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

Part II, Chapter VIII

Further Reflection on the same subject

We have seen that the quantity of money circulating in a State may be increased by working the Mines which are found in it, by subsidies from foreign powers, by the immigration of Families of foreigners, by the residence of Ambassadors and Travellers, but above all by a regular and annual balance of trade from supplying merchandise to Foreigners and drawing from them at least part of the price in gold and silver. It is by this last means that a State grows most substantially, especially when its trade is accompanied and supported by ample navigation and by a considerable raw produce at home supplying the material necessary for the goods and manufactures sent abroad.

As however the continuation of this Commerce gradually introduces a great abundance of money and little by little increases consumption, and as to meet this much foreign produce must be brought in, part of the annual balance goes out to pay for it. On the other hand the habit of spending increasing the employment of labourers the prices of Manufactured goods always go up. Without fail some foreign countries endeavour to set up for themselves the same kinds of Manufactures, and so cease to buy those of the State in question; and though these new Establishments of crafts and Manufactures be not at first perfect they slacken and even prevent the exportation of those of the neighbouring State into their own country where they can be got cheaper.

Thus it is that the State begins to lose some branches of its profitable Trade: and many of its Workmen and Mechanicks who see labour fallen off leave the State to find more work in the countries with the new Manufacture. In spite of this diminution in the balance of trade the custom of importing various products will continue. The articles and Manufactures of the State having a great reputation, and the facility of navigation affording the means of sending them at little cost into distant countries, the State will for many years keep the upper hand over the new Manufactures of which we have spoken and will still maintain a small Balance of Trade, or at least will keep it even. If however some other maritime State tries to perfect the same articles and its navigation at the same time it will owing to the cheapness of its manufactures take away several branches of trade from the State in question. In consequence this State will begin to lose its balance of trade and will be forced to send every year a part of its money abroad to pay for its importations.

Moreover, even if the State in question could keep a balance of trade in its greater abundance of money it is reasonable to suppose that this abundance will not arrive without many wealthy individuals springing up who will plunge into luxury. They will buy Pictures and Gems from the Foreigner, will procure their Silks and rare objects, and set such an example of luxury in the State that in spite of the advantage of its ordinary trade its money will flow abroad annually to pay for this luxury. This will gradually impoverish the State and cause it to pass from great power into great weakness.

When a State has arrived at the highest point of wealth (I assume always that the comparative wealth of States consists principally in the respective quantities of money which they possess) it will inevitably fall into poverty by the ordinary course of things. The too great abundance of money, which so long as it lasts forms the power of States, throws them back imperceptibly but naturally into poverty. Thus it would seem that when a State expands by trade and the abundance of money raises the price of Land and Labour, the Prince or the Legislator ought to withdraw money from circulation, keep it for emergencies, and try to retard its circulation by every means except compulsion and bad faith, so as to forestall the too great dearness of its articles and prevent the drawbacks of luxury.

But as it is not easy to discover the time opportune for this, nor to know when money has become more abundant than it ought to be for the good and preservation of the advantages of the State, the Princes and Heads of Republics, who do not concern themselves much with this sort of knowledge, attach themselves only to make use of the facility which they find through the abundance of their State revenues, to extend their power and to insult other countries on the most frivolous pretexts. And all things considered they do not perhaps so badly in working to perpetuate the glory of their reigns and administrations, and to leave monuments of their power and wealth; for since, according to the natural course of humanity, the State must collapse of itself they do but accelerate its fall a little. Nevertheless it seems that they ought to endeavour to make their power last all the time of their own administration.

It does not need a great many years to raise abundance to the highest point in a State, still fewer are needed to bring it to poverty for lack of Commerce and Manufactures. Not to speak of the power and fall of the Republic of Venice, the Hanseatic Towns, Flanders and Brabant, the Dutch Republic, etc. who have succeeded each other in the profitable branches of trade, one may say that the power of France has been on the increase only from 1646 (when Manufactures of Cloths were set up there, which were until then imported) to 1684 when a number of Protestant Undertakers and Artisans were driven out of it, and that Kingdom has done nothing but recede since this last date.

