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Title: An Inquiry into the Principles of Political Oeconomy (Vol. 2 of 2) - Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture,
Author: Steuart, Sir James
Language: English
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                          Transcriber’s Note:

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                                INTO THE

                                BEING AN

                          ESSAY ON THE SCIENCE


                    Domestic Policy in Free Nations.




                     By Sir _JAMES STEUART_, Bart.


 _Ore trahit quodcumque potest atque addit acervo._ HOR. Lib. I. Sat. 1


                               _VOL._ II.


          Printed for A. MILLAR, and T. CADELL, in the Strand.




                                 OF THE
                             SECOND VOLUME.


                               BOOK III.

                           OF MONEY AND COIN.

                                PART II.

               The principles of Money applied to trade.

 CHAP. I. Consequences of imposing the price of coinage, and the  Page
   duty of seigniorage, upon the coin of a nation, in so far as      1
   they affect the price of bullion, and that of all other

     Intricacy of this subject,                                      2

     Recapitulation of some principles,                              —

     The first introduction of coinage must make prices fall         3

     Consequences of the exclusive privilege of coining,             4

     A wrong balance of trade raises the price of bullion to the     5
     value of coin,

     And ought to raise proportionally the price of commodities,     —

     How traders obstruct the operation of this principle, while     6
     the balance of trade continues fluctuating,

     And how an overturned balance of trade attaches prices to       7
     the denominations of coin,

     How profits consolidate into prime cost,                        8

     And are preserved upon articles of home consumption,            9

     But are torn away by foreign competition, for articles of       —

     How this hurts the industrious, and how the state may          10
     indemnify them,

 CHAP. II. Concerning the influence which the imposing the price    11
   of coinage, and the duty of seigniorage, in the English mint,
   will have upon the course of exchange, and trade of Great

     Theory of prices upon articles of exportation,                  —

     How the course of exchange is regulated,                       13

     Price of exchange, what?                                        —

     Where coinage is free, the price of bullion ought to be         —

     And fluctuating where coinage is imposed,                       —

     Bullion in England dearer than in France,                      14

     Because the price of it is kept up by the mint,                 —

     And is allowed to fall in France 8 _per cent._ below the        —

     This a wise regulation,                                         —

     England loses by this sometimes 8 _per cent._ upon her         15
     trade with France,

     And at a medium 4 _per cent._ as is proved by a matter of      17

     Easy to be verified at all times by the price of bullion       18
     and course of exchange in the Paris market,

     When bullion is exported to England, exchange is against        —

     Course of exchange no rule for judging of the balance of        —
     trade, but only of the value of coin,

     The real par not to be calculated by the intrinsic value of    19
     the coin, unless bills were drawn in weight of fine

     OBJ. Exchange _regulates_ the price of bullion,                20

     ANSW. Denied: Exchange only _raises_ its price, the mint        —
     price _pulls it down_,

     _Balance upon the real par_ no mark of _a balance_ upon         —
     trade, proved by examples,

     Balance of trade, what?                                        21

     The real par of exchange to be fixed by the fluctuating         —
     value of the coin, not by the permanent quantity of the
     bullion it contains,

     Proof of this proposition,                                     22

     Application of these principles to the English trade with      24

 CHAP. III. Is the loss which the course of exchange marks upon     25
   the trade of Great Britain with France, real or apparent,

     Reason for proposing this question,                             —

     Suppositions,                                                   —

     Principles,                                                    25

     How the paying for coinage affects the profits on goods        26

     When the balance is favourable,                                27

     And how, when unfavourable,                                    28

     How the paying for coinage affects the profits on goods         —

     When the balance is favourable,                                 —

     And how, when unfavourable,                                     —

     The more trade is favourable, the more adviseable it is to     29
     impose a price upon coinage,

 CHAP. IV. Of the different methods of imposing coinage, and of     30
   the influence they respectively have upon the value of the
   money unit, and upon the domestic interests of a nation,

     Two ways of imposing coinage,                                   —

     Plan laid down in this chapter,                                31

     How coinage is imposed by authority,                            —

     How by consent,                                                 —

     When by authority, what the consequence,                        —

     The metals are exported,                                        —

     How, in France, this is prevented in some measure,             32

     French policy as to coin not generally understood,              —

     How coinage influences the price of inland commodities,        33

     A case not to be resolved by this theory, but left to be        —
     verified by experiment,

     An objection answered,                                          —

     Coinage affects the price of bullion immediately, and that     34
     of commodities indirectly,

     Consequence of the price of coinage, when imposed with          —

     That bullion is brought to the mint, when trade is             35

     How the mint price of the metals may be allowed to vary,       36

     Influence of this method of imposing coinage, on the price     37
     of commodities, and value of the pound sterling,

 CHAP. V.  How an experiment may be made to discover with           38
   certainty the real effects of the imposition of coinage,

     Plan of the experiment proposed,                               39

     The consequence of this will be, to recall the old guineas      —
     from abroad,

     During this experiment a close attention must be had to the    40
     rate of prices,

     And if they vary how to discover the true cause,                —

     Farther consequences of this experiment,                        —

     Can we estimate the wealth of a nation by the quantity of      42
     its coin?

     Just as we can estimate a man’s estate by the weight of his    43

 CHAP. VI. Miscellaneous questions and observations concerning      44
   the doctrine of money and coin,

     The use of a miscellaneous chapter at the end of a subject,     —

     QUEST. 1. Why does the doctrine of money appear so             45

     ANSW. Because it is perplexed with jargon,                      —

     The denominations of coin are confounded with the intrinsic     —

     The terms metal, money, coin, bullion, and price, are all      46
     considered as synonimous,

     What is meant by _metal_? what by _money_? what by _coin_?      —
     what by _bullion_? what by _price_?

     Of the abuse of the terms _rising_ and _sinking_, and of        —
     the inaccuracy of speech,

     Prices attached to the denominations of coin,                  47

     _Coinage raises the value of coin_, is a more proper            —
     expression, than _coinage sinks the price of commodities_,

     How to avoid such ambiguities of speech,                        —

     A case which cannot be resolved by this theory,                 —

     In speaking we do not distinguish between pure metal, and      48
     that which is mixed with alloy,

     Of the abuse of terms relative to denominations of coins,      49

     This illustrated by an example,                                 —

     Farther obscurities from the abuse of language,                 —

     How to avoid such abuse,                                       50

     QUEST. 2. What is the difference between raising the value      —
     of coin, by imposing coinage, and raising the denomination
     of it?

     ANSW. The first is real, and affects foreign nations; the       —
     other does not,

     Proved by an example,                                          51

     How the arbitrary method of raising the denominations of        —
     coin affects prices at home,

     QUEST. 3. How will the imposition of coinage affect the        53
     creditors of Great Britain?

     ANSW. If they continue to be paid by denominations, they        —
     will gain; if by weight of metal, they will not gain, nor
     will they lose,

     Proved by an example,                                           —

     How the imposition of coinage advances the credit of           54

     QUEST. 4. Is the plan we have proposed effectual towards        —
     preserving the pound sterling invariable?

     ANSW. No: but seems to be the best relative to material         —

     A scale of value realized in metal never can be exact;          —
     because the metal itself varies in its value,

     1. From the manufacturing of it. 2. From the interest of       55
     money. 3. From the manners of a people,

     The only exact scale of value is that which can measure the     —
     metals like every other commodity,

     Explanation of this proposition, by an example,                 —

     And by an application, to the bank of Amsterdam,               56

     How the locking up the coin in that bank renders the value      —
     of it more stable,

     QUEST. 5. Will not the imposition of coinage in England        57
     frequently stop the mint?

     ANSW. Certainly: when the balance of trade is unfavourable,     —

     But this is an advantage to England which France now           58

     The coin of France passes in other nations above its value      —
     as a metal, and returns to France unmelted,

     QUEST. 6. Is not this return a loss to France?                  —

     Intricacy of this question,                                    59

     Resolution of it,                                               —

     It is no loss to France,                                       60

     Another view of this question,                                  —

     QUEST. 7. If by overrating gold the English lose their         61
     silver, why should not France by overrating silver lose her

     ANSW. Because the English rate their gold above the value       —
     of it in their own market. The French do not so with their

     How the proportion of the metals is kept nearly the same in    62
     all European markets?

     Because when home demand disturbs the proportion, foreign       —
     trade brings it even again,

     Coins of gold and silver should be proportioned at the rate    63
     of the market at home,

     And nations cannot fix that proportion by any convention        —
     among themselves,

     Why is the proportion of the metals so different in Europe      —
     and in Asia?

     Answer to this,                                                 —

     QUEST. 8. Is it the interest of Princes to debase the          64
     standard of their coin?

     ANSW. It is their immediate interest when they are debtors,     —
     and it is their interest to raise it when creditors; but
     always unjust,

     Who are debtors and who creditors; and how Princes who         65
     incline to rob their subjects may avoid robbing themselves
     at the same time,

     Example of a Prince who is now employing this engine            —
     against his enemies, not his subjects,

     Writers against this practice have used wrong arguments to     66
     dissuade Princes from it,

     The proper arguments against it are three,                     67

     1. It disturbs the ideas of people with regard to value,        —

     2. It either robs the class of debtors, or creditors,           —

     3. It ruins credit,                                             —

     This last circumstance will probably put an end to the          —

     QUEST. 9. What is the best form to be given to coin?            —

     Difference between medals and coins,                            —

     Of indenting the impression,                                    —

     The less the surface, the wearing is the less,                 68

     The advantage of having heavy pieces for the greatest part      —
     of the coin: yet small denominations are useful in some
     cases, for preventing the rise of prices,

     Mixed metal better than copper for small denominations, as      —
     appears from the practice in Germany,

     Mixed metal never to be bagged up with fine,                   69

 CHAP. VII. Of the regulations observed in France, with regard      70
   to coin, bullion, and plate,

     The marc is the unit of French weight at the mint,              —

     The remedy of weight upon silver, what?                         —

     The standard of fineness is 11 fine to 1 of alloy,              —

     Remedy of alloy, what?                                          —

     Quantity of fine silver in a marc, as it is delivered at       71
     the mint,

     Into what coined,                                               —

     Mint price of a marc of fine silver,                            —

     The price of coinage 8⅕ _per cent._ upon silver,                —

     Remedy of weight upon gold,                                     —

     The fineness of standard gold,                                 72

     The remedy of alloy upon gold,                                  —

     The marc into what coined,                                      —

     Mint price of a marc of fine gold,                              —

     The price of coinage 8⅕ _per cent._ upon gold,                  —

     Which no way stops the mint,                                    —

     Of the proportion of the metals,                               73

     How to discover it,                                             —

     The proportion is as 1 to 14.47,                                —

     Gold contained in a louis d’or, and silver in a crown of 6      —

     Proportion of a French grain to a troy grain,                   —

     Proportion between the louis and the guinea,                   74

     Of the fineness of French wrought plate,                        —

     Goldsmiths profit by the imposition of coinage,                75

     And never find the mint in competition with them for the        —

     Advantages of the French regulations,                           —

     High price of bullion in the Paris market during the year      76

     Present state of the wearing of the French silver coin,        77

 CHAP. VIII. Of the regulations observed in Holland, with regard    78
   to coin and bullion,

     Present state of the Dutch currency,                            —

     Regulations in the Dutch mint,                                 79

     Their unit of weight is the marc Hollands troes,                —

     The remedy of weight on silver,                                 —

     The fineness of silver is different in different coins,         —

     Florins are 11⁄12 fine with one grain of remedy,                —

     How they reckon their silver standard,                          —

     Exact quantity of fine silver in a marc weight of Dutch        80
     florins as they come from the mint,

     Mint price of fine silver,                                      —

     Price of coinage in Holland is 1½ _per cent._ upon silver,      —

     Of the Dutch gold coins,                                       80

     The ducat has no legal denomination,                            —

     The fineness of it 23 carats 8 grains,                         81

     How the fineness is reckoned,                                   —

     Fineness of the ducats of the empire,                           —

     Exact quantity of fine gold in a marc weight of Dutch           —
     ducats as they come from the mint,

     Mint price of fine gold,                                        —

     Price of coinage upon ducats about 1 _per cent._               82

     The price of coinage upon both species should be the same,      —

     The rider                                                       —

     Has a legal denomination, and is a lawful tender in             —
     payments to ⅓ of the sum,

     As it is always coined by the state, and for the state          —
     there can be no mint price,

     Regulation as to the fineness, denomination, and weight of     83
     the rider,

     Quantity of fine gold in a florin of riders,                    —

     To put the ducat upon a par with riders, it should              —
     circulate for 5 florins 4⅛ stivers,

     Utility of not fixing the denomination of ducats,               —

     How to find the proportion of the metals in the coin of        84
     Holland, and a wonderful phænomenon in the value of ducats,

     Were all the coin of full weight the proportion would be as     —
     1 to 14.62,

     Quantity of fine silver in a florin piece,                     85

     Quantity of fine gold in a florin of riders,                    —

     Investigation of this proportion as to the ducats,              —

     By which it appears that the war has raised the value of       86
     gold, and set the market proportion of the metals in
     Holland at 1 to 14.785,

     Which is a rise in the value of gold of 1.12 _per cent._        —

     The intention of this minute detail is to calculate the        87
     real par of the coins of Europe,

     Proportion between the mint weights of Holland, England,        —
     France, and Germany,

     Par of a pound sterling (in weighty silver) with Dutch         88
     florins in riders, is 11 florins 12 stivers,

     Par of a pound sterling in gold with ditto, is 11 florins       —
     3⅕ stivers,

     Par of a French louis with ditto, 11 florins, 3¾ stivers,       —

     Par of 24 livres French in silver with ditto, 11 florins 1½     —

     Great balance of trade against France in September 1761,        —

     Low value of the pound sterling in Holland in 1761,             —

     Owing to the lightness of the English gold at that time,       89

     And not to the wrong balance of their trade, as was            91

     Defects of the silver currency of Holland,                      —

     Account of this currency,                                      92

     Regulation for the payment of foreign bills in coin,            —

     Ditto for current bills—ditto for merchandize,                  —

     The denominations of the several silver currencies not          —
     proportioned to their intrinsic value,

     Cause of this.—-Regulations concerning the weighing of         93
     silver species in banks current,

     All allowances for light weight are an abuse,                  94

     Frauds of money-jobbers in Holland,                             —

     The best silver coin in Holland is upon an average 1 _per       —
     cent._ too light,

     From which it follows that the actual proportion of the        95
     metals is as 1 to 14.479,

     Another abuse in the silver coin of Holland,                    —

     Reason of the great apparent scarcity of the silver coin in    96

     A paradox to be resolved,                                       —

     Resolution of it,                                              97

                                BOOK IV.

                          OF CREDIT AND DEBTS.

                                PART I.

                       Of the Interest of money.

 INTRODUCTION,                                                 Page 101

 CHAP. I. What Credit is, and on what founded,                      105

 CHAP. II. Of the nature of obligations to be performed, in         108
   consequence of credit given,

 CHAP. III. Of the interest of money,                               112

 CHAP. IV. Of the _principles_ which regulate the rate of           115

 CHAP. V. Of the regulation of interest by statute,                 121

 CHAP. VI. What would be the consequences of reducing, by a         125
   British statute, the legal interest of money below the
   present level of the stocks?

 CHAP. VII. Methods of bringing down the rate of interest,          129
   in consequence of the principles of demand and

 CHAP. VIII. Is the rate of interest the sure barometer of          135
   the state of commerce?

 CHAP. IX. Does not interest fall in proportion as wealth           139


                                PART II.

                               Of Banks.

 CHAP. I. Of the various kinds of credit,                           141

 CHAP. II. Of private credit,                                       144

 CHAP. III. Of banks,                                               146

 CHAP. IV. Of banks of circulation upon mortgage or private         150

 CHAP. V. Such banks ought to issue their notes on private,         153
   not mercantile credit,

 CHAP. VI. Use of subaltern bankers and exchangers,                 154

 CHAP. VII. Concerning the obligation to pay in coin, and           157
   the consequences thereof,

 CHAP. VIII. How a wrong balance of trade affects banks of          161

 CHAP. IX. How a grand balance may be paid by banks, without        162
   the assistance of coin,

 CHAP. X. Insufficiency of temporary credits for the payment        164
   of a wrong balance,

 CHAP. XI. Of the hurt resulting to banks, when they leave          165
   the payment of a wrong balance to exchangers,

 CHAP. XII. How the payment of a wrong balance affects              169

 CHAP. XIII. Continuation of the same subject; and of the           178
   principles upon which banks ought _to borrow abroad_, and
   _give credit at home_,

 CHAP. XIV. Of optional clauses contained in bank notes,            195

 CHAP. XV. Of subaltern banks of circulation, and of their          202
   competition with one another,

 CHAP. XVI. Of some regulations proper to be made with              205
   regard to national banks,

 CHAP. XVII. When, and in what case, banks should be obliged        208
   to keep open books,

 CHAP. XVIII. Is it the interest of banks to grant credits          210
   and cash accompts to exchangers and others, who make a
   trade of sending coin out of the country?

 CHAP. XIX. Application of the principles above deduced,            212
   towards forming the policy of circulation,

 CHAP. XX. Objections to this doctrine,                             215

 CHAP. XXI. How, by a return of a favourable balance, the           218
   bank may be enabled to pay off the debts due to
   foreigners, and thus deliver the nation from that burden,

 CHAP. XXII. Of banks of circulation, established on                220
   mercantile credit,

 CHAP. XXIII. Of the first establishment of Mr. Law’s bank          235
   of circulation, in the year 1716,

 CHAP. XXIV. Account of the variations of the French coin           236
   some time before and after the death of Louis XIV.

 CHAP. XXV. Continuation of the account of Law’s bank,              239

 CHAP. XXVI. Account of the royal Mississippi bank of               243
   France, established on public credit,

 CHAP. XXVII. A short account of the French company of the          247

 CHAP. XXVIII. Chronological anecdotes,                             250

 CHAP. XXIX. Continuation of the royal bank of France, until        252
   the time the company cf the Indies promised a dividend of
   200 livres _per_ action,

 CHAP. XXX. Inquiry into the motives of the Duke of Orleans         256
   in concerting the plan of the Mississippi,

 CHAP. XXXI. Continuation of the account of the royal bank          265
   of France, until the total bankruptcy the 21st of May

 CHAP. XXXII. Conclusion of the Mississippi scheme,                 270

 CHAP. XXXIII. Why credit fell, and how it might have been          276

 CHAP. XXXIV. How the diminishing the denomination of the           284
   paper in circulation, by the arret of the 21st of May
   1720, destroyed the credit of France, when the same
   arbitrary measures taken with regard to the coin had
   produced no such effect,

 CHAP. XXXV. How a bank may be safely established in France,        289
   as matters stand at present,

 CHAP. XXXVI. Of banks of deposit and transfer,                     291

 CHAP. XXXVII. Of the bank of Amsterdam,                            292

 CHAP. XXXVIII. Of the agio of the bank of Amsterdam,               294

 CHAP. XXXIX. Continuation of the same subject; and                 298
   concerning the circulation of coin through the bank of


                               PART III.

                              Of Exchange.

 CHAP. I. OF the first principles of exchange,                      310

 CHAP. II. How to determine exactly the true and intrinsic          316
   value of the metals, coin, or money, in which a balance
   to foreign nations is to be paid,

 CHAP. III. How to remove the inconveniences which occur in         325
   paying balances with the metals or coin of a nation,

 CHAP. IV. How the price of exchange, _in a prosperous              333
   trading nation_, may be prevented from operating upon the
   whole mass of reciprocal payments, instead of affecting
   the balance only,

 CHAP. V. How, when other expedients prove ineffectual for          344
   discharging of balances, the same may be paid by the
   means of credit, without the intervention of coin or
   bullion; and who are they who ought to conduct that


                                PART IV.

                           Of public Credit.

 CHAP. I. Of the various consequences of public debts,              348

 CHAP. II. Of the rise and progress of public credit,               351

 CHAP. III. Of anticipations, or borrowing money upon               354
   assignments to taxes, for the discharge of principal and

 CHAP. IV. Of the state of public credit in France before           367
   the reign of Louis XIV. and of the sentiments of the
   great Richlieu upon that subject,

 CHAP. V. Of the present state of public credit in Great            380

 CHAP. VI. State of the public credit of France; their              402
   debts, funds, and appropriations, at the peace 1763,

 CHAP. VII. Comparative view of the revenue, debts, and             438
   credit of Great Britain and France,

 CHAP. VIII. Contingent consequences of the extension of            441
   credit, and increase of debts,

 CHAP. IX. Of bankruptcies,                                         456

 CHAP. X. Methods of contracting and paying off public              465

                                BOOK V.

        Of Taxes, and of the proper application of their amount.

 INTRODUCTION,                                                      482

 CHAP. I. Of the different kinds of taxes,                          484

 CHAP. II. Of proportional taxes, and their proper object,          486

 CHAP. III. How proportional taxes are drawn back by the            490
   industrious; and how that drawing back is the only reason
   why taxes raise the prices of commodities,

 CHAP. IV. Of cumulative taxes,                                     495

 CHAP. V. Of the inconveniences which proceed from                  500
   proportional taxes, and of the methods of removing them,

 CHAP. VI. Cumulative and proportional taxes compared with          517
   one another, and farther examined,

 CHAP. VII. Consequences of taxes, when the amount of them          523
   is properly applied,

 CHAP. VIII. Of the extent of taxation,                             527

 CHAP. IX. The consequences of an abolition of taxes,               542

 CHAP. X. Are taxes a spur to industry, as some pretend?            556

 CHAP. XI. Considerations upon land taxes, with some                561
   observations upon those of England and France,

 CHAP. XII. Miscellaneous questions upon taxes,                     577

 CHAP. XIII. Recapitulation of the fourth book,                     593

 CHAP. XIV. Recapitulation of the fifth book,                       637




                                INTO THE



                               BOOK III.
                           OF MONEY AND COIN.

                                PART II.


                                CHAP. I.
    _Consequences of imposing the Price of Coinage, and the Duty of
Seignorage upon the Coin of a Nation, so far as they affect the Price of
              Bullion, and that of all other Commodities._

The political oeconomy of modern states is so involved with the
interests of commerce, that it is necessary at every step we make, to
keep in our eye the combinations which arise from that quarter.

Whatever tends to simplify an intricate theory, greatly assists the
mind: dividing this book into two parts, seems, as it were, dividing the
burden it has to carry: the principles already deduced may there ripen
by a short pause, and the analogy of the matter which is to follow in
the second part, where new combinations are taken in, will recall them
to the mind and fix them in the memory.

[Sidenote: Intricacy of this subject.]

I am now to examine one of the nicest principles in the whole doctrine
of money, to wit, the effects of imposing the price of coinage, and the
duty of seignorage upon coin.

When this question is considered in relation to all the combinations
which arise, 1. from the nature of coin considered as a metal, and at
the same time as a money of accompt; 2. from the influence this duty has
upon the price of commodities; and 3. from the imposition as affecting,
_directly_, the nation which lays it on, and all other nations trading
with it _occasionally_: when all these combinations are taken together,
I say nothing will be found more difficult than to reduce this question
to a distinct theory.

What I have to say upon it has found a place in this inquiry, rather
with a view to suggest ideas to men of a better capacity, than from the
hopes of satisfying my readers in every particular.

[Sidenote: Recapitulation of some principles.]

I have said, that gold and silver are commodities merely like every
other thing. I have shewn the utter impossibility of their being a
scale, or an invariable measure of value. I have observed that their
being made into coin (_among trading nations_) has not the effect of
rendring them less a commodity than they were before, except so far, as
by that operation every piece, instead of being valued by its own
weight, comes to be in the mean proportion of all the pieces which
compose the currency: and I have shewn how the operations of trade are
capable to sift out and establish this mean proportion, in spite of very
great irregularities. These are the principles laid down in the first
part, which we must keep in our eye while we examine the question.

Since gold and silver, then, are commodities like every other thing, the
invariable scale of value must measure _them_ as well as every other
commodity, and money of accompt must be considered in no other light,
than as a scale for expressing the proportional value of grains of
metals, yards of stuffs, pounds of wares, bushels of grain, or gallons
of liquors. In this view, when we mention a hundred pounds, it is just
as proper to consider this value relatively to the measure of any
merchandize, as to the metalic measure of the coin. Every merchandize,
when considered by itself, should be measured by its own measure, gold
by grains, liquors by gallons, wheat by bushels, &c. The denominations
of pounds, shillings, and pence, are only necessary for reducing all
other sorts of weights and measures to an equation of value. This is
what is understood by the universal scale of proportional value. I think
this idea is sufficiently clear.

[Sidenote: The first introduction of coinage must make prices fall.]

Let us now suppose a country where the invention of coin is not known,
and where a yard of cloth of a certain quality, is commonly sold for 100
grains of either silver or gold, no matter which. The state falls upon
the invention of coining, the conveniency of which every body
understands. This coinage, I suppose, costs 2 _per cent._ Coin is
introduced, and commodities are ordered to be bought with it. I ask,
what effect ought this revolution to produce upon the price of the
cloth, according to strict theory, and without taking in any other
combination of circumstances? I answer, that the cloth ought in reason
to fall 2 _per cent._ that is, that the price of a yard ought to be a
coin of 98 grains. Here is the reason: He who formerly had the 100
grains, had the value of the yard of cloth, and could change the one for
the other when he would. Now he has the 100 grains, but he must give two
grains to have it coined, before he can buy; because after this
invention people will not trust to the weighing of private people, nor
to the purity of the metals; but they will believe, upon the authority
of the stamp, that in every piece a certain number of grains of the fine
metal is contained. He, therefore, who has a coin of 98 grains, comes to
the merchant, and offers him his coin for his yard of cloth; the
merchant demands a coin of 100 grains, says the other, these 98 grains
which I give you in coin, cost me two grains to have their weight and
fineness ascertained; and if you refuse to repay me for what I have paid
for this manufacture which I offer you for your cloth, I may with equal
reason refuse to pay you for what you paid for weaving your wool into
cloth. Now since I, in buying your cloth, must pay the weaver, so you,
in buying my piece, must pay the mint. The merchant, convinced by this
reasoning, takes the piece, and as it circulates from hand to hand,
every commodity given in exchange for it, must fall 2 _per cent._
relatively to the grains of metal it was worth before.

[Sidenote: Consequences of the exclusive privilege of coinage.]

Farther, if by the laws and customs of a country, coin is absolutely
necessary for buying and selling, this coin must be had; and if there be
but one person who can make it, the price he thinks fit to demand for it
is the only measure of the value of fabrication. The grains of the
metals, therefore, in the coin, must rise in their proportional value to
yards of cloth, and to gallons of liquor, in proportion to the cost of
coinage, as the pounds of wool and silk must rise in their value in
proportion to their manufacture.

From this it follows, that since the value of coin must rise in
proportion to every commodity, it must also rise with respect to the
metals it is made of, just as wool manufactured rises with respect to
wool which is not manufactured.

Now let us suppose that a Prince finding that he has the exclusive
privilege of making coin, shall raise his price of coinage to 8 _per
cent._ what will the consequence be?

The first consequence of this will be to destroy, or at least to perplex
the ideas of his subjects with regard to coin, and to make them believe,
that it is the stamp, and not the metal which constitutes the value of

The next consequence will be, to reduce the price of the yard of cloth,
which was worth 100 grains of metal before the invention of coinage,
from 98, where it stood, to 92. Now let us suppose that this country,
which we shall call (F), is in the neighbourhood of another which we
shall call (E), where there is both cloth of the same quality, and coin
of the same weight and fineness, which costs nothing for the coinage. In
the country (E), _cæteris paribus_, the yard of cloth must be sold for
100 grains, as it sold formerly in the country (F) before the coinage
was imposed. If the country (F) wants the cloth of the country (E), the
cloth they demand must cost (F) 100 grains the yard. If the country (E)
wants the cloth of the country (F), this cloth will also cost 100
grains; because to procure a coin of 92 grains of the country (F), (E)
must pay 8 grains for the coinage, which raises the price of the cloth
to 100 grains.

[Sidenote: A wrong balance of trade raises the price of bullion to the
           value of coin,]

Let us now suppose, that for a certain time the country (F) has absolute
occasion for the cloth of the country (E). The merchants of (F) who
carry on this trade, must send bullion to (E) to pay for this cloth. But
the merchants of the country (F) who deal in bullion, perceiving the
usefulness of it for this trade, will then raise the price of the 100
grains of it above the 92 grains in coin (the common market price of
bullion before this trade was known) and according to the demand made
for the foreign cloth, the bullion will rise in the country (F), until
100 grains of it become exactly worth 100 grains in coin. The bullion
can never rise higher; because at that period, the coin itself will be
exported for bullion; and the country of (E) will accept of 100 grains
in their coin as willingly as in any other form. Nor will it ever fall
lower than 92 grains; because the mint in the country (F) is always
ready to give that price for all the bullion which is brought to be

Here then is a case, where the coin is made to lose all its advanced
price as a manufacture, and this is owing entirely to its being a metal
as well as a money of accompt.

Now as the coin has lost this additional value, by a circumstance purely
relative to itself as a metal, there is no reason why other merchandize
should sink in value along with it.

[Sidenote: and ought to raise proportionally the price of commodities.]

The consequence, therefore, of this revolution ought to be, that as the
merchandize, _bullion_, has got up 8 _per cent._ with regard to the
coin, and as the price of all merchandize ought to be in proportion to
the grains of bullion to which that price amounts, the revolution having
annihilated the 8 _per cent._ advance upon the coin, ought to have the
same effect with respect to prices as if coinage were given gratis, as
in the country of (E); that is, the yard of cloth ought at this time to
cost, in the country of (F), 100 grains, either of coin or bullion,
since they are of the same value.

Farther, in proportion as this demand for bullion comes to diminish,
that is to say, in proportion as the balance of trade becomes less
unfavourable to the country of (F), in the same proportion will coin
rise in its price, when compared with bullion; and when the country of
(E), in its turn, comes to have occasion for the country of (F), then
(E) must pay as formerly for a yard of cloth 92 grains in bullion, and
the remaining 8 grains to have it coined; in which case, the yard of
cloth will fall to the old price of 92 grains in coin, and will stand at
100 grains in bullion as before.

Did the price of a manufacture rise and fall as has been here
represented, it is plain that these variations would be constantly
determined by the proportion of the grains of the metals it costs to
acquire the coin which is the price of the manufacture.

We have seen that upon the institution of coinage and seigniorage, the
yard of cloth fell to 92 grains; because then it was impossible to
procure coin at a less price than 8 _per cent._ but when the balance of
trade had sunk the coin to the value of bullion, then the 92 grains of
the _coin_ being to be purchased with 92 grains of _bullion_, it was
reasonable that the cloth should rise to its former price; because then
no body could say that the coin of 92 grains had cost 100 to procure it.

But this theory does not hold in practice, nor can it possibly hold, as
long as the greatest part of a people are ignorant of, and even do not
feel the revolutions we have been here describing.

[Sidenote: How traders obstruct the operation of these principles, while
           the balance of trade continues fluctuating,]

The price of bullion is entirely regulated by merchants, who have the
whole correspondence in their hands. It rises and falls in countries
where coinage is imposed, in proportion to the state of the balance of
trade at the time. The smallest rise or fall in the demand for bullion
in the market, is immediately marked by the price of it, and that ought
(by the principles we have been laying down) to regulate the rise and
fall of every commodity. But this is by no means the case. Commodities
rise and fall only after a certain time; and of this interval merchants
will constantly profit. Does the price of bullion rise, they immediately
sell to strangers as if all prices were immediately risen; but with
regard to manufacturers, they hide the revolution with great care, and
preserve prices from rising, until the competition among themselves
discovers the secret. Does the price of bullion fall, they do all they
can to keep up the prices of every commodity which they sell to
strangers, until the competition among themselves obliges them to bring
them down; and with regard to manufactures, they are all in one interest
to reduce the prices in proportion to the fall of the bullion, which
works its effects by slow degrees.

[Sidenote: and how an overturned balance of trade attaches prices to the
           denominations of coin.]

These are the operations of traders, in times when there is a
_fluctuation_ in the balance of the trade of a country; that is to say,
in times when the balance is sometimes favourable and sometimes not.

At such times the true influence which trade ought to have upon prices
is never exactly known, but to the merchants, who seldom fail to profit
of their knowledge, in place of communicating it for the benefit of the
society. But that is not the case when the balance of trade is quite
_overturned_, that is, when it remains for a long time against a nation,
without any favourable vibration; as we shall presently explain.

We have seen how, by the changes in the balance of trade, the price of
bullion is made susceptible of a variation in its value, equal to the
price of coinage; and we have pointed out the principle which confines
the variation within certain limits; to wit, the value of the coin as a
metal, which prevents bullion from rising higher; and the mint price,
which preserves it from falling lower.

We have observed how merchants may profit of such variations, and how
they obstruct the operation of principles upon the rise and fall of
prices. We now proceed to another chain of causes, which tend greatly to
destroy the due proportion of value between coin and merchandize. This
with justice may be put also to the account of the imperfection of the
metals in performing the functions of money of accompt.

Universal experience shews that the prices of merchandize are so
attached to the denominations of coin, that they do not fluctuate as
principles point out, any more than projectiles describe parabolas, or
that machines operate the effects, which by calculation they ought to
do. The resistance of the air in one case, the friction of the parts in
the other, tend to render theory incorrect. Just so here, our theory
represents prices as rising and sinking in the most harmonious
proportion together with the metals; but in practice it is not so. They
have their frictions and political resistances, which only render the
theory delusive when every circumstance is not combined. A good gunner
must calculate the resistance of the air upon his bomb, or he never will
hit the mark.

We have already shewn how the interests of mercantile people tend to
obstruct the due fluctuation of prices; we must now take in other

Although this be not a proper place to resume a discussion of the
particular theory of the rise and fall of prices, yet still something
must be said upon that subject, in order to bring the question we are
upon to some sort of solution.

[Sidenote: How profits consolidate into prime cost,]

First then, it will be agreed that it is far easier to make a price
rise, than to make it fall. I believe I might take this for granted,
without giving the reason for it. At all times, a price which has long
stood low, may be made to rise; but it is next to impossible to make a
price which has long stood high, to fall in the same manner. Here is the
reason: Let me suppose the yard of an extensive manufacture which
occupies a number of hands, to be worth 100 grains. The workmen here
live nearly at the same expence, and I suppose them to live upon the
profits of their work, when they sell at 100 grains a yard. The price
rises to 120; here is an additional profit of 20 grains. If a sudden
turn should diminish the demand which raised the price of the
merchandize, it will fall to the old rate without much difficulty; the
workmen will consider the 20 grains addition as a precarious profit upon
which they cannot reckon: but let the price of 120 grains remain
uniformly for some years, the 20 grains will cease to be precarious
profits; they will consolidate, as we have called it, into the value of
the merchandize; because the workmen, by having long enjoyed them, will
have bettered their way of living; and as they are many, and live
uniformly, any thing which obliges them to retrench a part of their
habitual expence, is supposed to deprive them of necessaries.

[Sidenote: and are preserved upon articles of home consumption,]

This is sufficient, as a hint, upon a subject which branches out into an
infinity of different relations, not at all to the present purpose. But
it is very much to the purpose to shew how the imposition of coinage
must, on many occasions, have the effect of attaching the price of
commodities to the denominations of the coin, instead of preserving them
attached to the grains of the metals which compose them, as in theory
they ought to be.

When wars, _e. g._ occasion a wrong balance to continue for many years
against a nation, this keeps coin at par with bullion for a long time.
Is it not very natural, that during that time manufacturers should
estimate their work according to the coin, and not as formerly,
according to the bullion? The consequence of this is, that when peace
returns, and when coin begins to rise above the price of bullion, the
manufacturers stick to the denominations of the coin, instead of
descending in value (as they ought to do by theory) along with the
bullion. What is the consequence of this? It is that the prices of
manufactures _for home consumption_, and of _commodities peculiar to the
country_, stand their ground; that is, prices do not descend, and cannot
be brought down by merchants.

[Sidenote: but are torn away by foreign competition for articles of

But as to manufactures for exportation, which are not peculiar, but
which are produced by different countries, their prices are violently
pulled down by foreign competition; and the workmen are forced to
diminish them. This hurts them effectually, not because of the
diminution of the prices; because, properly speaking, this diminution is
only relative to the denominations of the coin; their gains will
purchase as many grains of bullion in the market as before, but not so
much coin, and consequently not so much of any commodity which, by the
principles just laid down, have attached themselves to the denominations
of the coin, and have risen in their price along with it.

From this short exposition of a very intricate matter, we may conclude,
that the imposition of coinage does not raise the price of such
merchandize as is in common to several nations, and which trade demands
from each, without any competition with the natives; that is to say, the
prices of them stand as formerly with respect to strangers; because
although the prices be made to sink at home, with respect to the
denominations of the coin, yet strangers, being obliged to pay for them
in those denominations, are also obliged to pay an advanced price for
the coin, in order to procure them. This is the price of coinage. This,
I confess, is a little subtil, but I believe the reasoning will be found

On the other hand, when trade extends itself to other commodities, to
those, I mean, which it buys in competition with the natives (and which
are made to rise and fall from the vicissitudes of inland demand) or to
such commodities as are peculiar to the country; in these cases, I have
little doubt but the prices, once raised and continued high for some
time, attach themselves to the denominations of the coin, and rise along
with it; that is to say, coinage is included over and above the price
which the merchandize would have born had no coinage been imposed.

[Sidenote: How this hurts the industrious, and how the state may
           indemnify them.]

The conclusion I draw from this reasoning, is, that the imposition of
coinage has not, in fact, the effect of reducing the prices of
commodities to fewer grains of bullion than before, excepting those of
such commodities as are sold in competition with other nations; and even
then it may be said, that it is not the imposition of the coinage, but
the competition with strangers, which reduces them to the minimum of
their value, as well as the profits of those who work in them, to the
minimum of a physical necessary. This last circumstance shews why those
who work for foreign exportation, are the poorest class of all the
industrious of a state, but the most useful to it, at the same time. I
believe experience supports the truth of these conclusions. I shall here
by the bye observe, that as the state is made to profit by the
diminution of the profits of this most useful class; as she receives the
coinage which strangers pay, and which is really deducted from the
manufacturers who support exportation, she ought to indemnify this class
(as may be done in a thousand ways, by premiums, for example, upon
exportation) out of the profits arising upon coinage, instead of making
coinage free, to the evident loss of the nation, and benefit to
strangers, as we shall now endeavour to prove.


                               CHAP. II.
 _Concerning the Influence which the imposing the Price of Coinage, and
 the Duty of Seigniorage in the English Mint, will have upon the Course
               of Exchange, and Trade of Great Britain._

[Sidenote: Theory of prices upon articles of exportation.]

In the preceding chapter we have examined a very nice theory, into which
such a number of circumstances have been combined, depending upon facts,
that little stress is to be laid upon several conclusions which have
been drawn from it, unless they be approved by experience.

Let the best workman in London make a watch, he cannot depend upon its
being a good one, until it be tried; and when that is done, the
application of his theory will enable him to discover all the defects
and irregularities in the movement. It is just so in political matters.
The force of theory is not sufficient to form a good plan; but it is
useful for discovering many faults which would not have been foreseen
without it. The more extensive, therefore, any theory is made, the more
it is useful for these purposes. It is proper only to observe that the
more complicated any principle of it is, the less dependance can be had
upon its operation when applied to practice.

It is impossible to lay down a distinct theory for the rise and fall of
the prices of all sorts of commodities in a nation such as Great
Britain. All that can be said with certainty, is, that competition on
the part of the consumers will make them rise, and that competition on
the part of the furnishers will make them fall. Now the competition
among the furnishers may be reduced to theory; because it is fixed
within determinate limits, which it cannot exceed, and is influenced by
this principle, viz. that when profits are reduced to the minimum (that
is to the exact physical-necessary of the workman) all competition among
furnishers must cease.

But the competition among consumers is fixed within no determinate
limits: some demand to satisfy physical wants; others those of vanity
and caprice. Most inland demand for consumption is of this kind, and
consequently it is impossible to foresee what effect the imposition of
coinage will have upon the prices of many commodities. Perhaps they will
fluctuate with bullion; perhaps they will adhere to the denominations of
the coin: experience alone can bring this matter to light.

But with regard to such commodities as are the object of foreign trade,
prices are influenced by certain principles on both sides. Merchants,
not the consumers themselves, are the demanders here. Neither vanity or
caprice, but profit, regulates the price they offer. Thus it is, that as
all competition among furnishers must cease upon the reduction of
profits to the minimum, so all demand from merchants (who in this case
represent the consumers) must cease, so soon as prices rise above what
they can afford to give, consistent with their minimum of profit upon
the sale of what they buy.

The degree, therefore, of foreign competition will alone regulate the
prices of several exportable commodities, and of consequence the profits
of such as are employed in them, as has been said. This premised, we
come to examine the influence which the imposition of coinage would have
upon the course of exchange and trade of a nation.

[Sidenote: How the course of exchange is regulated.]

In speaking of exchange, so far as it influences the decision of this
question, we must throw out all extraneous circumstances, and endeavour
to reduce it to the plainest theory.

When one nation pays to another the price of what they buy, the
interposition of bullion is unavoidable; and the whole operation
consists in comparing the value of coin with the value of bullion in the
one and in the other.

[Sidenote: Price of exchange what?]

Suppose France to owe to England 1000 pound sterling; what regulates
exchange here, is the price of bullion in Paris and in London. The
French merchant inquires first, what is the quantity of bullion in
London, which at that time is equal to the sum he wants to pay? And
next, what that quantity of bullion costs to procure in the Paris
market? Upon this the par of exchange ought to be regulated. Whatever is
given more than this quantity is the price of transportation, when the
balance of trade is against France. Whatever is given less, may be
considered as the price of transportation which the English would be
obliged to pay were the balance against England, if the French merchant,
by sending his paper to London, did not save them the trouble, by
diminishing so far the balance against them; and of this he profits,
until the balance turns to the other side. Now let us leave the price of
transportation out of the question, and consider only how the imposition
of coinage, by affecting the price of bullion, may influence the course
of exchange.

[Sidenote: Where coinage is free the price of bullion ought to be

We have seen how the imposition of coinage renders the price of bullion
susceptible of a variation in its price, equal to the amount of the
imposition. Wherever, therefore, coinage costs nothing, there bullion
and coin must always be of the same value. This would be the case in
England, without doubt, were the metals in the coin exactly
proportioned, were all the coin of a legal weight, and were neither
melting down, or exporting made penal.

[Sidenote: and fluctuating where coinage is imposed.]

The bullion, therefore, in France may vary 8 _per cent._ in its price,
according to the balance of trade; the bullion in England must be
supposed invariable, let the balance stand as it will.

[Sidenote: Bullion in England dearer than in France,]

According to this representation of the matter, may we not say, that
bullion in England is always at the highest price it ever can be in
France, since it is at the price of the coin? Is not this the condition
of France, when the balance of her trade is the most unfavourable it
possibly can be?

[Sidenote: because the price of it is kept up by the mint,]

If therefore England, _herself_, contributes to keep the price of her
bullion higher than it is in France, is not this an advantage to France,
since France can buy the bullion with which she pays her English debts
cheap in her own market, and can sell it dear in that of her creditor?
Is there not a profit in buying an ox cheap in the country, and selling
him dear in Smithfield market?

[Sidenote: and is allowed to fall in France 8 per cent. below the coin.]

Now why is bullion sometimes cheaper in France than in England? I
answer, that in France it is allowed to fall 8 _per cent._ below the
coin, and the King only takes it at times when no body can get a better
price for it: and that in England the King gives always coin for
bullion, and by that keeps the price of it from ever falling lower. Let
the English mint pay the pound troy standard silver at the rate of
thirteen ounces of coin, the price of bullion in England will always be
1⁄13 dearer than the coin.

When bullion in France falls to 8 _per cent._ below the coin, it is
carried to the mint: when it is worth more no body carries any to be

[Sidenote: The wise regulation.]

No body in France (except upon a general coinage) is forced to sell
their bullion at this price. Is it not, therefore, a very wise
regulation, to permit the operations of trade to reduce, as low as
possible, the value of that commodity with which all they owe is paid,
and this more especially, as the fall of its price is a proof of the
prosperity of their trade.

If, therefore, it be supposed, that the effect of having a material
money for a scale of value, is, that the denominations in the coin, and
not the grains of the bullion, must measure the value of commodities
_for home consumption_; then it follows, that the variations in the
price of bullion, should not affect the price of commodities.

This is a question, however, which I do not pretend to determine, and I
apprehend that nothing but experience can resolve it.

[Sidenote: England loses by this sometimes 8 per cent. upon her trade
           with France.]

Now let me consider the difference there is between the trade of France
and that of England as matters now stand; and what would be the case,
were the regulations of the mint the same in both countries.

I shall suppose that England buys of French goods as much as may be paid
with one thousand pounds troy weight of English guineas. I ask for what
weight of French louis d’ors must France buy of English goods to make
the balance even? Will it not be answered (according to the ordinary
method of calculating the true par of exchange) that if France buys for
one thousand pounds troy of her louis d’ors (supposing the guineas and
the louis d’ors of the same fineness) that the balance is even?

Is it not true, that England must send this thousand pounds weight
either in gold bullion or in guineas, and is it not the same thing to
the English merchant to send the one or the other, providing the guineas
be full weight?

But when France comes to send the thousand pounds weight of her louis
d’ors, she finds at market a thousand pounds weight of gold bullion 8
_per cent._ cheaper, and this bullion is as good to the Englishman as if
he had got the louis d’ors.

Let me state the case otherwise. Suppose France buys in England for 1000
pounds weight of her guineas in Virginia tobacco; and that England buys
in France for 1000 pounds weight of her louis d’ors of Bourdeaux claret.
Is not this called par? Will not France pay her debt to England with
1000 pound of gold bullion? Whereas England must pay 1080 pounds to
France; because 1000 pounds weight of her louis d’ors, is worth in
France 1080 pounds of any bullion of the same standard. The 1000 pounds
then compensates the 1000 pounds; the 80 pounds over must be sent to
France, and the carriage of this quantity only, must be paid for
according to the principles of exchange.

Here is evidently a balance of trade against England of 8 _per cent._
above the real par of the metals. Will any body say that the 8 _per
cent._ is paid for the transportation of 80 pounds of bullion due?
Certainly not.

Now if the English should declare that they, for the future, would coin
neither gold or silver bullion for any person, but at the rate of 8 _per
cent._ below the value of the coin; and if it be true, that this
regulation would have the effect of linking the price of bullion, on
many occasions, to 8 _per cent._ below the coin; in that case, would not
the English and the French acquit their debts of the 1000 pounds weight
of their respective coin upon the same conditions? In this case, would
not the price of exchange vanish, since there would be no bullion to be
sent by either party? But in the first case, would not England be
obliged to send 8 _per cent._ above the quantity of gold bullion she
received from France, and would not the transportation of this cost
money, and would not this transportation be marked by a certain price of
exchange, and consequently, would not the price of exchange rise against

But to this it is objected, that by the former example, the exchange
marked 8 _per cent._ against England with great reason; because it is
plain, that there is a balance of 8 _per cent._ against England, since
she has sent that proportion over to France in bullion. Very true. But
had England, instead of taking to the value of 1000 pounds weight of
louis d’ors in claret, taken only for 100 pounds weight, the exchange
would have still marked 8 _per cent._ loss; because the 100 pounds of
louis d’ors must be paid with the 108 pounds of bullion, although
England by this trade has evidently gained 892 pounds of bullion, which
France must send her as a balance.

As matters of fact, when they can be procured, tend greatly to confirm
theory, by forming a solid basis whereupon to reason, I shall here
profit of one which has fallen into my hands, and by applying it to the
present question, endeavour to give some additional force to this

[Sidenote: and at a medium 4 per cent. as is proved by a matter of

Mr. Cantillon, in his _Analysis of Trade_, which I suppose he understood
by practice as well as by theory, has the following passage in his 99th

“The course of exchange between Paris and London since the year 1726,
has been at a medium price of 32 pence sterling for the crown of three
livres; that is to say, we pay for this French crown of three livres, 32
pence sterling, _when calculated on gold_, when in fact it is worth but
thirty pence and three farthings, which is giving four pounds in the
hundred for this French money; and consequently, upon gold, the balance
of trade is 4 _per cent._ against England in favour of France.”

In this place, Mr. Cantillon calculates the par of exchange according to
the common rule, to wit, gold bullion against gold bullion in the coins
of both nations, where both are of legal weight; and he finds that there
has been, these thirty four years past, a balance of 4 _per cent._
against England.

Now according to my theory, this is exactly what the coinage in France
ought to produce, supposing on an average that the trade had been at
par. Here is the reason.

The coinage in France costs 8 _per cent._

When the balance of trade is favourable for France, coin is worth 8 _per
cent._ above bullion.

The proof is plain. Were it not 8 _per cent._ above bullion, no man
would ever carry bullion to the mint; because the mint price is 8 _per
cent._ below that of the coin.

When the balance of trade is against France, coin must fall nearly to
the price of bullion.

Supposing then that the balance of the trade of France (at a medium of
thirty four years) is found to have been at par, will it not follow,
that at a medium also of these thirty four years, French coin must have
been at 4 _per cent._ (the half of the coinage) above bullion?
Consequently England having taken merchandize from France, and France
having merchandize from England, for the same weight and fineness in
their respective coins, must not England have been obliged to send to
France 4 _per cent._ more bullion in order to pay the coinage? This
reasoning appears conclusive to me, who am no merchant, and who do by no
means pretend to a perfect understanding of those affairs; but I think
this circumstance is at least of sufficient importance to make the
matter be inquired into. For this purpose, I shall suggest a method of
making the discovery.

[Sidenote: Easy to be verified at all times by the price of bullion and
           course of exchange in the Paris market.]

If it shall be found, that English draughts on Paris, or French
remittances to England, shall at any time occasion bullion to rise in
the market of Paris above the mint price, will it not be allowed that
such a circumstance demonstrates that the balance of trade is then in
favour of England? If at that same time it shall be found, that exchange
(when reckoned upon the gold as Cantillon has done) is against England,
will it not be a demonstration of the truth of what I have here
suggested as a question worthy of examination?

[Sidenote: When bullion is exported to England, exchange is against

For if the balance of trade be against France, so as to make her buy
bullion to send to England, this is a proof that she owes England a
balance; and if at the same time the English are paying above the
intrinsic value of the metals (in their respective coins) in what they
owe to France, that additional value cannot be paid by England as the
price of exchange, or to pay for the transportation of their bullion,
but to pay the French creditors the additional value of their coin above
the price of bullion.

[Sidenote: Course of exchange no rule of judging of the balance of
           trade, but only of the value of coin.]

May we not also conclude, that in a kingdom such as England, where
coinage is free, the course of exchange is no certain rule for judging
of the balance of trade with France; but only of the value of French
coin above French bullion. All authors who have written upon exchange,
represent the advanced price given upon bills above the intrinsic value
of the coins, to be the price of carriage and insurance, &c. in which
case exchange, no doubt, _may_ mark the balance of trade; but if an
advanced price must be given in order to put bullion into coin, or in
other words, if the metals in the coin are worth 8 _per cent._ more than
any bullion of the same fineness, is it not evident that a nation may be
drawing a great balance of bullion from another, although she be, at the
same time, paying 8 _per cent._ above the rate of bullion in the sums
she repays to the nation which is her debtor upon the whole; that is to
say, although she be paying above the real par of exchange, _as it is
commonly calculated_.

If it be here objected that this cannot be the case, because when the
balance of trade is against the nation which imposes coinage, their coin
falls to the price of bullion: I answer, that a balance may be against
such a nation, without producing so great a fall in the coin. Coin is
reduced to the par of bullion only when the balance is at the height
against a nation, and when it has remained so for a long time. Who would
give coin at a discount of 8 _per cent._ if there was a prospect that in
a few days, weeks, or even months, it was to rise to its former value?

These are the reasons which engaged me, in a former chapter, to lay it
down as a rule, that trading states should endeavour, as nearly as
possible, to observe the same regulations with their neighbours, in
every thing relating to their coin. It is also in order to facilitate
such a regulation, that I shall insert, at the end of this book, a very
particular state of the French coinage, and of what I can gather with
regard to that of Holland.

[Sidenote: The real par not to be calculated by the intrinsic value of
           the coin, unless bills were drawn in weight of fine bullion.]

From what has been said, it appears that the common method of
calculating the real par of exchange is not correct, since it is
calculated by comparing the quantity of fine bullion in different coins,
and attributing the difference between the bullion paid for the paper,
and the bullion received in payment of it, as the price of
transportation. This, I say, is by no means correct; nor is it possible
it should be so, unless bills of exchange were specified in the weight
of fine bullion, instead of being specified in the denominations of the
coin: an example will make this plain.

Were a merchant in London to ask of another who has a correspondence in
Paris, to give him an order for a hundred yards of Abbeville cloth, and
to offer him, in exchange, the same quantity of cloth of a worse
quality, would not the merchant to whom the proposal is made,
immediately calculate the value of both commodities, and demand the
difference of the value between what he was to give, and what he was to
receive? Could ever this difference be considered as any thing else than
the difference between the real worth of the commodities? But were they
to exchange at London an hundred pounds of fine silver bullion, for the
same weight at Paris; then if the merchant demanded one grain more than
he was to give, it must be upon the account of transportation; because,
weight for weight, there is not the smallest difference between equal
weights of the fine metals.

Bills of exchange, then, being all conceived in denominations of money
of accompt, realized in coin; and coin changing in its value with regard
to bullion; it is evident that the real par cannot be computed upon the
bullion alone contained in the coin.

[Sidenote: Obj. Exchange regulates the price of bullion.]

If it is objected, that since it is the course of exchange which
regulates the price of bullion, all variations between bullion and coin
ought to be ascribed to that cause.

[Sidenote: Answ. Denied: exchange only raises its price; the mint price
           pulls it down.]

I answer, that it is not the course of exchange which regulates the
price of bullion; but exchange makes it ascend from the price to which
it is regulated.

[Sidenote: Balance upon the real par, no mark of a balance upon trade;
           proved by examples.]

The mint price regulates the price of bullion; and there it will nearly
stand, while the balance of trade is either at par, or favourable to a
country. Exchange therefore, or a wrong balance, can only make it rise;
and it returns to where it was, by the force of another principle.

In the next place, were I to allow that the balance of trade regulates
the price of bullion, it would not follow that what is called the _real
par_ of exchange is a rule to judge of the _balance of trade_ of a
nation. Is it not plain, that if France, for example, being at present
obliged to send great sums into Germany, upon account of the war (_anno_
1760,) has reduced the price of her coin to a par with bullion, that all
nations will profit of it as much in their trade with France, as if the
balance was become favourable to them; since the course of exchange will
then answer according to the conversion of bullion for bullion in all
remittances to France.

But were France at present to remit money to any other country, which
has the balance favourable, and where coinage is paid, suppose to Spain,
while the balance between France and Spain is supposed to be exactly
even; would not the real par between the money of Spain and of France
mark an exchange against France, for the value of the coinage imposed by
Spain? This is the reason why, in time of war, exchange between France
and England appears more favourable to England than in time of peace.
But does this anywise prove that the balance of trade is then more in
favour of England? by no means: for let me suppose the balance of their
trade to remain the same after the peace as at present; is it not
evident, that in proportion as the coin of France shall rise above the
bullion, that the _balance of trade_ will become, in appearance, against

[Sidenote: Balance of trade, what?]

By the _balance of trade_, I here constantly understand a certain
quantity of bullion sent by one nation to another, to pay what they have
not been able to compensate by an exchange of their commodities,
remittances, &c. and not that which they compute in their bills as the
difference between the respective values of coin and bullion in both

How, then, is the real par of exchange to be regulated, so as to
determine which nation pays a balance upon the exchange of their

[Sidenote: The real par of exchange to be fixed by the fluctuating value
           of the coin, not by the permanent quantity of the bullion it

I answer, To determine that question, let bullion over all the
commercial world be stated at 100, and let coin in every country be
compared with it, according to the current price. In England, for
example, (were all disorders of the coin removed) coin must always be as
100. In France, when the balance is favourable, at 108.27. In Germany
(were the Emperor’s late regulation with Bavaria to be made general) at
101. And so forth, according to the price of coinage imposed every
where. These advanced values above the 100, never can rise higher; and
the more the balance of their respective trade is unfavourable, the
nearer they will severally come to 100; below which they never can fall.
These fluctuations will constantly be marked in exchange; because all
circumstances are exactly combined by merchants; but the _balance of the
trade_ will only be marked _by what exchange is made to vary from these

[Sidenote: Proof of this proposition.]

Let me suppose the trade of France favourable upon the whole, by great
commissions from Cadiz, and bullion at the same time to be carried to
the mint at 8 _per cent._ below the price of coin.

Let me suppose, that upon all the trade of England with France, there
shall be, at that time, a balance of 2 _per cent._ sent from France to
England in bullion; and upon the trade with Germany a balance of 1 _per

I say, that the _par of exchange_ between England and France is 8 _per
cent._ against England; and that the _par of exchange_ between Germany
and France is 7 _per cent._ I state it at this rate; because the balance
being supposed favourable for the three nations, the value of their coin
with respect to their bullion ought to be in proportion to the mint

The _course of exchange_, therefore, if it be a rule to judge by, ought
to mark 6 _per cent._ against England; which I say is 2 _per cent._ in
her favour: and the exchange with Germany ought to mark 6 _per cent._
against Germany; which I call 1 _per cent._ in her favour.

An example will make this plain.

Suppose English guineas, German carolins, and French Louis, to be all of
the same weight and fineness; I say, the _real par_ in the example we
have stated is, between Paris and London, 100 Louis are equal to 108
guineas; because the 100 Louis are worth 100 guineas in London, and 108
guineas are worth no more than 100 Louis in Paris. Again, between Paris
and Francfort, 100 Louis are equal to 107 carolins; because 108 carolins
are worth at Paris 100 Louis; and 101 Louis at Francfort are worth 100
carolins; consequently, the difference between 7 and 8 is the _real
par_, to wit, 100 Louis for 101 carolins. Next, as to the par between
London and Francfort, here 100 carolins equal 101 guineas; because 100
carolins in London are worth 100 guineas; and 101 guineas at Francfort
are worth no more than 100 carolins.

Now in the ordinary way of reckoning the _real par_, the 100 Louis, 100
carolins, and 100 guineas, are all supposed to be of the same value, in
the three markets; and the difference between this supposed value, and
what is paid for it, is supposed to be a loss upon trade. In this light,
the nation’s loss resembles the loss incurred by him, who, when he goes
to the bank, and pays ten pounds sterling in coin, for a bank-note,
says, that he has given ten pounds for a bit of paper, not worth one
farthing; reckoning the value of the note, at the real par of the paper
it is writ upon.

The general rule, therefore, as I apprehend, is, to settle the real par
of different coins, not according to the _bullion_ they contain, but
according to the bullion they can buy with them in their own market at
the time.

If 1000 pounds weight of guineas can purchase at London 1000 pounds
weight of standard bullion; and that 1000 pounds of the same weight of
Louis can buy at Paris 1080 pounds weight of the same standard bullion;
then the 1000 pounds weight of guineas is at the real par with 9256⁄1000
pounds weight of the Louis, and not worth 1000, as is commonly supposed.

If the doctrine laid down in this chapter be found solid; if no
essential circumstance has been overlooked, which ought to have entred
into our combinations, (points left to the reader to determine) then we
may conclude,

_1mo_, That the course of exchange, in the way people take to calculate
the real par, is no rule for judging of the balance of trade.

_2do_, That the great duty laid upon the fabrication of the French coin,
either deceives the English nation, and makes them conclude, from the
course of exchange, that their commerce with France is extremely
disadvantageous: or, if it be really disadvantageous, that it is the
imposition of a duty on coinage in the French mint which occasions it.

It is a question belonging to the theory of commerce, and not to that
which we are now upon, to examine the nature of a disadvantageous trade,
and to investigate the principles pointing out the commodities which
every country ought to encourage for exportation, and those which are
the most profitable to take in return.

[Sidenote: Application of these principles to the English trade with

Upon these principles the trade of England with France must be examined,
and upon examination it will be found whether that trade be advantageous
or hurtful. Here the question is reduced to this; Whether from the
course of exchange it may be concluded that the balance of trade is
against England, because the French crown is commonly paid with
thirty-two pence sterling? We have decided that it cannot. If there be
no other objections against the trade of France but this loss upon
exchange; and if it be true that this is no proof of trade being against
England, but only the consequence of her free coinage; then it will
follow, that England may lay as many restrictions, duties, and clogs,
upon the French trade, as she pleases, and may even reduce it to
nothing, without ever removing the cause of complaint; while at the same
time she may be ruining a trade, which pays her upon the whole a great
balance, and upon which trade she has it in her power, by following a
different system in her mint, to render her exchange as favourable as
with any other nation in Europe.

This point seems to be a matter of no small importance to England; since
(from a mistake in point of fact, into which she is led from a delusive
appearance) a very lucrative trade, when considered by the balance it
produces, may, upon false principles, be proscribed as disadvantageous.

These questions, however, are not as yet considered as entirely
discussed, and they shall be a little farther examined in the following


                               CHAP. III.
_Is the loss which the course of exchange marks upon the trade of Great
                 Britain with France real or apparent?_

[Sidenote: Reason for proposing this question.]

Questions are here proposed, which I do not pretend to resolve; all I
aim at is to discover how they may be resolved.

If this inquiry shall prove an incitement to men of better capacity to
review the same subjects, who have more extensive combinations, more
experience, and better information as to facts, in that respect it has
some degree of merit.

[Sidenote: Suppositions.]

I answer to the question proposed, that if the imposition of a duty on
coinage in England would have the effect of rendring her trade with
France more lucrative, then the loss marked by the course of exchange is
real, at least in part; if otherwise, it is only apparent.

[Sidenote: Principles.]

What makes the commerce with any country lucrative, is the balance paid
upon the exchange of their commodities.

What regulates the quantity of commodities taken from any country, in
the way of trade, is the wants of the country demanding; and what sets
the balance even, is the reciprocal wants of the other country. Nations
do not give up correspondence with their neighbours, because these do
not accept of merchandize in exchange for merchandize, but because they
find their advantage in supplying their wants upon easier terms

Every merchant seeks to sell dear; and the dearer he can sell, the
greater is his profit: that merchant, therefore, must thrive most, who
sells dearest, and who at the same time _can afford_ to sell cheapest.

If an imposition on coinage shall enable England to sell dearer, without
depriving her of the advantage of being able to sell as cheap as at
present, then it will follow, that an imposition on coinage will be
advantageous. If it shall lay her under a necessity of selling dearer,
and deprive her of the possibility of selling so cheap as formerly, then
the imposition of coinage will be hurtful.

[Sidenote: How the paying for coinage affects the profits on goods

These principles premised, as a foundation for our reasoning, let us
first consider the influence of coinage upon the profits on
_exportation_; and then proceed to inquire into the influence it has
upon articles of _importation_.

As to the first, I must observe, that England, as well as every other
country, has several articles of exportation which are peculiar to
herself, and others which she must sell in competition with other

The price of what is peculiar is determined by the competition of those
who furnish at home, and the lowest price is regulated by their minimum
of profit. The price of what is common is regulated by the competition
of those who furnish from different countries.

If the prices of what is peculiar shall remain, as before, attached to
the denominations of the coin, after the imposition of a duty on
coinage, the competition of those who furnish will remain the same as
before; because prices will not vary; but the stranger, who buys, must
nevertheless pay an advanced price for such merchandize, because the
nation’s coin, with which they are purchased, will be raised in its
value with respect to bullion, the only price he can pay with. This is
the price of coinage: and this imposition has the good effect of
obliging strangers to pay dearer than before, in favour of a benefit
resulting therefrom to the state.

Now, if it be observed that the demand made by the English for goods
peculiar to France, (while these remain in France at the same price as
formerly) does not diminish in proportion as the loss upon exchange
happens to rise; why should we suppose that the demand for goods
peculiar to England should diminish, for a similar reason?

If the rise, however, in the price of exchange should diminish the
foreign demand for such English goods, by raising the price of them in
the foreign market, this, at least, will prove that coinage does not
make prices fall proportionally at home; because, if they should fall,
strangers would buy as cheap as formerly: the prime cost (as it would
appear upon the accounts of their English correspondents) would diminish
in proportion to the loss upon exchange in remitting to England, and
would just compensate it: so upon the whole, the price of the
merchandize would be the same in the foreign market as before.

If the imposition of coinage, therefore, be said to raise the price of
English merchandize in foreign markets, it must be allowed that it will
not raise the value of the pound sterling at home, by sinking the value
of commodities: that is to say, the prices of commodities will adhere to
the denominations of the coin; and the coin bearing an advanced value,
above what it bore formerly, strangers must pay it.

But will not this diminish the demand for English goods? Not if they be
peculiar to England, as we here suppose. But allowing it should, will
not this diminution of demand sink the value of the English coin, by
influencing the balance of trade? If so, it will render remittances to
England more advantageous: consequently, it will recall the demand. The
disease, therefore, in this case, seems to draw the remedy along with

Now what appears here to be a remedy against a disease, is at present,
as we may call it, the ordinary English diet, since it is sinking the
coin to the price of bullion. If, therefore, the having coin always as
cheap as bullion, can be any advantage to trade, the nation is sure of
having it, whenever the balance is unfavourable, notwithstanding the
imposition of a duty on coinage.

[Sidenote: When the balance is favourable.]

Trade has its vicissitudes, and all nations find, at times, that their
neighbours must depend upon them. On such occasions, the balance of
their commerce is greatly in their favour.

Is it not, therefore, an advantage to have a principle at home, which,
upon such occasions, is capable of diminishing with us the value of that
merchandize (bullion) which strangers must give as the price of all they

[Sidenote: And how, when unfavourable.]

On the other hand, the same principle seems to fly to the assistance of
trade, when the balance becomes unfavourable, as it virtually diminishes
to strangers the price of all our commodities, by raising in our market
the value of that commodity, (bullion) which they must give as the price
of what they buy.

This may suffice, in general, upon exportation. It is a hint from a
person not versed in commerce; and as such it is humbly submitted.

[Sidenote: How the paying for coinage affects the profits on goods

I now pass to the second part of this operation, to wit, the influence
which the imposition of coinage has upon the interests of trade, when
the question is to purchase the commodities of other countries. These
operations are quite different, and in examining this theory they must
be carefully distinguished.

[Sidenote: When the balance is favourable.]

We have seen how the imposition of coinage, during the favourable
balance of trade, procures to the nation an advanced price upon the sale
of her exports. As long as it remains favourable, it must produce the
same good effect with regard to her importations, by sinking at home the
price of the bullion with which she must pay for them. Bullion must
become cheap in the English market, in proportion as the balance of her
trade is favourable, and in proportion as it is cheaper there than in
other nations (with respect to their respective coins) in the same
proportion, the nation has an advantage in paying what she buys, or in
employing her bullion for extending the fund of her own commerce.

[Sidenote: And how, when unfavourable.]

Upon the other hand, should the balance of her trade turn against her,
her bullion rises. This renders the price of all foreign merchandize
dearer to the importers than otherwise they would be; because they must
pay them in bullion. But this loss is at present constantly incurred;
and when incurred, is not _national_, the national loss is upon the
balance of the trade; but whether this balance be paid in bullion at the
mint price, or in bullion at the price of coin, the balance of the trade
is just the same. Now, if this wrong balance (which I here suppose to
proceed only from the imports exceeding the exports upon trade in
general) renders the purchase of foreign commodities dearer to the
merchants, without costing more to the nation; is not this so far
advantageous, that it discourages importations, just at the time they
ought to be discouraged, and thereby may _tend_ to set the balance even

Thus I have endeavoured to analize the influence of this principle in
the four cases; to wit, upon exportation and importation, under a
favourable and unfavourable balance of trade. These different
combinations must always be examined separately, or else obscurity and
confusion will ensue.

We must also observe, that there are still other combinations to be
attended to, although it be superfluous to apply the principles to them;
because the variations proceeding from them are self-evident. I mean,
that this question may be considered as relative to a nation which has
coinage free, with respect to another nation where that duty is imposed.
In this case we may decide, that as far as the situation of the latter
is advantageous, so far must that of the former be disadvantageous, and
_vice versa_.

The question may also be considered in relation to countries who have
either the duty on coinage the same, or different. When they have the
same, there can be no advantage on either side; excepting in this
respect, that the nation which has, upon an average, the balance of
trade in her favour, will thereby render her trade still more favourable
than it would be, were the coinage free on both sides.

[Sidenote: The more trade is favourable, the more adviseable it is to
           impose a duty upon coinage.]

From which we may conclude, that the more a nation has the advantage in
point of trade, the more it is her interest to impose the duty of
coinage. When the imposition is unequal in the two countries, I
apprehend that the country which lays the smallest duty upon her
coinage, may be considered as having it altogether free, and that the
other may be considered as imposing no more than the difference.

Upon these principles must the question here proposed be resolved. They
never can decide as to the matter of fact, to wit, whether the French
trade is hurtful or lucrative: all we are warranted to conclude from
them is, that the trade of Great Britain would be more advantageous with
France than it is, were a duty on coinage to be laid in England as high
as there. In that sense, we may say, that the apparent loss by exchange
is a proof that coin is commonly dearer in France than in England; from
which a loss may be implied; but the loss upon exchange no way denotes
the degree of loss upon the trade, and much less does it certify that
the balance upon the whole is against Great Britain.


                               CHAP. IV.
_Of the different methods of imposing coinage; and of the influence they
    respectively have upon the value of the money-unit, and upon the
                   domestic interests of the nation._

[Sidenote: Two ways of imposing coinage.]

There are two ways of imposing coinage; one by positive law, and by the
force of that authority which is every where lodged in the legislature;
the other, which is more gentle, renders the imposition almost
insensible, and is effectuated by the influence of the principles of

By the one and the other the same end may be obtained; with this
difference, that all circumstances must yield to the force of authority:
and when this is employed, coinage is imposed as a tax upon coin, in
spight of all resistance; whereas, in the other case, the effect takes
place by degrees: it is no tax upon coin; but it is liable to
interruptions; and therefore, upon a general recoinage of all the specie
of a nation, it is not so effectual as the first; although it may answer
perfectly well for supporting a fund of good specie, and for replacing
all the diminutions it may suffer from melting down or exportation.

[Sidenote: Plan laid down in this chapter.]

I shall now give examples of the one and the other method: I shall point
out some of the consequences which attend both: I shall chalk out a
rough draught of the principles, which may be applied in forming a plan
for laying on that imposition in the English mint: and last of all, I
shall shew how the experiment may be made.

[Sidenote: How coinage is imposed by authority.]

Were the government of England to call in, at present, all the coin in
the nation, in order to be recoined, and to fix the mint price of it, as
gold and silver standard bullion, at —— _per cent._ below the value of
the new coin; this would be imposing coinage by positive law; and being
an arbitrary operation upon the coin of the nation, could not fail of
influencing the value of the money-unit.

[Sidenote: How by consent.]

Were the government, on the other hand, to give orders to the mint, to
pay gold and silver bullion for the future, no dearer than —— _per
cent._ below the coin, this would be no arbitrary operation on the coin
of the nation, and would not (as I imagine) influence the value of the
money-unit, although it might sink the price of bullion, by the
influence of the principles of commerce.

The different consequences of these two methods of imposing coinage are
now to be explained.

[Sidenote: When by authority, what is the consequence?]

Were England, during a war, or at any time when the balance of her trade
is unfavourable, to impose coinage by law, in the manner proposed, the
consequence would be, that all the specie in Great Britain, or at least
a considerable part of it, might possibly be melted down, and sold in
the market for bills of exchange. [Sidenote: The metals are exported.]In
a nation of trade, where credit is so extensively and solidly
established, there would, in such a case, be no difficulty to find an
outlet abroad for all the metals in the kingdom; because then every
thing would be considered as profit, which was less than the —— _per
cent._ loss in carrying the coin to the mint.

If it is objected, that this plan has been many times executed in
France, particularly in 1709, and 1726, without any such inconveniences;
I answer, as I have done upon other occasions, circumstances are to be

[Sidenote: How, in France, this is prevented in some measure.]

Upon such occasions, in France, the coin is ordered to the mint, upon
penalties against those who shall not obey; melting down is strictly
inquired into, and severely punished; all the roads which lead to
foreign countries are beset with guards, and no coin is suffered to be
exported; all debts may be demanded in coin; and all internal commerce
is carried on with specie.

This is a violent method of imposing a tax upon all the coin in the
nation; and the general coinage is made with no other intention. In the
coinage 1709, this tax amounted to 231⁄13 _per cent._ (Dutot, Vol. I. p.

[Sidenote: French politics, as to coin, not generally understood.]

Under these circumstances, it is very evident, that those who have coin
or bullion must either carry it to the mint, or bury it: there is no
middle course to be followed.

Let me here observe by the bye, how frequent it is to see people blame
the greatest ministers rashly, and impute to them the most absurd
opinions concerning the most simple matters. How much have the ministers
of France been laugh’d at, for pretending to forbid the exportation of
coin, to pay the balance of their trade? They did not forbid the
exportation of the coin for paying of their debts: On the contrary, the
King has sometimes had his bankers, whose business it was to send coin
to Holland for that purpose, as we shall explain in another place. This,
I think, is common sense.

If the ridicule is turned against those states, who forbid the melting
down and exportation of coin, where coinage is free, I must also make
answer, that _there_ the prohibition is laid on, to save to government
the expence of perpetually recoining what is melted down, or of coining
the foreign specie, imported in return for that of the nation which has
been exported without necessity.

Let us next examine the consequence of imposing coinage by law, when the
plan is so laid down (no matter how) as not to be frustrated by the
total desertion of the mint.

[Sidenote: How coinage influences the price of inland commodities.]

Is it not evident, from the principles laid down in the first chapter,
that, in this case, the value of the coin must rise, not only with
respect to bullion, but with respect to every commodity: or in other
words, that the prices of commodities must fall universally with respect
to the denominations of the coin. For who will pay the same price for a
commodity, after he has been obliged to pay —— _per cent._ to purchase
the price with which he must buy? But the moment the great operation of
the general coinage is over, and that trade begins to work its former
effects, while the balance of it is supposed to remain unfavourable, all
prices will return to their former rate, with regard to the
denominations of the coin, by the operation of another principle. The
new coin procured at so much cost will then fall to the price of
bullion; that is to say, all the price paid for coinage will be lost,
and consequently money will return to its former value; or in other
words, prices will be made to rise to their former height; because then
no body will be obliged to pay — _per cent._ to procure the price.

[Sidenote: A case not to be resolved by this theory, but left to be
           verified by experiment.]

Now, it is the effect operated upon prices by the _return_ of a
favourable balance, when coin _regains_ an advanced price above bullion
by the influence of commerce, which my theory does not reach to. I
cannot discover a principle, which can force the prices _of articles of
inland consumption_ to fall and fluctuate with the prices of bullion;
because I find them too closely attached to the denominations of the
coin; and that foreign commerce has not sufficient influence upon them.
As that combination is beyond my reach to extricate, I leave it to the
decision of experiment.

[Sidenote: An objection answered.]

Here a plain objection occurs against what has been said in the twelfth
chapter of the first part, viz. That the wearing of the English coin has
the effect of raising the price of corn in the market, which would be
made to fall upon a restitution of the coin to legal weight. But the
answer is plain. In the former case, the diminution of the value of the
coin was supposed real and permanent; in which case, with time, it works
its effects of raising prices without doubt: but here the augmentation
is not real, and the fluctuations of the value of the coin with respect
to bullion, are both imperceptible to any but merchants, and at the same
time so uncertain, that they have not time to work their effects upon
the price of other commodities.

Were a balance of trade to continue long favourable, and were coin to
preserve, during all that time, the same advanced value with regard to
_bullion_, in that case I have little doubt but the value of that
universal commodity (bullion) in conjunction with the operations and
influence of foreign commerce, might reach inland markets, and reduce
the price of commodities. But this is seldom the case (as I am apt to
believe,) and in proportion as it is so, more or less, will a duty on
coinage influence the price of commodities.

[Sidenote: Coinage affects the price of bullion immediately; and that of
           commodities indirectly.]

Coinage therefore ought, upon many occasions, to be considered as
affecting _immediately_ the price of bullion only, and that of
commodities _indirectly_: whereas the diminution of the intrinsic value
of the coin, by immediately affecting _price_, must consequently affect
the rate of every thing which is given for it.

Let us next examine the consequence of imposing coinage by the influence
of the principles of commerce.

[Sidenote: Consequence of the price of coinage imposed with consent.]

The method here is to leave every one free to do with their coin, or
with their bullion, what they please. Do they incline to melt down or
export the coin, they may have entire liberty to do it: no penalty ought
to be imposed, other than that which will necessarily follow, viz. the
expence of procuring new coin.

In order to make our reasoning here more distinct, let us form a
supposition with regard to a new regulation of the British coin.

The present confusion has convinced every man, that a reformation of the
coin is necessary; and the opinions of those who have writ best upon
that subject seem to be divided upon one main article. The metals are
disproportioned in the coin, the gold being there to the silver, as 1 to
15.21, instead of being as 1 to 14.5. By law, 113 grains of gold are
made equal to 1718.7 grains of silver. One party would have the silver
adjusted to the gold; the other would have the gold adjusted to the
silver. This is the question, in a few words. Now, suppose a middle
course were taken, and that the standard were to be fixed at the mean
proportion of these two values; that is, at the value of the half of
1718.7 grains fine silver, added to the half of 113 grains fine gold;
which, in the first part of this book, we have shewn, by many arguments,
to be the only method of preserving an equality in the money-unit; this
will make the new pound consist of 1678.6 grains of fine silver, and
115.77 grains fine gold: and this is also a sort of medium between the
two opinions.

At that rate, the pound troy standard silver must be coined into 63
shillings and 6 pence, and the pound troy standard gold into 46 guineas,
or pound-pieces, each worth 20 shillings.

Now, if upon both species 8 _per cent._ coinage were imposed, (for as
all this is a pure supposition, it is no matter at what rate the coinage
be stated) then the mint price of the pound troy fine silver must be
fixed at 63_s._ 1¾_d._ and the mint price of a pound troy of fine gold
at 45_l._ 5_s._ ¾_d._ sterling.

[Sidenote: That bullion is brought to the mint when trade is

Suppose then (as an example) that the mint price of fine bullion should
be fixed at 8 _per cent._ below the coin in England; What principle
could oblige people to carry bullion to be coined?

I answer, When the balance of trade is favourable for England, that
balance must sooner or later be paid in bullion. If trade still
continues favourable, after the first balance is paid, what use can
those who have the bullion make of it, if there be no demand for it to
work it into plate? To export it, by employing it in trade, does not
remove the difficulty; because, while the balance stands favourable,
export as much as you will, more bullion must enter than it is possible
to export, in the way of trade; for we do not suppose that in exporting
it, it is to be given away gratis. The bullion, therefore, not being
demanded for exportation; not being permitted to pass current for money;
and not being demanded for making into plate; must be employed so as to
be profitable to the owner one way or other. For this purpose it must be
lent, or employed within the country for purchasing some sort of effects
which produce an income. For this purpose the bullion must be coined, in
order to render it capable of circulation, and of becoming price.

At all times, therefore, when in a country there is bullion, not
demanded as such, the proprietor carries it to the mint, he sells it at
the mint price; and as this mint price is stated at 8 _per cent._ below
the price of coin, he gives it for the price he can get for it: this he
does without regret, because, if next day he should want to change his
coin into bullion again, he will find it in the market at the same

If it be farther objected, that rather than carry it to the mint at 8
_per cent._ discount, people will lend it to foreigners: I answer, that
if it be lent to foreigners, this lending will turn what we call the
balance of trade against England, and then certainly no body will carry
bullion to be coined; for in which ever way it happens that more bullion
is exported than is imported, in every case the price of exchange and of
bullion must rise; and this is constantly constructed, though very
improperly, as a balance of trade against England; which, to mention it
by the bye, is another reason to prove how ill people judge of the
prosperity of trade by the course of exchange, since the lending of
money, as well as the paying of debts, equally turns exchange against
the country.

Bullion, therefore, never will be carried to the mint, when it can be
disposed of above the mint price; and both theory and experience, over
all Europe, where, England excepted, coinage is imposed, proves, that
bullion is carried to the mint, and sold below the price of coin, weight
for weight of equal fineness.

[Sidenote: How the mint price of the metals may be allowed to vary.]

By fixing the mint price at 8 _per cent._ below the value of the coin,
it is not necessary that this price be made invariable: a power may be
lodged somewhere, by the state, to make deviations from the standard
price. A war breaks out; large quantities of coin are exported; specie
becomes scarce: May not the state, at such a time, deliver coin at the
mint at the current price of the bullion? Let matters come to the worst,
the price can never possibly rise above the present value, to wit, that
of the coin, when it is preserved at its true weight. If peace returns,
and trade becomes favourable, the mint may then be ordered to sink its
price, in proportion to circumstances. In short, the mint may receive
bullion at different prices, at different times, without occasioning the
smallest confusion by such variations in the intrinsic value of the
current specie, which must constantly be the same. It is of no
consequence to any person who receives it, whether the coinage costs
nothing, or whether it costs 8 _per cent._

[Sidenote: Influence of this method of imposing coinage on the price of
           commodities, and value of the pound sterling.]

By this method of imposing coinage, all the advantages reaped by France
may be reaped by England. The bullion will be allowed to fall as low as
with them, when trade is favourable. If it rises, upon a wrong balance,
the mint need not be stopped, in case coin be found wanting for the uses
of the state; and when that necessary demand is satisfied, the mint
price may be reduced again.

I do not see how the value of the pound sterling can be anywise
influenced by this plan of imposing coinage: because the imposition is
not arbitrary; nor can it either add to or take from the mass of the
metals appointed by statute to enter into the coin.

The only possible influence coinage can have upon the value of the pound
sterling, is by lowering the price of commodities. If it has this
effect, I still agree that it is the same thing as if an addition were
made to the metals in the coin. Experience alone will resolve the
question: and if by this it is found that prices are not affected by it,
then we may safely declare, that no variation has been occasioned in the
value of the money-unit, and consequently no injury done to any interest
within the state.

This proposition, however, requires some limitations. The prices of
commodities, certainly, will not be affected _immediately_ by the
imposition of coinage, in the way it has been proposed to lay it on; but
I do not say that, upon some occasions, they may not be affected by slow

When the balance of trade at any time has stood long favourable for
England; when the coin has remained long considerably above the price of
bullion; and when, consequently, the mint has been well employed; then
the value of commodities, as has been said, may become influenced by the
operations of foreign commerce, and be sunk in their price. Yet even
here this consequence is by no means certain; for this reason, that what
turns the balance of trade in favour of a nation is the demand which
foreign markets make for her commodities: now this demand, as it raises
the value of her coin above her bullion, so it raises the price of her
commodities, by increasing foreign competition to acquire them.

These combinations are very intricate, and more properly belong to the
doctrine of commerce than to that which we are now upon. I have thrown
them in here, for the sake of extending the present theory a little
farther, and for enabling us to account for appearances which may happen
upon the imposition of coinage, supposing it should be thought proper to
make the experiment.


                                CHAP. V.
   _How an Experiment may be made to discover with Certainty the real
                 Effects of the Imposition of Coinage._

We have dwelt very long upon this part of our subject, and after all our
endeavours to elucidate the principles which ought to decide whether or
not the imposition of coinage will raise the value of the pound
sterling, in a kingdom which, like Great Britain, is in a mercantile
correspondence with nations where that duty is introduced, we have still
been obliged to leave the final decision of the question to an

By that alone it will be clearly discovered, whether coinage will have
the effect, _1mo_, of sinking the prices of commodities, to the
prejudice of manufacturers; _2do_, of raising the price of the pound
sterling, to the prejudice of all the classes of debtors within the
nation; and _3tio_, of hurting trade, by putting England under the
necessity of selling dearer, without being able to sell as cheap as
before: or whether commodities will remain at their former prices; the
pound sterling at the same value; and England be enabled to sell dearer
to foreigners, when her commerce is favourable, without being obliged
upon other occasions to sell one bit dearer than at present.

I shall now give a hint concerning a proper method of making the

[Sidenote: The plan of an experiment proposed.]

Suppose peace[1] restored, and a balance of trade favourable to England;
that government shall take the resolution to set about the reformation
of the coin; that they shall publish the plan of reformation three years
before it is intended to commence, according to what was proposed in the
14th chapter of the first part; that they shall make a change in the
mean time upon the regulation of the mint, by ordering all silver coin,
and all guineas, except those of George II. to pass by weight; that
shillings shall be ordered to be coined at 65 in the pound troy; the
mint price, when at par with the coin, remaining as at present with
regard to the gold, and raised to 65 new pence _per_ ounce with regard
to the silver. This, I imagine, will furnish specie sufficient to the
nation, and will make no change upon the value of the pound sterling at

Footnote 1:

  Written in the year 1761.

[Sidenote: The consequence of this will be to recall the old guineas
           from abroad.]

So soon as there shall be a few millions of silver coined free, let the
mint price both of gold and silver be diminished, suppose 4 _per cent._
This, I imagine, will in a short time give an advanced price to coin,
and sink the price of bullion; which will have the effect of recalling
all the guineas of the late King from Holland and Flanders; because coin
being then dearer than bullion in England, people will choose to send
over current guineas to pay their English debts, rather than to remit
bills of exchange. This circumstance will naturally stop the coining of
gold for some time; but if the balance of trade shall continue
favourable, the mint must, in time, be set a-going.

[Sidenote: During this experiment, a close attention must be had to the
           rate of prices.]

During this period, a strict attention must be had to the state of
prices. It is plain, that stopping the coining of gold ought not to make
them sink; since the daily augmentation upon the quantity of the gold
coin from abroad (which will not cost any coinage) will, I imagine, be
sufficient to compensate it. If, therefore, prices shall be found to
sink notwithstanding, this effect must proceed from a combination among
the merchants. An intelligent statesman will quickly discover the true
state of the case.

[Sidenote: And if they vary, how to discover the true cause of it.]

If the sinking of the price is a necessary consequence of the imposition
of coinage, it will perhaps manifest itself by the following symptoms:
_1mo_, The profit of the English merchants upon goods exported will be
the same as before. _2do_, The price of the goods exported will be the
same as before in foreign markets. And _3tio_, Exchange will mark as
many _per cent._ favourable for England as goods will have fallen in
their price at home.

If the fall of the prices be forced, by a combination among the
merchants, their profits will be greater; and very probably no variation
will appear upon the exchange in favour of England.

Let, therefore, the course of exchange be attended to, and by this the
minister will be able to judge, when silver and gold are to be brought
to the mint. The moment exchange, and the price of bullion in the London
market, shall shew that coin is near the full price of coinage above the
price of bullion, then the time approaches when the mint is to be set

[Sidenote: Farther consequences of this experiment.]

It is to no purpose to pretend to prognosticate the effect of this
change in the policy of the English mint. Effects it will certainly
produce, which every one will interpret according as their interest may
dictate to them. But the principles of trade are now too well known.
English ministers are too well instructed in the theory of it, and too
sharp-sighted to be deceived by appearances. A trial of a few years will
render the consequences of this innovation perfectly clear; and before
the great reform takes place, the principles will be so well confirmed,
as not to leave a shadow of doubt concerning the course which is best to
be followed.

The silver coined in the interval, at 65 shillings in the pound troy,
may then be rated at its just value, in proportion to the new pound
sterling, and may form a denomination by itself, easily to be
distinguished by the stamp. If it should happen to fall into
inconvenient fractions, let it be called in, and received at the mint
above the rate of other bullion: the loss will not be considerable; and
it cannot be expected that any plan can be proposed which is liable to

Another method is, to coin, during the interval of the three years,
shillings of the weight adapted to the new regulation, and to give them
a value proportioned to the present currency, in the mean time.

In whatever way the experiment be made, by the imposition of the price
of coinage, a great expence will be saved to the state, the expence of
the mint. The national coin will be kept at home, and when exported,
will be preserved from the melting pot. This is the case with the French
coin. Why are louis d’ors worth as much as guineas in many foreign
countries? It is evident that they are not intrinsically worth so much
by 4½ _per cent._ but they are virtually so in the eyes of
money-jobbers; because, being exported from France while coin is fallen
low by a wrong balance of their trade, they still retain an advanced
value, for this reason, that when sent back, upon a revolution in trade,
they are better than bullion, by all the advanced price of the French
coin, at a time when their balance becomes favourable; and for this
reason they are sought for, and are paid for in proportion: whereas any
bullion, or any coin whatsoever, is as good to send to England as her
own proper specie; which occasions the guineas to be melted down without
the smallest regret.

[Sidenote: Can we estimate the wealth of a nation by the quantity of its

It would be a curious inquiry to examine the proportion of money coined
in England and in France, and to compare the quantities coined with the
quantities in existence. People commonly estimate the wealth of a nation
by the quantity of its coined money. Some go farther, and imagine that
the quantity of the coined money is the representation and even the
measure of its wealth. I cannot be of this opinion, for reasons which I
have given in another place; but I shall only observe here, that coin,
like every other thing, is made in proportion to the occasions people
have for it.

The more equality there is between industry and consumption in any
nation, the less coin they have occasion for, in proportion to the
alienations they make; the more a nation is given to penury and
hoarding, their occasions for coin are proportionally greater.

An example will make this plain. Suppose two markets in a country, where
paper does not circulate; that 1000 people come to the one to sell, in
order to buy; that 500 resort to the other, with an intention only to
sell, and 500 others only to buy. In the last example, it is evident,
that there must be brought to market, in specie, the price of all the
goods offered to sale, or else a part must remain unsold: but in the
first case, a much smaller proportion will suffice; because no sooner
has any one sold the goods he has, than he buys from another what he has
occasion for; and so the same money circulates from hand to hand, so
much, that if we suppose every one of the thousand persons to sell for
the precise value of what he buys, every man will carry home the same
sum of money he had in his pocket on coming to market. Those who begin
by selling, will carry home their own coin; those who begin with buying,
will replace what they had with the coin of other people.

In proportion, therefore, to the trucks of commodities for commodities,
money is the less necessary; and in proportion as people sell, in order
to realize, coin is the more necessary. When hoarding was in fashion,
and when lending upon interest was little known, had alienation been as
frequent as at present, the total of coin must have been much greater.
At present no body hoards, where lending at interest is lawful, except
in nations where credit is precarious. This was the case in England
about 1695, and is perhaps the case at present in France[2]. Hoarding
from this motive is more hurtful than from any other: because, at the
same time that it deprives the public of a circulating value, by
preventing the lending of the coin of the nation, it also prevents
bullion from being lent by neighbouring states, and from being carried
to the mint by those who have it at home. Whereas hoarding from avarice
has none of these inconveniences; and when credit is good, there will
always be found coin sufficient; because a demand for it will always
procure it.

[Sidenote: Just as we can estimate a man’s estate by the weight of his

Why is there so little coin in England, in proportion to what there is
in France? Does any man imagine that this is a mark of poverty? By no
means. Let the state proscribe the currency of paper money, the coin
will quickly return; because then it will be demanded. But at present
the paper supplies its place, and so it goes abroad in order to gain
more; whereas in France it remains at home, and produces nothing. The
wealth of a nation can no more be estimated by the quantity of its coin,
than the wealth of private people by the weight of their purse. Were a
person, from that circumstance, to calculate the wealth of the British
courtiers, assembled at the Groom Porter’s, he would find himself
grossly deceived in his conclusions.

Footnote 2:

  In 1760.


                               CHAP. VI.
  _Miscellaneous Questions and Observations concerning the Doctrine of
                            Money and Coin._

In deducing the principles of every branch of politics, it is of great
importance, at setting out, to treat every one separately; to avoid
intricate combinations of circumstances; and to learn how to distinguish
between the operations of the general principle in question, and the
influence of an accidental circumstance, which may throw the decision of
a particular case upon a principle different from that upon which our
attention is fixed at the time. Let the combination and complication of
circumstances be ever so great, all and every one of them constantly
remain under the influence of one principle or other.

