be set up in the remote Provinces; and, in the neighbourhood of Coal Mines or Forests, which are useless by their distance, Manufactures of tools of Iron, Tin, Copper, etc. In this way finished manufactures could be sent to the Capital with much less cost of carriage than the raw materials to be worked up in the Capital and the subsistence of the artisans who would work upon them there. This would save a quantity of horses and waggoners who would be better employed for the benefit of the State. The Land would serve to maintain on the spot workmen and useful mechanics; and a multitude of horses would be saved who serve only upon unnecessary transport. In this way the distant Lands would yield higher Rents to the Proprietors and the inequality of the Circulation of the Provinces and the Capital would be better proportioned and less considerable.

Nevertheless to set up Manufactures in this way would need not only much encouragement and capital but also some way to ensure a regular and constant demand, either in the Capital itself or in foreign Countries, whose exports in return may be of service to the Capital, to pay for the merchandise which it draws from these Foreign Countries or for the return of silver in kind.

When these Manufactures are set up perfection is not at once attained. If some other Province have them better or cheaper or owing to the vicinity of the Capital or the convenience of a Sea or River communication have their transport considerably facilitated, the Manufactures in question will have no success. All these circumstances have to be considered in setting up a Manufactory. I have not proposed to treat of them in this Essay, but only to suggest that so far as practicable Manufactures should be set up in Provinces distant from the Capital, to render them more considerable and to bring about there a circulation of money less disproportionate to that of the Capital.

For when a distant Province has no Manufactory and produces only ordinary raw materials without water communication with the Capital or the ocean, it is astonishing how scarce money is there compared with that which circulates in the Capital and how little the best Lands produce to the Prince and to the Proprietors who reside in the Capital.

The wines of Provence and of Languedoc sent to the North round the Straits of Gibraltar by long and difficult Navigation, after having passed through the hands of several Dealers yield very little to the Paris owners of the Land.

It is however necessary that these distant Provinces should send their produce, in spite of all the drawbacks of transport and distance to the Capital or elsewhere either in the State or in foreign Countries in order that the returns should provide for payment of the balance due to the Capital. But these products would be mostly consumed on the spot if there were works or Factories to pay this balance, in which case the number of inhabitants would be much larger.

When the Province pays the balance only with its produce which yields so little in the Capital having regard to the expenses of distance, it is evident that the Proprietor living in the Capital pays the Produce of much Land in the Country to receive little in the Capital. This arises from the inequality of Money, and this inequality is owing to the constant balance due from the Province to the Capital.

At present if a State or Kingdom which supplies all Foreign countries with work of its own Manufacture does so much of this commerce that it draws every year a constant balance of money from abroad, the circulation will become more considerable there than in foreign countries, money will be more plentiful there, and consequently Land and Labour will gradually become dearer there. It will follow that in all the branches of commerce the State in question will exchange a smaller amount of Land and Labour with the Foreigner for a larger amount, so long as these circumstances continue.

But if some Foreigner reside in the State in question he will be in about the same situation and circumstances as the Proprietor at Paris who has his Land in distant Provinces.

France, since the erection in 1646 of Manufactories of cloth and other works since set up, appeared to trade, at least in part, in the way described. Since the decay of France England has taken possession of this trade; and all States appear flourishing only by the larger or smaller part they have in it. The inequality of the circulation of Money in the different States constitutes the inequality of their respective power, other things being equal; and this inequality of circulation is always respective to the balance of Foreign Trade.

It is easy to judge from what has been said in this Chapter that the assessment by Taxes of the Royal Tithe, made by M. de Vauban, would be neither advantageous nor practicable. If the taxes on Land were levied in Money proportionable to the rents of the Proprietors, it would be fairer. But I must not wander from my subject to show the inconvenience and impossibility of M. de Vauban’s proposal.