To judge of the abundance and scarcity of money in circulation, I know no better measure than the Leases and Rents of Landowners. When Land is let at high Rents it is a sign that there is plenty of Money in the State; but when Land has to be let much lower it shows, other things being equal, that Money is scarce. I have read in an
État de la France that the acre of vineyard which was let in 1660 near Mantes, and therefore not far from the Capital of France, for 200 livres tournois in money of full weight, only let in 1700 for 100 livres tournois in lighter money, though the silver brought from the West Indies in the interval should naturally have sent up the price of Land in Europe.

The author [of the
État] attributes this fall in Rent to defective consumption. And it seems that he had in fact observed that the consumption of Wine had diminished. But I think he has mistaken the effect for the cause. The cause was a greater rarity of money in France, and the effect of this was naturally a falling off in consumption. In this Essay I have always suggested, on the contrary, that abundant money naturally increases consumption and contributes above everything to the cultivation of Land. When abundant money raises produce to respectable prices the inhabitants make haste to work to acquire it; but they are not in the same hurry to acquire produce or merchandise beyond what is needed for their maintenance.

It is clear that every State which has more money in circulation than its neighbours has an advantage over them so long as it maintains this abundance of money.

In the first place in all branches of trade it gives less Land and Labour than it receives: the price of Land and Labour being everywhere reckoned in money is higher in the State where money is most abundant. Thus the State in question receives sometimes the produce of two acres of Land in exchange for that of one acre, and the work of two men for that of only one. It is because of this abundance of money in circulation in London that the work of one English embroiderer costs more than that of 10 Chinese embroiderers, though the Chinese embroider much better and turn out more work in a day. In Europe one is astonished how these Indians can live, working so cheap, and how the admirable stuffs which they send us cost so little.

In the second place, the revenues of the State where money abounds, are raised more easily and in comparatively much larger amount. This gives the State, in case of war or dispute, the means to gain all sorts of advantages over its adversaries with whom money is scarce.

If of two Princes who war upon each other for the Sovereignty or Conquest of a State one have much money and the other little money but many estates which may be worth twice as much as all the money of his enemy, the first will be better able to attach to himself Generals and Officers by gifts of money than the second will be by giving twice the value in lands and estates. Grants of Land are subject to challenge and revocation and cannot be relied upon so well as the money which is received. With money munitions of war and food are bought even from the enemies of the State. Money can be given without witnesses for secret service. Lands, Produce, Merchandise would not serve for these purposes, not even jewels or diamonds, because they are easily recognised. After all it seems to me that the comparative Power and Wealth of States consist, other things being equal, in the greater or less abundance of money circulating in them
hic et nunc.

It remains to mention two other methods of increasing the amount of money in active circulation in a State. The first is when Undertakers and private individuals borrow money from their foreign correspondents at interest, or individuals abroad send their money into the State to buy shares or Government stocks there. This often amounts to very considerable sums upon which the State must annually pay interest to these foreigners. These methods of increasing the money in the State make it more abundant there and diminish the rate of interest. By means of this money the Undertakers in the State find it possible to borrow more cheaply to set people on work and to establish Manufactories in the hope of profit. The Artisans and all those through whose hands this money passes, consume more than they would have done if they had not been employed by means of this money, which consequently increases prices just as if it belonged to the State, and through the increased consumption or expense thus caused the public revenues derived from taxes on consumption are augmented. Sums lent to the State in this way bring with them many present advantages, but the end of them is always burdensome and harmful. The State must pay the interest to the Foreigners every year, and besides this is at the mercy of the Foreigners who can always put it into difficulty when they take it into their heads to withdraw their capital. It will certainly arrive that they will want to withdraw it at the moment when the State has most need of it, as when preparations for war are in hand and a hitch is feared. The interest paid to the Foreigner is always much more considerable than the increase of public revenue which his money occasions. These loans of money are often seen to pass from one Country to another according to the confidence of investors in the States to which they are sent. But to tell the truth it most commonly happens that States loaded with these loans, who have paid heavy interest on them for many years, fall at length by bankruptcy into inability to pay the Capital. As soon as distrust is awakened the shares or Public stocks fall, the Foreign shareholders do not like to realise them at a loss and prefer to content themselves with the interest, hoping that confidence will revive. But sometimes it never revives. In States which decline into decay the principal object of Ministers is usually to restore confidence and so attract foreign money by loans of this kind. For unless the Ministry fails to keep faith and to observe its engagements the money of the subjects will circulate without interruption. It is the money of the foreigners which has the power of increasing the circulating currency in the State.