The great art, therefore, is to have the whole plan of the science so
ready at command, as to be able to combine and apply every principle of
it to the case proposed.

From this we discover of what importance it is to be exactly informed as
to facts, and how utterly insufficient the best theory is in the hands
of any person, who is not at the same time a thorough practitioner in
the political science.

In treating of the application of principles to particular cases, we
must constantly go upon this hypothesis, that in the case proposed there
are no unknown circumstances, which may be repugnant to the exact
combination of those which have entred into our supposition.

[Sidenote: The use of a miscellaneous chapter at the end of a subject.]

The use, therefore, of a miscellaneous chapter, after the deduction of
the general principles is over, is to serve as an exercise upon them.
This is done by introducing questions which may tend to illustrate or
explain the matters already treated of, and which have not been
introduced in the body of the work, for fear of rendering combinations
too complicated, and of drawing the attention from the main object of
inquiry. When a particular appearance, also, seems to contradict a known
principle, that appearance may here be analized, and the particularity
of the case pointed out, and ranged under the principle which influences
it. Numbers of objections also occur to readers of such inquiries, and
which even naturally occur to the author himself, although he be obliged
to take no notice of them at the time, for fear of interrupting his
subject; these may properly find a place in a subsidiary chapter. It is,
however, to no purpose to attempt to exhaust any political subject. The
combinations of circumstances are infinite; and therefore people must
content themselves with deducing all the principles by which they may be
resolved, leaving the rest to the reader’s ingenuity.

[Sidenote: Quest. 1. Why does the doctrine of money appear so

QUEST. I. The first question I shall propose for illustrating this
subject shall be, Whence it comes to pass that the doctrine of money is
so extremely difficult and involved?

[Sidenote: Answ. Because it is perplexed with jargon.]

ANSW. This I ascribe chiefly to the introduction of a money-jargon,
employed by people who have had the management of mints, or who have
been practical merchants, without knowing any thing of the theory of
their business.

[Sidenote: The denominations of coin are confounded with the intrinsic
           value of it.]

As long as money went by weight, and was considered as gold and silver
bullion, the whole doctrine of it remained clear and intelligible: but
the introduction of a numerary value, or denominations of money of
accompt, sometimes attached to one quantity of the metals, sometimes to
another; and the interest of Princes, which made them endeavour to
persuade their subjects that the stamp of the coin was sufficient to
give a value to it; has both introduced an unintelligible language, and
has really involved the subject with so many extraneous circumstances,
that when we consider every thing, the perplexity is not much to be
wondered at.

I shall now endeavour to reduce all these perplexities under some
general heads.

[Sidenote: The terms metal, money, coin, bullion, and price, are all
           considered as synonimous.]

_1mo_, The first is, confounding ideas quite different in themselves.
The terms _gold_ and _silver_, _money of accompt_, _coin_, _bullion_,
and _price_, are often understood and made use of as synonimous,
although no things can be more different.

[Sidenote: What is meant by _metal_?]

The terms _gold_ and _silver_ should convey to us no other idea than
that of pure physical substances.

[Sidenote: What by _money_?]

That of _money of accompt_ represents an invariable scale for measuring

[Sidenote: What by _coin_?]

_Coin_ conveys the idea of the public authority ascertaining the exact
proportion of fine and alloy in a mixed metal, and the realizing, in a
determinate weight of it, the invariable scale of money, sometimes
correctly, sometimes incorrectly.

[Sidenote: What by _bullion_?]

_Bullion_ carries the idea of certain determinate mixtures of the
metals, commonly ascertained by some public stamp or other, and drawing
their value exactly from the proportion of the fine metals they contain,
the workmanship being considered as of no value.

[Sidenote: What by _price_?]

_Price_, again, when considered as consisting in coin, is a more complex
idea still. In it are comprehended the value of the metals; the
authority of the stamp for the currency; the actual value of the coin as
a manufacture, above the value of it as a metal; the common and
universal equivalent of all things alienable; and the mean value of the
currency of which _price_ is supposed to contain exact aliquot parts,
when perhaps it does not.

The ideas, therefore, of _gold_ and _silver_, of _money_, of _coin_, of
_bullion_, and of _price_, are all different; they are commonly
confounded, both in speaking and in writing: from this arises the first
cause of perplexity.

[Sidenote: The abuse of the terms _rising_ and _sinking_, and inaccuracy
           of speech.]

_2do_, The second is owing to the common method of estimating the value,
and the proportions between _gold_ and _silver_; _coin_ and _bullion_;
_money_ and _merchandize_. The terms usually employed to express such
combinations are, _rising_ and _sinking_, or the like: people employ
these terms, without previously agreeing upon the thing which they are
to consider as fixed. The value of one of the precious metals is
constantly relative to that of the other; and yet, without attending to
this, we sometimes consider the gold, and sometimes the silver, as the
common measure; and while one is talking of gold as a common measure,
the person he talks to is considering it perhaps as the thing measured.
This inaccuracy, in supposing sometimes the one as fixed, and sometimes
the other, involves us in great obscurities; especially when we speak
upon such matters with those who have not distinct combinations of
ideas: and if three or four people are engaged in a conversation upon
money, every one using the same term in a different acceptation, the
confusion which it causes is inextricable.

In like manner, when we speak of coin and bullion, that of the two ought
to be considered as fixed which changes its proportion of value the
least with respect to all commodities.

[Sidenote: Prices attached to denominations of coin.]

Were prices attached to grains of silver and gold, bullion ought in that
case to be considered as fixed; but as they are more attached to the
denominations of the coin, coin ought to be considered as fixed.

[Sidenote: _Coinage raises the value of coin_, is a more proper
           expression than _Coinage sinks the price of commodities_.]

In the next place, in speaking of coin and commodities, we say, for
example, that the imposition of coinage makes the prices of commodities
sink. We do not, in this case, speak correctly; because if any thing
ought to be considered as fixed, it is the relative proportion of value
between the different sorts of commodities. In this case, therefore, I
think it would be more proper to say, that coinage raises the value of
coin, than that it sinks the value of commodities.

[Sidenote: How to avoid such ambiguities in speech.]

To prevent the ambiguity of such expressions from occasioning confusion,
and not to depart too far from common language, I have frequently spoken
of commodities as rising and sinking in their values with respect to
coin; but I have at the same time observed the influence which that
rising and sinking has upon the rising and sinking of the value of the
pound sterling realized in it.

[Sidenote: A case which cannot be resolved by this theory.]

I have not, however, concluded with equal certainty that the rising and
sinking in the value of bullion, _with respect to coin_, ought to imply
any change upon the value of the money-unit; because I have not been
able to determine whether prices ought to be considered as most attached
to the denominations of the coin, or to the grains of the metals: except
indeed in one case, to wit, when the quantity of the metals comes to be
augmented or diminished in the coin. In that case, I have not hesitated
to decide that, sooner or later, the influence of trade must operate a
rise or a fall in the current value of the specie, which will be marked
by an apparent rise or fall in the price of all commodities.

[Sidenote: In speaking, we do not distinguish between pure metal and
           that which is mixed with alloy.]

_3tio_, Our comparing the value of silver sometimes with the pure metal,
sometimes with that compounded with alloy, involves us frequently in a
language which is hardly to be understood.

Says one, a pound of silver, troy, is worth 67 shillings. He means a
pound of fine silver. We in England, says another, coin our pound troy
of silver into 62 shillings. He means the pound of standard silver,
which contains 18 penny weights of copper. Says a third, our pound of
silver, which we coin into 62 shillings, is not worth 57_s._ 6_d._ He
understands the shillings of fine silver of the same weight with those
of standard silver. Another affirms, that an ounce of standard silver,
which, at the mint, and in the coin, is worth no more than 5_s._ 2_d._
is worth in the market 5_s._ 6_d._ He means, that one must pay at that
rate for silver bullion, when they purchase it with over-rated gold. At
last comes Mr. Cantillon, who, as a proof of the decline of the English
commerce, affirms to us, in his Analysis of trade, p. 133. that both
silver and gold bullion are dearer in the London market than in the
coin: at the same time, he might have discovered the cause of it, from
the lightness of the gold and silver currency at the time he wrote;
since the phænomenon could proceed from nothing else: the new guineas
must then have been sent abroad. Says a Frenchman, one of our crowns of
3 livres, which passes for 60 sols, is intrinsically worth no more than
56½ sols. He means, that the fine silver it contains is worth no more
than 56½ sols, according to the mint price of the fine metals.

[Sidenote: Of the abuse of terms relative to the denomination of coins.]

_4to_, Another cause of perplexity in the money-jargon, is the
prodigious abuse of the terms which express the denominations of the
coin, or the numerary unit.

French historians write familiarly of sums of money in livres and
crowns, through all the stages of the monarchy. English writers (for the
most part) do the same, in speaking of pounds sterling. Nothing however
is more different than the ideas expressed by the same term.

[Sidenote: This illustrated by an example.]

Were any person, talking of lengths and distances, to use the word
_foot_, sometimes to signify _yard_, sometimes _perch_; or to use the
word _mile_, to signify sometimes _league_, sometimes _inch_, and
sometimes _fathom_; who could comprehend one word of his discourse
concerning the matter? Would we not even laugh at such a person, for
pretending to inform us of any thing concerning lengths or distances.

If any change be made upon the value of the money-unit of a country,
which is called a pound; in propriety of language, it can no more be
called a pound, after the change, than it can be called a rhinoceros.

[Sidenote: Farther obscurities from the abuse of language.]

_5to_, Another reason for the obscurity of money-jargon, is the manner
in which writers express themselves, when they speak of variations in
the value of money. Upon this occasion, says one, the King raised the
money 5 _per cent._ What does this mean? No man living can understand
the expression; because it may signify, that he raised either the
denomination of the coin, or the value of the unit. If he raised the
coin, he debased the unit: if he sunk the coin, he raised the unit. A
crown of 6 livres is a coin: a livre is the unit. If it is said, the 6
livre piece is raised; that is as much as to say, it is made to be more
than 6 units; consequently, as the silver in the piece does not change
its weight, it follows, that the unit, or money of accompt, is
diminished. On the other hand, if it is said that the livre is raised,
it implies that the crown, which contained 6 livres, is made to contain
less than 6 units; therefore, the value of the unit is raised; that is,
it is made to contain more silver than before.

[Sidenote: How to avoid such abuse.]

Writers, therefore, to be distinct, ought never to mention these
matters, without removing the ambiguity, in favour of readers of all
denominations. As for example: The King raised his coin, and debased his
money of accompt. For this reason the French expression is good, and
easily understood; _augmenter la valeur numeraire des especes_, is
liable to no obscurity.

There are also two terms used by French writers, which appear
synonimous, and yet are directly opposite; AFFOIBLISSEMENT, _et_
DIMINUTION _de la monnoïe_. Such terms are perplexing, and ought either
to be avoided, or constantly explained. The first signifies the coining
the specie of the same denomination lighter in the metals than before:
the last signifies the lowering the denominations of the coin already
made. The first therefore diminishes, the second increases the value of
the unit, which is the livre.

[Sidenote: Quest 2d. What is the difference between raising the _value_
           of coin, by imposing coinage, and raising the denomination of

QUEST. II. What is the difference between the effects produced by
raising the value of the coin by the imposition of coinage, and raising
the denomination of it? This question is proposed as a further means of
rendering the money-jargon intelligible.

ANSW. The imposition of coinage, when it gives an advanced value to coin
above the metals it contains, is very different from that advanced value
which the coin appears to receive when the Sovereign arbitrarily raises
the denomination of it; or as the French call it, when he augments its
numerary value.

[Sidenote: Answer. The first is real, and affects foreign nations; the
           other does not.]

When the imposition of coinage gives an advanced value to the coin above
the bullion it contains, that value becomes real, and extends itself to
foreign nations; that is to say, the coin, so augmented as a
manufacture, must be bought with more foreign coin than formerly. But
when the denomination, or numerary value, is augmented, the same piece
(though augmented in denomination) is bought by strangers with the same
quantity of their coin as before. An example will make this plain.

[Sidenote: Proved by an example.]

Let us suppose the coin in France, in war time, reduced to the value of
bullion, and that the value of a crown of three livres, by the course of
exchange, should be then worth 29½ pence heavy silver sterling money; if
the balance of the French trade should become favourable in general, and
that coin should become 8 _per cent._ dearer than bullion in the Paris
market, then the price of the crown of three livres will rise 8 _per
cent._ upon the London exchange above 29½ pence heavy silver sterling
money, although there be respectively no balance to be paid in bullion
either by England or France. But let the King of France ordain, that the
crown of three livres shall be raised in its denomination to six livres,
and let the coin at that time be supposed to be at par with bullion in
the Paris market, the crown of three livres will then be paid as
formerly with 29½ pence. That is to say, the augmentation of the
denomination will have no effect upon the value of the coin in other
countries; whereas the augmentation affected by the operations of trade,
in consequence of the imposition of coinage, is a real augmentation,
since it extends to foreign nations.

[Sidenote: How the arbitrary method of raising the denomination of coin
           affects prices at home.]

Now it is certain and evident, that the augmentation of the numerary
value has the undoubted effect of sinking the value of the numerary unit
realized in the coin, and that upon such occasions we ought to say, that
the King has diminished the value of the livre, and not that he has
raised the value of the coin. But the abuse of language has made people
consider the livre as the thing fixed, and therefore the coin is
considered as the thing which rises and sinks. The consequence of this
is, to introduce another abuse of language. People say, that the prices
of commodities rise: I ask, With respect to what? Not with respect to
the pieces of coin, but with respect to the denominations they carry:
that is to say, with respect to livres; although the livre be considered
as the thing fixed. There is, however, a reason why people express
themselves in this improper manner, which proceeds from the perplexity
and confusion of their ideas concerning money.

When the King of France arbitrarily changes the numerary value of his
coin, commodities are found, by universal experience, to stick so
closely to the denominations of it, that people are apt to think that it
is the King’s will and pleasure, and not the metal of which the coin is
made, which gives it a value. But commodities depart from these
denominations by degrees, and fix themselves a-new at a determinate
value of the fine metals, proportioned to what they bear in foreign
nations. This is brought about by the operations of commerce; and
consequently, the rise of prices not taking place till some time after
the numerary value of the coin has been augmented, people accustom
themselves to say, that the augmenting the denomination of the coin
raises prices, and that diminishing the denomination sinks them. But did
all prices strictly adhere to the grains of bullion contained in the
coin, and not to the denominations of the numerary value, then language
would change, and no body would speak about the rising and sinking of
prices, but of the rising and sinking of livres, sols, and deniers.

I hope, from what has been said, that the difference between raising the
value of the coin by imposing coinage, and the raising the nominal value
of it by augmenting the denomination or numerary value of it, is
perfectly understood. The first raises the value of the numerary unit,
by giving a real additional value to the coin as a manufacture: the last
raises, for a while, the value of the numerary unit; only because the
price of commodities, being attached to the denominations of money of
accompt, stick to them, until the operations of trade reduce them to
their true principle.

Whenever, therefore, the terms _rising_ and _sinking_ are applied to
value, the thing which is said to rise, is supposed to be the moveable;
and the thing it is compared with, or with respect to which it is said
to rise or sink, is supposed to be the term fixed. Every one, therefore,
who reads books upon this subject, ought, upon all occasions where there
is mention made of rising and sinking of the price of the gold, silver,
bullion, coin, exchange, or commodities, constantly to cast his eye upon
the thing which is supposed to be fixed, and retaining that in his mind,
he will preserve his ideas distinct.

[Sidenote: Quest. 2. How will the imposition of coinage affect the
           creditors of Great Britain?]

QUEST. III. Let us suppose that the imposition of coinage, when properly
laid on, will not raise the value of the pound sterling; and
consequently that it will not affect the domestic interests of Great
Britain: it may be asked, What influence that imposition will have upon
the interest of her foreign creditors, since it must affect exchange?

[Sidenote: Answ. If they continue to be paid by denominations, they will
           gain; if by weight of metal, they will not gain, nor will
           they lose.]

ANSW. The foreign creditors of the nation will thereby be gainers,
provided their interest continues to be paid in denominations of pounds
sterling, and not in a determinate number of grains of the fine metals,
as was proposed to be done in the fourteenth chapter of the first part.
The reason is plain: upon all occasions, when coin carries an advanced
price above bullion, those who have funds in England will gain upon
exchange. This gain will nowise, I think, be at the expence of the
nation, but at the expence of those foreigners who have occasion for
paper draughts upon London.

[Sidenote: Proved by an example.]

A creditor of England (in Holland I shall suppose) draws for a thousand
pounds sterling, (the interest of his English funds) a Dutchman who owes
a thousand pounds sterling in London, buys his bill; must he not pay the
creditor of England, not only the intrinsic value of the bullion
contained in the thousand pounds sterling, but also the difference
between the thousand pounds sterling in coin, and the bullion it
contains, according to the price of it in the London market? This
difference then, received by the proprietor of the English funds, is
clear gain to him, and is no loss to the nation; it is a loss to the

Farther, every Dutchman who pays his debts to people residing in
England, must suffer the same loss; that is, he must pay the coinage,
which at present the state makes him a present of.

From this I think it is plain, that while the balance of trade is
favourable to England, or at par, all remittances made by foreigners, to
pay their English debts, must pay the coinage.

The operation of this principle has not a little contributed to
facilitate the establishment of the French credit.

[Sidenote: How the imposition of coinage advances the credit of France.]

When France borrows, especially in war time, foreigners can remit to
Paris the money they lend nearly at par with bullion. Then they pay
little or no coinage; and when peace is restored, the coin rising in its
value, they gain annually several _per cent._ upon their draughts for
their interest, to wit, all the advanced value of the coin, at no loss
to France.

[Sidenote: Quest. 4. Is the plan we have proposed effectual towards
           preserving the pound sterling invariable?]

QUEST. IV. Is the preserving the pound sterling at the mean value of a
determinate weight of fine gold, and fine silver, a sure method of
realizing the unit of money of accompt, so as to preserve it at all
times invariable?

[Sidenote: Answ. No; but seems to be the best relative to material

ANSW. I apprehend it is not; although it seems to be the best that can
be devised, upon supposition that the metals are to be made use of, as
the most proper substance for realizing the scale.

I have said, in the beginning of this book, that the use of the scale
was to measure the relative value of things alienable. Now the metals
themselves being of the number of things alienable, and their proportion
of value being nowise determined, but liable to augmentations and
diminutions, as well as that of grain or any other commodity, no scale
which is attached to them can measure any thing but their weight and
fineness, and consequently can be no permanent measure for any thing

[Sidenote: A scale of value realized in metal can never be exact;
           because the metal itself varies in its value.]

Did the value of commodities rise and fall with respect to grains of the
fine metals, in the same proportion that they rise and fall with regard
to one another, the scale would be exact: but if the grains of metal can
acquire an increment, and a diminution of value, from circumstances
entirely peculiar to themselves, such circumstances must render the
scale they compose inaccurate in proportion.

[Sidenote: 1. From the manufacturing of it.]

[Sidenote: 2. From the interest of money.]

[Sidenote: 3. From the manners of a people.]

Now we have seen how the imposition of coinage enhances the value of
coin. The rising and sinking of the interest of money has the same
effect. The vicissitudes to which credit is liable has a prodigious
influence upon the value of the metals. The manners even of a people,
which can be determined by no principle, operate the same effect. When
people, for example, are given to hoarding, the metals come to be
demanded with more eagerness, that is, the competition to acquire them
is greater; consequently the value of them with respect to all
commodities, is greater than when they are purely considered as money of

[Sidenote: The only exact scale of value is that which can measure the
           metals like every other commodity.]

That scale, therefore, is the only just one, which measuring the value
of the metals, like that of every thing else, renders every individual
of a state equally rich, who is proprietor of the same number of
denominations of specie; whether his wealth be in gold, silver, or any
other property or commodity.

[Sidenote: Explanation of this proportion]

Now I agree that, at any given time, this is the case when the scale is
properly attached to the metals; but it is not permanently so. A
determinate property in land bears sometimes a greater, sometimes a less
proportion to a determinate property in money. When the scale is
attached to the metals, he who is proprietor, for instance, of a
thousand denominations in coin, becomes richer or poorer, according to
the fluctuation of the value of that commodity, the metals. Whereas when
the scale is not attached to any species of commodity, nothing can
change his proportion of wealth, except the augmentation or diminution
of the value of the whole state. This idea is not so distinct as I could
wish: let me illustrate it by an example.

[Sidenote: by an example,]

Suppose then three partners (A), (B), (C). They form a common stock by
equal shares; (A) contributes a thousand pounds sterling in current
specie, (B) the same value in corn, (C) a like value in broad cloth. Let
me suppose the measures of these commodities to be expressed by their
proper denominations; the metals by grains, the corn by bushels, the
broad cloth by yards. I suppose that at the end of the year 20 _per
cent._ is gained upon each article of stock; that is, 20 _per cent._
increase upon the grains of metal, 20 _per cent._ on the bushels of
grain, 20 _per cent._ on the yards of broad cloth. This supposition may
be allowed. I ask, if it would not be a much more equal way of dividing
this profit, to reduce the whole value of the grains, bushels, and
yards, to the then actual value in pounds sterling, and so to divide;
than if every man were to take his 20 _per cent._ out of that commodity
he had furnished to the co-partnership? This method of reducing all to a
common measure, is what I understand by an ideal scale of money of

[Sidenote: and by an application to the bank of Amsterdam.]

The bank of Amsterdam pays none in either gold or silver coin, or
bullion; consequently it cannot be said, that the florin banco is
attached to the metals. What is it then which determines its value? I
answer, That which it can bring; and what it can bring when turned into
gold or silver, shews the proportion of the metals to every other
commodity whatsoever _at that time_: such and such only is the nature of
an invariable scale.

[Sidenote: How the locking up the coin in that bank renders the value of
           it more stable.]

I confess I am not capable of analyzing all the complicated operations
of trade in such a distinct manner as to demonstrate how the universal
circulation of value, over the commercial world, should operate this
effect; and how the burying, as it were, a quantity of gold and silver
in a vault, should give a more invariable worth to a florin, whose value
depends upon it, than if the metal itself was to circulate in coin.

Thus far, however, I think I understand, that the impossibility of
profiting of the _rising_ value of one of the metals (which is buried)
ought to find a compensation at all times in avoiding the loss upon the
other, which sinks in its value.

Farther, the burying the coin both in gold and silver is in a manner
forming these two metals into one mass; this takes away the variation in
the proportion of their value, which principally disturbs the uniformity
of their operation as a scale. They cannot either be considered as
commodities, because they are taken out of commerce entirely; yet the
permanent value of them remains. Upon that the bank money is secured;
but it is not realized in it. In banks which pay in coin the case is
different; because the denominations in their paper are liable to all
the fluctuations incident to the coin in which they pay. The bank money,
therefore, of Amsterdam is pure money of accompt, and has nothing of
merchandize in it from the metals in the vaults. The paper of all banks
which pay, rises and falls in value, according to the currencies in
which their notes are acquitted.

I leave the farther delucidation of this mysterious affair to people of
better capacity, and of more extensive knowledge in those matters than I
can pretend to.

To conclude, no material money, let it be contrived as it will, is
exempted from vicissitudes in its value as a metal. This is proved by
the universal risings and sinkings in the price of commodities, in
consequence of circumstances peculiar to the coin. These risings and
sinkings of prices, I say, are properly risings and sinkings of the
value of the coin, and that again is a lengthening and contracting of
the equal parts of the scale of value which is attached to it. Now there
is no such thing as any vicissitudes in the prices _of all commodities_
with respect to bank money, although nothing is more common than
fluctuations in agio, with respect to current money; consequently, bank
money has a property and a stability in it, which no material money is
capable of acquiring, and for that reason it is preferable to it, and is
properly considered as the thing fixed.

[Sidenote: QUEST. 5. Will not the imposition of coinage in England
           frequently stop the mint?]

QUEST. V. Will not the imposition of coinage in England prevent, upon
many occasions, the carrying bullion to be coined at the mint, when it
would be carried were the coinage free?

[Sidenote: ANSW. Certainly; when the balance of trade is unfavourable.]

ANSW. Without all doubt. When coinage is free, every man who imports
bullion runs with it to the mint; there it is proved, cut, and stamped
to his hand, and at no cost. Now to what purpose all this expence; why
carry bullion to be coined, while the balance of trade is against a
nation, since such bullion must be re-exported, together with a part of
the national stock of the metals? Besides, the coining of it gratis,
adds not the smallest value to the metals considered as a manufacture;
consequently, upon the exportation, the whole price of coinage is
entirely lost, and the national stock of coin is not thereby augmented;
nor would it be augmented while trade is unfavourable, were five hundred
mints kept constantly at work.

[Sidenote: But this is an advantage to England which France now enjoys.]

The imposition of coinage, therefore, has these good effects. First, it
prevents bullion from being coined, except when such coined bullion can
remain in the country and augment the national stock of coin. Secondly,
as has been said, it gives an additional value to the coin, even in
foreign countries, and thereby prevents it from being melted down
abroad, in order to be re-coined in other mints, and thus augment the
stock of coin in rival nations.

I believe no body ever imports louis d’ors to be coined in the English
mint (notwithstanding of the benefit there is in importing gold into
England from France, where the proportion of the metals is lower) yet
nothing is more common than to carry guineas to every foreign mint, at
the bare price of bullion. This is the reason why so little English
coin, and so much French coin is found in circulation, in countries
foreign to both these nations.

[Sidenote: The coin of France passes in other nations above its value as
           a metal, and returns to France unmelted.]

Louis d’ors, in consequence of the high imposition of coinage in the
French mint, pass current, almost every where, for more than their
intrinsic value, even when compared with the coin of the very nation
where they circulate without the sanction of public authority; and when
that authority regulates their currency, according to their intrinsic
value, such regulation has the same effect as forbidding them
altogether; because the moment a money-jobber lays his hand upon them at
the statute value, he circulates them no more; but sends them either
back to France, or to some country where they pass, by a conventional
value, above their intrinsic worth. Thus louis d’ors, as well as all
French coin, are effectually prevented from being melted down, and so
soon as the balance of the French trade becomes favourable, they return

[Sidenote: QUEST. 6. Is not this return a loss to France?]

QUEST. VI. Is not this return of louis d’ors to France, upon the balance
of their trade becoming favourable, a loss to France; since, in that
case, the balance of their trade is paid with a less weight of bullion
than it would be paid with, were their coin worth no more than bullion;
and secondly, because when the coin is exported to pay the balance, it
is exported upon the footing of bullion, and when it returns it is paid
back at an advanced price?

[Sidenote: Intricacy of this question.]

The difficulty of resolving this question proceeds from the complication
of circumstances in which it is involved; and the intention of proposing
it, is to shew how necessary it is, in practice, to combine every
circumstance in political problems.

[Sidenote: Resolution of it.]

I shall therefore observe, that since, at all times almost, French coin
passes (out of France) for more than its intrinsic value, it is not well
possible to suppose that, even during a wrong balance of the French
trade, their coin can ever fall so low as the price of bullion;
consequently the French by exporting their coin, upon such occasions,
above the value of bullion, that nation is a gainer of all the
difference. This operates a compensation of the loss (if any they
sustain) upon the return of their coin. In the second place, when the
balance becomes favourable for France, and when there is found a profit
in sending back the French coin, the demand that is made for it, by
those who want to pick it up in foreign countries, raises the value of
it there in circulation; this again favours the trade of France, and
makes the difference of paying what one owes to France in bullion at the
market price, or in louis d’ors at the advanced value, very
inconsiderable; which consequently prevents merchants from finding any
great advantage in sending back large quantities of it.

Besides, when the coin returns, although it has an advanced value, it
has no advanced denomination. It was exported according to its numerary
value, and it returns upon the same footing. Farther, when the coin
returns as the price of French merchandize, for the same value it bears
in the country, I cannot discover a principle which can make this appear
to be a loss to France. The loss therefore must be upon the exportation
of the coin, not upon the return of it. But we have said that if it be
exported at a higher value than that of the bullion it contains, this
must imply a profit to France. Consequently, the remainder of loss upon
exportation must be apparent, not real: It is a loss to Frenchmen, who,
in exporting the coin below the full value of it (coinage included) lose
a part of what they had paid the King for the coinage; that is to say,
they lose it so far as they do not draw it back _in full_ from the
foreigners to whom they owe; [Sidenote: It is no loss to France.] but it
is no loss to France: on the contrary, it is a gain, as far as any part
of the coinage is drawn back; and this is the case as oft as the coin is
exported above the price of bullion.

[Sidenote: Another view of this question.]

Or in another view. This going out and returning of the French coin, may
be considered as a loss to France in this respect, that when the balance
of her trade is against her, when her coin loses of its advanced value
in payments made to strangers for the price of foreign commodities,
those who consume such commodities in France, must consume them at an
advanced price to themselves, but at no additional profit to foreign
suppliers; because as to these last, the French coin, with which we
suppose the commodities to be paid, having lost of its value every
where, cannot then purchase so much as at another time, and consequently
is not worth so much to the foreign supplier who receives it. For the
better understanding of what has been here said, attention is to be had
to the difference there is between a _national_ loss, and the loss
sustained by the individuals in a nation. The balance of trade is the
national profit, or the national loss; but the gains or losses of
individuals, may be compatible with either a right or a wrong balance of
the trade of the nation to which they belong. This will be fully
explained when we come to treat of exchange.

In this respect, therefore, France may be supposed to lose upon
exporting her coin, to wit, so far as she consumes foreign commodities
at an advanced value; but then I say, that in this case France loses the
whole price of the commodities, not the advanced price only; because she
loses the balance of her trade. Abstracted from that, I say she loses
nothing. Who loses then the advanced price? I answer, the consumer of
the commodity loses it, and I say that no body gains it. This is what,
in the eighth chapter of the second book, was called positive loss, and
it is owing to the annihilation of a part of the advanced value of the
coin, which the operations of commerce have effectuated.

In these respects only can France be considered as a loser upon
exporting her coin; but in having it returned upon her, when at an
advanced price above bullion, the loss is nothing; because the advanced
price then is a real value added to the coin, and there is no manner of
difference as to France, to receive, for the balance of her trade, an
hundred pounds weight of her own louis d’ors, or an hundred and eight
pounds of standard gold bullion, at such times as bullion is commonly
carried to the mint; because the one and the other weight of coin and
bullion will answer the same occasions both in the Paris market, and in
most trading towns in Europe.

From these principles we may gather how effectually the imposition of
coinage must prevent the melting down of the coin, providing a
sufficient attention is had to preserve the denominations of the coin in
both species at the exact proportion of the market price of the metals.

[Sidenote: QUEST. 7. If by over-rating gold, the English lose their
           silver, Why should not France, by over-rating silver, lose
           their gold?]

QUEST. VII. The two metals being only valued by one another, if the
English, by valuing the gold higher than the French do, occasion the
exportation of their silver, why should not the French, by valuing their
silver higher than the English do, occasion thereby the exportation of
their gold? And if the English, by over-rating their gold, prevent the
carrying silver to be coined at their mint, why should not the French by
over-rating their silver prevent the carrying gold to be coined in their

[Sidenote: ANSW. Because the English rate their gold above the value of
           it in _their own market_, the French do not so with their

ANSW. The English over-rate their gold not only with respect to other
nations, but with respect to the value of it in their own market;
whereas the French preserve, in their gold and silver coins, nearly the
proportion between the metals as they are sold in their own market.

In France no body can profit by melting down either of the species, in
order to sell it, with advantage, as bullion; but in England, by melting
the heavy silver coin, one may sell it in London for more gold than the
same coin not melted can purchase.

But here it is objected, that although the proportion between gold and
silver, in the English coin, were set upon a par with that of the metals
in the London market, still one species may be exported with profit,
providing the proportion be different in other nations.

There is little force in this objection, and were there any, it would be
an additional argument for the imposition of coinage; because by this
the exportation of either of the species, for the sake of any small
difference which may sometimes be found between the proportion of the
metals in the different markets of Europe, would be prevented. This
circumstance however requires a more particular examination.

It is a principle in commerce, that the demand for any commodity raises
the value of it; and every nation knows how to profit of a demand for
what they have.

[Sidenote: How the proportion of the metals is kept nearly the same in
           all European markets.]

Whenever, therefore, one of the metals bears an under value in one
nation, below what it bears in another, that under value makes that
species more demanded by strangers, and it consequently rises in its
value, even at home.

[Sidenote: Because when home demand disturbs the proportion, foreign
           trade brings it even again.]

By this principle the proportion between the metals in European markets
is kept nearly the same, and the small difference which is found does
not so much proceed from the demand of foreign trade, as from the taste
of the inhabitants. The foreign demand tends to set the proportion even
in all markets, and the internal demand for one metal preferably to
another, is what makes it vary.

The carrying the metals backwards and forwards is attended with risque
and expence; there is not, therefore, so much danger of a nation’s being
stripped of one of its species of current coin by such a trade, as there
is when the proportion of the market price of the metals is different,
at home, from that observed in the coin; because in the last case, every
one may profit of the disproportion, at the trifling expence of melting
down the rising species.

[Sidenote: Coin of gold and silver should be proportioned to the rate of
           the market at home,]

From this we may conclude, that nations ought to regulate the proportion
of the metals in their coin, according to the market price of them at
home, without regard to what it is found to be in other nations; because
they may be assured, that the moment any difference in the market price
shall begin to be profited of, that very demand will alter the
proportion, and raise the market price of the metal sought for by
foreigners. While the coin, therefore, is kept at the proportion of the
market at home, and while the denominations of both species are made to
keep pace with it, it will be utterly impossible for any nation to hurt
another by any such traffic in the metals.

[Sidenote: and nations cannot fix that proportion by any convention
           among themselves.]

We may farther conclude, that it is to no purpose for nations to agree
by treaty upon a certain proportion between silver and gold in their
coins: it is the several market prices every where which alone can
regulate that proportion, and the only method to keep matters even
between them, is to make the denominations in both species keep an equal
pace with the price of the metals in their own market.

[Sidenote: Why is the proportion of the metals so different in England
           and Asia?]

Here it is farther objected, that were these principles just, there
would not be found so great a disproportion as there actually is,
between the value of gold and silver in Europe, and in the empire of

To this I answer, that the principles are just, and that this difference
proceeds from incidental circumstances which I shall now point out.

[Sidenote: Answer to this.]

First then, the European trade hardly penetrates into that vast empire.
2. The lowness of the proportion between gold and silver is maintained
by the high internal demand for silver in China. 3. The India trade
being every where in the hands of companies, there is not so great a
competition between the sellers of silver, in the Chinese market, as if
that trade were open to every private adventurer; consequently the price
of it is not so liable to be diminished. And last of all, the expence of
carrying silver thither, and the long lying out of the interest, would
put a stop to the trade, were the proportion between the metals to rise
in China. This prevents competition still more between the different
European companies, and consequently prevents the rising of the

I need not observe, I suppose, that the term _rising of the proportion_,
denotes the rising of the price of silver; as when being at that of 1 to
10, it comes, for example, to that of 1 to 11. This term has been
already explained.

[Sidenote: QUEST. 8. Is it the interest of Princes to debase the
           standard of their coin?]

QUEST. VIII. Is it the interest of Princes to debase the standard of
their coin?

ANSW. This question has been already touched upon in the twelfth chapter
of the first part. Perhaps some farther observations upon it may not be
found superfluous.

In order to set it in a fair light, I shall begin by reducing it to its
ruling principle.

The question turning entirely upon the _interest_ of Princes, I shall
take no notice of the iniquity of such a measure with respect to their
subjects; but shall confine it purely to the _interest_ they may have in
exercising this branch of prerogative.

[Sidenote: ANSW. It is their immediate interest to debase it when they
           are debtors, and to raise it when creditors, but always

I answer then, as I have hinted above, that it is their _interest_ to
debase the standard of their coin when they are in the situation of
debtors; and it is their _interest_ to raise the standard when they are
in the situation of creditors.

Debasing the standard I have explained to be the diminution of the
intrinsic value of the unit below what it was before, either by raising
the denomination, augmenting the alloy, or diminishing the weight of the

Now since Princes pay their servants by denominations, that is, by money
of accompt, the more they augment the denomination of the coin they
possess, the more they gain upon what they have at the time. But they
lose proportionally upon their revenue ever after; because the rents and
duties levied on their subjects being also paid by denominations, the
Prince loses every year on his income what he had gained upon one

From this we may draw a principle, that Kings who have begun to debase
the standard, ought to go regularly on every year, as long as they find
themselves in the state of debtors; and when they come to alter their
situation, and become of the class of creditors, it is then their
interest to raise the standard. This must be a little further explained.

[Sidenote: Who are debtors and who creditors, and how Princes who
           incline to rob their subjects may avoid robbing themselves at
           the same time.]

It has been abundantly proved, that increasing the denomination, or
debasing the standard, must constantly be advantageous to the whole
class of debtors; consequently, Princes, who are upon certain occasions
obliged to lay out more than they receive, may then be considered as
being of that class. Whoever receives from another what the other is
obliged to pay him, may be considered as a creditor; whoever gives to
another what the other is intitled to demand of him, may be considered
as a debtor. Those, therefore, who both pay and receive, are, upon the
whole, either debtor or creditor, according to the side which
preponderates. He who is obliged annually to pay more than he annually
receives, must be obliged either to run in debt, to borrow, or to take
from a fund already formed (a treasure). The maxim therefore is, first
to fill the exchequer with the annual income; then to debase the
standard; and last of all to pay. The debts paid, and the current
expence brought within the income; then is the time to raise the
standard. This operation is like that of the ram; he runs back in order
to advance again with more force.

[Sidenote: Example of a Prince who is now employing this engine against
           his enemies, not his subjects.]

The great master of government and political oeconomy well understands
this doctrine. He is now spending his treasure, not his income. He is
then in the state of the debtors, and accordingly is regularly every
year debasing the standard of the S——n coin. This debasement, I suppose,
regularly takes place after the contributions for the year are paid. So
soon as the war is over, and that this oeconomical Prince shall return
to the state of creditor, he will, I suppose, suppress the currency of
all this bad money, and restore the standard. That is to say, he has
during the war been ruining all the class of creditors in permanent
contracts (the S——n nobility) and when the peace is re-established their
own Prince may indemnify them, if he pleases, by restoring the former
value of the unit. All sudden revolutions are hurtful; but necessity has
no law[3].

Footnote 3:

  Writ in the year 1760.

This, in a few words, is, I think, the answer to the question proposed.
Princes have for several centuries, in almost every nation in Europe,
been gradually debasing the standard of their money-unit; and the debts
they have contracted during the debasement have constantly been an
argument against the restoring it. But had they first regulated all
their debts upon the footing of the last debasement, stipulating with
their creditors that they were to be paid upon the footing of the then
currency, that is to say, according to the French stile, _au cours du
jour_ of the stipulation; they then might, without any advantage to
their creditors, and with great profit to themselves, have restored the
standard, and so prepared the means of executing the same operation as
before, upon a new emergency.

[Sidenote: Writers against this practice have used wrong arguments to
           dissuade Princes from it.]

Those who have writ against this practice of debasing the standard, have
made use of wrong arguments to dissuade Princes from following such a
measure. They have first represented it as hurtful to their own
interest. This we have seen is not always true. They have also
endeavoured to prove that it is vastly prejudicial to commerce. This is
the great point laboured by Dutot, in his _Reflexions Politiques sur le
Commerce_; but to very little purpose. All the facts and arguments he
has produced to prove (by the source of exchange) that the variations
made in France in the standard value of their crown of three livres did
hurt to the trade of that nation, prove nothing at all, as it would be
easy to shew, were this a proper place. The hurt done to manufactures is
greater; but, in a trading nation, those establishments being under the
influence and direction of merchants, who are perfectly instructed as to
every consequence of such alterations, the manufacturers, after a very
short time, raise their prices to the full proportion of the increase in
the denomination of the coin.

[Sidenote: The proper arguments against it are three.]

The real inconveniencies which proceed from this exercise of power, may
be reduced to three.

[Sidenote: 1. It disturbs the ideas of a people with regard to value.]

1_mo_, It disturbs the ideas of a whole nation with regard to value, and
gives an advantage in all bargains, to those of the society who can
calculate, over those who cannot.

[Sidenote: 2. It either robs the class of debtors or of creditors.]

2_do_, It robs the whole class of debtors when the standard is raised;
and it robs the whole class of creditors when it is debased.

[Sidenote: 3. It ruins credit.]

3_tio_, It ruins credit; because no man will borrow or lend, in a
country where he cannot be sure of receiving back the value of his loan;
or of being in a capacity of clearing himself by paying back the value
he had borrowed.

[Sidenote: This last circumstance will probably put an end to the

This last circumstance has overturned the whole scheme in France.
Princes would go on debasing their standard as formerly, could they do
it and preserve their credit. But who will lend a shilling to a Prince
if he suspects he will pay him back, perhaps, with sixpence? The Prince
above mentioned does not borrow; and as he is the only one in this
situation, he may debase his standard: but others cannot venture upon
such a step.

[Sidenote: Quest. 9. What is the best form to be given to coin?]

QUEST. IX. What is the best form to be given to coin?

[Sidenote: Difference between medals and coins.]

ANSW. The intention of coinage, _for circulation_, being to ascertain
the quantity of the fine metals in every piece, and not to represent the
effigies of the sovereign, we see a manifest difference every where
between the impressions struck upon medals, and those of the current
coin: in the first, the head is raised, in the last, it is purposely
made flat.

[Sidenote: Of indenting the impression.]

Antiently, the impression put upon some of the English coins was a
cross; which being indented upon the penny, instead of being raised,
occasioned these pieces frequently to be broken into four parts. This is
said to have given rise to the denomination of farthings, or fourth
parts. The indenting the impression upon the coin, is no doubt a
preservative against its wearing; but as it is liable to other
inconveniences, and is so repugnant to custom, it would be ridiculous,
perhaps, to propose it.

I shall reduce, therefore, all I have to propose as a supplement to what
has been said already on this subject, to a very few observations.

[Sidenote: The less the surface, the wearing is the less.]

1_mo_, The less surface any piece has in proportion to its mass, the
less it is worn in circulation; and as all coin is made cylindrical,
that whose form approaches nearest to the cylinder, whose height is
equal to its diameter, must have the least. Coin therefore ought to be
made thick, and for this reason louis d’ors are of a better form than
guineas, and guineas of a far better form than ducats. Were it easy to
give the surface a spheroidal form on both sides, rendring the coin
thicker in the middle than at the edges, the surface would be thereby a
little more diminished.

[Sidenote: The advantage of heavy pieces for the greater part of the
           coin; yet small denominations are useful, in some cases, for
           preventing the rise of prices.]

2_do_, The great credit of paper in England, is a vast advantage in many
respects. It renders coin less necessary. While that credit subsists,
large payments will always be made in paper; and this renders the
coinage of gold in large heavy pieces less necessary. The coin,
therefore, in England, ought to be calculated for the easy changing of
bank notes, not with a view to the making great payments in it. For this
purpose, two and three pound pieces might be full as convenient as
single guineas, and half guineas might be proscribed. Small
denominations of gold coin lead to expence, and tend to raise the prices
of such commodities as people of fashion pay immediately out of their
own pockets. As for the silver, the same principles are to be observed.
Crown pieces are very convenient in payments, and have a great advantage
over shillings and sixpences in point of surface. The practice in France
of coining the greatest part of their silver in such pieces abundantly
shews how few of the lesser denominations (that is shillings, &c.) are
necessary for carrying on circulation.

[Sidenote: Mixt metal better than copper for small denominations, as
           appears from the practice in Germany.]

3_tio_, The copper coin of England is exceedingly bulky, in order to
give it an intrinsic value. This makes many people ashamed to carry it;
consequently increases expence, and raises the price of many things for
the reason already given.

What inconveniency could there possibly be in making pence of a mixed
metal of a much lower standard than the other coin. The coin would be
less bulky, and the intrinsic value might be preserved. This is the
custom all over Germany. The lower denominations of the coin are all of
different fineness. The standard for what they call the _gros_; the 7,
the 10, the 17, the 20 creutzer pieces, are all of different fineness;
but still in the same sum, in whatever coin it is paid, according to the
laws, there ought to be found the same quantity of fine silver. This
enables them to coin pieces of very small denominations which have
however the same intrinsic value with the other denominations of the
coin, and which are neither of an unwieldy bulk, or of an inconvenient
smallness. This is the regulation in Germany: I do not say that the
regulation is well observed.

Farthings of copper are good and convenient; a few of these ought always
to be preserved in favour of the lower classes of the people, who
thereby are enabled to keep down the prices of the small necessaries of
life: a matter of the greatest importance to a trading nation.

Nations ought to copy from one another what is good and convenient, and
should be above the thraldom of little prejudices in favour of
established customs, which have frequently nothing but custom to
recommend them.

[Sidenote: Mixed metal never to be bagged up with fine.]

4_to_, It must be observed that upon adopting the German regulation as
to pence, such coin must not be allowed to be put up in bags of coin
delivered by weight; nor made a legal tender beyond the value of the
lowest silver coin.


                               CHAP. VII.
 _Of the Regulations observed in France, with regard to Coin, Bullion,
                              and Plate._

It now only remains, that I lay before the reader what I have been able
to gather, upon good authority, concerning the regulations in some of
the principal nations of Europe, with regard to their mint: and this so
far only as is necessary for illustrating our subject, and confirming
the principles we have been laying down.

[Sidenote: The marc is the unit of French weight at the mint.]

The unit of weight in the French mint, is the _Marc_; composed of eight
ounces, every ounce containing 576 grains. The marc consequently
contains 4608 grains of Paris weight, called _poids de marc_.

[Sidenote: The remedy of weight upon silver what.]

By this weight the bullion is delivered to, and the coin is taken from
the workmen in the mint, to whom the King gives an allowance of 36
grains upon the weight of every marc of coin delivered. This allowance
is called _le remede de poids_.

A marc therefore of French silver coin, is not to be reckoned at 4608
grains, but at 4572 grains effective.

[Sidenote: The standard of fineness is 11 fine to 1 alloy.]

The _Titre_ or title, as the French call it, or the standard of their
silver coin, is 11 parts fine to 1 part alloy. At this rate we shall
find in this _Marc_ of coin, consisting of 4572 grains standard silver,
4191 grains of fine silver, and 381 grains of alloy.

[Sidenote: Remedy of alloy what.]

But the workmen have also an allowance of 3 grains upon the fineness,
which introduces a new equation.

The mass of silver in the French mint (when we speak of the fineness) is
supposed to be divided into 12 deniers, and every denier into 24 grains;
which, in this acceptation, are both denominations of proportion, not of

Any mass of silver, therefore, of whatever weight, must be supposed to
contain 12 × 24 = 288 grains of proportion; consequently, were the
standard exactly 11 deniers fine, the proportion would be marked thus,
264 grains fine, to 24 alloy; but since there is an allowance of 3
grains of proportion, called _le remede d’alloy_, this brings the
proportion to be as 261 is to 27. This is the exact standard of French
silver coin, and answers to 10 deniers and 21 grains fine, which is the
term used in the mint.

To find, therefore, the number of grains of fine silver in a marc of the
French silver coin, we must state this proportion, 288 : 261 :: 4572 :

[Sidenote: Quantity of fine silver in a marc, as delivered at the mint.]

The marc, therefore, of coined silver, after all deductions for alloy,
and for _remede de poids_, contains of fine silver 4143.38 grains _poids
de marc_.

[Sidenote: Into what coined.]

This _marc_ is coined into 8 great crowns and 3⁄10 of a crown, value in
the coin 49 livres, 16 sols.

If therefore 4143.38 grains of fine silver, be worth 49 livres 16 sols,
4608 grains (or a marc of fine silver) will be worth 55 livres 6 sols 9

[Sidenote: Mint price of a marc of fine silver.]

But the mint price of fine silver is 51 livres 3 sols 3 deniers.

The difference, therefore, between the mint price of fine silver, and
the price of it in the coin, will shew exactly the expence of coinage;
consequently there is withheld for the expence of coinage and duty of
seignorage (all which deductions and impositions are called _le trait
des monnoyes_) 4 livres 3 sols 6 deniers upon every marc of fine silver.
To know how much this makes _per cent._ state it thus,

                     51.162 : 55.38 :: 100 : 108.2.

[Sidenote: The price of coinage 8⅕ per cent. upon silver.]

So that in France there is 8.2 _per cent._ deducted upon the coinage of
silver, as has been said. Let us next examine the regulations as to the

[Sidenote: Remedy of weight upon gold.]

The marc, as above, is the unit of weight for the gold, and contains, as
has been said, 4608 grains, of which 15 grains are allowed to the
workmen for the _Remede de poids_: remains of standard gold in the marc
4593 grains.

[Sidenote: The fineness of standard gold.]

The fineness is reckoned by carats (not a weight, but a denomination of
proportion) for the gold, as the denier is for the silver. Fine gold is
said to be, as in England, of 24 carats. The carat is divided into 32
parts, so 32 × 24 = 768, are the parts into which any given mass of gold
is supposed to be divided, when we speak of the standard fineness.

[Sidenote: The remedy of alloy upon gold.]

The standard of French gold is the same with that of silver, to wit,
11⁄12, or 22 carats fine. Upon this the workmen are allowed 12⁄32 parts
of a carat, for the _Remede d’alloy_; which reduces the standard to
210⁄32 carats fine, to 12⁄32 carats alloy. This expressed according to
the division above mentioned, stands thus, 692 parts fine to 76 alloy.

To find, therefore, the number of grains of fine gold in a marc of the
coin, we must state the following analogy.

                      768 : 692 :: 4593 : 4138.48.

[Sidenote: The marc into what coined.]

The marc of gold coin therefore contains, after all deductions, 4138.48
grains of fine gold.

This marc is coined into 30 louis d’ors of 24 livres each, value in all
720 livres.

If therefore 4138.48 grains of fine gold be worth in the coin 720
livres, the marc of fine gold, or 4608 grains, will be worth 801 livres
12 sols.

[Sidenote: Mint price of a marc of fine gold.]

But the mint price of fine gold is 740 livres 9 sols 1 denier.

The difference, therefore, between the mint price of fine gold, and the
worth of it in the coin, (viz. 61 livres 3 sols 2 deniers) will shew
exactly the price of coinage.

If we ask how much this makes _per cent._ we may state it thus,

                    740.409 : 801.68 :: 100 : 108.2.

[Sidenote: The price of coinage 8⅕ per cent. upon gold.]

So in France there are 8.2 _per cent._ deducted for coinage of the gold.

By the foregoing calculations it appears, that the King takes above 8
_per cent._ upon the coinage both of gold and silver.

[Sidenote: Which no way stops the mint.]

For many years past there have been no violent methods used to bring
bullion to the mint, and yet we see, by the dates upon the French coin,
what great quantities have been struck both of gold and silver. This is
a most convincing proof, I think, that the imposition of coinage, when
properly laid on, is no interruption to the mint; and being a matter of
fact well determined, is a confirmation of that principle.

[Sidenote: Of the proportion of the metals.]

Let us next examine the proportion between the value of the metals, both
in the coin and at the mint.

For this purpose we must compare the mint prices in one equation, and
the value of the gold and silver coin in another.

[Sidenote: How to discover it.]

At the mint, a marc of fine silver is paid 51.162 livres, and a marc of
fine gold 740.409 livres; consequently 51.162 : 740.409 :: 1 : 14.47.

A marc of fine silver, in the coin, is worth 55.38 livres; a marc of
fine gold, in the coin, is worth 801.68 livres. We may therefore state
thus, 55.38 : 801.68 :: 1 : 14.47.

[Sidenote: The proportion is as 1 to 14.47.]

The proportion, therefore, both at the mint and in the coin is the same;
and is nearly as the French writers state it, to wit, as 1 is to 149⁄19,
but more exactly as 1 to 14.47, which is very nearly as 1 to 14.5.

[Sidenote: Gold contained in a louis d’or, and silver in a crown of 6

From these computations we find the exact quantity of fine gold in a
louis d’or, and of fine silver in a great crown, or piece of 6 livres.

In the louis d’or there are 137.94 grains fine, and 153.1 standard gold.

In the great crown there are 499.22 fine, and 550.843 standard silver.

[Sidenote: Proportion of a French grain weight to a troy grain.]

Farther, by the most exact calculations I have been able to make, after
comparing the accounts which French writers give of the proportion of
the English troy grain, with the grain of the Paris pound, and the
accounts which English writers give of the proportion of French grains,
with those of the troy pound; and after checking these accounts with the
most accurate trials, by weighing and taking a mean proportion upon all,
I find that a French grain _poids de marc_, is to an English grain troy,
as 121.78 is to 100. See the table. What a shame it is, that such
proportions can only be guessed at by approximations, in the age in
which we live!

To discover, therefore, the number of troy grains of fine gold in a
louis d’or, state thus, 121.78 : 100 :: 137.94 : 113.27.

[Sidenote: Proportion between the louis and the guinea.]

Now a guinea contains 118.651 troy grains of fine gold, and yet, in
almost every country in Europe, the louis d’or, in time of peace, passes
for as much as the guinea, when both are of good weight. This is a
matter of fact well known, and is a confirmation of another principle
which I have laid down, to wit, that the imposition of coinage gives an
advanced value to a nation’s coin, even in foreign countries.

[Sidenote: Of the fineness of French wrought plate.]

The fineness of the French silver wrought into plate, is different from
that of the coin. The fineness of the coin we have said to be 10 deniers
and 21 grains, or 261 parts fine, to 27 alloy; and the value of a marc
of it (when the 36 grains of remedy of weight is deduced) is 49 livres
16 sols, which makes the full marc of 4608 grains to be worth 50 livres
4 sols. The standard of the plate is 110⁄24 deniers, or 274 fine, and 14
alloy. In order, therefore, to find the value of the plate, at the rate
of the coin, state thus, 261 : 50.2 :: 274 : 52.7; consequently silver
plate in France, at the rate of the coin, is worth 52 livres 14 sols.

When goldsmiths sell their plate, they ought regularly to charge, for
the metal, the current price of the market; but as that is constantly
varying, the King, for their encouragement, has fixed the value of the
marc of it at 52 livres, which is only 14 sols per marc below the value
of the coined silver, including the price of coinage. Consequently, were
goldsmiths to melt down the coin in order to make plate of it, they
would lose 14 sols per marc, besides the expence of reducing the melted
coin to the standard of the plate. Goldsmiths, therefore, in France,
will never melt down the coin when they can find bullion in the market,
at the price of 14 sols per marc below the value of the coin; and we
have seen that the price imposed on coinage generally reduces the
bullion to near 8 _per cent._ below coin: but supposing them to melt it
down, there is no loss to the state, because the coinage is already

[Sidenote: Goldsmiths profit by the imposition on coinage,]

By this regulation, goldsmiths profit by the imposition of coinage;
because the mint price of silver being 8 _per cent._ below the value of
the coin, and that keeping the price of bullion low, goldsmiths gain
upon the sale of their wrought plate, all the difference between the
price they pay for bullion when they make their provision of it, and the
price they are allowed to sell it at when wrought.

Another consequence of this regulation is, that there is no competition
occasioned between the mint and the goldsmiths, to the prejudice of the
latter. No body will carry bullion to the mint while there is the least
demand for it to make it into plate. This consequence is plain.

[Sidenote: And never find the mint in competition with them for the

Bullion can never fall lower than mint price; consequently, the mint may
rather be considered as receiving the bullion upon an obligation to pay
a certain price for it, than as demanding it in the market. The smallest
demand, therefore, from the goldsmith, will raise the price of bullion
when it stands at mint price; because he who has it, will never give it
to any body who has occasion for it, without some small advantage above
what the mint must give him for it; but the mint price being fixed, no
competition can come from that quarter, and therefore the advanced price
the goldsmith gives must be very small.

[Sidenote: Advantages of the French regulations.]

Upon the whole, the regulations in France appear (so far as I comprehend
them) admirably well contrived to serve every purpose. They prevent the
melting down and exporting of the coin; they prevent bullion from being
coined, when it cannot remain in the kingdom; they give an advanced
value to that part of the nation’s coin which must be exported for the
payment of the balance of trade; and they recall it home when the
balance becomes favourable. They prove an encouragement to the industry
of goldsmiths; there is a sufficient check put upon their melting down
the specie; and there is no discouragement given to private people from
making plate, because the silver in the plate is sold by the goldsmith,
a small matter below its intrinsic worth when compared with the coin.

The only thing to be reformed is the remedies allowed by the King upon
the weight and fineness; because it tends to perplex calculations, and
is not at all necessary. When exactness can be procured, it ought to be
procured; and as the workmen regularly profit of all the remedies
allowed them, it is a proof that they have no occasion for any
indulgence to make up for their want of dexterity.

I shall make no mention of the duty of _controle_ upon wrought plate.
This I consider as an excise upon a branch of luxury; consequently, the
examination of it belongs to the doctrine of taxation, and is foreign to
that of money.

It has been said above, that the imposition of coinage (occasioning the
coin of France to circulate, almost at all times, above its intrinsic
value as bullion, even in foreign countries) prevented bullion from ever
rising in the Paris market to the price of coin. This principle I also
find confirmed by facts.

[Sidenote: High price of bullion in the Paris market during the year

Foreign gold of 22 carats fine, sold in the Paris market (December 13th,
1760) at 712 livres the marc. In order to find the value of the marc of
fine gold, state thus, 22 : 712 :: 24 : 776.7. Now the marc of fine gold
in the coin, we have seen to be 801.12 sols. So at this time, when
France is engaged in a most expensive war, while she is daily exporting
immense quantities of both gold and silver coin, to pay her armies and
subsidies, the price of gold bullion in her market is 24 livres 18 sols
per marc below the value of her coin. Nothing but the advanced value of
her specie in foreign currency, could possibly produce such a
phænomenon. But when she was sending stamped ingots of gold to Russia,
in the month of September last, the price of the gold bullion of 22
carats then rose to 734 livres per marc, which for the marc of fine gold
makes 800 livres 14 sols, which is but 18 sols below the value of the
coin. The reason is plain: the coin sent to Germany, or Holland is
constantly returning to France, or at least may soon return, which
supports the high price of it in these countries; but what was sent to
Russia was plain bullion.

Before I conclude this chapter, I must say a word concerning the wearing
of the French coin by circulation.

[Sidenote: Present state of the wearing of the French silver coin.]

As paper money has no currency in France, by any public authority, all
payments must be made in coin. For this purpose the silver is more
commonly used than the gold; from which I am obliged to conclude, that
the silver must be somewhat over-rated in the coin, above the proportion
of the price of gold in the Paris market; but of this I have no exact

The silver coin is put up in sacs of 200 great crowns, value 1200
livres. This sum on coming out of the mint, weighs, according to the
following equation, 23 marcs 7 ounces 152 grains. State thus, 8.3 great
crowns = 4572 grains standard silver; consequently, 200 = 110168.6 = 23
marcs 7 ounces 152 grains.

These sacs, according to my information, weigh constantly at least 23
marcs 7 ounces, exclusive of the sac; so that the French silver currency
has not, at this time, lost above 152 grains upon the sac of 1200
livres, which is about 137⁄1000 per cent. This is a trifle upon a small
sum; but as no difference, however small, is a trifle upon a large sum,
a limit ought to be set to the farther diminution of the weight of the
currency, which might be accomplished easily, by ordering all sacs of
1200 livres to be made up to the weight of 23 marcs 7 ounces effective,
for the future. This would be, at present, no injury to the public,
there would be a sufficient allowance given for many years circulation
of the coin, and the degradation of it in time coming, would be
effectually prevented.


                              CHAP. VIII.
    _Of the Regulations observed in Holland, with regard to Coin and

[Sidenote: Present state of the Dutch currency.]

It comes next in order to examine how this matter stands in the states
of the United Provinces, and with this I shall conclude.

We shall here find the question infinitely more involved in
combinations, than hitherto we have found it. We shall find the most
sagacious people in the world, with regard to trade and money,
struggling with all the inconveniencies of an ill regulated coinage, and
an old worn out silver currency; carrying on their reckonings by the
help of agio; weighing their specie; giving allowance for light weight;
buying silver with silver, and gold with gold; as if it were impossible
to bring the value of these metals to an equation; and loading commerce
with an infinity of brokers, Jews, and cashiers, without the aid of
which it is impossible in Holland either to pay or to receive
considerable sums in material money.

It is very true that what must appear an inextricable perplexity to a
stranger, is really none at all to the Dutch. Trade is there so well
reduced to system, and every branch of it so completely furnished with
hands to carry it forward, that the whole goes on mechanically, and
though at a great additional expence to trade in general, yet at none to
the merchant; because he regularly sums up all this extraordinary
expence upon his dealings, before he superadds his own profit upon the
operation. Were therefore all this unnecessary expence avoided, by a
proper regulation of the coin, the consequence would be, to diminish the
price of goods to strangers, as well as to the inhabitants, to leave the
profits upon trade, relative to the merchants, exactly as before; and to
increase, considerably, the trade of the republic, by enabling them to
furnish all commodities to other nations cheaper than they can do, as
matters stand; but were this plan put in execution, the consequence
would also be, to take bread from all those who at present live by the
disorder, which ought to be removed.

                 Of the regulations in the Dutch mint.

[Sidenote: Regulations in the Dutch mint.]

The unit of weight in the Dutch mint, is the marc _Holland’s troes_, or
gold weight.

[Sidenote: Their unit of weight is the marc Holland’s troes.]

This weight is about 1½ _per cent._ lighter than 8 ounces English
weight, without coming to the most scrupulous exactness.

This marc is divided into 8 ounces; every ounce into 20 engles; every
engle into 32 aces or grains. The ounce therefore contains 640, and the
marc 5120 aces. By this weight, bullion is bought, and the coin is
delivered at the mint, or weighed in circulation, when weighing is

[Sidenote: The _remede_ of weight on silver.]

The mint delivers the silver coin by the marc weight; but from the full
weight, there is deducted as a _remedy_, one engles and one ace, or 33
aces: so the marc of the mint, by which they deliver the silver,
contains 5087 aces, in place of 5120.

[Sidenote: The fineness of silver is different in different coins.]

The fineness of the Dutch silver is various, according to the species. I
shall here, for the greater distinctness, take notice only of the
fineness of the florins; because it is the best and the most standard
coin, used in the payments of foreign bills of exchange, leaving the
other varieties of their specie to be considered afterwards.

[Sidenote: Florins are 11⁄12 fine with one grain of remedy.]

By florins I mean (besides the florin pieces) those also of 30 stivers,
and the 3 florin pieces, the standard of which is all the same, to wit,
11⁄12 fine with one grain of remedy.

[Sidenote: How they reckon their silver standard.]

The mass of silver in the Dutch mint, (when we speak of the fineness) is
supposed to be divided into 12 pence, and every penny into 24 grains, as
in France.

Any mass of silver, therefore, of whatever weight, is supposed to be
divided into 288 parts; consequently by 11⁄12 fine with one grain of
remedy, is meant, that there are 263 of these parts _fine_, and the
remaining 25 parts of _alloy_. This is the exact standard of the Dutch

To find therefore the number of grains of fine silver in the marc
weight, as it is delivered at the mint, we must state this proportion,
288 : 263 :: 5087 : 4645.4.

[Sidenote: Exact quantity of fine silver in a marc weight of Dutch
           florins as they come from the mint.]

The marc therefore of coined silver florins, after all deductions for
alloy, and for remedies of weight and of fineness, contains of fine
silver 4645.4 aces Hollands troes.

This marc is ordered to be coined into 237⁄331 florins. If therefore
4645.4 aces of fine silver be worth 237⁄331 or (in decimals, for the
sake of facilitating calculation) 23.2024 florins, then the full marc or
5120 aces of fine silver will be worth 25.572 florins by this analogy,
4645.4 : 23.2024 :: 5120 : 25.572.

[Sidenote: Mint price of fine silver.]

But the mint price of the marc of fine silver is 25.1 florins. The
difference, therefore, between the mint price of fine silver, and the
price of it in the coin, will shew exactly the expence of coinage. State

    The price of a marc of fine silver in the coin     _fl._ 25.572
    Price of ditto as paid by the mint                       25.1
    Price of coinage                                         0.472

To know how much this makes _per cent._ state thus,

                     25.1 : 25.472 :: 100 : 101.48

[Sidenote: Price of coinage in Holland is about 1½ _per cent._ on

So that in Holland there is not quite 1½ _per cent._ taken upon the
coinage of silver florins. Let us next examine the regulations as to
gold coin.

[Sidenote: Of the Dutch gold coins.]

There are in Holland two species of gold coins of different weights,
fineness, and denominations, to wit, the _Ducat_ and the _Rider_; we
must therefore examine them separately.

[Sidenote: The ducat has no legal denomination.]

The ducat is what they call a _negotie pfenning_, that is, a coin struck
under the authority of the state, in all the mints, and of a determinate
weight and fineness; but not a legal money in payments, because it has
no _legal_ denomination.

Ducats are delivered by the marc weight as the silver; but there is a
remedy of weight deducted of one engle per marc. So the marc of ducats,
as delivered by the mint, weighs but 5088 aces.

[Sidenote: The fineness 23 carats 8 grains.]

The fineness of the ducats is (as in the empire) of 23 carats 8 grains;
but in Holland they allow one grain of remedy.

[Sidenote: How the fineness is reckoned.]

The standard of the gold is reckoned by carats and grains: 24 carats are
called fine gold, and every carat is divided into 12 grains; so let the
mass of gold be of what weight soever, it is always supposed to contain
288 parts, that is, 12 × 24: at this rate the fineness of ducats is 283
parts fine gold, and 5 parts alloy.

[Sidenote: Fineness of the ducats of the empire.]

The imperial ducats ought to be 284 parts fine, 3 parts silver, and one
part copper, without any remedy; but in Holland the assayers bring the
gold to the fineness of 23 carats and 8 grains; then they suppose that
what remains is all silver, and they take their remedy by adding one
grain of copper. Dutch ducats are therefore something in the fineness,
though nothing in the weight below the regulations of the empire.

[Sidenote: Exact quantity of fine gold in a marc weight of Dutch ducats
           as they come from the mint.]

To find the number of grains of fine gold in the marc weight, as it is
delivered from the mint, we must state this proportion,

                      288 : 283 :: 5088 : 4999.6.

The marc, therefore, of gold coined into ducats, after all deductions
for alloy, and for the remedies of weight and fineness, contains 4999.6
aces of fine gold. This marc is ordered to be coined into 70 ducats.

If, therefore, 4999.6 aces of fine gold, be worth 70 ducats, then the
full marc of 5120 aces of fine gold will be worth 71.687 ducats, by this
proportion, 4999.6 : 70 :: 5120 : 71.687.

[Sidenote: Mint price of fine gold.]

But the mint price of the marc of fine gold is 71 ducats.

The difference, therefore, between the value of a marc of fine gold in
ducats, and the price given by the mint for the same quantity of fine
gold bullion, shews the expence of coinage. State thus,

  Price of the marc of fine gold in ducats           71.687   ducats
  Mint price of the marc ditto                       71
  Price of coinage                                   0.687

To know how much this makes _per cent._ state thus,

                      71 : 71.687 :: 100 : 100.96.

[Sidenote: Price of coinage upon ducats about 1 per cent.]

So that there is not quite 1 _per cent._ taken in Holland upon the
coinage of their gold ducats.

[Sidenote: The price of coinage upon both species should be the same.]

But upon the silver florins there is (as we have seen) near 1½ _per
cent._ consequently, there is an encouragement of 1½ _per cent._ given
for carrying gold to the mint preferably to silver; which, in my humble
opinion, is ill judged. I allow that the expence of coining a sum in
silver is greater than the expence of coining the same sum in gold; but
I think it is better to allow an additional profit to the mint upon the
gold, than to disturb the equality of intrinsic value which ought to be
contained in the same sum coined in gold and silver. But indeed,
according to the present state of the Dutch mint, this small
irregularity is not much to be minded, as we shall see presently.

[Sidenote: The Rider]

_Riders_ are a coin but lately used in Holland. Formerly, the Dutch had
no legal gold coin, silver was their standard; and ducats as a _negotie
pfenning_ (as they call them) found their own value, having no
determinate legal denomination, as has been said.

[Sidenote: has a legal denomination, and is a lawful tender in payments
           to ⅓ of the sum,]

But of late the States have coined this new species of gold, to which
they have given a fixed denomination, and the authority of a legal coin,
to be received in all payments, so far as one third of the sum to be
paid; the other two thirds must be paid in silver: but of this more
afterwards, our present business being to examine the weight,
denomination, and fineness of this species.

[Sidenote: is coined always by the state and for the state; so there can
           be no mint price.]

_Riders_ are coined by the State alone, no private persons carrying
bullion to the mint for that purpose; the coinage, therefore, not being
open to the public, it is in vain to seek for a mint price. They are
delivered at the mint by tale, not by weight; so we must inquire into
the statute weight, fineness, and denominations of this species, in
order to discover the quantity of fine gold which is contained in the
florin of this currency: this we shall compare with the florin in the
ducat, and so strike an equation between the florin in this standard
coin, and in the other, which finds its own price, according to the
fluctuation of the metal it is made of.

[Sidenote: Regulations as to the fineness, denomination, and weight of

A marc of fine gold struck into riders circulates for 374 florins. This
is the regulation as to the weight.

The standard is exactly 11⁄12 fine, or 22 carats, without any remedy.

The denomination is 14 florins for every rider, the half rider in
proportion. To discover therefore the quantity of fine gold in a rider,
we must first divide 374 by 14, which will give the number of riders in
the marc fine, viz. 26.714 riders; then we must say, if 26.714 riders
contain a marc of fine gold, or 5120 aces, how much will one rider
contain? The answer is 5120⁄26.714 = 191.65.

[Sidenote: Quantity of fine gold in a florin of riders.]

Divide this by 14, and you have the number of aces of fine gold
contained in a florin of this currency, 191.65⁄14 = 13.69.

Here then is the exact weight of the fine gold contained in one florin
of the currency in riders.

[Sidenote: To put the ducat upon a par with riders it should circulate
           for 5 florins 4⅛ stivers.]

Let us now examine how much a ducat ought to pass for, in order to be
upon a par with the currency of the riders.

We have seen that a marc of fine gold is coined into 71.687 ducats. That
number of ducats, therefore, to be upon a par with the riders, should be
worth 374 florins. Divide, therefore, this last number by the first, you
have 374⁄71.687 = 5.217 florins, which is a little more than 5 florins
4⅛ stivers.

[Sidenote: Utility of not fixing the denomination of ducats.]

Were the States, therefore, to give a fixed denomination to ducats, they
ought to be put at that value; but the trade of Holland requires that
this coin should be allowed to fluctuate, according to circumstances.
The great demand at present (1761) for _gold_ to send to the armies
preferably to silver, on account of the ease of transportation, has
raised the value of that metal, perhaps ¼ _per cent._ above what it
would otherwise be. If then ¼ _per cent._ be added, it will bring the
ducat to the present current value, to wit, 5.4⅜ florins. If, therefore,
in order to bring the currency of ducats upon a par with the riders,
they were fixed at 5.4⅛ florins, it is very plain, that no more would be
sent away in payment at that rate, because of the present advanced value
of gold; consequently, none would be coined; the mints would be stopped,
and the armies would be paid in guineas and Portugal gold; the melting
and recoining of which keeps all the mints in Holland in constant

This, besides employing and giving bread to a number of hands,
multiplies the Dutch currency, at a time when they have so great
occasion for it.

Let us next examine the proportion of the metals in the coin.

[Sidenote: How to find the proportion of the metals in the coin of
           Holland, and a wonderful phænomenon in the value of ducats.]

Here we must adhere closely to the regulations of the mint above
mentioned, and only determine what the proportion of the metals would
be, were the coin of Holland, both gold and silver, of standard weight,
and were it the practice to pay for the metals at the mint,
indifferently in either species. But neither of these suppositions are
to be admitted: First, because the silver coin is not of its due weight;
and in the second place, because the mint never buys gold bullion but
with gold coin, nor silver bullion but with silver coin. This is the
infallible consequence of a coinage ill regulated in what relates to the
proportion of the metals, which ought respectively to be put into the
same sum, in the two different species.

It would be endless to examine the proportion of the metals, with
respect to every species of their coin. It would also be incorrect to
examine it as to the ducats; because that species has no fixed legal
denomination; and the proportion of the metals is to be discovered by
the denomination of the coins only.

Ducats pass current among the people for 5 florins 5 stivers; but with
merchants, who buy them as merchandize, their value is continually
varying. At present (September 1761) the new coined ducats brought in
bags from the mint, which never have circulated, are bought for 5
florins 4⅝ stivers; those which have circulated (were it for a day)
fall, from that very circumstance, to 5 florins 4⅜ stivers; which is a
diminution of near ¼ _per cent._ of their value. This phænomenon shall
afterwards be accounted for.

[Sidenote: Were all the coin of full weight, the proportion would be as
           1 to 14.62.]

This being the case, we have no method left to judge of the proportion
of the metals in the coin of Holland, but by the proportion of fine gold
and fine silver found in the same sum, paid in florins of full weight,
and in new riders; the one and the other coined according to the
regulations of the mint above mentioned.

It has been shewn that a marc of fine gold in riders, circulates for
_f._ 374, and that a marc of fine silver in florins, circulates for _f._
25.572; divide the first by the last, you have the proportion as 1 to
14.62: But we shall afterward discover a circumstance, not taken notice
of in this place, which will reduce the proportion lower.

[Sidenote: Quantity of fine silver in a florin piece.]

From the above calculations, we may easily discover the exact quantity
of fine silver and fine gold contained in a Dutch florin, whether
realized in silver florin pieces, in gold riders, or in ducats. As this
will be of use when we come to examine the par of exchange, it will not
be amiss to set before the reader, the exact state of that particular
before we proceed. We have said that whoever receives _f._ 25.572 in
silver florins of full weight, receives a marc of fine silver, which
contains 5120 aces. Divide the last sum by the first, you have 200.21
aces of fine silver for the florin.

[Sidenote: Quantity of fine gold in a florin of riders.]

Whoever receives _f._ 374 in gold riders, receives a marc of fine gold,
which contains 5120 aces. Divide the last sum by the first, you have
13.69 aces of fine gold for the florin.

[Sidenote: Investigation of this proportion as to the ducat;]

We have seen that ducats fluctuate in their value, having no legal
denomination, which obliged us to state the current value of a marc of
them at 71.687 ducats, not being able to express that value in florins;
because of the unsettled denomination of that species. Let us now
specify that value in florins, upon three suppositions. The first, that
the ducat is worth what it passes for among the people, to wit, 5_f._
5_st._ The second, at the value of new ducats from the mint, to wit,
5_f._ 4⅜_st._ The last, at the merchant price of good ducats, which have
circulated, to wit, 5_f._ 4⅜_st._

In the first case (the ducat at 5_f._ 5_st._) 71.687 ducats are worth
376.35 florins, this being the value of a marc of fine gold in ducats,
and the marc containing 5120 aces; divide the last by the first, you
have 13.604 aces of fine gold for the florin.

In the second case (the ducat at 5_f._ 4⅝_st._) 71.687 ducats are worth
375.04 florins; by which number divide 5120 as before, you have 13.651
aces of fine gold for the florin.

In the last case (the ducat at 5_f._ 4⅜_st._) 71.687 ducats are worth
374.11; by which number dividing 5120, you have 13.685 aces of fine gold
for the florin, which comes within a trifle of the florin in riders.

[Sidenote: by which it appears that the late war has raised the value of
           gold, and set the market price of the metals in Holland at 1
           to 14.785.]

But now (in June 1762) I learn, that the course of new ducats from the
mint in the Holland-market, is got up to 5_f._ 5½_st._ In this case,
71.687 ducats are worth 378.1 florins; by which number dividing 5120, as
before, you have 13.541 aces of fine gold for the florin.

If we seek here the proportion between the gold and silver, we must
state thus. If a florin in ducats contain 13.541 aces of fine gold, and
a florin in silver coin contain as above 200.21 aces of fine silver,
then 13.541 : 200.21 :: 1 : 14.785. So the effect of this war has
already been to raise the value of gold 1.12 _per cent._ above what it
was esteemed to be, when the riders were coined.

The proportion as to riders is, as before, 1 to 14.62.

[Sidenote: Which is a rise upon the value of gold of 1.12 per cent.]

The present proportion as to ducats is 1 to 14.785.

                    14.62 : 100 :: 14.785 : 101.12.

I must farther observe upon this subject, that although we have seen
that the ducats which have circulated for ever so short a while, when
bought at 5_f._ 4⅜_st._ produce for the florin 13.685, (which is more
than is produced by the new coined ducats fresh from the mint) we are
not from this to conclude, that the former are intrinsically a cheaper
currency than the latter. I have been at all the pains imaginable to
weigh these ducats against others fresh from the mint; and also to
compare their weight with what it ought to be by the regulation; and I
have constantly found near ¼ _per cent._ difference between them. This
is entirely owing to the nature of the coin. The ducat has a large
surface in proportion to its weight; it carries a very sharp impression,
full of small points; the cord about the edges is exceedingly rough; so
that the least rubbing, breaking off those small points, diminishes the
weight of the piece near ¼ _per cent._ which is clear loss, not only to
the proprietor, but to the state, and to all the world. Besides, those
who are obliged to go to the mint for new ducats, are supposed to bear
the greatest weight of the coinage of a piece which, having no legal
denomination, is left afterwards to seek its own value, according to
that of the metals at the time.

[Sidenote: The intention of this minute detail is in order to calculate
           the real par of the coins of Europe.]

As I have entred into this minute detail of the weight of fine silver
and fine gold contained in the Dutch florins, with a view to facilitate
the calculation of the par of the metals contained in the coins of
Holland, and those of other nations; I must next mention the proportion
between the aces in which we have expressed the weight of the Dutch
specie, and the grains in use in some of the principal nations with
which they trade: These I take to be England, France, and Germany.

[Sidenote: Proportion between the mint weights of Holland, England,
           France, and Germany.]

The reduction of weights to mathematical exactness, is beyond the art of
man; and to this every one, who ever tried it, must subscribe. I have
been at all the pains I am capable of, to bring those weights to an
equation; and here follows the result of my examination into that

By all the trials and calculations I have made, I find that 5192.8 aces
Holland-troes; 3840 grains English troy weight; 4676.35 grains Paris
poid de marc; and 4649.03 grains Colonia (which is the gold weight of
the empire) are exactly equal.

I reckon by the lowest denomination of these several weights, to wit,
their grains; to avoid the endless perplexity of reducing to a
proportion, their pounds, marcs, and ounces, which bear no regular
proportion to their grains.

[Sidenote: Par of a pound sterling, in weighty silver, with Dutch
           florins in riders is 11 florins 12 stivers.]

To give some examples of this method of calculating the exact par of the
metals contained in the coin of those nations, reduced to the weights of
Holland, I shall state the following computations.

A pound sterling in silver, by the statute of the 43d of Elizabeth, is
1718.7 grains troy fine; to know how many aces Holland-troes that makes,
state thus, 3840 : 5192.8 :: 1718.7 : 2324.1.

Divide 2324.1 by 200.21, (the number of aces contained in a silver
florin) you have for the par of the pound sterling, _f._ 11.609.

[Sidenote: Par of the pound sterling in gold with ditto, is 11 florins 3
           stivers and ⅕.]

A pound sterling in guineas, by the statute fixing guineas at 21
shillings, contains 113 grains troy fine; to know how many aces
Holland-troes that makes, state thus,

                     3840 : 5192.8 :: 113 : 152.8.

Divide 152.8 by 13.69, (the number of aces contained in a gold florin in
riders) you have for the par of the pound sterling in guineas, _f._

[Sidenote: Par of a French louis d’or with the same florin, is 11
           florins 3 stivers and ¾.]

A French louis d’or contains 137.94 grains poid de marc fine gold; to
know how many aces Hollands that makes, state thus,

                  4676.35 : 5192.8 :: 137.94 : 153.17.

Divide 153.17 by 13.69, (the number of aces contained in a gold florin
in riders) you have for the par of the louis d’or, _f._ 11.188.

[Sidenote: Par of 24 livres French in silver with the same florin, is 11
           florins 1½ stiver.]

24 livres French, contain 1996.88 grains poids de marc of fine silver;
to know how many aces Hollands that makes, state thus,

                 4676.35 : 5192.8 :: 1996.88 : 2217.4.

Divide 2217.4 by 200.21, (the number of aces in a silver florin) and you
have for the par of 24 livres French silver, _f._ 11.076.

[Sidenote: Great balance of trade against France, in September 1761.]

The French silver here is less valuable in Holland than the gold: this
is no proof that the proportion between the metals in the respective
coins of these two nations is different (we shall soon find it to be
very exactly the same); but this preference in favour of the French
gold, is owing to the temporary demand for gold on account of the war;
for which reason no French silver coin appears at present in Holland. I
write in September 1761.

I must also observe, that at this time the course of louis d’ors is
11_f._ 4_st._ which is little or nothing above the real par of the metal
they contain; which in peaceable times is not the case. This proves how
strongly the balance of trade is against France with respect to Holland,
as it has reduced her specie to the price of bullion: it is not so in

[Sidenote: Low value of the pound sterling in Holland, in 1761.]

The low value which a pound sterling has borne for these several years
in exchange, and the great fall of its worth in Holland of late, when it
has been at 10_f._ 10_st._ is no argument against the high conversion I
have given it, to wit, above 11_f._ 12_st._ Were there nothing but
silver coin in England, and were it all of standard weight, exchange
would frequently run even above that value in peaceable times; because
the silver coin in Holland is light, and I have reckoned it as if it
were of full weight.

It will be observed, that the par upon the gold does not quite amount to
11_f._ 4_st._ the reason of which is the great disproportion in the
British coin, between the intrinsic value of a pound sterling in silver,
and in gold, when both are of standard weight; the latter being near 5
_per cent._ worse than the former, when the proportion of the metals is
supposed to be at 14½. But at present there are no sterling pounds in
silver money; there is no silver in England in any proportion to the
circulation of trade; and therefore the only currency by which a pound
can be valued, is the guinea.

[Sidenote: Owing to the lightness of the gold coin in England at that

It has been said, and I think sufficiently proved, that the price of the
metals in the market, shew very exactly the weight of the currency in
nations where coinage is free, when there is no severe prohibition (_put
in execution_) against the exportation of the coin. This I take to be
the case in England. Now gold there has risen of late to 4_l._ 0_s._
8_d._ per ounce; from which I conclude, that the guineas with which it
is bought, or with which bank notes are paid, are at present so light,
that 4_l._ 0_s._ 8_d._ of them do not weigh above an ounce, (the good
guineas are exported) whereas an ounce of new guineas is worth no more
than 3_l._ 17_s._ 10½_d._

Gold, therefore, which now sells for 4_l._ 0_s._ 8_d._ would certainly
be worth no more than 3_l._ 17_s._ 10½_d._ were English gold coin of its
proper weight: and the price of it will come down to that value, in
proportion as circumstances shall call back the heavy guineas.

To facilitate the verification of this point, I shall first observe,
that the difference between 4_l._ 0_s._ 8_d._ and 3_l._ 17_s._ 10½_d._
is 4.57 _per cent._ The English gold currency, therefore, at the time
standard bullion was worth 4_l._ 0_s._ 8_d._ must have been worn 4.57
_per cent._ Guineas, when of full weight, weigh 129.43 grains of troy
weight; if such guineas are worn 4.57 _per cent._ they ought to weigh no
more than 123.23 grains troy. Now let any man try the experiment, and
put an old guinea, taken by chance (not picked out) into a scale, and
see whether it has not been worn down to 123.23 grains; and let him also
examine whether the _greatest part_ of the guineas, at the time when
gold bullion has got to so high a price, are not of King George I. and
his predecessors: these I call old.

Besides these there are other circumstances to be attended to. Men who
job in coin, pick up all the worst guineas they can when they go to
market; or if they buy with paper, we may decide, that the bank at that
time pays in guineas not above the weight of 123.23 grains troy; for if
the bank paid with guineas of a greater weight, he who had occasion to
carry his paper to market to buy gold bullion, would certainly rather go
to the bank, and afterwards melt down their guineas. Were the bank of
England never to pay but in gold of full weight, and were the
exportation of guineas free, it is impossible that gold should ever rise
above the mint price, which is 3_l._ 17_s._ 10½_d._

As a farther confirmation of the justness of the high valuation I have
put upon a silver pound sterling of standard weight, I shall observe,
that a new guinea passes in Holland (at the time when the exchange is at
10_f._ 10_st._) for 11_f._ 11_st._ and every body knows, that such a
guinea in England is not above the intrinsic value of a silver pound
sterling of full weight. If then I can get 11_f._ 11_st._ for a new
guinea, I ought to get as much for a new silver pound sterling, since
the intrinsic value of both is the same, when the proportion of gold to
silver is as 1 to 14½. Now this guinea must be worth more than 11_f._
11_st._ because the Jews, who carry them to the mint, give that price
for them (I have disposed of them to Jews at that value[4]); and as the
coinage of ducats costs, as we have seen, near 1 _per cent._ the guinea
is intrinsically worth 2 stivers more, that is 11_f._ 13_st._ but as
gold at present bears an advanced price upon account of the war, and
that the proportion between gold and silver is in Holland above 1 to
14½, these are the reasons why the guinea, in Holland, is at present
something above the intrinsic value of a silver pound sterling, which we
have stated at _f._ 11.609, a trifle above 11_f._ 12_st._

Footnote 4:

  This was writ in Holland.

[Sidenote: and not to the wrong balance of their trade, as is alledged.]

Let me here observe, by the bye, that all the pounds remitted from
Holland to England, for filling the subscription for 12 millions of last
year, cost the remitters but about 10_f._ 10_st._ for the pound
sterling. If this low course of exchange be owing (as some pretend) to a
wrong balance of trade against England, and not (as I pretend) to the
lightness of the gold currency; then we must allow, that the expence of
the German war (which is what alone carries off coin out of the kingdom)
must have exceeded all the profits of the English commerce, which I
apprehend to be at present immense; and also all the money lent by
foreigners towards the loan of 12 millions. I leave to others more
knowing than myself, to determine if such a supposition be admissible.
If it be rejected, let any man reflect how absurd it would be to raise,
at this time, the standard of the pound sterling to the old value; and
to repay at 11_f._ 12_st._ such sums as have been borrowed at the value
of 10_f._ 10_st._ or in other words, to make a present to the Dutch
creditors of above 11 _per cent._ upon account of a loan for a year or

[Sidenote: Defects of the silver currency of Holland.]

Having now given as good an account as I can of the Dutch coin,
according to the regulations of the state, I shall next point out the
defects of their silver currency, and shew the consequences which result
from them. As for the gold, it is at present perfectly well regulated.
The riders are all exact in their weight, fineness, and denomination;
the ducats are all now recoined of legal weight and fineness; and the
denomination not being fixed, they serve, in a trading nation, as a
merchandize, of which the weight and fineness are well ascertained. The
only defect, therefore, I can discover in the Dutch gold currency, is
the form of the pieces. They have too much surface in proportion to
their weight, and the impression is too sharp; both which contribute
greatly to the wearing of the coin.

[Sidenote: Account of this currency.]

The silver currency of Holland is of two sorts. The bank species, and
the current species. Here it must be observed, that by bank _species_ is
not meant Amsterdam _banco_, or bank money, but certain coins which are
called _bank species_. These are,

                       Pieces of    3 guilders.
                       —————        30 stivers.
                       —————        20 stivers.

These are called _groff gelt_, as being the good specie, of which
hitherto we have only spoken. Sums to be paid in bank species, must be
composed of ⅔ of this currency, and of ⅓ of what follows, viz.

      Riders of 14 florins.
      Dutch half crowns of 28 stivers.
      Ses t’halves of 5½ stivers.

I have put in the riders, though a gold coin, in order to give a
compleat enumeration of all the kinds of these bank species.

[Sidenote: Regulations for the payment of foreign bills in coin.]

Foreign bills drawn on Rotterdam in banco (i. e. bank species) are often
received _there_, in any of the above species, without regard to the ⅔
which ought to be groff gelt; but when the holder of the bill desires
the acceptor (which the latter cannot refuse) to write it off to his
credit in the current bank of Rotterdam, and that he has there no stock,
then, if he brings in specie to the bank, it must be as above specified.

[Sidenote: Ditto for current bills.]

Current bills, not specified by the word _banco_, are generally paid
according to the following proportion:

      3⁄10 in schillings of 6 stivers.
      1⁄10 in dubleties of 2 stivers.
      6⁄10 in good silver.

[Sidenote: Ditto for merchandize.]

Merchandize are paid with all kinds of Dutch silver, ⅒ only in
dubleties, and ⅓ gold, less or more, or sometimes none, according to

[Sidenote: The denominations of the several silver currencies not
           proportioned to their intrinsic value.]

From this exposition of the matter, it is very evident, that all these
currencies must be of different intrinsic values, in proportion to their
denomination; otherwise, why all this trouble about regulating the
proportion to be received in payments? [Sidenote: Cause of this.] This
proceeds from two causes: first, from the wearing of the pieces; the
second, from the disproportion of the fineness in pieces of the same
weight and denomination.

[Sidenote: Regulations concerning the weighing of silver species in
           banks current.]

As to the first, to wit, the wearing of the coin, I shall observe, that
the three denominations of the good silver, to wit, the 3 guilder
pieces, the 30 stiver pieces, and the 20 stiver pieces, are put up
promiscuously in the same bags; being of the same fineness, and
consequently of the same value, in proportion to their weight. These
bags contain 600 florins each, and the legal and full weight, with which
they are weighed at the bank current of Rotterdam, is 25 marcs 5 ounces
and 10 engles. Now the exact weight of a florin, according to the
regulation, is, as we have said, 200.21 aces fine; then the 600 florins
ought to weigh 120126 aces fine, which at the standard of 263 parts fine
to 25 alloy, is 131545 aces standard: by this analogy, 263 : 120126 ::
288 : 131545; which is equal to 25 marcs 5 ounces 10 engles and 13 aces.
So the weight at the bank is but 13 aces lighter than in strictness it
ought to be; which is so small a difference, that it could hardly turn a
scale with such a weight suspended in it: for which reason, I suppose,
it is left out, for the sake of the even reckoning of 25 marcs 5½

Did these bags of silver coin come up to the full weight, then the
silver currency in Holland would be good as to those pieces; but as the
greatest part of them are old, having been struck with the hammer, and
are of unequal weight, having been coined (_al marco_) in the old
fashion, when coin was weighed by the marc, and not as at present piece
by piece, it is impossible they should be of legal weight: the bank,
therefore, allows 2 ounces of remedy in receiving those sacs, that is,
they put 2 ounces into the scale with the sac, and if they find that the
sac is still light, but that the deficiency does not exceed one ounce
more than the remedy, they throw out the coin and reckon it over; and if
the tale be just, and that none of the pieces appear to have been
clipped, they receive it as if it were of due weight: if it prove above
3 ounces short of the just weight, they do not receive it.

[Sidenote: All allowances for light weight are an abuse.]

Here is a palpable abuse, from a disorder in the coin. If a sac is ever
so little too light, why allow it to pass, as if it were of due weight?
Nothing is so easy as to order such deficiency to be made good by the
deliverer. Weights are made for exactness, and all remedies are aukward
and incorrect.

This allowance must open a door to malversations in a country like
Holland, where there is almost no milled silver coin. The old hammered
money was not weighed at the mint, as has been said, piece by piece: it
was sufficient that every marc of it answered to the legal denomination:
under such a regulation, it is very plain, that there must be many
pieces above the legal weight, as well as many pieces below it. Is it to
be supposed that money-jobbers will not profit of that inequality, by
reducing the heavy pieces to their standard weight, when by such an
action they cannot be convicted of any crime? This is one abuse.

By reducing the heavy pieces to their legal weight, the currency is
degraded; because that which is taken from these ought to be left to
compensate what the light pieces fall short. The bank, therefore, by
giving the remedy, gives a kind of sanction to this malversation.

[Sidenote: Frauds of money-jobbers in Holland.]

Farther, if a money-jobber gets some sacs above the current weight, is
it to be doubted but he will reduce them as near as he can to the lowest
weight received at the bank? And if he should mistake, and reduce them
too low, he has still an expedient for cheating the public, which shall
be mentioned presently.

[Sidenote: The best silver coin in Holland is, upon an average, 1 per
           cent. too light.]

Now let us suppose, that the specie we are speaking of is, upon an
average, only 2 ounces _per_ sac below the standard. If it be no more,
this circumstance does great honour to the money-jobbers. Such a
deficiency, however, amounts to within a mere trifle of 1 _per cent._ Is
not this an object of great importance, upon all the silver specie of
Holland; especially as the remedy given by the current bank, is a tacit
permission given to every body who has address, to rob so much from all
the weighty coin?

[Sidenote: From which it follows, that the actual proportion of the
           metals in their coin is as 1 to 14.479.]

Now let us, by the way, correct the former calculation we made upon the
proportion of the metals in the Dutch coin. We said above, that a marc
of fine gold in riders circulated for _f._ 374, and that the same weight
of silver circulated for _f._ 25.572, which gave for the proportion 1 to
14.62; but here we find that the marc of silver has lost by fraud and
wear 1 _per cent._

Now the marc of silver being 5120 aces, if they have lost 1 _per cent._
there will remain 5068.8 aces. If these 5068.8 aces, therefore,
circulate for _f._ 25.571, the full marc must be worth in the coin _f._

In order then to find the exact proportion of the metals in the Dutch
currency, we must divide 374 by 25.83, instead of dividing by 25.572, as
we did when we supposed the silver of full weight. Now 374⁄25.83 is =
14.479. So the proportion is as 1 to 14.479, the same, within a trifle,
of that received in France; which is as 1 to 14.47. But if we attend to
every circumstance, we shall find the proportion still lower than the
last calculation makes it; for in that, we have searched for it with
respect to the best silver specie in Holland; whereas we ought, in
strictness, to calculate the gold, against a mixture of ⅓ of less
valuable specie, with ⅔ of the good: but when computations cannot be
brought to perfect exactness, it is better not to attempt a calculation.

[Sidenote: Another abuse in the silver coin of Holland.]

Before I leave the consideration of the inequality in the weight of the
Dutch currency, I must take notice of another circumstance of
considerable importance.

No payments made in silver, below _f._ 600, are subject to be weighed;
any more than what circulates without being put up in bags. What
restraint, therefore, is there laid upon money-jobbers, with respect to
this part of the currency? When these gentlemen have occasion for money
bagged up, they take care that such specie shall be of the proper weight
to pass at the current bank, and as for all that is light, they either
employ it in payments below _f._ 600, or throw it into the common
circulation. This circumstance presents us then with two sorts of silver
currency in Holland; that which is bagged up, and weighty; and that
which is not, and light.

If we consider the trade of Holland, and the prodigious quantity of
payments made in current money, we shall find the quantity of silver
which circulates in loose pieces very small, in proportion to that which
is bagged up: the regulation therefore of weighing the bags is of
infinite importance; and were it not for that, the currency would be
debased in a very short time. But the cashiers, who are the great
depositaries of this currency, being obliged to deliver the bags of the
legal weight, they are thereby restrained from tampering with it: and
the bagging up, greatly preventing the wear, supports tolerably well the
weight of this old currency of hammered money.

[Sidenote: Reason of the great apparent scarcity in Holland of silver

To people who do not attend to all these circumstances, there _appears_
a prodigious scarcity of silver currency in Holland. It is there as
difficult to get change for ducats, as it is in England to get change
for guineas; and yet, upon examination, we shall find, that the
intrinsic value of the silver coin, commonly given in exchange for the
gold species, is far below the value of the gold.

[Sidenote: A paradox to be resolved.]

Here then is a paradoxical appearance to be resolved; to wit, How it can
happen in trading nations, such as England and Holland, that in the
exchanging light silver coin for weighty gold coin, people should be so
unwilling to part with the silver, although really of less value than
the gold.

This is the case in both countries: thus it happens in England, where
there is so little silver currency; and the case is the same in Holland,
where there is a vast deal. Let me therefore endeavour to account for
these political phænomena.

Since the time I composed the former part of this inquiry into the
principles of money and coins, I have found, by the trials I made in
Holland upon the weight of the English silver currency, that shillings
are at present (1761) far below the weight of 1⁄65 of a pound troy,
which is what they ought to be, in order to make 21 of them equal in
value to a new guinea, according to the present proportion of the
metals. It is therefore demanded,

1_mo_, How it comes about that such shillings do not debase the value of
the English standard below that of the gold?

2_do_, Why are they so difficult to obtain, in change even for new
guineas, which are of more intrinsic value every where? And,

3_tio_, Why money-jobbers are not always ready to give them in exchange
for new guineas?

These appearances seem inconsistent with the principles above laid down;
and a reason must be given why these principles do not operate their
effect in this example.

[Sidenote: Solution of it.]

I answer, that circumstances are infinite, and must constantly be
attended to; and there are in the case before us several specialities
not to be overlooked; I shall therefore point them out, in my answers to
the three questions, as they lie in order.

As to the first, I answer, that these shillings are in so small a
quantity, in proportion to the gold species, that they cannot be
employed in _payments_. Now it has been said above, that _exchange_ (in
trade) regulates the value of the pound sterling, and considers it as a
determinate value, according to the combination of the intrinsic worth
of all the several currencies, _in proportion as payments are made in
one or the other_. Now (generally speaking) no commercial obligations
are acquitted in silver. I do not understand by the word _payments_, a
few pounds sterling sent from farmers in the country, perhaps in
payments of their rents to their landlords; nor what falls into the
public offices, in the payment of taxes. It is trade alone, and the
payment of bills of exchange between different countries, which can
ascertain the true value of that currency in which mercantile payments
are made. Were these worn-out shillings in such plenty as to allow bills
of exchange to be acquitted in them, I make no doubt but they would fall
below the value of the 1⁄21 of new guineas; every one would be glad to
dispose of them for guineas, at the rate of their currency; and guineas,
then, would be as difficult to be got for silver, as silver is now to be
had for guineas. This would bring the standard still lower than it is at
present; that is, below the value of the gold: but as payments cannot be
made in shillings, their currency cannot affect the standard.

The second question is, Why they should be so difficult to obtain in
change for guineas, which are above their value?

I answer, that it is not the intrinsic worth of the light shillings
which makes them valuable, and difficult to be got; but the utility they
are of in small circulation, forces people to part with their guineas
for a less valuable currency. These shillings I consider (now) as
_marks_, not as material money, fitted to a standard. Every body knows
the difference between _marks_ or _counters_, and _specie of intrinsic
worth_. The copper coin of most nations is marks, and passes current,
although it does not contain the intrinsic value of the denomination it
carries; nor ought it to be a legal tender in payments above a certain
sum. Such a regulation preserves its usefulness for small circulation,
and prevents it, at the same time, from debasing the standard, and
involving in confusion the _specific currency_ (as I may call the gold
and silver coins) when properly proportioned, and of just weight.

But shillings in England, although they be at present in a manner no
better than marks, because of their lightness; yet in the eye of the law
they continue to be lawful money, and a legal tender in payments. It is
therefore of great consequence that such shillings be not in too great
plenty. That would have been the case, had government come in to the
plan proposed for the coinage of shillings below the standard; such
shillings would have been coined abroad, and run in upon England, to the
great detriment of the nation; and although they had been proscribed in
payments, beyond a certain sum, yet they would have been so multiplied
in small payments, as to have furnished a means of buying up the gold
coin, and carrying it out of the country for an under-value. Whereas the
worn shillings do not produce that bad effect, from the scarcity of
them, and from the impossibility of imitating them in foreign mints[5].

Footnote 5:

  It is commonly believed that shillings are coined at Birmingham, and
  that government winks at the abuse, because of the great scarcity of
  silver in England. I find no foundation for this belief, after the
  inquiry I have made.

  In the first place, Mr. Harris, who was the best assay-maker in
  Europe, told me, that a bag of those shillings had been sent to the
  mint by the Lords of the Treasury, to be tried by him: that he had
  found them to be English standard, to the most scrupulous exactness:
  that he did not believe any such correct assay could be made, except
  at the mint: that all the engravers of the mint declared it was
  impossible to imitate a worn shilling.

  The trials I myself made were of a different nature. I examined the
  shillings with a magnifying glass; and found almost every one
  different in the impression, as well as in the weight. In some the
  back-part of the head was worn, in others the face: none, in short,
  were worn perfectly alike.

  I put a handful of them into a coal fire; and taking them out when
  red-hot, and throwing them on the hearth, I plainly discovered, on
  many of them, some part of the arms of Great Britain appearing in the
  cross upon the reverse, in a different colour from the ground of the
  coin: in others indeed nothing could be seen: this was owing to the
  degree of wearing. How then can any dye strike an impression upon a
  coin, which answers all these appearances?

  I communicated to Mr. Harris the trials I had made, and he was
  perfectly satisfied, upon the whole, that no old shilling had ever
  been counterfeited at Birmingham.

The answer to the third question, viz. Why money-jobbers are not always
ready to give old shillings for new guineas? is easy, from what has been
said. They cannot pick them up below the mean value of the currency;
because of the great demand there is for them in exchange for guineas;
therefore they can gain nothing by providing them for that purpose.

It comes next in order, to solve a similar phænomenon in Holland, where
there are great quantities of silver specie, and yet one can hardly find
change for a ducat, except in a shop, where one has occasion to buy

This mystery is easily resolved. The great quantities of silver in
Holland consist of what is put up in bags of due weight, according to
the regulations mentioned above. This part of their currency is about ½
_per cent._ better, in intrinsic value, than ducats at 5_f._ 5_st._ tale
for tale; which is a sufficient reason not to part with it, in change
for ducats at that rate. But besides this bagged up bank specie, there
are many other sorts of old worn-out coin, of unequal weight and

These serve as marks for the small circulation, and are not a legal
tender in all payments; such as foreign bills. What is the consequence
of this? Since this old specie carries denominations above its value,
when compared with the bagged-bank-silver coin, it serves to buy up this
good silver, when it falls into circulation; that is, it serves to buy
up, or to exchange, florin pieces, which are, as I have said, ½ _per
cent._ better than ducats at 5_f._ 5_st._ Such good silver pieces are
not very common in ordinary circulation; but as it frequently happens
that people receive silver in sacs, for their daily expence, who do not
mind the difference of ½ _per cent._ when they pay in this good money,
it circulates for a little time, until it falls into the hands of those
who know it, and bag it up again. Thus it happens in Holland, from the
disorder of their coin, that you may be paid a million sterling, if you
please, in good silver coin; and yet you find difficulty to procure
silver for a ducat, in the lightest, basest, and most aukward pieces
imaginable for reckoning. The bad consequences resulting from this
disorder, have been taken notice of in the proper place.

                         END OF THE THIRD BOOK.




                                INTO THE



                                BOOK IV.
                          OF CREDIT AND DEBTS.

                                PART I.
                       OF THE INTEREST OF MONEY.



I come now to inquire into the principles of credit; a subject already
introduced in the 27th chapter of the second book, where I examined the
nature of circulation, and pointed out the principles, which direct a
statesman when and how to retard or accelerate its activity, according
as the political interests of his people may require.

In that chapter the object was, when and how either to extend or
restrain the use of credit, according to political circumstances. The
question now comes to be, what that credit is; upon what it is founded;
what the various species of it are; what the methods of establishing and
extending it, while in its infancy and vigour; how to sustain it when
overstretched; and last of all, how to let it fall as gently as
possible, when by no human prudence it can be longer supported?

Many political writers in treating of credit, represent it as being of a
very mysterious nature; owing its establishment to a confidence not
easily accounted for, and disappearing from the slightest unfavourable

That credit, in its infancy, is of a very delicate nature, I willingly
allow; as also that we have many examples which confirm the sentiments
of those who believe it to contain, in itself, something very
mysterious: but this proves no more, than that, in such cases, credit
(as I consider it, and as it will appear really to be) has not been
properly established. The cause of confidence has had nothing in it but
opinion, and when this is the case, credit is but a shadow; a thin
vapour, which may be dissipated by the smallest breath of wind.

They all agree that credit is no more than confidence, but they do not
examine how that confidence is to be established on a solid foundation.

The operations of credit are incompatible with the involved contracts of
the law, and with the spirit of intricate land-securities. The policy of
such contracts was analogous to the manners of the times which gave them
birth. Trade is a late refinement, in most nations of Europe, and
industry is still a later: the beginnings of both are slow,
imperceptible, and obscure. The instruments by which they are promoted,
are the lower classes of a people; such individuals appear to be of very
small consequence; and yet it is by the accumulation of many small
things only, that this huge fabric is erected.

To establish that credit, which is necessary for carrying on so great a
work, a statesman must lend his hand. He must give a validity to
mercantile obligations, which have no name in his law books: he must
support the weak against the strong: he must reform the unwieldy
procedure of courts of justice: he must facilitate the sale of property:
he must establish the credibility of merchants books regularly kept: he
must discourage frauds, and support fair dealing.

When such a plan is once established, confidence will find a basis in
the property of every individual who profits by it. When it is not
established, credit will appear like a meteor: intelligent and crafty
men will avail themselves of it, and thereby dazzle the eyes of the
public, with gilded schemes of opulence and prosperity: mankind will fly
to industry, confidence will be established; but as there will be no
method of determining the bounds of that confidence, the promoters of
the scheme will profit of the delusion: confidence will vanish; and the
whole will appear to have been a mystery, a dream. Is not this a
representation of many projects set on foot since the beginning of this
century? What were the South Sea’s and Missisippi’s, but an abuse of
confidence? Had ever the _cause_ of confidence been examined into, would
ever such extravagant ideas have arrived at the height they did?

Credit therefore must have a _real_, not an _imaginary_ object to
support it; and although I allow that in all operations of _mercantile_
credit, there must be something left to chance and accident; yet that
chance must bear a due proportion to the extraordinary profits
reasonably to be expected from the undertaking.

From this it appears, what an useful speculation it is to inquire
properly into the nature of credit; to deduce with accuracy the
principles upon which it is founded; to banish mystery from plain
reason; to shew how even the most surprizing effect of credit, whether
tending to the advantage, or to the hurt of society, may easily be
accounted for; and, which is the most useful of all, to point out how
such effects may be foreseen, so as either to be improved or prevented.

In going through so extensive a subject, as a deduction of the
principles of credit, method is very necessary; and when a detail is
long, subdivisions are very convenient. I have, upon this account,
divided this book into four parts.

The first shall be set apart for deducing the principles which regulate
the rate of interest; because this is the basis of the whole.

The second, for the principles of banking; under which I shall have an
opportunity to unfold the whole doctrine of domestic circulation.

The third, for those of exchange; which is equally well calculated for
carrying on foreign circulation; and as to what regards debts, and the
borrowing of money, with all the consequences which they draw along with
them, these important objects will furnish ample matter for

The fourth and last part, which shall treat of the principles of public

These premised, I proceed to the definition of credit.

                                CHAP. I.
                 _What Credit is, and on what founded._

Credit is the _reasonable expectation entertained by him who fulfills
his side of any contract, that the other contracting party will
reciprocally make good his engagements_.

To illustrate this, we may say with the lawyers, that as all contracts
may be reduced under one of the following heads, _Do ut des, do ut
facias; facio ut des, facio ut facias_; so he who actually gives or
performs his part, is the creditor, or the person who gives credit; and
he who only promises to give or perform, is the debtor, or the person
who receives it.

Credit, therefore, is no more than a _well established_ confidence
between men, in what relates to the fulfilling their engagements. This
confidence must be supported by laws, and established by manners. By
laws, the execution of formal contracts may be enforced: manners, alone,
can introduce that entire confidence which is requisite to form the
spirit of a trading nation.

Credit, in its infancy, must be supported by statutes, and enforced by
penalties; but when it is once well established, every recourse had to
law, is found to wound the delicacy of its constitution. For this reason
we see, that in certain nations, the legislator wisely excludes the
ordinary courts of justice from extending their rigid jurisdiction over
mercantile engagements: they leave to the prudence and good faith of men
versed in commerce, to extricate the combinations which result from such
transactions; because they are to be interpreted more according to the
constant fluctuation of manners, than to the more permanent institutions
of positive law.

The more the jurisdiction of the statesman is unlimited; or in other
words, the less the power of any sovereign is restrained, by the laws
and constitution of the state he governs, the more it behoves him to
avoid every step of administration which can make his authority be felt
in cases where credit is concerned. If he should happen, for example, to
be a debtor himself, he must take good care never to appear in any other
light to his creditor. The moment he puts on the sovereign, the same
moment all confidence is lost. For these reasons, we have hitherto had
few examples (I might perhaps have said none at all) where credit has
been found _permanently_ solid, under a pure monarchy.

But we must observe, at the same time, that the stability of credit is
not incompatible with that form of government. At certain times, we have
seen credit make a surprising progress in France; and it has never
suffered any check in that state, but from acts of power, which I think
have proceeded more from inadvertency, and want of knowledge, than from
a design of defrauding creditors. These may be looked on as blunders in
administration; because they have constantly disappointed the purpose
for which they were intended. Let me prove this by some examples.

The arret of 21 May 1720, (of which we shall give an account hereafter)
destroyed in one day the whole fabric of credit, which had been erected
in France during the course of three years; and which in so short a time
had mounted to a height hardly credible. I say, that in one day this
inadvertent step (for no real injury was intended) destroyed the credit
of 2,697,048,000 livres of bank notes, (above 120 millions sterling) and
of 624,000 actions of the East India company, which (reckoned at 5000
livres apiece, the price at which the company had last sold them) amount
to 3,120,000,000 livres, or above 140 millions sterling. Thus at one
blow, and in one day, 260 millions sterling of paper currency, payable
to bearers, was struck out of the circulation of France; by an useless
and inadvertent act of power, which ruined the nation, and withered the
hand which struck it: an event too little understood, and too little
remembered in that kingdom.

This plainly appears from their late conduct; for in the end of 1759, at
a time when the credit of France was in so flourishing a situation as to
have enabled her to borrow, that very year, near 200 millions of livres;
and when there was a prospect of being able to borrow, in the year
following, a far greater sum, the shutting up what they called their
_caisse d’amortissement_, for the sake of withholding 32 millions of
livres interest due to the creditors, struck all credit _with
foreigners_ dead in one instant.

These examples shew what fatal consequences follow a misjudged exercise
of power in matters of credit.

On the other hand, the rapid progress of credit in France before the
Missisippi, and the stability of it from 1726 to the year 1759,
abundantly proves, that nothing is more compatible than monarchy and
confidence. All that is wanting is the establishment of _one maxim in
government_; to wit, that the King’s power is never to extend so far, as
to alter the smallest article of such stipulations as have been made
with those who have lent money for the service of the state.

_Maxims in government bind the monarch and the legislature, as laws bind
subjects and subordinate magistrates_: the one and the other ought to be
held inviolable, so far as they regard credit; or confidence will be

What has supported the credit of Great Britain, but the maxim constantly
adhered to, that the public faith pledged to her creditors is to be

Does any one doubt, but the legislature of that nation may spunge out
the public debts, with as much ease as a King of France? But in the one
kingdom, the whole nation must be consulted as to the propriety of such
a step; in the other, it may be done at the instigation of a single
person, ignorant of the consequences: but I hope to make it appear,
before the conclusion of this book, that it is impossible to form a
supposition, when a state can be benefited by deliberately departing,
for one moment, from the faith of her engagements. A national bankruptcy
may (no doubt) happen, and become irreparable; but that must be when the
state is emerging from a signal calamity, after having been involved in
ruin and confusion.

Confidence, then, is the soul and essence of credit, and in every
modification of it, we shall constantly find it built on that basis; but
this confidence must have for its object a _willingness_ and a
_capacity_ in the debtor to fulfil his obligations.


                               CHAP. II.
_Of the Nature of Obligations to be performed, in Consequence of Credit

We have already said, that all obligations contracted with a view to be
performed in future time, consist in doing or giving something; in
consideration of something _done_, or _given_.

When actions only are stipulated in contracts, _credit_ (in a strict
acceptation of the term) is little concerned; because no adequate
security can be given for performing an action: such contracts stand
wholly upon the willingness and capacity of _acting_, which depend more
upon the _person_ than upon the _faculties_ of the debtor. To supply
that defect, we see penalties usually stipulated in such cases; which
reduce those contracts to an alternative obligation of either _doing_ or

We shall therefore throw out the consideration of the first altogether,
as being foreign to our purpose; and adhere to the latter, which is the
true object of credit. Again,

In all obligations to give any particular thing, there is constantly
implied an alternative also; to wit, either the thing stipulated, or the
value (_id quod interest_, according to the lawyers) this must be
relative to money; which is the common price of all things in commerce
among men.

Thus we have brought credit to the object under which we are to consider
it, viz. the obligation to pay money, either for value received, or for
some consideration relative to the parties, which may be the just ground
of a contract.

Credit and debts are therefore inseparable, and very properly come to be
examined together in this book.

When money is to be paid at a distant period of time, the obligation may
either be, 1. for one precise sum; or 2. for that sum with interest,
during the interval between contracting and fulfilling the obligation.

The lending of money without interest, was very common, before the
introduction of trade and industry. Money then was considered as a
barren stock, incapable of producing fruit; and whenever the quantity of
it, in any country, exceeded the uses of circulation, the remainder was
locked up in treasures. In that light, the exacting of interest for it
appeared unreasonable.

Things are now changed: no money is ever locked up; and the regular
payment of interest for it, when borrowed, is as essential to the
obtaining of credit, as the confidence of being repaid the capital.
These periodical payments are a constant corroboration of this
confidence; so that it may be said, with truth, that he who can give
good security, to pay to perpetuity, a regular interest for money, will
obtain credit for any sum, although it should appear evident, that he
never can be in a capacity to refund the capital.

The reason of this may be gathered from the principles already deduced,
and from the plan of our modern oeconomy.

We have said in the second book, that the current money of a country is
always in proportion to the trade, industry, consumption, and
alienation, which regularly takes place in it; and when it happens that
the money already in the country is not sufficient for carrying on these
purposes, a part of the solid property, equal to the deficiency, may be
melted down (as we have called it) and made to circulate in paper. That
so soon again as this paper augments beyond that proportion, a part of
what was before in circulation, must return upon the debtor in the
paper, and be realized anew.

Now let us consider what is understood by _realized_. By this term is
meant, that the regorging paper, or that quantity of currency which a
nation possesses over and above what is necessary for its circulation,
must be turned into some shape whereby it may produce an income; for it
is now a maxim, that no money is to be suffered to remain useless to the
proprietor of it.

When this _regorging_ paper then comes upon the debtor in it, if he
should pay the value of it in hard specie, how would the condition of
the creditor be improved?

We suppose the credit of the paper equal to the credit of the coin
within the country. We also suppose that the paper has so stagnated in
the hands of the bearer, that he can neither lend it, or purchase with
it any species of solid property, within the country, capable to produce
an income: for if any way of disposing it usefully can be found, this
circumstance proves that circulation is not, at that time, fully
stocked; consequently, the money does not regorge. But let us suppose
that it does regorge; then he must either oblige the debtor in the paper
to pay in coin, and lock that up in his coffers, as was the case of old;
or he must send his coin to other countries, where circulation is not
fully stocked, and where an income may be bought with it. This
constantly happens when circulation is either overstocked, or when the
quantity of it begins to diminish in a country.

Let me next suppose, that in a country reasonably stocked with money, a
sudden demand for it, far beyond the ordinary rate of circulation,
should occur: suppose a war to break out, which absorbs, in a short
time, more money than, perhaps, all the coin in a nation can realize.
The state imposes a tax, which, let me suppose, may produce a sum equal
to the interest of the money required. Is it not very certain, that such
persons who found a difficulty in placing their regorging capitals, will
be better pleased to purchase a part of this annual interest, than to
lend it to any person who might pay it back in a short time; by which
repayment the lender would again be thrown into the same inconvenience
as before, of finding a proper out-let for it? This is a way of
realizing superfluous money, more effectual than turning it into gold or

When I speak, therefore, of realizing paper money, I understand either
the converting it into gold and silver, which is the money of the world;
or the placing of it in such a way as to produce a perpetual fund of
annual interest.

Were public borrowing, therefore, to work the effect of bringing the
money in circulation below the proportion required for carrying on
alienation, then an obligation to repay the capital would be necessary,
and complaints would be heard against the state for not paying off their
debts; because thereby the progress of industry would be prevented. But
when the operations of credit are allowed to introduce a method of
creating money anew, in proportion to the demand of industry, then the
state has no occasion to pay back capitals; and the public creditors
enjoy far better conditions in their annual income, than if the capitals
were refunded.

Let me illustrate this by an example.

We must take it for granted, that in every nation in Europe, there is a
sum in circulation equal to the alienation which goes on actually at the
time. We must also take it for granted, that the amount of all debts
whatsoever, public and private, paying interest to the class of
creditors, is a very great sum: now let us suppose, that the class of
debtors should be enabled (no matter by what means) to pay off what they
owe, in coin; would not, by the supposition, a sum nearly equal to that
coin immediately fall into stagnation, and would it not be impossible to
draw any income from it? This was exactly the case of old. The coin far
exceeded the uses of circulation, and stagnated in treasures. Wars
brought it out; because then circulation augmented; peace again cutting
off these extraordinary demands, the coin stagnated again, and returned
to the treasures.

What is the case at present?

Money and coin are never found to surpass the uses of circulation in
commercial countries. When war comes, which demands an extraordinary
supply, recourse is had to borrowing upon interest; not to treasures:
and the desire of purchasing this interest, which we call an annuity,
draws treasures even from the enemies of those nations who have the best
credit. Again, at the end of a war, in place of an empty treasure, as
was the case of old, we find a huge sum of public debts. As oeconomy
filled the treasury then, so oeconomy must pay off the debts now.

From what has been said, it plainly appears, that interest is now become
so absolutely essential to credit, that it may be considered as the
principal requisite, and basis on which the whole fabric stands: we
shall therefore begin by examining the origin and nature of interest,
and also the principles which influence the rate, and regulate the
fluctuations of it.


                               CHAP. III.
                      _Of the Interest of Money._

I shall leave it to divines and casuists to determine how far the
exacting of interest for money is lawful, according to the principles of
our religion.

The Jews, by the laws of Moses, were forbid to lend at interest to their
brethren, but it was permitted to lend to strangers. _Deut._ chap.
xxiii. ver. 19, 20. This was one of the wisest political institutions to
be met with in so remote antiquity, as we shall hereafter explain.

In the primitive ages of christianity, the lending at interest was
certainly reputed to be unlawful on most occasions. That spirit of
charity, _to all who were in want_, was so warped in with the doctrine
of our religion, that a borrower was constantly considered to be in that
situation. Trade was little known; trading men were generally ill looked
upon; and those who deviated so far from the spirit of the times, as to
think of accumulating wealth by the use of their money, commonly
degenerated into usurers.

In the middle centuries, when a mistaken zeal animated christianity with
a most ungodly thirst for the blood of infidels, the Jews were, in every
nation in Europe, almost the only money lenders. This circumstance still
more engaged the church to dart her thunder against this practice; and
the loan upon interest never took root among christians, until a spirit
of trade and industry sprung up in Italy in the time of the Lombards,
and spread itself through the channel of the Hans-towns over several

Then the church began to open her eyes, and saw the expediency of
introducing many modifications, to limit the general anathema against
the whole class of money lenders. At one time it was declared lawful to
lend at interest, when the capital shared any risque in the hands of the
borrower; at another, it was found allowable; when the capital was not
demandable from the debtor, while he paid the interest: again, it was
permitted, when the debtor was declared by sentence of a judge, to be
_in mora_ in acquitting his obligation: at last, it was permitted on
bills of exchange. In short, in most Roman catholic countries, interest
is now permitted in every case almost, except in obligations bearing a
stipulation of interest for sums demandable at any time after the term
of payment; and it is as yet no where considered as essential to loan,
or demandable upon obligations payable on demand.

Expediency and the good of society (politically speaking) are the only
rule for judging, when the loan upon interest should be permitted, when
forbid. While people borrowed only in order to procure a circulating
equivalent for providing their necessaries, until they could have time
to dispose of their effects; and while there was seldom any certain
profit to be made by the use of the money borrowed, by turning it into
trade, it was very natural to consider the lender in an unfavourable
light; because it was supposed that the money, if not lent, must have
remained locked up in his coffers. But at present, when we see so many
people employed in providing stores of necessaries for others, which,
without money, could not be done; forbidding the loan upon interest, has
the effect of locking up the very instrument (money) which is necessary
for supplying the wants of the society. The loan, therefore, upon
interest, _as society now stands composed_, is established, not in
favour of the lenders, but of the whole community; and taking the matter
in this light, no one, I suppose, will pretend that what is beneficial
to a whole society should be forbid, because of its being proportionably
advantageous to some particular members of it.

If it be then allowed, that the loan upon interest is a good political
institution, relative to the present situation of European societies,
the next question is, to determine a proper standard for it, so as to
avoid the oppression of usurers, on one hand, and on the other, to allow
such a reasonable profit to the lender, as may engage him to throw his
money into circulation for the common advantage.

This question leads us directly to the examination of the principles
which regulate the rate of interest; and if we can discover a certain
rule, arising from the nature of things, and from the principles of
commerce, which may direct a statesman how to establish a proper
regulation in that matter, we may decide with certainty concerning the
exact limits, between unlawful and pinching usury, exacted by a vicious
set of men, who profit of the distress of individuals; and that
reasonable equivalent which men have a right to expect for the use of
their money, lent for carrying on the circulation of trade, and the
employment of the lower classes of a people, who must subsist by their
industry or labour.


                               CHAP. IV.
       _Of the_ Principles _which regulate the Rate of Interest_.

We must now recal to mind the principles of demand and competition, so
fully deduced in the second book, in order to answer the following
question, viz.

What is the principle which regulates, at all times, the just and
adequate rate of interest for money, in any particular state?

I answer, That at all times, there is in every state a certain number of
persons who have occasion to borrow money, and a certain number of
persons who desire to lend: there is also a certain sum of money
demanded by the borrowers, and a certain sum offered to be lent. The
borrowers desire to fix the interest as _low_ as they can; the lenders
seek, from a like principle of self-interest, to carry the rate of it as
high as _they_ can.

From this combination of interests arises a double competition, which
fluctuates between the two parties. If more is demanded to be borrowed,
than there is found to be lent, the competition will take place among
the borrowers. Such among them who have the most pressing occasion for
money, will offer the highest interest, and will be preferred. If, on
the contrary, the money to be lent exceeds the demand of the borrowers,
the competition will be upon the other side. Such of the lenders, who
have the most pressing occasion to draw an interest for their money,
will offer it at the lowest interest, and this offer will be accepted

I need not launch out into a repetition of what has been said concerning
the influence of double competition, in fixing the price of commodities:
I suppose those principles understood, and well retained, by those who
read this chapter; and confine myself here to what is peculiar to the
demand for money.

The price of commodities is extremely fluctuating: they are all
calculated for particular uses; money serves every purpose. Commodities,
though of the same kind, differ in goodness: money _is_ all, or _ought
to be_ all of the same value, relative to its denominations. Hence the
_price of money_ (which is what we express by the term _interest_) is
susceptible of a far greater stability and uniformity, than the price of
any other thing.

We have shewn in the 28th chapter of the second book, in examining the
principles which regulate the prices of subsistence, that the only thing
which can fix a standard there, is frequent and familiar alienation. The
same holds true of money. Were we to suppose a state, where borrowing
and lending are not common, and where the laws fix no determinate
interest for money, it would hardly be possible to ascertain the rate of
it at any time. This was the case of old.

Before the reign of Henry VIII. of England, _anno_ 1545, there was no
statute regulating the rate of interest in that kingdom. The reason is
very plain. In those days there was little circulation, and the
borrowing upon interest was considered as a mortal sin. The consequence
of this was, that usurers, having nothing but conscience to restrain
them, carried the price of their money to a level with the pressing
occasion of spendthrifts, while others, from friendship, lent for no
interest at all. Henry fixed the rate of interest at 10 _per cent._ and
his cotemporary, Francis I. of France, _anno_ 1522, (who was the first
who borrowed money in a regular manner upon the town-house of Paris)
fixed the interest at the 12th penny, that is, at 8⅓ _per cent._

In those days, it was impossible for a statesman to determine any just
rate for interest; and accordingly we find history filled with the
extortion of usurers, on one hand, and the violence and injustice of
Princes and ministers towards those who had lent them money, on the
other: was it then any wonder, that lending at interest was universally
cried out against? It really produced very little good, and was the
cause of manifold calamities to a state. When the Prince borrowed, it
was when in the most urgent distress: those who lent to him, foresaw the
danger of being plundered if they refused, and of being defrauded as
soon as the public distress was over: for this reason they exacted the
most exorbitant interest: the consequence was, that the people were
loaded with the most grievous taxes, and the tax-gatherers were the
Prince’s creditors, to whom such taxes were assigned.

In our days, trade, industry, and a call for money for such purposes,
enable the borrower to enrich himself, to supply the wants of the state,
and to pay his interest regularly.

If we compare the two situations, we shall find every disadvantage
attending the former, and every advantage connected with the latter.

Without good faith there is no credit; without credit there is no
borrowing of money, no trade, no industry, no circulation, no bread for
the lower classes, no luxury, not even the conveniencies of life, for
the rich. Under these circumstances, there can be no rule for the rate
of interest; because borrowing cannot be frequent and familiar.

In proportion, therefore, as borrowing becomes frequent and familiar,
the rule for fixing the rate of a legal interest becomes more
practicable to a statesman. Let me take a step farther.

We have said, that it is the fluctuation of the double competition
between borrowers and lenders, which occasions the rise and fall of the
rate of interest; I must now point out the principles which occasion
this fluctuation.

Were the interests of trade and industry so exactly established, as to
produce the same profit on every branch, the money borrowed for carrying
them on, would naturally be taken at the same rate; but this is not the
case: some branches afford more, some less profit. In proportion,
therefore, to the advantages to be reaped from borrowed money, the
borrowers offer more or less for the use of it.

Besides the class of men who borrow _in order to profit_ by the loan,
there is another class, who borrow _in order to dissipate_. The first
class never can offer an interest which exceeds the proportion of their
gains: the second class, finding nothing but want of credit to limit
their expence, become a prey to usurers. Were it not then upon account
of these last, there would be no occasion for a statute to regulate the
rate of interest. The profits on trade would strike an average among the
industrious classes; and that average would fall and rise, in proportion
to the flourishing or decay of commerce.

Let us next examine the principles which prevent the monied men from
committing extortions, and which oblige them to lend their money for
that rate of interest which is in proportion to the profits upon trade
and industry.

In every country there is found a sum of money (that is, of circulating
value, no matter whether coin or paper) proportioned to the trade and
industry of it. How this sum is determined, and how it is made to
augment and diminish in proportion to industry, we have already
explained in the 26th chapter of the second book: we are now to examine
some of the consequences which result from the accidental stagnation of
any part of it to the prejudice of alienation; and we must shew how the
loan upon interest is the means of throwing it again into circulation.

There are in every state some who spend more, and some who spend less
than their income. What is not spent must stagnate; or be lent to those
who spend more than the produce of their own funds. Were the first class
found so to preponderate, as to require more money to borrow than all
that is to be lent, the consequence would be, to prevent the borrowing
of merchants; to raise interest so high as to extinguish trade; and to
destroy industry; and these resources coming to fail, foreign
commodities would be brought in, while exportation would be stopt, money
would disappear, and all would fall into decay.

This, I believe, is a case which seldom happens; because the rise of
interest (as states are now formed) has so much the effect of
depreciating the value of every species of solid property, that
spendthrifts are quickly stripped of them, by the growing accumulation
of that canker worm, interest; their ruin terrifies many from following
so hurtful an example, and their property falling into the hands of the
other class, who spend less than their income; these new possessors
introduce, by their example, a more frugal set of manners. This may be
the case in countries where trade and industry have been introduced; and
where the operations of credit have been able to draw a large quantity
of solid property into circulation, according to the principles deduced
in the chapter above referred to. But in nations of idleness, who
circulate their coin only, and who are deprived of the resource of
credit, high interest prevents them from emerging out of their sloth;
the little trade they have, continues to produce great profits, which
are incompatible with foreign commerce: this may, indeed, make the coin
they have circulate for home consumption, but can bring nothing from

On the other hand, when trade and industry flourish, and a monied
interest is formed, in consequence of melting down of solid property,
and still more when a state comes to contract great debts, were the
money lenders to attempt to raise the rate of interest to the standard
of the spendthrift, the demands of trade, &c. would soon be cut off: the
stagnation would then swell so fast in their hands, that it would in a
manner choak them, and in a little time interest would fall to nothing.
Whereas by contenting themselves with the standard of trade, the largest
supplies (provided for the borrowers) easily find a vent, without
raising the rate of interest so high as to be hurtful to any interest
within the state.

Add to this, that the advantage of realizing, into lands, so unstable a
property as money, must naturally throw the proprietors of it into a
competition for the lands which dissipation brings to market; and so by
raising the value of these, they, with their own hands, defeat the
consequences of the dissipation of spendthrifts, and hurt their own
interest, to wit, the rise of the price of money. From a combination of
these circumstances, lenders become obliged to part with their money at
that rate of interest which is the most consistent with the good of

We have hitherto preserved our combinations as simple as possible. We
have suggested no extrinsic obstacle to borrowing and lending. If money
is to be lent, and if people are found who incline to borrow, we have
taken it for granted, that circulation will go on; and that the
stagnations in the hands of the lenders, will find a ready vent by the
dissipation of the other class: we must now take a step farther.

The spendthrifts must have credit; that is, they must have it in their
power to repay with interest what they have borrowed: any impediment to
credit, has the effect either of diminishing the demand for money, and
consequently of lowering the rate of interest, or of introducing
unlawful usury. If we suppose the rate of interest well determined, and
usury prevented by a regular execution of good laws, it is very certain,
that a statesman by hurting the credit of extravagant people, will keep
the rate of interest within due bounds.

If, therefore, we find the laws of any country, in our days, defective
in establishing a facility in securing money on solid property, while
the rate of interest stands higher than is consistent with the good of
trade, and with public credit; we should be slow in finding fault with
such a defect. The motives of statesmen lie very deep; and they are not
always at liberty to explain them. An example of such clogs upon credit
are entails upon lands, and the want of proper registers for mortgages.

Did the dissipation of landed men tend to promote foreign trade, such
clogs would be pernicious: but if the tendency be to promote domestic
luxury only, and thereby raise the price of labour and industry, the
case is widely different. This observation is only by the bye. Our
object at present extends no farther, than to point out, that the
dissipation of landed men, and the credit they have to borrow money,
influences, not a little, the rate of interest in every modern state.

These are the general principles which, arising from things themselves,
without the interposition of a statesman, tend to regulate the rate of
interest in commercial nations.


                                CHAP. V.
              _Of the Regulation of Interest by Statute._

From the principles deduced in the preceeding chapter, we have seen how,
without the aid of any law, the interest of money, in a trading nation,
becomes determined, from natural causes, and from the irresistible
effects of competition.

But as there is no country in the world so entirely given to commerce,
as not to contain great numbers of people, who are totally unacquainted
with it, a regulation becomes necessary to restrain, on one hand, the
frenzy of those, who, listening to nothing but the violence of their
passions, are willing to procure money at any rate for the gratification
of them, let the political consequences of their dissipation prove ever
so hurtful; and on the other, to protect those who, from necessity, may
be obliged to submit to the heavy oppression of their usurious

Laws restraining usury, are directly calculated for the sake of those
two classes, not engaged in commerce, and indirectly calculated for
commerce itself; which otherwise might receive a wound through their

In entring upon the subject mentioned in the title of this chapter, I
think we may agree in this, that hitherto all regulations made
concerning interest, have been calculated either for bringing it down,
or for preventing its rise. The distress which may come upon a state, by
its falling too low, is a phænomenon which has not yet manifested itself
in any modern state, by any symptom I can at present recollect.

Now if it be true, as I think it has been proved, that the operations of
demand and competition work irresistible effects in determining the rate
of interest in commercial states; the statesman who is about to make a
regulation, must keep these principles constantly in his eye.

If we examine the writings of those who have treated of this subject
with intelligence (among whom, I think, Child has a right to stand in
the foremost rank) we shall find very little attention bestowed upon
that most necessary and ruling principle.

He lays it down as an axiom, that low interest is the soul of trade, in
which he is certainly right; but he seems to think, _that it is in the
power of a legislature, by statute, to bring interest down to that level
which is most advantageous to trade_; and in this I differ from him. I
must do him the justice to say, that he no where directly affirms that
proposition; but by suggesting none of the inconveniences which may
follow upon an arbitrary reduction of interest by statute, he leaves his
reader at liberty to suppose, that the lowering of it is solely in the
hands of a statesman.

It is very plain, from the history he has given us of the successive
rates of interest in England, from 10 to 6 _per cent._ that without the
interposition of statutes, such diminutions would not, _in that period_,
have taken place, from the principle of competition: but I am not so
clear that, _at this time_, when trade is so well understood, and credit
so generally established in many nations of Europe, that a like
administration would work effects equally advantageous.

It is with great diffidence I presume to differ from Child upon this
subject; and I find a sensible satisfaction in perceiving that my
principles bring me so very near to his sentiments on this matter.

The strong arguments in favour of Child’s opinion, are grounded upon
facts. He says, that when interest was brought down by statute, _anno_
1625, from 10 to 8 _per cent._ that in place of producing any bad
effect, it had that of bringing it still lower immediately afterwards;
and the same thing happened, _anno_ 1650, when it was reduced a second
time by statute, from 8 to 6 _per cent._ at which rate it stood at the
time he wrote. These facts I give credit to, and shall now account for
them, from the consequences of sudden revolutions.

When a law is made for the reduction of interest, all debtors
immediately profit by it. Upon this, the creditors must either submit,
or call in their capitals. If they submit, land immediately rises in its
value. If they call in their capitals, they must have an outlet for
lending them out again, beyond the limits of the jurisdiction of the
legislature. Now this outlet was not then to be found; because credit
was no where well established, except in Holland, where interest was
still lower.

They were, therefore, obliged to submit, and thus interest was violently
brought down by statute; and a great advantage resulted from it to the
commercial interests of England.

The subsequent fall of interest, in the natural way, is thus easily
accounted for.

The consequence of lowering the interest, was, that the price of land
rose several years in purchase: the landed men, who had long groaned
under the heavy interest of 10 _per cent._ finding their lands rise from
12 years purchase to 15, upon reducing the interest to 8 _per cent._
sold off part of their lands, and cleared themselves. The natural
consequence of this was, to make money regorge in the hands of the
monied men; to diminish the number of borrowers; and consequently, to
bring the rate of interest still lower.

One sudden revolution produces another. When interest is brought down by
statute, the price of land must rise by a jerk; and landed men will
suddenly profit of the change in their favour. When it falls gently, by
natural revolutions in the state of demand, the effects are more
insensible; the sharper sighted only profit of it; others, from
expectation of a still greater rise in the price of their lands, neglect
to sell in the proper point of time; and may perhaps be disappointed
from a new fluctuation in favour of money. This is at present actually
the case in Great Britain, since the peace of 1762. I write in 1764.

These facts speak strongly in favour of Child’s opinion, that it is
expedient to have recourse directly to the statute, whenever there is a
prospect of advancing the interests of trade by a reduction of interest.

It is impossible to reply to matters of fact: all, therefore, I have to
allege in favour of my own opinion, is, that it is more consistent with
the very principles in which both Child and I agree; it implies no
sudden revolution, and will, in a short time, operate the same effect.

The method of proceeding, according to my principles, is shortly this.

Since it is agreed on all hands, that low interest is the soul of trade,
and the firmest basis of public credit; that it rises in proportion to
the demand of borrowers, and sinks in proportion as money is made to
regorge in the hands of the monied interest;

The statesman should set out by such steps of administration as will
discourage borrowing, in those who employ their money in prodigality and
dissipation, as far as may be consistent with the interest of the lower
classes employed in supplying home consumption, according to the
principles laid down in the second book. He should abstain from
borrowing himself, and even from creating new outlets for money, except
from the most cogent motives. By this he will, in a short time, gently
reduce the rate of interest. Then by statute he may bring it down a
little, but not so very low as the foregoing operations may have reduced
it; contenting himself with having farther restricted the extent of the
ordinary fluctuations.

As for example: let us suppose interest limited by law to 5 _per cent._
and that by good management the state may be enabled to borrow easily at
3 _per cent._ I believe there would result a notable advantage, in
reducing the legal rate to 4 _per cent._ and were it brought down to 3
_per cent._ there might follow a very great inconvenience to landed men,
in case a war should suddenly occasion a revolution in favour of money.

The difference then between Child and me, is, that I am more scrupulous
than he, in introducing restraint into political oeconomy; and my only
reason against applying the statute, as he proposes, is for fear of the
immediate bad effects which might follow (in many ways impossible to be
foreseen) upon a sudden and violent revolution, in a point so
excessively delicate as public credit.

In his days, credit was not so well established, nor was it stretched as
at present: it was more accustomed to violent shocks, and could bear a
rougher treatment. But in order to come the better to a thorough
knowledge of this matter, let us examine into what might be the
consequence, if Great Britain should, at this time, bring down, by
statute, the rate of interest _below the level of the stocks_, which I
take to be the best rule of determining the present value of money; and
this is also the best method of examining the expediency of Child’s
method of reducing interest, under the present combination of all our
political circumstances.


                               CHAP. VI.
 _What would be the Consequence of reducing, by a British Statute, the
    legal Interest of Money below the present level of the Stocks._

When Great Britain borrows money upon the public faith, the rate of
interest is always stipulated, and these stipulations must be
religiously fulfilled, or credit will be at an end.

The regulations then proposed to be made, must only refer to contracts
of loan entred into by private parties.

The current value of money, I think, is best to be determined by the
price of stocks. If a 4 _per cent._ sells at par, money may be said to
be then at 4 _per cent._ If the same stock falls to 89, then the value
of money rises to near 4½: if the same stock rises to 114, then the
value of money falls to about 3½; and so in proportion.

According, therefore, as stock is found to rise, the price of money
falls, and _vice versa_.

Suppose, then, the price of money to be at 4 _per cent._ and that
government should pass a law, forbidding any man to lend at above 3 _per
cent._ what would be the consequence? This is exactly the expedient
proposed by Child: money then was at 6 _per cent._ and he proposes, _by
a law_, to bring it, all at once, to 4, without alledging that money was
then commonly got by private convention at so low a rate.

Would not the consequence be, that the creditors of private people would
demand their money, in order to get 4 _per cent._ in buying stock, and
would not this additional demand for stocks make them rise? I answer in
the affirmative, unless money could be employed abroad, so as to produce
at least 4 _per cent._ to the lenders, free of all charge of commission,
&c. If it could not, I have little doubt, but that money would soon fall
to the legal interest of 3 _per cent._ land would rise to 40 years
purchase; and landed men would profit of the rise, as Child says was the
case in his time. The whole inconvenience would be limited to the
immediate effects of the sudden revolution; which would occasion so
great a run upon the landed interest, as to reduce them to an utter
incapacity of answering it. This might be, in some measure, prevented,
by a clause in the act, allowing a certain time for the liquidation of
their debts. But who will pretend to foretell the immediate consequences
of so great a stagnation of credit, and borrowing on land security? The
purses of all monied people, would, for some time at least, be fast shut
against their demand. What a shock again, would this be to all inland
trade, what a discouragement to all the manufacturing interest, what
distress upon all creditors for accounts furnished, and upon those who
supply daily wants! I think, even supposing that in a year or two, the
first effects might come to disappear, and a notable advantage result,
in the main, to the commercial interest of Great Britain, yet the
distress in the interval might prove so hurtful, as to render it quite
intolerable. The common people who live by the luxury of the rich, in
the city of London, and who are constantly acted upon by the immediate
feelings of present inconveniences, might lose all patience; and being
blown into a ferment, by the address of the monied interest (whose
condition would be made to suffer by the scheme) might throw the state
into confusion, and impress the nation with a belief, that high interest
for money, in place of being hurtful, was essential to their prosperity.

I have said above, that supposing the money drawn from debtors, could
not be placed abroad, free of all deductions, at a rate equal to the
then value of money (supposed, for the sake of an example, to be at 4
_per cent._) that then money would fall to 3 _per cent._ and the stocks
would rise in proportion.

But let us suppose (what perhaps is the matter of fact) that the
extensive operations of trade and credit, do actually fix an average for
the price of stocks, from the value of money in other nations in Europe.
Would not then the consequence of bringing down the rate of legal
interest, below that level, be, to send out of the kingdom all the money
now circulating on private security, real and personal? Would not this
destroy all private credit at one blow? Would it not have the effect of
preventing, among individuals, the loan upon interest altogether? What
would become of the bank of England, and all other banks, whose paper in
circulation is all in the hands of private people? Is not every man who
has a bank note, a creditor on the bank, and would not the same interest
which moves other creditors to exact their debts, under such
circumstances, also move many holders of bank notes, to demand payment
of them? Would not a run of that nature, only for a few weeks, throw the
whole nation into the most dreadful distress? May we not even suppose,
that upon such an occasion, the monied interest (_from a certainty of
disappointing the intention of government in making the law_) might form
a combination among themselves to lock up their money, even although it
should remain dead in their hands for a few months? What would become of
the improvement of land? Is there an industrious farmer any where to be
met with, who does not borrow money, which he can so profitably turn to
account upon his farm, even though he receives it at the highest legal
interest? These and many more inconveniences _might_ manifest
themselves, were government to force down the value of money, contrary
to the ordinary operations of demand and competition: and to what
purpose have recourse to authority, when it is most certain, that
without any such expedient the same end may be compassed?

If it be true, as I believe it is, that in states where credit is so
well established, that their funds or public debts are commonly
negotiated abroad, there is an average fixed for the value of money, by
the operations of credit over the commercial world: and if it be true,
that no law can be framed so as to restrain mercantile people, and those
who make a trade of money, from turning it to the best account; then all
that should be proposed by government, is, to preserve the value of it
at home, within that standard. For which purpose, nothing more is
necessary than to prevent the competition of the dissipating class of
inhabitants, from disturbing the rate which commerce may establish from
time to time. This is accomplished by the methods above hinted at, and
which in the next chapter shall be more largely insisted on. If, by
prudent management, the _conventional_ rate of interest, can thus be
brought below the _legal_, then there will be no harm in diminishing the
latter by statute, not however _quite_ so low as the conventional
standard; but to leave a reasonable latitude for gentle fluctuations
above it. From what I have said, I still think I had reason to object to
Child’s plan for forcing down the interest by statute: and had he lived
at this time, I am persuaded he would have come into that opinion.


                               CHAP. VII.
 _Methods of bringing down the Rate of Interest, in Consequence of the
                 Principles of Demand and Competition._

I hope the arguments used in the foregoing chapter will not be construed
as an apology for the high interest of money.

I entirely agree with Sir Josiah Child, that low interest is the soul of
trade; the most active principle for promoting industry, and the
improvement of land; and a requisite, without which it is hardly
possible that foreign commerce can long be supported.

This proposition I take to be at this time universally admitted to be
true; and did there remain, concerning it, the vestige of a doubt in the
mind of any one, the writings of many, much more capable than I can
pretend to be, and among the rest the author just now cited, are
sufficiently capable to remove it. I shall not therefore trouble my
reader with a chapter upon that head, but only observe, that the terms
_high_ and _low_ are constantly relative. Here the relation must be
understood to regard other states, because when we speak of a _rate_ of
interest, we are supposed to mean something general in the country we
are speaking of: accordingly, if we could suppose that, within the same
state, the rate of interest should be lower in one city than any where
else, that circumstance would give an advantage to that city in all its
mercantile operations.

I must farther observe, for the sake of connecting this part of our
subject with our general plan, that the low interest for money is most
essential to such states as carry on the most extensive foreign

In the infancy of industry, and before trade comes to be established, it
is very natural that the coin of the country should be found in a great
measure locked up in treasures: high interest tends to bring it forth,
and in that respect works a good effect.

In proportion as alienation augments, money comes to be multiplied, by
the melting down of solid property, as has been explained; and then the
business of a statesman is to contrive expedients for bringing the rate
of it as low as possible, in order to support foreign trade, and to
rival all neighbouring nations, where interest is higher. When foreign
trade again comes to decline, from the multiplication of abuses
introduced by luxury, low interest still continues useful, for
supporting public credit, so necessary for defending a nation against
her enemies.

If money consisted only in the precious metals, which are not to be
found in every country, but must be purchased with the produce of
industry, and brought from far; and if no other expedient could be
fallen upon to supply their place for the uses of circulation; then the
possessors of these metals would in a manner be masters to establish
what rate of interest they thought fit for the use of them.

But if that be not the case, and if money can be made of paper, to the
value of all the solid property of a nation, (so far as occasion is
found for it, by the owners of that property) the use of the metals
comes to be in a manner reduced to that of serving as a standard, for
ascertaining the value of the denominations of money of accompt; perhaps
for facilitating the circulation of small sums, and for paying a balance
of trade to other nations.

When this is the case, a statesman has it in his power to increase or
diminish the extent of credit and paper money in circulation, by various
expedients, which greatly influence the rate of interest.

The progress of credit has been very rapid since the beginning of this
century. This has been almost entirely owing to the mechanical
combinations of trading men. Lawgivers have hitherto had but imperfect
notions concerning the nature of it; and there still remains, in the
womb of nature, some mighty genius, born to govern a commercial nation,
who alone will be able to set it on its true principles. Let us in the
mean time speculate concerning them.

We have said, and every body feels, that interest falls in proportion to
the redundancy of money to be lent.

Now what is this money but property, of one kind or other, thrown into
circulation? I speak of trading nations, who are not confined to the
quantity of their specie alone.

When a man of property wants money, does he not go to a bank, which
lends upon mortgage, and by pledging his security, does he not receive
money, which is in the same instant created for his use? Do not those
notes circulate as long as they are found necessary for carrying on the
affairs of the nation? that is to say, the accompts of debtors and
creditors of all denominations; and as soon as the quantity of them
exceeds that proportion, they stagnate, and return on the debtors in
them, (the bank) who is enabled to realize them, because the original
security is still in their hands, which was at first pledged when the
notes were issued. This realization is commonly made in the metals;
because they are the money of the world: they are real and true riches,
as much as land; and they have this advantage over land, that they are
transportable every where.

Now, does it not appear evident, that what we have been describing is a
round-about operation, which it is possible to shorten?

I beg of my reader, that he may attend to one thing; which is, that I am
not here treating of, or proposing a plan, but labouring in the
deduction of principles in an intricate subject.

I say, when landed men go to such a bank, and receive paper for a land
security, that this operation may be shortened.

Do not the notes he gets stand (though that is not expressed) upon the
security of his land? Now, can any man assign any other reason but
custom, why his own notes, carrying expresly in their bosom the same
security, might not be issued, without his being obliged to interpose
the bank between the public and himself: And for what does he pay that
interest? Not that he has gratuitously received any value from the bank;
because in his obligation he has given a full equivalent for the notes;
but the obligation carries interest, and the notes carry none. Why?
Because the one circulates like money, the other does not. For this
advantage, therefore, of circulation, not for any additional value, does
the landed man pay interest to the bank.

Had landed men, and not merchants, invented this method of turning their
property into circulation, and had they been all assembled in one body,
with a legislative authority, I imagine they would have had wit enough
to find out that a land bank was a thing practicable in its nature.

Suppose they had agreed that all their lands should be let by the acre,
and that land property should be esteemed at a certain number of years
purchase, in proportion to the rate of interest at the time, where would
be the great difficulty in paying in lands?

This is only a hint, to which a thousand objections may be made, as
matters stand: all I say, is, that there is nothing here against
principles; and though there might, in every way such a plan could be
laid down, result inconveniencies to the landed interest, yet still
these inconveniencies would hardly counterbalance that of their being
obliged to pay interest for every penny they borrow.

It is demanded, what advantage would result to the nation from such a

I answer, that by it all the borrowings of landed men would be struck
out of the competition at the money-market. The money’d interest alone
would borrow among themselves for the purposes of trade, (for money’d
men do not borrow to squander) and landed men would consequently pay
with their own paper, in every case, where now they borrow in order to
pay. Thus interest would be regulated by the demands of trade, and the
rate of it would not be disturbed by the competition of spendthrifts.

Who can say how far the consequences of such a scheme might reach? Might
not landed men begin in time to issue notes by way of loan, at a very
inconsiderable interest? But I do not incline to carry my speculations
farther: perhaps what has been said may appear sufficiently aerial.

If a statesman shall find every modification of this idea impracticable;
either from his own want of power, or of combination, or, which is more
probable, from the opposition of the money’d interest, he must take
other measures for striking out, as much as possible, the competition of
spendthrifts at the money-market. Entails, and lame securities, are good
expedients; though they are productive of many inconveniencies. His own
frugal œconomy in state affairs will go much farther than any such
trifling expedients.

Did a nation enjoying peace, although indebted perhaps 140 millions
sterling, begin by paying off but 2 _per cent._ of their capital yearly,
besides the current interest; while no neighbouring state was borrowing
any; what would interest fall to in a short time! It may be answered,
that the consequence would be, to enrich other nations; because the
regorging money would be sent abroad. Is any state ever enriched by
their borrowing? And in what does such lending to foreigners differ from
the nation’s paying off their foreign creditors? Will not the return of
interest from abroad compensate, _pro tanto_, the sums sent out for the
like purpose?

But if it be said, that the consequence will be to enable other nations
to bring down their own rate of interest; I allow it to be so; and so
much the better, as long as it remains proportionally lower with us;
which it must do, as long as we can lend abroad. We have said, and I
believe with truth, that as credit is now extended, a general average is
struck every where upon the value of money: consequently, the lower
interest is found abroad, the lower still it will remain at home, as
long as merchants and exchangers subsist.

From this circumstance of the average on the rate of interest, the Dutch
must, I think, have lost the great advantage they formerly enjoyed, from
the low rate of it in Holland, in proportion to their neighbours.

In Child’s time, they were familiarly buying up sugars in London, above
the price paid by English sugar-bakers; and, notwithstanding the
additional freight and charges, they grew rich by their trade, while the
others were hardly making any profit. This he accounts for, from the low
rate of their interest. He supposes both Dutch and English to have
carried on this trade with borrowed money; for which the first paid 3
_per cent._ and the other 6 _per cent._

But at present, were it possible to get 6 _per cent._ for money in
London, what Dutchman would lend his father a shilling at 3 _per cent._?
The English stocks are as currently bought and sold, nay, all the
stockjobbing tricks are practised with the same subtlety at Amsterdam as
in Change-Alley: from which I conclude, that a great part of the
advantage of low interest is now lost to that nation; and I conclude
farther, that it is the common interest of all trading nations to bring
it as low as possible every where.

Another cause of high interest proceeds from certain clogs laid upon
circulation, which proceed merely from custom and prejudice. Of this
nature is the obligation of debtors to pay in the metals, nothing but
coin being a legal tender.

The only foundation for such a regulation was the precariousness of
credit in former times. Were all the circulating paper in a nation
secured by law, either upon the lands or revenue of the country
appropriated for that purpose, there could be no injustice or
inconvenience in making paper (so secured) a legal tender in all
payments. Again, how extraordinary must it appear to any reasonable man,
that the same paper which passes on one side of a river, should not pass
on its opposite bank, though running through the same country?

The reason indeed is very plain: the subaltern jurisdictions are
different; and the debtors in the paper are different: but if the paper
of both stood upon a security equally good, what is to hinder both to be
received as a legal tender in all payments over the kingdom? Should not
little private objects of profit among bankers (who are the servants of
the state, and who are so well paid for their service) be over-ruled,
when the consequences of their disputes are found to be so hurtful? But
of this more, when we come to speak of banks.

The only occasion where coin is necessary in the liquidation of paper,
is for payment of the balance of trade with foreign nations. Of this
also we shall treat more at large, when we come to the doctrine of
exchange. But surely nothing is so ill judged, as to create an imaginary
balance within the same state; or rather, to permit money-jobbers to
create it; at the expence of raising interest, and hurting trade, in the
very places where it stands in the greatest need of encouragement.

From these principles, and others which naturally flow from them, may a
statesman steer a very certain course, towards bringing the rate of
interest as low as the prosperity of trade requires, or the principles
of double competition between borrowers and lenders will permit.


                              CHAP. VIII.
 _Is the Rate of Interest the sure Barometer of the State of Commerce?_

Some political writers are fond of every expedient to reduce within a
narrow compass many questions, which being involved in intricate
combinations, cannot be reduced to one principle. This throws them into
what I call systems; of which we have an example in the question now
before us.

There is nothing more difficult than to determine when commerce runs
favourably, and when unfavourably for a nation. This would not be the
case, were the rate of interest the just barometer of it. I have found
it however advanced, that nothing more is necessary to be known, in
order to estimate the relative profits upon the foreign trade of two
nations, than to compare the common rate of interest in both, and to
decide the preference in favour of that nation where it is found to be

We may say of this proposition, as of the course of exchange; the
lowness of interest and exchange are both exceedingly favourable to
trade; but they are no adequate measure of the profits arising from it.

The best argument in favour of this opinion with regard to interest is,
that the nation which sells the cheapest at foreign markets is
constantly preferred; and, consequently, where the use of money is the
lowest, the merchant can sell the cheapest.

I answer, that this consequence _would_ be just, were all trade carried
on with borrowed money, and were the difference of the price of the
materials or first matter, the ease in procuring them, the promptitude
of payments, the industry of the manufacturer, and his dexterity,
reckoned for nothing. But such advantages are frequently found in these
articles, as to be more than sufficient to counterbalance the additional
interest which is paid for the money employed in trade. This is so true,
that we see the dexterity alone of the workman (living in an expensive
capital, where the charge of living may be double of what it is in the
country) enabling him to undersell his competitors every where: the same
may be true with regard to the other articles. Farther, how far is it
not from truth to say, that all _trade_ is carried on with borrowed
money? When the term _trade_ here made use of, is properly understood,
we shall see, that a very inconsiderable part of its object is carried
on with borrowed money, in any country in Europe; and that part which is
carried on with borrowed money is not so much clogged by the high rate
of interest, as by want of punctuality in payments. A merchant who can
turn his money in three months, borrows as cheaply at 6 _per cent._ as
another who turns his in six months, when he borrows at 3 _per cent._

The object of trade is produce and manufacture. If any one will consider
the value of these two articles, before they come into the hands of
merchants, and compare this with the money borrowed by farmers and
manufacturers, in order to bring them to market, the proportion will be
very small.

Do we not see every day, that ingenious workmen, who obtain credit for
very small sums, are soon enabled, by the means of their own industry,
to produce a surprizing value in manufactures, and not only to subsist,
but to increase in riches? The interest they pay for the money borrowed
is inconsiderable, when compared with the value, created (as it were) by
the proper employment of their time and talents.

If it be said, that this is a vague assertion, supported by no proof; I
answer, that the value of a man’s work may be estimated by the
proportion between the manufacture when brought to market, and the first
matter. Nothing but the first matter, and the instruments of
manufacture, can be considered as the objects of borrowed money; unless
we go so far as to estimate the nourishment, and every expence of the
manufacturer, and suppose that these are also supplied from borrowed
money. To affirm that, would be turning arguments into cavil.

The object, therefore, of borrowed money for carrying on trade, is more
relative to the merchant than to the manufacturer. Borrowing is
necessary for collecting all this product and manufacture into the hands
of merchants. This, no doubt, is very commonly the operation of credit:
interest of money, here, comes in, to indemnify the giver of credit, for
the use of his money: but this interest is only due from the time the
borrower pays those from whom he collects, to the time he receives
payment from those to whom he sells. This interval it is of the highest
importance to the merchant to shorten. In proportion as it is long, and
in proportion to the rate of interest, he must raise his profits; and in
proportion as payments are quick and regular, and interest low, he may
diminish them. Whether merchants do regulate their profits, in all
commercial nations, according to the exact proportion of the respective
rates of interest, and promptitude of payments among them; or whether
these are determined by the circumstances of demand and competition in
the several foreign markets where the trade is carried on, I leave to
merchants to determine. All I shall remark is, that a well founded
credit, and prompt payments, will do more service to trade, than any
advantage trading men can reap from the different rate of interest in
different countries.

It must not be concluded from this, that low interest is not a very
great advantage to trade; all I contend for, is, that it is not the
barometer of it.

Another circumstance which puts nations, in our days, much more on a
level than they were in former times, I have already hinted at. It is
_that general average_ which the great loads of national debts, and the
extension of credit, through the several nations of Europe, who pay
annually large sums of interest to their creditors, has established. Let
me suppose the Dutch, for example, to have fixed, by placard, the rate
of their interest at 3 _per cent._ I say, that so soon as the _general
average_ of interest comes to stand above that rate, from the price of
public funds in England and France, we may safely conclude, that their
trade cannot be carried on with any very considerable sum of money
borrowed at 3 _per cent._ The consequence then must be, to send the
money which regorges in the hands of the frugal Dutch, into other
countries, where it can produce a better return, exclusive of all
expences of remitting and drawing. What the consequences of this lending
to foreigners may be to Holland, shall be afterwards examined.

To conclude; I believe it will be found, that what has led some to
believe that low interest is the barometer of commerce, has been owing
to this; that in some of the most commercial countries and cities
interest has been found to be lower than in great kingdoms: but _that_,
I imagine, is entirely owing to the frugality of their manners, which
cuts off the borrowing of the rich for the sake of dissipation. When
this is accomplished, trade alone being what absorbs the stagnations of
the frugal, the price of interest will fall to that rate which is the
best proportioned to the profits upon it: but this also will be less and
less the case every day, in proportion to the credit and circulation of
public funds in different nations.


                               CHAP. IX.
      _Does not Interest fall in Proportion as Wealth increases?_

I answer in the affirmative: providing it be supposed that dissipation
does not increase in proportion to the wealth. Now in a general
proposition, such as this which stands at the head of our chapter, that
very necessary proviso is not attended to, and thus people are led to
error. It is the manners of a people, not their external circumstances
as to riches, which render them frugal or extravagant. What, therefore,
depends upon the spirit of a people, cannot be changed, but in
consequence of a change of that spirit.

If the rate of interest be high, from a taste of dissipation, let
foreign trade throw in what loads of money it may, interest will still
stand high, until manners change. Every class of a people has their
peculiar spirit. The frugal merchant will accumulate wealth, and the
prodigal lord will borrow it. In this situation, internal circulation
will be rapid, and lands will shift hands. If this revolution should
prove a corrective to dissipation, by vesting property in those who have
contracted a firm habit of frugality, then an augmentation of wealth may
sink the rate of interest. But if, on the contrary, the laws and manners
of the country do distinguish classes by their manner of living, and
mode of expence, it is ten to one that the industrious and frugal
merchant will put on the prodigal gentleman, the moment he gets into a
fine country seat, and hears himself called Your honour. In certain
countries, the memory of past industry carries a dreg along with it,
which nothing but expensive living has power to purge away.

Let this suffice at present upon the subject of interest: it is so
connected with the doctrine of credit, that it will recur again at
almost every step as we go along.

                         END OF THE FIRST PART.




                                INTO THE



                    BOOK IV. | OF CREDIT AND DEBTS.

                      PART IV. | OF PUBLIC CREDIT.


                    BOOK IV. | OF CREDIT AND DEBTS.

                                PART II.
                               OF BANKS.


                                CHAP. I.
                   _Of the various Kinds of Credit._

We have already pointed out the nature of credit, which is confidence;
and we have deduced the principles which influence the rate of interest,
the essential requisite for its support.

We come now to treat of domestic circulation; where we are to deduce the
principles of banking. This is the great engine calculated for carrying
it on.

That I may, with order, investigate the many combinations we shall here
meet with, I must point out wherein banks differ from one another in
point of policy, as well as in the principle upon which their credit is

If we consider them relative to their policy, I divide them into banks
of circulation, and banks of deposit. This every one understands.

If according to their principle, they are established either on
_private_, or _mercantile_, or _public credit_.

This last division I must attend to in the distribution of what is to
follow; and therefore it is proper to set out by explaining what I
understand by the terms I have here introduced.

1_mo_, Private credit. This is established upon a security, real or
personal, of value sufficient to make good the obligation of repayment
both of capital and interest. This is the most solid of all.

2_do_, Mercantile credit. This is established upon the confidence the
lender has, that the borrower, from his integrity and knowledge in
trade, may be able to replace the capital advanced, and the interest due
during the advance, in terms of the agreement. This is the most
precarious of all.

3_tio_, Public credit. This is established upon the confidence reposed
in a state, or body politic, who borrow money upon condition that the
capital shall not be demandable; but that a certain proportional part of
the sum shall be annually paid, either in lieu of interest, or in
extinction of part of the capital; for the security of which, a
permanent annual fund is appropriated, with a liberty, however, to the
state to liberate itself at pleasure, upon repaying the whole; when
nothing to the contrary is stipulated.

The solidity of this species of credit depends upon circumstances.

The difference between the three kinds of credit lies more in the object
of the confidence, and the nature of the security, than in the condition
of the borrower. Either a private man, a merchant, or a state, may
pledge, for the security of a loan, a real or a moveable security, with
an obligation to refund the capital. In this case, the obligation stands
upon the solid basis of private credit.

Either a private man, a merchant, or a state, may strike out projects
which carry a favourable appearance of success, and thereupon borrow
considerable sums of money, repayable with interest. In this case, the
obligation stands upon a mercantile credit.

Either a private man, a merchant, or a state, may pledge (for the
security of money borrowed) a perpetual annual income, the fund of which
is not their property, without any obligation to refund the capital:
such obligations stand upon the principles of public credit.

I allow there is a great resemblance between the three species of credit
here enumerated: there are however some characteristic differences
between them.

1_mo_, In the difficulty of establishing and supporting them.

Private credit is inseparable, in some degree, from human society. We
find it subsisting in all ages: the security is palpable, and the
principles on which it is built are simple and easy to be comprehended.
Public credit is but a late invention: it is the infant of commerce, and
of extensive circulation. It has supplied the place of the treasures of
old, which were constant and ready resources to statesmen in cases of
public distress: the security is not palpable, nor readily understood,
by the multitude; as it rests upon the liability of certain fundamental
maxims of government. Mercantile credit is still more difficult to
establish; because the security is the most precarious of any: it
depends upon opinion and speculation, more than upon a fund provided for
repayment of either capital or interest.

2_do_, They differ in the nature of the security and object of

Private credit has a determinate object of confidence, viz. the real
existence of value in the hands of the debtor, sufficient to satisfy
both capital and interest. Public credit has the visible security of a
fund appropriated for the perpetual payment of the interest. Mercantile
credit depends wholly upon the integrity, capacity, and good fortune of
the debtor.

3_tio_, The third difference is with regard to the ease of transfer.

Public debts stand generally on the same bottom. No part of the same
fund is better than another: the price of them is publicly known, and
the securities are laid in the most convenient way for transfer, that
is, circulation, without consent of the debtor. This is far from being
the case in private securities. Nor is it the case in the mercantile,
except in bills payable to order, in which case alone, the creditor can
effectually transfer without the consent of the debtor.

4_to_, The fourth difference is discovered in the stability of the

Nothing can shake private credit, but an appearance of insolvency in the
very debtor. But the bankruptcy of one considerable merchant, will give
a very great shock to mercantile credit over all Europe: and nothing
will hurt public credit, so long as the stipulated interest continues
regularly to be paid, and so long as the funds appropriated for that
payment remain entire.

From what has been said, I hope the three species of credit have been
sufficiently explained; and from what is to follow, we shall feel the
utility of this distribution.


                               CHAP. II.
                          _Of private Credit._

Private credit is either real, personal, or mixed.

Real security or credit, every body understands. It is the object of
law, not of politics, to give an enumeration of its different branches.
By this term, we understand no more than the pledging an immoveable
subject for the payment of a debt. As by a personal security we
understand the engagement of the debtor’s whole effects for the relief
of his creditors. The mixed, I have found it necessary to superadd, in
order to explain with more facility, the security of one species of
banks. The notes issued by banks upon private credit, stand upon a mixed
security: that is, both real and personal. Personal, so far as they
affect the banker, and the banking stock pledged for the security of the
paper: and in the second place, upon the securities, real and personal,
granted to the banker for the notes he lends, which afterwards enter
into circulation.

The ruling principles in private credit, and the basis on which it
rests, is the facility of converting, into money, the effects of the
debtor; because the capital and interest are constantly supposed to be
demandable. The proper way, therefore, to support this sort of credit to
the utmost, is to contrive a ready method of appretiating every subject
affectable by debts; and secondly, of melting it down into symbolical or
paper money.

In former times, when circulation was confined, the scheme of melting
down the property of debtors, for the payment of creditors, was
impracticable; and accordingly we see that capitals secured on land
property were not demandable. This formed another species of credit,
different from any we have mentioned; which only differed from public
credit in this, that the solid property producing the income, was really
in the hands of the debtor. This subdivision we have omitted, as its
basis rests solely upon the regular payment of the interest. Of this
nature are the contracts of constitution in France, and the old
infeftments of annual rent in Scotland. There are few nations, I
believe, in Europe, where a vestige, at least, of this kind of security
does not remain.

In order, then, to carry private credit to its greatest extent, all
entails upon lands should be dissolved; all obligations should be
regularly recorded in public registers; the value of all lands should be
ascertained, the moment any security is granted upon them; and the
statesman should interpose between parties, to accelerate the
liquidation of all debts, in the shortest time, and at the least expence

Although this method of proceeding be the most effectual to secure, and
to extend private credit, yet it is not, at all times, expedient to have
recourse to it; as we have abundantly explained in the 27th chapter of
the second book; and therefore I shall not here interrupt my subject
with a needless repetition.


                               CHAP. III.
                              _Of Banks._

In deducing the principles of banks, I shall do the best I can to go
through the subject systematically.

I have divided credit into three branches, private, mercantile, and
public. This distribution will be of use on many occasions, and shall be
followed as far as it will go, consistently with perspicuity: but as I
have often observed of subjects of a complex nature, they cannot be
brought under the influence of a few general principles, without running
into the modern vice of forming systems, by wire-drawing many relations
in order to make them answer.

The great operations of domestic circulation are better discovered by an
examination of the principles upon which we find banking established,
than by any other method I can contrive. It has been by inquiry into the
nature of those banks which are the most remarkable in Europe, that I
have gathered the little knowledge I have of the theory of circulation.
This induces me to think that the best way of communicating my thoughts
on that subject, is to lay down the result of my inquiries relative to
the very object of them.

After comparing the operations of different banks in promoting
circulation, I find I can divide them, as to their policy, into two
general classes, viz. those which issue notes payable in coin to bearer;
and those which only transfer the credit written down in their books
from one person to another.

Those which issue notes, I call banks of circulation; those which
transfer their credit, I call banks of deposit.

Both indeed may be called banks of circulation, because by their means
circulation is facilitated; but as different terms serve to distinguish
ideas different in themselves, those I here employ, will answer the
purpose as well as any others, when once they are defined; and
circulation undoubtedly reaps far greater advantages from banks which
issue notes transferable every where, than from banks which only
transfer their credit on the very spot where the books are kept.

I shall, according to this distribution, first explain the principles
upon which the banks of circulation are constituted and conducted,
before I treat of the other.

This will lead me to avail myself of the division I have made of credit,
into private, mercantile, and public: because, according to the purposes
for which a bank is established, the ground of confidence, that is, the
credit of the bank, is settled upon one or other of them.

In countries where trade and industry are in their infancy, credit must
be little known; and they who have solid property, find the greatest
difficulty in turning it into money, without which industry cannot be
carried on, as we have abundantly explained in the 26th chapter of the
second book; and consequently the whole plan of improvement is

Under such circumstances, it is proper to establish a bank upon the
principles of private credit. This bank must issue notes upon land and
other securities, and the profits of it must arise from the permanent
interest drawn for the money lent.

Of this nature are the banks of Scotland. To them the improvement of
that country is entirely owing; and until they are generally established
in other countries of Europe, where trade and industry are little known,
it will be very difficult to set those great engines to work.

Although I have represented this species of banks, which I shall call
_banks of circulation upon mortgage_, as peculiarly well adapted to
countries where industry and trade are in their infancy, their
usefulness to all nations, who have upon an average a favourable balance
upon their trade, will sufficiently appear upon an examination of the
principles upon which they are established.

It is for this reason, that I have applied myself to reduce to
principles all the operations of the Scotch banks, while they were in
the greatest distress imaginable, from the heavy balance the country
owed during the last years of the late war, and for some time after the
peace in 1763. By this I flatter myself to do a particular service to
Scotland, as well as to suggest hints which may prove useful, not only
to England, but to all commercial countries, who, by imitating this
establishment, will reap advantages of which they are at present

For these reasons, I hope the detail I shall enter into with regard to
Scotland, will not appear tedious, both from the variety of curious
combinations it will contain, as also from the lights it will cast upon
the whole doctrine of circulation, which is the present object of our

In countries where trade is established, industry flourishing, credit
extensive, circulation copious and rapid, as in England, banks upon
mortgage, however useful they may prove for other purposes, would not
answer the demands of the trade of London, and the service of
government, so well as the bank of England.

The ruling principle of that bank, and the ground of their confidence,
is mercantile credit. The bank of England does not lend upon mortgage,
nor personal security: their profits arise from discounting bills; loans
to government, upon the faith of taxes, to be paid within the year and
upon the credit cash of those who deal with them.

A bank such as that of England, cannot therefore be established, except
in a great wealthy mercantile city, where the accumulation of the
smallest profits amount, at the end of the year, to very considerable

In France, under the regency of the Duke of Orleans, there was a bank
erected upon the principles of public credit. The ground of confidence
there, and the only security for all the paper they issued, were the
funds appropriated for the payment of the interest of the public debts.

It is for the sake of order and method, that I propose to explain the
principles of banking, according to this distribution. I must however
confess, that although I represent each of them as having a cause of
confidence peculiar to itself, to wit, either private, mercantile, or
public credit; yet we shall find a mixture of all the three species of
credit entring into the combination of every one of them.

Banking, in the age we live, is that branch of credit which best
deserves the attention of a statesman. Upon the right establishment of
banks, depends the prosperity of trade, and the equable course of
circulation. By them [6]_solid property_ may be melted down. By the
means of banks, money may be constantly kept at a due proportion to
alienation. If alienation increases, more property may be melted down.
If it diminishes, the quantity of money stagnating, will be absorbed by
the bank, and part of the property formerly melted down in the
securities granted to them, will be, as it were, consolidated anew.
These must pay for the country the balance of their trade with foreign
nations. These keep the mints at work; and it is by their means,
principally, that private, mercantile, and public credit, is supported.
I can point out the utility of banks in no way so striking, as to recall
to mind the surprizing effects of Mr. Law’s bank, established in France,
at a time when there was neither money or credit in the kingdom. The
superior genius of that man produced, in two years time, the most
surprizing effects imaginable; he revived industry; he established
confidence; and shewed to the world, that while the landed property of a
nation is in the hands of the inhabitants; and while the lower classes
are willing to be industrious, money never _can_ be wanting. I must now
proceed in order, towards the investigation of the principles which
influence this intricate and complicated branch of my subject.

Footnote 6:

  Solid property, here, is not taken in the strictest acceptation. In
  countries of commerce, where banks are generally established, every
  denomination of good personal security, may be considered as solid
  property. Those who have personal estates may obtain credit from banks
  as well as landed men; because these personal estates are secured
  either on lands, or in the funds, or in effects which contain as real
  a value as lands, and these being affected by the securities which the
  proprietors grant to the bank, may with as much propriety be said to
  be melted down, as if they consisted in lands. In subjects of this
  nature, it is necessary to extend our combinations, in proportion to
  the circumstances under which we reason.


                               CHAP. IV.
       _Of Banks of Circulation upon Mortgage or private Credit._

Banks of circulation upon mortgage or private credit, are those which
issue notes upon private security, payable to bearer on demand, in the
current coin of the nation. They are constituted in the following

A number of men of property join together in a contract of banking,
either ratified or not by public authority, according to circumstances.
For this purpose, they form a stock which may consist indifferently of
any species of property. This fund is engaged to all the creditors of
the company, as a security for the notes they propose to issue. So soon
as confidence is established with the public, they grant credits, or
cash accompts, upon good security; concerning which they make the proper
regulations. In proportion to the notes issued in consequence of those
credits, they provide a sum of coin, such as they judge to be sufficient
to answer such notes as shall return upon them for payment. Nothing but
experience can enable them to determine the proportion between the coin
to be kept in their coffers, and the paper in circulation. This
proportion even varies according to circumstances, as we shall
afterwards observe.

The profits of the bank proceed from the interest paid upon all the
securities which have been granted to it, in consequence of credits
given, and which remain with it unretired.

Out of which must be deducted, first, the charge of management;
secondly, the loss of interest for all the coin they preserve in their
coffers, as well as the expence they are put to in providing it; and
thirdly, the expence of transacting and paying all balances due to other

In proportion, therefore, as the interest upon the bank securities
exceeds the loss of interest on the coin in the bank, the expence of
management, and of providing funds abroad to pay balances, in the same
proportion is their profit; which they may either divide, accumulate, or
employ, as they think fit.

Let it be observed, that I do not consider the original bank stock, or
the interest arising from _that_, as any part of the profits of the
bank. So far as regards the bank, it is their original property; and so
far as regards the public, it serves for a collateral security to it,
for the notes issued. It becomes a pledge, as it were, for the faithful
discharge of the trust reposed in the bank: without such a pledge, the
public could have no security to indemnify it, in case the bank should
issue notes for no permanent value received. This would be the case, if
they thought fit to issue their paper either in payment of their own
private debts, for articles of present consumption; or in precarious

When paper is issued for no value received, the security of such paper
stands alone upon the original capital of the bank, whereas when it is
issued for value received, that value is the security on which it
immediately stands, and the bank stock is, properly speaking, only

I have dwelt the longer upon this circumstance, because many, who are
unacquainted with the nature of banks, have a difficulty to comprehend
how they should ever be at a loss for money, as they have a mint of
their own, which requires nothing but paper and ink to create millions.
But if they consider the principles of banking, they will find that
every note issued for value consumed, in place of value received and
preserved, is neither more or less, than a partial spending either of
their capital, or profits on the bank. Is not this the effect of the
expence of their management? Is not this expence paid in their notes?
But did ever any body imagine that this expence did not diminish the
profits of banking? Consequently, such expence may exhaust these
profits, if carried far enough; and if carried still farther, will
diminish the capital of the banking stock.

As a farther illustration of this principle, let me suppose, an honest
man, intelligent, and capable to undertake a bank. I say that such a
person, without one shilling of stock, may carry on a bank of domestic
circulation, to as good purpose as if he had a million; and his paper
will be every bit as good as that of the bank of England. Every note he
issues, is secured on good private security; that security carries
interest to him, and stands good for the notes he has issued. Suppose
then that after having issued for a million sterling, all the notes
should return upon him in one day. Is it not plain, that they will find,
with the honest banker, the original securities, taken by him at the
time he issued them; and is it not true, that he will have, belonging to
himself, the interest received upon these securities, while his notes
were in circulation, except so far as this interest has been spent in
carrying on the business of his bank? Large bank stocks, therefore,
serve only to establish their credit; to secure the confidence of the
public, who cannot see into their administration; but who willingly
believe, that men who have considerable property pledged in security of
their good faith, will not probably deceive them.

This stock is the more necessary, from the obligation of paying in the
metals. Coin may be wanting, upon some occasions, to men of the greatest
landed property. Is that any reason to suspect their credit? Just so of
banks. The bank of England may be possessed of twenty millions sterling
of good effects, to wit, their capital; and the securities for all the
notes they have issued; and yet that bank might be obliged to stop
payment, upon a sudden demand of a few millions of coin.

Runs upon a bank well established, betray great want of confidence in
the public; and this want of confidence proceeds from the ignorance the
greatest part of men are in, with regard to the state of their affairs,
and of the principles upon which their trade is carried on.

From what has been said, we may conclude, that the solidity of a bank
which lends upon private security, does not so much depend upon the
extent of their original capital, as upon the regulations they observe
in granting credit. In this the public is nearly interested; because the
bank securities are really taken for the public, who are creditors upon
it in virtue of the notes which circulate through their hands.


                                CHAP. V.
   _Such Banks ought to issue their Notes on private, not mercantile

Let me, therefore, reason upon the example of two bankers; one issues
his notes upon the best real or personal security; another gives credit
to merchants and manufacturers, upon the principles of mercantile
credit, which we have explained above; the notes of the one and the
other enter into circulation, and the question comes to be, which are
the best? If we judge by the regularity of the payment of notes on
presentation, perhaps the one are as readily paid as the other. If we
judge by the stock of the two bankers, perhaps they may be equal, both
in value and solidity; but it is not upon either of these circumstances
that the question depends. The notes in circulation may far exceed the
amount of the largest bank stock; and therefore, it is not on the
original stock; but on the securities taken at issuing the notes, that
the solidity of the two currencies is to be estimated. Those secured on
private credit, are as solid as lands and personal estates; they stand
upon the principles of private credit. Those secured on the obligations
of merchants and manufacturers, depending upon the success of their
trade, are good or bad in proportion. Every bankruptcy of one of their
debtors, involves the bank, and carries off either a part of their
profits, or of their stock. Which way, therefore, can the public judge
of the affairs of bankers, except by attending to the nature of the
securities upon which they give credit[7].

Footnote 7:

  It must be observed, that in this example, the banker who issues his
  notes upon mercantile security, is supposed to grant a permanent loan
  to the merchant or manufacturer, as he would do to those who pledge a
  personal security. This is totally repugnant to the principle of banks
  secured on mercantile credit. Such banks never grant loans for
  indefinite duration, upon any security whatsoever. They will not even
  discount a bill of exchange, when it has above two months to run.


                               CHAP. VI.
               _Use of subaltern Bankers and Exchangers._

Here it may be urged, that the great use of banks is to multiply
circulation, and to furnish the industrious with the means of carrying
on their traffic: that if banks insist upon the most solid sureties
before they give credit, the great utility of them must cease; because
merchants and manufacturers are never in a situation to obtain credit
upon such terms.

This argument only proves, that banks are not, alone, sufficient for
carrying on every branch of circulation. A truth which no body will
contravert. But as they are of use in carrying on the great branches of
circulation, it is proper to prevent them from engaging in schemes which
may destroy their credit altogether.

I have observed above, that this method of issuing notes upon private
security, was peculiarly well adapted to countries like Scotland, where
trade and industry are in their infancy.

Merchants and manufacturers there, have constant occasion for money or
credit; and at the same time, they cannot be supposed to have either
real or personal estates to pledge, in order to obtain a loan directly
from the banks, who ought to lend upon no other security.

To remove that difficulty, we find a set of merchants, men of substance,
who obtain from the banks very extensive credits upon the joint real and
personal security of themselves and friends. With this assistance from
the bank, and with money borrowed from private people, repayable on
demand, something below the common rate of interest, they support the
trade of Scotland, by giving credit to the merchants and manufacturers.

To this set of men, therefore, are banks of circulation upon mortgage to
leave that particular branch of business. It is their duty, it is the
interest of the country, and no less that of banks, that they be
supported in so useful a trade; a trade which animates all the commerce
and manufactures of Scotland, and which consequently promotes the
circulation of those very notes upon which the profits of the banks do

These merchants are settled in all the most considerable towns: they are
well acquainted with the stock, capacity, industry, and integrity of all
the dealers in their district: they are many; and by this are able to go
through all the detail which their business requires; and their profits,
as we shall see presently, are greater than those of banks, who lend at
a stated interest.

The common denomination by which they are called in Scotland, is that of
bankers; but to avoid their being confounded with bankers in England
(whose business is very different) we shall, while we are treating of
the doctrine of banks, call them by the name of exchangers, since their
trade is principally carried on by bills of exchange.

As often as these exchangers give credit to dealers in any way, they
constantly state a commission of ½ _per cent._ or more, according to
circumstances, over and above the interest of their advance; profits
which greatly surpass those of any bank. One thousand pounds credit
given by a bank, may not produce ten pounds in a year for interest: if
given by a banker, to a merchant, who draws it out, and replaces it
forty times in a year, there will arise upon it a commission of 20 _per
cent._ or 200_l._

This set of men are exposed to risks and losses, which they bear without
complaint, because of their great profits; but it implies a detail,
which no bank can descend to.

These exchangers give way, from time to time; and no essential hurt is
thereby occasioned to national credit. The loss falls upon those who
lend to them, or trust them with their money, upon precarious security;
and upon merchants, who lay their account with such risks. In a word,
they are a kind of insurers, and draw premiums in proportion to their

To this set of men, therefore, it should be left to give credit to
merchants, as the credit they give is purely mercantile; and to banks
alone, who give credit on good private security, it should be left to
conduct the great national circulation, which ought to stand upon the
solid principles of private credit.

From this example we may discover the justness of the distinction I have
made between _private_ and _mercantile_ credit: had I not found it
necessary, I would not have introduced it.


                               CHAP. VII.
    _Concerning the Obligation to pay in Coin, and the Consequences

In all banks of circulation upon mortgage, the obligation in the note is
to pay in coin, upon demand: and in the famous book of Mr. Law, there
was a very necessary clause added; to wit, that the coin was to be of
the same weight, fineness, and denomination, as at the date of the note.
This was done, in order to prevent the inconveniencies which might
result to either party, by an arbitrary raising or sinking the
denominations of the coin; a practice then very familiar in France.

This obligation to pay in coin, owes its origin to the low state of
credit in Europe at the time when banks first began to be introduced;
and it is not likely that any other expedient will soon be fallen upon
to remove the inconveniences which result from it in domestic
circulation, as long as the generality of people consider all money,
except coin, to be false and fictitious.

I have already thrown out abundance of hints, from which it may be
gathered, that coin is not absolutely necessary for carrying on domestic
circulation, and more will be said on that subject, as we go along. But
I am here to examine the nature and consequences of this obligation
contracted by banks, to discharge their notes in the current coin of the

In the first place, it is plain, that no coin is ever (except in very
particular cases) carried to a bank, in order to procure notes. The
greatest part of notes issue from the banks, of which we are treating,
either in consequence of a loan, or of a credit given by the bank, to
such as can give security for them. The loan is made in their own notes;
which are quickly thrown back into circulation by the borrower; who
borrowed, because he had occasion to pay them away. In like manner, when
a credit is given, the bank pays (in her notes) the orders she receives
from the person who has the credit: in this manner are notes commonly
issued from a bank.

Coin, again, comes to a bank, in the common course of circulation, by
payments made to it, either for the interest upon their loans, or when
merchants and landed men throw the payments made to them into the bank,
towards filling up their credits; and by way of a safe deposit for their
money. These payments are made to the bank in the ordinary circulation
of the country. When there is a considerable proportion of coin in
circulation, then the bank receives much coin; and when there is little,
they receive little. Whatever they receive is laid by to answer notes
which are offered for payment; but whenever a draught is made upon them
for the money thrown in as above, they pay in paper.

As we are here searching after principles, not after facts, it is out of
our way to inquire what may be the real proportion of coin preserved by
banks of circulation, for answering the demand for it.

Mr. Megens, a very knowing man, and a very judicious author, lately
dead, who has writ a small treatise in the German tongue, translated
into English, under the title of _The Universal Merchant_, delivers his
sentiments concerning the proportion of coin preserved in the bank of
England, which I shall here transcribe in the translator’s words. Sect.