But the resource of these borrowings which gives a present ease comes to a bad end and is a fire of straw. To revive a State it is needful to have a care to bring about the influx of an annual, a constant and a real balance of Trade, to make flourishing by Navigation the articles and manufactures which can always be sent abroad cheaper when the State is in a low condition and has a shortage of money. Merchants are first to begin to make their fortunes, then the lawyers may get part of it, the Prince and the Farmers of the Revenue get a share at the expense of these, and distribute their graces as they please. When money becomes too plentiful in the State, Luxury will instal itself and the State will fall into decay.

Such is approximately the circle which may be run by a considerable State which has both capital and industrious inhabitants. An able Minister is always able to make it recommence this round. Not many years are needed to see it tried and succeed, at least at the beginning which is its most interesting position. The increased quantity of money in circulation will be perceived in several ways which my argument does not allow me to examine now.

As for States which have not much capital and can only increase by accidents and conjuncture it is difficult to find means to make them flourish by trade. No ministers can restore the Republics of Venice and Holland to the brilliant situation from which they have fallen. But as to Italy, Spain, France, and England, however low they may be fallen, they are always capable of being raised by good administration to a high degree of power by trade alone, provided it be undertaken separately, for if all these States were equally well administered they would be great only in proportion to their respective capital and to the greater or less industry of their People.

The last method I can think of to increase the quantity of money actually circulating in a State is by Violence and Arms and this is often blended with the others, since in all Treaties of Peace it is generally provided to retain the trading rights and privileges which it has been possible to derive from them. When a State exacts contributions or makes several other States tributary to it, this is a very sure method of obtaining their money. I will not undertake to examine the methods of putting this device into practice, but will content myself with saying that all the Nations who have flourished in this way have not failed to decline, like States who have flourished through their trade. The ancient Romans were more powerful in this wise than all the other Peoples we know of. Yet these same Romans before losing an inch of the Land of their vast Estates fell into decline by Luxury and brought themselves low by the diminution of the money which had circulated among them, but which Luxury caused to pass from their great Empire into oriental countries.

So long as the luxury of the Romans (which did not begin till after the defeat of Antiochus, King of Asia about A.U.C. 564) was confined to the produce of the Land and Labour of all the vast Estates of their dominion, the circulation of money increased instead of diminishing. The Public was in possession of all the Mines of Gold, Silver, and Copper in the Empire. They had the gold Mines of Asia, Macedonia, Aquilaea and the rich mines both of gold and silver of Spain and other countries. They had several Mints where gold, silver and copper coins were struck. The consumption at Rome of all the articles and merchandise which they drew from their vast Provinces did not diminish the circulation of the currency, any more than Pictures, Statues and Jewels which they drew from them. Though the patricians laid out excessive amounts for their feasts and paid 15,000 ounces of silver for a single fish, all that did not diminish the quantity of money circulating in Rome, seeing that the tribute of the Provinces regularly brought it back, to say nothing of what Praetors and Governors brought thither by their extortions. The amounts annually extracted from the Mines merely increased the circulation at Rome during the whole reign of Augustus. Luxury was however already on a very great scale, and there was much eagerness not only for curiosities produced in the Empire but also for jewels from India, pepper and spices, and all the rarities of Arabia, and the silks which were not made with raw materials of the Empire began to be in demand there. The Money drawn from the Mines still exceeded however the sums sent out of the Empire to buy all these things. Nevertheless under Tiberius a scarcity of money was felt. That Emperor had shut up in his Treasury 2 milliards and 700 millions of sesterces. To restore abundance of circulation he had only to borrow 300 millions on the mortgage of his Estates. Caligula in less than one year spent all this treasure of Tiberius after his death, and it was then that the abundance of money in circulation was at its highest in Rome. The fury of Luxury kept on increasing. In the time of Pliny, the historian, there was exported from the Empire, as he estimated, at least 100 millions of sesterces annually. This was more than was drawn from the Mines. Under Trajan the price of Land had fallen by one-third or more, according to the younger Pliny, and money continued to decrease until the time of the Emperor Septimus Severus. It was then so scarce at Rome that the Emperor made enormous granaries, being unable to collect large treasure for his enterprises. Thus the Roman Empire fell into decline through the loss of its money before losing any of its estates. Behold what Luxury brought about and what it always will bring about in similar circumstances.