The bank of England consists of two sorts of creditors, the one of that
set of men, who, in King William’s time, when money was scarce and dear,
lent the public 1,200,000 pounds, at 8 _per cent._ interest, and 4000
pounds were allowed them for charges, amounting in whole to 100,000
pounds a year, an exclusive right of banking as a corporation for 13
years, under the denomination of the proprietors of the bank; and which,
for obtaining prolongation of their privileges, has been since increased
by farther loans to the public at a less interest, to near the sum of
11,000,000 pounds, which if we compute the interest at 3 _per cent._ (as
what they have more on some part answers incident charges) it produces
330,000 pounds a year; and as they divide annually 5 _per cent._ to
their proprietors, which, is 550,000 pounds, it is evident that they
make a yearly profit of 220,000 pounds, _out of the money of the people
who keep cash with them_, and these are the other sort of creditors: and
as for what money the bank lends to the government, they have for the
most part but 3 _per cent._ interest, I conclude that _the credit cash
they have in their hands_ may amount to 11,000,000 pounds, and thereout
is employed in loans to the government, discounting of bills, and in
buying gold and silver 7,333,333⅓ pounds, which at 3 _per cent._
interest or profit, will amount to the above 220,000 pounds, and remains
3,666,666⅔ pounds in cash, sufficient for circulation and current
payments. And experience has evinced, that whenever any mistrust has
occasioned any run upon the bank for any continuance, and the people not
finding the treasure so soon exhausted as they surmised, it flowed in
again faster on the one hand than it was drawn out on the other.

This gentleman lived long in England. He was very intelligent in matters
relating to commerce; and his authority may, I believe, be relied on as
much as on any other, except that of the bank itself; which, it would
appear, has some interest in keeping those affairs a secret.

We see by his account, that the bank of England keeps in coin ⅓ of the
value of all their notes in circulation. With this quantity, business is
carried on with great smoothness, owing to the prosperity of that
kingdom, which seldom owes any considerable balance to other nations.

But the consequence of the obligation to pay in coin, is, that when the
nation comes to owe a balance, the notes which the bank had issued to
support domestic circulation _only_, come upon it for payment of a
foreign balance; and thereby the coin which it had provided for home
demand only, is drawn out.

It is this circumstance, above all others, which distresses banks of
circulation. Were it not for this, the obligation to pay in coin might
easily be discharged; but when in virtue of this pure obligation, a
heavy national balance is demanded of the bank, which has only made
provision for the current and ordinary demand at home, it requires a
little combination to find out, at once, an easy remedy.

This combination we shall, in the following chapters, endeavour to
unfold: it is by far the most intricate, and at the same time the most
important in the whole doctrine of banks of circulation.

Another inconvenience resulting from this obligation to pay in coin, we
have explained in the third book. It is, that the confusion of the
English coin, and the lightness of a great part of it, obliges the bank
of England to purchase the metals at a price far above that which they
can draw back for them after they are coined. We have there shewn the
great profit that might be made in melting down and exporting the heavy
species. This profit turns out a real loss to the bank of England, which
is constantly obliged to provide new coin, in proportion as it is
wanted. This inconvenience is not directly felt by banks, in countries
where there is no mint established.

Here then is another bad consequence of this obligation to pay in the
metals, which a proper regulation of the coin would immediately remove.
In countries which abound in coin, banking is an easy trade, when once
their credit is well established. It is only when either a foreign war,
or a wrong balance of trade has carried off the metals, that the weight
of this obligation to pay in coin is severely felt.


                              CHAP. VIII.
      _How a wrong Balance of Trade affects Banks of Circulation._

It is commonly said, that when there is a balance due by any nation,
upon the whole of their mercantile transactions with the rest of the
world, such balance must be paid in coin. This we call a wrong balance.
Those who transact the payment of this balance, are those who regulate
the course of exchange; and we may suppose, without the least danger of
being deceived, that the course is always higher than the expence of
procuring and transporting the metals; because the overcharge is profit
to the exchanger, who without that profit could not carry on his

These exchangers, then, must have a command of coin; and where can they
get it so easily, and so readily, as from banks who are bound to pay in

Every merchant who imports foreign commodities, must be supposed to have
value in his hands from the sale of them; but this value must consist in
the money of the country: if that be mostly bank paper, he must give the
bank paper to the exchangers for a bill, whose business it is to place
funds in those parts upon which bills are demanded. The exchanger again
(to support that fund which he exhausts by his draughts) must demand
coin from the banks, for the notes he received from the merchant when he
gave him the foreign bill.

Besides the wrong balances of trade transacted in this manner, which
banks are constantly obliged to make good in coin, every other payment
made to foreigners has the same effect. It is not because it is a
_balance of trade_, but because it is a payment which cannot be made in
paper currency, that a demand is made for coin. Coin we have called the
money of the world, as notes may be called the money of the society. The
first then must be procured when we pay a balance to foreigners; the
last is full as good when we pay among ourselves.

It is proper, however, to observe, that there is a great difference
between the wrong _balance of trade_, and the general _balance of
payments_. The first marks the total loss of the nation when her imports
exceed the value of her exports; the second comprehends three other
articles, viz. 1. the expence of the natives in foreign countries; 2.
the payment of all debts, principal and interest, due to foreigners; 3.
the lending to other nations.

These three I call the general balance of foreign payments: and these
added to the wrong balance of trade may be called the _grand balance_
with the world.

Now as long as the payment of this _grand balance_ is negotiated by
exchangers, all the coin required to make it good, must be at the charge
of banks.

How then is this coin to be procured by nations who have no mines of
their own?


                               CHAP. IX.
  _How a grand Balance may be paid by Banks, without the assistance of

Did all the circulation of a country consist in coin, this _grand
balance_, as we have called it, would be paid out of the coin, to the
diminution of it.

We have said that the acquisition of coin, or of the precious metals,
adds to the intrinsic value of a country, as much as if a portion of
territory were added to it. The truth of this proposition will now soon
appear evident.

We have also said, that the creation of symbolical money, adds no
additional wealth to a country, but only provides a fund of circulation
out of solid property; which enables the proprietors to consume and to
pay proportionally for their consumption: and we have shewn how by this
contrivance trade and industry are made to flourish.

May we not conclude, from these principles, that as nations who have
coin, pay their _grand balance_ out of their coin, to the diminution of
that species of their property, so nations who have melted down their
solid property into symbolical money, must pay their _grand balance_ out
of the symbolical money; that is to say, out of the solid property of
which it is the symbol?

But this solid property cannot be sent abroad; and it is alleged that
nothing but coin can be employed in paying this _grand balance_. To this
I answer, that in such a case the credit of a bank may step in, without
which a nation which runs short of coin, and which comes to owe a _grand
balance_ must quickly be undone.

We have said that while exchangers transact the balance, the whole load
of providing coin lies upon banks. Now the whole solid property melted
down, in their paper, is in their hands; because I consider the
securities given them for their paper, to be the same as the property
itself. Upon this property, there is a yearly interest paid to the bank:
this interest, then, must be engaged by them to foreigners, in lieu of
what is owing to them by the nation; and when once a fund is borrowed
upon it abroad, the rest is easy to the bank. This shall be further
explained as we go along.

I do not pretend that the common operation of providing coin, when the
_grand balance_ is against a nation, is as simple as I have represented
it. I know it is not: and I know also, that I am not in any degree
capable to explain the infinite combination of mercantile operations
necessary to bring it about; but it is no less true, that these
combinations may be shortened: because when the whole of them have been
gone through, the transaction must land in what I have said; to wit,
that either the _grand balance_ must be paid out of the national stock
of coin, or it must be furnished by foreigners upon a loan from them;
the interest of which must be paid out of that part of the solid
property of the nation which has been melted down into paper. I say
farther, that were not all this solid property, so melted down, in the
hands of banks, who thereby have established to themselves an enormous
_mercantile_ credit; there would be no possibility of conducing such an
operation: that is to say, there would be no possibility for nations to
run in debt to nations, upon the security of their respective landed


                                CHAP. X.
_Insufficiency of temporary Credits for the Payment of a wrong Balance._

I have said, that when the national stock of coin is not sufficient to
provide banks with the quantity demanded of them, for the payment of the
_grand balance_, that a loan must take place. To this it may be
objected, that a credit is sufficient to procure coin, without having
recourse to a formal loan. The difference I make between a loan and a
credit consists in this, that, by a credit we understand a temporary
advance of money, which the person who gives the credit expects to have
repaid in a short time, with interest for the advance, and commission
for the credit; whereas by a loan we understand the lending of money for
an indefinite time, with interest during non-payment.

Now I say, the credit, in this case, will not answer the purpose of
supplying a deficiency of coin; unless the deficiency has been
accidental, and that a return of coin, from a new favourable _grand
balance_, be quickly expected. The credit will indeed answer the present
exigency; but the moment this credit comes to be replaced, it must be
replaced either by a loan, or by a supply of coin; but, by the
supposition, coin is found to be wanting for paying the _grand balance_;
consequently, nothing but a loan, made by the lenders either in coin, in
the metals, or in a liberty to draw, can remove the inconvenience; and
if recourse be had to credit, instead of the loan, the same difficulty
will recur, whenever that credit comes to be made good by repayment.

Upon the whole, we may conclude, that nations who owe a balance to other
nations, must pay it either with their coin, or with solid property;
consequently, the acquisition of coin is, in this particular, as
advantageous as the acquisition of lands; but when coin is not to be
procured, the transmission of the solid property to foreign creditors is
an operation which banks must undertake; because it is they who are
obliged either to do that, or to pay in coin.


                               CHAP. XI.
_Of the Hurt resulting to Banks, when they leave the Payment of a wrong
                        Balance to Exchangers._

We have seen in a former chapter, how exchangers and banks are mutually
assistant to one another: the exchangers by swelling and supporting
circulation; the bank by supplying them with credit for that purpose.
While parties are united by a common interest, all goes well: but
interest divides, by the same principle that it unites.

No sooner does a nation incur a balance against itself, than exchangers
set themselves to work to make a fortune, by conducting the operation of
paying it. They appear then in the light of political usurers, to a
spendthrift heir who has no guardian. The guardian should be the bank,
who, upon such occasions, (and upon such only) ought to interpose
between the nation and her foreign creditors. This it may do, by
constituting itself at once debtor for the whole balance, and by taking
foreign exchange into its hand, until such time as it shall have
distributed the debt it has contracted for the nation, among those
individuals who really owe it. This operation performed, exchange may be
left to those who make that branch their business, because then they
will find no opportunity of combining either against the interest of the
bank or of individuals.

When a national bank neglects so necessary a duty, as well as so
necessary a precaution, the whole class of exchangers become united by a
common interest against it; and the country is torn to pieces, by the
fruitless attempt it makes to support itself, without the help of the
only expedient that can relieve it.

Those exchangers having the _grand balance_ to transact with other
nations, make use of their credits with the bank, or of its notes, to
draw from it their coin, in order to export it. This throws a great load
upon the bank, which is constantly obliged to provide a sufficient
quantity for answering all demands; for we have laid it down as a
principle, that whatever coin or bills are necessary to pay this _grand
balance_, in every way it can be transacted, it must ultimately be paid
by the bank; because whoever wants coin for any purpose, and has bank
notes, can force the bank to pay in coin, or stop payment.

It cannot, therefore, be said, that exchangers do wrong; nor can they be
blamed, in drawing from the bank whatever is wanted for the purpose of
paying to foreigners what is their due; that is, what is justly owing to
them. If they do more, they must hurt themselves; because whatever is
sent abroad more than is due, must constitute the rest of the world
debtors to the country which sends out their coin. The consequence of
this is to turn exchange against foreigners, and to make it favourable
for the nation which is creditor. In this case, were the creditors still
to continue sending coin abroad, they would _lose_ by that operation,
for the same reason that they _gain_, by sending it out when they are

It is very common for banks to complain, when coin is hard to be
procured, and when large demands are made upon them; they then allege
unfair dealings against exchangers; they fall to work to estimate the
balance of trade, and endeavour to show that it is not in reality
against the country.

But alas! this is nothing to the purpose; the _balance of trade_ may be
very favourable, although the _balance of payments_ be greatly against
the country; and both must be paid, while the bank has a shilling of
cash, or a note in circulation. So soon again as the _grand balance_ is
fairly paid off, it is impossible that any one can find an advantage in
drawing coin from a bank; except in the single case of melting down the
heavy species, in nations which give their coinage gratis. Of this we
have treated at sufficient length in another place.

Banks may indeed complain, that men of property are sometimes sending
their money out of the country, at a time when it is already drained of
its coin; that this raises exchange, and hurts the trading interest.

Exchange must rise, no doubt, in proportion as the grand balance is
great, and difficult to be paid: But where does the blame lie? Who ought
to provide the coin, or the bills for paying this grand balance? Have we
not shewn that it is the bank alone who ought to provide coin for the
ready answering of their notes? Have we not said, that the method of
doing this is by sacrificing a part of the interest due upon the
obligations in their hands, secured upon the solid property of the
country, and by the means of foreign loans upon that fund, to procure
either the metals themselves, or a power to draw on those places where
the nation’s creditors reside?

Which of the two has most reason to complain, the bank, because the
inhabitants think fit to send their effects out of the country, being
either forced so to do by their creditors, or choosing so to do for
their private advantage; or the creditors of the bank, and the country
in general, when, from the obstructions the bank throws in the way, when
required to pay its notes, exchange is forced up to an exorbitant
height; the value of what private merchants owe to strangers is raised;
and when, by discouraging trade in their hands, a general stop is put to
manufactures and credit in general?

In a word, the bank has no reason to complain, unless they can make it
appear, how any person, exchanger or other, can find an advantage in
sending coin out of the country, at a time when there is no demand for
it; or when there is no near prospect of it, which is the same thing? To
say that a principle of public spirit should prevent a person from doing
with his property what is most to his advantage, in favour of saving
some money to a bank, is supposing the bank to be the public, instead of
being the servant of the public.

Another argument to prove that no profit can be made by sending out
coin, except when the balance is against a country, is, that we see all
runs upon banks stop, the moment exchange becomes favourable. Were there
a profit to be made upon sending off coin, independently of the debts to
be paid with it, which cannot be paid without it, the same trade would
be profitable at all times. As this is not the case, it follows, that
the principle we have laid down is just; to wit, that the balance due to
foreigners _must_ be paid by banks, while they have a note in
circulation; and when once it is fairly paid by them, all extraordinary
demands _must_ cease.

We now proceed to another point, to wit, What are the consequences to
circulation, when a great balance draws away a large quantity of coin
from the bank, and sends it out of the country?


                               CHAP. XII.
       _How the Payment of a wrong Balance affects Circulation._

That I may communicate my ideas with the greater precision, I must here
enter into a short detail of some principles, and then reason on a

It has been said, that the consequence of credit and paper-money,
secured on solid property, was to augment the mass of the circulating
equivalent, in proportion to the uses found for it.

These uses may be comprehended under two general heads. The first,
payment of what one owes; the second, buying what one has occasion for:
the one and the other may be called by the general term of ready-money

Whoever has a ready-money demand upon him, and property at the same
time, ought to be furnished with money by banks which lend upon

Now the state of trade, manufactures, modes of living, and the customary
expence of the inhabitants, when taken all together, regulate and
determine what we may call the mass of ready-money demands, that is, of
alienation. To operate this multiplicity of payments, a certain
proportion of money is necessary. This proportion again may increase or
diminish according to circumstances; although the quantity of alienation
should continue the same.

To make this evident, let us suppose the accounts of a whole city kept
by one man; alienation will go on without any payment at all, until
accounts are cleared; and then nothing will be paid, but general
balances upon the whole. This however is only by the bye. The point in
hand is to agree, that a certain sum of money is necessary for carrying
on domestic alienation; that is, for satisfying ready-money demands: let
us call this quantity (A).

Next, in most countries in Europe, (I may say all) it is customary to
circulate coin, which, for many uses, is found fitter than paper, (no
matter for what reason); custom has established it, and with custom even
statesmen must comply.

The paper-money is generally made payable in coin; from custom also.
Now, according to the manners of the country, more or less coin is
required for domestic circulation. Let it be observed, that hitherto we
have not attended to foreign circulation, of which presently: and I say,
that the manners of a country may make more or less coin necessary, for
circulating the same quantity of paper; merchants, for instance,
circulate much paper and little coin; gamesters much coin, and little
paper: one example is sufficient.

Let this quantity of coin, necessary for circulating the paper-money, be
called (B), and let the paper be called (C); consequently (A) will be
equal to the sum of (B) and (C). Again, we have said, that all balances
owing by nation to nation, are paid either in coin, in the metals, or in
bills; and that bank paper can be of no use in such payments. Let the
quantity of the metals, coin, or bills, going out or coming into the
country for payment of such balance, be called (D).

These short designations premised, we may reason with more precision.
(A) is the total mass of money (coin and paper) necessary at home: (A)
is composed of (B) the coin, and of (C) the paper, and (D) stands for
that mass of coin, or metal, or bills, which goes and comes according as
the _grand balance_ is favourable or unfavourable with other nations.

Now, from what has been said, we may determine, that there should at all
times remain in the country, or in the bank, a quantity of coin equal to
(B); and if this be ever found to fall short, the bank does not
discharge its duty. It is unnecessary to determine what part of (B)
should be locked up in the bank, and what part should remain in
circulation: banks themselves cannot determine that question: all we
need to say is, that it is the profit of banks to accustom people to the
use of paper as much as possible; and therefore they will draw to
themselves as much coin as they can.

When a favourable balance of trade brings exchange below par, and brings
coin into the country, the consequence is, either to animate trade and
industry, to augment the mass of payments, to swell (A), and still to
preserve (C) in circulation; or to make (A) regorge, so as to sink the
interest of money below the bank lending price; and then people will
carry back the regorging part of (C) to the bank, and withdraw their
securities; which is consolidating, as we have called it, the property
which had been formerly melted down, for want of this circulating
equivalent (money).

This is constantly the consequence of a stagnation of paper, from an
overcharge of it, thrown into circulation. It returns upon the bank, and
diminishes the mass of their securities, but never that of their coin.

From this we may conclude, that the circulation of a country can only
absorb a determinate quantity of money (coin and paper); and that the
less use they make of coin, the more use they will make of paper, and
_vice versa_.

We may also conclude, that when trade and alienation increase, _cæteris
paribus_, so will money; that is, more solid property will be melted
down; and when trade and alienation diminish, _cæteris paribus_, so will
money; that is, some of the solid property formerly melted down, will
consolidate, as we have called it.

These vicissitudes in the mass of circulation are not peculiar to paper
currency. In countries where nothing circulates but the metals, the case
is the same; only the operation is more aukward and expensive. When coin
becomes scarce there, it is hardly possible, in remote provinces, to
find any credit at all: and in the center of circulation, the use of it
(interest) must rise very considerably, and stand high for some time,
before even intelligent merchants will import bullion to the mint; which
is the only bank they have to fit it for circulation. When the metal is
coined, then men of property are enabled to borrow, or to sell their
lands. On the other hand, when a favourable balance pours in a
superfluity of coin, and at the same time cuts off the demands of trade
for sending it abroad, it frequently falls into coffers; where it
becomes as useless as if it were in the mine; and this clumsy
circulation, as I may call it, prevents it from coming into the hands of
those who would have occasion for it, did they but know where to come at
it. Paper, on the other hand, when banks and trade are well established,
is always to be found. Thus, in an instant, paper-money either creates
or extinguishes an interest equal to its value, in favour of the
possessor. No part of it lies dead, not for a day, when employed in
trade: it is not so of coin.

We must now suppose a bank established in a country which owes a balance
to other nations.

In this case, the bank must possess, or be able to command, a sum of
coin or bills equal to (B) and (D); (B) for domestic, and (D) for
foreign circulation.

Those who owe this balance (D), and who are supposed to have value for
it, in the currency of the country, in order to pay it, must either
exhaust a part of (B), by sending it away, or they must carry a part of
(C) to the bank, to be paid for in coin. If they pick up a part of (B)
in the country, then the coin in circulation, being diminished below its
proportion, the possessors of (C) will come upon the bank for a supply,
in order to make up (B) to its former standard. Banks complain without
reason. If they carry part of (C) to be changed at the bank, for the
payment of (D), they thereby diminish the quantity of (C); consequently
there will be a demand upon the bank for more notes, to support domestic
circulation; because those which have been paid in coin are returned to
the bank, and have diminished the mass of (C); which therefore must be
replaced by a new melting down of solid property.

Now I must here observe, that this recruit, issued to fill up (C) to the
level, is an addition made to the mass of securities formerly lodged
with the bank; and represents, not improperly, that part of the landed
property of a country which the bank must dispose of to foreigners, in
order to procure from them the coin or bills necessary for answering the
demand of (D).

When notes, therefore, are carried to the bank for payment of debts due
to the bank, they then diminish the mass of solid property melted down
in the securities lodged in the bank: but when notes are carried to the
bank, to be converted into coin or bills, for foreign exportation, they
do not diminish the mass of the securities: on the contrary, the
consequence is, to pave the way for the augmentation of them; because I
suppose that the notes, so given in to the bank, and taken out of the
circle, are to be replaced by the bank to domestic circulation, to which
they belonged; and the bank must be at the expence of turning the value
of these additional securities granted for them into coin or foreign

Is not this quite consistent with reason, fact, and common sense? If a
country contracts debts to foreigners, is it not just the same case as
when one man contracts a debt to another in the same society? Must not
the ultimate consequence of this debt be, that it must be paid, either
with the coin, with the moveables, or with the solid property of the
debtor, transferred to the creditor, in lieu of the money owing?

When a nation can pay with its coin, or with its effects, (that is to
say, with its product and manufactures) the operation is easily and
mechanically performed by the means of trade: when these objects are not
sufficient; or when land, or an annual and perpetual income out of it,
must make up the deficiency; then more skill and expence is required;
and this expence falling upon banks, makes their trade less lucrative
than in times when commerce stands at par, or is bringing in a balance.

Were trade to run constantly against a country, the consequence would
be, that the whole property of it would, by degrees, be transferred to
foreigners. This the bank of St. George at Genoa has operated with
regard to Corsica, as has been observed. But in that case, banks never
could neglect laying down a plan whereby to avoid the loss they casually
sustain, when such a revolution comes suddenly or unexpectedly upon

The method would be, to establish an annual subscription _abroad_, for
borrowing a sum equivalent to the _grand balance_; the condition being
to pay the interest of the subscriptions out of the revenue of the

If the security offered be good, there is no fear but subscribers will
be found, while there is an ounce of gold and silver in Europe.

The bank of England has an expedient of another nature, in what they
call their _circulation_; which is a premium granted to certain persons,
upon an obligation to pay a certain sum of coin upon demand. This is
done with a view to answer upon pressing occasions. But England being a
prosperous trading nation, which seldom has any considerable _grand
balance_ against her, (except in time of war, when the public borrowings
supply in a great measure the deficiency, as shall be afterwards
explained) this bank circulation is turned into a job; the subscriptions
being lucrative, are distributed among the proprietors themselves, who
make no provision for the demand; and were it again to come, (as has
been the case) the subscribers would, as formerly, make a call on the
bank itself, by picking up their notes, and pay their subscriptions with
the bank’s own coin.

To obviate this inconvenience, which was severely felt in the year 1745,
the bank of England should have opened a subscription in some foreign
country; Holland, for example; where she might have procured large
quantities of foreign coin: such a seasonable supply would have proved a
real augmentation of the metals; the supply they got from their own
domestic subscribers was only fictitious[8].

Footnote 8:

  At this time there was another circumstance, besides the demand of a
  balance to be paid abroad, which distressed the bank, viz. a suspicion
  which took place, that if the rebellion had succeeded, the credit of
  the bank would have totally failed. This very case points out the
  great advantage of banks upon mortgage of private credit.

  We have said, that the credit of such banks ought to be established
  upon the principles of private securities only. If their notes be
  issued upon solid property, then no rebellion can influence them: but
  of this more hereafter.

But banks in prosperous trading nations sit down with casual and
temporary inconveniencies; and exchangers carry on a profitable trade,
whether the nation be gaining or losing all the while. For such nations,
and such only, are banks advantageous. Were banks established in Spain,
Portugal, or any other country which pays a constant balance from the
produce of their mines, they would only help on their ruin a little

In the infancy of banking, and in countries where the true principles of
the trade are not well understood, we find banks taking a general alarm,
whenever a wrong balance of trade occasions a run upon them. This terror
drives them to expedients for supporting their credit, which we are now
to examine, and which we shall find to have a quite contrary tendency.

The better to explain this combination, we must recall to mind, that the
payment of the _grand balance_ in coin or bills is unavoidable to banks.
We have said that this balance is commonly paid by exchangers, who pick
up the coin in circulation; a thing the bank cannot prevent. This we
have called exhausting a part of (B): the consequence of this is, to
make the proprietors of (C) come upon the bank, and demand coin for
filling up (B): to this the bank must also agree. But by these
operations (C) comes to be diminished, below the level necessary for
carrying on trade, industry, and alienation: upon which I have said
there commonly comes an application to the bank to give more credit, in
order to support domestic circulation, which if complied with, more
solid property is consequently melted down.

This swells the mass of securities, and raises (A) to its former level.
But here the bank has an option to refuse more credit: in the former
operations it had none. Now if the bank, from a terror of being drained
of coin, should refuse to issue notes upon new credits, for the demands
of domestic circulation; in this case, I say, they fail in their duty to
the nation, as banks, and hurt their own interest. As to their duty to
the nation, I shall not insist upon it; but I think I can demonstrate
that they fail in point of combination, with respect to their own
interest, and that is enough.

I say, then, that as long as there is one single note in circulation,
and any part of a grand balance owing, that note will come upon the bank
for payment, without a possibility of its avoiding the demand. Refusing
therefore credit, while any notes remain in the hands of the public, is
refusing an interest which may help to make up the past losses: but of
this more hereafter.

In the next place, I think I have demonstrated, that so soon as the
_grand balance_ is paid, it is impossible that any more demands for coin
can come upon the bank for exportation. Why then should a bank do so
signal a prejudice to their country, as to refuse to lend them paper,
which the ready-money demands of the country must suspend in
circulation? And why do this at so great a loss to themselves? It has
been said above, and I think with justice, that this recruit, issued to
fill up circulation, adds to the mass of bank securities, and very
properly represents that part of the income of the solid property of the
country, which the bank must dispose of to foreigners, in order to
procure from them the coin or bills necessary for answering the demand
of payment of a _grand balance_.

In this light nothing can appear more imprudent, than to refuse credit.

A bank is forced to pay to the last farthing of this balance; by paying
it, the notes that were necessary for circulation are returned to them;
and they refuse to replace them, for fear that their supplying
circulation should create a new balance against them! This is
voluntarily taking on themselves all the loss of banking, and rejecting
the advantages.

Such management can only be prudent when the circulating notes of a bank
are very few, and when the balance is very great. In that case, indeed,
were the thing possible, it might be prudent to give over banking for a
while, till matters took a favourable turn. But if we suppose their
notes to exceed the balance due, then all the hurt which can be done is
done already; and the more notes are issued, and the more credit is
given, so much the better; because the interest upon all that is issued
above the balance, must be clear profit to the bank.

To bring what has been said within a narrower compass, and to lay it
under our eye at once, let us call the domestic circulation of a
country, where a bank is established, (A).

The specie itself, to carry it on, (B).

The balances to other nations, (D).

The bank must have a command of credit and coin equal to the sum of (B)
and (D). If they have the value of (D) in any foreign place, where a
general circulation of exchange is carried on; then they have only
occasion for (B) at home, and can furnish bills to the amount of (D).

If (D), in consequence of bills drawn, shall come to be exhausted, the
bank must replace it again, by new contracts, to strangers.

But as soon as (D) is paid, either in coin or in bills, then whatever
coin is drawn from the bank, and sent away by private people,
(exchangers, &c.) must form a balance due to the country; which balance
will render exchange favourable, and will occasion a loss to those who
sent away the coin. In this case, the more credit the bank gives, so
much more will their profits increase.

To conclude: Let banks never complain of those who demand coin of them,
except in the case when it is demanded in order to be melted down, or
for domestic circulation, which may as well be carried on with paper.

And so soon as a demand for coin to pay a foreign balance begins, it is
then both the duty and interest of all good citizens to be as assistant
as possible to banks, by contenting themselves with paper for their own
occasions, and by throwing into the bank all the coin which casually
falls into their hands. As to duty, I shall offer no argument to enforce
it. But I say it becomes a national concern to assist the bank; because
the loss incurred by the bank in procuring coin, falls ultimately on
every individual, by raising exchange; consequently, prices, by raising
the interest of money to be borrowed; and last of all, by constituting a
perpetual interest to be paid to foreigners, out of the revenue of the
solid property of the country. Upon such occasions, a good citizen ought
to blush at pulling out a purse, when his own interest, and that of his
country, should make him satisfied with a pocket book.


                              CHAP. XIII.
  _Continuation of the same Subject; and of the Principles upon which
        Banks ought to borrow Abroad, and give credit at Home._

In every question relative to this subject, we must return to
principles. This is the only sure method of avoiding error. The
intelligent reader, therefore, must excuse short repetitions, and
consider them as a sacrifice he is making to those of slower capacities,
to whom they are useful.

The principle of banking upon mortgage, is to lend and give credit to
those who have property, and a desire to melt it down. This is
calculated for the benefit of trade, and for an encouragement to
industry. If such banks, therefore, borrow, it must be done consistently
with the principles upon which their banking is founded. If the
borrowing should tend to destroy those advantages which their lending
had procured, then the operation is contrary to principles, and abusive.
So much for recapitulation.

While trade flourishes and brings in a balance, banks never have
occasion to borrow; it is then they lend and give credit. This, I
believe, we may take for granted.

When the country where the bank is established begins to owe a balance
to other nations, the bank, as we have seen in the last chapter, is
obliged to pay it in coin or in bills. We have there shewn, that in such
cases it is inconsistent with their principles and interest, to withhold
lending and giving credit, so far as is necessary for keeping up the
fund of circulation to that standard which alienation and ready money
demands require.

To refuse credit, and at the same time to borrow _at home_, must then,
at first sight, appear to be doubly inconsistent. But in order to set
this point in the clearest light I am capable, I shall reason upon a
supposition analogous to the situation of the Scotch banks, and by that
means avoid abstraction as much as I can.

Let me then suppose that Scotland, during the last years of the war
ended in 1763, and ever since (I write in 1764) from the unavoidable
distress of the times, was obliged, 1. to import considerable quantities
of grain in some bad years; 2. to refund the English loans of money
settled there in former times; 3. to furnish some of the inhabitants
with funds, which they thought fit to place in England; 4. to pay the
amount of additional taxes imposed during the war; while, at the same
time, several of the ordinary resources were withdrawn; such as, 1. a
great part of the industrious inhabitants who went to supply the fleets
and armies; 2. the absence of the ordinary contingent of troops; and 3.
the cutting off several beneficial articles of commerce. Let me suppose,
I say, that from a combination of these losses incurred, and advantages
suspended, Scotland has lost annually, for eight years past, two hundred
thousand pounds. I am no competent judge of the exactness of this
estimate, it is of no consequence to the argument; but I think I am far
beyond the true computation.

On the other hand, let me suppose, that the sum of currency in paper,
sufficient (with the little coin there was) to circulate the whole of
the alienations in Scotland, (that is to say, the whole domestic
circulation, supposing no balance to be owing to England or other
countries) to be one million sterling. I am persuaded I am here below
the true estimate, but no matter.

Is it not evident, from this supposition, and from the principles we
have been deducing, that unless the banks of Scotland had alienated
annually in favour of England, a fund for paying the interest of two
hundred thousand pounds capital, and either brought down the coin, or
given bills on London for the sum of that capital every year; that the
million of Scots currency would have been diminished in proportion to
the deficiency; and would not the consequence of that be, _cæteris
paribus_, to bring the currency below the demand for it; and,
consequently, to hurt trade, industry, and alienation?

Now supposing the banks, instead of providing, in England, a fund equal
to this grand balance, (as I have said they should do) to remain in
consternation and inactivity, giving the whole of their attention to the
providing coin and bills to supply the demand of exchangers, whose
business it is to send out this annual balance; what will the
consequence be?

I answer, that if the banks, in such a case, do not follow the plan I
have proposed, the consequence will be, that two hundred thousand pounds
of their paper will be, the first year, taken out of the domestic
circulation of Scotland; will be carried to the bank, and coin demanded
for it. If the coin is found in the bank, it is well; it goes away, and
leaves the paper circulation of Scotland at 800,000_l_. This void must
occasion applications to the bank for credits to supply it. Is it not
then the interest of the bank to supply it? We have said in the former
chapters that it is. But now let us suppose it objected, that if banks
should issue notes at such a time, their cash having been exhausted,
they would be obliged to stop altogether, upon a return of those notes
issued upon additional credits.

To this I repeat again, because of the importance of the subject, that
notes issued to support the demand of circulation never can return upon
the bank, so as to form a demand for coin; and if they do return, it
must be in order to extinguish the securities granted by those who have
credit in bank (I except always that regular demand for coin, at all
times necessary for circulating the paper for domestic uses) and if
those notes return of themselves, without being called in, this
phænomenon would be a proof that circulation is diminishing of itself:
but supposing such a case to happen, it is plain that such return can
produce no call for coin; because when the notes return it is not for
coin, but for acquitting an obligation or mortgage, as has been often

Notes are paid in, I say, because circulation has thrown them out. Now
if circulation has thrown them out as superfluous, it never can have
occasion for coin in their stead; because coin answers the same purpose.

But then it is urged that they do not return, because circulation has
thrown them out, but because coin is wanted: be it so. Then we must say,
that circulation is not diminished, as we at first supposed; but that
the return of another year’s balance, makes a new demand for coin

Now I ask, how the withholding this 200,000_l._ from circulation, after
the first year’s drain, can prevent the balance from returning? There
are by the supposition still 800,000_l._ of notes in the country; will
not exchangers get hold of two hundred thousand out of _this_ fund, as
well as out of the million? For he who owes, _must pay_, that is, _must
circulate_. It is only the circulation of the industrious, of the rich,
in short _buying_, that is to say, _voluntary circulation_, which is
stopped for want of currency: _paying_, that is, _involuntary
circulation_, never can be stopped; debtors _must_ find money, as long
as there is any in the country, were they to give an acre for a
shilling, or a house for half a crown. Now those who owe this foreign
balance are debtors; consequently, they must draw 200,000_l._ out of
circulation, the second year as the first, whether the standard million
be filled up or not. The withholding, therefore, the credits demanded
upon the first diminution, has not the least effect in preventing the
demand for coin the year following: it only distresses the country,
raising exchange, and the interest of money, by rendring money scarce;
and what is the most absurd of all, it deprives the bank of 10,000_l._ a
year interest, at 5 _per cent._ upon 200,000_l._ which it may issue

Suppose again, that a second year’s demand for a balance of 200,000_l._
comes upon the bank: if the coin is out, as we may suppose that after
such a drain it will not be in great plenty, expedients must be fallen
upon. In such a case, if the bank does not at once fairly borrow at
London (without any obligation to repay the capital) a sum of
200,000_l._ and pay for it a regular interest, according to the rate of
money, with an obligation to pay, as government does, quarterly[9], on
the change of London, it will be involved in expedients which will
create a monstrous circulation of coin in the bank, perhaps double of
the sum required, and all those operations will land in the end (as to
the bank) in paying the interest of this sum out of the mass of its
securities or stock. If the bank should borrow this 200,000_l._ in
London, in the manner we have said, the circulating fund of coin will be
nowise diminished; there will be no call extraordinary, no rising of
exchange; the bank will have _this_ in its hands; and if it rises, it is
the bank, not the exchangers who will profit by it.

Footnote 9:

  Although the interest or dividends on government securities be paid
  every half year only, yet by purchasing partly in one fund, and partly
  in another; for instance, half in Old South Sea annuities, and half in
  New, purchasers may have their interest paid quarterly.

But let us suppose that instead of this, it should have recourse to
temporary credits upon which the capital is constantly demandable, or to
other expedients still less effectual for answering the call which is to
come upon it for the second year’s balance: what will be the
consequence? To this I answer, that those merchants, or others who owe
the balance, will apply to exchangers for bills, for which they must pay
a high exchange: these bills will be bought from the exchangers with
notes, (taken out of circulation) and will reduce this to 600,000_l._
the exchangers will carry these to the bank and demand coin. If the bank
should make use of an optional clause, to pay in six months, with
interest at 5 _per cent._ the exchangers will obtain six months credit
at London, and in consequence of that, their bills will be honoured and
paid. This credit costs them money, which is added to the exchange: the
bank, at the end of six months, pays in coin, which in the interval it
must provide from London. It pays also six months interest upon the
paper formerly presented by the exchanger: add to the account, that
bringing down the coin must cost the bank at least 12 shillings _per_
hundred pounds, and as much more to the exchanger who receives it in
order to send it back again; and after all these intricate operations
which have cost so much trouble, ill blood, stagnation and diminution of
circulation, expence in exchange to the debtors of the balance, stress
of credit upon exchangers for procuring so large advances with
commission, &c. expence to the bank in providing coin, expence to the
exchangers in returning it; after all, I say, the operation lands in
this: that 200,000_l._ of notes, taken out of the circulation of
Scotland, returns to the bank who must have provided, at last, either
coin, or credit at London for them. This return of 200,000_l._ of notes
does not diminish the mass of those obligations lodged in the bank, in
virtue of which they are creditors upon the proprietors of Scotland:
consequently, the bank has constituted itself debtor to England for
those funds which have been _torn from it_ in the manner above
described: consequently, had it, by a permanent loan, constituted itself
voluntarily debtor to England from the beginning, it would have paid no
more, nay less than it has been obliged to pay; circulation would not
have lost 200,000_l._ and the bank would have had the interest of
200,000_l._ added to its former securities, which would compensate (_pro
tanto_ at least) the expence of borrowing that sum in England upon a
permanent fund. Instead of which it compensates the interest of a
temporary loan, with the same sum of interest taken out of the
securities in its hand. If, therefore, from an ill grounded fear of
issuing as much paper as is demanded, it shall withhold it, there
results to itself a loss equal to the interest of what it refuses to
lend; that is to say, there is a _lucrum cessans_ to the bank of the
interest of this 200,000_l._ at 5 _per cent._ or at 10,000_l._ a year;
which other banking companies will fill up, and thereby extend their

If, besides refusing credits, it should call in any part of those
already given, it still diminishes circulation: but then by that
operation it diminishes the mass of its securities, and so diminishes
the sum of the interest annually paid to itself. If it goes farther and
borrows money at home, such loans will be made in its own paper, which
will diminish farther the mass of circulation; and if it goes on
recalling the credits and mortgages, it will soon draw every bit of its
paper out of circulation, and remain creditor upon Scotland only for the
balance it has paid to England on her account. Such are the
consequences, when a bank which lends upon private security withholds
credit, at a time when a national balance is due, and when applications
are made to it for new credits, to fill up the void of circulation
occasioned by the operations used for the payment of the balance: such
also are the additional fatal consequences, when to this it adds so
inconsistent an operation as that of borrowing in its own notes, or
recalling the credits it had formerly given.

By the first step it only appears passive in allowing natural causes to
destroy both the bank and the nation, as I think has been proved.

By the second, it is active in destroying both itself and the country.

What benefit can ever a bank which lends upon private security reap by
borrowing within the country of which it is the center of circulation;
nay, what benefit can it ever reap from withholding its notes from those
who can give good security for them!

Every penny it borrows, or calls in, circumscribes its own profits,
while it distresses the country. After all the combinations I have been
able to make, I can discover but one motive which (through a false
light) may engage a bank to this step, to wit, jealousy of other banks.

As this speculation is designed to illustrate the principles of
circulation, from circumstances relative to the present state of the
Scotch banks, let us call things by their names.

The banks of Edinburgh resemble, more than any other in Scotland, a
national bank. Let me then suppose all that can be supposed, viz. that
the abundance of their paper has given occasion to lesser banks to pick
up from _them_ every shilling of coin which these lesser banks have ever
had; and that these have had the address also to throw the whole load of
the balance upon those of Edinburgh: let this be supposed, more cannot,
and let us allow farther, that this must ever continue to be the case.
In these circumstances, what motive can the banks of Edinburgh have for
withholding credit from those who are able to give security? What motive
can they have for borrowing up their own notes?

Indeed I can account for this plan of management in no other way than by
supposing, that disgusted at the long continuance of an unfavourable
balance of trade against their country, and vexed to find the whole load
of it thrown upon themselves, they have taken the resolution to abandon
the trade, and are taking this method of recalling their paper

Let me suppose the contrary, and I shall not be able to discover how it
is possible that such a conduct can turn to their own advantage,
throwing out all consideration of the public good, which for some time,
no doubt, must be greatly hurt by it.

As long as any considerable quantity of their notes is in circulation,
and that the principal exchangers reside at Edinburgh, they never can
avoid the loss of paying the balance; and by refusing to fill up the
void occasioned by the return of their notes, they deliver the whole
profit of replacing them to the other banks, their rivals.

Let me next estimate the losses they sustain by furnishing coin to the
other banks, and for the payment of the balance; and then compare these
with what they lose by not keeping circulation full.

I shall suppose the balance to cost them two hundred thousand pounds
_per annum_; and I shall suppose that all the lesser banks put together
have occasion for two hundred thousand pounds in their chests: Is not
this computation far above what can possibly be supposed?

Will it be allowed that if the banks of Edinburgh willingly submit to
pay the whole of the bills of exchange demanded on London, for this
balance, they will have at least the preference in replacing that sum to

If they pay the balance of 200,000_l._ a like sum of their notes must
come in to them, without diminishing one shilling of the interest paid
upon the securities lodged in their banks; consequently, the only loss
incurred is the difference between the interest they receive, which is 5
_per cent._ and what it would cost them to borrow a like sum in London,
and to remit the interest of that sum four times a year.

Now the value of a 4 _per cent._ is at present about 96; so in paying
20_s._ _per_ quarter on the change of London, the Edinburgh banks may
have at London a capital of 96_l._ Let me call it only 94_l._ supposing
their credit not to be quite so good as that of the funds. I think it as
good to the full; and I am sure it is so. At this rate, the 200,000_l._
will cost them an interest of 8510_l._ instead of the 10,000_l._ which
they will receive for the like sum added to their former securities. Now
I suppose that they have recourse to exchangers to remit this interest,
and that they pay for it 5 _per cent._ (which is an absurd supposition,
as they will have the exchange entirely in their own hands) and that
they give all the bills for the 200,000_l._ at par, (also a ridiculous
supposition) the 5 _per cent._ on 8510_l._ is 425_l._ 10_s._ which added
to the interest, makes 8935_l._ 10_s._ so that after all, they will have
upon the whole transaction 1064_l._ 10_s._ of profit.

Next, as to the loss incurred in furnishing 200,000_l._ to the other
banks: If this coin be demanded of them by those banks, the demanders
must, for this purpose, draw 200,000_l._ of Edinburgh notes out of the
circulation of Scotland; which I have supposed may be replaced in some
little time by the Edinburgh-banks; consequently, if this sum also be
borrowed at London, there will result upon this operation, as well as
upon the last, a profit of 1064_l._ 10_s._ But then indeed they must be
at the expence of bringing down the coin borrowed, at 12_s._ _per_
100_l._ because those banks will insist upon having coin, and refuse
bills on London. This will cost 1200_l._ from which deduct the profit of
1064_l._ 10_s._ gained by the first operation, remains of loss upon this
last transaction 135_l._ 10_s._ no great sum[10]. Does it not follow
from this reasoning, that the banks of Edinburgh will have the whole
business of exchange in their own hands? What exchanger then will enter
into competition with them? The domestic transactions with the merchants
and manufacturers of Scotland will be their only business. Farther,

Footnote 10:

  We are not to suppose that this yearly balance of 200,000_l._ is
  always to continue. We have seen how it has been occasioned by a
  course of unfavourable circumstances, which have run Scotland in debt;
  we have seen how the banks may interpose their credit, in order to
  assist the country in paying it; and we shall see, before we dismiss
  this subject, how they will be enabled to repay it, and set Scotland
  free, by a return of a favourable balance upon their commerce. Let it
  then be remembred, that all those contractions in England are properly
  the debts of Scotland, not of the banks. Scotland, therefore, and not
  the banks, must be at all the expence thereby incurred. These points
  shall be explained as we go along.

What prevents the banks of Edinburgh to have offices in every trading
town in Scotland, where their notes may be regularly paid on
presentation, and new credits given as circulation demands them?

The only objection I can find to this plan of banking, is the difficulty
of finding credit at London to borrow such large sums.

This, I think, may also be removed, from the plain principles of credit.
If the banks of Edinburgh enter into a fair coalition, as they ought to
do, I think, in order to form really a national bank, totally
independent of that of England; may they not open a subscription at
London, and establish a regular fund of their own, as well as any other
company, such as the India, or South Sea? By borrowing in the beginning
at a small advance of interest above the funds, and paying as regularly
as government does, will not all those who make a trade of buying and
selling stock fill their loan, rather than invest it in any other
carrying a less interest? And if the whole land securities, and stocks
of those banks at Edinburgh be pledged for this loan, will it not stand
on as good a bottom as any fund upon earth? And can it be doubted but
parliament will encourage such a scheme, upon laying the affairs of
Scotland and the banks properly before them?

By this means they will really become a national bank: because England
seems at present to be to Scotland, what all the rest of the world is to
England. Now, the bank of England has no such fund of credit on the
continent, that I know; and were that country to fall into as great
distress, by a heavy balance, as Scotland has been, she would find as
many difficulties in extricating herself by domestic borrowings, bank
circulation, &c. as Scotland has found by the like domestic expedients.
She would then be obliged, for her relief, to have recourse to a fund
opened in Holland, Spain, or Portugal, like to what I propose for
Scotland with respect to England.

I have heard it alledged, that the whole distress occasioned to the
banks and circulation of Scotland, was occasioned by a false step taken
by them, some years ago; at the time when the lowness of the English
funds, and a prospect of a peace, occasioned great remittances from
Scotland, and a withdrawing of the large capital of, perhaps, 500,000
_l._ owing in Scotland to English persons of property.

At that time, it is said, the banks imprudently launched out in giving
extensive credits to the debtors of those capitals, and to those who
wanted to remit the funds they had secured in the hands of people who
could not pay them; that this threw a load of paper into circulation,
which it could not suspend, being far beyond the extent of it; and that,
consequently, the paper came back upon the bank, produced a run for
coin, which soon exhausted, in a manner, all that was in Scotland; and
that the country has never been able to recover itself since.

This representation is plausible, and has an air of being founded on
principles: in order therefore to serve as a further illustration of the
subject of circulation, I shall point out where the fallacy lies.

It is said the banks did wrong in giving those credits. I say, they did
right; but they did wrong in not providing against the consequences.

Had they refused the credits, the English and other creditors would have
fallen directly upon their debtors, and obliged them to pay, by a sale
of their lands, at an under value; which, I think, would have been an
infinite loss to Scotland. In this way the price would have been paid in
bank paper, taken out of circulation; for we have said, that _he who
owes must pay_, be the consequence what it will. This paper would have
come upon the banks at any rate; and being a balance due to strangers,
must have been paid by the banks. The banks therefore did right to
supply the credits demanded; but then they might have foreseen that the
whole load of paying those debts would fall upon them; which they being
in no capacity to do, should have immediately pledged in England, the
interest of the credits they had given out, after supplying the want of
Scots circulation, and when the notes came in, they would have had at
London the capital of that interest prepared for paying them off, and no
inconvenience would have been found.

The only thing then the bank seem to have misjudged, was the granting
those credits too hastily, and to people who perhaps would not have
invested their funds in England, had it not been from their facility in
giving credit.

Banks therefore should well examine the state of circulation, and of the
grand balance, in difficult times, before they give credit. If
circulation be full, they may, with justice, suspect that the credits
are demanded with a view of expediency, to transport property out of the
country, which otherwise might have remained. But in favour of
circulation, or in favour of what might be exacted by foreign creditors,
banks never can misjudge in giving credit; because, if they should
refuse to do it, they in the first place incur a loss themselves; and in
the second place, they diminish the fund of circulation, and thereby
hurt the country. Now when, at such times, a credit is asked or given,
that demand is a warning to banks to prepare; and by preparing they are
ready, and no loss is incurred.

Upon the whole, it is an unspeakable advantage to a nation to have her
foreign debts paid by her bank, rather than to remain exposed to the
demands of private foreign creditors; because, when a bank pays them, I
suppose her to do it upon a loan in the funding way, where the capital
is not demandable by the creditor; whereas when private citizens are
debtors to strangers, the capitals are always demandable; and when a
call comes suddenly and unexpectedly, the country is distressed. What
would become of Great Britain, if all her debts to strangers were
demandable at any time? It is the individuals who owe, in effect, all
that is due to foreigners; because they pay the interest: but they pay
this interest to the public; and the public appears as the debtor to all
strangers, who have no right to exact the capital, although the state
may set itself free whenever it is convenient.

I have said above, that after all the combinations I had been able to
form, I could discover but one motive to induce a bank to withhold
credit at a time when it was demanded for the use of domestic
circulation, viz. jealousy of other banks. What my combinations could
not then discover, my inquiries have since unfolded.

It is said, that the banks finding so great a propensity in the
inhabitants of Scotland to consume foreign manufactures and produce,
fell upon this expediency of calling in the old, and of refusing new
credits, in order to cut off such branches of hurtful luxury and

Could the execution of such a plan prove a remedy against the vice
complained of, this circumstance alone would more clearly demonstrate
the utility of banks upon mortgage, than all I have been able to say in
favour of that establishment.

Let us therefore have recourse to our principles, in order to discover
what influence a bank can have in this particular.

We have distinguished between _necessary_ and _voluntary_ circulation:
the _necessary_ has the _payment of debts_; the _voluntary_ has buying
for its object.

We have said that he who owes is either a bankrupt, or _must pay_, as
long as there is a shilling in the country.

But he who buys, or inclines to buy, _must have money_, or he can buy
nothing; for if he buys on credit, he then falls immediately into the
former category, and _must pay_.

By withholding money for the uses of circulation, which banks may do for
some time, buying _may_ be stopped; paying _never can_.

Now if the mass of money in circulation is brought so low, that the
_higher_ classes of the people, who consume foreign productions, cannot
find money to buy with, what are we to suppose will be the case with
manufacturers, and with the merchants who buy up _their_ work? Could
this operation of the bank affect the _higher classes_ only, by curbing
their anti-patriot expences, without affecting the _lower classes_, by
curbing their industry, I should think it an admirable discovery. If it
even could be made to affect those merchants and shop-keepers only, who
deal in foreign commodities, so as to discourage them from carrying on
that business, there would result from it a notable advantage.

But alas! wherein are they hurt? They trade in such commodities, not
because they are bad citizens, but because they are freemen, and seek
profit wherever the laws permit.

Perhaps, they find more difficulty than other people in forcing coin
from the bank, as matters stand: perhaps, they are loaded with
opprobrious appellations for extorting such payments from the bank:
perhaps, their credits with the bank are recalled. But must not those
who buy from them, pay them? And must not the bank give coin, or bills,
for the notes they receive, when presented for payment? Why, therefore,
throw difficulties in the way? All the world knows, that no human engine
can prevent a merchant from laying all the expences of his trade upon
the consumer. Correct the taste of the consumers, and you may stop the
trade: no other restraint will be of any consequence. But in order to
correct the taste of consumers, do not deprive them absolutely of money;
because the money the landlord receives, comes from the farmer, for the
price of his grain, &c. Would it be a good scheme for preventing
soldiers from drinking brandy, to cut off their subsistence-money? Give
a drunkard but a penny a day, it will go for liquor; and those who are
fond of foreign clothing, will take the price of it from their bellies,
to put it on their backs.

If this scheme of the bank’s withholding credit, proves, at present, any
check to those dealers in English goods, it will be but for a very short
time. They have been taken by surprize; and, perhaps, thrown into
inconveniencies from an unexpected change of bank management; but as
long as there is a demand for such commodities, there will be a supply;
and when people owe, they _must pay_. No operation of a bank can prevent

I must, therefore, according to principles, disapprove of this
public-spirited attempt in the banks of Edinburgh; because, if it should
succeed, it will have the effect of ruining all the trade and industry
of Scotland, in order to prevent the sale of English goods: and if it
does not succeed, which is more than probable, from the assiduity of
other banks in supplying credit, it will have the effect of ruining the
banks of Edinburgh themselves.

This step, of calling in the bank credits, and opening a subscription
for a loan, is represented by others in a light somewhat different.

By these it is alledged, that in the beginning of the year 1762, when
the Edinburgh banks withdrew ¼ of all their cash accompts, and opened a
subscription for borrowing-in their own notes, at an interest of 4, and
even 5 _per cent._ the demand for money, to send to England, was not
occasioned by the great balance owing by Scotland, but to the high
premium money then bore at London; because, says the author of a letter
to J... F...... Esq; published at that time,

“This demand arises from a profit on carrying money to London, _as a
commodity_, and not as a balance of trade.”

It is not easy to comprehend how there could be much profit in carrying
money to London at 3 _per cent._ loss by exchange, from Scotland, where
it bore 5 _per cent._ interest.

It is true, that at certain times, there were considerable profits made
upon stock-jobbing; by which some won, and others were ruined. I agree,
that the country was greatly hurt by the folly of those who played away
their own property, and by the roguery of others, who borrowed that of
their neighbours, with an intention of gaming at their risk. But is this
a vice which any bank can correct, while it has a note in circulation?

If, therefore, it was a sentiment of patriotism which moved the banks to
such a plan of conduct, I say they thereby did more hurt to industry, by
contracting circulation, than good to Scotland, by attempting a thing
which was beyond their power to accomplish.

If they were moved to it by a principle of self preservation, I say they
lost their aim, by cutting off their own profits, which would have done
much more than indemnify them for the loss of borrowing at London, at
the time when money there was hardest to be got: for whatever exorbitant
expence of exchange gamesters may incur, to procure ready money to play
with, the rate of the stocks at that time never was so low, as to afford
a profit upon money remitted at 3 _per cent._ loss by exchange, while
that money was bearing 5 _per cent._ interest at home.

The lowest rate of stocks was in January 1762. Towards the end of that
month 3 _per cents._ fell to 63¼: this makes the value of money to be
about 4_l_. 12_s._ _per cent._ In these funds, certainly, no body could
invest, with profit, money sent from Scotland.

After the new subscription had been open for some time, scrip indeed, or
4 _per cent._ fell in this month so low as 74½, that is, money rose to
5.4 _per cent._ whereas had scrip stood at the proportion of the 3 _per
cents._ it should have been worth about 84: but at the beginning of a
war with Spain, when the minds of men were depressed, and filled with
apprehensions, and when a new loan was perhaps expected at a higher
interest than ever government had given, was it natural for people to be
fond of investing in a 4 _per cent._ stock, which was to fall to 3 _per
cent._ in a few years?

Besides, let us examine the profit to be made by investing even in that
fund. 100_l._ produced in Scotland 5_l._ interest, that capital remitted
to London at 3 _per cent._ exchange, was reduced to 97_l._: now if
74.5_l._ produced 4_l._ the produce of 97_l._ would be about 5_l._ 4_s._
Would any man for the sake of ⅕ _per cent._ advance of interest on money
remitted, ever think of sending large sums to London to be invested in a
falling stock?

I allow that, upon opening subscriptions, great profit was sometimes
made by those who contracted with government, and who received the
subscriptions at prime cost. But this profit depended entirely upon the
subsequent rise of the subscription, when the original subscribers
brought it first to market; as also from the small sums they had
advanced: this operation was over before the end of January 1762. The
smalness of the sum advanced, upon which the profit was made, and the
ministerial interest which was necessary to obtain a share in those
subscriptions, rendred it extremely difficult for people in Scotland to
share in the profit by remitting large sums in the proper point of time.

Farther, might not the banks, in the short period during which such
large profits were made, had they had the exchange in their hands, have
raised it so high as to frustrate the attempts of our Scots gamesters?
If it be said, that exchangers would have disappointed them, by giving
it lower; I answer in the negative: because to that set of men exchange
will rise, of itself, in proportion to the value of money _in the place
to which people incline to remit it_. And could money at any time bring
in, at London, 20 _per cent._ interest, exchange upon that place would
rise universally in proportion.

The only motive, not already mentioned, for sending money to London at
this time, under so great disadvantages, was the prospect of a great
rise upon the stocks, in the event of a peace. Upon which I observe,
that the value of that probability was included in the then price of
stock; and had the probability of a peace, in January 1762, been great,
stocks would have risen in proportion: he, therefore, who vested his
money in stock, by remitting from Scotland at that time, upon an
expectation peculiar to himself, I consider as a gamester, and as an
ignorant gamester too; because he was giving odds upon an equal bett.
This every man does, who, without any prospect of a profit peculiar to
himself, pays a high exchange to bring money to a market, where he buys
at the same price with those who pay no exchange at all.

From these considerations, I am led to differ from the ingenious author
of the letter to J. F. Esq; who says, “That in the present case” (the
circumstances operating in January 1762,) “the demand” (for money to
remit to London) “is unlimited, and no provision the banks can make can
be of use; on the contrary, could they find a treasure, suppose of a
million, it would only serve to increase it; because this demand arises
on a profit on carrying money to London as a commodity, and not as the
balance of trade.”


                               CHAP. XIV.
             _Of optional Clauses contained in Bank Notes._

As we are examining the principles upon which banks of circulation upon
mortgage, which issue notes payable in coin, are established in
Scotland, it is proper to take notice of every circumstance which may
arise from the extensive combination of the interests of trade and
circulation, especially when we find such circumstances influencing the
political welfare of society.

An optional clause in a bank note is added to prevent a sudden run upon
banks, at a time when more coin may be demanded of them than they are in
a capacity to pay.

Banks not regulated by statute, are private conventions, in which the
parties may include what conditions they think fit. Banks, therefore,
may insert in their notes, the conditions they judge most for their own
advantage. Thus, they may either promise peremptory payment in coin upon
demand, or they may put in an alternative, that in case they do not
choose to pay in coin, they may pay in bills, or in transfer of their
stock, or in other circulating paper not their own; or they may
stipulate a certain space of time after the demand, with interest during
the delay. All these alternatives are inserted, in order to avoid the
inconvenience of running short of coin, and of being obliged to stop
payment altogether.

We have said above, that the profits of banks consist in their enjoying
the same interest for the notes they lend, as if the loan had been made
in gold or silver. This is a very great object, no doubt; but the policy
of nations has established it, and therefore we shall suppose it to be
an uncontroverted principle.

In which ever way, therefore, an optional clause is inserted, it should
be such as to cut off all profit from the bank, upon all paper presented
for payment, from the time of presentation; and every artifice used to
suspend the liquidation of the paper, to the advantage of the bank, and
prejudice of the bearer, should be considered as unfair dealing in the
bank, and prohibited by law.

When the optional clause has no tendency to procure advantage to the
bank, in prejudice of the holder of the paper (except so far as the
holder is thereby deprived of the use of coin, which on certain
occasions cannot be supplied by the paper) it becomes the duty of a
statesman to examine how far it is expedient to suffer such stipulations
to be inserted, in a money which is calculated to carry on the
mercantile interest of the nation.

Banks, we have said, are the servants of the public, and they are well
paid for their services. Although the notes issued by them are not
commonly made a legal tender in payment; yet the consequence of a well
established bank, is to render them so essential to circulation, that
what is not a legal obligation becomes one, _in fact_, from the force of

Let us therefore examine the advantages which result to banks from this
optional clause, and the loss which results to a nation from their use
of it, and then compare the advantages with the inconveniencies, in
order to determine whether or not it is expedient to permit such
obstructions in the circulation of paper.

The advantages which banks reap is confined to that of gaining time, at
the expence of paying interest. The interest paid by them is an aukward
operation. They receive interest for the note; because they have in
their possession the original security given for the notes when they
were first issued; and they begin to refund this interest to the holder
of the note from the time they make use of the optional clause. Could
the banks, therefore, borrow coin in a moment, and pay the same interest
for the coin which they pay to the holder of the note, they would
certainly never make use of this optional clause. But this coin is not
to be found in a moment; and the banks, to save themselves the trouble,
and the expence of augmenting the fund of coin, or of procuring a fund
out of another country, upon which they might draw for the payment of
that national balance, which, by becoming banks, they tacitly engage to
pay for the nation, render the credit of individuals precarious with
strangers, and raise a general distrust of the whole society which they
ought to serve. Here then is a very great loss resulting to a nation
from the establishment of banks. Were no bank established, no merchant
would contract a debt to strangers, without foreseeing the ready means
of discharging it with the coin circulating in the country. In
proportion as this coin came to diminish, so would foreign contractions
of debt diminish also. Thus _credit_, at least, might be kept up,
although trade might be circumscribed, and manufactures be discouraged.
Now when, in order to advance trade and encourage manufactures, a
statesman lends his hand towards the melting down of solid property, and
countenances banks so far as to leave that operation to them, with the
emolument of receiving interest for all their paper; and when, in order
to facilitate the circulation of this paper, the very inhabitants concur
in throwing all their specie into a bank, is it reasonable to indulge
banks so far as to allow them to add an optional clause, which
disappoints the whole scheme, which stops trade, ruins manufactures,
raises the interest of money, and renders the operation of melting down
property quite ineffectual for the purposes which it was intended to
answer? Farther,

The loss a bank may be at, in providing coin, is susceptible of
estimation, let it be brought from ever so distant a country; because we
know that the quantity to be provided, never can exceed the value of the
_grand balance_. But who can estimate the loss a nation sustains, when
an interruption is put to carrying on trade and manufactures? When the
industrious classes of inhabitants are forced to be idle for a short
time, the consequences are hardly to be repaired: they starve, they
desert; the spirit of industry is extinguished; in short, all goes to

Besides, when banks do not lay down a well digested plan for paying
regularly, and without complaining, this _grand balance_ due to
strangers, they are forced to have recourse to expedients for preserving
their credit, more burdensome, perhaps, than what is required of them;
and not near so effectual for removing the inconveniences complained of.

The expedients they fall upon to obtain credit, coin, and bills, are so
various, and so complicated, that they alone are able to explain them.

Sometimes we see them entring into contracts with private merchants and
exchangers, (_living among themselves!_) who engage for a certain
premium to furnish coin as it is demanded. The consequence of this, is,
to expose the bank to a new demand for coin, from the very contractors,
in order to fulfil their engagements; an abuse we have taken notice of
above in speaking of the _bank circulation_ of England.

Let us suppose that these undertakers for coin do really set out by
doing _in part_ what banks should _effectually_ do themselves, that is,
by bringing from another nation, the coin which they are to supply. What
is the consequence? The banks pay the undertaker for this coin in their
own notes. Did they only engage to pay a certain interest for the coin
so provided, then the end would be accomplished, with the additional
expence to them of paying the undertaker for his expence, trouble, and
profit. But if they, instead of paying interest for the coin so
furnished, shall issue their notes for the full value of it, such notes
can never enter into domestic circulation, so as to be suspended in it
as it were; because it is not domestic circulation which has demanded
them: they must then return upon the bank, either from the very hand who
received them, or at least, after a short circulation; and thus draw out
again the whole coin furnished by the undertaker. This produces a
prodigious circulation of coin, and induces people to imagine that
either the _grand balance_ is inexhaustible, or that the premium upon
money at London is very high, or that people can contrive a fictitious
balance, as a means of profiting upon coin, after the balance has been
actually paid[11].

Footnote 11:

  The directors of the bank of England have had recourse to a like
  expedient with as little success. They used, during the war, to buy
  up, with their paper, the coin brought in by privateers; and after
  they had been at this trouble, the notes they had given for it
  returned upon them, and drew it out again.

This method of providing coin is absolutely delusive, and opens a door
to infinite abuse. Those who furnish the coin to the bank, are either in
the combination against the bank, and draw it out as fast as they throw
it in; or they are not in the combination: if they are in the
combination, they profit by it; if they are not, they are hurt by their
contract, and other exchangers draw the advantage; but the bank is
equally a loser in both cases.

Let me suppose that they are not in the combination, and that they
honestly procure the coin at their own expence. If they are paid in
notes for the coin they furnish, we must suppose that the coin they have
procured, is not in consequence of a loan, but of a _credit_ given them
in the place from which the coin is sent: for I never can suppose that
any merchant will borrow coin upon a _loan_, and lie out of so large a
capital while he has bank notes in his hand to pay up what he has
received. If he has procured this coin upon _credit_, will not this,
when it comes to be replaced, augment the grand balance against the
nation in favour of the country or city which granted that credit? And
must not that balance be paid by exchangers out of the coin received by
the bank? If, therefore, we suppose that the undertaker does not draw
out the very coin he had just delivered into the bank, will not
exchangers do it for him; will not they be ready with notes, as soon as
the coin is lodged in the bank, to draw it out, and send it off, in
order to furnish the undertaker with bills to fill up his credit, for
the coin he had received from people residing in the place to which the
exchangers have sent coin, to be ready to answer their draughts? Does
this differ in the least from what is called drawing and redrawing,
which is sufficient to ruin any man, and must not a like practice ruin a
bank, by raising exchange to a monstrous height?

This being the case, the shortest and the best method of preventing such
abuses, is to oblige banks to pay upon demand, in coin or bills, at the
option of the holder of the note. This will force them into the method
of providing them; to wit, fairly borrowing money from nations to whom
we owe, and paying a regular interest for it, without an obligation to
refund the capital, until the grand balance shall take a favourable
turn; in which case, the banks will regorge with coin drawn from
strangers, and these strangers will then find as great an interest in
being repaid, as the bank found in borrowing from _them_, while the
balance was in _their_ favour.

We have said, that a statesman should oblige all public banks to pay
regularly upon demand, in coin or bills, at the option of the holder of
the note. But then he must facilitate to them the means which he has in
his power, of providing themselves with the coin, or bills demanded.

For that purpose, he must, first, provide them with a mint, for how,
without a mint, can a bank convert into coin the metals it may provide
from other countries? Next, he must put that mint under such regulations
as to cut off all profit from money-jobbers, who will be ready to draw
coin out of the bank the moment they find the least advantage in
tampering with it. In order to prevent this abuse, a reasonable rate of
coinage should be imposed, according to the principles laid down in the
third book; and when banks have occasion to pay a balance out of the
nation’s coin, a drawback for part of the coinage should be given them.
This drawback will support the value of the coin, and the loss of the
remainder will engage them to export bullion preferably to coin, when it
is to be found: and if no drawback were given, the coinage would be
totally lost to the bank.

When this deduction is given, the coin must be melted down, and stamped
in bars at the mint; both in order to prevent frauds in the drawbacks,
and to disappoint strangers who receive it at the price of bullion, from
gaining the price of coinage when they return it back. And in the last
place, all light coin should be banished out of circulation, and made to
pass by weight for bullion, at the current price of the market. All
banks should both receive and deliver coin by weight, when the sums are
so considerable as to require full bags of coin to pay them. It is not
here necessary to repeat what has been said upon this subject at so much
length in another place.

The method of facilitating to banks the means of providing bills for the
payment of foreign balances, is, secondly, to assist them in procuring
loans beyond the district of their own circulation. If government shall
be satisfied that the intention of demanding such loans, is to enable
the bank to interpose their credit in favour of the trade and industry
of those who circulate their paper, and who have no way of paying such
balances, but with their solid property; in that case, government will,
undoubtedly, assist the bank in obtaining loans for so national a
purpose, by declaring the security upon which they desire the loan to be
good, and by becoming answerable to the public for the solidity of it.


                               CHAP. XV.
 _Of subaltern Banks of Circulation, and of their Competition with one

We have hitherto treated of the principles which influence national
banks of circulation, we now come to examine some peculiarities
attending banks of a subaltern nature, which for the most part trust to
the national bank for all supplies of coin; and when this resource fails
them, they are thereby involved in difficulties which are not easily got
the better of. Besides this inconvenience, to which all subaltern banks
are subject, they are frequently exposed to competition with one

A national bank enjoys such great advantages from the stability of its
credit, and the regularity of its operations, that it is not easy for
any other private company to establish themselves upon the same solid

When any banking company is established, which draws its support from a
national bank, the facility of carrying on the business by so great an
assistance, naturally engages other companies to imitate their example.
From thence arises a competition. All such banks begin to consider the
circulation of their own district as their undoubted property, and they
look with an eye of jealousy upon every note which does not carry their
own mark.

The great point of their ambition is to gain credit with the national
bank; and could they obtain of that company to receive their notes, or
to give them credit for their draughts, in cases of necessity, they
would be at their ease; because the national bank would then be at the
whole expence of providing coin and bills, and they would have nothing
to think of, but to extend the sphere of their own circulation.

With respect to all these subaltern societies, the national bank will no
doubt steer an equal course. I suppose every one to be settled upon good
security; without which they do not deserve the name of banks.

In proportion to their stocks, and according to the state of the
national balance, they may, as well as any private person, on many
occasions, draw considerable supplies of coin from the national bank,
without lying under any obligation to it; because when exchange is low,
they can realize any part of their stock into coin, out of the national
bank, at very little loss, excepting the interest of it: for interest
must always be reckoned upon every guinea which lies in their chest.

Did these banks consider one another in a proper light, they must see in
an instant that the solidity of every one is equally good; because I now
suppose them all standing upon the principles of private, not mercantile
credit, as above explained.

What benefit then can they possibly reap from their mutual jealousies,
from gathering up each other’s notes, and coming with a run upon one
another from time to time? The consequences of this will be, to oblige
themselves and others to preserve for _domestic circulation_ a larger
quantity of coin than is necessary, and thereby to diminish their own
profit: to take up their attention in providing against their own
reciprocal attacks, and thereby neglect the providing a supply for that
demand which is indispensable; to wit, the payment of the grand balance
due to other nations; at which time the resource of the national bank
will certainly fail them. The managers of every one of them will pretend
that it is they who are saddled with this burden; but the nature of the
thing speaks for itself.

Wherever this grand balance is transacted, the exchangers residing in
the place will have recourse to the bank there established; and if there
be more than one, that which pays with the greatest readiness will have
the best credit, the most notes in circulation, and the largest profits
upon the whole. If any one is found slow, or difficult in paying its
paper, exchangers will be the more punctual in making their demand for
payment, and they will even be averse to receiving such notes from their

Every man who has occasion for credit from a bank, will apply to that
whose notes are the most esteemed. In short, there will be profit, in
the main, to the bank which pays the best, although I allow that at
particular times there may be some additional inconveniences, unless a
regular plan be laid down on the principles above deduced.

This however is a vague reasoning; because the matter of fact is not
known. All that can be said with certainty, is, that while no public
regulation is made with regard to banking, every one will carry on the
trade according to his views of profit; and private animosities between
different companies, will only tend to distress the nation and
themselves, as experience has, I believe, discovered.

If, as matters stand, a very great inconvenience results to Scotland
from the want of a communication of paper credit with England, and if
thereby an exchange of 4 and even 5 _per cent._ has been paid for bills
upon London, because all the coin of the country is locked up in banks;
I ask what would be the consequence, if banks had their will in
banishing from the circulation of their own district, every other notes
but their own? In that case, we might, in a short time, find an exchange
of 4 and 5 _per cent._ between Fife and Lothian, between Glasgow and
Ayr, and so of the rest. What would then become of manufacturers, who
could not dispose of their work at the distance of a few miles, without
having recourse to exchangers for their payment? If such an abuse were
once allowed to creep in, there would be no other remedy but to destroy
banks altogether, and throw the little coin there is into circulation.

On the other hand, when banks are in a good understanding, when they are
established on solid principles, when their paper is issued on proper
security, the public is safe; and in every little district, under the
wings of their own bank, there will arise a set of exchangers, who will
give credit to merchants and manufacturers, and who will have recourse
to their own bank for the coin or bills necessary for their occasions.
This will naturally divide the payment of the grand balance among them,
in a due proportion to their circulation.

I shall now consider the principles which may direct a statesman to
settle banking upon mortgage on a proper footing, to serve every
national purpose.


                               CHAP. XVI.
 _Of some Regulations proper to be made with regard to national Banks._

From what has been said, we may conclude, that were a national bank upon
mortgage, established on a plan calculated to answer the purposes of the
most extensive domestic circulation, it might be regulated in the
following manner.

1_mo_, Let a large stock of property, of one species or other, be
provided, in order to gain the confidence of the public, and let it be
pledged for the payment of all the notes.

2_do_, Let all solid property intended to be melted down into paper
money, be first constituted in such a manner as to be easily sold, and
in the mean time secured to the company, for their advance, preferably
to every other person, and let it be of a revenue fully sufficient to
acquit the interest for ever.

3_tio_, The capitals due to the bank must not be demandable by the bank,
as long as the interest is regularly paid.

4_to_, Every one who constitutes his property according to the
regulations, must be entitled to a proportional credit from them.

5_to_, All bank securities must be pledged in the hands of government
for the interest of whatever money the bank may borrow with their
consent, beyond the district of their own circulation.

6_to_, Government must support the bank in proportion to the extent of
their funds.

7_to_, Let bank notes be payable to bearer, either in coin, or in inland
bills to the value, or in a transfer of a corresponding interest at —
_per cent._ all in the option of the holders.

Were such regulations established, the borrowing from banks would become
very easy; any man who is master of his property, though incumbred with
debts, might put it into bank regulation, might raise upon it what sum
he thought fit, with which all his debts might be paid off; he might
even give credit upon it to those who otherwise are not in a situation
to obtain it: for which credit given, a profit in the rate of interest
might be allowed to him. Were a plan concerted consistently with the
principles which have suggested this general sketch, all borrowing and
lending of money would soon center in the bank. Securities would be
easy, and expence greatly avoided.

A national bank, when rightly constituted, may however be safely
indulged in more extensive methods of circulating their paper than upon
land security. The bank of England is allowed by charter to issue notes
for discounting bills of exchange, it may trade in gold and silver, may
advance money to government upon the security of taxes imposed and
levied within the year. But it is in general debarred commerce, and
every precarious object of traffic. The reason is plain. The paper it
issues becomes the property of the nation, and may form in a short time
the greatest part of the currency of it. In such a case, were the bank
exposed to losses by trade, or insolvency of debtors for great sums, the
whole credit of the nation might be ruined, and all the lower classes of
the manufacturing inhabitants undone, before such a blow could be

Under proper regulations, bank paper might be made a legal tender in
every payment: in which case it is hardly possible that any considerable
demand for coin should ever be made upon them, except for the payment of
the _grand balance_.

This national bank may have different offices, in different cities
within the kingdom, and these will make subaltern banks both useless and
unprofitable. It might even be stipulated, that a certain proportion of
bank stock, in the name or for the behoof of any city, should entitle
that city to a proportional part of the administration within their own
district. As these are only speculations, not plans, I need not set
about removing objections, which are constantly many and well grounded,
whenever any new establishment or innovation is proposed. All I aim at
is to set this principle in a clear light, to wit, that it is the
interest of every trading state to have a sufficient quantity of paper,
well secured, to circulate through it, so as to facilitate payments
every where, and to cut off inland exchanges, which are a great clog
upon trade, and are attended with the risk of receiving the paper of
people whose credit is but doubtful.

For this purpose, I have proposed that inland bills should be demandable
from the bank at par, as well as specie.

It would be an admirable improvement upon this scheme, to make a like
regulation as to foreign bills. However, this speculation is reserved
for another opportunity. All I shall say, at present, upon that head,
is, that as we have seen how the whole national balance must be paid by
banks (who circulate paper payable in coin on demand, and who
consequently must, on some occasions, draw the metals from abroad for
that purpose, in order to fill up the void made by exchangers, who send
them out) and it would, I think, be shortning, in some measure, that
operation, and be a means, at the same time, of indemnifying the bank in
this respect, to regulate matters so, that all foreign exchanges might
be transacted there at fixed rates, according to the place where the
exchange is to be made, without erecting any monopoly for that purpose
in favour of the bank, or depriving any one of the liberty to deal in
exchange, who can afford it at more reasonable terms than the bank; but
of this more when we come to the doctrine of exchange.


                              CHAP. XVII.
  _When and in what case Banks should be obliged to keep open Books._

If no national bank be established under proper regulations, and entire
liberty allowed to every one to take up the trade who can issue his
notes, I think it would be against all principles of good policy not to
oblige such banks to keep open books, to be inspected regularly by some
authority or other; in order to see upon what security that paper
stands, which is the instrument of commerce, a part of every man’s
private property, and which, if any part of it should once fail, either
through the knavery, misconduct, or misfortune, of a particular company,
would cast a general discredit upon all paper, and be a means of
bringing on those calamities which we have so often mentioned.

I know the ordinary objection against this, is, the inconvenience of
throwing open the secrets and mysteries of trade. As to the mysteries of
trade, this point shall be examined in another place. But here, I say,
there is no question of trade in which any risk is implied: and if any
one can suppose, that, at any time, the affairs of a bank are in so
ticklish a situation as not to bear inspection, that very supposition
shews how necessary it is not to permit such a bank to continue this
circulation. The only inspection, in which the public is interested, is
to know the quantity of notes issued, and the extent and nature of the
securities pledged for them. They have no business to examine the state
of their cash, or of particular people’s credit. They may be without a
shilling in their coffers, and still their paper be as good as if they
had a million. Such an inspection, as I propose, would rather confirm
than shake their credit, but it would be a means of preventing them from
launching out into speculations in matters of commerce, which is not
their district; and from gaming with national property.

If it be said, that this inspection would lay open the affairs of many
private men, debtors to the bank, I answer in the negative; because no
man’s credit is hurt by his having a cash account, and no inspection is
requisite, as to the state of that accompt with the bank. The credit may
be either quite full, or quite exhausted; this particular interests no
body but the parties themselves; but it is essential to know upon what
security the credit has been given; because every man who has a note of
such a bank in his possession, has a very good title to be informed
concerning the security on which it stands.

It is not sufficient to say, that the holder of the note, if he doubts
of the security, may demand payment. It is not here the interest of any
individual, but that of the public which is attended to: and if,
according to the principles of common reason, it be just, that a
creditor should have it in his power to watch over the abilities of his
debtor, so as to secure his payment; certainly it is equally just, that
the public (which I consider here as the creditor) should be made
certain, that what is circulating with as great facility as the King’s
coin, contains a real value in it. Would it be a good answer from any
man who held a piece of false money in his hand, for the use of
circulation, to skreen himself, by alleging that if it be false, no body
need to take it. It is the right of every man to detect false coin; but
it is the right of government _only_ to detect false paper: because law
only can authorise such an inquisition. Does not the charter of the bank
of England establish this right in government? If the bank be confined
to certain particular branches of solid trade, where little risk is
incurred, might not government examine, when necessary, whether these
regulations have been observed; and how can this be done without such an
inspection as is here recommended?


                              CHAP. XVIII.
   _Is it the Interest of Banks to grant Credits and Cash Accompts to
   Exchangers and others, who make a Trade of sending Coin out of the

The answer to this question is very short.

From the principles we have deduced, it is plain, that it is both the
office and interest of banks to give credit to all who can give good
security for it.

The cause of doubt upon this question, arises only from certain
inconveniences which have been of late experienced in Scotland; but
which never would have been felt, had banks attended to their true
interest, in providing funds to answer the demands of those who are
either obliged, or who find an interest in paying off what the nation
owes upon the grand balance to foreigners.

To set this matter in a clear light, let me suppose that, some time ago,
the banks had at once withdrawn all the credits granted to exchangers;
and opened a subscription for a loan of money, equal to what they might
estimate the sum borrowed by that set of men within the country, for the
sake of carrying on their business.

According to principles, these two operations should go hand in hand:
the recalling the credits would, no doubt, have greatly distressed
exchangers; but as long as they could find money to borrow from private
hands, that inconvenience would have been lessened. Besides, I apprehend
that the late custom among exchangers, of borrowing at 4 _per cent._
owes its existence to the difficulty they felt in obtaining extensive
credits from the bank; and if this be the case, then there has been a
_lucrum cessans_ to the bank of 5 _per cent._ upon the amount of all
these borrowings; because exchangers, I apprehend, would prefer a credit
from the bank at 5 _per cent._ to a loan at 4 _per cent._ payable on
demand, according to the occasions of those who keep their money with

The most effectual method, therefore, to hurt exchangers, would have
been to have recalled all their credits, and offered to borrow, upon the
same terms, what was lent to them.

The execution of such a plan would, I think, have been, 1. diametrically
opposite to the interest of the banks; 2. would have occasioned such a
run upon exchangers, as to throw them into great distress; and 3. would
have ended in the total ruin of the trade of Scotland.

That such a plan is diametrically opposite to all principles of banking,
I suppose, is by this time sufficiently understood.

That it would have occasioned a run upon exchangers, is pretty certain:
because however good their credit might be, it must be acknowledged to
be inferior to that of the banks; and therefore no body would prefer
them for debtors, to the bank, upon the same terms.

The third consequence is as evident, upon a short reflection, as the
other two. The run upon the exchangers would have obliged them to make a
call upon all the merchants and dealers in Scotland, to whom they gave
credit: for which purpose, and for which alone, they find an interest in
borrowing at so high an interest as 4 _per cent._

The call, then, made by the exchangers upon their debtors, is neither
more or less than a call upon the money employed in the trade of

Now we have said, that whoever owes _must pay_. The merchants of
Scotland owe to exchangers; the latter are pressed by their creditors,
and _must pay_ with what they have, which consists in money only: when
that is exhausted, they must shut up shop. _They_ again call upon the
merchants, who _must pay_ with what they have. This consists in goods,
and in the manufactures of Scotland; and these they _must_ sell at any
price. There may not be time sufficient to export with advantage. To
whom then must they sell? To people within the country, who have no
money to buy with; because credit is withheld by that body which only
can give it. I conclude with the old saying of the law,

         _Unum quodque eodem modo solvitur quo colligatum est._

The best method to establish credit in an industrious nation, is a bank
properly regulated: and the best methods to ruin it effectually, when
established, are the inconsistent operations of such a bank.


                               CHAP. XIX.
_Application of the Principles above deduced, towards forming the Policy
                            of Circulation._

From the principles above deduced, there arise three principal objects
of attention.

The first, the circulation of paper for domestic uses.

The second, the method of providing coin for that purpose.

The third, the method of paying foreign balances.

These three objects are absolutely different in their nature, and they
are influenced by different principles. The consequence of blending them
together, is to render the subject, which is abundantly intricate in its
own nature, still more dark and perplexed. What is to follow has no
relation to any plan proposed for execution; it is only intended as a
farther illustration of the general principles which influence this
branch of my subject.

1_mo_, As to the circulation of paper for domestic use.

It has been said, that the great utility of banks of circulation upon
mortgage, was to facilitate the melting down of solid property; in order
to enable every one who has property, to circulate _the capital_ of it
for the advancement of industry.

For this purpose he comes to a bank, pledges the capital he wants to
melt down, and receives for his obligation, bearing interest, paper
money which bears none.

This paper money, I suppose to be as solidly secured as the principles
of private credit can make it. I suppose the bank to be established by
authority, according to the regulations already mentioned, and the notes
made a legal tender in every payment of _domestic debts_; by which I
understand _debts_ payable within the country.

From these data, I say, that the regular method by which the bank should
acquit the obligation in the notes, is by restoring the security granted
at issuing the notes, if they be returned by the debtor in it; or by a
transfer of a sum of interest equivalent to the notes, if they are
presented by any other. All farther obligations laid upon banks to pay
in coin, or inland bills, is only an equivalent expected from them in
lieu of their great profits[12].

Footnote 12:

  It must here be observed, that in every country where there is a
  national coin established, it is absolutely necessary to connect with
  it the denominations of the paper; in order to affix a determinate
  value to these denominations. This may easily be done without
  implying, as at present, an obligation on the bank to realize into
  coin every bit of paper in circulation.

  The _interest_, therefore, of the credits given by the bank, may be
  demandable from the debtors in coin; and the transfers of interest
  made by the bank, to those who bring in notes for payment, may also be
  demandable in coin from the bank.

  These payments will bear a small proportion to the paper in
  circulation, as interest must be very low; and coming at fixed terms
  of payment, provision will easily be made for them.

  This regulation will support the coin of the country, and as the
  _interest_ of all the paper becomes demandable in coin, the intrinsic
  value of the _interest_ will effectually support the value of the

When paper issued for domestic circulation returns to a bank, were it
not for the profits on their trade, I see no reason why a bank should
pay in any other species of property than what it received; and if, by
the interest they receive for their notes, they are abundantly
indemnified for all the difference between paying in coin and in
transfer, I think the public would be a gainer to dispense with that
obligation in lieu of an abatement of interest; which would be an
advantage to commerce, not to be counterbalanced by the other.

Farther, the business of providing coin is totally different from that
of supporting domestic circulation: it is founded on different
principles: it requires men of a particular genius to conduct it: the
difficulties to be met with are not constant; and therefore cannot form
a regular branch of bank administration.

2_do_, The method of providing coin for domestic circulation is the
business of mints, not of banks.

I have, in the third book, treated very fully of the doctrine of coin,
and of mints. I have shewn the difference between money, which _is the
scale for reckoning value_, and coin, which _is certain denominations of
money, realized in a proportional weight of the precious metals_. I have
shewn how necessary a thing it was to impose the price of coinage upon
the metals manufactured into coin: and I have said, that it was
inconsistent with all principles, to allege that the metals, when
coined, should thereby acquire no additional value.

The expence, therefore, of providing the metals should be thrown upon
those who want coin; and the mint should be obliged to convert gold and
silver into coin, upon the demander’s paying the coinage.

This coin loaded with the price of coinage, never will be sent abroad to
pay a foreign balance; never will be locked up in banks, which will have
little occasion for it. It will, therefore, remain in circulation, and
serve those purposes for which the inhabitants think fit to employ it.

This coin, I say, never will be exported, as long as any uncoined metals
can be found in the country: and if upon a national distress it is
thought fit to facilitate the exportation of it, the state may (as we
observed above) appoint the mint to receive it back, in order to melt it
down into ingots, stamped with the mark of sterling, repaying to the
bearer —— _per cent._ of the coinage.

3_tio_, The trade of paying off foreign balances will then become a
particular branch of business: of which we shall treat more at large,
when we come to examine the principles of exchange.

All that is necessary to be said in this place, is to recal the
principle we have mentioned above, viz. that when a nation cannot pay in
her metals, manufactures, and natural produce, what she owes to
strangers, she must pay in her solid property; that is, she must
mortgage the revenue of such property, for a capital _borrowed out of
the country_, which capital she must employ for the payment of her
foreign debts.

This operation then should be performed by a regular and systematic


                               CHAP. XX.
                     _Objections to this Doctrine._

That bank notes can never be received as specie, but from a persuasion
that they may be exchanged for it on demand.

To this I answer, that it is sufficient they be received as value; and
that they answer every purpose in carrying on alienation. The use of
_money_ is to keep the reckoning between parties, who are _solvendo_;
the use of specie or coin is to avoid the inconvenience of giving credit
to persons who perhaps may not be so.

When merchants make delivery in accompt, they then give credit to their
customers: when they sell for bank bills, they give credit to the bank:
when they are paid in coin, they give credit to no body; because they
receive the real value in the coin. Where then is the difference between
receiving the real value, and receiving an obligation for it, concerning
the validity of which every one in the country is perfectly satisfied?

Is there a merchant, in any country in the world, who will sell one
farthing upon an hundred pounds cheaper to a person who pays in coin,
than to another who pays in good paper; unless the extrinsic
circumstances of the country should, at that time, give an advanced
price to the _metal_ of which the coin is made.

Money, we have said, ought to be invariable in its value: coin never can
be so, because it is both _money_ and _merchandize_: money, with respect
to the denomination it carries by law; merchandize, with respect to the
metal it is made of.

But it is urged, that if I have coin I may pay any where within the
commercial world, at the expence of transportation, and insurance. I
grant this to be true.

But I answer, that the principal use of coin, is, not to send it out of
the country; but to keep accompts clear among inhabitants within the
country. If there be a variation in the value of coin, according to
circumstances, that variation must affect the inhabitants in their
transactions. No one can gain upon this coin, without supposing a
relative loss to some other, whether they perceive it or not. Must not
this disturb all reckoning? Must it not disturb prices? Since at
different times, I may be paying the same denominations of coin for the
same commodity; and yet be paying, really, more value at one time than
at another. Is not then the most invariable money the best calculated
for the interest of trade, and prosperity of manufactures? Whence arise
complaints against paper money, and regrets for want of coin? They issue
from those who both wish to profit of the rising value of the metals
contained in the coin, and who endeavour to persuade the public, that
its interest, and not their own, is their object.

What a trifle is a foreign balance, let it be ever so great, compared
with the whole alienations of a country! Is it reasonable to disturb the
harmony of all domestic dealings, in order to furnish an opportunity to
a few clear-sighted people, who can, upon some occasions, profit of the
fluctuating value of the substance of which the coin is composed, to the
prejudice of the ignorant? If the country owes a balance to other
nations, let it be paid: nothing so just; nothing so essential to the
interest of the country which is the debtor. If the precious metals are
the most proper vehicles, as I may say, for conveying this value, let
them be procured and sent off; but never let us say, that because _some_
of our money _may_ be made of that metal, that all our money should be
made of it; in order that those who transact the balance may have an
opportunity of sending our metals away with greater ease, and thereby of
depriving us of the means of carrying on alienations among ourselves.
Let every one that has coin send it away: nothing can be more just;
nothing more consistent with principles: but let him send it away as a
_manufacture_; carrying in its bosom the price of making it, which he
has paid, and for which his foreign creditors will make him no

Exchangers run to the coin of the nation, for paying, with the least
expence to themselves, the balance they are about to transact. When that
resource is cut off by the imposition of coinage, the nation will
preserve at least her darling specie; and then exchangers will be
obliged, by the best of all compulsions, their own interest, to think of
other expedients; bullion, manufactures, and natural produce. And when
all these come to fail, a regular plan must be laid down, and authorised
by government, for obtaining credit in other countries, by mortgaging
the revenue of the solid property of the kingdom; according to the
principles we shall discover when we come to treat of exchange.


                               CHAP. XXI.
_How by a return of a favourable Balance the Bank may be enabled to pay
 off the Debts due to Foreigners, and thus deliver the Nation from that

We have said, that the banks in contracting debts, and mortgaging the
property of Scotland to strangers, for the payment of a grand balance,
really acted as the guardians of the public, by interposing their
credit, and by constituting themselves as debtors for the whole; taking
for their relief, proportional securities upon the effects of

We have also pointed out how, by this operation, the mass of bank
securities comes to be greatly augmented.

Before the payment of any balance for the behoof of Scotland, the
securities in the hands of the bank can only be equal to the notes in
domestic circulation, and accumulated profits thereon. Let this be
called (A). In proportion as these notes come back upon the bank, in a
demand for bills to pay balances, in the same proportion is there a sum
of securities added to the former mass (granted upon new credits given
for filling up the void thereby occasioned to circulation) which
quantity I shall call (B).

(A) then represents the securities equivalent to the notes in

(B) represents the securities equivalent to the debts contracted by the
bank in favour of strangers.

Now let us suppose trade to become favourable; or that the interest of
the money, which the natives had sent abroad, to invest in foreign
countries, begins to flow back: what will be the effect of this?

I say, that this balance will be paid to Scotland, either in coin, or in
the metals, or in produce, or in manufactures, or in bills.

In every case, it must be supposed to be beyond the consumption of
Scotland; otherwise it will not be a balance in their favour. Whatever
part of it, therefore, proves to be beyond the consumption of Scotland,
will be turned into money. This money must either consist in the metals,
or in foreign bills. If it consist in the metals, it will, if coined,
fill up, _pro tanto_, a part of circulation; this will make a
proportional part of bank paper return upon the bank, and extinguish a
proportional part of their securities; which we have called (A). But
then there will be more coin in circulation than formerly; consequently,
more coin will enter into payments made to the bank than formerly. But
we must suppose, that before this favourable turn of commerce, there was
coin enough both in the bank and in the country for the uses of domestic
circulation; consequently, the bank will send off this superfluity of
coin, and with it they will refund a part of the debt they formerly

Through all this chain of reasoning, we must always suppose the money in
circulation to be _a determinate sum_; otherwise the superadding this
foreign balance in coin will not occasion, as we have said, a return of
a proportional part of the bank paper.

In the next place, let us suppose this favourable balance to consist in
foreign bills, upon London, Amsterdam, &c. These will be discounted by
the bank, and notes issued for them. The bills will be sent off by the
bank, in order still to extinguish a part of what is owing to
foreigners. These notes, again, being superfluous to circulation, which
we suppose to be full, will return upon the bank and still diminish the
mass of (A).

By these operations we see how (A) will be constantly diminishing; but
then in the same proportion we see how the mass of foreign debts will
also be diminishing: consequently (B), which was engaged for them, will
be returning to be the free property of the bank; and as we suppose no
variation upon the sum in circulation, we may consider this as a sort of
conversion of (B) into (A), and when all (B) shall be thus converted
into (A), then the debt formerly contracted by the bank, in favour of
Scotland, will be totally paid off by the same method (only inverting
the operations) by which it was contracted.


                              CHAP. XXII.
      _Of Banks of Circulation established on mercantile Credit._

I have examined, with all the care I am capable of, the nature of banks
calculated for the melting down of solid property, and converting it
into paper for the use of circulation.

The nature of such banks is but little known in countries where they
have not been established, and a distinct account of them may suggest
hints, which in time may prove useful.

People who do not employ their thoughts on the theory of trade and
credit, are apt to overlook objects of real utility; and those who do,
have seldom the opportunity of being informed of the customs of
different nations. Were my experience greater, or had I more
opportunities to dive into the recesses of this great object, the work I
now present to the public would better deserve its attention.

I now proceed to a deduction of the principles upon which are founded
those banks which are principally calculated for the use of commerce;
and as the ground-work of my inquiry, I shall trace some of the
principal operations of the bank of England.

The establishment of this great company was formed about the year 1694.
Government at that time having great occasion for money, a set of men
was found who lent to it about 1,200,000_l_. sterling, at 8 _per cent._
for the exclusive privilege of banking for 13 years; with this
additional clause, that 4000_l._ sterling, _per annum_, should be given
them to defray the expence of the undertaking. This sum of 1,200,000_l._
sterling, was the original bank stock. It has been since increased to
11,000,000_l._ by farther loans to government, for the prolongation of
their privileges; as has been taken notice of in the 16th chapter of the
second part.

This stock, as in banks of circulation upon mortgage, is only to be
considered as a subsidiary security to the public for the notes they
issue: were it the principal and only security for their paper, this
bank would then be founded on the principle of public, not of mercantile
credit; under which last denomination we are going to point out in what
the nature of it differs from those we have already explained.

It is a rule with the bank of England to issue no notes upon mortgage,
permanent loan, or personal security. The principal branches of their
business may be comprehended under four articles, viz. 1. The
circulation of the trade of London: 2. The exchequer business of Great
Britain: 3. The paying the interest of all the funds transferable at the
bank: 4. Their trade in gold and silver. I shall now shortly explain the
nature of these four great operations; and first as to the circulation
of the trade of London.

When we speak of the circulation of trade, we understand the circulation
of money paid on the account of trade.

The great occupation of the London merchants engages them to simplify
their business as much as possible. For this, they commit to brokers
every operation which requires no peculiar talents or ingenuity in the
merchant himself; and, for a like reason, they commit to the bank and
private bankers the care of their cash.

A Scots merchant begins by drawing money from the bank, for which he
pays interest: a London merchant begins by putting money into the bank,
for which he draws no interest at all.

A London merchant, therefore, can give no order upon the bank, unless at
a time when he has money lodged in it.

If he has occasion for money at any time, he sends to the bank the bills
he has, before they become due, and the bank discounts them at certain
rates, according to their nature.

If it be a foreign bill, the bank in discounting it, retains of the sum,
at the rate of 4 _per cent. per annum_, for the time the bill has to
run; but if the bill be at a longer day than 60 days, they will not
discount it. So in this case, the merchant must keep his bill until it
is within 60 days of the term of payment.

The reason for this is evident: the security upon which such bills
stand, is purely mercantile. The nearer, therefore, the payment is, the
less risk the bank incurs from the failure of those who are bound in it.

The intention of this operation of discounting bills, is plainly to
employ the cash in the bank in a way to draw an interest for it; but as
merchants allow their money to lie dead for as short a time as they
possibly can, the bank must have quick returns for what they advance
upon discount, in order to be constantly ready to answer all demands.
This is no loss to the bank, and a prodigious advantage to trade, as I
shall briefly explain.

The bank is constantly receiving cash from every person who keeps their
cash with it. This occasions a constant fluctuation of payments, which
of course must leave at all times a considerable sum of other people’s
money in the bank; because it never is in advance to any one.

By long practice in the trade, this sum of money becomes determinate:
let us call it the _average-money_ in the hands of the bank. It is then
with this average-money alone, that the bank can discount bills. Now if
the trade of London does afford bills to be discounted at different
dates within 60 days, sufficient to absorb the whole average-money of
the bank, appropriated for discounting; this branch of business would
not go forward with the celerity required for the trade of London, did
the bank indulge merchants so far as to discount at a longer day.

From this we learn another reason why the bank of England discounts no
bill which has more than 60 days to run. The first, mentioned already,
is for the greater security of payment; and the second, which we now
discover, is in order to be able to discount more bills than otherwise
they could do, did they discount at a longer day.

As I am here upon the subject of discounting bills of exchange by the
bank of England, an operation it has in common with all the private
bankers in the capital, I must answer a question I have frequently heard

How it happens, that in a city of so great trade as London, it is
possible that people should be found even among merchants, who allow
their money to remain in the hands of bankers without interest; when in
Scotland, a place of so little trade, interest may always be got for
money for the shortest time?

The answer to this question is to be derived from the very principles of
trade itself.

The money which merchants have either in the hands of the bank, or of
bankers, though very considerable at all times, is in perpetual
fluctuation: it cannot then be lent to any but a banker, who would
consent to pay interest for the sums in hand. But no such banker can be
found, nor ever will be found, until all the bankers in London consent
to such a regulation. The reason is plain. One principal use the bankers
make of the average-money in their hands, is the discounting of bills.
Who then could pay interest for money, and discount, in competition with
others of the same trade, who have it for nothing?

But suppose the bank, and all the bankers in town, should come to the
resolution of giving interest for the money in their hands, what would
be the consequence?

I answer, that upon such an alteration, discount would rise above the
present rates, to the great prejudice of the trade of the nation; and
bankers would lend the money in their hands upon a more precarious
security for the sake of a higher interest.

All the landed men who reside in London, and many other wealthy people,
not concerned in trade, constantly keep their money either in the bank,
or in some banker’s hand, without interest: this enables bankers in
general to discount foreign bills at 4 _per cent._ as has been said,
even when the rate of interest is rather above that standard. This is,
as it were, a contribution from the rich and idle, in favour of the
trade of the nation.

Let, therefore, gentlemen who have much idle money, think of any other
expedient than that of obtaining interest for it, from those who
discount bills in London. Not one of them can afford to do it, and
thrive by his business; and the hurt which would result to trade in
general, will constantly be a sufficient bar against a general
resolution for that purpose.

What has been said, will, I hope, prove satisfactory as to the
resolution of the question above proposed, so far as regards London. It
remains to be answered, how those who supply the place of bankers in
Scotland, and even the banks themselves, can afford to pay interest for
any sum put into their hands for a short time.

I answer, that as to the Scotch exchangers, as we have called them, the
profits on their trade admit of borrowing money at interest, which that
of the bank of England and private bankers cannot do. If these last can
gain 4 or 5 _per cent._ by discounting of bills, it is all they can
honestly expect: every other employment of the money in their hands is
precarious, either as to the security or promptitude of calling it in,
to answer the demands which are made upon them.

As to the Scotch banks, we have seen how directly contrary to all
principles it is, to borrow money in Scotland. How it diminishes the
profits upon their own trade, and hurts the circulation of the country;
but although it diminishes their profit, it carries along with it no
positive loss to them, as would be the case with a London banker, who
would pay interest for all the money in his hands, when he never can
draw any back, except for that part which we have called the average.

Every London banker is obliged to have a certain sum of cash constantly
in his chest, the interest of which would be all lost, did he pay for
it: whereas the exchangers in Scotland never have a shilling by them;
and when any demand is made upon them, they draw the money from the
banks, in consequence of their credit by cash accompts.

Besides foreign bills, which the bank of England discounts at 4 _per
cent._ they also discount inland bills, and notes of hand between
merchants in London, at 5 _per cent._

The inland bills to be discounted at the bank must all be payable in
London. The bank calls in no money from any distant quarter of the

As the discounting of notes of hand between London merchants might
operate the same effect, as if the bank should advance them money upon
personal security, in case the notes were drawn for obtaining credit, in
place of paying money really due between the merchants, in the course of
business, the clerks of the bank keep a watchful eye over this branch of
management, and, by examining the reciprocal draughts of merchants
between themselves, they easily acquire a knowledge of the state of
their affairs, and are thereby enabled to judge how far it is expedient
to launch out in discounting either the notes or bills wherein they are

I shall not pretend to assign a reason why, in the price of discount,
the bank makes a difference of 1 _per cent._ between foreign and inland
bills of exchange. It may either be an indulgence and encouragement to
foreign trade; or it may be upon the consideration of the better
security of foreign bills, which commonly pass through several
indorsations before they are offered to be discounted at the bank.

I come next to the circulation between the bank and the exchequer.

The bank of England is to the exchequer, what a private person’s banker
is to him. It receives the cash of the exchequer, and answers its

Cash comes to the exchequer from the amount of taxes. The two great
branches of which are the excise and customs. To explain this operation
with the more distinctness, I shall take the example of the excise.

The excise is computed to bring in annually from London, and the fifty
two collections over all England, nett into the exchequer, above four
and a half millions sterling.

The fifty two collectors send the amount of their collections to London
eight times a year, _almost entirely in bills_. As the same may be said
of the remittances of all the other taxes, we may from this circumstance
observe by the way, that London alone must constantly owe to the country
of England a sum equal to all the bills drawn upon it; that is to say,
to all the taxes which the country pays: a circumstance not to be
overlooked, from which many things may be learned, as will be taken
notice of in the proper place.

The bills sent by the fifty two collectors, are drawn payable to the
commissioners of excise; they indorse them to the receiver general; he
carries them to the bank as they fall due, and gets a receipt for the
amount; this receipt he carries to the exchequer, who charge it in their
account with the bank, and deliver tallies to the receiver general for
the amount of his payments; these tallies he delivers to the
commissioners of excise, who enter them in their book of tallies. This
operation is performed once every week, and serves as a discharge from
the commissioners to the receiver general.

The bank, again, keeps an account with the exchequer, which is settled
once every day, by two clerks, who go from the bank to the exchequer for
that purpose. When coin is wanted by the exchequer, for payments where
bank notes will not answer, the coin is furnished by the bank; when
paper will serve the purpose, paper is issued.

Besides this operation in the receipt of taxes, the bank advances to
government, that is to the exchequer, the amount of the land or other
taxes imposed, which are to be levied within the year. This we see is a
loan upon _government security for a short term_, quite consistent with
the principles upon which the bank is established. The large sums the
bank is constantly receiving of public money, and the great assistance
it obtains from thence in carrying on the other branches of their trade,
enable it at present to make advances of money to government at 3 _per
cent._ It observes the same rule with respect to the great companies of
the East Indies, and South Sea, for the same reason: but no advances are
made to private people; and in discounting of bills and notes of hand,
the regulations above mentioned are adhered to.

Thus the whole amount of taxes is poured into the bank, in the manner we
have been describing.

The bank also keeps the transfer books of all the funds negotiated at
the bank; and out of the public money in its hand, it pays the interest
of those debts, for which government allows to the bank a sum
proportionate to the expence of that branch of management.

When the bank, as a company, lends to government upon a permanent fund,
the capital whereof is not demandable, this operation is foreign to
their business as a bank, and is conducted by the company, as an article
of management of their private property.

Let us now examine by what channels their notes enter into circulation,
and the security upon which they stand.

When issued in the discount of bills, they stand upon the principles of
mercantile credit, and depend upon the goodness of the bills discounted.
When issued upon the faith of taxes to be paid within the year, they
stand upon the security of that payment, which is of a very complex
nature, as any one may perceive. As long as the inhabitants of England
consume exciseable goods, the excise will be paid: as long as trade goes
on, customs will be paid: and as long as government subsists, the
collateral security of the state will serve to make up all deficiencies
in the amount of taxes. No security, therefore, can be better than the
notes of the bank of England, while government subsists. The losses that
great company meet with from bad debts, I am informed, are very

The greatest risk the bank runs, is in discounting bad bills; but by the
extent of their business in this branch, and by circulating the cash of
all the merchants who keep accounts with them, they acquire so perfect a
knowledge of the state of their affairs, that it rarely happens that any
one can fail for very considerable sums, without the bank’s having a
previous notice of it. A sudden loss may no doubt happen, without a
possibility of being foreseen; but the matter of fact proving that their
losses upon bad bills are inconsiderable, we may thence infer, that
there is but little mystery to the bank, with regard to the credit of
London merchants.

I come now to the last branch of their management, to wit, their trade
in gold and silver.

For the circulation of bank notes, coin is necessary. We have seen, in
treating of the Scotch banks, how coin is brought in: to wit, in
consequence of all the payments made to the bank, in which there must be
a proportion of coin equal to what is found in common circulation. What
is not paid in coin, comes in, in their own notes, which are thereby
taken out of the circle; and consequently make place for a subsequent
supply, which issues in the manner we have described.

In times of peace, and a favourable balance of trade, the bank suffers
little by the obligation it is under to pay in coin, except so far as
the great confusion of the present currency affords an occasion to
money-jobbers to melt down the new guineas. The extent of this traffic I
am no judge of, and the bank no doubt has an interest in preventing it
as far as the laws have provided a remedy against it.

But when large payments are to be made abroad, the distress of the bank
is no doubt very great.

In Scotland, the banks, upon such occasions, are totally drained of
coin. They have no market for the metals; because they have no mint to
manufacture them into coin. It is different with respect to the bank of
England; their distress proceeds from another cause.

The exportation of the heavy guineas in time of war, and of a wrong
balance upon the trade of England, leaves circulation provided with a
light currency, in which the bank is obliged to pay their notes; and the
intrinsic value of the gold in which they pay, regulates the price of
the metals they are obliged to buy at market. If they provide them
themselves from abroad, they must pay the price of them in bills of
exchange. But then the lightness of the currency at home, sinks the
value of the pound sterling, as it raises the value of the ounce of gold
and silver. So the only considerable loss they incur, is in providing
the metals, which must ever be considerable, so long as the old guineas
remain in circulation.

The loss upon coining silver is still greater than upon gold; because,
besides the loss incurred by reason of the lightness of the gold, the
metals in the silver and gold coin of Great Britain, are not
proportional to the value they bear in the London market, where they
have been bought, as has been sufficiently explained already in another

Footnote 13:

  See Book III. Chap. 21. Quest. 7.

It is with great diffidence that I propose an expedient to a company so
knowing in the arts and science of trade, for preventing, in a great
measure, this loss in providing the metals for the use of circulation.
The bank is directed by long experience, and by a knowledge of many
facts and circumstances hid from me; and which, therefore, I cannot
combine into a theory founded chiefly upon reason.

The expedient I propose has been pointed out in the preceeding parts of
this inquiry, and I only recapitulate it briefly in this place, to recal
it to mind while we are on the subject of the bank of England.

First, then, while the coin is of unequal weight, the value of the
currency never can be permanently the same. Did the bank seriously set
about forming a plan for the reformation of the coin, I have no doubt
but government, as well as the voice of the nation, would go along with
it in forwarding the execution of so noble a design.

The second step I would recommend, is that government should enable the
bank to establish a fund in Holland, Antwerp, Hamburg, and perhaps at
Cadiz and Lisbon, for borrowing (though at a high interest) sums of
money equal to what may be due by England to the continent upon certain

I cannot pretend to lay down any plan for this operation; but I proceed
upon this principle: that if on like occasions the British government
can find credit to borrow so large sums for the uses of war, at a very
moderate interest, surely the bank of England may imitate her example
for the uses of trade; and had she a credit abroad, upon which she could
draw, I think it must follow, that the coin of the nation might be kept
at home.

I have been an eye witness to large sums in new English guineas thrown
into the melting pots of the Dutch mints, for the small profit of less
than 1 _per cent._ gained by coining them into ducats. A small duty
imposed upon coinage in the English mint, would prevent this practice
abroad; and then British coin would come safe back again, upon every
return of a favourable balance on their trade. At present it comes home
in bullion, which the bank must buy dear; the state must coin at a
considerable expence; and the bank after all must give it to circulation
at the mint price, which is many _per cent._ below prime cost, as
matters have stood for several years.

From this review of the constitution of the bank of England, and of the
principles upon which it is founded, we may discover how impossible it
is, that banks upon mortgage and private credit, can ever receive any
considerable assistance from it; and how groundless all insinuations
concerning its jealousy of such companies must be.

A more natural object of its jealousy is that of the London bankers, who
carry on a trade similar to its own, in many respects, and who, in the
course of their business, draw from it very large quantities of coin.

This, however, occasions no ill will on the part of the bank. The trade
of London requires the assistance of all the bankers there, as well as
of the bank. Were it otherwise, the bank, by discounting bills at a less
profit, might soon oblige them to shut up shop. In this view of the
matter, the drawing coin from the bank cannot be prevented.

The bankers call for no more than their business requires. Could the
bank, therefore, circulate the whole trade of London, the consequence
would be, to issue as much coin as at present: and the coin which issues
from bankers, like to that which issues from the bank, if it be for the
uses of domestic circulation, returns to the bank in proportion as it
issues: and if it be for payment of a foreign balance, the bank knows
well that the expence of providing for _that_, must land upon it, in
spite of every method to prevent it.

I must now explain the difference between the effects produced upon the
circulation of coin, by the operations of banks established upon
mortgage and private credit, and by those of the bank of England, which
we have said to be established upon mercantile security.

The consequence of a bank upon mortgage, is to fill the nation with
paper money, and to reduce the quantity of coin to the lowest sum
possible. For the truth of this proposition, I appeal to the experience
of Scotland, and of Rome, where banks upon mortgage, and moveable
pledges, are found established. From these facts, and from the
principles of their constitution, which is to melt down property into
money, it follows, that when the credit of such money is well
established, the coin, which is the money of the world, will be employed
in trading with the world, and the paper, which is the money of the
society, will be employed in trading with the society.

The consequence of this, is, that when the balance of trade runs against
a country where banks upon mortgage are established, the coin first goes
out; and when, by borrowing, it can be brought back, the interest paid
for the coin borrowed, adds an additional balance against the country,
until the whole revenue of it becomes the property of other nations.
From this we may conclude, that the establishment of such banks is as
dangerous a weapon in the hands of an idle nation, as an extensive
credit is to the family of a young spendthrift.

But let us consider the consequences of such banks to an industrious
people, who preserve, upon the average of their trade, a favourable
balance with other nations.

The coin, then, goes out to return, and serves as a check upon the
course of exchange. I here suppose proper regulations in the mint, and
an entire liberty to export coin. Permitting the exportation of coin
where you have a mint, for paper to supply its place, and a favourable
balance on your trade to bring it back, is like establishing two shops
for the course of exchange. If the exchanger will not serve trade at the
price of transportation and insurance, the coin will do it for him.

In such a country, a bank, properly established, will find great profit
upon the interest of their notes, notwithstanding of the obligation to
provide, at all times, the quantity of coin necessary for circulation.
All the great objects of trade will then be fulfilled; the rest must be
left to the operation of political causes.

If the balance of the trade of such a country should have the effect of
bringing in an addition of coin, which, because of the paper, would
become unnecessary for circulation; this coin, or the value of it, will
either be added to their stock in trade, or will be lent to other
nations. This is the case of the Swiss: they are an industrious and a
frugal people; they receive annually from their trade, and from the
service of their citizens in many countries in Europe, a constant
addition to their wealth, more than their trade demands, which they lend
to their neighbours; by these means they increase the revenue of the
society; and this increase has effects almost similar to an extension of
their territory; because it is a means of increasing their population
beyond the proportion of the natural produce of their lands; and the
food they import from Germany and other countries, is paid with the
money which arises from the interest of what they have lent abroad. All
these operations are the consequences of credit and circulation.

In a country where a mercantile bank is established, the melting down of
property is greatly circumscribed; and consequently coin becomes more

We have often said, that a circulating value (money) must constantly
bear a proportion to alienation. Circumstances will determine what
proportion of coin and what proportion of paper will be necessary for
carrying it on. These circumstances, under banks of circulation upon
mortgage, multiply paper so much that little coin is required.

Let us now examine how far the paper of a mercantile bank, like that of
England, tends to supply the demand of circulation.

Were no bank established at London, all bills would be paid, or
discounted in coin.

The bank, therefore, melts down into paper money all the bills
discounted by them, and throws it into circulation.

It also melts down into paper all the sums it advances either to
government, or to the great trading companies. In this respect it acts
upon the principle of banks upon mortgage.

It also melts down into paper all the interest upon the public funds
discounted at the bank. All this sum of paper issues from the bank into
the city of London, and proportionally supplies the circulation of that
great capital.

Let us next examine how this paper can find its way into the country of
England, there to supply the use of coin.

The whole consumption of London for meat, beer, fire, and an infinity of
articles of manufacture for domestic use and foreign exportation, comes
from the country of England.

Did the country owe nothing to London, the sums due for those
commodities would be sent into the country in the current circulation of
London, which, by what we have seen, absorbs a very large quantity of

But we have said above, that the whole amount of taxes, almost, is
remitted to London in bills: this could not be the case, were not the
capital constantly indebted to the country. This circumstance confines
the circulation of bank notes chiefly to London, and some other cities,
to which the inhabitants of London resort, and whither they carry in
their pockets the money of the capital, viz. bank notes. For these
reasons, bank notes can never be common in the country: and if, at any
time, a scarcity of currency _there_, proves hurtful to industry, the
defect cannot be remedied but by establishing banks of circulation upon
mortgage in the principal towns of England.

It may be here objected that such a regulation in England, where there
is already so great a bank settled on different principles, might draw
along with it the following hurtful consequences, viz.

1_mo_, By multiplying the circulation of paper it would send off the

2_do_, The taxes would be paid in this paper, which could not be
received at the bank of England, and that would throw the whole nation
into confusion.

To which I answer, 1. That if the coin were sent off, it would return,
as has been said, while the trade of England flourishes: and 2. That
this new bank paper coming in place of the coin, would no more be sent
to London than coin is sent now. The debts due by the country for taxes,
would be compensated by the reciprocal debts due by London for
subsistence, &c. and the compensation would go on as at present by
bills: but were the case otherwise, and did a change of circumstances
oblige the country to make delivery in coin to London, the holders of
the country notes would constantly, as is the case in Scotland, have
recourse to the bank established in the district, for the coin wanted to
be sent to London.

When I accidentally, as at present, happen to apply a principle to a
particular case, whereby an innovation is implied, I constantly fear a
secret rebuke from many impatient readers. I therefore beg a little
indulgence upon account of my good intention, which is only to support
ideas to be approved of, or rejected by those who have the capacity to
form plans upon them, and power to put them in execution.


                              CHAP. XXIII.
  _Of the first Establishment of Mr. Law’s Bank in France, in the Year

In deducing the principles of credit, I have it chiefly in view, to set
in a fair light, the security upon which paper-money is established: and
as I imagine, this important branch of my subject will still be rendered
more intelligible, by an example of the abuse to which this great engine
of commerce is exposed, I now propose to give my reader a short account
of the famous bank of circulation first established in France by Mr.
Law; but afterwards prostituted (whether by design, or by fatality, I
shall not here determine) to serve the worst of purposes; the defrauding
the creditors of the state, and a multitude of private persons.

So dreadful a calamity brought upon that nation, by the abuse of paper
credit, may be a warning to all states to beware of the like. The best
way to guard against it, is to be apprised of the delusion of it, and to
see through the springs and motives by which the Missisippi bank was

After the death of the late King of France, Louis XIV. the debts
contracted by that Monarch were found to extend to 2000 millions of
livres, that is, to upwards of 140 millions sterling.

It was proposed to the Duke of Orleans, regent of the kingdom, to
expunge the debts by a total bankruptcy. This proposal he rejected
nobly; and instead of it, established a commission (called the _Visa_)
to inquire into the claims of such of the nation’s creditors as were not
then properly liquidated, nor secured by the appropriation of any fund
for the payment of the interest.

In the course of this commission, many exorbitant frauds were
discovered; by which it appeared, that vast sums of debt had been
contracted, for no adequate value paid to the King.

After many arbitrary proceedings, this commission threw the King’s
debts, at last, into a kind of order.

Those formerly provided for were all put at 4 _per cent._ The creditors
to the amount of six hundred millions, which had not been liquidated,
nor provided for, had their claims reduced, by the commission, to two
hundred and fifty millions; for which they obtained notes of state,
(_Billets d’etat_, as they were called) bearing an interest of 4 _per
cent._ also.

These operations performed, the total debts of the late King were
reduced to the sum above mentioned; to wit, two thousand millions;
bearing an interest of 4 _per cent._ or eighty millions _per annum_.

From the necessities of government, and the distressed situation of the
kingdom, this interest was ill paid: and there hardly remained, out of
an ill paid revenue, wherewith to defray the expence of the civil

About this time Mr. Law presented to the Regent the plan of a bank of

For the better understanding this affair of Mr. Law’s bank, and the
views he had in establishing it at that time, I must give a short
account of the most material variations of the French coin, before and
after the King’s death, 1st September 1715; which I shall make as short
as possible, consistently with perspicuity.


                              CHAP. XXIV.
  _Account of the variations of the French coin, some time before and
                     after the death of Louis XIV._

In 1709, there was a new general coinage in France; by which operation
the King gained 231⁄13 _per cent._ upon all the specie coined. (Dutot,
vol. i. p. 104.)

Out of the marc of standard gold were coined 30 louis d’ors, of 20
livres denomination each. Out of the marc of standard silver, 8 crowns,
of 5 livres denomination each: so that the silver was put at 40 livres
the marc.—But,

By edict of the month of September 1713, the old King appointed a
diminution of the denomination of silver and gold coins; by which, after
eleven successive changes, the coin of France was ordered to be brought
down, from 40 livres the marc, to 28: so that the 8 crowns, which were
_called_ 40 livres in the month of September 1713, by the 2d day of
September 1715, (the day after the King’s death) were to be _called_
only 28 livres. I say _called_, because certainly the crowns had
suffered no variation but in their name.

On the 13th of August 1715, (a few days before the King’s death) he
issued a declaration; ordering that for the future the coin should
remain at 28 livres _per_ marc.

From this I conclude, that his intention was to leave, at his death, the
coin of his kingdom of the same standard he had found it to be at the
beginning of his reign, and at which he had preserved it invariably,
during the flourishing state of his kingdom, for the space of 46 years;
that is, until the year 1689.

He could not fail to be sensible of the infinite prejudice occasioned to
debtors and creditors by the variations he had practised upon the coin
from 1689.

To this standard, then, it was brought the very day after his death, and
no sooner: therefore his debt of two thousand millions of livres should
regularly be estimated according to that rate; or at about 40 shillings
sterling for every 28 livres: 40 shillings being, within a trifle, the
value of 8 ounces or one marc of standard silver, Paris weight.

At this rate of conversion, the two thousand millions were equal to
142,857,140_l_. sterling.

Soon after the King’s death, on the 2d of January 1716, the new ministry
issued an edict, which totally destroyed all. This was the most
extraordinary operation, I believe, ever invented; and to it was owing
the establishment of Mr. Law’s bank: I must therefore explain it.

There had been no general coinage since 1709; the louis d’or had then
been coined at 20 livres, and the crowns at 5, as has been said. The
edict of 2d January 1716, ordered a new general coinage, on the same
footing, both as to weight, fineness, and denomination, as that of 1709:
the only difference was, that the first had an old man’s head upon it;
the other had that of a child of six years old.

By this first operation, there was an end put to the former diminutions
on the denomination of the coin; which was now raised again to 40 livres
the marc, as in 1709[14]. This is nothing:

Footnote 14:

  Here is also an operation upon debts. The day before this edict, that
  is, the 1st of January 1716, the value of the King’s debts was (as has
  been said) above 142 millions sterling: but an edict comes, raising
  the coin to 40 livres _per_ marc; and consequently, reducing the debts
  to the value of 100 millions sterling.

There being no difference between the old coin and the new, except the
stamp, the old coin was called in, and a new face was stamped on the
very same pieces. But when the louis d’ors were called in, they were
received at the mint at no more than 16 livres; and by a stroke of the
wheel, they were, in an instant, converted into 20 livres, the
denomination of the new coin.

Thus a person who brought 20 old louis d’ors to the mint, received back
16 of his own 20, new stamped, and no injustice was said to be done,
from this demonstration of ministerial algebra, viz. 16 × 20 = 20 × 16.
Can any thing be more clear and instructive! Some of my readers may not
give credit to this; but it is true nevertheless.

Under these circumstances, it was natural for the inhabitants to wish to
dispose of their old coin, at any other market than at the King’s mint.
They did what they could to smuggle it to Holland; where the industrious
Dutchman stamped a 16 livre piece with the head of a child, as well as
the King of France could do, and sent it back to France for a 20 livre
piece. These operations were prevented as well as government could; and
every method was tried to force in the old coin to the mint.

Mr. Law judged this a very proper occasion to form the plan of a bank of
circulation, upon the principles we have already explained.

He gave in his scheme to the Duke of Orleans; by whom it was approved
of; and the bank was established the 2d of May of the same year 1716.

The first thing Mr. Law did, was to buy up with bank notes this old
coin, at a price above what the mint gave, but many _per cent._ below
the proportion of its value: his paper (payable in the new coin at 40
livres _per_ marc) was run upon for this, as well as other reasons; and
an immense profit ensued.

This anecdote, I think, is curious, and tends to unfold Mr. Law’s
combinations, in the proposal he made to the Duke of Orleans for
erecting a bank at this period of time.


                               CHAP. XXV.
              _Continuation of the Account of Law’s Bank._

The bank accordingly was established in favour of Law and Company, by
letters patent, of the 2d of May 1716. The Company was called, the
General Bank; and the note run thus:

The bank promises to pay to the bearer at sight — livres, in coin of the
same weight and fineness with the coin of this day, value received at

The first fund of this bank consisted in 1200 actions (or shares) of one
thousand crowns, (or 5000 livres) bank money; in all six millions; the
crown being then 5 livres, 8 to the marc; silver coin at 40 livres _per_
marc, as has been said; which makes this livre just worth one shilling
sterling: consequently, the shares were worth 250_l._ sterling, and the
bank stock worth 300,000_l_. sterling.

By the clause in the note, by which the bank was obliged to pay
according to the then weight and fineness of the coin, those who
received their paper were secured against the arbitrary measures common
in France of raising the denomination of the coin; and the bank was
secured against the lowering of it. In a short time, most people
preferred the notes to the coin; and accordingly they passed for 1 _per
cent._ more than the coin itself.

This bank subsisted, and obtained great credit, until the 1st of January
1719: at which time the King reimbursed all the proprietors of the
shares, and took the bank into his own hand, under the name of the Royal

Footnote 15:

  Here the bank departed from the principles of private and mercantile
  credit, upon which Law had formed it, and proceeded upon those of
  public credit. Public credit in France is the credit of the Sovereign;
  the solidity of which depends upon the maxims which he follows in the
  course of his administration.

Upon this revolution, the tenor of the note was changed. It ran thus:
The bank promises to pay to the bearer, at sight, — livres, _in silver
coin_, value received at Paris.

By this alteration, the money in the notes was made to keep pace with
the money in the coin; and both were equally affected by every arbitrary
variation upon it. This was called, rendring the paper _monnoie fixe_;
because the denominations contained in it did not vary according to the
variations of the coin: I should have called it _monnoie variable_;
because it was exposed to changes with respect to its real value.

Mr. Law strenuously opposed this change in the bank notes. No wonder! it
was diametrically opposite to all principles of credit. It took place,
however; and no body seemed dissatisfied: the nation was rather pleased:
so familiar were the variations of the coin in those days, that no body
ever considered any thing with regard to coin or money, but its
denomination: the consequences of the variations in the value of
denominations, upon the accompts between debtors and creditors, were not
then attended to; and the credit of the notes of the royal bank
continued just as good as that of Mr. Law; although the livres in _this_
contained a determinate value; and the livres in _that_ could have been
reduced at any time to the value of halfpence, by an act of the King’s
authority, who was the debtor in them. Nay more, they in fact stood many
variations during the course of the system, without suffering the
smallest discredit. This appears wonderful; and yet it is a fact.

Political writers upon the affairs of France at this period, such as De
Melon, Savarie, Dutot, and others, abundantly certify the incredible
advantage produced by the operations of Mr. Law’s bank; and the chain of
events which followed, in the years 1719, and 1720, when it was in the
King’s hands, shew to what a prodigious height credit arose upon the
firm foundation laid by Mr. Law[16].

Footnote 16:

  Dutot, speaking of the great value of paper in notes and actions,
  throws out several reflections, in the passage I am now to transcribe
  from him, which, at the same time that they prove the great advantages
  resulting to France from the establishment of credit among them,
  abundantly evince how lame this author’s ideas were concerning the
  principles of paper credit, and of circulation. He says, (vol. ii. p.
  200.) “_This paper_ was indeed just so much real value, which credit
  and confidence had created, in favour of the state: and by this sum
  was circulation augmented, independently of all the coin which was
  then in France.”

  "Upon this revolution, Plenty immediately displayed herself through
  all the towns, and all the country. She there relieved our citizens
  and labourers from the oppression of debts, which indigence had
  obliged them to contract: she revived industry: she restored that
  value to every fund, which had been suspended by those debts: she
  enabled the King to liberate himself, and to make over to his
  subjects, for more than fifty-two millions of taxes, which had been
  imposed in the years preceeding 1719; and for more than thirty-five
  millions of other duties, extinguished during the regency. This plenty
  sunk the rate of interest; crushed the usurer; carried the value of
  lands to eighty and a hundred years purchase; raised up stately
  edifices both in town and country; repaired the old, which were
  falling to ruin; improved the soil; gave a value to every fruit
  produced by the earth, which before that time had none at all. Plenty
  recalled those citizens, whom misery had forced to seek their
  livelihood abroad. In a word, riches flowed in from every quarter.
  Gold, silver, precious stones, ornaments of all kinds, which
  contribute to luxury and magnificence, came to us from every country
  in Europe. Whether these prodigies, or marvellous effects, were
  produced by art, by confidence, by fear, or by whim if you please, one
  must agree, that that art, that confidence, that fear, or that whim,
  had operated all these _realities_ which the antient administration
  never could have produced.

  "What a difference in the situation of France at the beginning of the
  regency, and the situation in which she was in November 1719!

  “Thus far the system had produced nothing but good: every thing was
  commendable, and worthy of admiration.” These are the sentiments of
  Dutot, concerning this system of paper credit.

But alas! the superstructure, then, became so far beyond the proportion
of the foundation, that the whole fabric fell to ruin, and involved a
nation, just emerging from bankruptcy and inanition, into new
calamities, almost equal to the former.

As long as the credit of this bank subsisted, it appeared to the French
to be perfectly solid. The bubble no sooner burst, than the whole nation
was thrown into astonishment and consternation. No body could conceive
from whence the credit had sprung; what had created such mountains of
wealth in so short a time; and by what witchcraft and fascination it had
been made to disappear in an instant, in the short period of one day.

Volumes have been since writ in France, by men of speculation, in order
to prove, that it was a want of confidence in the public, and not the
want of a proper security for the paper, which occasioned this downfal.

This, if we judge by what has been writ, has been the general opinion of
that nation to this day: and since it was found impossible, in France,
to create confidence in circulating paper, which had no security for its
value, many people there, and some even among ourselves, conclude, that
a great part of the wealth of Great Britain, which consists in paper,
well secured, is false and fictitious.

I shall now proceed to set before my reader the great lines of the royal
Mississippi bank of France, from the 1st of January 1719, to the total
overthrow of all credit, upon the fatal 21st day of May 1720. This was a
golden dream, in which the French nation, and a great part of Europe was
plunged, for the short space of 506 days.


                              CHAP. XXVI.
_Account of the Royal Mississippi Bank of France, established on Public

In order to unravel the chaos of this affair in a proper manner, it will
not be amiss to begin by giving the reader an idea of the plan which
naturally might suggest itself to the Regent of France, from the hint of
Mr. Law’s bank. By the help of this clue, he will be the better able to
conduct himself through the operations of this _system_, as the French
call it.

The Regent perceived, that in consequence of the credit of Law’s bank,
people grew fond of paper-money. The consequence of this, he saw, was,
to bring a great quantity of coin into the bank. The debts of France
were very great, being, as has been said, above 2000 millions. The coin,
at that time, in France, was reckoned at about 1200 millions, at 60
livres the marc, or 40 millions sterling. The Regent thought, that if he
could draw either the whole, or even the greatest part of this 1200
millions of coin into his bank, and replace the use of it to the
kingdom, by as much paper, secured upon his word, that he should then be
able to pay off, with it, near one half of all the debts of France: and
by thus throwing back the coin into circulation, in paying off the
debts, that it would return of itself into the bank, in the course of
payments made to the state; that credit would be thereby supported, as
the bank would be enabled to pay in coin the notes as they happened to
return, in the course of domestic circulation.

This was both a plausible and an honest scheme, relatively to a Duke of
Orleans, whom we cannot suppose to have been master of the principles of
credit; and very practicable in a country where there was so great a
quantity of coin as 40 millions sterling, and a well established credit
in the bank, which prevented all runs upon it from diffidence. Nothing
but a wrong balance of trade could have occasioned any run for coin;
because, for the reason already given, the paper bore for the most part
a premium of 1 _per cent._ above it.

Accordingly, during the whole year 1719, the credit of the royal bank
was without suspicion, although the Regent had, by the last day of
December of that year, coined of bank paper, for no less a sum than 769
millions, reckoning in 59 millions of paper, which had been formerly
issued by the _general bank of Law and company_; for which he had given
value to the proprietors, when he took the bank into his own hands, as
we have said above.

I must here observe, that by this plan of the Regent, there was, in one
sense, a kind of security for the notes issued. So far as they were
issued for coin brought in from the advanced value of the paper, this
coin was the security: in the second place, when the coin was paid away
to the creditors of the state, the Regent withdrew the obligations which
had been granted to them; and although I allow that the King’s own
obligation withdrawn, was no security to the public, who had received
bank notes for the payment; yet still the interest formerly paid to the
creditors, was a fund out of which, upon the principles of public
credit, the annual interest for the notes was secured. Had, indeed, the
French nation perceived upon what bottom the security for the paper
stood, during the year 1719, perhaps the credit of the bank might have
been rendred precarious; but they neither saw it or sought after it: and
the men of speculation were all of opinion, that as long as there was no
more paper issued by the bank _than there was coin in the kingdom_,
there could be no harm done. Of this any person who has read Dutot, de
Melon, Savarie, and others, will be perfectly satisfied[17]. And I
desire no farther proof of the total ignorance of the French in matters
of this kind, than to find them agreeing, that bank paper is always
good, providing there be coin in the nation to realize it, although that
coin be not the property of the bank. [Dutot, p. 132, 133.] On the
contrary, it is very evident from what has been said, that although
there should be a thousand times more coin in a country than the bank
paper, still that bank paper must be a mere delusion, and, in fact, of
no value whatsoever, except so far as the bank is possessed of the value
of it in one species of property or another.

Footnote 17:

  It is astonishing to find how gravely Messrs. de Melon and Dutot
  reasoned concerning the nature of paper money, and the effects of
  changing the value of the coin. They both seemed to agree that a livre
  was a livre whether it was the 28th or the 50th part of a marc of
  silver, whether it was a denomination upon paper, well or ill secured,
  no matter which.

  The whole reasoning turned merely on the question, who were robbed,
  and who fantastically enriched by such absurd operations upon the coin
  of a country?

  The jargon of such men certainly contributed a great deal to darken
  the understandings of the ministry at this time; and to make them
  believe that the affairs of money were infinitely more obscure and
  more difficult to be understood than they really are.

  There are thousands of examples where mankind, with their learning and
  reasoning, have turned common sense into inextricable science; this I
  think is a famous instance of it: and it is rendring no small service
  to the world, to destroy, in a manner, what others have been at so
  much pains to establish. This is restoring common sense to its native
  dress, in which it becomes intelligible to every one.

  I know very well that the ministry of France have now very different
  notions concerning paper credit; but these notions have not as yet
  reached the press, except in some of the King’s answers to the
  remonstrances of the parliament of Paris in 1760. These answers were
  dictated upon sound principles, and do great honour to the ministry.

  The old notions still prevailed in the remonstrances of the
  parliament. This plainly appears from the proposal they made to the
  King, at that time, to issue paper to the amount of 200 millions,
  which the parliament was to make good. An expedient to avoid doing
  that which right reason demanded of them, viz. first to secure a fund
  for the paper, and then to borrow upon that fund. This proposal from
  the parliament, and the King’s rejecting it, proves that credit was
  then better understood in the cabinet than in the _palais_.

And on the other hand, let the bank paper exceed the quantity of coin in
the proportion of a thousand to one, yet still it is perfectly good and
sufficient, providing the bank be possessed of an equivalent value in
any species of good property. This I throw in here to point out how far
the French were, at least at that time, and many years after, when Dutot
and Melon wrote, from forming any just notion of the principles of
banking. And, I believe, I may venture to say, that the only reason why
banks have never been established in France, is, because the whole
operation is still a mystery to them. I ground this conjecture upon an
opinion of M. de Montesquieu, who thinks that banks are incompatible
with pure monarchy; a proposition he would never have advanced had he
understood the principles upon which they are established.

The next remarkable and interesting revolution made upon this famous
bank, was by the _arret_ of February 22, 1720; which constituted the
union of the royal bank with the company of the Indies.

By this _arret_, the King delivered to that company the whole management
of the bank with all the profits made by him since the first of January
1719, and in time coming. Notwithstanding this cession, the King
remained guarantee for all the notes, which were not to be coined
without an order of council: the company was to be responsible to the
King at all times for their administration; and, as a security for their
good management, they engaged to lend the King no less than sixteen
hundred millions of livres.

Here is the æra and beginning of all the confusion. From this loan
proceeded the downfal of the whole system.

But before I proceed to explain the scheme of the Regent in these
operations upon credit, I think it will contribute to the clearing up of
the subject in general, to premise some short account of the rise and
progress of this great company of the Indies: and to give a short
abstract of some of the most memorable transactions during the
Missisippi scheme, in the order of time in which they followed one


                              CHAP. XXVII.
         _A short Account of the French Company of the Indies._

Cardinal de Richlieu, that great minister to Louis XIII. was the first
who established trading companies in France, anno 1628, about the time
of the siege of Rochelle.

He then set on foot the companies of the West and East Indies.

Several others, viz. one for Canada, one for the Leeward Islands, and
another for Cayenne, were successively established in the beginning of
the reign of Louis XIV.

These companies, before 1664, had frequently changed their forms, and
had succeeded very ill.

At that time the great Colbert was in the administration of the King’s
affairs. He engaged his master to think seriously of establishing the
trade of his kingdom upon solid principles; for which reason all the
undertakers of the former projects of commerce to the new world were
reimbursed; and a new establishment was made, called the _Compagnie des
Indes Occidentales_.

This exclusive trade comprehended that of Canada, the Caribbee Islands,
Acady, Newfoundland, Cayenne, the French continent of America, from the
river of the Amazons to that of Oronoko, the coasts of Senegal, Goree,
and other places in Africa; the whole for 40 years.

The same year, 1664, there was another company formed for the East
Indies, of which we shall speak afterwards.

The greatest encouragement was given to these new establishments. Large
sums were advanced by the King for several years, without interest, and
upon condition, that if, at the end of that term, any loss was found on
the trade, it should fall upon the money due to the King.

On examining into the West India company’s affairs, after ten years
administration, that is to say, in the year 1674, it was found, that
instead of profiting of their extensive privilege, by carrying on a
regular trade themselves, they had sold permissions to private people to
trade with them.

This abuse in the company had, however, inspired a taste for trade among
the French; which the King wishing to improve, he reimbursed to the
company all their expences, added their possessions to his domain, and
threw the trade open to his subjects.

Thus ended the first company of the West Indies, called by the French,
the _Compagnie d’Occident_.

After the suppression of this company, the French trade to America was
carried on and improved by private adventurers, some of which obtained
particular grants, to enable them to form colonies. Of this number was
Robert Chevalier de la Sale, a native of Rouen. It was he who first
discovered the river Missisippi, and who proposed to the King, in 1683,
to establish a colony there. He lost his life in the attempt.

Hiberville, a Canadian, took up the project; but soon died. He was
succeeded by Antony Crozat, in 1712, who had better success; but the
death of the King in 1715, and the rising genius of Mr. Law, engaged the
Regent of France to make Crozat renounce his exclusive privilege of
trading. Upon which, by edict of the 6th of September 1717, was formed
the second _Compagnie d’Occident_, in favour of Mr. Law: to which was
added the fur trade of Canada, then in the hands of private adventurers,
and the farm of the tobacco, for which he paid 1,500,000 livres a year.

I now come to the East India company.

I have already mentioned the establishment of it by the great Colbert in

After his death, want of experience in those who succeeded him, abuse of
administration, carelesness in those who carried on the company’s
business, competition between different companies, and, in short, every
obstacle to new establishments, concurred with the consequences of the
long and expensive wars of Louis XIV. to render all commercial projects
ineffectual; and all the expence bestowed in establishing those
companies was in a manner lost.

In 1710, the merchants of St. Malo undertook the East India company. It
languished in their hands until 1719, and their importations were not
sufficient to supply the demand of France for India goods: for this
reason it was taken from them, and incorporated with Mr. Law’s company
of the West Indies, in May 1719.

By this incorporation was established the great _Company of the Indies_,
which still subsists in France: the only monument extant of the famous
and unfortunate Law.

For the better understanding, therefore, what is to follow, let us
attend to some historical and chronological anecdotes, relative to the
wonderful operations of this Missisippi bank, and company of the Indies.
These I shall set down according to the order of time in which they
happened, that my reader may have recourse to them as he goes along.

Without the help of this table, I should be involved in a history of
those events, which however amusing it might be to some readers, would
be quite inconsistent with the nature of this inquiry.


                             CHAP. XXVIII.
                       _Chronological Anecdotes._

[Sidenote: 1709.]

A general coinage in France: the marc of standard silver, worth two
pounds sterling, put at 40 livres denomination.

September 1713. The late King reduces the denomination of the silver
coin to 28 livres the marc, and the gold in proportion.

These reductions were made gradual and progressive, and were finally to
take place no sooner than the 2d of September 1715.

August 1715. The King declares, that in time coming, the coin was to
remain stable at 28 livres the marc of fine silver.

September 1715. The King dies.

January 2, 1716. The Regent of France orders a new general coinage:
raises the silver coin to 40 livres the marc, and calls down the old
King’s coin (though of the same weight, fineness, and denomination) 20
_per cent._

May 1716. Mr. Law’s bank established: bank notes coined; and the old
coin bought up at great discount.

September 6, 1717. Mr. Law’s company of the West established.

September 4, 1718. He undertakes the farm of tobacco.

September 22, 1718. The first creation of actions of the company of the
West to the number of 200,000, subscribed for in state billets, at the
rate of 500 livres _per_ action.

January 1, 1719. The bank taken from Law, and vested in the King. At
this time the number of bank notes coined amounted to 59 millions of

April 22, 1719. A new coinage of 51 millions of notes; in which the
tenure of the note was changed, and the paper declared _monnoie fixe_.

May 1719. Mr. Law’s company of the West incorporated with the company of
the East Indies; after which it was called the _Company of the Indies_.

June 1719. Created 50,000 new actions of the incorporated company; sold
for coin at 550 livres _per_ action.

June 10, 1719. Coined of bank notes for 50 millions of livres.

June 1719. The mint made over to the company for 50 millions.

July 1719. Created 50,000 actions as above, sold, for notes, at 1000
livres _per_ action.

July 25, 1719. Coined of bank notes for 240 millions.

August 1719. The company obtains the general farms: promises a dividend
upon every action of 200 livres: agree to lend the King sixteen hundred
millions at 3 _per cent._ and have transferred to them 48 millions _per
annum_ for the interest of that sum.

September 12, 1719. Coined of bank notes for 120 millions.

September 13, 1719. Created no less than 100,000 actions; price fixed at
5000 livres _per_ action.

September 28, 1719. Created 100,000 more actions, price as the former,
fixed at 5000 livres each.

October 2, 1719. Created 100,000 more actions, price as the former, at
5000 livres each.

October 4, 1719. Coined by the Regent’s private order, not delivered to
the company, 24,000 more actions, which compleated the number of 624,000
actions; beyond which they never extended.

    October 24, 1719. Coined of bank notes for          120 millions.
    December 29, 1719. Coined of bank notes for         129 millions.
    January 1720. Coined of bank notes for               21 millions.
    February 1720. Coined of bank notes for             279 millions.

February 22, 1720. Incorporation of the bank with the company of the

February 27, 1720. A prohibition by which no one was to have in his
custody more than 500 livres of coin.

March 5, 1720. The coin raised to 80 livres _per_ marc.

March 11, 1720. The coin brought down to 65 livres _per_ marc; and gold
forbid to be coined at the mint, or used in commerce.

    March 1720. Coined of bank notes for                  191 803 060
    April 1720. Coined of bank notes for                  792 474 720
    May 1, 1720. Coined of bank notes for                 642 395 130

May 21, 1720. The denomination of the paper diminished by _arret_ of
council, which, in an instant, put an end to all credit, and made the
bubble burst.

At this period had been coined of bank notes to the immense

   sum of                                               2 696 400 000
   Of which had been issued                             2 235 083 590
   Remained in the bank                                   461 316 410

      Dutot, Vol. I. p. 144. Vol. II. p. 207.

May 27, 1720. The _arret_ of the 21st of this month recalled, and the
paper restored to its full denomination.

May 29, 1720. The coin raised to 82 livres 10 sols _per_ marc.

June 3, 1720. 400,000 actions belonging to the Regent are burnt; and the
24,000 more, which were created October 4, 1719, suppressed; also 25
millions of the interest formerly granted to the company for their loan
of 1600 millions, retroceded by the company, and constituted again upon
the town-house of Paris.

October 10, 1720. All bank notes are ordered, by _arret_ of this day, to
be suppressed, if not brought to the bank before the 1st of December
following, in order to be paid in manner therein specified.


                              CHAP. XXIX.
_Continuation of the Account of the Royal Bank of France, until the time
that the Company of the Indies promised a Dividend of_ 200 _Livres_ per

These things premised, what follows will, I hope, be easily understood.

So soon as the Regent of France perceived the wonderful effects produced
by Mr. Law’s bank, he immediately resolved to make use of that engine,
for clearing the King’s revenue of a part of the unsupportable load of
80 millions of yearly interest, due, though indeed very irregularly
paid, to the creditors.

It was to compass this end, that he bestowed on Mr. Law the company of
the West Indies, and the farm of the tobacco.

To absorb 100 millions of the most discredited articles of the King’s
debts, 200,000 actions or shares of this company were created. These
were rated at 500 livres each, and the subscription for the actions was
ordered to be paid in _billets d’etat_, so much discredited by reason of
the bad payment of the interest, that 500 livres, nominal value in these
billets, would not have sold upon change for above 160 or 170 livres. In
the subscription they were taken for the full value. As these actions
became part of the company’s stock, and as the interest of the billets
was to be paid to them by the King, this was effectually a loan from the
company to the King of 100 millions at 4 _per cent._

The next step was to pay the interest regularly to the company. Upon
this the actions which had been bought for 170 livres, real value,
mounted to par, that is, to 500 livres.

This was ascribed to the wonderful operations of the bank; whereas it
was wholly owing to the regular payment of the interest.

In May following 1719, the East India company was incorporated with the
West India company: and the 200,000 actions formerly created, were to be
entitled to a common share of the profits of the joint trade.

But as the sale of the first actions had produced no liquid value which
could be turned into trade (having been paid for in state billets) a new
creation of 50,000 new actions was made in June 1719, and the
subscription opened at 550 livres payable in effective coin.

The confidence of the public in Mr. Law, was at this time so great, that
they might have sold for much more: but it was judged expedient to limit
the subscriptions to this sum; leaving the price of the actions to rise
in the market, according to demand, in favour of the original

This money amounting to 27 500 000 livres in coin, was to be employed in
building of ships, and other preparations for carrying on the trade.

The hopes of the public were so much raised by the favourable appearance
of a most lucrative trade, that more actions were greedily demanded.

Accordingly in a month after (July 1719) another creation was made of
50,000 actions; and the price of them fixed at 1000 livres.

It must be observed, that all actions delivered by the company of the
Indies, originally contained an obligation on the company for no more
than 4 _per cent._ upon the value of 500 livres, with a proportion of
the profits on the trade; so that the rise of the actions proceeded
entirely from the hopes of those great profits, and from the sinking of
the rate of interest; a consequence of the plenty of money to be lent.

But besides the trade, what raised their value at this time, was, that
just before the last creation of actions, the King had made over the
mint to the company for a consideration of 50 millions of livres; and
this opened a new branch of profit to every one interested.

The sale of the last coined actions taking place at 1000 livres each, so
great a rise seems to have engaged the Regent to extend his views much
farther than ever. To say that he foresaw what was to happen, would be
doing him the greatest injustice. He foresaw it not, most certainly; for
no man could foresee such complicated events. But had he conducted
himself upon solid principles; or by the rules which, we now say, common
honesty required, he certainly never would have countenanced the
subsequent operation.

The fourth creation of actions was in the beginning of September 1719.

In the interval between the third and the fourth creation, the Regent
made over the general farms to the company, who paid three millions and
a half advanced rent for them. And the company obliged themselves to
lend the King (including the 100 millions already lent upon the first
creation of actions) the immense sum of 1600 millions at 3 _per cent._
that is, for 48 millions interest. Now it is very plain, that before the
month of September 1719, it was impossible they could lend the King so
great a sum.

They had already lent him, in September 1718, 100 millions, by taking
the _billets d’etat_ for the subscription of the first creation of
actions; the second creation had produced coin, laid out in mercantile
preparations; and the third creation of actions, at the standard value,
was worth no more than 50 millions of livres: this was their whole
stock. Where then could they find 1500 millions more to lend?

I therefore conclude, that at this time, the combination which I am now
to unfold, must have, more or less, taken place between the Regent and
this great company.

The public was abundantly imbibed with the notion of the prodigious
profits of the company, before they got possession of the general farms.
No sooner had they got that new source of riches into their hands, than
they promised a dividend of no less than 200 livres on every action,
which was ten times more than was divided on them when at first created.

The consequence of this was, that (supposing the dividend permanent and
secure) an action _then_ became as well worth 5000 livres as at _first_
it was worth 500 livres; accordingly to 5000 did it rise, upon the
promise of the new dividends.

But what could be the motive of the company to promise this dividend,
only three months after their establishment? Surely, not the profits
upon a trade which was not as yet opened. Surely, not the profits upon
the King’s farms; for these profits it was greatly their interest to

Their views lay deeper. The Regent perceived that the spirit of the
nation was too much inflamed, to suffer them to enter into an
examination of the wonderful phænomena arising from the establishment of
the bank, and company of the Indies. If the company promised 200 livres
dividend, the public concluded that their profits would enable them to
pay it; and really in this particular the public might be excused.

The plan, therefore, concerted between the Regent and the company seems
to have been, to raise the actions to this great value, in order to
suspend a greater quantity of notes in circulation.

This was to be accomplished, 1. by the Regent’s purchasing the actions
himself from the company; 2. by borrowing back the notes he had paid for
them, in order to fill up the loan which the company had agreed to make;
3. to pay off all the public creditors with those notes so borrowed
back; and 4. when the nation was once filled with bank paper, to sell
the actions he had purchased from the company, to withdraw his own
paper, and then destroy it.

By this operation the whole debts of France were to be turned into
actions; and the company was to become the public debtor, instead of the
King, who would have no more to pay but 48 millions of interest to the

By this operation also, the Regent was to withdraw all the bank notes
which he had issued for no other value but for the payment of debts;
which notes were demandable at the bank; and for the future, he was to
issue no more (I suppose) but for value preserved.


                               CHAP. XXX.
_Inquiry into the Motives of the Duke of Orleans in concerting the Plan
                          of the Missisippi._

Now if we examine the motives of the Regent, with regard to this plan,
and suppose that he foresaw all that was to happen in consequence of it;
and if we also suppose that he really believed that the company never
could be in a situation to make good the dividend of 200 livres, which
they had promised upon their actions; in a word, if we put the worst
interpretation upon all his actions, we must conclude that the whole was
a most consummate piece of knavery.

But as this does not appear evidently, either by the succeeding
operations, or ultimate consequences of this scheme, I am loth to
ascribe, to that great man, a sentiment so opposite to that which
animated him, on his entrance upon the regency, when he nobly rejected
the plan proposed to him for expunging the debts altogether.

I may therefore suppose, that he might believe that the company to whom
he had given the mint, the tobacco, the farms, and the trade of France,
and to whom he soon after gave the general receipt of all the revenue,
might by these means be enabled to make good their engagements to the
public. I say, this _may be supposed_; in which case justice was to be
done to every one; and the King’s debts were to be reduced to 48
millions a year, instead of 80 millions.

That this is a supposeable case, I gather from Dutot, who gives us an
enumeration of the revenue of the company, Vol. I. p. 162. as follows:

                 Revenue of the Company of the Indies.

    Interest paid to the company _per annum_             48 000 000
    Profits upon the general farms                       15 000 000
    Ditto upon the general receipt of other taxes         1 500 000
    Ditto upon the tobacco                                2 000 000
    Ditto upon the mint                                   4 000 000
    Ditto upon their trade                               10 000 000
    In all of yearly income                              80 500 000

Now if we suppose the interest of money at 3 _per cent._ this sum would
answer to the capital of 2664 millions, which was more than all the
debts of the kingdom, for which they were to become answerable.

Upon this view of the matter, I say, _it was possible_, that the Regent
might form this plan, without any intention to defraud the creditors;
and more I do not pretend to affirm.

I have said that he purposely made the company raise the price of their
actions, in order to draw more notes into circulation.

To this it may be objected, that he might as well have paid off the
creditors with bank notes, without going this round-about way to work;
and have left them to purchase the actions directly from the company.

I answer, that such an operation would have appeared too bare-faced, and
might have endangered the credit of the bank. Whereas in buying the
actions, which were run upon by every body, the state only appeared
desirous of acquiring a share of the vast profits to be made by the
company. Farther,

As the company appeared willing to accept of bank notes from the state,
in payment of their actions, this manœuvre gave an additional credit,
both to the actions, and to the notes; a thing very necessary to be
attended to, in a scheme which was calculated to bring about a total
transformation of the security for the King’s debts.

I must however observe, that at the period concerning which we are now
talking, (viz. at the time the company promised the dividend of 200
livres _per_ action) the plan we have been describing could not have
been carried into execution.

There were at that time only 400,000 actions created, rated at 777
millions: of these were disposed of at least 250,000, to wit, the
original 200,000; and the second creation of 50,000, sold for coin.
Besides, there were then only coined in bank notes for 520 millions. So
there was not a possibility of executing the plan I have mentioned, as
matters then stood.

It is from the subsequent operations of the system, that it appears
evident that this and this only could be the intention.

We shall see how the number of actions were multiplied, without any
other view than to make the public imagine, that the funds necessary for
carrying on the trade of the company were immense.

The number of the actions sold to the public was very inconsiderable,
compared with those sold to the Regent, and found in his hands at the
blowing up of the system.

Besides, at the period when the number of actions was carried to the
utmost, viz. to 624,000, the bank notes bore no proportion to their
value; for, on the 4th of October 1719, when the last creation of
actions was made, the bank notes did not exceed the sum above specified,
to wit, 520 millions.

But in tracing the progress of the system upon the table, we perceive,
that after the actions were once carried to their full number, (October
4th, 1719) then the coining of bank notes began at a most prodigious
rate; in so much, that by the month of May 1720, they were increased
from 520 millions, to above 2696 millions; and all this sum, except 461
millions, were found in circulation.

Farther: We shall see, that when the Regent and the company made out
their accompts, there were found in the Regent’s hands no less than
400,000 actions, which were burnt; and 25 millions of interest upon the
sum of money due by the King to the company, extinguished.

These facts prove beyond a doubt, that these 400,000 actions had been
bought with the notes coined posterior to the 4th of October 1719;
otherwise the actions could not have become the property of the state.

Besides, it was acknowleged publicly, that the notes were coined for
that purpose. (See Dutot, Vol. I. p. 144.) In the next place, it is
evident, that the notes which had been given in payment for those
actions, had been borrowed back, to fill up the loan of 1600 millions of
livres; which the company never could have otherwise lent to the King.
And in the last place, it is certain that the public debts were paid off
with these notes, so borrowed back from the company: because we shall
find the notes in circulation at the blowing up of the system, in May
1720; and we shall see how they were paid and withdrawn in October

This detail I own is a little long, and perhaps too minute: but I
thought it necessary to prove the solidity of my conjectures concerning
the Regent’s motives in concerting this plan; which no French author,
that ever I saw, has pretended to unfold, except by hints too dark to be
easily comprehended.

What is now to follow, will still set my conjectures in a fairer light.
We have seen already from the table, with what rapidity the creation of
actions went on from the 13th of September to the 4th of October 1719.
No less than 324,000 were created in that interval.

Yet Dutot, vol. ii. p. 169, _et seq._ positively says, that on the 4th
of October, the company had not sold for more than 182,500,000 livres of
their actions. Now the total value, as they were rated when created,
extended to 1,797,500,000; so there was little more than one tenth part
of the value sold off.

Why therefore create such immense quantities of actions, and so far
beyond the demand for them, but to throw dust in the eyes of the public;
to keep up the spirit of infatuation; and to pave the way for the final
execution of the plan?

The actions being brought, by four successive creations, of the 13th and
28th of September, the 2d and 4th of October, to their full number, the
company, during that interval, obtained the general receipt of the whole
revenue. Thus, says Dutot, vol. ii. p. 197. the company was intrusted
with the whole revenue, debts and expences of the state, and all
unnecessary charge was avoided in collecting and administring it.

In the month of November 1719, the credit of the bank, and of the
company, was so great, that the actions rose to 10,000 livres.
Notwithstanding, says Dutot, vol. ii. p. 198. that the company did what
they could to keep down the price, by throwing into the market, in one
week, for no less than 30 millions. He assigns seven different reasons
for this, which, all put together, are not worth one; to wit, that the
Regent was ready to buy up every one that lay upon hand, in concert with
the company.

If the company had been inclined to keep down the price of the actions,
they had nothing more to do than to deliver part of the vast number they
still had unsold, at the standard value of 5000 livres, at which they
were rated when created; and this would have effectually prevented their
rising to 10,000 livres.

But it was the interest of the Regent, who was at that time well
provided with actions, to stock-job, and to buy with one hand, while he
was selling with the other: these operations were then as well known in
the street called Quinquempoix, as now in Change-alley.

As a proof of the justness of my allegation, that the Regent was doing
all he could to raise the price of the actions, Dutot informs us, in the
place above cited, that the bank, at this very time, was lending money,
upon the security of actions, at 2 _per cent._ If that was the case, how
was it possible that an action, with 200 livres dividend, should sell
for less than 10,000 livres, which is the capital corresponding to 200
livres, at 2 _per cent._?

This is evident; and were it necessary, it may be proved to
demonstration, that the rise of the actions was the consequence of a
political combination.

But _if_ money, at that time, came to bear no more than 2 _per cent._
and if the company was able to afford 200 livres upon the action; where
was the inequity of raising the actions to 10,000 livres? I confess I
can see none, nor do I perceive either the impossibility or
improbability of the two postulata, had matters been rightly conducted.

As to money’s falling to 2 _per cent._ any man of 20 years old may
expect to see it, without a _Mississippi_: and as for the payment of the
dividends, there never were in the hands of the public, nor ever could
be, had all the creditors of the 2000 millions of public debts invested
in actions at 10,000 a-piece, one half of 624,000 actions disposed of:
consequently, the 200 livres dividend would not have amounted, upon
312,000 actions, to more than 62,400,000 livres; and the revenue of the
company, as we have seen, exceeded 80 millions a year.

This still tends to vindicate the Regent from the gross imputation of
fraud, in the conduct of the Missisippi.

But what should still more exculpate that prince, in the eyes of every
impartial man who examines the whole conduct of the affair, is the
uniform sentiments of the most intelligent men in France concerning the
doctrine of money and credit.

When we find Dutot, who wrote against the arbitrary change of the coin;
and De Melon, the Regent’s man of confidence and secretary, who wrote
for it, two persons considered in France as most able financiers, both
agreeing, that during the operations of the system, money never was to
be considered but according to denominations; that there was nothing
against good policy in changing the value of these denominations; and
that paper-money, whether issued for value, or for no value, or for the
payment of debts, was always good, _providing there was coin enough in
France_ for the changing of it, although that coin did not belong to the
debtors in the paper; when these principles, I say, were adopted by the
men of penetration in France; when we find them published in their
writings, many years after the Regent’s death, as maxims of what they
call their _credit public_; I think it would be the highest injustice to
load the Duke of Orleans with the gross imputation of knavery, in the
Missisippi scheme.

Law no doubt saw its tendency. But Law saw also, that credit supported
itself on those occasions, where it stood on the most ticklish bottom:
he saw bank notes to the amount of more than two thousand millions,
issued in payment of the King’s debts, without occasioning any run upon
the bank, or without suggesting an idea to the public that the bank
should naturally have had some fund, to make them good: he saw people,
who were in possession of a value in paper exceeding 6000 millions of
livres, 60 to the marc, (Dutot, vol. i. p. 144.) look calm and
unconcerned, when, in one day, the coin was raised in its denomination
to 80 livres in the marc; by which operation, the 6000 millions of the
day before lost 25 _per cent._ of their real value. He saw that this
operation did not in the least affect the credit of the bank paper;
because people minded nothing but denominations.

He saw farther, that by the operation proposed, the whole debt of the
King would be transferred upon the company. He saw that these debts,
being turned into bank notes, would not be sufficient to buy above
200,000 actions, at the value they then sold for. He knew that the
Regent, who had bought 400,000 of these actions at 5000 livres apiece,
that is, at half price, would remain in possession of 200,000 actions,
after selling enough to draw back the whole of the bank notes issued for
the payment of the debts; and he saw that the company of the Indies had
a yearly income of above 80 millions to enable them to make good their
engagements: besides, he saw a power in the King to raise the
denominations of the coin at will, without shocking the ideas of his
people, by which means he might have paid the 2000 millions with one
louis d’or. Put all these circumstances together, and I can imagine that
Law’s brain was turned; that he had lost sight of all his principles;
and that he might believe that his former common sense, was, at that
time, become absolute nonsense _in France_.

That common sense may become nonsense, is a thing by no means peculiar
to France, but quite peculiar to _man_.

I shall offer but one argument more, to prove that the Duke of Orleans,
and Law, could have no premeditated design of defrauding the public, by
these wonderful operations; which is, that admitting the contrary, would
be allowing them an infinite superiority of understanding over all the
rest of Europe.

Until the bubble burst, no body _could_ know where it was to end: every
thing appeared very extraordinary indeed; and the fatal catastrophe
might have been expected from the greatness of the undertaking, merely.
But if there had been any roguery in the plan itself, it must have
appeared palpable long before; because the whole of the operations in
which only _it could_ consist, were public.

All the notes were created by public act of council; so were the
actions: the loan of 1600 millions to the King, by the company, was a
public deed; so was the alienation in their favour, of 48 millions for
the interest of that sum. Notes were avowedly coined in order to
purchase actions, (Dutot, Vol. I. p. 144.) the creditors were avowedly
paid with bank notes, at a time when it was forbid to have 500 livres in
coin in any person’s custody; consequently, it was also forbid to demand
coin for bank notes.

Now all this was going on in the months of February, March, April, and
the beginning of May 1720; and no suspicion of any failure of credit.
The coin also was sometimes raised, sometimes diminished in its value,
and still the fabric stood firm.

Under these circumstances, to say there was knavery, is to say that all
the world were absolutely blockheads, except the Regent and John Law:
and to that opinion I never can subscribe.

It may seem surprising that I should take so much pains to vindicate the
two principal conductors of that scheme. My intention is not so much to
do justice to their reputation, which has been grossly calumniated by
many, who have written the history of those times, as to prove, that an
ill concerted system of credit may bring ruin on a nation, although
fraud be out of the question: and if a nation be plunged into all the
calamities which a public bankruptcy can occasion, it is but a small
consolation to be assured of the good intentions of those who were the
cause of it.


                              CHAP. XXXI.
  _Continuation of the Account of the royal Bank of France, until the
               total Bankruptcy on the 21st of May 1720._

I now resume the thread of my story. We left off at that period when the
credit of the company and of the bank was in all its glory, (November
1719) the actions selling at 10,000 livres; dividend 200 livres a year
_per_ action; and the bank lending at 2 _per cent._: all this was quite
consistent with the then rate of money.

In this state did matters continue until the 22d of February 1720, when
the bank was incorporated with the company of the Indies.

The King still continued guarantee of all the bank notes, none were to
be coined but by his authority: and the controller-general for the time
being, was to have, at all times, with the _Prevot des marchands_ of
Paris, ready access to inspect the books of the bank.

As the intention, at the time of the incorporation, was to coin a very
great quantity of notes, in order to buy up the actions; and to borrow
back the money, in order to pay off the creditors; it was proper to
gather together as much coin as possible, to guard against a run upon
the bank: for which purpose the famous _Arret de Conseil_, of the 27th
of February 1720, was published, forbidding any person to keep by them
more than 500 livres in coin.

This was plainly annulling the obligation in the bank paper, _to pay to
the bearer on demand the sum specified, in silver coin_.

Was it not very natural, that such an _arret_ should have, at once, put
an end to the credit of the bank. No such thing however happened. The
credit remained solid after this as before; and no body minded gold or
silver any more than if the denomination in their paper had had no
relation to those metals. Accordingly, many, who had coin and
confidence, brought it in, and were glad to get paper for it.

The coin being collected in about a week’s time, another _Arret de
Conseil_, of the 5th of March, was issued, raising the denomination from
60 livres to 80 livres the marc. Thus, I suppose, the coin which the
week before had been taken in at 60 livres, was paid away at 80: and the
bank gained 33⅓ _per cent._ upon this operation. Did this hurt the
credit of the bank paper? Not in the least.

So soon as the coin was paid away, which was not a long operation, for
it was over in less than a week; another _Arret de Conseil_, of the 11th
of the same month of March, came out, declaring that, by the first of
April, the coin was to be again reduced to 70 livres the marc, and on
the first of May to 65 livres. Upon this, the coin, which had been paid
away the week before, came pouring into the bank, for fear of the
diminution which was to take place the first of April. In this period of
about three weeks, the bank received about 44 millions of livres; and
those who brought it in thought they were well rid of it.

It was during the months of February, March, and April 1720, that the
great operations of the system were carried on.

We may see by the chronological anecdotes in the 36th chapter, what
prodigious sums of bank notes were coined, and issued during that time.
It was during this period also, that a final conclusion was put to the
reimbursing all the public creditors with bank notes: in consequence of
which payment, the former securities granted to them by the King, under
the authority of the parliament of Paris, were withdrawn and annulled.

Here then we have conducted this scheme to the last period.

There remained only one step to be made to conclude the operation; to
wit, the sale of the actions, which the Regent had in his custody to the
number of 400,000.

These were to be sold to the public, who were at this time in possession
of bank notes to the value of 2 235 083 590 livres. See the foregoing

Had the sale of the actions taken place, the notes would all have
returned to the bank, and there have been destroyed: by which operation,
the company would have become debtor to the public for the dividends of
all the actions in _their_ hands, and to the King for all those which
might have remained in the hands of the Regent. These proportions we
cannot bring to any calculation, as it would have depended entirely on
the price of the actions during so great an operation; and on the
private conventions between the parties, the Regent and the company.

But alas! all this is a vain speculation. The system which hitherto had
stood its ground in spite of the most violent shocks, was now to tumble
into ruin from a childish whim.

In order to set this stroke of political arithmetic in the most
ludicrous light possible, I must do it in Dutot’s own words, uttered
with a sore heart and in sober sadness.

He had said before, that the coin of France was equal to 1200 millions
of livres at 60 livres the marc. This marc was now at 65 livres (in May
1720, as above) so the _numerary_ value, as he calls it, (that is the
denomination) of the coin was now risen to 1 300 000 000; but the bank
notes circulating in the month of May were carried to 2 696 400 000;
then he adds,

"The 1300 millions of coin _which were in France_, were very far from
2696 millions of notes. In that case, the sum of notes was to the sum of
coin, nearly as 22⁄27 are to 1; that is to say, that 207 livres 8 sols
1⅞ denier in notes, was only worth 100 livres in coin; or otherwise,
that a bank note of 100 livres, was only worth 48 livres 4 sols 5
deniers in coin, or thereabouts." Would not any mortal conclude from
this, that the whole sum of 1300 millions had been in the bank, as the
only fund for the payment of the paper?

This is a laboured equation, and from it we have a specimen of this
gentleman’s method of calculating the value of bank paper: but let us
hear him out.

“This prodigious quantity of money in circulation, says he, had raised
the price of every thing excessively: so in order to bring down prices,
it was judged more expedient to diminish the denomination of the bank
notes, than to raise the denomination of the coin; because _that_
diminished the quantity of money, _this_ augmented it.”

This was the grand point put under deliberation, before the famous
_arret_ of the 21st of May was given, viz. whether to raise the value of
the coin, _which did not belong to the bank, but to the French nation_,
to double the denomination it bore at that time, that is, to 130 livres
the marc, by which means the 1300 millions would have made 2600
millions, or to reduce the 2600 millions of bank notes to one half, that
is, to 1300 millions, the total denomination of the coin.

To some people it would have appeared more proper, to allow matters to
stand as they were, as long as they would stand, at least until the
actions had been all sold off; but this was not thought proper. After a
most learned deliberation, it was concluded to reduce the denomination
of all the paper of France, bank notes as well as actions, instead of
raising the denomination of the coin; and this because prices were in
proportion to the quantity of the denominations of money.

The _arret_ was no sooner published than the whole paper fabric fell to
nothing. The day following, the 22d of May, a man might have starved
with a hundred millions of paper in his pocket.

This was a catastrophe the like of which, I believe, never happened: it
is so ridiculous that it is a subject fit only for a farce.

Here Dutot’s lamentations and regrets are inimitable.

In one place he says, “Credit was too far stretched to be solid. It was
therefore proper to sacrifice one part, to give a solidity to the other.
Even this was done; but the consequences did not correspond to the
intention. Confidence, which is the soul of credit, eclipsed itself, and
the loss of the bank note, drew on the loss of the action.”

In another place he says, “This _arret_ of the 21st of May, which
according to some _blessoit l’equité_” (a very mild expression!)
“destroyed all confidence in the public; because the King had diminished
one half of that paper money (the bank notes) which had been declared

Is it not a thousand pities that confidence should have disappeared upon
so slight a wound given to equity, only in the opinion of some? For
Dutot thought the operation perfectly consistent with the principles of
public credit.

He tells us, that a letter was writ to calm the minds of the people, and
to shew them how absurd it was, to allow the paper to be fixed, while
the coin varied: but, says he, “as there was a revenue attached to the
action, the value of that paper did not depend so much upon the capital,
as on the sum of the interest.” Very just. But were the dividends to
stand at 200 livres, without suffering the same diminution as the
action? And how was confidence to subsist in a country, where the
denominations of both the paper and the coin were at the disposal of a

The diminution upon the paper, by the _arret_ of the 21st of May, raised
a most terrible clamour; and Law became the execration of France,
instead of being considered as its saviour. He was banished, and reduced
to beggary the same day.

What profit could either the Regent, or Law, have reaped from the
success of such an operation? Had the coin been raised to 130 livres the
marc, no hurt would probably have ensued, and the same effect would have
been produced.

Had matters been left without any change at all, no bad consequences
would have followed: these existed only in the heads of the French
theorists. There was, indeed, twice as much money in bank notes as in
coin, in the whole kingdom of France: and what then?

When the Regent saw the fatal effects of his _arret_ of the 21st of May,
he revoked it on the 27th of the same month. On the 29th, he raised the
coin to 82 livres 10 sols in the marc, and re-established all the paper
at its former denomination: but, as Dutot has said, confidence was gone,
and was no more to be recalled. Nothing surprises me, but that she lived
so long under such rough management.

Dutot, in talking of this augmentation of the coin, on the 29th of May,
to 82 livres 10 sols, says, “This operation was consistent with the
principles of public credit, and advantageous. They would have done
better had they pushed the augmentation to 135 livres the marc; which
would have made the specie of France equal to the sum of bank notes.”
These are his words, p. 165.

Are not these very sensible principles, coming from a man who has writ a
book, which indeed few people can understand, in order to prove the
great hurt of tampering with the coin of France?


                              CHAP. XXXII.
                 _Conclusion of the Missisippi Scheme._

The Regent, persuaded that the blunder of the 21st of May was absolutely
irreparable, fell to work next to clear accompts with the company.

He owed them 1600 millions capital, and 48 millions a year of interest
upon it.

On the other hand, he had in his possession no less than 400,000
actions, which at 200 livres dividend, which the company was obliged to
pay, amounted to 80 millions a year.

How the Regent and the company settled matters, I do not know precisely.
This, however, is certain, that by the _arret_ of the 3d of June 1720,
the number of 400 000 actions, belonging to the Regent, were burnt; and
24 000 more which had been created by his particular order, the 4th of
October 1719, and never delivered to the company, were suppressed.

On the other hand, the company ceded 25 millions a year, of the 48
millions which had been transferred to them.

That sum was constituted anew upon the town-house of Paris, as a fund to
be subscribed for by the proprietors of bank notes, at the rate of 2½
_per cent._ or as the French call it at the 40th penny. (Dutot, p. 168.)
In consequence of this, 530 millions of bank notes were subscribed for,
and paid in, in the month of June 1720.

After the destruction of the 400,000 actions, the credit of the bank
notes languished until the 10th of October 1720.

The object for which they were created was now gone. The whole scheme of
transferring the King’s debts upon the company vanished in the
conflagration of the actions. What was then to be done?

The bank was at an end: 2235 millions of discredited bank notes in
circulation, and a small sum of coin to make them good, was a situation
which no authority could long support.

The resolution then was taken to put a final conclusion to this great
affair; to bid a long farewel to credit and confidence; and to return
upon the old system of rents upon the town-house of Paris; and of coming
at money in the best way they could.

We shall now see how this was accomplished; and from that form a pretty
good guess at the extent of the fraud committed, with respect to the
creditors of France; not so much, I think, from any intrinsic defect in
the Missisippi scheme, as from the distress the nation was thrown into,
by the ignorance of those who over-ruled John Law in conducting it.

We have seen how the actions were reduced to the number of 200,000; we
must now give an account of the deplorable fate of the bank notes.

By the _arret_ of 10th of October 1720, all bank notes were entirely
suppressed; and it was declared, that after the 1st of December
following, they were to have no course whatsoever.

Here follows the arrangement of this great affair, viz. the liquidation
of 2 696 400 000 livres of bank notes as regulated by this _arret_.

 1_mo_, Of the above total of notes coined,         707 327 460 livres.
 there remained in the bank at that time, for
 2_do_, Subscribed for at 2½ _per cent._ in         530 000 000
 June 1720
 3_tio_, Carried to the bank by private people      200 000 000
 as a fund of credit there
 4_to_, Paid in coin by the bank                     90 000 000

This sum of notes was ordered to be burnt by the _arret_ of the 10th of

The remainder still in the hands of the public, says the _arret_, was to
the amount of 1 169 720 540 livres, and the King declares, that the
holders of them might employ them as follows:

 1_mo_, In purchasing the remainder of the            470 000 000 livres.
 subscription of 25 millions of rents on the
 town-house of Paris, at 2½ _per cent. inde_
 2_do_, In purchasing a farther sum constituted        00 000 000
 on the town-house of Paris, of 8 millions of
 perpetual annuities, at the rate of 2 _per
 cent._ or at the 50th penny
 3_tio_, In purchasing a farther sum constituted      100 000 000
 on the town-house of Paris, of 8 millions of
 life-rent annuities, at 4 _per cent._ or at the
 25th penny
   These sums amounted to                             970 000 000
   Sum above                                        1 527 327 460
   Together                                         2 497 327 460

There still remained outstanding about 200 millions of bank notes.

These were ordered to be disposed of in several different ways,
mentioned in the _arret_ of the 10th of October; which it would be
needless to mention, as it would require a long explanation to make the
thing understood: let it suffice that there was an outlet provided for
them, which brought in between 2 and 3 _per cent._

Thus we see the conclusion of the whole affair.

At the beginning, the King’s debts stood at 2000 millions capital, and
80 millions interest very ill paid.

 At the end of the scheme there had been coined of      2696 millions.
 notes about
 Of which in the bank, October 10, 1720     707  mil.
 And paid in coin                            90
 This substracted                                        797 millions.
 There remained outstanding in bank                     1899 millions.
 Add to this 100 millions still due by the King to       100 millions.
 the company for the _billets d’etat_ withdrawn in
 constituting the first 200,000 actions which still
 subsisted, and for which the company was to receive
 5 _per cent._
 So the capital of the King’s debts remained at         1999 millions.
 Balance gained by the whole operation                     1 million.
 Consequently there was little or no fraud as to the    2000 millions.

Footnote 18:

  There are, however, in France at this day, many persons who are still
  in possession of large sums of those notes. This makes some people
  believe, that all the paper was called down without any equivalent
  given. The reason of those notes remaining, is, that either the
  proprietors neglected the occasion offered by the _arret_ of the 10th
  of October, or that they were in hopes that perhaps the bank might
  again recover its credit. They were mistaken, and the notes are lost.

Let us next examine the state of interest.

The interest at the last was,

    1_mo_, Of rents constituted in June 1720, on the
 town-house, at 2½ _per cent._ or at the 40th penny   25 millions.
    2_do_, Ditto of the 10th of October 1720, at 2
 _per cent._ or at the 50th penny                      8 millions.
    3_tio_, Ditto at ditto upon lives at 4 _per
 cent._ or at the 25th penny                           4 millions.
    4_to_, Due to the company upon the original
 stock of 100 millions still paid them at this day
 at 5 _per cent._                                      5 millions.
    5_to_, For the 200 millions of credit at the
 bank, suppose at the rate of 3 _per cent._            6 millions.
    6_to_, For the last 200 millions provided for in
 different ways, suppose at 2½ _per cent._             5 millions.
    7_to_, Allowed to the company to indemnify them
 for the loss they sustained by these arbitrary ways
 of reckoning with them, 80 millions at 5 _per
 cent._ still paid them                                4 millions.
                                                      57 millions.
    The interest at first was                80 millions
    The interest at last was                 57 millions
    Defrauded by the scheme                  23 millions a year.

This is (as near as I can guess at it) the state of the French
bankruptcy in 1720.

The creditors were _robbed_ of 23 millions a year. I call it _robbed_,
because the interest due to them was diminished by that sum, without
their consent, and in consequence of the most arbitrary proceedings;
whereas, had the system been conducted with ability, the whole of the
debts would have been brought to an interest of 48 millions, instead of
57, and no body would have complained of injustice.

Money likewise might have been brought to 2 _per cent._ The 1600
millions borrowed of the company at 3 _per cent._ would then have been
reduced to two; which would have brought the 48 millions of interest,
upon the whole, to 32 millions: and France, from being reduced to
beggary by the King’s wars, would have become the most flourishing state
in Europe.

Let us next guess at what may reasonably be supposed to have been the
largest sum of coin ever collected in this bank.

I imagine that the far greater part of all the coin supposed to be in
France during the Missisippi scheme, remained in private hands, without
ever coming into the bank. My reason for being of this opinion is,

Law never could have had more than the value of his original stock, and
all the value of notes he had in circulation.

It is absurd to imagine he ever should have had the half, or near it;
but let me suppose it,

   The bank stock was                                    6 millions.
   The notes he issued were                             59 millions.
      In all                                            65 millions.

This is a trifle compared with 1200 millions.

Next for the united bank. The time at which the greatest quantity of
coin was collected, must have been when all credit failed, that is, on
the 21st of May 1720.

At that time coin was taken out of commerce: every one was forbid to
have above 500 livres in possession; and every operation had been used
to call it in.

At this time, we know that all the notes coined were issued, except to
the value of 461 316 410 livres.

Now we have seen that on the 10th of October following, there were in
the bank to the value of 707 327 460 livres.

Let me, therefore, suppose, that from the 21st of May to the 10th of
October, the bank paid away in coin, the difference between these

 two sums; to wit,                                 246 011 050 livres.
 Add to that sum what was then in the bank, viz.    90 000 000
 Sum                                               336 011 050

This sum is all we possibly can suppose to have been in the bank on the
21st of May, when credit failed.

We must reckon this sum of coin at 82 livres 10 sols _per_ marc, the
then value; which makes about 8 146 600_l._ sterling. A large sum, no
doubt; but little more than ⅕ of 40 millions sterling, the value of 1200
millions of livres, at 60 to the marc, as has been said. Consequently,
either those 40 millions sterling were not then in France, or the
greatest part of the sum had remained in private hands during this whole

In this light I see the Missisippi scheme. I may, no doubt, be mistaken
in many things: the lights, or rather the glimmerings, by which I have
been conducted through this inquiry, must plead my excuse.

But it is not so much facts as principles, I have been investigating
through this whole disquisition; and the imperfect account I have been
able to give of the _former_, will at least point out, I hope, the
notions which the French nation, at that time, had of the _latter_. If
the contrast between French principles, and those I have laid down, tend
to cast any light upon the subject of paper credit in general, my end is
accomplished: if they ever prove of use to mankind, I shall not think my
labour lost.


                             CHAP. XXXIII.
        _Why Credit fell, and how it might have been supported._

I shall now make a few general observations upon the total and sudden
fall of credit in France in May 1720: and I shall suggest the means by
which, I think, it might have been sustained, even after all the
preceeding mismanagement.

Was it any wonder that the French should be astonished at this
prodigious revolution, at this immense value of paper on the 21st of
May, and at the total discredit of every bit of it the day following?

If there was a value, said they, what is become of it? If there never
was any value, how could a nation be so deceived? This phænomenon has
puzzled many a head; but the nature and principles of credit furnish an
easy solution of it.

In deducing the principles of credit, we have shewn _that a permanent
and well secured fund of interest is always equal in value to a
corresponding capital_.

The difference between a _permanent_ and _well secured fund_, and a
_precarious_ and _ill secured fund_, consists in this, that the first
never can disappear, and the other may.

Now the fund, in this case, was at first _real_ and did exist; but it
was rendred precarious, by a blundering administration: then credit
failed, and in that convulsion, the fund of interest was fraudulently
diminished by an act of power.

Had the true principles of credit been understood in France, the bank
notes and actions might have been supported, even after the _arret_ of
the 21st of May: and all the monstrous value of paper, raised so high by
the low rate of interest, might have been preserved: consequently that
value, in capital, _really existed_ relatively to the rate of interest.

As the object of the present disquisition into the principles upon which
the Missisippi scheme was conducted, is only intended as an illustration
of the principles of credit in general; I shall first account for the
wonderful phænomenon above mentioned, and then shew how, in the greatest
of all the French distress, their credit might have been re-established
in a more solid manner than ever.

As to the wonderful phænomenon of the prodigious _wealth_ created by the
system, and annihilated in one day, I answer, that there had been no
creation of wealth at all, except in consequence of the fall of

1_mo_, We have seen that at the death of the late King of France, the
interest of his debts amounted to 80 millions. Was not this a fund which
ought to have been made solid and permanent? Will any man say, that a
regular plan of paying this interest was a means of creating new wealth?
Certainly not.

2_do_, These debts were secured by _contracts of constitution of annual
rents upon the town-house of Paris_: a security taken in the name of a
particular creditor, which requires a form of law to transfer.

By the scheme we have been explaining, all these securities were
changed: and instead of constitutions of rent, bank notes, in which the
King was equally debtor, were given.

Will any man say, that this was the means of either increasing or
diminishing the wealth of France? Certainly not. A man who has a good
bond in his pocket is as rich before it is paid with bank notes as
after: but he has not so much money in his hands; because the bond is
not _money_, and the notes are.

3_tio_, We have said that the interest of the King’s debts amounted to
80 millions a year, at 4 _per cent._

We have seen how the company of the Indies were provided with a fund
equal to this sum, arising from the 48 millions which the King paid for
the loan of the paper with which the debts were to be paid, and from
many other lucrative branches of revenue; which instead of being
burthensome to the King, were, on the contrary, a means of augmenting
his income, by the advanced rent the company gave for the different
farms which produced them.

Had the public creditors, therefore, vested their claims in actions,
they would, in consequence of that operation, have become sharers in the
fund of 80 millions a year, administred by themselves, (and they would
then have been the company) open to be improved by trade abroad, and by
a good administration at home.

Had this system been carried on in a plain easy way, consistently with
common sense, the public creditors would have been paid; the King’s
revenue augmented; and it would have been put under a good and a cheap

But when, by the absurd operations of changing the denominations of coin
and paper, and wantonly playing with every man’s property, the creditors
saw themselves standing on the brink of a precipice; and finding,
instead of a good contract on the town-house of Paris, a bank note put
into their hands, which might be diminished in its value by one half
every month, while at the same time the coin might be raised to double,
it was very natural to suppose, that the intention of the King’s
ministers was to withdraw from them totally these 80 millions, less or
more, to which they were entitled: in which case, there was an
annihilation indeed of all the notes; but there was no annihilation of
wealth: for in that case, the wealth was still the same, only it was
transferred from the creditors to the King the debtor: that is, the
creditors were defrauded.

On the other hand, stood the proprietors of the actions sold. These were
in use to make a traffic of buying and selling the 200,000 actions which
had been in their hands ever since September 1717, when they were first
created. For we have shewn, that the posterior creation of actions by
the united company, was a mere delusion, as they were all found in the
custody of the Regent. The actions, I say, were immediately put into a
state of stagnation; because of the discredit cast upon the bank notes,
with which it had been usual to buy them.

4_to_, I must observe, that the stagnation of a paper which carries no
interest, is equal to a temporary annihilation. The holder then is
deprived of the use of his money; and he is not paid for the loss he

If, therefore, it had been possible to have given a new activity to this
bank paper, without allowing it to die away, as it were, in this
temporary fit of fainting, credit would have revived: all accompts would
have been kept clear, for this is the use of paper money, and so short a
shock would hardly have been felt.

But the great damage resulting to the public, upon every occasion of
this kind, proceeds from the _delay_ in applying the proper remedy. When
any paper is discredited, it immediately falls in its value. The person
then who is the original and real creditor for the whole value, and in
whose hands the paper is when it suffers the discredit, sells at
discount: this is an irretrievable loss to him; and when the paper
recovers its credit again, either in part, or on the whole, the profit
then belongs to the person who had bought it at discount, and does not
go to indemnify the real sufferer.

This was the case with respect to the notes of the French bank: they
were allowed to languish from the 21st of May that they were
discredited, until the 10th of October, when their fate was decided, as
has been said.

Farther, we have seen, that this whole movement of credit had for its
basis 80 millions a year, originally paid to the creditors for their
interest. This sum answered to the capital of 2000 millions; because at
the old King’s death, interest was fixed at 4 _per cent._

When, by the operations of the system, all this capital was turned into
money, that is, bank notes, the regorging plenty of it made interest
fall to 2 _per cent._ consequently, the capital, which constantly draws
its value from the interest paid for it, rose to 4000 millions. We have
said that the total value of the paper rose to 6000 millions; but we
must reflect, that above 2000 millions of these 6000 millions was in
bank notes, and employed in buying of actions. So that both the notes
and the actions must not be reckoned as existing together.

Had the Regent sold the actions, he would have burnt 2000 millions of
bank notes, and thus the value in paper would have remained at 4000
millions, so long as interest remained at 2 _per cent._; and had
interest fallen still lower, and dividends remained at 200 livres _per_
action, the value of actions, and consequently of this capital of 4000
millions, would have risen in proportion, just as the value of the
capital of the debts of Great Britain rises and falls according to the
rate of money; although the same sum of interest be paid to the
creditors at all times.

This augmentation, therefore, upon the value of all capitals, during the
Missisippi, of lands as well as actions, was in consequence of the fall
of interest, and from no other artifice whatever. Lands in France, at
that time, sold at 80 and 100 years purchase. [Dutot, Vol. II. p. 200.]

When credit failed, and when all the circulating paper was thrown into a
state of stagnation, interest rose, in proportion to the deficiency of
the supply for the demands of borrowers. The value of capitals then
diminished. But this might have happened from another cause, had there
been no bankruptcy, or intention to defraud the creditors: a war might
have produced it; or any circumstance which might have raised the rate
of interest.

The rise, therefore, upon capitals, from the fall of interest, I
consider here as no acquisition of wealth: I reckon wealth to be that
which is the annual produce of the capitals.

So much for the resolution of this wonderful phænomenon.

I must now shew that in the height of the distress, the confidence of
the public was still to be regained, and credit recovered, even after
the fatal _arret_ of the 21st of May 1720.

I lay it down as a principle, _that whoever has a sufficient fund, and
pays interest regularly for the money he owes, runs no risk of losing
his credit_.

So soon, therefore, as the Regent found that by his _arret_ of the 21st
of May, all credit had disappeared; had he, upon the 27th of the same
month, or at the time he raised the coin to 82 livres 10 sols _per_
marc, ordered all bank notes presented to the bank, either to be paid in
coin, or marked in the books of the bank as bearing interest at 2 _per
cent._ I say, credit would not have suffered in any comparison to what
it did. No body then would have sold a note at discount; and had it been
necessary, he might have ordered the interest to be paid monthly.

The authority I have for this opinion is Dutot, who says, that upon
opening the subscription of 25 millions in the month of June, the notes
fell in their value 11½ _per cent._ only.

Now the rate of this subscription was at 2½ _per cent._ as we have seen;
consequently, if 100 livres of notes lost but 11½ _per cent._ they were
worth 88½ livres in coin; but these 100 livres in notes were worth 2½
_per cent._ because the subscription was open at that rate: consequently
88½ livres in coin was also worth 2 livres 10 sols _per annum_:
consequently interest, at that time, was at 2.825 _per cent._ that is,
below 3 _per cent._ even after the bankruptcy.

Where then was the great harm? Where was the occasion to fly immediately
to the destruction of actions, which were in the Regent’s own hand? A
little patience, and good management, would have set all to rights.

I would, therefore, have left the notes in circulation under this
regulation, viz. that such as should be presented to the bank should
have had a transfer of 2 _per cent._ paid quarterly; or a value, in
actions, at 10,000 livres _per_ action; which is the capital answering a
dividend of 200 livres at 2 _per cent._ at the option of the holder: and
in case interest had come to fall still lower, the price of actions
might have been augmented.

I would have set before the public a full and exact account of the
company’s funds. I would have banished all mystery from the affairs of
credit. I would have registred a declaration in parliament, setting

1_mo_, That all future changes either upon the denominations of paper or
coin, were contrary to the maxims of good government.

2_do_, That all stipulations between the King and his creditors were to
be inviolable. And,

3_tio_, That the parliament of Paris should for ever remain invested
with an exclusive right to watch over those regulations in time to come;
and I would have bound the parliament by a special oath for that
purpose. I would even have had the King to take the same oath: and he
might have ratified it at his coronation in 1725.

By these steps I should have vested a new power in the Kings of France
which they never had before: a power of having money from their
subjects, from their allies, and from their enemies: a power they have
not, nor ever will have, until the principles of credit be better
understood among them.

Had such a plan been followed, I have not the least doubt, but that, 1.
The actions would have been sold at a very great advanced value above
the standard of 5000 livres, at which the Regent had bought them: 2.
That money would have come back to 2 _per cent._ and then, 3. Had banks
been established upon a proper plan, ease, with industry, would long ere
now have appeared in every corner of that kingdom.

How infinitely more easy would it have been to establish such a plan in
1720 than at present? At that time the most difficult part of the whole
was executed. The creditors had taken notes for their claims: the credit
then was given. There was nothing to be done but to support it. The
creditors were then at the mercy of the state: at present the state is
at the mercy of the creditors. Were such operations on coin to take
place at present, as were then familiar; were the King at present to
attempt to turn the constitutions of rent, perpetual and life-annuities,
into any other form than what they have, the credit of France would be
undone for a long time; and who knows what views of ambition a situation
so deplorable might not stir up in certain courts of Europe.

What state would pay its debts, if it _durst_ do otherwise? And what
state can diminish its debts in any other way than by lowering the
interest upon them? But of this more in the proper place.


                              CHAP. XXXIV.
 _How the diminishing the Denomination of the Paper in Circulation, by
the arret of the 21st of May 1720, destroyed the Credit of France, when
the same arbitrary Measures taken, with regard to the Coin, had produced
                            no such Effect._

This question is curious, and I shall endeavour to resolve it in the
best way I can, before I conclude this subject.

The first thing to be done is to point out the immediate effects which
resulted upon diminishing the denomination of the paper; because the
destruction of the credit of France was not the immediate consequence of
this _arret_; but the ultimate effect of a chain of consequences which
followed indeed very quick upon one another.

The paper had been declared, against the opinion of Mr. Law, by an
_Arret de Conseil_ of the 22d of April 1719, _une monnoie fixe_, as has
been said. Consequently, any diminution of its denomination was a plain
infraction of the public faith. From this declaration in the _arret_ of
the 22d of April 1719, the public reaped one notable advantage, which
was, that in borrowing and lending paper, every one was sure that the
obligations contracted could be dissolved by restoring the very same
species of property which had been received; but by diminishing the
denomination of it, by the _arret_ of the 21st of May 1720, all such as
were debtors, became obliged to discharge their debts at the expence of
double the sum of paper borrowed.

The immediate consequence, therefore, of touching the denomination of
the paper, was, to shew the public that their fortunes in paper were
liable to the same inconveniences as fortunes in specie; that is, that
they might be increased or diminished at pleasure. Upon this it was very
natural for every one to endeavour to realize his paper, and put it into
coin: since, _in pari casu_, it was better to have it in that which had
some intrinsic value, than in that which had none at all.

Of all the French paper, the notes were the most easily realized;
because there was contained in them a direct obligation upon the bank to
pay them in coin. The actions again were more difficult to be converted;
because in order to realize them, it was necessary to find people who
were willing to give either notes or coin for them.

A run upon the bank, therefore, taking place, upon the _arret_ of the
21st of May, it was obliged to stop payment: this occasioned a general
alarm, and _destroyed the confidence which the public had had in the
state_, which is what we mean by _public credit_.

This point explained, it remains to shew why the augmentations and
diminutions upon the specie should not have ruined the credit of the

1_mo_, The operations upon the specie affected the paper only
indirectly; but the diminution upon the paper affected it directly.

The operations upon the specie only affected that part of the paper
which was made to circulate as an equivalent for the specie; or in other
words, that part which people realized, either, 1. with an intention to
withdraw their funds altogether out of the scheme; or 2. to profit of
the operations upon the specie; or in the last place, to procure small
sums of money for common expences.

Now as to the first, the number of those who wished to withdraw their
stocks were inconsiderable, in proportion to the stock-jobbers; and
therefore their interest could not affect the general credit; and the
last was inconsiderable in every respect.

As to the second, the government made it very difficult for the
proprietors of notes to profit of the operations upon the coin. When it
was to be diminished, the diminutions were advertised some time before
they took place, and the diminution went on always by degrees. Thus
people who had paper, with which they could trade in buying actions,
constantly rising in their value, by the intrigues of the state, when at
the same time the denominations of the coin were diminishing, did not
carry their notes to the bank for two reasons.

The first, that the paper really gained by every diminution upon the
denomination of the specie, in an exact proportion to the diminution. A
livre in a bank note, while the specie was diminishing by intervals from
80 livres the marc to 65 the marc, gained regularly in the hands of the
possessor; whereas had he realized at any period but the last, the
subsequent diminutions upon the specie he had acquired with his paper
would have affected the value of it.

The second was, that by realizing he deprived himself of the profit of

The only way, therefore, for the proprietors of the paper to gain by the
operations of the state upon the coin, was to guess the time when the
coin was to be raised in its value: but this was impossible; for the
rising was sudden and unexpected; whereas notice was constantly given of
the fall, at some distance of time.

For example, the money was suddenly raised the 5th of March 1720, from
60 livres to 80 livres the marc; and the 11th of the same month, notice
was given, that on the 1st of April following, it was to be brought down
again to 70 livres _per_ marc; and on the first of May following, to 65
livres. The consequence of this was, that from the 11th of March, people
were glad to carry money to the bank for notes, which were to stand at
the same denomination, whereas the silver was to diminish on the 1st of

Accordingly a great sum, above 44 millions, was brought in during this

When the 1st of April came, and that the silver was brought to 70 livres
the marc, those who were in possession of the paper, were still
prevented from realizing; because of the future diminution which was to
take place. When this term was come, people had reason to imagine that
the silver would for some time stand at 65 livres the marc;
consequently, there was more to be gained in stock-jobbing with the
notes, than in realizing them in specie, which, in order to make profit
of it, must have lain dead until a new augmentation; which was a very
uncertain event. In short, there was no run upon the bank from the 1st
to the 21st of the month of May, when the famous _arret_ in question was
given. Then indeed the run came on with violence, and payment was stopt.

2_do_, The second reason why the effects were different when the state
changed the denomination of the coin, from what they proved to be when
the denomination of the paper was changed, I take to be this,

That in France the operations upon the coin had been familiar; and were
expected by every body: and, perhaps, the very making the paper a
_monnoie fixe_, had for this reason added to the credit of it. A most
surprizing thing! The state took care always to gain, whether they
raised, or whether they diminished the value of the coin. The
stock-jobbers, therefore, never minded the coin at all. If they could
profit by an augmentation by foreseeing it, they realized; if they could
see a diminution before notice was given of it, then they bought paper.

The operations on the coin principally affected such as were either
respectively debtors or creditors, to people who were obliged to pay, or
to receive their debts in specie; or who had a fixed revenue specified
in a number of livres. There the disorder was great, as has been
frequently observed.

3_tio_, The operations upon the specie never could destroy the intrinsic
value of it, however they might prevent the circulation of it for a
fixed legal denomination; therefore it remained under all combinations
of circumstances, a thing valuable to be acquired; and it still remained
a commodity, desireable by all, and was therefore constantly demanded.

But a discredit cast upon the paper had a different effect. The value
_there_ depended entirely upon the will of the state, and every body saw
that it was as easy to annihilate it, as to reduce it to one half. The
discredit, therefore, had the effect of stopping _the demand for it_,
that is, the currency; consequently, a run upon the bank immediately
took place.

4_to_, The rendring the value of the paper precarious, made every
possessor of it seek to realize it without delay. The proprietors of the
bank notes ran to the bank; and a run upon the bank, at a time when it
could offer payment for the notes in no other value than actions, was a
declaration of bankruptcy. Now it was the run upon the bank; it was this
claim which the subjects had a right to make upon the bank, for which
the King was guarantee, which destroyed the credit of France; and it is
very evident that no operation upon the specie could possibly produce
any such effect[19].

Footnote 19:

  It was a capital mistake in this diminution upon the paper to make it
  gradual. Was it not evident that every mortal would seek to realize a
  note which was to diminish in its value progressively every month? A
  note worth 10,000 livres, for example, the 22d of May, was immediately
  reduced to 8000 livres, and the 1st of July, was to be worth only
  7500. This was plainly solliciting a run upon the bank. The stroke
  should have been struck at once.

In short, had this operation upon the paper been suspended for a few
months; had the people of France been indulged in a little more time,
their infatuation in favour of the actions would have carried them to
employ all their bank notes in the purchase of those which remained in
the hands of the state. By this operation the far greater part of the
notes might have been withdrawn and destroyed, and when the bank found
themselves in a situation to answer the call of all those which
afterwards remained in circulation, then the state might have boldly
ventured to diminish the price of actions: because if that stop had
occasioned a run upon the bank for the outstanding notes, there would
have been coin enough to answer them at their full value; and this would
have confirmed the credit of the bank more than any thing.


                              CHAP. XXXV.
  _How a Bank may be safely established in France, as Matters stand at

The prerogative of the Kings of France is limited by no written law,
because he is acknowledged to be the legislature of his kingdom; and the
exercise of his power is only limited by maxims of state. The first of
which is, that he is to govern according to his laws, and not according
to his ambulatory will.

Now, in making of laws, the parliament have a sort of negative, _de
facto_; because the whole regular and legal execution of every law is
committed to them: and if they refuse to register it, they refuse to
execute it; and a law without _execution_ is, in fact, no law at all.

When the King’s will can be carried into execution by a single act of
power, the authority of parliament is of no effect in preventing it.
When this requires a train of systematical administrations, the
concurrence of parliament, who hold the whole regular execution of the
laws, is absolutely necessary.

Banks of deposit and of circulation, stand, it must be confessed, upon a
very precarious footing, under such a government.

An order from the King is at any time sufficient to command any deposit
of specie which can be made within the kingdom. While this is the case,
no paper can have any solidity, which draws its security from such

Coin, therefore, must be banished from all banks in France: and the use
of them should be entirely limited to that of an office, for the keeping
of reckonings between people who have solid property, and who may want,
on a thousand occasions, to melt it down in favour of consumption,
trade, industry, agriculture, or the like.

In this light, a general bank may be established at Paris; and branched
out over the whole kingdom. The stock of it should consist in land
property, engaged unalienably, to make good the engagements of the bank.

Notes should be issued upon solid security, bearing no interest while
they circulate as money; and when they return upon the bank, either the
original securities may be withdrawn, or payments might be made by the
transfer of a corresponding perpetual interest.

Every province, every considerable city in the kingdom, should be
allowed to be interested in such a bank: and in every considerable city,
there should be an office for transacting such credits, and for
regularly receiving all payments of interest. If the King should think
fit to allow his mint to supply coin, or bullion, for bank notes
presented, at a determinate premium, he might by this operation advance
the commercial interests of his kingdom, in facilitating the payments of
a wrong balance of foreign commerce: but without that regulation, the
bank will be perfectly sufficient for promoting and supporting domestic
circulation. Every one who is able to give security for a certain
interest, will be sure to find money: and as the expence of conducting
such a bank will be very small, the interest for money will be very low.

As I said before, a bank of this kind would be no more than an office,
appointed for keeping accounts between people who are possessed of any
paper secured upon real and solid property: and farther, in the
beginning, at least, I would not advise to carry it.

The general accompt of the bank would appear in a few articles, viz.
Credits given, so much; _inde_ of interest to be received, so much.

Notes returned, so much; _inde_ of interest to be paid, so much; balance
in favour of the bank, so much.

A bank of this nature would answer every purpose for promoting industry
and domestic circulation.

Such a bank must neither issue, or ever receive coin in payment.


                              CHAP. XXXVI.
                  _Of Banks of deposit and transfer._

I now dismiss the subject of banks of circulation. The unspeakable
advantages drawn from this institution, when properly regulated, in
supplying money at all times to those who have property, for the
encouragement of industry, and for improvements of all sorts, and the
bad consequences which result to society, from the abuse they are
exposed to, has engaged me, perhaps, in too long a discussion of
particular combinations of circumstances relating to them.

I now come to treat of banks of deposit or of transfer of credit: an
institution of the greatest utility for commerce.

These two species of banks differ essentially in two particulars.

1_mo_, That those of circulation serve the purpose of melting down
unwieldy property into money; and of preserving the quantity of it at
the proportion of the uses found for it. Those of deposit, are
calculated to preserve a sum of coin, or a quantity of precious
moveables, as a fund for carrying on the circulation of payments, with a
proportional value of credit or paper money secured upon them.

2_do_, In the banks of circulation, the fund upon which the credit is
built, is not _corporeally_ in the custody of the bank; in the other it

The fundamental principle, then, of banks of deposit, is the faithful
preservation of the fund delivered to the bank, upon which credit, in
money, is taken for the value.

If at any time a bank of deposit should lend, or should, in any wise,
dispose of any part of this fund, which may consist of coin, bullion, or
any other precious moveable, once delivered to them, to the end that a
credit in money may be writ down for it in their books of transfer, in
favour of the depositor, and his assigns; by that act, the bank departs
from the principles upon which it is established. And if any bank is
established which, by their regulations, may so dispose of the fund of
their credit, then such a bank becomes of a mixed nature, and
participates of that of a bank of circulation.

These things will be better understood by reasoning from an example of a
true bank of deposit.


                             CHAP. XXXVII.
                      _Of the Bank of Amsterdam._

Many authors have written concerning this great bank of deposit:
particularly, Davenant, Sir William Temple, Ricard, in his _Traité de
Commerce revu par Struyk_, the author of the _Essay sur le Commerce_,
and Mr. Megens, in his book, which has been translated into English,
under the title of _The Universal Merchant_.

In these authors we find a number of facts, which I shall combine with
my own informations, and here apply principles to them; in order to
communicate a distinct idea of this establishment. A detail of its
particular operations regards practice, and falls not within my subject.

The original intention of the States of Holland, in establishing the
bank of Amsterdam, was to collect a large capital in coin within that
city, which might there perpetually remain, buried in a safe repository
for the purposes which we are now to explain.

In order to accomplish this plan, they established the bank upon the
31st day of January 1609.

The method they fell upon to collect the coin, was to order, that all
bills of exchange, for any sum exceeding 300 florins, should be paid in
specie to the bank; and that the holder of such bills should, instead of
receiving the coin, have the value of it writ down in the books of the
bank to his credit, at his command, to be transferred to any person he
should appoint; but never more to be demandable from the bank in specie.

By this operation, the mass of coin circulating constantly from hand to
hand, between the merchants of Amsterdam, began, by degrees, to be
heaped up in the bank; and as the heap augmented, so did the sum of
credit augment upon the books of the bank.

It is evident, from this change in the mode of circulation, that no loss
could be incurred from the locking up of the coin.

As long as coin is in a state of constant circulation, it can produce no
interest to any person. Interest commences from the moment the coin
begins to stagnate; that is to say, so soon as it comes into the hands
of one who has no ready money demand upon him. When this happens the
proprietor lends it at interest.

Now the credit in the books of the bank, which is every day transferable
at the bank, answers every purpose of coin, either for _payment_ or
_loan_: and the proprietor has neither the trouble of receiving the
species, nor any risk from robbery, or false coin.

The first advantage the city reaped from this institution, was, to
secure the residence of trade in that place.

Capitals transferable only at the bank, laid the proprietors under a
necessity of fixing their dwelling where their funds were, and where
only they could be turned to accompt.

It had another excellent effect in commerce: it pointed out the men of
substance. A credit in bank is no wise equivocal: it is a fund of
undoubted security.

From the constitution of this bank we may form an estimate of the extent
of the deposit.

It can only swallow up a sum equal to what is necessary for circulating
the payments of the city of Amsterdam. Were a sum exceeding that to be
shut up in the bank, and were the credits written in the books of the
bank to exceed that proportion, it is plain, that the value of the bank
money would sink immediately. The reason is obvious: the credits
transferable are of no use to those who have no occasion to transfer;
that is, to pay, lend, or exchange at Amsterdam. So soon, then, as all
the demand of Amsterdam is satisfied, the proprietors of the overplus
will seek to realize their superfluous credit, in order to invest the
value arising from it, in some other place where a demand may arise.

In order to realize, they must sell their bank credit for coin; because
the bank pays only in transfer. Coin then would be demanded preferably
to credit in bank; consequently, coin would rise in its proportional
value to bank money, or bank money would lose, which is the same thing.
This fluctuation between bank money and coin, leads me to explain what
is called the agio of the bank.


                             CHAP. XXXVIII.
                _Of the Agio of the Bank of Amsterdam._

We have pointed out one motive for establishing a bank of deposit at
Amsterdam, viz. that of fixing the residence of trading men in that

Another was, to prevent the inconveniencies to which a small state was
exposed, by the introduction of bad coin, from all the neighbouring
countries in Europe, with whom they traded.

In the territory of Holland there are no mines of gold and silver;
consequently all they have comes from other countries, as the return of
a favourable balance upon their commerce.

At the time the bank was established, the republic was in a state of
infancy; and any coin they had, was that of their old masters the
Spaniards. This was unequally coined; many pieces were light; many had
been clipped and washed. As they extended their traffic, they were
obliged to receive great quantities from Germany, which was still worse.

In order then to prevent the circulation of such coin, and the
perplexities occasioned by it in all accounts, they established a bank,
and fixed the standard upon a silver coin called the ducatoon, to which
they gave the denomination of 3 florins or guilders bank money.

But as this coin also was unequal, like all the rest of the specie in
Europe, before the introduction of milled coin, and the policy of
weighing piece by piece at the mint, the bank appointed the ducatoons to
be received in bags of 200 pieces, weighing together 26 marcs 5 ounces
10 engles of Amsterdam troes, or gold weight; which being reduced to
aces, (the lowest denomination in this weight) make 136,640 aces. This
divided by 200, gives, for the weight of 1 ducatoon, 683.2 aces.

Let us now convert these aces into troy grains, according to the
proportion established between Dutch aces and troy grains, in the last
chapter of the third book.

The equation will stand thus,

5192.8 aces, being equal to 3840 troy-grains, 683.2 aces, therefore,
will equal 505.21 troy-grains; which, consequently, is the weight of a
ducatoon, or of 3 florins bank money of Amsterdam.

Next as to the fineness of this coin:

The ducatoon was coined, according to the imperial standard, of 14 loots
16 grains fine: that is to say, it is 268⁄288 parts fine, and 20⁄288
parts alloy.

To find, therefore, the number of Hollands aces, and of troy grains of
fine silver in the ducatoon, state the two following proportions:

             288 : 268 :: 683.25 : 635.75 aces fine.
             288 : 268 :: 505.21 : 470.13 troy-grains fine.

In the last place, if we divide the number of aces, and troy grains fine
in the ducatoon, by 3, we shall see the exact weight of fine silver in 1
florin of Amsterdam bank money.

    635.75⁄3 = 211.91 aces, and 470.13⁄3 = 156.71 troy-grains fine.

These calculations premised, it would be an easy thing to fix the exact
par of the metals, between sterling and bank money of Amsterdam, were
the British coin of legal weight, and were the metals there rightly
proportioned. But is it to be supposed, that any person who has bank
money of Amsterdam, would exchange, at the par of the metals, with
sterling silver, which is many _per cent._ too light, or against English
bank notes paid in gold, always overrated with regard to the silver, and
often too light also?

While, therefore, the coin of Great Britain stands upon the present
footing, all calculations of the par of exchange, as it is commonly
computed, upon the intrinsic value of the coins of other nations, must
be delusive and of no utility whatever.

For the sake of giving an example, however, here is the real par of the
two currencies, upon silver sterling coin of full weight.

One pound sterling should contain, as has been said, of fine silver
1718.7 troy grains, and contains 240 pence sterling: state, therefore,
the following proportion, and you will find how many pence sterling one
florin of Amsterdam banco should be worth.

                    1718.7 : 240 :: 156.71 : 21.883.

Thus 21.883 pence sterling is exactly the real par of an Amsterdam
florin banco, supposing sterling money to be silver, at the full weight.

The florin bank money being regulated upon the ducatoon, an old species
not now coined, the fineness of the silver was determined; and the
weight of the 200 ducatoons being determined also, this regulation
determined the weight of single pieces, and fixed the standard of the
florin banco, in weight and fineness.

The current money in Holland, coined by the state, is the florin of
200.21 aces fine, as we have seen in the last chapter of the preceding

So soon as the state coined their current florins at 200.21 aces, it is
evident, that the ducatoon, which contains three times 211.91 aces, must
rise in its value. Accordingly, the piece which was in bank money, 3
florins, became 3 florins 3 stivers current money.

This difference is what is called the agio of the bank of Amsterdam.

From this it appears, that the advanced value of the bank money above
the current money of Holland, is not owing to the great credit of the
bank, as some imagine, but to the superior intrinsic value of the coin
upon which the standard of the bank money is fixed.

Let us next determine the exact difference between the bank and the
current money, which difference I shall call the _intrinsic agio_: for
this purpose state this proportion;

                    200.21 : 211.91 :: 100 : 105.84

From which it appears, that the bank money is 5.84 _per cent._
intrinsically better than the current money of Holland.

We have seen in the chapter referred to, in what a confused state the
Dutch coin is at present, and how it becomes a science to comprehend any
thing concerning it. For this reason it is, that the regular agio of the
bank money of Amsterdam is always supposed to be 5 _per cent._ Farther,

The ducatoon, upon which it is regulated, passes for 3 florins 3
stivers, which is just 5 _per cent._ better than 3 florins, at which it
was rated when the bank was established; but most of the coins which
circulate are light.

Those who conduct the affairs of the bank, have now lost sight of this
original coin, which is rarely found circulating, in considerable sums;
and they consider the florin according to its intrinsic worth of 211.91
aces of fine silver; and as the value of silver varies, they publish
regulations for receiving coin, such as Spanish dollars, French crowns,
&c. according as they find the proportion of their worth in bank money:
and compounding the value of gold with the value of silver, they make
the same regulations as to gold.

I have insisted too long already upon the subtilties of the variations
in the proportion between gold and silver, to take it up again in this
place. My intention is to explain the principles upon which this great
bank of deposit is established, and not to descend into a detail of the
mechanism of their adapting the variable coins of Europe to their own

I have said, that the sum of credit, written in the books of the bank,
is in proportion to the quantity of bank money necessary for circulating
the trade of Amsterdam.

Consequently, as this circulation increases, the demand for bank money
increases also.

Again; in proportion as the demand for bank money increases, the agio
rises; and on the other hand, as the demand for current money increases,
the agio falls.

Thus we saw in the last war, _ann._ 1760, 1761, 1762, that agio was
below 5 _per cent._ The reason was plain. The great circulation carried
on in Amsterdam was considerably directed towards the uses of the war.
_There_ bank money was of no use; coin only could serve the purpose.
Accordingly agio fell to —— _per cent._ and as gold was much more easily
transported than silver, that metal rose ¼ _per cent._ above the
ordinary proportion of 1 to 14½.

Demand regulates every thing; and this demand makes the agio fluctuate;
sometimes rising above, and sometimes falling bellow 5 _per cent._


                              CHAP. XXXIX.
  _Continuation of the same Subject; and concerning the Circulation of
                  Coin through the Bank of Amsterdam._

Hitherto we have represented this bank as a gulf, which is calculated to
swallow up the coin of Europe; without having pointed out any faculty of
throwing up a part of the treasure so secured, in case of an overcharge.

This has appeared a mystery to many, and a defect in the constitution of
the bank.

But when the principles upon which it is established come to be compared
with some branches of their administration, which are publicly known,
perhaps the mysterious part may be unravelled. And although I do not
pretend to give an entire satisfaction as to every minute particular, I
think I can shew how, and to what extent, the treasure may circulate, so
as to occasion no abuse, either from the hoarding it on one hand, or
from the dissipation of it, for the service of the state, on the other:
and if all these conjectures shall be found to hang together, and appear
consistent with principles, without being contradicted by any known
fact, then I may conclude, that such a system of banking as I describe,
is at least a possible supposition, whether it exactly coincides with
that of Amsterdam, or not. And who knows but my speculations may enable
some person of more knowlege and more sagacity than I am possessed of,
to render this curious operation of credit still more generally
understood than hitherto it has been.

I have shewn how the agio rises and falls, according to the demand for
bank money.

So long, therefore, as the agio does not fall below the difference
between the value of the two currencies, it is a proof that all the
credit writ in the books of the bank does not exceed the uses for it:
consequently, the coin locked up, which never can exceed the credit on
the transfer books, and which, were it not locked up, could be of no
more service than the credit itself, in circulating the trade of
Amsterdam, does not exceed its due proportion: consequently, it is not
hurtfully withdrawn from commerce; consequently, no abuse is implied
from the hoarding of it.

But let me suppose a case, which may happen; to wit, that for a certain
time, the trade of Amsterdam may demand a larger supply of credit in
bank, than is necessary upon an average. Will not this raise the agio?
No doubt. If the agio rises so high as to afford a premium upon carrying
coin to the bank, upon the footing of their own regulations, this will
augment the sum of bank credit; because the money so carried to the
bank, becomes incorporated with the bank stock; the value is writ in the
books of the bank; and when this is done, the coin is locked up for

If then it should happen, that the trade of Amsterdam should afterwards
diminish, so as to return to the ordinary standard, will not this
overcharge of credit depress the rate of bank money, and sink the agio
too much below the par of the intrinsic value of the two currencies?

To these difficulties I answer, like one who, being ignorant of facts,
which I never could get ascertained by any person in Holland to whom I
had access for information, and which remained hid from most people in
the deep arcana of Amsterdam politics, must have recourse to
conjectures, founded upon natural sagacity.

First then, The city of Amsterdam knows, from long experience, the rate
of demand for bank money; and it is not to be supposed, that upon any
sudden emergency, which may _heighten_ that demand for a time, they
should be such novices as to increase the credit upon their books so
far, as to run any risk of overstocking the market with it; especially
as, on such occasions, the deficiency of bank credit might be supplied
with coin, constantly to be found in the city of Amsterdam, as we shall
explain presently.

Farther, Who will say, that there does not reside a power in the
managers of this bank, to issue coin for the superfluous credit, in case
that, in spite of all precautions to prevent it, a redundancy of bank
credit should at any time be found upon their books?

It is very true, that no person, having credit in bank, can demand coin
for such credit; and as no demand of that sort can ever be made, it is
very natural to suppose, that a redundancy of coin and credit can never
be purged off.

During my stay in Holland, I was at great pains, to no purpose, to
discover whether ever the bank issued any part of their credit cash upon
any such occasions. Every one I conversed with was of opinion, that if
ever any coin had been taken from the treasure of the bank, it must have
been by authority of the states, for national purposes: a step conducted
with the greatest secrecy; and the matter of fact, I found, was
extremely doubtful. But this is nothing to the present purpose. That the
coin may be disposed of, I allow, though I do not believe it; but how is
the superfluous credit, writ in the books, to be disposed of? There lies
the difficulty.

The popular opinion is, that coin has been taken out for the service of
the state: the opinion of many intelligent men is quite contrary.

I am now to give my opinion, not only as to this point, but upon the
main question; and this not from information, but from conjecture; which
I shall humbly submit to the better judgment of my reader.

My opinion then is, 1_mo_, That every shilling written in the books of
the bank, is actually locked up, in coin, in the bank repositories.

2_do_, That although, by the regulations of the bank, no coin can be
issued to any person who demands it in consequence of his credit in
bank; yet I have not the least doubt, but _that both the credit written
in the books of the bank, and the cash in their repositories which
balances it, may suffer alternate augmentations and diminutions,
according to the greater or less demand for bank money_. If I can prove
this, all difficulties will be removed.

My reasons for being of this opinion are,

1_mo_, From principles, I must conclude, that if, upon any occasion
whatever, even when the smallest demand for bank money, and the greatest
demand for coin takes place, there was an impossibility of producing the
least diminution of bank credit, or of procuring any supply of the
metals from the bank, the consequence certainly would be felt, by an
extraordinary fall in the value of bank money; or which is the same
thing, in other words, by an extraordinary rise in the value of the
metals, when compared with bank money.

Now, this is a case which never happens. Variations upon the rate of
agio, of 2 or 3 _per cent._ perhaps more, are frequent and familiar. The
demands of trade, for coin or credit, are so fluctuating, that such
variations are unavoidable; but were there an overcharge of bank credit,
which no power could diminish, that overcharge would quickly be
perceived; because the fluctuations of the agio would entirely cease; as
the balance of a scale, nearly in equilibrio, ceases from a total
overcharge on one side.

2_do_, My second reason is founded upon a matter of fact, which I must
now apply.

There are upon the square before the town-house of Amsterdam, (the place
de Dam) between 10 and 11 in the morning, a number of cashiers, whose
business it is to buy and sell bank credit, for current coin. They
bargain with all those who have occasion either to buy or sell; and
according to the demand for specie, or bank credit, the agio rises or
sinks: and as these cashiers must constantly gain, whether they furnish
bank credit or current coin, since they are never the demanders in
either operation, it is commonly found, that there is in their favour
about 1⁄16 _per cent._ or perhaps ⅛ _per cent._ according to the
revolutions in the demand: that is to say, one who would first buy
specie, and then sell it, would lose ⅛, or perhaps but 1⁄16 upon his

From this circumstance of buying and selling of bank credit with coin,
and _vice versa_, I think I can resolve the mystery mentioned above,
viz. how the constant accumulation of coin in the bank of Amsterdam,
should never have the effect of depreciating their bank money, by
augmenting, beyond the demand for it, the quantity of their deposit, and
of the credit written in their books.

It is a matter of fact, that the bank lends both coin and credit to the
brokers, cashiers, or lombards, who are constantly found on the place de

Whenever, therefore, the bank finds that agio falls too low, with
respect to the coin; and when, in consequence of that, the demand for
coin _increases_; then they lend _coin_ out of their repositories to the
brokers; and when it _rises_, they lend _credit_.

This coin the brokers dispose of to those who have bank money, and who
want to convert it into coin. They sell the coin for bank credit: the
purchaser writes off the transfer in favour of the broker, and he again
repays the value of the coin to the bank, by transferring the credit he
obtained for the coin, in favour of the bank.

This done, the bank may expunge this credit from their books; by which
means their deposit of coin is diminished, and also the sum of credit
which was found superfluous.

If, on the other hand, the circulation of the trade of the city should,
in a short time afterwards, begin to increase, those who have coin,
which in that case would not so well serve the uses of circulation as
the bank credit, come with it to the brokers, who sell them bank credit
for it; this coin the brokers deliver to the bank, which writes off the
credit lent to the broker, in favour of him who has paid his coin for

This is, as far as I can guess, the nature of the circulation of the
coin in the bank of Amsterdam.

It is a curious method of preserving an exact proportion between the
coin in deposit, the credit written in their books of transfer, and the
demand for bank money.

The plan is quite consistent with principles, and checks exactly with
those matters of fact which are known to all the world. Whether the
operation be conducted exactly in the way I have represented it, or not,
is a matter of small consequence to us, who aim at nothing more than the
investigation _of the principles_ upon which such operations _may_ be

When we compare this operation with those of the bank of circulation,
which we have already explained, we find a great analogy between them.

We have seen how the notes issued by banks of circulation increase and
diminish according to demand: and now we see how the same principle
operates in banks of deposit, which issue no coin on demand. In the
first case, the mass of securities, or coin of the bank, is diminished,
without the consent of the bank, by the act of their creditors; that is,
the holders of the notes. In the last case, the creditors, or persons
who have credit in bank, cannot, by their own act, diminish the quantity
of the coin deposited, nor of the credit written; but the bank itself,
by the help of those interposed persons, the brokers on the place de
Dam, is enabled to preserve an exact balance between bank money and the
demand for it; augmenting it as it is demanded, and diminishing it when
it is found to regorge.

From this I conclude, that the treasure of the bank of Amsterdam is not
near so great as some authors, from mere conjecture, have asserted.

The author of the Essay on commerce, reckons it at four hundred millions
of guilders; and the Amsterdam edition carries in the margin a
correction, which gives us to understand, that it amounts to between
eight and nine hundred millions. Davenant esteems it at 36 millions
sterling. Mr. Megens, an author of great judgment and sagacity, esteems
this treasure at no more than about 60 millions of guilders, or about
5,500,000_l._ sterling; a sum (says he) wherewith great things may be
done. Univers. Merchant, sect. 61. I agree entirely with him, that for
the ready-money demands of the trade of Amsterdam, that sum, constantly
in circulation, may go a great length.

What has misled most people in their estimation of this treasure, is the
appearance of a constant accumulation, without any restitution: but that
there is a constant egress, as well as ingress of coin to this bank, I
think I have rendred pretty evident.

Besides the permanent credit written in the books of transfer,
concerning which we have been speaking, the bank of Amsterdam receives,
in deposit, vast sums of coin every year, which are not incorporated
with the bank treasure, but remain in the bags in which they are
delivered, under the joint seals of the bank and of the person who
delivers them.

This operation comes next to be explained.

The trade of Holland draws a constant flux of coin and bullion into the
country; and that trade sends a constant flux out of it. The
establishment of the bank of Amsterdam renders the use of this coin and
bullion, upon many occasions, superfluous, as money.

It therefore remains as a commodity, the value of which rises according
to exigencies, or the demand for it.

When the precious metals come from Spain, Portugal, and other nations,
who owe a balance to the Dutch, they are lodged in the bank of Amsterdam
in the following manner.

The proprietors carry them to the bank in sacs composed of a determinate
number of pieces, and the sac must be of a determinate weight, according
to the regulations of the bank, from time to time; for which the bank
writes off credit in bank, at certain rates, according to the coin
lodged, to the account of the proprietor.

But as this coin is received, upon condition that it may be drawn out
again, so soon as the depositor shall demand it; instead of writing off
the _whole value_ upon the books of the bank, they only write off a
_certain part_, (suppose 90 _per cent._) and for the remaining 10 _per
cent._ they deliver what they call a _recipisse_, which is an obligation
by the bank to re-deliver, upon demand, the individual sacs, sealed with
the seals of the bank and of the depositor. This _recipisse_ is
transferable at the will of the person to whom it is delivered. Farther,

He who has put his coin so in deposit, becomes bound to pay to the bank
½, ¼, or ⅛_per cent._ every six months, according to the coin: that is,
upon gold ½ _per cent._ on pieces of eight and rix-dollars ¼; on
ducatoons ⅛ _per cent._ and in case he neglects so to do, then the coin
becomes consolidated with the treasure of the bank, and can no more be
drawn out, in virtue of the _recipisse_.

This being performed, the depositor may transfer, at will, all the 90
_per cent._ of his credit, in the course of his business; and so soon as
the _value of coin_ rises in the market, he must fill up his credit in
bank to the full value of the 90 _per cent._ and then presenting his
_recipisse_, he receives back his own individual coin, sealed with his
own seal, as when at first delivered.

If he finds that it is either inconvenient for him to fill up his
credit, or that he has no occasion for his coin, upon the rise in its
value, he may then sell his _recipisse_ to another, who has credit in
bank equal to the value of the deposit; and he, in virtue of the
_recipisse_ transferred to him, withdraws the coin, as the person might
have done who put it in deposit.

The _recipisse_ itself, which is what gives a right to the coin to any
one who is the proprietor of that paper, and who has credit in bank for
the sum contained in it, rises and sinks in its value, according to the
price of the coin to which it carries a right.

In this manner coin, which otherwise would be dead in a warehouse, is
made to circulate, in favour of the owner, during the deposit, remaining
at the same time always at his command; and the keeping of the coin
brings into the bank a small profit, but which, by constant
accumulation, becomes considerable.

I have said above, that the bank of Amsterdam puts forth, from time to
time, what regulations they think fit, as to the rate at which they
receive the different species of coin. These regulations are formed
according to the fluctuation of the value of the metals. When silver
rises above the proportion it had before, with respect to gold, then the
silver species is received at a higher rate than formerly. When gold
rises in proportion to silver, then the gold coins are received at a
higher rate than formerly.

This regulation produces the same effect as that, which I formerly
recommended in the third book, would do, in fixing a standard for the
unit of the money of Great Britain, according to the mean proportion of
the metals: and it was for this reason, that [Book III. part I. chap.
1.] I asserted the bank money of Amsterdam to be an invariable unit,
which the art of man had invented; that it stood like a rock in the sea,
immoveable by the fluctuating proportion between the metals.

It is no objection against this, to allege the variation of the agio,
and the fluctuation of the value of bank money according to demand.
These variations ought to be referred to the coin, not to the bank
money: the bank money is to be considered as fixed, because it has all
the characters of invariability.

If, indeed, the affairs of the bank came to be ill administred, and that
the credit written in the bank were allowed to swell so far beyond the
demand for it, as to sink the value of bank money so far below the rate
of coin as to make it impossible to recover itself; then I should allow
that the bank money was no longer an invariable standard: but in this
case, I should consider the bank as in a kind of political disease,
because it would then be withdrawn from under the influence of its own
principles, which hitherto has never been the case.

It has been imagined by many, that the treasure of the bank of Amsterdam
has been, upon certain occasions, made use of for the public service.
This is a conjecture merely; and perhaps it has been owing to the
opinion which commonly prevails, that the treasure far exceeds all the
uses which it can serve for. But as I am persuaded, 1_mo_, That this
opinion is void of all foundation; 2_do_, That the treasure never can
exceed the credits written; and, 3_tio_, That the credits never can
exceed the uses those merchants have for them: so I am of opinion, that
a value, in coin, to the full extent of those credits, actually exists
in the repositories of the bank; because if I should suppose the
contrary, it would imply a notorious infidelity in the bank
administration: an infidelity, which, if ever it should be discovered,
would overturn the whole credit of the bank, and, at one stroke, destroy
the whole trade of that city. Now the use of three or four millions
sterling, to the states of Holland, which they can procure when they
will, at a very moderate interest, is not an object in the eyes of that
sagacious government, sufficient to engage them to tamper with the bank
treasure: and the rather, that were they driven to the necessity of
having recourse to the bank, I make not the least doubt but that so
great a company would be of more service to the state in writing off
upon an occasion a _temporary, untransferable credit at interest_, which
might afterwards be expunged, in order to procure coin within the
country, than by delivering the coin corresponding to the credit of
private merchants, which they must look upon as a most sacred deposit.

If we compare the credit of the bank of Amsterdam, with the credit of
the bank of England, we shall find the first infinitely inferior to the
latter as to extent, though not one bit inferior with respect to the
solidity of it.

The extent of the credit of the bank of Amsterdam is limited to the sum
of the credits written in their books, either in permanent transfer, as
I shall call it, or in credit on cash deposited upon _recipisse_. All
this credit put together, cannot extend beyond the limits of the
circulation of the city of Amsterdam, in their domestic dealings, and in
their exchange business; which last is indeed very great.

But the credit of the bank of England is equal (in a manner) to all the
circulation and exchange business of London, and all the taxes paid in
Great Britain. This bank, in circulating its paper, is not limited to
the weight of coin in England. The whole interest of the national debt,
and expence of the state, may be paid in the paper of the bank, and be
perfectly well secured, although their treasure in coin may seldom
amount to above four millions sterling.

We must however allow, that banks of circulation, when ill conducted,
are liable to great abuse; as has been abundantly explained in treating
of the Missisippi. But how is abuse to be prevented, while men conduct?
And disasters may happen to a bank of deposit, to which the other is not
so much exposed. May not the treasure of the bank of Amsterdam be lent
out on bad security? May not the state lay hold of it? May not an
earthquake swallow up the stadthouse? May not the sea break in, and
demolish it? May not another invader, like the late King of France, in
1672, be more successful, and carry off the bank?

These are abuses and calamities to which the bank of Amsterdam is
exposed; and from many of which the bank of England is in a great
measure protected.

Besides the banks I have mentioned, not so much with a view to give an
historical account of their operations, as to illustrate the principles
on which they are established, there are many others in Europe of great
and extensive credit; such as that of Hamburg, Venice, Genoa (until the
state spent the treasure deposited) Nuremberg, &c. Every one of these
participate more of the nature of that of Amsterdam, than of those in
Great Britain. They are more calculated for preserving the standard of
their bank money, against the adulterations of coin, and for providing a
fund of cash, transferable in bank credit, than for the assistance of
government, or the melting down of solid property, which are the great
advantages peculiar to _banks of circulation_.

These last are also infinitely more lucrative to the bankers than those
of deposit, from the interest they draw from credits given, discount of
bills, and loans to government.

The profits on the bank of Amsterdam are very trifling. They are
confined to the small emoluments of 2 stivers for every transfer;
besides the interest they draw from the brokers on the place _de Dam_,
for the coin and credit they furnish them with; and, in the last place,
the ½, ¼, or ⅛ _per cent._ every six months, for the coin deposited, in
order to be afterwards drawn out. But on the other hand, they are freed
from the enormous expence of providing coin for the payment of foreign
balances, and from the great detail of business which the circulation of
paper implies.

                        END OF THE SECOND PART.





                                INTO THE



                    BOOK IV. | OF CREDIT AND DEBTS.

                               PART III.
                              OF EXCHANGE.


                                CHAP. I.
                 _Of the first Principles of Exchange._

Having ended what I had to say of banks, in which most of the principles
of private credit have been sufficiently deduced, I now proceed to the
doctrine of exchange, which is the principal operation of mercantile

The security which merchants commonly take from one another when they
circulate their business, is a bill of exchange, or a note of hand:
these are looked upon as payment. When they give credit to one another
in account, or otherwise, the cause of confidence is of a mixed nature;
established partly upon the security of their effects, partly on the
capacity, integrity, and good fortune, of the person to whom the credit
is given.

No man but a merchant has any idea of the extent and nature of this kind
of credit. It is a thing to be felt, but cannot be reduced to
principles; and merchants themselves can lay down no certain rules
concerning it. It is an operation which totally depends upon their own

But when they deal by bills of exchange, the case is very different. The
punctuality of acquitting those obligations is essential to commerce;
and no sooner is a merchant’s accepted bill protested, than he is
considered as a bankrupt. For this reason, the laws of most nations have
given very extraordinary privileges to bills of exchange. The security
of trade is essential to every society; and were the claims of merchants
to linger under the formalities of courts of law, when liquidated by
bills of exchange, faith, confidence, and punctuality, would quickly
disappear; and the great engine of commerce would be totally destroyed.

A regular bill of exchange is a mercantile contract, in which four
persons are concerned, viz. 1. The drawer, who receives the value: 2.
His debtor in a distant place, upon whom the bill is drawn, and who must
accept and pay it: 3. The person who gives value for the bill, to whose
order it is to be paid: and 4. The person to whom it is ordered to be
paid, creditor to the third.

By this operation, reciprocal debts, due in two distant parts, are paid
by a sort of transfer, or permutation of debtors and creditors.

(A) in London, is creditor to (B) in Paris, value 100_l._ (C) again in
London, is debtor to (D) in Paris for a like sum. By the operation of
the bill of exchange, the London creditor is paid by the London debtor,
and the Paris creditor is paid by the Paris debtor; consequently, the
two debts are paid, and no money is sent from London to Paris, nor from
Paris to London.

In this example, (A) is the drawer, (B) is the accepter, (C) is the
purchaser of the bill, and (D) receives the money. Two persons here
receive the money, (A) and (D), and two pay the money, (B) and (C);
which is just what must be done when two debtors and two creditors clear

This is the plain principle of a bill of exchange. From which it
appears, that reciprocal and equal debts only can be acquitted by them.

When it therefore happens, that the reciprocal debts of London and Paris
(to use the same example) are not equal, there arises a balance on one
side. Suppose London to owe Paris a balance, value 100_l._ How can this
be paid? I answer, that it may either be done with or without the
intervention of a bill.

With a bill, if an exchanger, finding a demand for a bill upon Paris,
for the value of 100_l._ when Paris owes no more to London, sends
100_l._ to his correspondent at Paris in coin, at the expence, I
suppose, of 1_l._ and then, having become creditor on Paris, he can give
a bill for the value of 100_l._ upon his being repaid his expence, and
paid for his risk and trouble.

Or it may be paid without a bill, if the London debtor sends the coin
himself to his Paris creditor, without employing an exchanger.

This last example shews of what little use bills are in the payment of
balances. As far as the debts are equal, nothing can be more useful than
bills of exchange; but the more they are useful in this easy way of
business, the less profit there is to any person to make a trade of
exchange, when he is not himself concerned, either as debtor or

When merchants have occasion to draw and remit bills for the liquidation
of their own debts, active and passive, in distant parts, they meet upon
change; where, to pursue the former example, the creditors upon Paris,
when they want money for bills, look out for those who are debtors to
it. The debtors to Paris again, when they want bills for money, seek for
those who are creditors upon it. This is a representation of what we
have frequently called the money market, in which the _demand_ is for
_money_, or for _bills_.

This market is constantly attended by brokers, who relieve the merchant
of the trouble of searching for those he wants. To the broker every one
communicates his wants, so far as he finds it prudent; and by going
about among all the merchants, the broker discovers the side upon which
the greater demand lies, for money, or for bills.

We have often observed, that he who is the demander in any bargain, has
constantly the disadvantage in dealing with him of whom he demands. This
is no where so much the case as in exchange, and renders secrecy very
essential to individuals among the merchants. If the London merchants
want to pay their debts to Paris, when there is a balance against
London, it is their interest to conceal their debts, and especially the
necessity they may be under to pay them; from the fear that those who
are creditors upon Paris would demand too high a price for the exchange
over and above par.

On the other hand, those who are creditors upon Paris, when Paris owes a
balance to London, are as careful in concealing what is owing to them by
Paris, from the fear that those who are debtors to Paris would avail
themselves of the competition among the Paris creditors, in order to
obtain bills for their money, below the value of them, when at par. A
creditor upon Paris, who is greatly pressed for money at London, will
willingly abate something of his debt, in order to get one who will give
him money for it.

It is not my intention to dip into the intricacies of exchange: all
intricacies must here be banished; and instead of technical terms, which
are very well adapted for expressing them, recourse must be had to plain
language, for pointing out the simple operations of this trade. It is by
this method that principles must be deduced, and from principles we
shall draw the consequences which may be derived from them.

From the operation carried on among merchants upon Change, which we have
been describing, we may discover the consequence of their separate and
jarring interests. They are constantly interested in the state of the
balance. Those who are creditors on Paris, fear a balance due to London;
those who are debtors to Paris, dread a balance due to Paris. The
interest of the first is to dissemble what they fear; that of the last,
to exaggerate what they wish. The brokers are those who determine the
course of the day: and the most intelligent merchants are those who
dispatch their business before the fact is known.

Now I ask, how trade, in general, is interested in the question, who
shall outwit, and who shall be outwitted, in this complicated operation
of exchange among merchants?

The interest of trade and of the nation is principally concerned in the
proper method of paying and receiving the balances. It is also concerned
in preserving a just equality of profit and loss among all the
merchants, relative to the real state of the balance. Unequal
competition among men engaged in the same pursuit, constantly draws
along with it bad consequences to the general undertaking, as has often
been observed; and secrecy in trade will be found, upon examination, to
be much more useful to merchants in their private capacity, than to the
trade they are carrying on.

Merchants, we have said, in speaking of the bank of England, endeavour
to simplify their business as much as possible; and commit to brokers
many operations which require no peculiar talents to execute. This of
exchange is of such a nature that it is hardly possible for a merchant
to carry on the business of his bills, without their assistance, upon
many occasions. When merchants come upon Change, they are so full of
fears and jealousies, that they will not open themselves to one another,
lest they should discover what they want to conceal. The broker is a
confidential man, in some degree, between parties, and brings them

Besides the merchants, who circulate among themselves their reciprocal
debts and credits, arising from their importation and exportation of
goods, there is another set of merchants who deal in exchange; which is
the importation and exportation of money and bills.

Were there never any balance on the trade of nations, exchangers and
brokers would find little employment: reciprocal and equal debts would
easily be transacted openly between the parties themselves. No man
feigns and dissembles, except when he thinks he has an interest in so

But when balances come to be paid, exchange becomes intricate; and
merchants are so much employed in particular branches of business, that
they are obliged to leave the liquidation of their debts to a particular
set of men, who make it turn out to the best advantage to themselves.

Whenever a balance is to be paid, that payment costs, as we have seen,
an additional expence to those of the place who owe it, over and above
the value of the debt.

If, therefore, this expence be a loss to the trading man, he must either
be repaid this loss by those whom he serves, that is, by the nation; or
the trade he carries on will become less profitable.

Every one will agree, I believe, that the expence of high exchange upon
paying a balance, is a loss to a people, no way to be compensated by the
advantages they reap from enriching the few individuals among them, who
gain by contriving methods to pay it off: and if an argument is
necessary to prove this proposition, it may be drawn from this
principle, to wit, whatever renders the profit upon trade precarious or
uncertain, is a loss to trade in general: this loss is a consequence of
high exchange; and although a profit does result from it upon one branch
of trade, the exchange business, yet that cannot compensate the loss
upon every other.

We may, therefore, here repeat what we have said above, that the more
difficulty is found in paying a balance, the greater is the loss to the

This being admitted, I shall here enumerate all the difficulties which
occur in paying of balances. Most of them have been already mentioned
from their relation to subjects already discussed; and could it be
supposed, that every reader has retained the whole chain of reasoning
already gone through, a repetition in this place would be superfluous:
but as that cannot be expected, I shall, in as short and distinct a
manner as possible, recapitulate, under four articles, what I hope will
be sufficient to refresh the memory upon each of them.

1_mo_, The first difficulty which occurs in paying a balance, is to
determine exactly the true and intrinsic value of the metals or coin in
which it is to be paid; that is to say, the real par.

2_do_, How to remove the domestic inconveniences which occur in paying
with the metals or coin.

3_tio_, How to prevent the price of exchange from operating upon the
whole mass of reciprocal payments, instead of affecting only the

The remedies and palliatives for these three inconveniencies once
discovered, comes the last question, viz. How, when other expedients
prove ineffectual for the payment of a balance, the same may be paid by
the means of credit, without the intervention of coin; and who are those
who should conduct that operation.


                               CHAP. II.
 _How to determine exactly the true and intrinsic value of the Metals,
 Coin, or Money, in which a Balance to foreign Nations is to be paid._

This first question regards the whole mass of reciprocal payments, as
well as that of the balance.

Every payment to be made of a determinate and fixed value; that is to
say, of a liquidated debt, must be paid in a value equally determinate
in its nature.

This I suppose to be the case, whether payment be made in the precious
metals unmanufactured, bullion, or in a nation’s coin, or in
denominations of money of account. All payment in merchandize, except
bullion, must suffer conversions of value before the debts can be

Money of accompt, which is what we understand by denominations, we have
defined to be a scale of equal parts, calculated to determine the value
of things, relatively to one another. It must, therefore, be by the
money of accompt of different nations, that the value of bullion and of
coin can be determined.

When coin is introduced, the denominations of money are realized in a
determinate quantity of the precious metals, and the fabrication of the
bullion into coin, raises the value of that commodity, bullion, like the
manufacturing of every other natural production.

When coin, therefore, is employed in paying sums according to the legal
denomination which it carries, it is money, not merchandize; but when it
is given at any other rate than its denomination, it is merchandize, not

In the third book, we have shewn how utterly impossible it is to realize
with exactness, the denominations of money of accompt, in the metals
which are constantly varying in their value, and exposed to waste in

We have shewn, by many examples, how, in fact, the value of the pound
sterling has been subject to great vicissitudes of late, from the great
disorder of the coin.

The coin of France is, indeed, upon a better footing in point of
uniformity of weight, than ours; and the proportion of the metals in it
comes nearer their present value in the market: but then as oft as the
balance turns against France, the high imposition upon her coinage,
exposes the coin to great fluctuations of value, when compared with
bullion in the Paris market. This is also to be ascribed to the
imperfection of the metals when used as money, while they are
merchandize at the same time.

This being the case, the way to calculate the real par of exchange
between nations, who have in common no determinate and invariable money,
exclusive of coin, is to consider fine gold and silver as the next best

This is a merchandize which never varies in its quality. Fine gold is
always the same in every mass; and weight for weight, there is no
difference in its value or quality any where.

This standard being once adopted, the calculation of the real par
becomes an easy operation to those who know the course of the bullion
market in the two places exchanging.

If, by the exportation of all the heavy coin of London, bills must be
paid in a worn out currency, the rise in the price of gold in their
market, above mint price, will mark pretty nearly how far it is light.

If, on the other hand, the wars of France, or an unfavourable balance
upon her trade, shall oblige her to export her coin, that operation will
_sink_ the value of it, or _raise_ the price of bullion, which ever way
you choose to express it.

It is not here a proper place to resume the question, which of the two
expressions is the most proper: we are here considering the value of the
bullion as what is fixed, because it answers the purpose. But whether we
say that bullion _rises_ in the markets of Paris and London; or that the
value of their currencies _sink_, though from very different causes, the
calculation of the real par will proceed with equal accuracy. An example
will illustrate this.

When _fine_ gold is at the lowest price to which it can ever fall at
Paris, that is to say, at the mint price, it is worth 740 livres 9 sols,
or 740.45 livres _per_ mark, in decimals, for the ease of calculation.
The mark contains eight ounces Paris weight.

Were the ounces of Paris equal to those of troy weight, ⅛ of this sum,
or 92.5562 livres, would be the value of that ounce by which gold is
sold at London.

But the Paris ounce is about 1½ _per cent._ lighter than the troy ounce;
and the exact proportion between them is unknown, from the confusion of
weights, and the want of a fixed standard in England.

By the best calculation I have been able to make, a Paris ounce should
contain 473 grains troy, which makes the proportion between the two
ounces to be as 473 is to 480, which is the number of grains in the troy

Gold bullion at Paris is regulated by the mark _fine_, at London by the
ounce _standard_.

When standard gold bullion is at the lowest price it can be at London,
it is worth the mint price, or 3_l._ 17_s._ 10½_d._ _per_ troy ounce,
which, expressed in decimals, is 3.8937_l._ sterling. Standard is to
fine, as 11 is to 12; consequently, the ounce fine is 4.2476_l._
sterling: and if the Paris ounce of _fine_ bullion be worth, as has been
said, 92.5562 livres, the ounce troy, according to the above proportion,
will be worth 93.926 livres. Divide then the livres by the sterling
money, and the quotient will give you the real par of exchange of the
pound sterling, while bullion remains at that value in Paris and in
London, viz. 4.2476⁄93.926 = 22.112 livres for the pound, or 32.56_d._
sterling for the French crown of 3 livres.

Gold bullion never can rise in the Paris market, at least all the last
war it never _did_ rise, above the value of the coin; that is, to 801.6
livres the mark fine, or 100.2 livres _per_ ounce Paris, and 101.7
livres the troy ounce.

How high the price of gold bullion may rise at London no man can say;
but the highest it rose to, during the last war, was, I believe, 4_l._
0_s._ 8_d._ _per_ ounce standard, or to 4.3999_l._ sterling _per_ ounce
fine. By this divide the value of the ounce troy fine in French livres,
the real par at this rate of the metals in both cities will be
4.3999⁄101.7 = 23.11 livres for the pound sterling, or 31.155 pence
sterling for the French crown of 3 livres. But suppose two cases which
may happen, viz. 1. That gold bullion at Paris should be at the price of
coin, while at London it may be at mint price: or, 2. That at Paris it
may be at mint price, when at London it is at 4_l._ 0_s._ 8_d._ what
will then the real par of exchange be?

I answer, that on the first supposition, it will be one pound sterling,
equal to 23.939 livres, and the crown of 3 livres equal to 30.076 pence
sterling. In the other, equal to 21.34 livres for the pound sterling,
and for the crown of 3 livres 33.728. A difference of no less than 8.9
_per cent._

Is it not evident that these variations _must_ occur in the exchange
between London and Paris? And is it not also plain, that they proceed
from the fluctuation of the price of bullion, not from exchange?

We have, I think, demonstrated, in the third book, that a wrong balance
upon the French trade raises bullion to the price of coin; and that a
right balance brings it down to mint price. The price of coinage is
above 8 _per cent._ So that 8 _per cent._ of fluctuation in the price of
bullion is easily accounted for in the Paris market, without combining
the variations in the English market.

In London, where no coinage is paid, were all the coin of full weight,
and exportation free, coin and standard bullion would constantly stand
at the same price: but when the heavy coin is exported, and the currency
becomes light by the old remaining in circulation, the price of bullion
rises in proportion.

Is it surprizing that, at London, gold in bullion should be worth as
much as gold of the same standard in guineas, weight for weight? It is
worth as much at the mint, why should it not be worth as much at market?
Any man may offer to pay _for the ounce_ of all the guineas coined by
Charles II. James II. and William III. now in circulation, the highest
market price that ever was given for standard gold bullion in London,
and gain by the bargain.

This, I hope, will be sufficient to satisfy any body that there is a
mistake in ascribing the high price paid for the French crown in the
London exchange, to a wrong balance upon the trade of England with

From this new light in which I have placed the question, I hope the
arguments used in the 16th chapter of the first part of the third book,
will acquire an additional force; and that thereby the eyes of this
nation may be opened with regard to the interests of the French trade; a
point, I should think, of the highest concern.

To calculate, as every body does, the par of the French crown, either by
the gold or the silver in the English _standard_ coin, when no such
_standard_ coin exists; and to state all that is given for the crown
above 29½_d._ if you reckon by the silver, or 30¼_d._ if you reckon by
the gold, for the price of a wrong balance, is an error which may lead
to the most fatal consequences.

If government should think fit to impose, in their own mint, a coinage,
equal to that of France, and make all their coin of equal weight, and at
the due proportion, it will take off all the loss we suffer by paying
coinage to France, which we at present impute to the exchange, while she
pays none to us. But then it will occasion nearly the same fluctuations
upon the real par of exchange as at present; only from another cause on
the side of Great Britain. At present our exchange becomes favourable
from the weight of our own currency, and the balance against France upon
her trade; which, in Paris, raises the price of the bullion with which
we pay our French debts. On the other hand, our exchange becomes
unfavourable from the lightness of our own currency, from the coinage we
pay to France, and balance against us; which last carries off all our
new guineas; and in the Paris market, sinks the value of that bullion in
which we pay our French debts.

Were matters put upon a right footing, we should gain from France the
price of our coinage, when our balance is favourable, and pay coinage to
France when their balance is favourable; instead of seeing our exchange
turn more in our favour, only from the additional weight of the coin in
which we pay.

If French coinage should appear too high a price for the interest of
other branches of British trade, a question I shall not here determine,
let us impose at least as much as to keep our guineas out of the melting
pot, and banish all the old coin which throws us into such confusion.

What has been said is undoubtedly too much upon this subject for the
generality of readers. The number of those who can go through a chapter
like this with pleasure is very small. But if the idea I have been
endeavouring to communicate, be found just by one man of capacity, whose
opinion shall have weight in the deliberations of Great Britain, the
consequences may be great to this nation; and this consideration will, I
hope, plead my excuse.

I shall now set this question in another point of view, from which the
stress of my arguments will be felt, and all intricate combinations will
be laid aside.

Does not the price of exchange, or what is given above the par, proceed
from the expence of sending the metals from one place to the other, the
insurance of them, and the exchanger’s profit? If this be true, which I
believe no body will deny, must not what is paid for the bill, over and
above these three articles, be considered as the real par, relative to
exchange? Now does the price of the bullion which the exchanger pays in
his own market, or the price he gets for that bullion in the market to
which he sends it, at all enter into the account of the transportation,
risk, and profit, which the exchanger has on the operation? Certainly
not. May there not be a very great difference between the buying and
selling the very same bullion in different markets at one time and
another? Ought we not to charge that to some other accompt than to the
price of exchange, which is confined to the expence of transporting _the
balance only_, and when two objects totally different are included under
the same term, does it not tend to perplex our notions concerning them?

The great variation in the price of bullion in France, for example, and
the expence of procuring it, proceeds from three causes. The first is,
the coinage imposed in France, while none is imposed in England. What,
therefore, is paid upon this account, is profit to France, and loss to

The second cause of variation, is the debasement of the value of the
pound sterling, when the heavy gold has been sent abroad. That loss
affects the nation, and every man in England, in the quality of creditor
for sums specified in pounds sterling, to the profit of all debtors.

The third cause of variation, is from the great expence exchangers are
put to, in procuring the metals from other countries, when they cannot
be got at home: the consequence of this shall be explained in a
succeeding chapter.

As all these causes are combined in the exchange upon bills when they
come to market, I think it is proper to analize them, before the
doctrine we are upon can be distinctly understood.

I shall therefore conclude my chapter with this proposition:

That the best method of determining exactly the true and intrinsic value
of the metals, coin, or money, in which the balance due to or from a
foreign nation is to be paid, is to compare the respective value of fine
bullion with the respective denominations of the coin in the one and the
other; and to state the difference as the price paid for the

Footnote 20:

  There occurs another considerable difficulty to be removed, before the
  real par of exchange can be exactly determined from the price of
  bullion, to wit, the uncertainty of weights, and the multiplicity of

  Every nation in Europe has a different weight, I might almost say
  every city. This has proceeded, in a great measure, from the
  inaccuracy with which they have been made formerly. I think it is
  highly probable, that many, at least, of the principal weights in
  Europe, have derived their origin from the same standard; although
  they are now considerably different. Those I am best acquainted with
  are the following, of which I shall here set down a short table,
  reduced to troy grains, according to the best calculation I have been
  able to make.

 One ounce troy contains                            480 troy grains.
 One ounce Paris, or _poids de marc_,               473
 One ounce Holland troes                            473.27
 One ounce Colonia                                  449.33

  These are the weights used in the mints of England, France, Holland,
  and Germany.

  If therefore we should call the troy ounce 100, the proportion of the
  rest will be as follows:

 Troy                                               100
 Paris                                               98.541
 Holland                                             98.597
 Colonia                                             93.61

  I have chosen to reduce to ounces; because it is the denomination in
  which the proportion of weights is best preserved.

  These ounces I apprehend to have been originally taken from the old
  Roman pound, which was the weight adopted by the Emperor Charles the
  Great, who applied himself much to the establishing a general standard
  of weights in his dominions.

  In the examples I have given, we see how the Colonia ounce deviates
  more than any other from the average on the whole.

  This ounce is very near equal to the old Saxon ounce, established in
  the English mint at the Norman conquest, and there preserved, until
  Henry VIII. substituted in its place, the troy weight. This
  circumstance makes it probable that the Saxon ounce came originally
  from Charles the Great, who first conquered the Saxon nation, and drew
  them from a state of absolute barbarity. The rude manners of the
  Saxons may have occasioned this great deviation.

  The difference, therefore, in those ounces, I ascribe to the
  progressive error of those who have made weights, and from the neglect
  of preserving a proper standard.

  The best remedy for this inconvenience, would be, for any one mint to
  form a weight, _ad libitum_, and to send a most accurate copy of it to
  every mint in Europe: to mention, at the same time, the exact
  proportion between the weight sent, and that observed at their own
  mint: to beg of the other mints an equal communication of the
  proportion between the weight sent, and their several standards: and
  last of all, to publish in the news-papers of all commercial towns,
  every market day, as is done at Amsterdam, the price of _fine_ gold
  and silver, according to this new weight made for the purpose. This
  weight may be called the mint-weight of Europe; and from the universal
  utility which would follow upon such a regulation, it probably might
  be followed: were this to happen, it might be a step towards
  establishing an universal conformity of weights every where.

  While matters stand on the present footing, it is necessary to be
  informed of three particulars. First, Of the proportion of the
  different mint weights. Secondly, Of the regulations by which the coin
  is made. And lastly, Of the exactness of the mints in following the
  regulation. Every mistake in any one of these three articles, is an
  impediment to the just determination of the real par.

  I acknowledge that, in fact, exchange business goes on smoothly,
  notwithstanding all the difficulties we have been enumerating. It may
  therefore be asked, in what would consist the great advantage of so
  scrupulous a nicety?

  My answer is, that exchange business will always go smoothly on, as
  long as exchangers gain, and that trade is not interrupted.

  But trading men consider their own interest only; and I am configuring
  the interest of an intelligent state, which wants to promote the good
  of the whole community, without occasioning any hurt to the interest
  of individuals.


                               CHAP. III.
 _How to remove the inconveniences which occur in paying Balances with
                    the Metals or Coin of a Nation._

The inconveniences which occur when balances are to be paid in bullion
or coin are these:

First, The want of secure and ready transportation, from the
obstructions government throws in the way to prevent it.

Secondly, The difficulty of procuring the metals abroad when they are
not to be found at home.

When we speak here of balances to be paid from one country to another,
we understand, that the general amount of the whole payments to be made
to the world, exceeds the sum of all that is reciprocally due from it.
So far as a balance due to one country is compensated with a balance due
by another, they may be mutually discharged by bills of exchange,
according to the principles already laid down. All compensations being
made by bills drawn for reciprocal debts, we must here suppose a balance
due by the country whose interest we are considering. This, like debts
between private people, must either be paid in intrinsic value, or by
security for it; that is, by contracting a permanent debt bearing
interest. The first is the question here before us; the second will be
examined in the succeeding chapter.

The first difficulty mentioned, to wit, the want of secure and ready
transportation of the metals, proceeds in a great measure from the
obstruction government throws in the way, to prevent the exportation of
them. To remove which difficulty, it is proper to shew how far it is the
interest of government to obstruct, how far to accelerate the
transportation of the metals.

We have said that it is the advantage of every state, in point of trade,
to have balances paid with the least expence. If then we suppose that it
is either necessary or expedient that this balance should be paid in the
metals, government, in that case, should facilitate by every method the
sending them off in the cheapest and securest way.

But since governments do not follow that rule, we must examine the
reasons which engage them to prefer a contrary conduct.

The principal, the most general, and most rational objection against the
exportation of the metals, is, that when it is permitted, without
restriction, it engages the people, when they go to foreign markets for
articles of importation, to run to the coin, instead of carrying thither
the product and manufactures of the country. From which a consequence is
drawn, that as long as coin and bullion are fairly allowed to be
exported, the rich inhabitants will employ them for the purchase of
foreign commodities, to the hurt of domestic industry.

This is an objection of great weight, relative to the situation of many
nations. The Spaniards and Portuguese feel it severely. Many individuals
there are very rich; the numerous classes of the people are either lazy
or not properly bred to industry. In that situation the alternative to
government is very disagreeable. Either the rich must be deprived of
every enjoyment with which their industrious neighbours alone can supply
them, until, by very slow degrees, the lowest classes of their
countrymen can be engaged to change their way of living, and be inspired
with a spirit of industry; or they must be allowed to gratify the
desires which riches create, at the expence of the nation’s treasure,
and the improvement of their country.

From this alternative we discover the principle which directs the
conduct of a statesman under such circumstances, viz.

To forbid the importation of every foreign manufacture whatsoever; to
submit to the hardships necessarily implied in the circumstances of the
nation; and to pay freely what balance may be owing upon natural produce
imported for the uses of subsistence, or manufacture.

This is a plan more rational and more easily executed, than a general
prohibition to export the metals; because with good regulations,
properly executed, you may prevent the importation of manufactures; but
it is hardly possible to prevent the exportation of the metals necessary
to pay for what you have bought from strangers, by the permission of
government: and on the other hand, suppose you do effectually prevent
the exportation of the metals, the consequence will be, to put an end to
all foreign trade even in natural produce. What nation will trade with
another who can pay only by barter? All credit will then be cut off; for
who will exchange by bills, with a place which cannot pay, either in
their own currency, or with the metals, the debts which they
reciprocally owe?

The maxim therefore, here, is to prevent the contracting of debts with
strangers; but when you allow them to be contracted, to facilitate the
payment of them.

This reasoning is only calculated to direct a statesman who finds
himself at the head of a rich luxurious nobility, and an idle or ill
instructed common people, surrounded by industrious neighbours, whose
assistance may be necessary upon many occasions, to provide subsistence,
or the materials of manufacture, to his people; and this while he is
forming a scheme of introducing industry at home, as a basis for
afterwards establishing a proper foreign commerce.

But in this subject combinations are infinite, and the smallest change
of circumstances throws the decision of a question on a different

I will not therefore say, that in every case which can be supposed,
certain restrictions upon the exportation of bullion or coin are
contrary to good policy. This proposition I confine to the flourishing
trading nations of our own time.

To set this matter in a fair light, and as an exercise upon principles,
I shall borrow two combinations, one from history, and another from a
recent example in France, in which a clog upon the exportation of the
metals and coin were very politically laid on.

We learn from the history of Henry VII. of England, a sagacious Prince,
that he established very severe laws against the exportation of bullion;
and obliged the merchants who imported foreign commodities into his
dominions, to invest their returns in the natural produce of England,
which at that time consisted principally in wool and in grain.

The circumstances of the times in which that Prince lived, must
therefore be examined, before we can justly find fault with this step of
his political oeconomy.

In Henry the VIIth’s time, the foreign trade of England was entirely in
the hands of foreigners, and almost every elegant manufacture came from

Under such circumstances, is it not plain, that the prohibition of the
exportation of bullion and coin was only a compulsion, concomitant with
other regulations, to oblige foreign merchants, residing in his kingdom,
to buy up the superfluity of the English natural produce of wool and
grain? Had not the King taken those measures, the whole money of the
nation would have been exported; the superfluous natural produce of
England would have lain upon hand; the abundance of these would have
brought their price below the value of the subsistence of those who
produced them; agriculture would have been abandoned; and the nation
would have been undone.

I allow that nothing is so absurd as a desire to consume foreign
productions, and to forbid the exportation of the price of them. I also
allow, that every restraint laid upon exporting silver and gold, falls
upon the consumer of foreign goods, and obliges him to pay the dearer
for them; but this additional expence to the consumer, does not augment
the mass of foreign debts. The debt due abroad will constantly be paid
with the same quantity of coin, whether the exportation of it be allowed
or forbidden; because the loss of those who pay the balance arises from
the risk of confiscation of the money they want to export against law;
or from the high exchange they are obliged to pay to those who take that
risk upon themselves. In both cases, the additional expence they are put
to remains in the country, and is repaid them by the consumers;
consequently, can never occasion one farthing more to be exported.
Prohibitions, therefore, upon the exportation of specie, are not in
every case so absurd as they appear at first sight. It is very certain
that no body gives money for nothing; consequently, a state may rest
assured that the proprietors of the specie, their subjects, will take
sufficient care not to make a present of it to foreigners. The
intention, therefore, of such prohibitions, is not to prevent the
payment of what people owe; but to prevent that payment from being made
in coin or bullion; and also to discourage the buying of such foreign
commodities as must be paid in specie, preferably to others which may be
paid for with the returns of home produce.

When a statesman, therefore, finds the balance of trade, upon the main,
favourable to the country he governs, he need give himself no trouble
about the exportation of the specie, from this single principle, to wit,
that he is sure it is not given for nothing. But when the balance turns
against them, in the regular course of business, not from a temporary
cause, then he may lay restraints upon the exportation of specie, as a
concomitant restriction, together with others, in order to diminish the
general mass of importations, and thereby to set the balance even.

In a trading nation, I allow, that no restriction of that kind ought to
be general; because it then affects the useful and the hurtful branches
of importation equally: but in Henry’s days, the sale of corn and wool
was sufficient to procure for England all it wanted from abroad; and the
interests of trade were not sufficiently combined, to enable the state
to act by any other than the most general rules. Forbidding the
exportation of coin was found to promote the exportation of English
productions, and this was a sufficient reason for making the prohibition
peremptory. In this view of the matter, did not Henry judge well, when
he obliged the merchants who imported foreign goods, to invest the price
they received for them in English commodities? Once more I must say it,
he was not so much afraid of the consequences of the money going out, as
of the corn and wool remaining at home; had he been sure of the
exportation of these articles to as good purpose another way, the
prohibition would have been absurd; but I am persuaded that was not the

The example taken from France is this.

After the fatal bankruptcy in 1720, by the blowing up of the Missisippi,
the trade of France languished from the effects of the instability of
their coin, until the year 1726, when it was set upon that footing on
which it has remained ever since.

Upon that last general coinage, the same principles of enriching the
King by the operation, directed the conduct of the minister.

The old specie was cried down, and proscribed in circulation: but it was
thought, that as it was the King’s coin, he had a liberty to set a price
upon it, at a different rate from any other bullion of the same
fineness; and that he had also a right to command the proprietors of it
to bring it to the mint at his own price.

The consequence was, that those who could were very desirous to send it
to Holland, in order to draw back the value they had sent in bills upon

Under such circumstances, were not prohibitions upon the exportation of
this coin most consistent with the plan laid down? We shall, in the next
chapter, examine the consequences of this operation upon the exchange of

What has been said, will, I hope, suffice to explain some of the
principal motives which statesmen may have, when they lay restrictions
on the exportation of the metals, with a view to favour the trade of
their nation.

But besides the interests of trade, there are other reasons for laying
prohibitions on the exportation of the national coin, although that of
bullion be left free under certain restrictions.

As often as it happens, from whatever cause it may proceed, that the
value of a nation’s coin falls to par with bullion of the same fineness,
that coin, if exported, may be melted down. This is a loss; because it
puts the nation to the expence of coining more for the use of

When nations give coinage gratis, or when they allow the coin of other
nations the privilege of passing current under denominations exactly
proportioned to its intrinsic value, then coin never can be worth more
than any other bullion of the same standard; consequently, will be
exported or smuggled out upon every occasion.

If, therefore, a nation does really desire to avoid an expence to the
mint, they must make it the interest of merchants to export every other
thing preferably to their own coin. This is done by imposing a duty upon
the coinage; and this will either prevent its going out unnecessarily,
or if it be necessary to export it, the coin will return in the payments
made to the nation, in consequence of its advanced value above any other
bullion which can be sent.

The forbidding the exportation of coin, implies a restriction upon the
exportation of bullion; because, unless the bullion be examined at the
custom house, and the stamps upon it looked at, it may happen to be
nothing but the nation’s coin melted down, with an intention to avoid
the law. For this reason, whoever brings bullion to be stamped, whether
it be for exportation or not, must declare that it is not made of the
nation’s coin. How slender a check are all such declarations! The only
one effectual is private interest; and as no man will take his wig to
stuff his chair, when he can get cheaper materials equally good, so no
man will melt down coin which bears an advanced value, when he can
procure any other bullion.

On the whole, we may determine, that a flourishing commercial state,
which has, on the average of their trade, a balance coming in from other
countries, should lay it down as a general rule, to facilitate the
exportation of their coin, as well as bullion: and if a very particular
circumstance should occur, which may continue for a short time, they may
then put a temporary stop to it, and facilitate the payment of the
balance in the way of credit.

I have enlarged so much upon the methods of removing the first
difficulty of paying a balance, with the coin or bullion found in a
nation, that what remains to be said upon the second difficulty, to wit,
the procuring them from other nations, need not be long.

Were the mint weights of all countries sufficiently determinate; were
the regulations concerning the standard of bullion exactly complied
with; and were the current market prices of that important commodity,
considered as a valuable piece of intelligence every where, the bullion
trade would be much easier than it is.

We have said, that when the reciprocal debts of two nations are equal,
there is no occasion for bullion to discharge them. But trading nations
are many; and from this it may happen, that one who, upon the whole, is
creditor to the world, may be debtor to a place which is also creditor
to the world; and in this case bullion is necessary to pay the debt.

If a man owes money to a person who has many creditors, the person
owing, may buy up a claim against him, and pay what he owes in that way:
but if the person to whom he owes money be indebted to no body, then the
debt must be paid with ready money. Just so of nations. For instance,
when bullion is demanded to be exported to Holland, the English
merchants, who are creditors on Spain and Portugal, take from thence
their returns in bullion, for the sake of paying a balance to Holland,
which is, upon the whole, creditor to the world.

But as it seldom happens, that he who deals with Holland is the person
who has credit in Spain or Portugal, he is obliged to apply to Portugal
merchants to procure bullion. They again who trade thither, having
profit on the returns of the commodities they bring from thence, will
expect the same profits upon the bills they give to the man who wants to
take his return in bullion. This plainly raises the price of bullion in
the English market; because it is brought home in consequence of a
demand from England. On the other hand, when the demands of England for
Portuguese commodities is less than the value of what Portugal owes her,
the Portugal merchants in London are obliged to take the balance in the
metals. These come to the London market, and are offered to sale to
those who want them: then the price of bullion falls; because the demand
comes from the other side.

To go through all the operations which merchants employ to abbreviate
the process I have been describing, would, indeed, better explain the
practical part of exchange, than what I have said; but I write, not to
instruct merchants, but to extract from their complicated operations,
the principles upon which they are founded.


                               CHAP. IV.
  _How the Price of Exchange_, in a prosperous trading Nation, _may be
prevented from operating upon the whole Mass of reciprocal Payments, in
                 place of affecting the Balance only_.

We have taken it for granted, that the price of exchange is a hurt to
trade in general.

In this chapter, we shall inquire more particularly than we have done,
in what that hurt consists. The point of view of every man, whether he
be a merchant or not, is first honestly, and as far as law and fair
dealing permit, to consult his own private interest; and in the second
place, to promote that interest with which his own is most closely

According to this rule, every merchant will endeavour to manage his
exchange business to the best advantage to himself. If the balance be
against his country, he will sell his bills on the country creditor as
dear as he can; that is, he will endeavour to raise the price of
exchange as high as he can against his country, whatever hurt may
thereby result to the general trade of it; and in so doing, he only does
what duty to himself requires; because it is by minding his business
only, that he can trade upon equal terms with his neighbours, every one
of which avail themselves of the like fluctuations, when they happen to
be in their favour.

From this I conclude, that since the loss upon high exchange against a
country, affects principally the cumulative interest of the whole,
relative to other trading nations; it is the business of the statesman,
not of the merchants, to provide a remedy against it.

The whole class of merchants, no doubt, exchangers excepted, would be
very glad to find the course of exchange constantly at par. This is also
greatly the interest of the state; because it is from the _balance_ in
its favour, not from _the profit made in drawing that balance_ from the
debtor, that the state is a gainer. This must be explained.

I am to shew how it happens, that a nation is only benefited or hurt by
the net balance which it receives from, or pays to her neighbours: and
that the whole expence of paying or receiving that balance, is not
national, but particular to individuals at home; consequently, it would
be the interest of all states, that balances, both favourable and
unfavourable, were paid by the nation debtor, at the least expence

The great difficulty in communicating one’s thoughts upon this subject
with distinctness, proceeds from the ambiguity of the terms necessary to
express them. This may be avoided by adopting the technical terms of
merchants; but these are still more difficult to be comprehended by any
one not conversant in commerce. I shall acquit myself of this difficult
talk the best way I can.

When we speak of a balance between two nations, we shall call the nation
who owes the balance the _nation-debtor_; the other to whom it is owing,
the _nation-creditor_.

Balances imply reciprocal debts; consequently, reciprocal debtors and
creditors. To avoid, therefore, confusion in this particular, we shall
use four expressions, viz. the debtors to the nation-creditor; the
debtors to the nation-debtor; the creditors to the nation-creditor; the
creditors to the nation-debtor.

Let me suppose that Paris owes a balance to London, no matter for what
sum. The reciprocal debts between Paris and London are all affected by
the consequence of this balance: that is to say, some pay or receive
more than the real par; some pay or receive less. To discover where the
profit centers, we are now to inquire who are those who receive more,
who are those who receive less. And as profit and loss are here only
relative, that is to say, the profit of the one is compensated by the
loss of the other; we must see whether or not, upon the whole, the price
of the exchange in this case be favourable to London, to which, by the
supposition, the balance is due, and unfavourable to Paris, which is the

The question thus stated, let us examine the operations of exchange at
London and Paris, and the state of demand in both, for money or bills.

In the London market, the demand will be for money in London for bills
on Paris; and he who demands, must pay the exchange; consequently, the
London merchants, creditors to the _nation-debtor_, will pay the
exchange; that is to say, they will sell their bills on Paris below par;
and the London merchants, debtors to the nation-debtor, will buy them,
and gain the exchange; that is, they will buy bills upon Paris below

Now as this negotiation is carried on at London, I must suppose it to
take place amongst Englishmen; one part of whom will gain exactly what
the other loses; consequently England, in this respect, neither gains or
loses by the exchange paid in London.

Let us next examine the interest of the merchants, and the interest of
the nation’s trade.

The creditors to the nation-debtor, who have lost by the exchange, are
those who have exported English commodities to France. Upon this
profitable branch of commerce the exchange occasions a loss, the
consequence of which is, to discourage exportation.

The debtors to the nation-debtor, who have gained by the exchange, are
those who have imported French commodities to England. Upon this hurtful
branch of commerce, the exchange occasions a profit; the consequence of
which is, to encourage importation.

This is not all. The merchants exporters, who have lost, cannot draw
back their loss upon the return of their trade; because the return of
their trade is the _money_ due by France, the balance included. Whereas
the merchants importers may draw back their loss upon the return of
their trade; because that return is _merchandize_, which they can sell
so much the dearer to their own countrymen.

If the balance be in favour of London, importers gain, as we have seen;
when it is otherwise, and when they are obliged to pay the exchange,
they indemnify themselves, by the sale of their goods so much the
dearer. High exchange, therefore, _may_ hurt exporters, but never _can_
hurt importers.

Let us next examine the operation of exchange at Paris.

In the Paris market, the demand will be for bills upon London for money
in Paris; and he who demands must pay the exchange. The debtors,
therefore, to the nation-creditor, must pay the exchange, and the
creditors to the nation-creditor will receive it; and as both are
Frenchmen, the profit and loss to Paris exactly balance one another.

But the debtors to the nation-creditor are here the importers of English
goods; consequently, this trade, hurtful to France, would be hurtful to
the importer, could he not indemnify himself by selling them so much the
dearer to his countrymen.

The creditors, again, to the nation-creditor, who gain the exchange, are
the exporters of French goods to England; so that here the exportation
meets with an encouragement from a balance against the country.

From the advantage found upon exchange in favour of exporters, and the
loss upon it to the prejudice of importers, in the case of a wrong
balance, it has been believed, that a wrong balance produced upon
importations and exportations are effects equal and contrary, which
destroy one another, and thereby bring the balance even.

In answer to this, I have two short arguments to offer.

The first is, that were the argument conclusive, it would hold good in
reversing the proposition; to wit, that the consequence of a favourable
balance would be to destroy the difference also, and bring the balance
even. This I never heard alleged.

My second argument is the strongest: that the enhancing of the prices of
importations will not so effectually discourage the sale of them at
home, as the enhancing the prices of exportations will discourage the
sale of them abroad; for the reasons I shall give presently. But in the
mean time,

If the compensation be considered only in relation to the merchants
importers and exporters, there, indeed, I agree, that _their_ profit and
loss upon the exchange is most exactly balanced; because what the one
party gains the other loses; and the country loses the balance only, as
has been said.

The reciprocal debts thus transacted by bills of exchange, we see that
no profit can be made, nor loss incurred, either to London, or Paris, by
that operation.

The profit to Frenchmen is compensated by the loss to Frenchmen; the
same may be said of the English merchants: but the balance due after
those operations are over, and the more remote consequences of high
exchange, affect the relative interest of the two nations.

This balance is generally sent by the country-debtor, either to the
country-creditor, or to their order in a third country, to which they
are indebted.

The transportation and insurance of this balance is an expence to those
who owe it, and the profit, if any there be on that operation, naturally
falls to exchangers of the same nation, who conduct it. So whether
exchange be paid upon bills drawn, or expence be incurred in the
transportation of balances, no profit can accrue upon that to the
nation-creditor, to the detriment of the debtor: it must, therefore, do
hurt to both, relatively to nations where, upon the average of trade,
exchange is lower.

I come now to the method of transporting balances in the metals.

We have seen how the creditors of the nation-debtor pay exchange upon
the sale of their bills on Paris, which owes the balance. If by the
operations of exchangers, this exchange should rise, to their detriment,
higher than the expence, trouble, and insurance, of bringing the balance
from Paris, then they will appoint some factor at Paris, to whose order
they will draw bills upon their debtors in that city; and as what the
Paris-debtors owe to London is stated in pounds sterling, the
London-creditors will value the pound sterling, according to the rate of
exchange, in their favour; and in their bills upon their Paris-debtor,
they will convert the sum into livres, including the exchange.

By this operation, we see how the transportation of the balance may
become the business of the creditors to the nation-debtor: which is a
combination we have not as yet attended to: a few words will explain it.

When the creditors of the nation-debtor sell their bills, they must pay
the exchange, as has been said. When they draw bills to the order of a
friend in the place where the balance is owing, they superadd the
exchange. This their debtors pay: but then they themselves must be at
the trouble and expence of bringing home the money.

It is from this alternative which both parties have of either sending
what they owe to their creditors in bullion, or of allowing them to draw
for it at the additional expence of paying the exchange, that a check
upon the extravagant profit of exchangers arises: and from this
combination arises all the delicate operations of drawing and remitting.

Into these we shall not inquire: the principle on which they depend
appears sufficiently plain, and this is the principal object of our

I proceed now to consider how far those reciprocal profits and losses,
between merchants in the same country, affect the trade of it in

When the balance is favourable, we have said that the exporters lose the
exchange, and the importers gain it; and both being citizens, the
country would not be concerned in their relative interests, were it not
that these interests are connected with that of the country, which reaps
great benefit from the trade of those who deal in exportations, and loss
from the other.

If, therefore, exchange is found to hurt exportation, when the balance
is favourable, in this respect the country has an interest in bringing
it as low as possible. But as it may be said that since the return of an
unfavourable balance hurts in its turn the interests of importation, and
favours the other, exchange thereby operates a national compensation; it
will not be improper, in this place, to throw out one reflection more,
in order to destroy the strength of that argument.

Were this proposition admitted, as I am afraid it cannot, from what we
have already said, it affords no argument against doing what can be
done, to render exchange as little hurtful as possible to exportation,
during the favourable balance. But as to the question itself, of
national compensation, I cannot allow that even _exporters_ and
_importers_ are thereby brought on a level in point of trade: for this
reason, that the exchange affecting the exporters, in proportion as it
augments, discourages manufacturers, who must have regular, and even
growing profits, according to the increase of demand. These the merchant
exporter cannot afford; because he _cannot_ draw back from his foreign
correspondents, any advance upon manufactures at home, arising from
domestic circumstances. But when the merchant importer is affected by
the exchange against him; this additional expence he _can_ draw back;
because he sells to those who are affected by all domestic

Let us therefore determine, that it is the interest of a state to
disregard that compensation which is given to exportation by a wrong
balance, which does so much harm; and to avoid the discouragement given
to it by a right balance, which does so much good. The only way to
compass those ends, is to keep exchange as near to par as possible.

Could reciprocal debts be always exchanged at par, and could the expence
of bringing home, and sending a balance abroad, be defrayed by the
state, I think it would prove a great advantage to the trade of a
nation. I do not pretend to say that, as matters stand, the thing is
practicable; but as it is a question which relates to my subject, and
seems both curious and interesting, I shall here examine it.

At first sight, this idea will appear chimerical; and some readers may
despise it too much, to be at the trouble to read what may be said for
it. I shall therefore set out by informing them that the scheme has been
tried, in a great kingdom in Europe, under a great minister; I say it
was attempted in France, in the year 1726, under the administration of
Cardinal Fleuri, and produced its effect; although it was soon given up,
from a circumstance which, I think, never can occur in Great Britain.

After the last general coinage in France, 1726, exchange became so
unfavourable to that kingdom, that there was a general outcry. The
Cardinal, to put a stop to the clamour, and set trade to rights, as he
thought, ordered Samuel Bernard, at that time a man of great credit, to
give bills on Holland at par, to all the merchants. To enable him to
place funds in Amsterdam, for the payment of his bills, the Cardinal
supplied this exchanger with sufficient quantities of the old coin, then
cried down, and paid for the exportation of it to Holland.

Upon this exchange on Holland came to par; and all exchangers at Paris
looked on the operation with amazement. The minister, however, in a
short time discovered, that by this he was undoing with one hand, what
he wanted to establish with the other. He therefore stopped in his
career, after having paid, perhaps, ten times the balance due to

By unfolding the combination of this operation, I shall be better able
to cast light on the question before us, than in any other way.

When the general coinage was made in France, by the arret of the month
of January 1726, all the old coin was cried down, and ordered to be
recoined. The mint price of fine gold _per_ marc was fixed at 536 livres
14 sols 6 deniers; and the silver at 37 livres 1 sol 9 deniers. These
were the prices at which the mint paid for bullion, when offered to be
coined. But the King, as if he had a right upon the metal in the old
coin, commanded it to be delivered at the mint at no higher rate than
492 livres for the marc of fine gold, and at 34 livres for the marc of
fine silver: and to compel the possessors of it to bring it in, all
exportation and melting down was made highly penal; the avenues from
France were beset with guards to prevent the going out; and the melting
pots were strictly watched. Upon this, the possessors of the old coin,
rather than sell it to the mint at so great an undervalue, had recourse
to exchangers for bills upon Holland for it: and these being obliged to
send it thither at a great expence and risk, exacted a very high
exchange, which, consequently, affected the whole trade of France.

Politicians persuaded the Cardinal, that exchange had got up so high,
not from the discredit cast on the old coin, but because of the wrong
balance, and the alteration which had been made at that time upon the
denomination of the new: and that so soon as the balance against France
was paid, exchange would return to par. Upon this the Cardinal set
Bernard to work, but he soon discovered his mistake; and by arret of the
15th of June the same year, raised the mint price of the old coin, and
then exchange became favourable.

These are all facts mentioned by Dutot, and yet he never will ascribe
the rise of exchange in France to any other cause than to the tampering
with the denominations of their coin: an operation which may rob one set
of people in favour of another; but which has very little effect upon
exchange, when other circumstances do not concur, as in the case before

Now had the high exchange against France been owing to a wrong balance
upon her trade, is it not evident that the Cardinal’s operation would
have succeeded, that all demands for bills at Samuel Bernard’s office
would have been confined to the exact extent of that balance; that the
reciprocal debts would have been negotiated between the merchants at
par; and, consequently, that all expence upon exchange would have been
saved to individuals, at the small charge to government of transporting
the balance paid for the bills by the merchants at Paris?

Were prosperous trading states, therefore, conducted by statesmen,
intelligent, capable, and uninfluenced by motives of private interest,
they would make it a rule to be at the expence of sending off, and
bringing home all balances, without the charge of exchange to traders:
but the consequence of either neglect, or incapacity in the man at the
helm, would then become so fatal that it might be dangerous to attempt,
at once, so great a change in the present method of paying balances: but
I never make allowances for the defects of a statesman, while I am
deducing the principles which ought to direct his conduct.

I shall next slightly point out the bad consequences which, _upon an
unfavourable state of commerce_, might result from such a plan; and
without recommending any thing to practice, leave the reader to judge of
the expediency.

We see, that by a statesman’s giving bills at par, _on all occasions_,
and being himself at the expence of transportation and insurance, in
bringing home and sending off all balances, exchange would of itself
come to par.

The first consequence of this would be, the total annihilation of the
exchange business; and if, after that, any interruption should happen by
neglect in the statesman, trade might suffer considerably.

Another consequence is, that the most destructive trade would go forward
without a check, as long as merchants could pay the par of the bills
they demanded upon foreign parts: and this they would constantly be
enabled to do, while there was either coin or paper in circulation, as
has been explained in treating of banks of circulation upon mortgage.

The consequence of this would be, to oblige the state to pledge the
revenue of the country to strangers, in proportion to the balance owing,
over and above the extent of the metals to discharge it.

Now the question is, and this I shall leave to the sagacity of my reader
to determine, whether, as matters stand, there be any check proceeding
from high exchange which can prevent the bad consequences here set
forth. I suspect there is not. We see the most enormous sums lent by
nations to nations; raising the exchange against the lenders; turning it
in favour of the borrowers, but never preventing the loan from going
forward. Does not Great Britain, as well as France, owe amazing sums to
other nations, at the expence of paying the interest out of their
revenue? And have not all those sums been transacted by exchangers, who
have made great fortunes by it? Are not the most unfavourable balances
paid in the ordinary method? Are there not, therefore, already,
instruments in the hands of all nations, sufficient for their undoing?
How could their ruin be accelerated by this alteration in the mode of
performing the same thing?

But let it be observed, that our business, in this chapter, is to search
for methods to advance the prosperity of flourishing nations, who have a
balance owing to them; and here we have been setting forth the bad
consequences which result from _these_, to others who are in decay.
Every argument, therefore, drawn against this scheme, in favour of the
idle or prodigal, is an argument in favour of it, with respect to the
industrious and frugal. As all nations are liable to alternate
vicissitudes of prosperity and adversity, the principles here laid down
require to be carefully combined with domestic circumstances, before
they be applied to practice.

It was with a view to this distinction, that, in the title of this
chapter, I pointed out the question there proposed, as relative to the
state of it in a _prosperous trading nation_; and I am not quite clear
how far it might not be advantageous in every case: but this question I
shall not here enlarge upon. What has been said, will, I hope, be
sufficient to point out the principles upon which the decision depends;
and if any statesman inclines to try the consequences of it by an
experiment now and then, nothing is so easy as to do it, without any
detriment. This is proved from the operation performed by the French
cardinal, on the occasion of a very unfavourable and high exchange.


                                CHAP. V.
    _How, when other expedients prove ineffectual for discharging of
   Balances, the same may be paid by the Means of Credit, without the
Intervention of Coin or Bullion; and who are those who ought to conduct
                            that Operation._

We have now applied the principles formerly laid down, towards
discovering the most proper expedients for removing or palliating the
three inconveniences to be struggled with in regulating exchange. 1. How
to estimate the value of a balance due: 2. How to pay it with the coin
or bullion of the country: and lastly, How to prevent the price of
exchange from affecting any thing more than the balance to be paid,
after all reciprocal debts have been compensated.

It remains to inquire, what are the most proper methods to acquit what a
nation may owe, after it has done all it can to pay the value of their
balance in the other way.

At first sight, it must appear evident that the only method here is to
give security, and pay interest for what cannot be paid in any other
value. This is constantly done by every nation; but as the ordinary
methods are very perplexed, and are attended with expences which raise
exchange to a great height, and thereby prove a prodigious
discouragement to trade in general: it would be no small advantage,
could all this loss on exchange be equally thrown upon every class
within the state, instead of being thrown entirely upon its commerce.

As this is the expedient to be proposed, it will not be amiss to
observe, that foreign balances arise chiefly upon four articles. 1. The
great importation and consumption of foreign productions. 2. The payment
of debts and interest due to foreigners. 3. The lending money to other
nations. And 4. the great expence of the state, or of individuals,

Could all the bad consequences arising from these four causes, and the
high exchange occasioned by them, be cast upon that interest alone which
occasions them, I would not propose to lay the whole body of the nation
under contribution for repairing the loss.

But if from the nature of the thing, as matters stand, the whole be
found to fall upon trade, without a possibility of preventing it, in
this case, I think, it is better for the nation, _in cumulo_, to lend
its assistance, and share the burdens, than to allow it to fall upon
that part of the body politic from which the whole draws its vigour and

It cannot be denied, that when a heavy balance is due by a nation, it
has the effect of raising exchange upon every draught or remittance.
When bills are demanded to pay a foreign claim, it cannot be determined
from what cause the claim has arisen. Whether for national purposes or
not, the exchange is the same, and equally affects the whole interest of

If this be a fair state of the case, I think we may determine, that such
balances are to be paid by the assistance and intervention of a
statesman’s administration.

The object is not so great as at first sight it may appear. We do not
propose that the value of this balance should be advanced by the state:
by no means. They who owe the balance must, as at present, find a value
for the bills they demand. Neither would I propose such a plan for any
nation who had, upon the average of their trade, a balance against them;
but if, on the whole, the balance be favourable, I would not, for the
sake of saving a little trouble and expence, suffer the alternate
vibrations of exchange to disturb the uniformity of profits which tends
so much to encourage every branch of commerce.

We have abundantly explained the fatal effects of a wrong balance to
banks which circulate paper; and we have shewn how necessary it is that
they should perform what we here recommend. There is therefore nothing
new in this proposal: it is only carrying the consequences of the same
principle one step farther, by pointing out, as a branch of policy, how
government should be assisting to trade in the payment of balances,
where credit abroad is required; and this assistance should be given out
of the public money.

The greatest, and indeed, I think, the only objection to this scheme,
is, that by it the condition of our foreign creditors will be bettered,
for no value received from them. This I allow will be the case when the
balance is against England: but it will be compensated to the creditors
by the loss they will sustain when the balance is in her favour. But
supposing there should be a benefit to foreign creditors, will not this
circumstance raise the confidence of all the world in the English funds?
If there was a proposal made for lowering the rate of money, by
refunding the debts which bear a higher interest than what money can be
procured for, were the continent to pour her wealth into our
subscription, might we not then more readily expect a supply from that
quarter? Besides, is not all the interest due to foreign creditors paid
in bank paper? Is not this demandable in coin, and will not this coin be
exported, if credit be not found? Were the bank of England to keep a
subscription open, at all times, in Amsterdam, for money to be borrowed
there, on the payment of the interest in that city, who doubts but loans
might be procured at much less expence than at present, when we beat
about for credit every where, until by the return of a favourable
balance upon the trade of England, she shall be enabled to fill up the

I feel my own insufficiency to unfold the many combinations which such
an operation must imply. I therefore shall not attempt what, at any
rate, I must leave imperfect. What has been said, combined with what has
been thrown out on the same subject, in treating of other matters, is
sufficient to give a hint, as to the expediency of the plan in general.
And as to the objection which arises from the payments to the public
creditors abroad, I shall reserve the more ample discussion of it till I
come to consider the doctrine of public credit.

                         END OF THE THIRD PART.





                                INTO THE



                    BOOK IV. | OF CREDIT AND DEBTS.

                                PART IV.
                           OF PUBLIC CREDIT.


                                CHAP. I.
             _Of the various Consequences of Public Debts._

The principles which influence the doctrine of public credit are so few,
and so plain, that it is surprising to see how circumstances could
possibly involve them in the obscurity into which we find them plunged
on many occasions.

For the better clearing the way towards the main object, I shall shew,
from experience, and from the progress of public credit in some nations,
that the true principles have been overlooked, and confounded so with
extraneous objects, as to be entirely lost.

The true method of decyphering, as it were, the complicated operations
of statesmen with respect to this branch, is to bring back to their
native simplicity such plans of administration, as, from the infinite
perplexity of them, make people believe, that the principles which
influence this district of science lie so involved, as to require a
peculiar force of genius even to comprehend them.

By proceeding in this plain track, and by keeping the principles
constantly in view, the most perplexed systems of borrowing, funding,
stock-jobbing, coining and re-coining of money, changing the weight,
fineness, and denominations of specie, circulating paper in conjunction
with it, imposing upon mankind with bubbles and bankruptcies, and
calling them operations of public credit, may be rendred intelligible to
the most slender capacity.

Many of these topics have been already explained, and dismissed. This
will enable us to contract the plan of what remains in proportion to the
objects it is to comprehend.

Public credit we have defined to be, the confidence reposed in a state,
or body politic, borrowing money, on condition that the capital shall
not be demandable, but that a certain proportional part of the sum shall
be annually paid, either in lieu of interest, or in extinction of part
of the capital; for the security of which payment, a permanent annual
fund is appropriated, with a liberty, however, to the state to set
itself free, by repaying the whole, when nothing to the contrary is

In this definition I have put in an alternative, of paying a perpetual
interest for the money borrowed, or of paying annually a sum exceeding
the interest; which excess is intended to extinguish the capital in a
certain number of years. In both cases, the annual payment is called an
annuity. When it is exactly equal to the interest agreed on, it is
called perpetual; and determinate, when granted either for life, or for
a certain number of years.

The solidity of this security is essential to the borrowing upon the
cheapest terms: let me suppose it to be as solid as land-property, and
as permanent as government itself: what will the consequence be?

If we suppose government to go on in increasing, every year, the sum of
their debts upon perpetual annuities, and appropriating, in proportion,
every branch of revenue for the payment of them; the consequence will
be, in the first place, to transport, in favour of the creditors, the
whole income of the state, of which government will retain the
administration. The farther consequences of this revolution will furnish
matter for a chapter by itself.

If the borrowings of a state be only in proportion to the extinction of
the old capitals, or of what I have called determinate annuities, then
the debts will not increase.

When a statesman, therefore, establishes a system of public credit, the
first object which should fix his attention is to calculate how far the
constitution of the state, and its internal circumstances, render it
expedient to throw the revenue of it into the hands of a money’d
interest. I say, this is the most important object of his deliberation;
because the solidity of his credit depends upon it.

If, all the interests of the state duly considered, that of trade be
found to predominate, less inconvenience will be found in allowing the
money’d interest to swell: but in monarchies, where the landed interest
is the most powerful, it would be dangerous to erect so formidable a
rival to it. In political bodies every separate interest will consult
its own; and in the contest between those who pay, and those who receive
the taxes, under the denomination of creditors, the security of public
credit becomes precarious.

From this we may conclude, 1_mo_, That in governments where the swelling
of a money’d interest is found to threaten the tranquillity of the
state, care should be taken either to establish a sinking fund, for
paying off, in times of peace, what may have been borrowed in times of
war, or the plan of borrowing upon determinate annuities must be

2_do_, If natural causes be left to work their own effects, without a
systematical plan of borrowing, the consequence will be a bankruptcy,
and a total failure of public credit, at least for some time.

3_tio_, If a state should find the mass of their debts to amount to so
great a sum as to be insupportable, they might have recourse to a total,
or partial abolition of them by an act of power.

4_to_, If they allow their debts to swell without limitation, and adhere
to the faith of their engagements, the whole property of the state will
be in constant circulation, from one class of men to another.

5_to_, If the debts contracted be the property of foreigners, these will
either remove into the country, where their funds arise, or the
property, that is, the _dominium utile_ of the country, will be
transferred from the natives.

These and many other combinations will arise from the extension of
public credit; and an examination of the most natural consequences upon
every supposition, will be the best way to acquire a distinct idea of
the subject in general. To pretend to foretell any one certain chain of
consequences, which may, in fact, result from any combination, is, I
apprehend, impossible; because every one of them will depend upon
circumstances totally unknown. These, in our way of examining matters of
this kind, are all to be founded upon supposition. To supply therefore,
in some measure, this defect, I shall first have recourse to examples of
what has happened in the hitherto infant state of public credit; and as
to cases which have not as yet taken place, we must have recourse to
ingenuity, and endeavour to form the most rational combinations we can.


                               CHAP. II.
              _Of the Rise and Progress of Public Credit._

While the policy of Princes directed them to form treasures, there was
no occasion for public credit. This policy prevailed until the rise of
the Roman empire. Then all the treasures of the world were plundered,
and nations were inslaved. On this revolution, the exigencies of that
great empire were supplied from the annual tributes paid by conquered
nations. Under good reigns, this annual supply swelled the public
treasure, until a prodigal Emperor squandered it away; and took to
rapine and extortion, to fill up the void.

Upon the total dissolution of that great empire, Europe was overrun by
barbarous nations, who, with as little industry as ever, supported their
power by the military services of the whole people.

After the establishment of the feudal kingdoms under their chiefs who
first laid the foundation of them, arose the Barons, or principal
vassals, who, in imitation of their chief, erected small principalities,
which by degrees grew independent.

This distribution of power into many hands had the effect of destroying
all systematic plans of government. Princes were obliged to act
according to the perpetual fluctuation of circumstances, until by a
revolution in their favour, the power of the vassals was swallowed up,
and confined within the limits of a more regular authority.

In proportion as this revolution took place among the nations of Europe,
the system of their government resumed a more permanent form. Justice
was administred with more uniformity; and from this arose a body of
laws, which, in some countries, were called customs: in others, as in
England, common law. Wars then became less frequent; and the military
services not being necessary on all occasions, insensibly became
converted into taxes, proportioned to the exigencies of the time.

During this period, the coin and precious metals of Europe were lodged,
in a great measure, in private coffers. If wars brought them forth for a
short time, they soon found their way back again. Princes were generally
extravagant, and spent money as fast as they got it. In proportion as
industry and alienation increased, the coin came abroad; the inhabitants
became easy in their circumstances; the state flourished, and acquired
reputation. The riches and power of a state began then to be estimated,
as they ought to be, not by their treasures locked up, but by what was
found in circulation; that is, by their industry. Venice, Genoa, and the
Hans-towns, set the example. The Jews, banished from France, on account
of their extortions in the time of the holy wars, fled, as it is said,
into Lombardy, and there invented the use of bills of exchange, for
drawing their riches from countries to which they durst not resort to
bring them off. Interest for money began to be considered as lawful in
many cases: merchants were protected by Princes, for the sake of the
consequences of trade and industry: and from such small beginnings has
that mighty engine of public credit sprung.

While Princes mortgaged their lands and principalities, in order to
obtain a sum of money, they acted upon the principles of private credit.
This was the case in the more early times, before government acquired
that liability which is necessary to establish a firm confidence. In
proportion as it drew towards a regular system, the dawn of credit put
on appearances analogous to the solidity of the fund upon which it was

The second step was to raise money upon a branch of taxes assigned to
the lender, for the reimbursement of his capital and interest. We shall
shew the consequences of this plan of credit from some examples, which
will fully point out all its inconveniencies.

This plan of administration was attended with so much abuse, and so much
oppression, that statesmen began to despair of carrying on public
affairs by such expedients; and therefore concluded that the only way to
obtain money at the least expence, was to raise it on the subject within
the year, or upon what they called short funds.

At length public credit assumed its present form. Money was borrowed
upon determinate or perpetual annuities: a fund was provided for that
purpose: and the refunding of the capital was, in many cases, left in
the option of government, but was never to be demandable by the

This is a short view of the progress of public credit. The principles
upon which it is built are so few, that were I to confine myself to a
bare deduction of them, little new or interesting could be said. I shall
therefore steer another course: I shall collect the sentiments of some
eminent politicians, who have either writ upon, or acted in the
administration of this branch of government; and by applying principles
as we go along, I shall be enabled to point out the extraneous
circumstances which are so apt to involve this subject in obscurity. Had
we not before our eyes the numberless examples of this kind, it would
hardly be possible to conceive how so great a confusion, and so many
calamities, could have followed upon the operations of public credit.


                               CHAP. III.
_Of Anticipations, or borrowing Money upon Assignments to Taxes for the
                 Discharge of Principal and Interest._

I have already observed, that by the cessation of the constant wars, in
which all Europe was engaged during the feudal government of the barons,
nations began to enjoy some sort of tranquillity. Upon this the military
services became insensibly converted into taxes; and as Princes extended
their jurisdictions over the cities, which had been formerly more under
the protection of the bishops who resided in them, taxes were augmented.
These impositions were very inconsiderable, with respect to what they
brought into the King’s coffers. The policy in raising them was bad; the
frauds in collecting them were great.

These considerations engaged Princes to begin by contracting debts, and
to pay afterwards by temporary assignments to the taxes imposed.

From this again ensued the most terrible extortions on the side of the
tax-gatherers, so often complained of by those who have writ on the
affairs of France, as we shall see in the following chapter.

Philip _le bel_, King of France, was the first who, in 1301, admitted,
with great policy, the inhabitants of cities to have a seat in the
states of the kingdom. He formed them into a distinct body, and called
them _tiers etat_, or the third estate, after the clergy and the
nobility. His view was to facilitate thereby the jurisdiction he wanted
to establish over those cities, and to engage them to consent to the
imposition of taxes for carrying on his wars in Flanders, and for
opposing the ambitious views of Boniface VIII. Accordingly, the people
began to pay willingly, when once they found that they had a vote in
what concerned them.

I take it for granted, that every tax, about that time, was imposed for
a particular purpose, and assigned either to creditors, or to people who
advanced money upon it: because we are told that the first imposition
granted by the states to a King of France as a permanent branch of
revenue, was an excise upon spirituous liquors granted to Philip de
Valois, in the year 1345; at which time, however, according to Mr.
d’Eon’s _Memoires pour servir à l’Histoire generale des Finances_, there
were not less than twenty two different taxes known in France, which he
enumerates as follows:

_Tailles_, _complaintes_, _charges_, _redevances_, _coutumes_, _peages_,
_travers_, _passages_, _centiemes_, _cinquantiemes_, _ôtes_,
_chevaucheês_, _subventions_, _exactions_, _chevaleries_, _aides_,
_mariages_, _toultes_, _impositions_, _prisons_, _servitudes_, and

That all these impositions must have been mere trifles, I gather from a
circumstance in the Political History of France, mentioned by the author
just cited, which being itself exceedingly curious and tending greatly
to confirm many things which I have advanced concerning the small
circulation in former times, I shall here briefly mention it.

In 1356, John, King of France, applied to the States for 50,000 livres,
about 9165_l._ sterling, to pay his army. The States, besides several
other taxes imposed to pay this sum, granted him 8 deniers on the livre,
or 3⅓ _per cent._ upon all meat, drink, and merchandize, sold in France
within the year; that is to say, upon the whole alienations of France.
The tax was levied, but fell so far short of the sum required, that it
was made up by a poll-tax.

Can any example be better calculated for forming a notion of the
circulation of France at that time?

It may be here alleged that the prices of every thing were then so very
low, that no judgment can be formed concerning the _quantity_ of
alienation from the smallness of the sum. This objection is of no force,
as I shall presently shew.

We know from the records of the selling price of grain in France, which
was then remarkably cheap in proportion to the years which followed and
which had preceeded, that in 1356, the septier of wheat, or 4 Winchester
bushels, sold for 17 sols 8 deniers of the then currency, which was 12
livres to the marc fine silver, and a French soldier’s allowance for
bread, to this day, is 3 septiers, or 12 Winchester bushels a year. Now
let me suppose, that the whole 50,000 livres had been raised by this
imposition of 3⅓ _per cent._ or 1⁄30 of the total value of the single
article of corn sold at market, which was far from being the case, and
then compare that with the number of men who could have been subsisted
with all the corn sold in France at that time.

If 1⁄30 of the price was the tax, then by multiplying 50,000 livres by
30, we have the value of the corn sold; to wit, 1 500 000 livres: divide
this sum by the value of what a man consumes in a year, to wit, 3
septiers at 17 sols 8 deniers, which make 2 livres 13 sols, and the
quotient will be the number of portions for a man, to wit, 566 037. So
the whole alienation of France, at that time, fell far below the value
of as much wheat as would have fed 566 037 men.

What a poor idea does this communicate of the state of Europe only 400
years ago! It would be in vain to seek for examples to illustrate any
principle of our complicated modern oeconomy in the histories of those
times: their taxes, their credit, and their debts, resembled ours in
nothing but the name.

I now come nearer home, and give an account of the ideas of public
credit formed by Davenant, who flourished about the time of the
revolution in 1688, which I may take to be the æra of public credit in

No person at that time, whose writings I have seen, appears to have so
thoroughly understood those matters as Davenant. He was a man of theory,
as well as knowledge of facts: he had an opportunity which few people
have, to be well instructed in the one and the other; and he turned his
talents to the best advantage for promoting the interest of his country.
He has writ many tracts on political subjects, which, when carefully
read and compared with what experience has since taught us, cast great
light upon many questions relative to the subject of this inquiry.

Davenant, like other great men of his time, was of opinion that
borrowing money upon what he calls short funds, was much preferable to
that upon perpetual interest; and he thought the most adviseable plan of
all, could it be accomplished, was to raise the money wanted within the

Men, at that time, had a terror upon them in contracting debts for the
public: they considered the nation as they would a private man, whose
interest is one, uncompounded, and relative to himself alone: in this
light, creditors appeared as formidable as enemies; they were looked
upon by ministers as such; and this general opinion on one side,
contributed, no doubt, to make the monied people less interested in the
distress of government, and more ready to lay hold of every opportunity
of improving such occasions, for their own advantage.

Government was in constant war with creditors: when ready money failed
in England, it had nothing to pay with but exchequer tallies, upon the
taxes imposed; these were much more easily issued than acquitted. When
the first year’s amount of a tax was engaged, people considered the
security of what was to follow as very precarious; consequently, the
value of it diminished.

This method, however, succeeded far better in paying off debts already
contracted, than in contracting new ones; and the hardships put upon
those who had advanced money to government, and who were paid by
assignments upon taxes previously engaged, made people afterwards very
diffident, except upon proper security. The limited form of the English
government, prevented the violent proceedings between ministers and
public creditors, which were common in France; and this circumstance
contributed, no doubt, to establish the credit of the former upon the
better footing. But still the long expectation of payment of the capital
and interest, upon a distant fund, made Davenant acknowledge that
700,000_l._ in ready money, would at any time go farther than a million
in tallies; and yet he thought it was better for the state to borrow the
million upon a plan of discharging the debt in three or four years, than
to obtain the 700,000_l._ at the expence of a perpetual interest of 8
_per cent._

There were many more considerations which moved Davenant to prefer what
he calls short funds to perpetual interest.

It was the general opinion in his time (not his own indeed, for he
endeavoured to shew the fallacy of it) that money borrowed upon the
anticipation of a fund, _raised and appropriated for the discharge of
it_, was not a debt upon the state; because it did not diminish the
former revenue. We have a remarkable instance of the prevalence of this
opinion, in the famous memorial presented by M. Desmaretz to Philip Duke
of Orleans, after the death of the late King of France; wherein he
advances, that during seven campaigns, from 1708 to the peace of Rastad,
while he had been at the head of the King’s finances, he had not
increased the public debts by more than nine millions of livres capital:
and yet when he came into the administration, in 1708, the King’s debts
did not amount to 700 millions; and we have seen, that at the time of
his death, they were upwards of 2000 millions. But Desmaretz did not
reckon the difference of about 1300 millions; because he had settled
them upon funds of his own creation. This was so much the language of
the times, that no criticism was made upon it.

It is remarkable, that Davenant, in giving an account of the debts of
England, during the period of which he writes, that is, from the
revolution down to the peace of Ryswick, hardly ever takes notice of the
sums paid for interest upon them. The minds of men at that time were
totally taken up with the payment of capitals; and providing these could
be discharged in a few years, it was no matter, they thought, what they
cost in the mean time.

As long as nations at war observe the same policy in their methods of
raising money, the ways in which they proceed are of the less
importance: but when any one state makes an alteration, by which more
money is thrown into their hands than they could formerly obtain; this
circumstance obliges every other state to adopt the same method. Thus
while Princes made war with the amount of their treasures and annual
income, the balance of their power depended on the balance of such
resources: when they anticipated their income on both sides, for a few
years, the balance was in proportion still: when, afterwards, they
adopted long funds and perpetual interest, the supplies increased; but
still the balance was determined as formerly.

The usefulness, therefore, of an inquiry into the principles of public
credit, has not so much for its object to discover the interest of
states in adopting one mode of credit preferably to another, as to
discover the consequences of every one; and to point out the methods of
making them severally turn out to the best account for the state,
considered as a body politic by itself, and for the individuals which
compose it.

When so many different relations are taken in, the subject becomes much
more complex, and therefore the consequences _which can only be guessed
at_ must be less determinate: but on the other hand, it opens the mind,
and suggests many hints which with time may be improved for the good of

People who barely relate political facts, only afford an exercise to the
memory: those who deduce principles, and trace a chain of reasoning from
them, give exercise to the understanding; and as a small spark may raise
a mighty flame, so a hint thrown out by a slender genius may set all the
great men of a nation on a plan of general reformation and improvement.

Let us now take a view of the state of public credit in England, at the
peace of Ryswick; in order to shew how Davenant came to be so great an
enemy to long funds, and more especially to perpetual interest. We shall
at the same time point out from what causes the great change of
sentiments at present proceeds.

At the peace of Ryswick, the debts of England, according to Davenant, in
his fifth discourse upon the public revenues and trade of England, stood
at 17 552 544_l._ sterling; call it 17 millions and a half, as we have
no occasion to calculate with exactness.

Of this debt the capital of 3½ millions was sunk, as he calls it;
because 1 300 000_l._ was on lives at 14 _per cent._ and what was over
to make up the 3½ millions, was intended to remain a perpetual burthen
on the nation.

For paying the interest of this sum, no less than 400 000_l._ a year was
necessary, which makes on the whole above 11 _per cent._

But then it must be observed, that more than one third of the sum was
upon lives at 14 _per cent._: the debt due to the bank, of which we have
spoken in another place, was 1 200 000_l._ for which was paid 100
000_l._ a year, including 4000_l._ allowed for the charge of management:
the remaining million was upon lottery tickets, bearing about 8 _per
cent._ the price at which the bank had lent.

The second branch of debts was near 11 millions, which, he says, were in
course of payment; because they were secured upon branches of revenue
engaged for discharging them. A part of this class of debts was to be
extinguished in the year 1700: and whenever that was done, then a
proportion of the appropriated taxes, amounting yearly to above a
million sterling, was immediately to be taken off.

The third class of debts were those not provided for at all; which in
the place referred to, he makes to amount to no more than 3 200 000_l._
but he afterwards finds his mistake, and that they in fact amounted to
above 5 millions and a half, which makes the debts of England at the
peace of Ryswick, to have been near 20 millions.

Was it then any wonder, that a man who wished well to his country,
should prefer borrowing upon short funds at any expence whatever in the
mean time, rather than at perpetual interest, when he found that
parliaments could not be prevailed upon to allow any tax to subsist one
instant after the discharge of the debts for the payment of which it had
been appropriated?

Besides, there was very little to be gained by borrowing upon long funds
and perpetual interest, as long as the lenders considered their
advantage to consist principally in getting their capitals refunded.

The plain matter of fact was, that trade at that time was only beginning
to take root in England, and demanded funds to carry it on. The use of
banks had not then been discovered, for turning property into money.
Circulation, consequently, was confined to the coin; and profits on
trade were very great. All these circumstances rendred capitals of
essential use; and the consequence was, to raise interest to an
excessive height.

Compare this situation with the present. Were the capital of 140
millions sterling thrown by Great Britain, in a few years, into the
hands of the present creditors; were France, on the other hand, to throw
in as much, what trade could absorb it? Capitals now are only of value
in proportion to the interest they bring; and so long as the interest
paid on public debts is sufficient to keep circulation full, and no
more, interest will stand as it is: when that ceases to be the case, as
in time of war, we see interest begins to rise; and when, on the other
hand, the interest paid, proves more than sufficient for the uses of
circulation, as upon a return of peace, then, from the same principles,
interest must diminish.

Davenant, like an able politician, who had the state of facts before
him, reasoned according to actual circumstances. Whatever was borrowed
on long funds, was charged on the standing revenue of the state, which
parliament was very unwilling to increase in proportion to the charges
laid upon it. This, of itself, was argument sufficient with him to cast
his view upon short appropriations, or upon his favourite object, of
raising money within the year, to supply the exigencies of the state.

But in this operation he found great difficulties. In his treatise of
ways and means, article _excises_, where he is searching for expedients
to provide money for the war, he plainly shews a thorough knowledge of
that imposition. It had taken place in England as far back as the great
civil war, and formed at the revolution about ⅓ of all the revenue: but
what is very extraordinary, and which at present will hardly be
credited, the excise had at that time the effect of sinking the price of
the subject excised, instead of raising the price of what was produced
from it. Thus the excise upon malt, after the revolution, had the effect
of lowering the price of barley, instead of raising the price of beer.

This effect of excises Davenant saw; from which he, and since him many
more have concluded, that all excises fall ultimately upon the land.

This circumstance, together with a feeling for the interest of the great
number of _idle_ poor at that time, who must constantly suffer by
excises, engaged Davenant to propose having recourse to the
land-property and poll-taxes, for raising, within the year, the sums
required for carrying on the war.

According to his proposal, there was to be no less than 3 millions
raised by a land tax, besides half a million by a quarterly poll, which
was, at that time, above 100,000_l._ more than all the permanent taxes
of England put together.

A proposal of this kind coming from Davenant, shews the difference of
situation between those times and the present. On this subject more is
to be learned by comparing facts, than by all the reasoning in the

We have seen how credit stood in England during the reign of William
III. It was then in its infancy, and was set upon the principles of a
free and limited authority, exercised by ministers of state at all times
responsible to parliament at the risk of their heads, in case of any
open violation of the public faith. This is the best of all securities
against the bad exercise of power.

Whoever reads the admirable writings of Davenant, and compares his ideas
with what experience has since taught us, concerning the nature of taxes
and public credit, will plainly discover that the great distress of
England at that time, proceeded from the following causes.

The enterprize they were engaged in, was far beyond their power to
support, although they had the greatest part of Europe to assist them.

The bravery of the British nation was ill supported with money, the
sinews of war.

The coin soon after the revolution fell into the greatest disorder,
which sent it away; and no expedient was found to supply its place for
the uses of domestic circulation; and, consequently, the fixed revenue
could not be paid, nor industry carried on.

The people were unaccustomed to taxes: tunnage and poundage, the branch
with which they were best acquainted, and which they bore with the least
murmuring, because it was little felt by individuals, together with the
excise upon beer and ale, the hearth money, the post-house, and
wine-licences, composed the whole of the permanent revenue of the state,
and amounted to about one million and a half sterling: besides which,
the parliament had granted new customs (all to cease before 1690) to the
amount of about half a million more, upon wines, tobacco, sugar, and
French linnen. This was the state of the revenue at the revolution.

One would imagine that England, under so small a burthen, might have
been able to make the greatest efforts.

Were we now to grapple with France, under such circumstances, what
sanguine hopes would we not form of success! The case turned out widely
different: the first benefit the nation expected in consequence of their
liberty restored, was an abolition of the hearth money; a tax which
raised over the whole kingdom, 245,000_l._ and was considered as an
insupportable burthen.

Such sentiments and dispositions in the English nation, might have been
a sufficient indication of what was to be expected from the war; the
consequences of which had, before 1695, produced the following changes
in the revenue.

The tunnage and poundage, which at the revolution produced 600,000_l._
was by this time reduced to 286,687_l._

The excise upon beer and ale, from 666,383_l._ was reduced to

The hearth money was abolished.

The post-house, from 65,000_l._ was reduced to 63,517_l._

The wine-licences, from 10,000_l._ to 5000_l._

The temporary customs which subsisted at the revolution, were now
expired, and had been either continued by new grants, or by others of
the same nature introduced in their stead. The former had produced
415,472_l._ the new produced 373,839_l._

The last and most important grant of all, was an additional excise upon
beer and ale, which produced 450,000_l._

The revenue at the revolution produced, clear of all charges, 2 001
855_l._ sterling. A revenue established at pretty much the same rate,
and nearly on the same objects, with an addition of a new excise, which
produced 450,000_l._ produced net in 1694, no more than 1 570 318_l._ so
that, deducting the new excise, the old revenue was diminished in its
produce, no less than 1 081 527_l._ or above one half, in five years

In a country like England, at that time, taxes were of little use to the
state, and were an excessive burthen on the people.

What could they be paid out of? Not out of the value in the hands of the
people; because there was no way provided for turning that value into
money. The whole of the money coined before the end of the war in 1697,
did not amount to 8½ millions. It was not to be expected that during the
war, foreign coin was to come in, except in consequence of borrowing;
and we may be very certain, that all that was borrowed, and a great part
of what had been coined at home, had gone out from the year 1695 to
1697. Under these circumstances, the exchequer issued tallies of wood, a
notable expedient for facilitating circulation! And the bank of England
lent not one farthing upon mortgage: all that was possible to be raised
on the land and on the people, by pound-rate, assessment, and poll-tax,
was imposed.

Now let us recall our principles concerning circulation, alienation, and
banking upon mortgage, and combine these with what we have so frequently
repeated, and I think demonstrated, viz. that in proportion to the
extent of alienation, and the demands for money, a circulating
equivalent should be provided, so as to be ready at the hand of every
person who has property to pledge for it; and then decide whether it was
any wonder that credit in England should have been at so low an ebb at
the peace of Ryswick; that taxes should have diminished in their
produce; that interest should have risen to such an extravagant height;
that the people should have groaned under a load from which they could
not relieve themselves.

Under such circumstances, England appears to me in the light of a dumb
man put to the torture in order to extort a confession.

Were eight or nine millions sterling in coin, and a few wooden sticks,
the tallies, constantly sold at a great discount, a circulating value
sufficient to supply the exigencies of a state which was spending
annually at the rate of five or six millions?

The consequence of this total drain of money, was, that people could
neither consume exciseable commodities, or pay the taxes laid upon their
persons and solid property.

The excises failed, because the body of the people, who paid them, were
interrupted in their industry, for want of money to carry on alienation.
Those who were liable to the arbitrary impositions, such as the
landlords, could not pay; because what they had, their land, could not
be given in payment.

From what I have here laid together, we may determine, that as
alienations among individuals cannot exceed the proportion of the
circulating equivalent of a country, so a statesman when he intends
_suddenly_ to augment the taxes of his people, without interrupting
their industry, which then becomes still more necessary than ever,
should augment the circulating equivalent in proportion to the
additional demand for it.

This, according to my notions, cannot be so well compassed as, 1. by
establishing banks of circulation upon mortgage: 2. by relieving those
companies of the load of paying foreign balances by giving bills at par,
or at a small exchange: and 3. by providing funds abroad for the payment
of them, according to the principles above deduced.

Such expedients will work their effect, in a nation where the public
faith stands upon the solid security of an honest parliament, and upon
that responsibility which is fixed upon those who are trusted with the
exertions of the royal authority.

I think I may illustrate this operation by a simile.

A gentleman chooses to form a cascade of the water which serves to turn
his corn-mill; consequently, the mill stops: but in its stead, he
immediately erects another which turns with the wind. Coin is the water,
bank paper is the wind, and both are equally well calculated for the use
they are put to.


                               CHAP. IV.
_Of the State of public Credit in France before the reign of Louis XIV.
     and of the Sentiment of the great Richlieu upon that Subject._

Having laid before my reader the sentiments of Davenant on the subject
of public credit, which were analogous to the then state of England, it
may be instructive to compare them with those of another very great man,
in a rival nation; I mean the Cardinal de Richlieu.

The constitution of Great Britain at present, is pretty much what it was
in Davenant’s time: and that of France does not differ widely from what
it was at the death of Louis XIII.

Britain and France are two nations, rivals in every thing worthy of
emulation, and similar in those distresses which are the inseparable
concomitants of modern ambition, debts and taxes.

As long as the constitution of the two governments shall stand as at
present, Britain will constantly have the advantage in borrowing: France
will have it in paying off her debts. It is this contrast which engages
me to enter into the following detail. I consider it not only as a piece
of historical curiosity, but as a subject of profound reflection, from
which much instruction may be gathered.

The fate of kingly power was decided, both in Britain and in France,
much about the same time. In France, it was supported by Cardinal de
Richlieu; in Britain, it was broken to pieces under Charles I.

Before that time there was no fixed form of government established in
either country; nor can ever a regular constitution take place any
where, until the mechanism of a state becomes so complex as to render
changes extremely difficult. This is becoming the case more and more
every day; and upon this and nothing else will depend the stability of
our present forms.

Let us now take a view of the sentiments of a great minister, delivered
in writing by himself, in his political testament; the authority of
which would never have been called in question, had the matter it
contains been properly attended to, and well understood.

It is in the 7th paragraph of the 9th chapter of the testament, where
the Cardinal shews his ability in paying off the debts of France: and in
going through the subject, he casually has thrown out several things,
which enable us to form a judgment of the state of taxes, and of the
effects they were found to produce in his time.

“It is pedantry,” says he, “to maintain that a prince has no right to
draw money from his subjects, and that he ought to content himself with
the possession of their hearts. None, however, but flatterers, the pest
of society, can maintain, that he may draw from them, justly, whatever
he thinks fit; and that his right extends, in this particular, as far as
his will.”

The taxes of France at this time had been augmented far beyond heir due
proportion; and this had produced many strange and contradictory
phænomena; which, as we shall now see, misled the Cardinal in many
respects; because his experience was not sufficient to discover the
causes of them.

“The augmentation of impositions on the people,” says he, “does the King
_so much_ hurt by raising prices, as to compensate all he can gain.” If
we suppose that the King gained by the augmentation; that is to say,
that the tax, when increased, really produced more than before, and
raised prices proportionally; then the King could only lose his
proportional part, but never the whole. If the tax, by being augmented,
produced less than before, which was the case often, then he lost by a
diminution upon his income, not by the rise of prices. But this was not
the case; because deficiencies of that kind could not fall upon the
King, but upon his farmers.

The true reason was, that the King paid most of his expences by
assignments upon the taxes; and then, no doubt, the higher they were
raised, and the more difficult to recover, the dearer every undertaking
would cost the King.

This reasoning upon the effect of taxes shews, that at that time the
doctrine of them was not well understood. No wonder: theory is not
sufficient to lay open political consequences, even to the greatest
genius. All our information as to these matters arises from experience,
and all our instruction from our attention and reflection.

As a proof of this, he mentions, almost in the same place, an effect of
the increase of taxes, which is quite contrary to the former.

“Consumption,” says he, “diminishes, as taxes augment.”

This is a contingent, but not a necessary consequence, as we have seen,
and has the effect of lowering prices.

I mention these particulars, only to shew how little this great man had
studied the principles of taxation, or combined the causes of those
phænomena which he saw arising from them.

Such contrary effects could not fail to be felt, when taxes were raised
in the manner usual at that time, and when no method was contrived for
augmenting the currency.

In Richlieu’s time the custom was to treat with the _partisans_, as they
were called, or undertakers for the farm of taxes; and for a sum of
money, valued at a certain interest, to give them a right to levy
certain impositions on the people, esteemed equivalent to the rate
agreed upon; some in one province, some in another, as the parties could
agree. Then the partisans fell to work with the people, and committed
the most horrid extortions. In the 4th §. of his 4th chapter, he says,
“The abuse is carried such a length, as to be quite insupportable, and
must end in the ruin of the state; the people are plundered, not taxed;
fortunes are made by rapine, not industry: using the partisans like
spunges is very just; but liable, on the other hand, to great abuse,
when not conducted with moderation and justice.” This is a very
different system of taxation from that carried on in England in
Davenant’s time, and must have produced effects very dissimilar.

But it may be asked, if these partisans in France had found out means of
raising money, far beyond the King’s intention; what prevented the
Cardinal from examining into such means, and using them in a gentle and
equitable manner, to the extent only of satisfying the creditors for the
money borrowed from them?

In those days several difficulties occurred, which rendered this
expedient impracticable.

1_mo_, The partisans would lend in no other way; they would have nothing
to do with the King as a debtor: his credit was not well established;
and by having the direct administration of a tax, they considered
themselves as more secure.

2_do_, Had the King levied the money on the people, and been paymaster
to the creditors himself, there would have been no gains to the
partisans but what were stipulated: had they exacted more than legal
interest, they exposed themselves to great danger; and consequently
would not lend. So, by delivering up the people to be plundered, the
King made a better bargain, he thought, than any other way; and if the
partisans plundered the people, the Cardinal plundered them in his turn.

3_tio_, At this time there were not, as now, merchants of extensive
credit, and fair character, who serve as interposed persons for the
whole money’d interest in Europe, and who can fill a subscription for
millions with a single name.

The partisans themselves, as the Cardinal observes, had often neither
money or credit at setting out: but by parcelling their undertaking into
many hands, they got together what was necessary. Thus the subaltern
associates were in a moment, like locusts, spread over the whole face of
the country, and plundering went on in every quarter.

This represents a quite different system of credit from what we see
established, even in France, at present; where the tax-gatherers are
still loudly complained of, though much more than they deserve. The mode
of raising the taxes is now most exactly specified by the King; and
nothing more can be exacted than according to the plan laid down; but in
every case severe penalties are imposed upon frauds, and when levied,
are accounted for to the farmers; but when compounded for under-hand,
sink into private men’s pockets.

In a country where taxes are rightly established, industrious people
have no occasion to indemnify themselves by fraud for the taxes they
pay; they have a more certain method of being refunded. This shall be
explained in its proper place.

By this method of oppression in the Cardinal’s time, a great part of the
odium was removed from the King, and cast upon the partisans. The people
resembled a dog who bites the stick with which he has been struck,
instead of biting him who holds it[21].

Footnote 21:

  Thus were taxes established in France, in spight of the great aversion
  of that nation to them. The exigencies of the state were apparent;
  Princes were considered as under an absolute necessity to find money
  at any rate; they appeared to be in the hands of unrelenting usurers,
  who became the execration of the people, to whose fury they were
  sometimes delivered over, when stripped of their wealth: the people
  were now and then relieved of a part of their burthen; the tax
  remained under milder management; formed an addition to the King’s
  revenue, and served as a fund for future emergencies.

  But the nature of man is such, that the more he grows in wealth, the
  more the desire of spending it increases. Thus the fund provided for
  unforeseen emergencies, is insensibly incorporated with that which is
  appropriated for the current service of the state.

  Nothing however is more certain than that in time of war, far greater
  sums are required than any people can pay, without contracting debts.

  Is it not then indispensibly necessary, either, 1_mo_, To have a sum
  locked up in treasure? Or, 2_do_, A fund appropriated, to borrow upon
  in time of war, which may serve to pay off the debts in time of peace?
  Or, 3_tio_, To borrow upon the stipulation of an annual payment, which
  may, in a certain number of years, acquit both interest and principal?
  The first is the plan of the King of Prussia; the second that of
  England; the third is, in a good measure, that of France: Holland
  borrows no more, and pays as she can what she owes; Spain lives on her
  income; and Austria remained in the old way till very lately, without
  credit, and consequently without much debt.

I have now said enough to point out the method of borrowing money in
France at this time, from which the nature of the security may easily be

The Cardinal, upon the supposition of an approaching peace, enters into
the plan of paying off what had been contracted. He was resolved to
preserve credit; for even at that time, the consequence of that great
engine was sufficiently felt by this great man, to relieve the people,
and to get rid of the debts.

After a long detail of all the branches of the revenue, and after
shewing how they might be improved, he draws out a general state of
them, and of the debts affecting them; and then adds, “The total revenue
of the kingdom amounts to near 80 millions;” (the silver was then at 27
livres 10 sols the marc fine, which, valued at 2_l._ 4_s._ sterling,
makes the 80 millions worth above 6 millions sterling) “of which there
is above 45 millions engaged for the debts. By good management I pretend
that this immense load of debts, which seems to be the ruin of the King,
shall turn out to his ease and opulence. Some imagine it would be a
right measure to free the state entirely of her burthen, (a general
spunge) but as she cannot, certainly, support all the burthen, so
neither does reason dictate that she should be entirely set free.” No
modern statesman could form a better judgment of things. The Cardinal’s
ideas are just and profound; and it is astonishing how a man
uninstructed by our experience should see so far into remote

He next lays down different schemes for paying the debts, upon the
return of peace and tranquillity. They are all arbitrary, more or less,
according to the standard of English ideas of credit. But if we abstract
from one expedient lately discovered, to wit, the diminishing the
interest, and allowing the capitals to remain, I doubt if any modern
statesman could discover any other than those which the Cardinal has

A preliminary step to all his schemes was, _by an act of power_, to
reduce the debts which bore a higher interest, to that of the 16 penny,
or to a little more than 6 _per cent._ This method of reduction has
constantly been and is still practised in France.

Then he proposes to enter into an account with the creditors for the
sums they had received; and to consider whatever they had obtained above
the legal interest, as payments in part of the capital.

This scheme however he rejects, upon examination. He says it is
agreeable to equity; but that it would have the effect of totally
destroying all credit for the future.

The second expedient was, to reimburse the creditors the sums which they
really paid for the annuities assigned to them: but that he found
impossible to verify; because they had had the address to specify, in
their contracts, sums far exceeding what they really paid. For this
reason he rejects the second expedient also; and adopts a third, as the
best plan of any for paying off the debts. This was, to value the
capitals at what they then sold for in the market, before the peace was

This method appeared to the Cardinal the most equitable, at least he
says so, and the only one practicable; but in my opinion it was the most
arbitrary of the three; the most liable to abuse, and the most opposite
to the principles of public credit, as at present established: and yet
it is a thought, which, when conducted with justice, may upon some
occasions answer excellent purposes, as I shall observe in a proper

Had he adopted the first expedient, of ascertaining the value of the
real advance, there was an appearance of justice; because the creditors
were thereby represented as usurers; and by repaying them what they had
advanced, by the enjoyment of an income above the legal interest, he
treated them with more indulgence than the laws allow between private
persons: but when money was borrowed in time of war, a higher interest
should have been allowed for it than in time of peace, when it was to be
paid off; and therefore to take the standard of peace, in reckoning with
the creditors who had lent in time of war, was an evident injustice.

Could he, according to the second scheme, have discovered exactly the
sums which had been paid for the annuities given, and offered
reimbursements upon that footing, less could have been said against it;
because the mentioning more in the contract than what had been paid, was
a palpable fraud against the King.

The third method, which the Cardinal approves of, contains this piece of
great injustice, that the antient creditors of the state who had paid 12
years purchase for their contracts, that is, those who had lent at about
8 _per cent._ might by this scheme be paid off with one half of what
they originally paid. If it be answered, that nothing is worth more than
what it can bring; I answer, that it may be worth more than what it can
bring _at a particular time_. During a war, an annuity which had been
bought at 12 years purchase in time of peace, will fall to five,
providing annuities can then be bought at that rate. The new loans
constantly regulate the value of the old capitals; but upon a return of
peace, they will rise to the original value.

Another injustice here was, that a minister, by borrowing a sum at a
very high interest, at a time he wanted to set a value on the capitals,
might sink this value. And, in the third place, the greatest injustice
of all consisted in this, that the Cardinal had no thoughts of any
reimbursement, as we shall see by what follows.

There was, at this time, one class of annuities constituted at 8 _per
cent._ These he proposed to reduce to 6 _per cent._ as above, by his
preliminary operation. Such annuities sold at that time for five years
purchase. These, says the Cardinal, _we must fix at that value_; and by
allowing the proprietors to enjoy them for 7½ years, the capital and
interest will be paid off.

Other annuities constituted upon the _taille_ sold for six years
purchase, which, by the same rule, were to be paid off in 8½ years.

The annuities and other debts charged at this time upon the _taille_
alone, amounted to 26 millions a year; and by this scheme, the whole was
to be paid off in 8½ years.

Besides these, there were engagements upon other branches of the
revenue, which sold at different prices. All were to be set upon a
proportional footing. The annuities which sold the dearest, were at 7½
years purchase, which were to be paid in 11½ years.

Thus, by the Cardinal’s scheme, the debts of France, which at this time
bore an interest of about 45 millions, were entirely to be paid off, in
about 12 years, without any new imposition; and when that was concluded,
the lands were to be discharged of 26 millions of yearly _taille_, near
two millions sterling, and the King was to have a clear revenue of 53
millions, or about 4 millions of our money, which with the 26 millions
taken off the _taille_, make 79 millions; the total amount of the French
revenue at that time.

I shall now point out the characteristic differences between the
principles upon which the credit of England and France were established,
at the two periods of which we have been speaking.

Had two such writers as Davenant and Richlieu been to be met with in the
same age, and at a time when England and France were engaged in
contracting debts, the contrast would have been stronger; but as it is,
it suits our purpose. The debts contracted in France from 1708, when
credit fell, to the end of the war in 1714, were in consequence of
rapine and extortion, as in Richlieu’s time: and the operations upon
them, after the peace of Utrecht, resemble those of Richlieu in some
very material circumstances. Such as, 1_mo_, That all the debts were
then, by an act of power, put at 4 _per cent._ without any regard to the
original stipulations. 2_do_, That what the Cardinal despaired of
accomplishing, the Regent undertook, and executed, at a great expence to
the King, and with great injustice to many individuals.

He established a commission, called the _visa_, to inquire into the
unfunded debts, which amounted to 600 millions. His intention was, to
discover the effective sums which had been paid for the grounds of debt.
The most favourable classes of these debts consisted in arrears of pay
to the army, indemnities for pillage, and the like, constituted by notes
issued from the office called the _extraordinaires des guerres_, which
were diminished ⅕; the second class was diminished ⅖; the third class ⅗;
and the last of all, sums due to brokers, usurers, &c. were diminished

But alas! there was not the least shadow of justice in this operation;
because long before the _visa_ was established, most of the grounds of
those debts had circulated from hand to hand, under the greatest
discredit: so that the real sufferers were then beyond the reach of the
indemnity offered; and the usurers and brokers who had bought them up,
were those who made fortunes by them. The Cardinal’s plan of paying at
the selling price, would have proved, _in this particular case_, more
rational, and more according to equity, than any other: so greatly do
circumstances influence our decisions in all political matters!

By the _visa_, the 600 millions were reduced to 250 millions, and put at
4 _per cent._ like all the other debts. No plan was proposed at first
for paying off the capitals; but a sum was appropriated, though very ill
paid, for discharging the interest. We have discussed sufficiently the
famous operations of the Missisippi; by which an attempt was made to
throw the whole national debt on the company of the Indies; and we have
seen how it succeeded.

The distance, therefore, of Richlieu’s time, from Davenant’s, occasions
very little deception in comparing the principles of French and English
credit: and when we come to examine the present state of that question,
I am afraid we shall find, in France, enough of the old system still
remaining, to verify my observation, that the French have the advantage
in paying their debts; the English, in contracting them. Where the
balance of advantage may lie, will be the subject of more speculation.

The first essential difference I find between the credit of France and
that of England, in the two periods we are considering, relates to the
_coin_. In the first, the value of _it_ had been very well preserved: no
considerable alteration had been made upon _it_, from 1602 to 1636, that
the Cardinal raised the denomination of the marc of fine silver, from 22
livres to 27 livres 10 sols, as has been said. Whereas from the
revolution, until the establishment of the bank in 1695, the _coin_ had
suffered in England a debasement, from clipping, of near 50 _per cent._
This circumstance, more than any other, affected the credit of England,
and increased the expence of King William’s war. In Richlieu’s time,
circulation and trade had made more progress in France than in England
at the time Davenant lived. The revenue left by Henry the Fourth was
double to that of England at the revolution: and, in general, the income
of the Kings of France had far exceeded that of the Kings of England,
for many reigns before that of the great Henry. Borrowing also, upon a
fixed and permanent interest, had been known in France so far back as
Francis the First.

That Prince was the first, I find, who contracted a regular debt, at
perpetual interest, upon the town-house of Paris, at about 8 _per cent._
when the legal interest in England, under his contemporary Henry the
Eighth, was 10 _per cent._

The predecessor of Francis, Louis XII. had of gross revenue, charged
with his debts, which eat up near one half, above 2,500,000_l._
sterling. Dutot, Reflex. Pol. Vol. I. p. 204. Francis I. left to his
successor in 1546, a gross revenue of 2,685,314_l._ sterling, and of
nett income 2,287,998_l._ according to Dutot and M. de Sulli.

Under Henry II. and Francis II. the gross revenue stood at about
2,618,000_l._ sterling.

Under Charles the IXth, I have not been able to discover any thing which
can be relied upon: but his successor Henry III. according to Sulli,
had, in 1581, a revenue of 3,250,000_l._ sterling, and left only about
16 millions of livres of debt, which was no great sum.

To this Henry IV. succeeded; and by the capacity and unwearied
application of his great minister M. de Sulli, it was raised to above
six millions sterling, at the beginning of the reign of Louis XIII. This
revenue, by his wars and expences, was left greatly incumbered; but
still the taxes were established which brought it in; and so early in
the reign of his successor Louis XIV. as the year 1683, his revenue
extended to no less than 9,182,914_l._ sterling, according to Dutot.
Reflex. Pol. Vol. II. p. 256[22].

Footnote 22:

  These sums are all converted into sterling, according to the value of
  the French livre at the different periods here mentioned.

Let any man, acquainted in the least with the history of England,
examine the fixed revenue there, under Henry VII. and VIII. Edward,
Mary, and Elizabeth, and their successors, down to the revolution; and
they will evidently see the great disproportion of wealth, proceeding
from taxes, in the one and the other kingdom.

From these facts I conclude, that debts and taxes in France were much
more familiarly known in Richlieu’s time, than possibly they could be in
England when Davenant wrote.

Public credit had long grown up in that kingdom, under the hard
influence of regal power: whereas in this it had sprung up lately, under
the protection of liberty, and a most limited authority.

To that cause I ascribe the difference we find between the principles of
English and French credit; and to an effect similar to the cause I
ascribe the gigantic steps by which Britain has outstripped her powerful
rival in the establishment of her credit, since the beginning of this

It is folly to prophecy, I know; but I may be allowed to conjecture,
that the same causes which have raised the credit of this nation to such
an amazing height, will either force the French from their old
principles, or they will, some time or other, bury her credit in the

Had one half of the acts of power been exerted with us, which have been
so familiar in France: had half the liberties been taken, in tampering
with the claims of creditors; a total bankruptcy would long ere now have
been the consequence: but in Britain credit is young; and has been
tenderly reared. In France she is old, and has been accustomed for many
ages to rougher usage. But example works wonderful effects, especially
when nations live together in this great European society; and the
advantages of a security to be depended on will every day more and more
engage the money’d interest to prefer this to any violent and precarious

How nicely does not Davenant employ political arithmetic, in order to
make true estimates of the taxes to be imposed, and appropriated for a
term of years, for extinguishing principal and interest? How exactly has
not the account between the state and the bank been carried on from
1695, to this day? How faithfully have not all parliamentary engagements
been observed? When, in 1749, a most natural operation was performed, to
reduce the interest of the debt of Great Britain, by gentle steps, from
4 to 3 _per cent._ what an outcry did it not make, although an
alternative was left to the creditors, either to receive an actual
reimbursement, or to accept of the new terms? The credit of Great
Britain must have appeared to France in the light of a pettish child,
educated in the house of a too indulgent parent: her own is not treated
with such gentleness; and when our money-jobbers try their hand at
Paris, and meet with disappointments from unexpected acts of council; to
prevent the laugh going against them, for trusting to the credit of
France, they turn it off by a jest, and pretend that they were only
playing as at the Groom-Porter’s, or in Change-Alley.

In a word, what would totally ruin the credit of England, does not
equally affect that of France. An act of power there, no doubt, throws a
damp upon it for a time; and if that act of power takes place at a
critical juncture, it may cost her very dear; as it has lately cost her
the continent of North America; which, I think, was sold for 32
millions, withheld from her creditors, for a short time, in the end of
1759. But this act of power, and many others since, have not ruined the
credit of France: many trust her still; only those who purchase in her
funds, at present, take about 2 _per cent._ off from their interest, as
a premium for the insurance of her good faith, until she recovers her
mercantile reputation[23].

Footnote 23:

  Money invested in the French funds, _anno_ 1766, will bring the
  purchaser 6 _per cent._ This I consider as 4 _per cent._ for the
  interest, and 2 _per cent._ premium for the risk; and were she now to
  borrow any considerable sums, I suppose the insurance would rise in


                                CHAP. V.
       _Of the present state of public Credit in Great Britain._

We have, in a preceeding chapter, given a general view of the state of
public credit in England, at the end of the last century. In this, I
shall briefly run through the most remarkable revolutions, both in
sentiments and events, which have succeeded since that time.

At the revolution the revenue of England was about two millions
sterling, affected by two debts. The first was called the bankers debt,
contracted by Charles II. and, by letters patent, charged upon his
hereditary excise, to the amount of upwards of 1 300 000_l._ This debt
was reduced to one half, in the last years of King William, and put at 6
_per cent._ perpetual annuity, to commence from 1706. The other was a
debt of 60,000_l._ due to that Prince’s servants, neglected to be paid
by his successor, and discharged after the revolution.

At the peace of Ryswick, the national debt amounted to about 20
millions. The branches of taxes subsisting at the revolution, and
continued till then, produced no more than about 800,000_l_.; but by
additional taxes laid on in the reign of King William, the whole revenue
extended to 3 355 499_l._ of which above one million was to cease before
1700, as has been said. This reduced the revenue, at the beginning of
Queen Anne’s reign, to nearly what it had been at the revolution: out of
which if we deduct the interest of the national debt then subsisting,
and the expence of the civil list, we shall discover the extent of the
funds prepared for engaging in the war with France; and then by
comparing the state of the nation at her succession, with what it was at
her death, we shall form a general notion of the progress of credit,
debts and taxes in England during that period.

   The revenue of England at the accession of
 Queen Anne may be stated at about                           £2 272 000
   The debts subsisting on the 31st of
 December 1701, were                            £6 748 780
   Upon which the annual interest was              566 165
   Queen Anne’s civil list[24]                     600 000
   Which two sums amounting to                                1 166 165
   Being deducted from the revenue, there will remain        ——————————
   for the current service of the state                       1 105 835

Footnote 24:

  The Queen got from parliament 700,000l. for her civil list; but she
  immediately ordered 100,000l. to be annually paid to the uses of the

What the exact amount of the revenue of England was at the death of the
Queen, I cannot justly say. But as it may be comprehended under the
three general branches of customs, excises, and other inland duties, we
may form a guess at it, though imperfectly I allow, from the number of
articles in each.

At her accession, the customs comprehended fifteen articles; at her
death they amounted to thirty-seven: at her accession, the excises
comprehended ten articles; at her death, they amounted to twenty-seven:
at her accession, the other inland duties comprehended eight articles;
at her death, they amounted to sixteen, including the land tax, then
become in a manner perpetual, although laid on from year to year.

At her accession, the public debts amounted (as above) to near seven
millions, at her death they exceeded fifty millions.

In fourteen years, from the revolution to her accession, the money
granted by parliament, partly raised on the subject, and partly
borrowed, or taken credit for, according to the custom of the times,
amounted to above fifty-five millions. During the 13 years of Queen
Anne, the money granted by parliament raised on the subject, or borrowed
as above, amounted to upwards of 80 millions.

By this general sketch I do not mean to enter into exact details: facts
must be sought for in books which treat of facts; our chief object is to
examine the principles upon which the public credit was supported, let
the exact sum of money raised be what it will.

The expences of the French war first engaged the nation to revive those
taxes which had been suppressed; and to impose many others for a
considerable number of years, in proportion to the money borrowed upon
them, according to the principles of the former reign.

In 1702, interest was so low, that government got money at 5 _per cent._
It continued so till 1704, when some loans began to be made at 6 _per
cent._ and at this rate it stood during the war.

But in 1706, the exigencies of government were far greater than what all
the money to be borrowed, or raised on the subject, could supply. This
opened a door to the abuse of paying the growing deficiencies upon the
taxes with exchequer bills, chargeable on distant funds. These fell
constantly to great discount; and the unhappy servants of the state, who
received them in payment, were obliged to dispose of them to people who
could wait for an usurious reimbursement by parliament.

When those exchequer bills had once got into the hands of the monied
people, they had interest with government to engage the bank to
circulate them at 6 _per cent._ interest: but as the funds upon which
they were secured happened at that time, 1706, to be engaged for
discharging debts previously contracted, the bank, during that interval,
could receive no payment of this interest of 6 _per cent._ so the
expedient fallen upon, was to pay the bank compound interest for all the
tallies and bills they were to discount, until the funds appropriated
should be relieved.

This expedient, bad as it was, and burdensome to the state in the
highest degree, proved of infinite service, both in establishing the
credit of exchequer bills, and relieving those who received payment in

This operation was quite similar to those of banks of circulation upon
mortgage. The bank of England was here employed in converting into money
exchequer bills, secured upon the faith of government. Banks upon
mortgage convert into money the property of individuals, upon private
security. Had, therefore, banks upon mortgage been established in
England at this time, all those who had property would have got credits
from them, and would have been enabled thereby to pay their taxes, and
carry on their industry, without diminishing their consumption. The
exchequer would then have had no occasion to issue discredited bills and
tallies for making up deficiencies; because taxes would have been
productive, and the state would have been relieved of this excessive
burden of interest at 6 _per cent._ accumulated quarterly in favour of
the bank.

What extraordinary profit must have accrued to the bank by this
operation, every one must perceive. They were not here procuring funds
to lend at a great expence; all they did was to augment the quantity of
their paper upon government security; which they knew well would be
suspended in the common circle of payments within the country; and the
public borrowings were sufficient to furnish credit for the sums sent
out of the country. In this view we may conclude, that almost the whole
accumulated interest paid, was pure profit to the bank, and a great
augmentation of the national debt.

This operation of the bank in 1706, did not prevent subsequent
deficiencies, in the payment of the navy, army, ordnance, and of many
other articles. In 1710, they amounted to above nine millions sterling.
This was too great a sum to be borrowed; and the bank durst not venture
to discount more than what domestic circulation could suspend: so that
after this great debt had circulated upon the discredited obligations
which had been issued for it, and in that way had fallen again into the
hands of monied people, at 30 and 40 _per cent._ below par, the new
proprietors of it were all incorporated into one great company, with a
governor and directors, who got 6 _per cent._ for the whole capital,
with an allowance of 8000_l._ a year for charges of management.

Thus all the real creditors for these deficiencies lost the discount;
the monied people gained it, and the public paid for all.

When credit is in this languid state, every expence of government rises
in proportion to the discredit of the paper with which they pay, till at
last the whole sum, with interest, accumulation, and expence, falls upon
the state, as if every farthing of it had been frugally expended in
ready money.

This is a general view of the state of credit in Queen Anne’s reign.

Government had not, as in the former war, the inconveniences flowing
from the disorder in the coin to combat with. These contributed more
than any other circumstance, to raise the capital of the debts at the
peace of Ryswick. Circulation, too, was considerably augmented, in
consequence of the increase of taxes, public debts, and the operation of
the bank in circulating exchequer bills and tallies. Yet money was still
scarce, in comparison of what it might have been, had proper methods
been contrived to preserve it upon a level with the occasions for it.

The incorporation, also, of nine millions capital in the hands of a
corporation, which afterwards was called the South Sea Company, was an
assistance to public credit, by increasing a monied interest, the
principal view of which was to fill the government loans, on the
lucrative conditions offered for them. And last of all, the strictly
adhering to the public faith of engagements, without seeking, by acts of
power, to indemnify the state for the losses it had been obliged to
incur, from the circumstances of the times, laid the solid basis of
national credit for the future.

Although the many additional taxes added to the former revenue, did not
increase it in any proportion to the load laid upon the subject during
this war, they served, however, as a good foundation for improvement, as
soon as the effects of peace restored them to their full production. But
the charges laid upon them having become every year greater, government
was obliged to engage certain funds for thirty two years to come, and
sometimes longer; and many branches of taxes, which formerly had been
granted for short terms, were then made perpetual. After the peace of
Utrecht, the expences of the state were greatly diminished, and money
began to regorge: so that in the year 1716, the first foundation of the
sinking fund was laid, by opening a subscription for paying off about
ten or eleven millions sterling, at that time, charged upon several
branches of taxes, the produce of which amounted annually to 724 849_l._

The proprietors of these debts were allowed to subscribe into this new
fund, at an interest of 5 _per cent._ redeemable by parliament: and in
case the whole subscription should not fill at that rate, the bank and
South Sea company became bound to make it up, upon receiving a like
annuity in proportion to their subscriptions.

The bankers debt, of which we have spoken, the only public debt owing at
the revolution, made part of those which were to be subscribed for.

The taxes which had been appropriated for the discharge of those
capitals, from temporary, were made perpetual; with a clause added, that
when the surplus of the fund, after payment of interest, had discharged
the capitals of all the national debt due the 25th of December in that
year, the whole produce of the fund itself should remain at the disposal
of parliament.

After this first operation in reducing the interest, the bank was
satisfied with a reduction to 5 _per cent._ of that paid to them; and
they began to circulate exchequer bills at a more moderate interest than

Public credit was now daily gaining ground. In 1719, the South Sea
company, whose capital was then swelled to eleven millions at 5 _per
cent._ with a sum of 9397_l._ sterling for the expence of management,
enlarged their views; and finding great profits to arise from such a
fund under one administration, formed a project of acquiring a large sum
of the public debts, which remained outstanding upon the original funds
appropriated for them.

For this purpose they proposed to government to acquire, 1. The property
of above 16 millions of redeemable debts, bearing then 4 and 5 _per
cent._ interest; and to reduce the whole to 4 _per cent._ at midsummer
1727. 2. To acquire a sum of 794 000_l._ of annuities upon lives, and
for long terms, as they should agree with the proprietors, at 5 _per
cent._ upon the purchase-money, until 1727; and at 4 _per cent._
afterwards. Annuities were then valued at fourteen and twenty years
purchase, according to their length: they rose, however, during the
operations of the South Sea, to 25 and 30 years purchase. 3. They were
to have a sum added to their former allowance for the charge of
management, in proportion to this augmentation of their stock. 4. That
for the advantage which might follow upon this agreement with
government, they were to pay into the exchequer above seven millions
sterling, toward discharging other national debts outstanding. And in
the last place, they engaged to circulate a considerable sum of
exchequer bills, and to pay the interest of 2 pence _per cent. per
diem_, which should grow upon them during seven years[25].

Footnote 25:

  After the long and particular account I have given of the Missisippi,
  I shall not enter into a like detail, concerning a scheme which
  proceeded upon the very same principles; to wit, the artificial
  raising the value of a stock, by promising dividends, out of funds
  which were nowise proportioned to them. I shall therefore, in a very
  few words, compare some of the operations of the South Sea scheme,
  with those of the Missisippi; and in doing it, point out the principal
  differences between them.

  The great profits upon the Missisippi were expected from the interest
  paid by government for the great loan, the farms of the revenue, and
  the profits upon their trade.

  Those of the South Sea were, at setting out, 1. The profits upon their
  trade: 2. The allowance made them: 3. The difference of receiving 5
  _per cent._ for the money they laid out in purchasing the public
  debts, when money was at 4 _per cent._ as it was when the scheme was
  set on foot: and 4. The surplus money subscribed into the stock above
  par, in consequence of the artifices used to enhance the value of it.

  The seven millions they were to pay to the state, seemingly for no
  value received, were a sort of compensation for receiving the 5 _per
  cent._ for 7 years, at a time when money was worth no more than 4 _per

  These advantages raised, at first, the value of the original stock of
  eleven millions. The consequence was, that the proprietors of the 16
  millions of the redeemable debts, which were to be bought in when they
  came to subscribe their capitals into the new stock, transacted them
  at a proportional discount; which discount, being good against the
  government in favour of the company, served to discharge
  proportionally the seven millions the company was to pay. This gave an
  additional value to the stock; and so it rose, greatly indeed above
  that proportion. Then the company promised a dividend of 10 _per
  cent._ for one half year, upon their capital, at midsummer 1720; this
  dividend was to be paid in stock, which was constantly rising in its
  value; but no information was ever given the public concerning the
  funds which were to produce this dividend; so every one concluded that
  there were hidden treasures in their hands, which enabled them to
  promise such large dividends. Accordingly, stock rose from 300 _per
  cent._ to 375; then to 400, and at last to 1000 _per cent._; and in
  proportion as it rose, the wealth of the former subscribers augmented
  from the surplus above par, paid by the latter, and those who
  subscribed last, bore all the loss upon the blowing up of the scheme.

  But one great difference between the South Sea and Missisippi, was
  this: That in France there was abundance of money in the hands of the
  public, for purchasing the actions, at the exorbitant price to which
  they rose; but in England there was not: consequently, in France, the
  rate of interest fell to 2 _per cent._ and in England, the great
  demand for money to borrow, raised it beyond all bounds.

  Those who subscribed in money, paid down no more than 10 _per cent._
  at subscribing; but became bound to pay up the remainder. But when the
  stock tumbled, people were better pleased to lose the 10 _per cent._
  they had paid, than to pay up the remaining 90 _per cent._ according
  to the terms at subscribing. Those indeed who subscribed their former
  capitals at a vast discount, did not labour under the same
  inconvenience of want of money; but that discount became as real a
  loss to _them_, as the cash subscribed became a loss to the money
  subscribers, the moment that those who were in the secret, and who, by
  the most infamous chain of artifices, had blown up the public frenzy,
  began to realize and sell out, and that the whole was discovered to be
  a cheat. So that upon the whole, the English scheme had much less
  foundation than the French. The first blew up from an absolute
  necessity, and for want of any bottom at all; the last from
  misconduct, and rather from folly than knavery. I return to an account
  of the scheme.

  The original capital of the South Sea company, was 11 750 000_l._: the
  redeemable debts they were to purchase in, amounted to 16 750 000_l._;
  and the value of the irredeemable, or what were called the _absolute
  terms_, was computed at 15 058 000_l._ together 31 808 000_l._

  The proprietors of this original capital of 11 750 000_l._ consulted
  their own advantage only, in purchasing in this large sum of debts,
  which were to be converted into additional stock; and therefore
  sounded very high the great advantages of such a transformation of
  them; 1_mo_, From the profits of the trade, which they were to enjoy
  exclusively. And, 2_do_, From the great addition to their wealth, from
  the constant rising in the price of their stock. They carried their
  views to nothing less than obtaining a majority in the house of
  commons, by the weight of their wealth, and of becoming the absolute
  rulers of the nation.

  The public being from the beginning intoxicated with such ideas,
  subscriptions for stock were opened at 200 _per cent._ above par; and
  some of the proprietors of the 31 808 000_l._ subscribed at first
  their capitals at a proportional discount; that is, they made over a
  debt of 100_l._ for 33⅓ in South Sea stock; and successively, the
  subscription rose to 1000 _per cent._ These immense profits being
  incorporated into the gains of the general stock, were proportionally
  shared by the subscribers themselves, who became proprietors; and the
  higher the stock rose, the more these gains augmented. This influenced
  the infatuation; and the dividends augmenting in proportion to the
  price of subscription, there appeared no end of the rising of the

  The first dividend offered, as has been said, was 10 _per cent._
  half-yearly, in stock: this was afterwards converted into no less than
  30 _per cent._ in money, for that half-year: and when stock rose to
  1000, a dividend of no less than 50 _per cent. per annum_, in money,
  was promised for twelve years to come.

  Had stock risen to 2000 _per cent._ the dividend could have as easily
  been carried to 100 _per cent. per annum_, as it had been to 50 _per
  cent._ when at 1000.

  But whence was this dividend to be paid? The company and the directors
  took good care never to give to the public any light as to that

  To prevent, therefore, such abuses in the rising of the South Sea, it
  ought to have been provided by parliament, that in taking in
  subscriptions, and offering dividends, the directors should have
  informed the public, 1_mo_, Of the money owing to them by government.
  2_do_, Of the money gained by the subscriptions above par. And 3_tio_,
  Of the profits upon their trade. And, on the other hand, of the debts
  due by them; and of the nett balance upon their books, in their

  This would have been fair dealing. But to pretend the necessity of
  secrecy, in a point where a nation is interested, was in itself a mere
  pretext; and had it been otherwise, it might have been answered, that
  a company which is obliged to have recourse to such secrets, ought to
  be prevented from dealing with those who were to remain ignorant of
  _them_, however deeply interested.

From the operations we have been describing, we perceive, that the point
of view in England, from the peace of Utrecht, has always been to reduce
the interest of the national debt; but never to leave in the hands of
the creditors, any part of the savings made; in order to diminish the
capital. These savings have constantly been thrown into a sinking fund,
_supposed_ to be intended for extinguishing the capital; and were it
employed for that purpose for a few years only, and not diverted to
other uses, I am persuaded the consequence would be, to reduce interest
in England lower than ever perhaps it has been seen in any nation. That
interest may be reduced, by making money regorge in the hands of the
lenders, is, I think, an uncontroverted principle: that by regorging in
France, _anno_ 1720, it reduced interest to 2 _per cent._ is a fact
indisputable. I shall not pretend to say positively, that the total
appropriation of the sinking fund, and an augmentation upon annual
grants, to make up the void, would in Great Britain work this effect in
a few years; but I think it is very probable that it would: and if the
domestic creditors, in any state, where debts, _due to strangers_, are
swelled to such a height as to exceed the whole profits made upon trade,
shall by their influence, and from a motive of present advantage,
obstruct a scheme of this nature; the consequence will prove, in the
first place, to discourage, and then totally to extinguish commerce, and
in a little time to occasion an unavoidable bankruptcy; as shall be
farther explained in a succeeding chapter. I return to the South Sea

The proposal of the South Sea company, mentioned above, was accepted of,
and ratified by act of parliament, 6 Geo. I. chap. 4th. But the disaster
which befel credit, in consequence of the ambitious views of those who
were in the administration of that company, prevented the nation from
reaping all the advantages which might have proceeded from it.

The reign of K. George I. though little disturbed by foreign wars,
produced not the smallest diminution upon the capital of the public
debts; and those which subsisted at the peace of Utrecht, stood, at his
death, at 50 354 953_l._ The same taxes subsisted; and every one almost
was by this time made perpetual, except indeed the land tax and malt
duty, which to this day continue to be annual grants.

But alas! this apparent revenue, arising from a multitude of taxes, was
of no use towards defraying the smallest _extraordinary_ expence of
government. Every article of it was engaged for debts; and the
operations for reducing the interest were calculated only to produce a
fund for discharging the capital. The civil list, indeed, that is to
say, the expence of civil government, exclusive of army, navy, ordnance,
and incidental articles, was paid from the permanent taxes, and
considered as a charge upon them. But were not armies and navies then
become as regular an expence upon every state in Europe as judges and
ambassadors? Undoubtedly they were. Yet after the peace of Utrecht, in
laying down the plan which has constantly been followed ever since, for
defraying the regular expence of British government, these two great and
unavoidable expences were considered as contingent only, and provided
for by annual grants: and because armies, in time of peace, in former
reigns, had proved dangerous to liberty from the abuse of power, they
were still considered in the same light, at a time when liberty and
trade were continually threatened from their armed enemies and rivals

When the continuance of peace, in the reign of George the First, had
produced the effect of reducing interest, on many occasions, to 3 _per
cent._ the sinking fund began to gather strength. The land tax, from the
year 1722, had not exceeded two shillings in the pound; and the
_extraordinary_ expence of government, according to the annual grants of
the 13 years of his reign, did not exceed 34 800 000_l._ or 2 670
000_l._ a year.

Public tranquillity was very little disturbed during the first twelve
years of the succeeding reign; and all the _extraordinary_ expence did
not much exceed three millions _per annum_: yet that expence, small as
it was, compared with what it has been since, was almost every year made
out, by taking one million at least from the sinking fund; and in the
years of the least expence, such as 1731 and 1732, the land tax was
reduced to one shilling in the pound, at the expence of taking two
millions and a half from the sinking fund.

These steps of administration I neither censure, or approve of. I must
suppose every statesman to have good reasons for doing what he does,
unless I can discover that his motives are bad. May not the landed
interest, who composed the parliament, have insisted upon such a
diminution of their load? May not the proprietors of the public debts
have insisted on their side, that no money out of the sinking fund
should be thrown into their hands, while the bank was making loans upon
the land and malt duties at 3 _per cent._? Might not the people have
been averse to an augmentation of taxes? When three such considerable
interests concur in a scheme, which in its ultimate, though distant
consequences, must end in the notable prejudice of perpetuating the
debts, although opportunities offer to diminish them, what can
government do? They must submit; and which is worse, they cannot well
avow their reasons.

Such combinations must occur, and frequently too, in every state loaded
with debts, where the body of the people, the landlords, and the
creditors, find an advantage in the non-payment of the national debt. It
is for this reason that I imagine, the best way to obviate the bad
consequences of so strong an influence in parliament, would be, to
appropriate the amount of all sinking funds in such a manner, as to put
it out of a nation’s power to misapply them, and by this force them
either to retrench their extraordinary expences, or to impose taxes for
defraying them.

The second period of George IId’s reign, was from the breaking out of
the Spanish war in 1739, to the peace of Aix-la-Chapelle in 1748. During
these ten years, (1748 being included) the extraordinary expence was,
upon an average, very near seven millions; and at the end of the year
1738, the public debts amounted to 46 661 767_l._ bearing 1 962 053_l._

The first expedient for borrowing money during the war, was to continue
the duty on salt for seven years; and to mortgage it at once for 1 200
000_l._ according to the old plan. To this was added, the expedient of
lotteries, and loans upon indeterminate annuities, according to the
current value of money.

An additional excise upon spirituous liquors, brought in wherewithal to
compensate these additional sums of interest; and the East India
company, for lending one million at 3 _per cent._ upon this occasion,
had their charter continued from 1766 to 1780. This operation I also
consider as an anticipation; and as it was to commence at the distance
of 23 years from the time of the grant, could not fail of being very
burdensome to the nation, however convenient it might be at that
particular time.

Were the India company now, 1766, to purchase the renewal of their
charter for 14 years, what a sum might be expected from it! Yet the
value given for the grant they then obtained did not exceed 30 000_l._
because the other annuities of 3 _per cent._ were sold at that time for
97_l._ or, in the language of the funds, at 3_l._ premium for every
100_l._ subscribed; and this so early in the war as 1743.

The practice of borrowing upon premiums had taken place in Queen Anne’s
reign, and has of late years been very common. The credit of Great
Britain is so firmly established, that in whatever way government
inclines to borrow, the money’d men are willing to lend, provided the
loan be made at the then rate of interest.

To avoid therefore the establishment of funds at different rates, in
proportion to the fluctuations of money, the bargain is made at one
determinate interest. Suppose, for an example, 3 _per cent._ Then,
according as it is found to rise above that rate in the market, a
premium is paid out of the money subscribed; as in this case 3_l._ was
paid out of the 100_l._ subscribed; that is, the subscriber retained it,
and obtained his 3_l._ annuity, for the payment of 97_l._ so this
remained a 3 _per cent._ loan, instead of being, as it really was, at
39⁄97 _per cent._ and was sold and transferred as every other 3 _per
cent._ without occasioning any perplexity.

As the war continued, interest rose, from the demand for money, when the
supplies became deficient.

The year following, viz. 1744, this manifested itself, by the conditions
offered by government, which were: That, of two millions to be borrowed
at 3 _per cent._ as before, upon the whole sum, 1 500 000_l._ should be
formed into perpetual annuities, and the remaining 500 000_l._ into a
lottery, consisting of 50,000 tickets, to be sold at 10_l._ each. The
original subscribers to this loan subscribed therefore 10_l._ for the
ticket, and 30_l._ for the annuity, in all 40_l._; for which they were
to receive 3 _per cent._ But the premium consisted in this; that every
subscriber for 10 tickets, that is, 400_l._ of the total fund, had an
annuity for life given to him of 4_l._ 10_s._

This made five thousand annuities on lives, of 4_l._ 10_s._ each, or 22
500_l._ a year to be added to the interest of 3 _per cent._ on the two
millions, that is, to 60 000_l._ a year of perpetual annuities. So that
the whole loan of two millions this year cost government 82 500_l._ of
interest, or 4⅛ _per cent._; 22 500_l._ of which was to extinguish with
the lives of the subscribers.

Now, if we suppose these life-annuities worth 20 years purchase[26],
this was the same thing as if government had given a deduction of 90_l._
out of the 400_l._ subscribed; consequently the remainder, which was
310_l._ produced 12_l._ This makes the rate of interest upon the loan to
have been 3.87 _per cent._ And as government inclined that the loan
should be made in that way, the lenders were willing that it should be
so; and the difference between 3.87 _per cent._ (the then rate of money)
and 4⅛ interest, which was paid by government, was a sinking fund, as it
were, for the gradual extinction of the capital of the lottery for
500,000_l._ during the lives of the annuitants.

In 1746, perpetual or indeterminate annuities were constituted at 4 _per
cent._ and the premium upon the ten lottery tickets was raised to 9_l._

It would be unnecessary to trace the various methods of contriving the
premiums given in the succeeding years of this war. The principle upon
which they were regulated was always to proportion them to the rate of
interest at the time; and the motive was, I suppose, that by this method
of borrowing, a part at least of the debt would become extinguished with
the lives of the subscribers. There might perhaps be another, to wit,
that by swelling the capital, for value not received, there was an
appearance of borrowing at a lower rate of interest than what in reality
was the case. Thus in 1747, when 6 300 000_l._ were borrowed, instead of
giving not quite 4½ _per cent._ for this sum, they gave 4 _per cent._
upon 6 930 000_l._ which capital, although money should return to 3 _per
cent._ was still to stand at its full value; whereas, had 6 300 000_l._
been borrowed at 4½ _per cent._ there would have been a saving of 600
000_l._ upon the capital; and at the peace, the interest of 4½ _per
cent._ would equally have come down to 3 _per cent._ with the other

Footnote 26:

  This may seem a high valuation, and is, in fact, far beyond what any
  of those annuities sold for: but as the interest of money cannot be
  estimated, for a constancy, at more than 3 _per cent._ and that
  probably the best lives were chosen, the value to government of such
  annuities may well be estimated at 20 years purchase. By De Moivre’s
  tables, annuities for the most favourable ages, interest being at 3
  _per cent._ are valued at 19.87 years purchase; and his valuations are
  generally allowed not to be too high.

During this first war of George the Second, the land-tax was constantly
at 4_s._ in the pound; and new branches of customs, excise, or other
inland duties, were created in proportion to the swelling of the
national debts, which, on the 31st of December 1748, amounted to 78 293
313_l._ sterling, bearing 3 005 325_l._ interest; and the sinking fund,
or surplus of all permanent taxes then imposed, after paying the civil
list, and the interest upon this capital, amounted to 1 060 948_l._
sterling. During this war, the debts were increased above what they were
at the end of 1738, by 31 631 546_l._ sterling capital, and by 1 043
272_l._ of interest or annuities.

The war was no sooner over, and the national expence diminished, than
money began to regorge in the hands of the monied interest: an
infallible consequence of such a violent revolution, when extraneous
circumstances, such as occurred after the peace 1763, do not prevent it.

To profit of this conjuncture, government, early in 1749, proposed that
all the public creditors upon capitals bearing 4 _per cent._ interest,
redeemable by parliament, and amounting to upwards of 57 millions, who
should accept of 3 _per cent._ from December 1757, should have their
debts made irredeemable until that time; and in the interval should
continue to have 4 _per cent._ till December 1750; and 3½ _per cent._
from thence, until the total reduction to _per cent._ in December 1757.

This bold undertaking had the desired effect. Many obstacles were thrown
in the way; but the regorging capitals in the hands of many, made every
one fear the reimbursement for himself; and the credit of France was
then so low, that very few chose its funds as an outlet for their
superfluous money.

But an outlet, unfortunately, was not wanting at the end of the last war
in 1763, as we shall shew in its proper place.

Here then is a notable instance of the effects of regorging money. A
small sum, when compared with a nation’s debt, operates upon the whole
capital; as a small balance upon trade affects the whole mass of
reciprocal payments.

The reimbursement of 57 millions offered by government, in 1749, was, to
the conviction of all the world, an impracticable scheme; but the
stockholders seeing a large sum ready to be subscribed, at the interest
offered, and feeling the effects which that regorging money must, in all
events, have produced, willingly, and wisely perhaps, consented to the
offer made them. Had they refused, and had the scheme proposed become
abortive thereby, perhaps the nation might have been so far animated
against the creditors, from the disappointment, as to have consented to
be at the expence of defraying the service of the following years,
without encroaching upon the sinking fund. What effect this would have
produced upon the rate of interest, in that conjuncture, no man can
tell, nor will the real consequence of such a measure ever be known,
until the happy trial be made. That it would have brought interest below
3 _per cent._ in December 1757, is, I think, evident: for as matters
stood, had the creditors of 57 millions been able to hold out, I must do
them the justice to believe, they would not have consented to the
proposal made to them; and an addition of all the sinking fund thrown
among them annually, at a time they could not dispose of what they had,
upon better terms than those offered them, would undoubtedly then, as at
all times, operate a very great national relief, in bringing down the

During the tranquillity which continued from the peace of
Aix-la-Chapelle, in 1748, to the commencement of hostilities in 1755,
the money expended for extraordinary services amounted on an average to
above four millions _per annum_. The expence of government was then
increased, by supporting the colonies, and by several great and uncommon
outgoings at home, for purposes mentioned in the supplies of those

A little before the breaking out of the last war, that is to say, on the
5th of January 1755, the national funded debt was reduced to 72 289
674_l._ upon which was paid an annuity of 2 654 500_l._ and the sinking
fund amounted to 1 308 814_l_[27]. At the end of 1763, the year of the
peace, the funded debt amounted to 130 586 789_l._ 10_s._ besides above
9 millions not provided for. So that at the end of last war the national
debt exceeded 140 millions; besides the value of the annuities granted
in 1757, 1761, and 1762. Hence it appears, that the war occasioned an
augmentation of upwards of 58 297 116_l._ upon the funded national debt;
besides the difference between the unfunded debts at the beginning and
end of the war; and also the value of those annuities[28].

Footnote 27:

  To this funded debt must be added the unfunded debt, which I do not
  know exactly; and the value of the annuities granted in 1745, and

Footnote 28:

  The annuities of 1757, are estimated, by the author of the
  Considerations on Trade and the Finances, at 472 500_l._ or at 14
  years purchase; and the annuities of 1761, 1762, at 6 826 875_l._ or
  at 27½ years purchase. But this valuation seems too low, for the
  reasons given in the note, p. 394.

I shall, before I conclude this chapter, present a short scheme of the
state of the nation at that time: but first let us take a view of the
methods used to borrow so large a sum in the short period of eight

Until 1757, money was borrowed by government, at a little above 3 _per
cent._ but then a loan of 5 millions being necessary, government
consented to create annuities of 4½ _per cent._ irredeemable for 24
years. By this expedient the monied people eluded the operation of
reducing the interest of this fund, upon the return of peace. How far
this expedient was to be preferred to the former, of increasing the
capital beyond the money paid; or whether it would not have been still
better to have paid for the money wanted, according to the current rate
of interest in the market at the time, waiting until a peace might
afford a favourable opportunity of reducing it, I shall not take upon me
to determine.

I have observed how rash it is for any one to censure acts of
administration, when the motives of a statesman’s conduct are unknown.
This, however, I have sometimes ventured to do, in speaking of things
which happened many years ago; but we ought to be more cautious as we
come nearer to our own times, because not having, as in this case, a
course of experience to point out the errors, we must entirely rely upon
our own sagacity, and reason only from analogy.

During the last war, as in that preceeding it, taxes were increased in
proportion to the interest of the money borrowed; and new impositions
were now laid on the articles of great consumption, which produced
abundantly. The new malt-duty of 3_d._ _per_ bushel, and the new
beer-duty of 3_s._ _per_ barrel, bring in net into the exchequer near
820 000_l._ _per annum_, and discharge the interest of above 27 millions
sterling, at 3 _per cent._ Such a sum raised at the end of a war so very
expensive, and at the very time when the credit of France was totally
fallen, must have operated in the strongest manner, and did in fact
operate more, perhaps, than any other consideration to put an end to
that war, the most glorious that Europe has beheld since the beginning
of this century, or perhaps in any age whatever: advantageous to Great
Britain, notwithstanding all the expence, providing that the
consequences happen to correspond to what may be reasonably expected.

I shall now set before my reader a short state of the taxes, debts, and
public funds of Great Britain, at this bright period of her history.

From the best authority I have been able to procure, the revenue of the
state, considered under the three general branches of customs, excise,
and other inland duties, which comprehend the whole permanent income of
this kingdom, was then as follows:

 Customs net into the exchequer, about                        £2 000 000
 Excise in all its permanent branches net, about               4 600 000
 Other inland duties net                                       1 000 000
 Land tax at 4_s._ in the pound                                2 000 000
 Annual malt tax net                                             613 000
 In all                                                       10 213 000

Let us next state the annual charges and appropriations settled upon
this fund.

  First then the civil list, to the amount
    of                                          £800 000
  2_do_, The interest of about 131
    millions of funded debts at different
    rates of interest, about                   4 500 000
  3_tio_, The interest of nine millions
    not then provided for, supposed to be
    at 4 _per cent._                             360 000
  In all of regular and permanent annual charge              5 660 000
  So there remains free, about                               4 553 000

  From which if we deduct the annual grants of land and
    malt-taxes, which extend together, as above, to          2 613 000
  There will remain as the produce of the sinking
    fund[29]                                                 1 940 000

Footnote 29:

  I find that the sinking fund is now estimated at 2 100 000_l._ by the
  author of the Considerations on Trade, &c. above cited. I am also
  informed that the net produce of the customs exceeds 2 000 000_l._
  considerably: but 4 600 000_l._ is rather the gross than the net
  produce of the _permanent_ duties of excise; that is, of all the
  excise duties, excepting the annual malt-duty. It must also be
  observed, that the annuities payable to the national creditors,
  amounted, the 5th January 1764, to more than 4 720 000_l._ But on the
  other hand, the interest of the unfunded 9 millions is rated too high,
  as appears from the author above quoted. I cannot pretend to give
  exact details. The general sketch here stated is sufficient for my

In that state, nearly, stood the affairs of Great Britain after the
conclusion of the peace in 1763.

It now only remains to offer some conjectures why, after this period,
money was not found to regorge, as after the peace of Aix-la-Chapelle,
so as to furnish an opportunity of reducing the rate of interest upon
all redeemable debts, and by that of raising the amount of the sinking
fund, and more firmly establishing the national credit.

After the fall of the credit of France towards the end of 1759, Great
Britain had the command of all the money to be lent in Europe; and
accordingly amazing sums were borrowed in 1760, 1761, and 1762. Of the
sums borrowed, a great part, no doubt, was the property of strangers;
but they, not being so well acquainted with the affairs of this nation
as the English themselves, instead of subscribing to the loans, lent the
money to our own country people, who, in hopes of a great rise upon the
return of peace, filled the subscriptions with borrowed money.

The consequence was, that no sooner did the funds begin to rise after
the peace, than every creditor demanded his money of those who had
invested it in the public funds. This obliged the latter to bring their
stock to market, and this again had naturally the effect of keeping the
funds very low. Some, more prudent than the rest, had borrowed upon a
long term of repayment; which had the effect of putting off still longer
the settlement of the funds in the hands of the real proprietors, and of
taking them out of those who only held them nominally.

Besides this accidental cause of the low price of the funds, other
circumstances, no doubt, greatly contributed to produce the same effect.

However great the balance of trade, that is, of exportations above
importations, may have been of late in favour of England, still the
mighty sums drawn out by strangers have certainly, upon the whole,
prevented much money from coming home on the general or grand balance of
payments. While that remains the case, it is impossible money should
regorge at home in the hands of the natives, and until this happens,
there is no hope of seeing the 3 _per cents._ above par. But then the
rise, small as it is, since the peace, may encourage us to hope that
that time is not far off: for had the profits of our trade been quite
unable to balance the loss upon our foreign debts, the funds would
undoubtedly still continue to fall, which is demonstrably not the case
from the circumstances of the loan in April 1766, obtained by
government, with the assistance of a lottery indeed, at 3 _per

Footnote 30:

  The loan of 1766, was 1 500 000_l._ at 3 _per cent._ Every subscriber
  for 100_l._ had an annuity of 3 _per cent._ on 60_l._ and 4 lottery
  tickets, valued to them by government at 10_l._ each, in all 100_l._
  The prizes and blanks in the lottery amount to 600 000_l._ and bear 3
  _per cent._ paid by government. The annuities amount to 900 000_l._
  and bear also 3 _per cent._ The number of tickets are 60 000. Hence,
  at 10_l._ each, they amount to 600 000_l._

  The advantage government reaps by this way of borrowing, is, that the
  desire of gaming, raises the lottery tickets above their value, when
  thrown into the hands of the public; and this advanced value being a
  profit to those who receive them in part of their subscription, that
  profit they share with government. Example. In April 1766, when
  government borrowed 1 500 000_l._ at 3 _per cent._ the 3 _per cents._
  were only at 89: consequently, the difference between 89 and 100,
  which is 11_l._ must have been supposed to be the sum which the
  subscribers, from the propensity of people to game, had a reasonable,
  or rather a certain expectation of gaining upon the sale of 4 lottery
  tickets, that is, 2_l._ 15_s._ upon every one.

  To know therefore the real par of a lottery ticket, you must proceed
  thus: it costs the subscribers 10_l._ for which they receive from
  government 3 _per cent._ This 10_l._ as 3 _per cents._ stood at 89, is
  worth at that rate no more than 8_l._ 18_s._ add to this sum what the
  public must pay for the liberty to play, which we have stated above at
  2_l._ 15_s._ and you have the exact par of a lottery ticket at 11_l._

  Whatever they sell at above 11_l._ 13_s._ is profit to the
  subscribers, whatever they sell below 11_l._ 13_s._ is a loss to them.

  This profit, though small in appearance, is greatly increased from
  another circumstance, viz. That the subscribers may sell their
  subscriptions at a time when they have really advanced but a small
  part of it. The first payment is commonly of 15 _per cent._ on their
  subscription: when they sell, they make this profit upon the whole
  capital. Suppose then 15 _per cent._ paid in: if the profit upon
  selling be no more than 1 _per cent._ upon the capital, that 1 _per
  cent._ turns out no less than 6⅔ _per cent._ upon the money they have
  advanced. Thus a person who is possessed of 1500_l._ only, may
  subscribe for 10 000_l._ in this loan: he pays in his 1500_l._ and
  receives his subscription; when he sells he sells 10 000_l._
  subscription, upon which he gains 1 _per cent._: 1 _per cent._ of 10
  000_l._ is 100_l._ so (in one month suppose) he gains by this means
  100_l._ for the use of 1500_l._ But as a counterbalance for this
  profit, he runs the risk of the falling of the subscription, which
  involves him in a proportional loss if he sells out; or in the
  inconvenience of advancing more money than he had to employ in that
  way, in case he should prefer keeping his subscription for a longer
  time, in hopes of a rise in the public funds. By this mode of
  borrowing, government profits by the disposition of the people to
  game. But this propensity has its bounds, and at present it is found
  by experience not to exceed 60 000 lottery tickets, or 600 000_l._
  Were, therefore, a subscription of 3 millions taken in upon the same
  plan with the present of 1 500 000_l._ the regorging number of tickets
  would so glut the market, that the whole would fall below the par of
  their supposed value.

Here then was an outlet provided for more money than all that could
regorge at home, viz. the payment of those foreign creditors, to whom
the stock-holders were indebted. Besides this, the sale by government,
of such tracts of land in the new acquired islands in the West Indies,
provided another; money was even placed in the funds of France soon
after the peace, until the adventurers were checked by the operations of
the King’s council, in reducing both capitals and interest upon them,
contrary to the original stipulations with the creditors. A lucky
circumstance for Great Britain, as it forces, in a manner, all the money
of the continent into the English funds, which equally remain a debt
upon the nation, whether high or low in the market.


                               CHAP. VI.
     _State of the public Credit in France, their Debts, Funds, and
                  Appropriations, at the Peace 1763._

Were it as easy to get information of the political state of France as
of Britain, one might attempt to give such a sketch of their affairs as
we have now done of the other; but when we consider the lame accounts
given by French authors who have made researches of that kind their
particular study, it would be inconsiderate in a stranger ever to
undertake a task so difficult.

In France, the finances are considered as a political arcanum, of great
consequence to the state to conceal from vulgar eyes. It is not long
ago, since the farmers of the greatest part of the revenue used
regularly to burn their books at the end of the year, to prevent the
King’s servants from knowing the state of the most essential part of his
affairs. Cardinal de Fleuri abolished this custom, and obliged them to
lay every thing open to his eyes.

I shall now endeavour to communicate, in as short and distinct a manner
as I can, an idea of the present state of the French revenue; of the
taxes from which it proceeds; of the manner they are administred; of the
purposes to which they are appropriated; and of the state of the King’s
debts at the end of the last war.

From this view we shall form a general notion of their public expences;
of their public debts; and of what is most material, of the resources of
that kingdom in time to come.

For this purpose, I shall divide the whole revenue of France, that is,
all that is raised on the people, to whatever purpose it may be applied,
into five branches; and after having first explained the nature of each,
I shall give a general detail of them in their order.

The first branch is what is called the King’s ordinary revenue. This is
composed of about twelve articles of permanent taxes, supposed to be
sufficient for defraying the whole expence of government, civil and
military, in time of peace.

The second is composed of all the extraordinary impositions which were
laid upon the people, in consequence of debts contracted in the former
war, ended in 1748.

The third, what was imposed during the last war, for the service of the
state, and for paying off the debts then contracted.

The debts of France, contracted in periods anterior to those two wars,
are charged on the ordinary revenue, as we shall presently see.

The fourth branch consists of two articles. The first comprehends
certain perpetual taxes appropriated for certain state expences, not
charged upon the ordinary revenue. The second, what is computed to be
the expence of levying all the taxes, and also the profit of the
farmers: or in other words, what the people pay more than the public
receives from the hands of the tax-gatherers.

The fifth and last branch, comprehends the taxes paid to the court of
Rome, to the clergy, and to the poor; with other duties belonging to
private persons. Under one or other of these five branches, may be very
properly arranged all the taxes paid by the French nation.

                         First general branch.

 The King’s ordinary revenue, with the charges upon it for the year 1761.

     Articles of revenue.          Fr. money.        Sterling ditto.
                                     livres.           l.        s.   d.
 1. Domain (the King’s landed
   estate)                             6 000 000        266 666  13    4
 2. Taille (the land-tax)             56 600 000      2 515 555  11   1¼
 3. Double capitation (the
   poll-tax)                          53 200 000      2 364 444   8  10½
 4. Ditto upon such as have
   civil employments,
   pensions, &c.                       6 700 000        297 777  15   6½
 5. 2s. in the pound on all
   civil employments.                  6 800 000        302 222   4   5¼
 6. The mint, or coinage               2 400 000        106 666  13    4
 7. Decimes and capitation of
   the clergy                         12 400 000        551 111   2   2½
 8. Free gifts from the
   states of Burgundy,
   Provence, Languedoc, and
   Brittany                           10 000 000        444 444   8  10½
 9. Paulette, or annual tax
   upon hereditary offices             2 600 000        115 555  11   1¼
 10. Tax on the Lutheran
   clergy of Alsace                      200 000          8 888  17   9¼
 11. Regale, or the
   sovereign’s right on
   ecclesiastical benefices            1 400 000         62 222   4   5¼
 12. General farms                   112 500 000      5 000 000   —    —
                                     ———————————    ————————————————————
 Total of the ordinary
   revenue                           270 800 000     12 035 555  11 [31]1¼

          Of this total the      livres.        l.     s.  d.
          general farms
          amount to            112 500 000  5 000 000   —   —
          And the other        158 300 000  7 035 555  11  1¼
          branches to

 The farms were increased
   _anno_ 1762 by                      11 500 000      511 111    2   2½
                                      ———————————   ————————————————————
 Total ordinary revenue at the  }
 end of the war                 }     282 300 000   12 546 666   13    4
                                      ———————————   ————————————————————
      Articles of Expence.
 Houshold of the King and royal
   family                               9 400 000      417 777   15   6½
 Ditto, their personal expence          4 600 000      204 444    8  10½
 King’s stables and stud                2 500 000      111 111    2   2½
 Hunting equipages                      1 600 000       71 111    2   2½
 Alms                                     600 000       26 666   13   4
 Pay of the palace guards,
   (_gardes de la porte_) &c.           3 300 000      146 666   13   4
 King’s buildings                       6 600 000      293 333    6   8
                                      ———————————   ————————————————————
 Total expence of the court            28 600 000    1 271 111    2   2
                                      ———————————   ————————————————————
 Pay of all the houshold troops         8 000 000      355 555   11   1¼
 Pay of all the other troops of
   France                              48 000 000    2 133 333    6   8
 Fortifications                         6 000 000      266 666   13   4
 Artillery for land service             6 600 000      293 333    6   8
 Military gratifications, over
   and above the pay                   10 000 000      444 444    8  10½
 Pay of general officers
   commanding in provinces and
   fortresses                           2 000 000       88 888   17   9¼
 Pay, &c. of the marechaussée           2 200 000       97 777   15   6½
 Expence of prisoners of state          1 200 000       53 333    6   8
 Ordinary expence of the navy          25 000 000    1 111 111    2   2½
                                      ———————————   ————————————————————
 Total regular military expence
   by land and sea                    109 000 000    4 844 444    8   10
                                      ———————————   ————————————————————
 Royal pensions                         9 000 000      400 000    —    —
 The appointments of the King’s
   ministers                              310 000       13 777   15   6½
 Ditto of the first presidents
   of all the parliaments in
   France, expence of criminal
   prosecutions, and many other
   articles of that sort               22 000 000      977 777   15   6½
 Appointments of the venal
   employments, of the robe,
   treasurers, receivers,
   comptrollers, &c.                   10 000 000      444 444    8  10½
 Bridges, highways, dykes, &c.          4 000 000      177 777   15   6½
 For the royal academies                1 400 000       62 222    4   5¼
 To the King’s library and
   archives of France                   1 800 000       80 000    —    —
 Extraordinary and casual
   expence upon the two last
   articles                               400 000       17 777   15   6½
 For lighting and cleaning the
   city of Paris                          840 000       37 333    6   8
 Appointments of the secretary
   of the cabinet council, for
   couriers, and other expence          1 400 000       62 222    4   5¼
 Ditto of ministers at foreign
   courts                               1 800 000       80 000    —    —
                                      ———————————   ————————————————————
 Total sum of this branch              52 950 000    2 353 333    6   8
                                      ———————————   ————————————————————
 Interest at 2½ _per cent._
   upon 990 000 000 livres, or
   44 000 000_l._ sterl. of the
   late King’s debts,
   constituted after the
   bankruptcy 1720                     24 750 000    1 100 000    —    —
 Interest at 2½, upon 94
   millions due to the company
   of the Indies, upon their
   old accompts 1720                    2 350 000      104 444    8  10½
 Farther allowed to the
   company, for paying their
   dividends                            2 400 000      106 666   13   4
 Annuities on lives constituted
   during the last war                 16 000 000      711 111    2   2½
                                      ———————————   ————————————————————
 Total interest of debts               45 500 000    2 022 222    4    5
                                      ———————————   ————————————————————

Footnote 31:

  These reductions of French money to sterling, are computed at the rate
  of 22½ livres to the pound sterling. Hence 270 800 000 livres make 12
  035 555_l._ 11_s._ and 1½_d._ sterling, or nearly 1¼_d._ as stated,
  though the amount of the partial sums differs by 1_d._

This article of 16 millions of annuities on lives is the only charge
cast upon the King’s ordinary revenue, in consequence of the last war.

      Articles of revenue.         Fr. money.        Sterling ditto.
                                    livres.            l.        s.   d.
 Recapitulation of the expences.
 Expence of the court                 28 600 000      1 271 111   2   2½
 Fixed military ditto, by sea
   and land                          109 000 000      4 844 444   8  10½
 Justice, pensions, &c.               52 950 000      2 353 333   6   8
 Interest of debts                    45 500 000      2 022 222   4   5¼
                                     ———————————    ————————————————————
 Total expence                       236 050 000     10 491 111   2   2½
 Total ordinary revenue at the
   end of the war                    282 300 000     12 546 666  13   4
                                     ———————————    ————————————————————
 The first deducted from the }
 latter, Remains free        }        46 250 000      2 055 555  11   1½
                                     ———————————    ————————————————————

Besides the articles of expence here stated, there are many others, to
which no limit can be set. The _comptant_, or the King’s private orders
for secret service, and many different expences, form a great article.
Subsidies also to foreign courts: in short, much more, in all human
probability, is spent, than all the produce of this permanent revenue
can answer. So that from this no relief from debts can be expected,
except so far as it may be augmented by the falling in of the annuities
on lives. But public debts are to be paid only by funds appropriated for
that purpose: and were this revenue to be relieved of the whole 45
millions of interest charged upon it, I have little doubt but the King’s
expence would augment in proportion.

I shall delay making any observation upon the nature of the impositions
which produce this revenue, until we come to the subject of taxes, to
which it naturally belongs.

Besides this ordinary revenue of the Kings of France, which (if we
except 26 600 000 livres, or 1 182 222 _l._ 4 _s._ 5¼ _d._ upon the
capitation, added on account of the war only for a time) may be
considered as their civil list; there are other branches of revenue,
which are to be looked on as extraordinary supplies, imposed for raising
money in time of war, and for paying off the debts contracted, upon the
return of peace. Of this nature are _dixiemes_ and _vingtiemes_; taxes
very contrary to the spirit of the French nation, and to which they
never have submitted without the greatest reluctance, and only on very
urgent occasions.

The credit of France fell very low towards the end of the former war,
which began in 1744, and ended in 1748. The parliament registred with
great unwillingness every edict imposing new burthens. The _dixieme_ was
a great augmentation of revenue, for the time it lasted; but being an
imposition which the Kings of France never have been able to make
perpetual, it could not be pledged for such large sums as are required
in time of war, and which no nation, however wealthy, can furnish
annually, as they are demanded.

To supply, therefore, the want of a fund to be mortgaged, and
consequently the want of public credit, the King’s banker M. de
Monmartel, with other men in business, joined their credit, and supplied
the King’s extraordinary occasions. They opened a sort of bank _anno_
1745, where they received money at ½ _per cent._ _per_ month, the
principal payable on demand. This fund gained credit; payments being
regularly made as soon as demanded.

Upon settling accounts after the peace, _anno_ 1748, the King was found
indebted to this bank for a vast sum of money. In order to pay it,
lotteries were set on foot. The tickets were given to the bankers, and
they by the sale of them withdrew their own paper, which was circulating
with very good credit on the exchange of Paris. In order to furnish a
fund for this lottery, the King had interest with the parliament to get
a twentieth penny established, or one shilling in the pound, upon all
the revenues of private people in France, except the clergy, and some
hospitals. The same was charged upon the industry of all corporations of
trades and merchants; and to these was added a capitation upon the Jews.

This was thrown into what they call the _caisse d’amortissement_, or
sinking fund; and appropriated for paying off the lotteries, and some of
the antient debts which were to be drawn, for this purpose, by lot; and
for other extraordinary expences incurred in consequence of the war.
This tax was to subsist, I believe, till 1767. It was this _caisse
d’amortissement_ which was shut up in 1759, by which step a mortal blow
was given to French credit.

Besides this first twentieth penny, there were five other taxes imposed,
and appropriated during a determinate number of years, not exceeding 15
in some, 12 in others, for paying off the debts contracted in the war
ended 1748, and for some extraordinary expences of government.

These shall be specified in the following general view of this branch of
the French revenue.

                         Second general branch.

Extraordinary taxes established after the peace of Aix-la-Chapelle, with
their appropriations.

      Articles of revenue.         Fr. money.        Sterling ditto.
                                    livres.            l.        s.   d.
 The first twentieth penny on
   all income                         23 800 000      1 057 777  15   6½
 Ditto upon tradesmen and
   merchants incorporated              6 500 000        288 888  17   9¼
 Ditto upon the Jews                   1 400 000         62 222   4   5¼
                                      ——————————               —————————
 Total of the twentieth penny,
   which formed a sinking fund,
   shut up in 1759                    31 700 000      1 408 888  17   9¼
 The farm of the posts and
   _relais_ of France                  6 000 000        266 666  13    4
 Two shillings in the pound of
   the capitation added to it          5 520 000        245 333   6    8
 The farm of stamp-duties on
   leather, and duties on
   tanners bark                        2 960 000        131 555  11   1¼
 The farm of duties upon
   gunpowder and saltpetre             2 988 000        132 800   —    —
 Two shillings in the pound of
   the twentieth penny added           3 170 000        140 888  17   9¼
 Total of this second branch
   of                        }
 French taxes                }        52 338 000      2 326 133   6    8
                                      ——————————               —————————
 Appropriations of this fund, as follows:
 1. For paying, during 10
   years, a part of the 990
   millions, of livres, of old
   Annuities, charged above on
   the King’s ordinary revenue,
   and bearing an interest of
   2½ _per cent._ the yearly
   sum of                              5 000 000        222 222   4   5¼
 2. To the India Company, in
   discharge of a debt due to
   them: for 12 years                  2 000 000         88 888  17   9¼
 3. For paying the prizes of
   the bankers lotteries every
   year as they are drawn: for
   12 years                            3 800 000        168 888  17   9¼
 4. Towards making good
   deficiencies upon the funds
   appropriated for the war,
   yearly, till paid                  18 700 000        831 111   2   2½
 5. Ditto upon the funds
   appropriated to the new
   _Ecole militaire_                   1 200 000         53 333   6    8
 6. For payment of perpetual
   annuities created during
   last war                           14 500 000        644 444   8  10½
 7. For making good
   deficiencies upon the
   artillery and magazines,
   during the war 1744: for 12
   years, the annual sum of            1 800 000         80 000   —    —
 8. Ditto upon the article of
   foreign affairs                     8 690 000        386 222   4   5¼
 Total appropriation                  55 690 000      2 475 111   2   2½
                                      ——————————        ————————————————

This branch of revenue appears, by this state, to be totally
appropriated to certain purposes.

Were appropriations adhered to in France, and could one be certain that
debts are actually discharged, at the period appointed, in consequence
of the appropriation for that purpose, we might form a better judgment
of the _actual_ amount of the debts of France, than in fact any man can
do who is not in the administration.

Of this second branch of taxes I consider the twentieth penny, the two
shillings in the pound augmentation upon it, and a like augmentation
upon the double capitation; amounting in all to above 40 millions a
year, as a resource which France may have at all times, in cases of
necessity; although I do not suppose it will be possible to establish
them as a fixed revenue. They will probably, however, as matters stand,
be continued, either in whole or in part, until the great load of debts,
recently contracted, shall be considerably diminished.

As for the remaining sum, arising from the posts, leather, and
saltpetre, these I consider as perpetual; because by their nature they
are not burdensome to the people.

We are not to understand that the annual sum of five millions of livres,
appropriated for paying off the capital of 990 millions of the old
annuities, bearing 2½ _per cent._ stated in art. 1st, was intended to be
applied to these capitals, at the rate they stand. In France it is
supposed that he who gets 20 years purchase of the interest of his debt,
is always fairly paid off; and people there are so fond of
reimbursements, even at this rate of making them, that when, about the
year 1755, a like scheme of paying off those old annuities was
suggested, it was upon condition that every one having, for instance, an
annuity of 100 livres, should, in order to be intitled to this
reimbursement, pay to the King 20 years purchase of it, or 2000 livres
ready money; and that being complied with, his contract was to be put
into the lottery wheel, with all the rest subscribed for, and if it
happened to be drawn, he was to receive 4000 livres; to wit, the 2000 he
had paid down, and the other 2000 as the value of a capital of 4000
livres, at 2½ _per cent._

This every body must allow procures a wonderful facility in paying off
debts. If the English creditors could be engaged to enter into the
spirit of such reimbursements, government, I am persuaded, would not
apply so closely as they do, to reduce the interest upon them; whereby a
great distress comes upon poor widows and orphans, who have their all
vested in the funds. This inconvenience is avoided in France: the poor
are cherished by the comfort of high interest; the state is set free;
and the creditors rejoice in getting back their money, in any shape

The war of 1756 breaking out, obliged the King to think of every
expedient to increase his income. Had he set out by borrowing upon
annuities for lives, at 10 _per cent._ and by mortgaging his ordinary
revenue for the payment of them, his credit would have been more solid,
and the plan of running in debt more systematical: but in the end, it
would have involved him in the terrible dilemma of either making a
bankruptcy, in order to re-instate himself in the possession of his
ordinary revenue, or of making him depend more than he inclined upon his
parliament; whose authority is absolutely necessary for laying a
perpetual and regular imposition, which alone can form a solid basis of
national credit.

He was therefore resolved, in one way or other, to increase the
impositions on the people in the time of war, in order to avoid the
consequences he foresaw from the loss of his fixed revenue.

The King’s ministers at this time could not convince the parliament of
Paris, that in order to borrow money upon the best terms, it was
necessary to have a sure fund for paying the interest of it.

It had been usual to borrow money, on pressing occasions, from the
farmers of the revenue, bankers, and financiers, as they are called, at
7 and even 10 _per cent._ They understanding the chain of the affairs of
France, used to obtain credit both abroad and at home, from people who
would not lend directly to the King; although they knew at the time of
the loan that the money was borrowed for his use. The reason was, that
the King was under an absolute necessity to keep faith with this set of
men, upon whom the credit of France has depended for many ages: and as
the profits they used to make were very great, ministers knew, by a sort
of instinct, when they had gained enough; and in clearing their accounts
in the usual way, a sufficiency was left to them, to repay what they had
borrowed from others.

Perhaps the parliament thought, and perhaps with reason, that in the
main it was cheaper to borrow in this way, at 10 _per cent._ than in the
English way, at 3 _per cent._ because of the great facility in paying
off the debts which attended it; but this is only a conjecture. That
there was however a contrast of sentiments between the parliament, and
the minister of the finances at that time, who had contracted English
ideas of credit, is most undoubted; and it was this contrast which
brought on the bankruptcy in 1759, when the sinking fund was shut up
against the creditors by an act of power. To judge of the sentiments of
both parties with candour, let us then examine the plan of borrowing
proposed by the one, and by the other.

The minister, M. de Silhouëtte, proposed to the King, to levy, as a
solid fund of credit to borrow upon, a general subvention, as it was
called, over all France; or in other words, to make the repartition of a
large annual payment, over all the cities, towns, villages, and suburbs
in France.

This was to be divided according to the supposed wealth and quantity of
circulation every where. Every district was ordered to report to the
King’s council their opinion concerning the particular mode of raising
their proportional part of it, in the best way relative to their
situation. This report the council was to examine, and to approve or
amend the proposal given in, according to information.

This was perhaps the best plan of taxation, if properly executed, that
ever has been thought of, for a nation already under a regular
administration of government, and accustomed to pay considerable

It removes the inconvenience attending all general taxes, which never
fail to affect unequally different places and districts. It admits of a
prudent mixture of excises, with taxes upon possessions, according to
the internal circumstances of every place. It confines them to towns,
where alone all excises at least can be levied with propriety. It
lightens the oppression of tax-gatherers; because the corporation may
employ whom they will for that purpose. In a word, it is a tax
administred with all the advantages of a farm.

This tax, the general subvention, after it had been imposed by edict,
registred in a Bed of justice September 1759, fell to the ground, from
the nature of the French constitution; because it could not be levied
without a systematic administration, supported by the authority of the
courts of law, to which the parliament would not give their concurrence,
for a very plain reason.

The general subvention being very extensive, and calculated for a fund
of credit to borrow upon, was, by its nature, of a species proper to
become a perpetual tax, as all excises are. The parliament of Paris
seemed to think it agreeable to the constitution, which they are sworn
to maintain, to preserve at all times in their hands a certain power
over the King’s purse, in order to prevent an extravagant minister from
impoverishing the King and the kingdom at once, or running them into the
inextricable confusion of an infallible bankruptcy.

This circumspection of the parliament was represented in another light
at court; and odious parallels were drawn between what had happened in
England about the middle of the last century, and what soon might be
expected in France.

Upon such topics every one judges as he is affected. The minister was
railed at by the parliament-party, in the most virulent manner. Who was
in the right, and who was in the wrong, upon the general question, of
the propriety of raising so large an imposition, to serve as a fund of
credit, under a government like that of France, I shall not here
examine. But that a solid fund should be provided, in one way or other,
proportional to the actual deficiency of the annual supplies, and to
what could not be raised within the year, for the uses of the war, was,
I think, entirely agreeable to principles.

This the minister had proposed in the subvention, though perhaps the
plan was too great; and the parliament, when they rejected the proposal,
sensible that the exigencies of the state demanded a supply of money,
proposed in their turn, as an equivalent for the general subvention, to
coin for 600 millions of notes, which were to have the sanction of
parliament for their fund of payment; but no provision was made for the
ready circulation of them in the interim.

Here then is an example where the sentiments of the French nation were
divided upon the principles of public credit. And this affords a good
opportunity of reconciling them, and of confirming the doctrine we have
been endeavouring to establish.

The minister felt the disadvantage of the King’s borrowing upon a lame
security; he therefore proposed a solid and permanent fund of credit for
performing the obligations to be contracted with the creditors.

The parliament, on the other hand, examined the situation of the people,
who, they thought, were no longer in a capacity to pay the taxes already
imposed; and therefore concluded, that it was unnecessary to establish
any new one. They therefore proposed to augment circulation, by
providing a means whereby alienations might be carried on, and by that
they expected to render the taxes already imposed more productive.

Both parties were in the right, as commonly is the case in such
disputes; but they did not perceive how their opinions could be

Had circulation been facilitated by the establishment of a bank upon
true principles, perhaps the taxes already imposed, might have produced
a sufficient fund for carrying on the war, without the expedient of the
general subvention.

But the manner proposed by the parliament to increase circulation, by
paying with paper money, and not providing a fund for realizing it when
it came to stagnate, was an expedient entirely delusive. The paper would
soon have fallen to a great discount: the remembrance of the Missisippi
would probably have been revived, which would have occasioned the
locking up of the coin; and the kingdom might have been involved in the
greatest distress and bankruptcy.

The minister should therefore have concurred with the parliament in a
scheme for establishing a bank: the King might safely have entrusted the
administration of it to parliament, and even have supplied coin from the
royal treasury for circulating the paper. But the minister, I suppose,
took it for granted, that taxes _would_ be paid, providing they were
imposed; and the parliament, that the paper _would_ circulate, providing
it was issued.

The reasonings I have ascribed to each party in this dispute, are not
founded upon information: they are only natural conjectures which I form
from the opposition of sentiments between men who were all, I suppose,
well acquainted with the situation of France, and who respectively took
part according to the combinations which occurred to them.

The remonstrances of the parliament at that time were filled with an
enumeration of distresses, all of which are the necessary effects of a
scanty circulation. In the King’s edicts there is strong reasoning upon
the principles of public credit. The candour I feel in my breast, while
I examine the merits of this important dispute, will I hope serve as an
apology for all mistakes in point of exact information.

The result upon the whole was what might have been expected. The
subvention was dropt, and the proposal of the paper was rejected by the

The middle term adopted by the parties, shewed however, I think, that in
the main the minister had been in the right; because the taxes were
increased and paid: had the paper been issued, the success, I am
persuaded, would not have been favourable in proportion.

But instead of a permanent subvention, a tax of the most odious nature
was established, which, from this very circumstance, there was little
danger of seeing long continued.

In the preceeding year, a second twentieth penny upon possessions had
been imposed, to which had been added 2 shillings in the pound of the
tax itself; a new poll-tax upon certain classes of the people in
proportion to the number of their servants; an additional duty upon the
stamps upon silver and gold plate; higher duties on foreign manufactures
imported; and 20 _per cent._ on all former duties on consumption. The
second twentieth was to continue until two years after the peace; the
other duties for eight years longer.

Notwithstanding this heavy load already laid upon property, the
parliament, rather than consent to the subvention, agreed to impose a
third twentieth penny upon possessions; and to render this tax more
productive, additional poll-taxes upon place-men, &c. were comprehended
in that edict. Thus ended the dispute: the minister was dismissed, and
the edict for the general subvention was withdrawn.

Besides the second and third twentieth penny, several augmentations of
revenue were obtained during the last war, which I shall presently
mention, two of which, for their peculiarity, I shall briefly explain.

The clergy of France, strongly pressed by the King, supported by his
parliaments, to give in a declaration of their income, in order to be
taxed at so many shillings in the pound, like other subjects, after many
evasions, at last succeeded in disappointing the scheme. They offered an
extraordinary free gift equivalent to the two twentieths, to be paid
annually until 1765, and this was accepted.

The ordinary free gift of the clergy is at the rate of a million and a
half of livres a year; this they doubled and paid at the rate of three
millions a year, which we may consider as two shillings in the pound of
all the clergy possess in France, which makes their revenue to be about
thirty millions a year, and I believe it does not far exceed it.

The other branch of revenue is something analogous to a circumstance in
the history of English taxes: it was called an extraordinary free gift
to be paid by every corporation in France. Charles I. had a very exact
valuation put upon all England, when he proposed to levy ship-money.
This was found so correct that it served for a basis to regulate the
distribution of the sum of 100 000_l._ a year paid to Charles II. for
his courts of wards and liveries[32].

Footnote 32:

  Davenant’s Ways and Means, Article of Monthly Assessments.

In like manner the King of France had a very accurate estimate made of
all France, when he formed his edict for a general subvention, which had
pretty much the fate of the ship-money. And though the parliament
refused their consent to the great subvention, they agreed to establish
the epitome of it in August 1759: which see in the note[33].

Footnote 33:

  This free gift was imposed upon all cities, towns, buroughs, villages,
  and suburbs, in France. And those lying within the jurisdiction of
  every Intendant were joined in one sum, leaving the repartition of
  them to those magistrates, as the custom is.

 For the generality of Amiens                  153 300
 For the generality of Orleans                 356 000
 For the generality of Paris                 1 578 000
 For the generality of Chalons                 200 900
 For the generality of Poitiers                265 200
 For the generality of Soissons                 60 700
 For the generality of Tours                    34 434
 For the generality of Rochelle                131 800
 For the generality of Bourges                 105 600
 For the generality of Moulin                   91 770
 For the generality of Riom                    165 628
 For the generality of Lyons                   397 454
 For the generality of Artois                  150 000
                                               ———————    Sterling.
 Sum total                                   3 690 786   £164 034 18 8

  The duties imposed by this arret are to be levied upon all classes of
  the people, nobility, commons, clergy, even nuns and monks; no
  exception is made except in favour of hospitals for their own
  consumption only.

This tax, small as it is, may be of infinite consequence in times to
come. The great difficulty of raising taxes is in the beginning; and if
the levying of this trifle in every city, town, village, and suburb, in
France, be carefully conducted, with a view to subsequent augmentations,
and if it be properly distributed upon every branch of consumption and
revenue, nothing will be so easy to the King as, by his own private
authority, to enforce a gradual augmentation of it, and perhaps in time
to absorb in it, the whole, or at least the greatest part of the revenue
of his kingdom.

Besides the two twentieths, and the free gift of the cities, several
other taxes of less moment were either imposed, renewed, or continued
for a longer term, and then sold for raising money for the service of
the year, viz.

1_mo_, Five years of the free gift of the clergy of France, amounting to
15 millions, were paid down at once by that body.

2_do_, That of the clergy of Alsace, paid in the same way, for the same
term, produced 3 millions.

3_tio_, A duty on firewood, &c. in the city of Paris, valued at 3 400
000 a year, sold for 7 years, for 10 millions.

4_to_, Another duty upon the consumption of eggs, butter, &c. valued at
2 400 000, sold for 15 years for above 30 millions.

5_to_, A like sum got from the farmers general, for allowing them to
raise the price of their tobacco 10 _per cent._ for 10 years. The annual
amount of this I do not know.

6_to_, And in the last place, the third twentieth penny, which produced
36 270 000 a year, was sold for the two years for which it was imposed,
for 60 millions.

Thus, of all the impositions raised during the last war, the second
twentieth, and an epitome of the subvention raised in all cities, towns,
villages, and suburbs, in France, remain unalienated.

In order to throw all the light I possibly can upon the present state of
that nation, I shall next briefly recapitulate the extent of the annual
supplies raised for the service of the different years of the war, from
1756 to 1762 inclusive; in which I shall point out, as well as I can,
how this third branch of revenue was appropriated.

It is in this manner only I can communicate to the reader what I can
guess concerning the present state of that nation. Could we know, as
with us, the amount of taxes, and outstanding debts at every period,
that detail would be unnecessary.

The extraordinary grants of 1756, amounted to 121 millions, 5 377
777_l._ sterling.

In October 1755, the farms of almost all the taxes were renewed. Upon
such occasions, it is usual for the farmers to advance sums in
proportion to the extent of their farms, for security of the lease; for
which advances the King, at that time, allowed them an interest out of
their yearly farm-rent of 5 _per cent._ and the sums advanced were
appropriated for the service of the year 1756. Here follow the sums
advanced upon the several farms.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.
 1. Upon the general farms,
   after repaying what had been
   advanced upon the former
   lease, nett into the royal
   treasure                            40 000 000    1 777 777   15   6½
 2. Upon the farm of the posts
   of France                            3 000 000      133 333    6    8
 3. Upon the farm of the stamps
   upon leather                         1 000 000       44 444    8  10½
 4. Upon the farm of the
   _paulette_                           1 000 000       44 444    8  10½
 5. Upon the farm of duties on
   gun-powder and salt-petre            1 000 000       44 444    8  10½
 6. The farm of the market of
   Poissi was sold for seven
   years, for                          15 000 000      666 666   13    4

 This sum was the price of the
   total alienation of the
   duties collected in that
   market for the whole time;
   which duties should be
   marked as a branch of
   revenue; but as the annual
   amount of them cannot be
   ascertained, it is here
   thrown in as an
   extraordinary means of
   supply arising from the sale
   of a tax.
 7. Besides those casual supplies
   from the new farms, there was
   levied this year, for the sale
   of five years revenue of the
   free gift of the clergy of
   France, to 1761 exclusive           15 000 000      666 666   13    4
 8. And for that of Alsace              3 000 000      133 333    6    8
 9. Raised by a lottery, for which
   the annual sum of 3 800 000 was
   set apart for 11 years              32 000 000    1 422 222    4   5¼
 10. And for the sale of the
   duties upon firewood, &c. in
   Paris, for 7 years                  10 000 000      444 444    8  10½
                                     ————————————    ———————————————————
 Total extraordinary supplies   }
   for 1756                           121 000 000    5 377 777   15   5¾

 The supplies for 1757, amounted
   to 136 millions, £6 044 444
 1. Two lotteries, for which
   were appropriated, for the
   first, 3 800 000 during 12
   years; and for the second, 4
   000 000 during 11 years.
   These sums were annually to
   be drawn, and paid every
   year; for which was paid to
   the King, for the first, 36
   millions; for the second, 40
   millions; together                  76 000 000    3 377 777   15   6½
 2. The ordinary revenue was
   charged with 6 millions of
   life annuities, at 10 _per
   cent._ sold for                     60 000 000    2 666 666   13    4
                                     ————————————    ———————————————————
                                      136 000 000    6 044 444    8  10½

 The supplies for 1758, amounted
   to 135 millions, £6 000 000
 1. The first was a loan of 40
   millions, upon a perpetual
   annuity of 5 _per cent._
   proposed to be paid off by way
   of lottery, at the rate of 3
   200 000 yearly — —                  40 000 000    1 777 777   15   6½
 2. The King obliged those who
   have hereditary offices
   proportionally to purchase
   additional salaries, to the
   extent of 1 million a year,
   at the rate of 20 years
   purchase, or forfeit what
   they had                            20 000 000      888 888   17   9¼
 3. The additional 10 _per
   cent._ upon the price of
   tobacco, was sold this year
   to the farmers, for                 30 000 000    1 333 333    6    8
 4. The ordinary revenue was
   charged with 3 600 000
   livres, life-annuities, upon
   two lives, at 8 _per cent._;
   sold for the sum of                 45 000 000    2 000 000    —    —
                                     ————————————    ———————————————————
                                      135 000 000    5 999 999   19  11¾

 The supplies for 1759, amounted
   to upwards of 194 millions, £8
   652 923 sterl.
 1. The first supply for this
   year was the epitome of the
   general subvention, called
   an extraordinary free gift
   from all the cities, towns,
   burgs, villages, and suburbs
   in France                            3 690 786      164 034   18    8
 2. 3 600 000 livres of
   perpetual annuities,
   borrowed upon the general
   farms, at 5 _per cent._
   until reimbursement, sold
   for                                 72 000 000    3 200 000    —    —
 These are called the contracts
   upon the farms; each one
   thousand livres capital.
 3. The free gift of the
   clergy, for five years from
   1761 inclusive, sold at once
   for                                 16 000 000      711 111    2   2½
 4. The second twentieth penny
   produced for this year              35 000 000    1 555 555   11   1¼
 5. Sold to the magistrates and
   heads of colleges in some
   towns in Flanders, some
   branches of their own taxes,
   for                                  8 000 000      355 555   11   1¼
 6. The ordinary revenue was
   charged with 3 millions of
   annuities, called
   _tontines_, sold for                60 000 000    2 666 666   13    4
                                     ————————————    ———————————————————
                                      194 690 786    8 652 923   16    5

 The supplies for 1760,
   amounted to above 251
   millions, £ 11 186 430
 1. The Paris-duties above
   mentioned sold for 15 years         30 283 900    1 345 951    2   2½
 2. The 3d shilling in the
   pound sold for two years,
   for                                 72 340 000    3 215 111    2   2½
 3. The 2d shilling produced
   this year                           35 000 000    1 555 555   11   1¼
 4. Raised by perpetual
   annuities, at 3 _per cent._
   secured on the King’s
   ordinary revenue[34]                60 000 000    2 666 666   13    4
 5. The free gift of the
   cities, &c.                          3 690 787      164 034   19   6½
 6. By a lottery at 5 _per cent._
   where the discredited paper
   (the payment of which was
   stopt, when the sinking fund
   was shut up in 1759) was taken
   in payment for one half, was
   raised                              50 000 000    2 222 222    4   5¼
   7. Borrowed from the officers of the town-house of Paris, at 5 _per
 secured on the ordinary revenue          380 000       16 888   17   9¼
                                     ————————————    ———————————————————
                                      251 694 687   11 186 430   10   7¼

 The supplies for 1761, exceeded
   120 millions, £5 364 034 sterl.
 1. Charged upon the ordinary
   revenue, 200 000 livres a
   year upon lives and other
   annuities, at 10 _per cent._
   in favour of the order of
   the Holy Ghost, sold for             2 000 000       88 888   17   9¼
 2. Borrowed on the duties upon
   leather, at 3 _per cent._           30 000 000    1 333 333    6    8

 These were the annuities which
   were ordered to be reimbursed
   after the peace of 1763, at 20
   years purchase; and which, I
   suppose, had been subscribed
   for, partly, in discredited
 3. Charged on the ordinary
   revenue, 4 millions a year,
   for annuities at 8 _per
   cent._ upon two lives, sold
   for                                 50 000 000    2 222 222    4   5¼
                                       ——————————    ———————————————————
                                       82 000 000    3 644 444    8  10½
 4. Besides these sums, there
   was the amount of the 2d
   twentieth, and the small
   subvention, or free gift,
   which continued to be
   applied to the current
   service, as they had not
   been sold off; _inde_               38 690 787    1 719 590   10    8
                                     ————————————    ———————————————————
 Total                                120 690 787    5 364 034   19   6½

 The supplies for 1762,
   exceeded 159 millions, £7
   076 923 sterl.
 1. The farms which had been
   lett in 1755, came to be
   again renewed this year;
   from which arose a sum for
   the security of them, of            83 200 000    3 697 777   15   6½
 2. There was no borrowing this
   last year of the war. The
   second twentieth, which
   never had been sold; the
   third twentieth, which this
   year became free, as it was
   imposed a-new for two years
   more; and the little free
   gift by all the towns of
   France; made together an
   additional sum of                   76 030 787    3 379 146    1   9¼
                                     ————————————    ———————————————————
                                      159 230 787    7 076 923   17   4¾
                                     ————————————    ———————————————————

Footnote 34:

  When the bad consequences of shutting up the sinking fund were
  discovered, the King opened subscriptions, such as were the _tontines_
  of the last year, this of 60 millions, and one the next year of 30
  millions; in which the discredited paper was received, in part payment
  of the sum. This I suppose is the reason why the supplies of 1759 and
  1760 appear so high, and also why money appears to have been borrowed
  at so low a rate as 5 _per cent._ upon tontines, and 3 _per cent._ on
  article 4th of this year; because the interest of that part only which
  was paid in specie is stated; not the interest upon the discredited
  paper subscribed, which was paid out of the first twentieth.

Recapitulation of the expence of the seven years of the war.[35]

                                        Fr. money.     Sterl. ditto.
                                          livres.           l.
  For 1756                                121 000 000       5 377 778
  For 1757                                136 000 000       6 044 444
  For 1758                                135 000 000       6 000 000
  For 1759                                194 690 786       8 652 924
  For 1760                                251 694 687      11 186 431
  For 1761                                120 690 787       5 364 034
  For 1762                                159 230 787       7 076 924
                                         ————————————     ———————————
                 Total                  1 118 307 047      49 702 535
                                         ————————————     ———————————

Footnote 35:

  The Sterling money, in this recapitulation, is reduced to the nearest
  integer, neglecting fractions of a pound.

Having gathered together, from the best information I can, the amount of
all the extraordinary supplies raised in France, for the service of the
last war, let us suppose, that at the peace, no part of any capitals
borrowed had been paid off, according to the plan laid down for that
purpose at the time of contracting. Let us suppose, I say, that all the
lottery funds and life-annuities, as well as those annuities which were
intended to be paid off by way of lottery, stood at their full extent,
without diminution, at the peace, and then calculate what sum of debt
should have remained upon France in consequence of the war.

As for the sums raised, either upon renewing the farms of the revenue,
the amount of new taxes imposed, or such branches of them as were sold
at once for a sum of money, they remain no debt upon the King; and are
therefore to be considered (as they really were) extraordinary resources
drawn from the people, without any recourse to credit or borrowing.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.
 These sums collected from the
   above supplies, and laid
   together, amount to                520 926 948   23 152 308   16    —
                                     ————————————    ———————————————————
 Let us then state the whole of
   the supplies as above            1 118 307 047   49 702 535    —    —

 And from thence deduct the
   extraordinary resources
   drawn from the people, as
   above, to wit                      520 926 947   23 152 308   16    —
                                     ————————————    ———————————————————

 There will remain a capital of }
 borrowed money                 }     597 380 100   26 550 226    4    —
                                     ————————————    ———————————————————
 Of this the life-annuities
   (charged upon the ordinary
   revenue) form a capital of         217 000 000    9 644 444    8  10½

 The lotteries form a capital
   of                                 108 000 000    4 800 000    —    —
 And the perpetual annuities, a
   capital of                         272 380 100   12 105 781   15   6½
                                     ————————————    ———————————————————
 In all, as above                     597 380 100   26 550 226    4    5
                                     ————————————    ———————————————————

Let us next see the amount of annual payments for discharging either the
capital or the interest.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.
 For the life-annuities until
   extinguished, paid out of
   the ordinary revenue                16 200 000      720 000    —    —

 To discharge the lottery fund,
   in 12 years at most                 11 600 000      515 555   11   1¼

 Suppose the perpetual
   annuities all at 5 _per
   cent._; _inde_                      13 619 000      605 288   17   9¼
                                     ————————————    ———————————————————
 Annual sum of interest                41 419 000    1 840 844    8  10½
                                     ————————————    ———————————————————

Let me now draw up a state of the taxes raised for defraying the
expences of this war. In that I shall only comprehend such articles as
existed at the peace, unsold: as for the other, we may consider them
only as expedients for raising money for the current service; but which,
in time to come, may serve to augment the revenue.

                         Third general branch.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.

 1. The 2d twentieth, never
   alienated                           35 000 000    1 555 555   11   1¼

 2. The 3d twentieth, imposed
   for the years 1762 and 1763,
   not alienated                       30 000 000    1 333 333    6    8

 3. The free gift of the
   cities, towns, &c. never
   alienated                            3 690 786      164 034   18    8
                                     ————————————    ———————————————————
                                       68 690 787    3 052 923   16   5¼
                                     ————————————    ———————————————————

Let me now proceed to the fourth general branch of taxes, or of money
raised upon the people of France: 1_mo_, To the profit of the farmers:
2_do_, Towards defraying the expence of collecting the three foregoing
branches of revenue, which amount to about 403 millions: And 3_tio_, To
pay what is appropriated to certain purposes within the country, here to
be specified.

                         Fourth general branch.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.
 1. First then, the net profits
   of all the farmers of the
   revenue are calculated to
   amount to about                     17 240 000      766 222    4   5¼
 2. The expence of levying all
   the revenue is calculated to
   amount to about 10 _per
   cent._ of the whole; _inde_         40 300 000    1 791 111    2   2½
 3. There is a revenue
   appropriated for keeping up
   the water-works at all the
   royal palaces                        1 200 000       53 333    6    8
 And to the invalids, St. Cir,
   and the _hotel militaire_            7 300 000      324 444    8  10½
 There are taxes imposed for
   clothing the militia, to the
   amount of                            3 800 000      168 888   17   9¼
 All the towns in France have
   particular branches of taxes
   appropriated to themselves,
   for pavement, buildings, &c.
   and for maintaining the
   police; which amounts to            15 000 000      666 666   13    4
 And the duties levied in the
   courts of law for sentence
   money, emoluments to the
   judges (_epices_), and
   expence of registrations,
   the vast sum of                     27 000 000    1 200 000    —    —
                                     ————————————    ———————————————————
                                      111 840 000    4 970 666   13   3½

Formerly, all the officers of the courts of justice had salaries paid
out of the King’s revenue. These were insensibly diminished in every
reign, and those court-fees were augmented in order to fill up the void;
from which the greatest oppression ensues.

If to the sum in this last article we add 22 millions above stated as a
charge upon the ordinary revenue for salaries to first presidents, &c.
and other expences of the law, we shall find that the article of justice
alone costs near 50 millions of livres, a year, to the public. The
greatest part of this sum should be considered as the interest of money
borrowed by the Kings of France, the capitals whereof are still
outstanding; and if the capitals were paid off, a great augmentation of
income would arise from it. But the bad footing upon which their credit
stands, renders even this burden expedient on some occasions; because
the King can oblige all those who have such hereditary offices, to lend
money upon an augmentation of their salaries.

To conclude this enormous catalogue of taxes paid by the kingdom of
France, we must not omit the last branch, which comprehends the heads

                         Fifth general branch.

                                     Fr. money.      Sterling ditto.
                                      livres.          l.       s.   d.
 1. What is paid for bulls,
   dispensations, baptisms and
   burials, to the pope,
   bishops, and inferior
   clergy, very near                   10 000 000      444 444    8  10½
 2. For the support of
   hospitals, a sort of poors
   rates                               11 500 000      511 111    2   2½
 3. To branches of impositions,
   of various kinds, belonging
   to private people, peers of
   France, governors of
   provinces, and officers of
   all the royal jurisdictions
   within the kingdom                  20 000 000      888 888   17   9¼
                                     ————————————    ———————————————————
                                       41 500 000    1 844 444    8  10¼
                                     ————————————    ———————————————————

General recapitulation of all the money raised in France by public
authority, for whatever purpose employed.

                                    Fr. money.      Sterling ditto.
                                     livres.          l.       s.   d.
 1. The King’s ordinary
   revenue as it stood at the
   peace 1762                        282 300 000   12 546 666   13    4

 2. The extraordinary revenue
   raised at the peace 1748           52 338 000    2 326 133    6    8

 3. The extraordinary revenue
   raised on account of last
   war, and for the payment of
   debts then contracted, not
   sold at the peace                  68 690 787    3 052 923   17    4

 4. The expence of raising the
   taxes, and emoluments of
   the farmers, with other
   branches perpetually
   appropriated for defraying
   regular expences                  111 840 000    4 970 666   13    4

 5. Taxes paid to the church,
   poor, and private persons          41 500 000    1 844 444    8  10½
                                    ————————————    ———————————————————
 Sum total raised annually in
   France                            556 668 787   24 740 834   19   6½
                                    ————————————    ———————————————————

 Charges, or appropriations of it.

 1. Charges upon the ordinary
   revenue _per_ list above          236 050 000   10 491 111    2   2½

 2. Ditto upon the second
   general branch _per_ ditto         55 690 000    2 475 111    2   2½

 3. Ditto upon the third
   general branch for
   lotteries and perpetual
   annuities constituted
   during the war: the
   life-annuities being
   already charged in article
   1st                                25 219 000    1 120 844    8  10½

 4. Ditto upon the fourth
   general branch totally
   exhausted _inde_                  111 840 000    4 970 666   13    4

 5. Ditto upon the fifth
   general branch ditto               41 500 000    1 844 444    8   10

 There remains
   (unappropriated)   for all
   extraordinary expences of
   state, which compleats the
   sum   total of what is
   raised in France                   86 369 787    3 838 657    4    —
                                    ————————————    ———————————————————
                                     556 668 787   24 740 834   19    6
                                    ————————————    ———————————————————

In this light does the state of the French affairs appear, from the
sketch I have been able to give of it.

Had the sum of 86 millions, remaining as unappropriated at the peace,
been any way sufficient for paying off claims which have not appeared
upon the state we have given, and for all extraordinary expences, the
credit of France would not have been so low as it then was, and still
continues to be.

The expence of a kingdom must constantly exceed the amount of all
regular and permanent income.

At the end of a war what great sums of debts unprovided for are
constantly found! Taxes also, when stretched as they were, and imposed
in so great a proportion upon possessions, in respect of what was raised
upon consumption, must always diminish in their produce; but the expence
and charges never fall short. This is more especially the case in a
country where paper credit is not established.

The constant complaints for want of money to carry on circulation in the
time of war, is a proof of it. When peace returns, and money is kept at
home, then all taxes are readily paid in France, and half the burden of
them is not felt, although they be more productive than before.

As I said in setting out, I do not pretend that the account I have given
of this dark affair, is in any degree so correct as to satisfy a French
minister; but it is a rough sketch, which contains the general state of
their affairs; and if it be worth any man’s while, who is better
informed, he may correct it, and thereby bring on a farther inquiry into
the true state of the question.

What interest a nation, which is not in an actual state of bankruptcy,
can have in concealing its affairs, I cannot find out. How much more
then is it not the interest of a mighty kingdom, which possesses such
amazing resources, to expose its situation in a fair light to the world,
to which it must, upon all occasions, have recourse for assistance in
point of credit?

Of the many branches which compose this great national revenue of above
550 millions, there are several articles which must of necessity be cut
off, so soon as the debts are brought into a regular form. The double
poll-tax is most oppressive on the poorer sort, and therefore was
imposed only for a time: the three twentieths, as they are levied, are
no less so upon the higher classes of the people.

These four articles amount, however, to 116 millions. If we deduct this
from the revenue, as we have stated the account of it, it will not only
exhaust the balance of 86 millions, but it will create a deficiency,
upon the whole, of 30 millions, which can only be compensated by
discharging a corresponding part of the burden of debts, while those
branches do subsist.

But then the same resources are open upon every new emergency; and as
they have now begun to be collected, they will be more easily paid at
another time.

Besides, what an acquisition will be made to the revenue by the
extinction of 16 millions of life-annuities, and by the expiration of so
many anticipations of taxes for terms of years!

On the other hand, it is not to be supposed that the King will continue
to demand of the clergy, above 1 500 000 livres a year, or one shilling
in the pound upon their benefices. That body is becoming daily more and
more indebted, by the practice introduced of late, of making payment of
their free gifts to the King, by borrowing the money, instead of paying
every one’s proportion out of his benefice. This in time may oblige them
to accept of pensions for their benefices, and to make over their
revenue in tithes to the King: they will, at least, in one way or other,
become entirely at his mercy, and at that of their own creditors.

Before I conclude, I must say a word concerning the method of levying
the taxes in France.

The most general distribution I can make of this, is to reduce it under
four principal heads.

The first comprehends the general _receptes_; to wit, the _taille_, or
land-tax, the _capitation_, or poll-tax, and all the twentieths. These
are administred by the intendants of the provinces, who both make the
distribution of them upon the subjects, and who levy them by officers
under their direction; and for the expence of levying, is superadded to
the taxes, 10 _per cent._ upon the whole. When they are collected, they
are paid in to the receivers general at Paris, who deliver them in, and
account for them to the royal treasury.

The second comprehends all the taxes which are farmed. The farmers are
vested with the King’s authority for raising the duties let to them,
according to certain regulations; and as they are obliged to keep open
books, the expence of management is known, and at every new lease a
reasonable profit is allowed to them over and above.

The third branch comprehends all free gifts of determinate sums of
money, imposed according to certain regulations prescribed to those
bodies politic who pay them; into which may be comprehended all taxes
upon the clergy; because they levy them themselves.

The fourth comprehends retentions which the King makes out of the
salaries he pays. This needs no explanation.

What farther observations may be made on this head will find a place
when we speak of taxes.


                               CHAP. VII.
_Comparative View of the Revenue, Debts, and Credit of Great Britain and

In comparing the state of credit in the two nations, I must first
observe, that it is not so essential to compare the _extent of the
revenue_ of both countries, as the _resources_ they have for obtaining
extraordinary supplies in case of need.

Whatever be the permanent revenue of a state, we may be very certain
that the exigencies of it will be in proportion; and whenever any
extraordinary expence is to be incurred, it must be provided for by
extraordinary means.

In examining the state of Great Britain and France, we have found this
observation verified. If the expences of the year do no more than absorb
the revenue of it, and if the sinking funds appropriated for paying off
incumbrances be properly applied, the state has no reason to complain.

This distribution evidently points out how necessary it is not to
confound those branches of revenue which are appropriated to state
expences, with those which ought to be set apart for the payment of
debts and interest. This however I apprehend is too much neglected in
both kingdoms.

If times of tranquillity be not made use of, to disengage those funds
which necessity had opened, it cannot be denied, that future exigencies
must then seek for a supply, from resources as yet undiscovered.

That nation, therefore, which has certain branches of revenue lying
dormant in time of peace, has the advantage in point of resources.

In this respect the advantage hitherto has lain on the side of France;
she has had her _dixiemes_, _vingtiemes_, and double poll-tax, which
have never been imposed except in cases of necessity.

But on the other hand, Great Britain has a noble and opulent branch of
permanent taxes, which composes her sinking fund. Were this employed in
times of peace, as it ought to be, it would prove in time of war a more
ready fund of credit than any France can boast of.

Those extraordinary resources of France cannot be mortgaged. They are
supplies for the current service; but they are no fund of credit.
Whereas the sinking fund of Great Britain is always ready in the mean
time to supply urgent demands. While this subsists, there is no danger
of being obliged to break faith with all the public creditors, upon a
demand for a million and a half sterling, as was the case with France in
1759. The one resembles a credit in bank; the other the rents of a great
estate. The sinking fund affords time to raise new supplies, in
proportion to the debts contracted; and if these, when new, and raised
in time of war, prove sufficient to answer the interest of the loan,
they will probably do more as they continue to be levied, and upon the
return of peace.

One very remarkable difference between the state of credit in the two
nations is, that in Britain the object of attention is the rate of
interest; in France it is the speedy repayment of the capital. The great
care of a British minister is to support the price of the funds: the
meaning of which is, to keep the interest of money low. Did not the
price of the funds regulate the rate of money, the state would be nowise
concerned in the price of them.

Now the credit of Great Britain is so firmly established, that she may
command money at all times, providing she will give the interest

The case is totally different in France. Her credit is not well
established; that terrible Missisippi-monument, of near a thousand
millions, standing fixed upon the ordinary revenue to this day at 2½
_per cent._ first reduced from the most exorbitant interest, by
successive acts of power, after the late King’s death, and afterwards
from a moderate interest to 2½ _per cent._ in the year 1720, is reason
sufficient to deter monied men from lending to France upon perpetual

In borrowing upon life-annuities at 10 _per cent._ and upon lotteries at
nearly the same rate, for 11 or 12 years, France obtains credit for
large sums. She also borrows with tolerable success at 5 _per cent._
when there is a lottery-clause put in, which stipulates a large sum to
be annually paid for extinguishing the capital. The reason is, she is
more punctual to such engagements: they remain constantly under the eye
of the public: the stock-holders consider their money as constantly
coming in; and any interruption in the payment gives a general alarm.
But when funds are settled at perpetual interest, people lose sight of
the capital altogether. The contracts by which they are commonly
constituted, are not so easily transferred as other funds: in a word, it
is not the taste of the French nation to lend their money in that way,
and far less the taste of strangers; and the reason is, that as matters
have hitherto been conducted, it has by no means been their interest.

Before the commencement of the late war, no security in France was
looked upon as better than the actions of the company of the Indies.
This was a fund of perpetual interest. They brought in to purchasers
little more than 4 _per cent._ and every body wished to have them. Every
action bore a dividend of eighty livres a year; and the action itself
sold from eighteen to nineteen hundred livres. The war had not lasted
four years, when the dividends were reduced to one half, and the capital
fell to about 700.

In short, all perpetual funds in France, whether upon government or
company-security, are very precarious; and while this is the case, we
may decide that the credit they are built on is precarious also.


                              CHAP. VIII.
  _Contingent Consequences of the Extension of Credit, and Increase of

Having applied the principles of public credit to the state of facts in
Great Britain and France, such as I have been able to collect, I must
observe, that all short sketches of this kind are intended only to
satisfy a general curiosity which mankind has, to know a little of every
thing. Although they may appear superficial and incorrect, to persons
thoroughly instructed in those matters, they still are for our purpose;
which is only to take them as something approaching nearer to truth than
bare suppositions can do; and they sufficiently answer the purpose of
illustrating the subject we are upon.

I now proceed to inquire what may be the consequences of this mighty
change produced upon the policy of industrious and trading states, from
the establishment of credit, debts, and taxes.

I have, from the very beginning of this inquiry, occasionally taken
notice of the influence that such a change must make upon the spirit and
manners of a people. The lower classes, who are slow in forming
combinations, do not soon comprehend the necessary consequences of such
revolutions. Even ministers have been often at a loss to judge of the
consequences which might follow upon some steps of their own conduct
relative thereto, although taken upon mature deliberation.

When public credit is employed for raising money upon a plan of
refunding the capital, either by uniform annual payments exceeding the
interest, or by funds established for sinking the capital, no contingent
consequences can happen, providing the plan be executed: the debts
contracted will be paid, and matters will return to their former state.

When public credit is employed for raising money upon payment of a
perpetual interest; or if, whatever be the plan laid down, capitals
should not happen to be discharged, and that the debts should swell
continually; in this case, the contingent consequences are many and
various, far exceeding any man’s sagacity to investigate.

If we judge of them from what past experience teaches us, we may
conclude, that, in one way or other, all debts contracted will in time
disappear, either by being paid, or by being abolished: because it is
not to be expected that posterity will groan under such a load any
longer than it is convenient; and because in fact we see no very old
public debts as yet outstanding, where interest has been regularly paid.

This is a very rational conclusion from past experience; but it is only
relative to the circumstances of past times. While the debtors are the
masters, there is no difficulty of getting clear of debts: but if the
consequence of this new system should be to make the creditors the
masters, I suppose the case might be different. Farther,

In former times public debts were contracted between the state and its
own subjects; but at present we see that in such loans, foreigners, even
enemies, are invited to concur: and the better to engage them to it, a
total immunity is promised from all taxes upon the interest to be paid
by the borrowers.

This circumstance has already drawn the attention of Princes, in the
discussion of their reciprocal concerns. We saw how, in the treaty of
Dresden, which took place after the King of Prussia’s invasion of Saxony
in 1745, it was provided by the 6th article, that all debts due by the
bank of the _Steuer_ to that Prince’s subjects, were to be paid, on
presentation of their contracts.

We have not indeed as yet seen wars carried on for the payment of debts;
but the case may happen, and kingdoms may be carried off upon such
pretensions, as well as private property. What a chain of contingent
consequences arises from this single combination, were this a proper
place to introduce them!

But without going to the supposition of Princes or nations becoming
reciprocally engaged in debts, and thereby involving such mighty
interests in the support of public faith, we may easily conceive, that a
monied interest, of a long standing, may have influence enough to
operate a change upon the spirit and manners of a people.

Let me here take the example of Great Britain. Do we not see how the
spirit of that nation is totally bent upon the support of public credit?
And do we not see how absolutely their commercial interest depends upon
it? Can it be supposed, that every one has combined all the consequences
which may flow from the constant swelling of their debts? Or indeed is
it possible to determine what will be the consequences of them? This
however we may suppose at least, because we see the progress of it
already, that the interest of the creditors will daily gather strength,
both in parliament and without: and if from small beginnings it has
arrived at the pitch we now see, it is very natural to conclude, that,
in time, it may become stronger, and at last, that the creditors of the
nation may become the masters of it.

When any one interest becomes too predominant, the prosperity of the
state stands upon a precarious footing. Every interest should be
encouraged, protected, and kept within due bounds. The following
speculations are intended for the application of principles to new and
unexperienced combinations; where natural causes _may_ work their direct
and immediate effects, and thereby prove prejudicial to the general
welfare, unless they be foreseen in some degree, and proper remedies be
prepared against them.

Europe was possessed by our ancestors free from taxes; our fathers saw
them imposed, and we see how fast they become mortgaged for our debts.
We can as little judge of the extent of our credit, as they could of the
possibility of contributing so large a fund for the support of it.

As the plan of imposing taxes has been extended, we see the public
coffers every day receiving a vast flux of money, and like the heart in
the human body, throwing it out again into circulation. Happy state,
could it be lasting, and were this flux and reflux preserved in a due
proportion to all the uses for which it is intended! But states have
their vices, as well as private people. Public opulence should be
proportioned to public exigencies: but how often do we see ambition
putting on the face of public spirit, and animating the resentment of a
nation, under colour of providing for her security? Hence wars, from
wars expence: recourse is had to credit, money is borrowed, debts are
contracted, taxes are augmented; all this increases circulation, which
demands a supply of currency: this is procured by melting down the solid
property. These operations performed, the public money is either sent
abroad, or remains at home. If sent abroad, more property must be melted
down, in order to fill up the void. If it remains at home, it will
animate every branch of circulation; and when the exigency, which
required this additional quantity of money, is over, what circulation
finds superfluous, will stagnate in the hands of the monied interest,
and will either form a new fund for contracting more debts, or it will
be laid out in the purchase of the property formerly melted down, which
produced it; and thereby will be consolidated a-new.

Every interest in a state must influence the government of it, in
proportion to its consequence and weight; and every government must
influence the spirit of the people who live under it.

Now, as we have seen how industry creates wealth; how wealth and
confidence create credit; how credit creates debts and taxes; how these
again occasion an augmentation of money, by the melting down of
property; and how this property is transferred to a new set of men, who
were once the monied interest, and who afterwards acquire the lands, and
consolidate this additional circulation; does not this chain of
consequences represent a kind of circle, returning into itself? And is
it not plain, that without the intervention of this engine, the money
created in proportion to the demand for it, the chain would be cut off,
before it could reach the link from which it first set out? Will not
this conversion of a monied interest into a landed interest, insensibly
inspire the bulk of the landlords with sentiments analogous to a monied
interest? Is not that evidently more and more the case every day in
England? And from this may we not prognosticate the solidity of public
credit in that nation?

If on the other hand we find, as in France, industry in times of peace
drawing wealth from other nations, and thereby increasing the coin, upon
which alone credit is circulated through the kingdom; and then foreign
expence sending it away in times of war; must not circulation keep pace
with the coin, that is to say, be circumscribed within the proportion of

If the solidity and extent of the French King’s free revenue should
afford credit to borrow this coin; and if, instead of providing a
proportional supply of currency to fill up this new loan, the coin
borrowed be sent out of France; how will the ordinary circulation be
carried on?

Let us here recal to mind what was said in the 22d chapter, upon banks,
where we distinguished voluntary circulation, which is buying, from
_involuntary_ circulation, which is paying: we there observed how
_paying_ must always take place of _buying_; consequently, we may here
determine that taxes must be paid before buying, that is consumption,
can go on. The deficiency therefore of coin for circulation, will,
first, proportionally affect the trade, manufactures, and consumption of
France, and afterwards the revenue which arises from them. Is not this
the constant complaint in France, when war carries off their coin? The
remonstrances of all their parliaments are filled with it.

In times of peace, the amount of what comes from the people is greater
than in time of war: but then there is coin sufficient for all the
payments; and when they are made to the royal treasury, they immediately
return into circulation, and no hurt is felt.

I insist the more upon this principle, and I introduce it in so many
different ways, and under such a variety of views, because I take it to
be one of the most important considerations in the whole doctrine of
credit, and one which I have never seen suggested by any French, or
English writer upon this subject. Many are the complaints for want of
money; but no method have I ever seen proposed for obtaining it from
solid property; the easiest and safest of all operations, when conducted
with honesty, and according to principles.

As money therefore is the means of closing the chain of consequences
already mentioned, and forming it into a circle, as has been said, we
plainly see how, when it is wanting, the same effects cannot be
produced; and consequently the country of France, when money is confined
to the coin, will be very long in adopting the sentiments of a monied
interest; whether for its profit or loss, in the end, is not here the

We have now traced the contingent consequences of public credit so far
as to shew how it _may_ tend to influence the spirit of a people, and
make them adopt the sentiments of a monied interest.

The allurement of acquiring land-property is very great, no doubt,
especially to monied men. The ease and affluence of those, on the other
hand, who have their capitals in their pocket-books, is very attracting
to the eyes of many landlords, especially at a time when they are paying
the heavy taxes laid upon their possessions.

The firm establishment of public credit tends greatly to introduce those
reciprocal sentiments of good-will among the two great classes of a
people, and thereby preserves a balance between them. The monied
interest wish to promote the prosperity of the landlords; the landlords,
the solidity of credit; and the well-being of both depends upon the
success of trade and industry.

Let us now suppose what is actually the case in Great Britain, that from
the swelling of public debts an enormous fund of property is created.
This is formed out of the income of the whole nation; and as it has been
purchased by those who have lent money to the state, in common language
it is included in what we call the monied interest: it is however very
distinct from it, as will be understood from what is to follow.

The capital of the public debts is the price which was paid for the
annuities due to the creditors, and is now no more money to them than
land is money to the landlord. It may be turned into money, no doubt;
but so may land.

By the monied interest, properly, should be understood, those who have
money, not realized upon any fund, and who either employ it in the way
of trade, in the way of industry, in jobbing in land, in stock, or in
any way they please, so as to draw from it an annual income. While it is
fixed, that is, given for any permanent value, it ceases to be money;
when it is called in, it becomes money again. Let stock, therefore,
suffer ever so many alienations from hand to hand, it still continues
stock: it never can become land, it never can become money, until it be
paid off. I hope this idea is clear, and understood. Stock, therefore, I
here consider as one great branch of solid property; so far as the
security of government is solid and good; and as such, may be melted
down into money by banks, as well as any other thing.

Now I have said that this fund is formed out of the income of the whole
nation; consequently by _fund_, here, I do not understand the capital,
which exists no more, but the interest which is drawn for it: it is this
interest, I say, which arises from the land, money, trade, industry, &c.
From the land, out of the amount of the taxes charged upon it; from the
money, trade, industry, &c. out of the amount of proportional taxes,
such as excises, customs, salt-tax, stamp-duties, and the like.

The more the debts increase, by the monied interest realizing into this
branch of solid property, the more the taxes must augment; and
consequently, the more the solid property of the funds themselves will
be affected, as well as the land.

From this exposition of the matter, I think it appears pretty evident,
that as proportional taxes affect every man’s income, according to his
consumption; the landlord, _cæteris paribus_, who pays a land tax, as
well as his proportion upon his consumption, is more hardly dealt with
than the proprietor of the other branch of solid property, the funds,
who only pays the proportion of the last.

But the condition of the stockholder is not equal to that of the
landlord, for two very plain reasons. The first is, that the income of
his stock cannot increase; that of the land may. The second is, that the
swelling of this great capital of stock has the effect of sinking the
interest upon it, and consequently of diminishing the income of the
stockholder; and in proportion to that diminution, the value of land is
augmented. Now I readily allow that the augmentation upon the _value_ of
lands is no inducement to a landlord to turn them into money; because he
would then lose upon his money, what he gains upon the additional price
received. But it is a great advantage in this respect, that he thereby
diminishes the interest he pays upon his debts, if he has any; and if he
has none, it enables him to borrow at a lower rate for the future; and
by improving his lands with the money borrowed, he augments his income
much beyond the proportion of the interest paid.

It is therefore necessary, in imposing land taxes, rightly to combine
every circumstance; that the load of all impositions may be equally
distributed upon every class of a people who enjoy superfluity, and upon
no other. If, after a fair deduction of principles, this shall appear a
thing possible to be done, we may expect to see statesmen engaged to
depart from the old maxim of grasping at what is readiest and nearest at
hand, to wit, the landed property, with a view to spare a class of
people, which, in a well regulated state, never can be made to feel the
burden of any proportional tax whatsoever; I mean the industrious poor.

I now proceed in my inquiry into the nature and consequences of the
swelling of this great branch of property, the public funds.

As to the nature of it, we have said already, that it is formed by
realizing money into stock. When government borrows, the lenders must be
people who have money. If the loan is made at home, the money is no
sooner paid in, than it is spent; and as we may suppose that it would
not have been lent, had either the lenders found it necessary for their
current expence, or had they found a more profitable way of realizing it
than by lending it to government, we consider it as in a state of
stagnation; but being lent to government, it is thrown into a new
channel of circulation.

Farther, this money stagnating in the hands of the lender, either
proceeded from his income, which exceeded his expence, or from the
profits of his industry. In either case, the country is neither poorer
or richer, when considered in a cumulative view, than if the same sum
had been lent to private people at home.

Let us next suppose the money to have been borrowed for the exigence of
a foreign war. In this case, if it be borrowed at home and sent abroad,
it must first be converted into the money of the world, gold and silver,
and then sent off, to the diminution of this kind of property; or it
must go abroad in the money of the country, credit, to the diminution of
the annual income upon which the credit is established. As this last
operation may not be so clear, an example will explain it.

Government borrows a million; it is paid in paper, and must be sent to
Holland. If at that time a balance be due by Holland for a million,
bills will readily be found for it. In this case, the balance of trade
is borrowed by government, and is converted into a capital of a million
in the public funds, the interest of which will remain at home, and
continue to be the property of the nation. But as the value of this
balance is sent to Holland and spent abroad, it is, upon the whole, to
the nation, as if the balance had not been due to them. This I call a
_lucrum cessans_ to the country.

But suppose no balance due at the time the million comes to be sent off,
I say the consequence will be, to alienate in favour of foreigners a
part of the annual income, proportional to the whole interest paid for
the loan, whether it has been subscribed for by foreigners, or by

If the subscription comes from foreigners, the consequence is evident:
it is equally so in the other case, upon a little reflection.

Suppose then the million subscribed for, and paid in London. Bills are
sought for; none are found, I mean in the way of reciprocal
compensation, does not this sum immediately become a balance against
London? And as a country loses all such balances, and that the country
to which they are due gains them, this million is lost to England, and
forms what I call a _damnum emergens_; that is to say, her former
property or income is so far diminished, or comes to be transferred to

From this we may conclude, that in all matters of public borrowing, it
is of no consequence whether the subscription be filled by natives, or
by foreigners, when the value of it is to be sent abroad.

Let us next examine the state of the question when the loan is made in
order to be spent at home, as is the case after a war, when the unfunded
debts come to be paid off.

We have said that loans are filled by money stagnating, which the owner
desires to realize: if he cannot do better, he lends it to government;
if he can do better, he will not lend it.

While the uses of domestic circulation absorb all the money in the
country, that is to say, when there are private persons ready to borrow
all the money to be lent, at this time government cannot borrow at home;
and if they did, by offering a high interest for it, the borrowing would
do harm to circulation; because it would raise interest at home, or
disappoint those who would gladly borrow it, for little more than the
interest offered by government.

Let us next suppose that after a war, when the unfunded debts are either
bearing a high interest, or selling at discount, government shall find
an advantage in opening a subscription, which may be filled from abroad,
at a lower rate than the then actual value of money. Suppose, I say, the
Dutch should be willing to lend at 3 _per cent._ while money in England
stood at 4 _per cent._ I ask if, in this case, government ought to
borrow from Holland, at the expence of sending the interest out of the
country, rather than suffer such debts to sell at discount; or to
continue paying a higher interest at home for what they owe?

It is my opinion that still they ought to borrow, for the following
reasons. That if the high interest at home proceeds from want of money,
that is to say, from circulation not being full enough, it is their
interest to borrow, were it for nothing else than to supply circulation;
because unless this be full, all industry must languish. But suppose it
should be said that circulation is full enough, that industry suffers no
check from that quarter, but that there being no superfluity of money,
interest stands 1 _per cent._ higher than it would do were there
considerable stagnations. In that case also, I think it is their
interest to borrow, were it for no other reason than to produce such

It is a general rule every where, that there is no having enough without
having a superfluity; at least there is no certainty of one’s having
enough without finding a superfluity. Borrowing, therefore, in small
sums, at such a time, will produce stagnations at home, from which
succeeding loans may be filled, after circulation is sufficiently
provided: and even in case more should be borrowed from strangers than
is necessary, and that in consequence of it, too much should come to
stagnate at home, after the demand of government is over, in that case,
the monied interest would lend, in their turn, to other states, where
interest is higher; and the annual returns from that quarter would more
than compensate what must be sent away, in consequence of the former

From these combinations, let us draw some conclusions.

1_mo_, That the effect of public borrowing, or national debt, is to
augment the permanent income of the country, out of stagnating money,
and balances of trade.

2_do_, That this income so created, may be either the property of
natives, or of strangers.

3_tio_, That when money is found to stagnate, in a country where
circulation is not diminishing, it may be supposed to proceed from the
coming in of a right balance of trade.

4_to_, If stagnations in one part are found to interrupt circulation in
another, public borrowing, for domestic purposes, has the good effect of
giving vent to the stagnation, and throwing the money into a new channel
of circulation.

5_to_, That the sum of interest paid by any nation to strangers, shews
the general balance due by the nation, after deducting all the profits
of their past trade out of all the expence of their foreign wars.

But here it must be observed, that as on one hand we are comprehending
all that is paid to foreign creditors, on account of the funds they have
in England, for example, so on the other hand, must be deducted from
this, all the like payments made to Englishmen by other nations.

6_to_, From this last circumstance we discover, that the lending to
other nations by private hands, produces the same effect to a nation as
if the state were actually paying off the debts due to strangers.
Consequently, when Moses permitted the Jews to lend to strangers at
interest, and forbade such loans among themselves, his view was to
establish a foreign tribute, as it were, in favour of his own nation,
instead of establishing luxury at home.

7_mo_, As the balance due to a nation upon her trade, is found to
compensate, _pro tanto_, the money she spends abroad, we may from the
same principle conclude, that so soon as she ceases to expend money
abroad, the balance of trade in her favour, if not realized at home in
some new improvement, will diminish, _pro tanto_, the interest, or
capitals due to strangers. This is evident from the nature of balances,
of which we have treated already.

8_vo_, The consequence, for example, of England’s owing large sums to
strangers, will, from the same principle, constantly prevent exchange
from rising very high in her favour, when the balance of her trade is to
be paid to her: because on every such occasion, her foreign creditors
will be glad to disappoint exchangers, by furnishing bills for their
interest, or capitals, to those who owe the balance; the consequence of
which is plainly to diminish the foreign debts[36].

Footnote 36:

  We must always carefully avoid confounding the grand balance of
  payments with the balance between importation and exportation, which I
  consider as the balance of trade.

This circumstance implies no loss to the nation which is creditor in the
balance of trade, and debtor upon the capitals; because we have proved
that the price of exchange never affects a nation, but only certain
individuals, who pay it to others.

This is sufficient, I think, to point out in some degree the nature of a
national debt. I come next to examine the consequences of its constant
augmentation, without proper measures being taken, either to pay it off,
or to circumscribe it within certain bounds.

In what is to follow, I shall throw all consideration of capitals
totally out of the question; and as to the amount of taxes, it is quite
indifferent whether the money proceeding from them be in consequence of
an improvement made upon those already established, or from new
impositions: such combinations will come in more properly afterwards.

If the interest paid upon the national debt of England, for example, be
found constantly to increase upon every new war, the consequence will
be, that more money will be raised on the subject for the payment of it.
The question then comes to be, 1. How far may debts extend? 2. How far
may taxes be carried? And 3. What will be the consequence, supposing the
one and the other carried to the greatest height possible?

I answer to the first, that abstracting from circumstances which may
disturb the gradual progress of this operation, before it can arrive at
the _ne plus ultra_, debts may be increased to the full proportion of
all that can be raised for the payment of the interest. As to the
second, How far taxes may be carried, I shall not here anticipate the
subject of the following book, any farther than is necessary to resolve
the question before us.

Taxes, we have said, either affect income, or consumption. The land-tax
of England is now at 4 shillings in the pound, upon a supposed value of
the property affected by it, which is all real and personal estates, the
stock upon lands, and some few other particulars excepted.

This tax may be carried to the full value of all the real estates in
England. As for personal estates it never can affect them
proportionally; and that part of the statute of land-tax which passes
every year, and imposes 4 shillings in the pound on personal estates,
carries in it a vestige of our former ignorance in matters ©f taxation.

The notion of imposing (_facto_) 20 shillings in the pound upon the real
value of all the land-rents of England, appears to us perfectly
ridiculous. I admit it to be so; and could I have discovered any
argument, by which I could have limited the rising of the land-tax to
any precise number of shillings under twenty, I should have stated this
as the maximum, rather than the other.

The second branch of taxes comprehends those upon consumptions, excises,
and the like. The maximum as to this class must be determined by foreign
trade; because this is affected in a certain degree by the price of
domestic industry. Other taxes have not this effect, as we shall shew in
its proper place.

But as foreign trade is not essential to the domestic industry,
consumption, circulation, &c. of any nation, as has been proved in the
second book, but only to their increasing in wealth proportionally to
other nations; if foreign communications should be cut off entirely, I
perceive no limit to which I can confine the extent of proportional
taxes. Let me therefore suppose a term beyond which impositions of all
kinds must come to a stop, and then ask, in the third place, what will
the consequence be? I answer, that the state will then be in possession
of all that can be raised on the land, on the consumption, industry and
trade of the country; in short, of all that can be called income, which
they will administer for the creditors.

When this comes to be the case, debts become extinguished of course;
because they come to be consolidated with the property: a case which
commonly happens when a creditor takes possession of an estate for the
payment of debts equal to its value.

Then government may continue to administer for the creditors, and either
retain in its hand what is necessary for the public expence of the year;
or if it inclines to shew the same indulgence for this new class of
proprietors as for the former, it may limit the retention to a sum only
equal to the interest of the money wanted; and in that way set out upon
a new system of borrowing, until the amount of taxes be transferred to a
new set of creditors. This is the endless path referred to in the ninth
chapter of the second book, which after a multitude of windings returns
into itself.

A state, I imagine, which would preserve its public faith inviolable,
until a period such as I have been supposing, would run little risk of
not finding credit for a new borrowing. The prospect of a second
revolution of the same kind would be very distant; and in matters of
credit, which are constantly exposed to risk, such events being out of
the reach of calculation, are never taken into any man’s account who has
money to lend.

The whole of this hypothesis is, I readily agree, destitute of all
probability; because of the infinite variety of circumstances which may
frustrate such a scheme. I only introduced it to shew where the constant
mortgaging of a public revenue may end; and to disprove the vulgar
notion, that by contracting debts beyond a certain sum, _a trading
nation which has a great balance in its favour_, must be involved in an
unavoidable bankruptcy. To say that a _nation_ must become bankrupt to
itself, is a proposition which I think implies a contradiction.


                               CHAP. IX.
                           _Of Bankruptcies._

In the last chapter we have been running through a chain of consequences
relative to the increase of public debts, which appear as extravagant to
us at present, as it would have appeared to Davenant, to have supposed
the debts of this nation to grow up to their present height, without the
risk of involving the nation in a general bankruptcy.

But those consequences are only contingent. The present debts may either
be paid off, or the nation may be involved in a general bankruptcy. In
either case, the vast property in the funds, this great article of
permanent income, belonging to natives and to foreigners, must wither
and decay, and at last disappear altogether.

We may therefore decide, that one of three events must happen, viz.
either, 1. Debts will swell to such a pitch as at last to pay
themselves: or, 2. The nation will be involved in a bankruptcy: or, 3.
They will be fairly paid off.

The first supposition we have examined; the second we are now to
consider; the last will be the subject of the following chapter, with
which I shall conclude this book.

I shall advance no argument to prove that the scheme of a public
bankruptcy is either lawful, honourable, or expedient, if voluntarily
gone into by a state; because I think it is diametrically opposite to
every principle of good government. It is a maxim uncontroverted, that a
contract is binding between the parties contracting, and that it ought
to be fulfilled in every article. If the public good be alleged as an
overruling principle, to which every other must give way, I readily
admit the exception. There is another of equal force, the impossibility
of performance. When such arguments are used to engage a nation to
commit a deliberate act of bankruptcy, two things must be examined: the
first, is the interest which the public has in adopting the scheme: the
second, the consequences of it. What reasons a state may have, I shall
consider afterwards; at present, I shall enquire what might be the
consequences of a general and total bankruptcy in England; from which we
may gather what difference it would make, were it only partial; and by
such an inquiry, we may be led to discover the proper method of breaking
faith, in case it should become unavoidable. This is what in another
place I called bringing credit decently to her grave; when after being
overstretched, it cannot longer be supported.

A bankruptcy may take place in two ways: either as a consequence of
circumstances which cannot be prevented; or by a deliberate act of

Were the trade and industry of England to decay, the amount of taxes
might so far diminish, as to prove insufficient to pay the interest of
the national debt, and defray the expence of government. Were the people
to be blown up into a spirit of revolt against taxes, the same event
would probably happen. In either case, the natural and immediate
consequences of the bankruptcy would probably follow one another in this

1_mo_, Every creditor of the state would become poorer in proportion to
the diminution of his income.

2_do_, Consumption and the demand for work would diminish in proportion
to the part of that income withheld, which the creditors annually expend
for these purposes.

3_tio_, Trade would _directly_ suffer, in proportion to that part of the
said revenue yearly thrown into it by the public creditors at present;
and it would _consequently_ suffer, in proportion to the hurt resulting
to private credit, from the consequences of the bankruptcy.

The creditors then would lose all, the trade of England would be undone,
and the multitudes who live in consequence of the demand for their
industry from the one and the other, would be reduced to misery. These
immediate effects would first manifest themselves in the capital. The
consequences would soon be felt all over England: a diminution upon the
consumption of the fruits of the earth; a stagnation of that commerce
which is carried on between London and the country (which we have seen
to be equal to the amount of all the taxes and land-rents spent in
London) would soon throw every thing into confusion. But taxes would be
abolished: of that there is no doubt. Let a deliberate bankruptcy take
place without any abolition of them by law, they would soon sink to
nothing, from the utter impossibility there would be found to pay them.

A total bankruptcy, therefore, coming upon England, either from a decay
of her trade, or a disturbance in collecting the public revenue, would
have the effect of plunging the nation into utter ruin at home: what
might be the consequences from abroad, I leave to the reader’s sagacity
to determine.

Let me now suppose a bankruptcy to take place from a deliberate act of
power, with a view of expediency.

The difference between the two consists only in this; that in the first,
all the consequences we have mentioned would follow one upon another,
without a possibility of preventing them: in the other, a plan to
prevent them might be concerted.

Let me then suppose, that government shall find it expedient, at any
time, to use a spunge for the public debts; that they shall fear no
external bad consequences, either from the resentment of those states
who may be hurt by it, or from the ambition of others who may profit by
it; that they shall cooly resolve to sacrifice the interest of all the
creditors in favour of the whole body; and that they shall deliberate
upon the plan to be followed, in order to bring about so great a
revolution, without essentially hurting any interest in the state, that
of the creditors alone excepted.

In that case, I imagine, they would begin by ordering the amount of all
that is paid to the creditors, to be set apart as a fund for the
execution of the plan.

They would purchase all over England, every article of produce and
manufacture which might remain upon hand for want of a market: they
would feed all those who would be forced to be idle for want of
employment: they would instantly put proper employments into their
hands; one week’s delay in the execution of this part of the plan would
throw the manufacturing interest into such confusion, as to be past all
remedy: they would furnish credit to all the merchants subsisting, in
proportion to what they had lost by the extinction of the funds: they
would establish offices every where, to supply the wants of those who
would be totally ruined, until by degrees they could re-establish
confidence, the parent of trade, the mother of industry. By such
precautions, properly taken, and properly executed, none would suffer
but the unhappy creditors and their families, who, from great opulence,
would be reduced to poverty.

As far as human prudence is insufficient for going through so great a
detail all at once; so far would the effects of a general bankruptcy add
hurtful consequences to those which in every case are unavoidable.

Were a statesman endowed with the supernatural gift of turning the minds
of a nation at his will, and of foreseeing every consequence before it
happened, such a plan might be executed. Another who, with the greatest
capacity ever man was endowed with, would, for expediency, not for
necessity, deliberately undertake a general bankruptcy, I should
consider as a madman.

I should rather prefer to submit to the natural consequences which might
result from an accidental bankruptcy, than endeavour to avoid them by a
plan too complicated for human wisdom to execute.

Let us next suppose the scheme to be fairly executed from a view of
expediency, no matter how, and all inconveniences prevented during the
execution, what would be gained by it?

If by the supposition all taxes be kept alive, for at least a certain
time, in order to prevent a total confusion, certainly no body could
gain during that period; even the state itself would lose, because every
branch of consumption would infallibly diminish. But that time elapsed,
and taxes reduced to the lowest, who would be the gainers? We shall see
when we come to the doctrine of taxation, that a sudden abolition of
them, in consequence of a bankruptcy, would be advantageous to no body,
but to creditors upon mortgage, and to the idle: not to landlords;
because their incomes would diminish more than in the proportion of the
present land-tax, at least their improvements would be interrupted, and
their rents ill paid: not to the manufacturing classes; because at
present they pay no taxes, but in proportion to their idleness or
extravagance, as shall be proved: the monied interest, not secured on
land, would I suppose be extinguished; trade and credit at an end. The
gains then would be confined to those who have money secured upon land,
where the capital is demandable. In such a situation, interest would
rise beyond all bounds; and a debt which might have been considered as a
trifle before, might then carry off an estate. The idle also who live
peaceably upon a very moderate income, would find a great advantage from
the fall of prices for want of consumption, and from the distress of the
industrious; but the indigent poor, who are supported from charity,
would suffer: all the great establishments for labour and industry,
would fall to the ground: the numbers of poor who are there maintained,
would come upon a society, which is beginning to lose those tender
feelings of compassion, which are more common in countries of idleness,
in proportion as misery is more familiarly before them.

To say all in one word, a total bankruptcy, and abolition of taxes,
would bring this nation back to the situation it was in before taxes and
debts were known.

Does any body imagine that our present situation is not analogous to our
present policy, and that it is possible that independently of the same
circumstances we should long continue to enjoy the advantages we feel?
No: were we in the same situation as formerly, we should feel as our
fathers felt. They had as good understandings to improve their
circumstances as we have; but they had to do with an idle, we with an
industrious common people. Trade and credit have been long at work to
perform this great revolution: the operation is not as yet compleated,
and a total bankruptcy now would destroy every good effect for a long

Were taxes made to cease, the large sums which proceed from them would
disappear entirely. Money would not, as some imagine, be equally
distributed among those who now pay the taxes, and so proportionally
increase every man’s income. The reason is plain: the money paid for
taxes, circulates; because it is demanded. Were taxes suppressed, people
having less occasion for money than formerly, would circulate less in
proportion. It is the necessity of paying taxes, which _creates_ this
money for the payment of them; and when this method of _creating_ is not
contrived, the taxes cannot be paid, as has been often said. Now it is
this great flux of money from taxes which animates the trade of England:
take them out of the circle, what becomes of the whole?

To suppose, therefore, so great a revolution in the circulation of a
country, as that produced by the cessation of taxes; and to suppose no
interruption from it upon the state of industry, and the employment of
the people of this nation, is a proposition I must reject, as being
contrary to all principles; and to this among the rest, that it would be
a most sudden, and a most violent revolution; which throughout the whole
course of this inquiry, we have found to involve inconveniencies beyond
the power of any theory to extricate.

Upon the whole we may determine, that the fatal consequences of a
bankruptcy would be many; and that the good resulting from a total
abolition of taxes, would be confined to two objects. 1. A relief to
those who pay them upon their possessions, or persons. 2. A diminution
of prices in favour of the idle at home, and of trade abroad: great
objects, no doubt, could they be obtained at less expence than the
consequences of a total failure of public credit and domestic industry.
Perhaps when we come to examine the principles of taxation, we shall
find that taxes do not raise prices so much as is generally believed;
and those which influence the application of public money, will point
out better expedients than a bankruptcy for comparing those great
national purposes.

But let us suppose a case, which may possibly happen, as matters seem to
go on. Suppose, I say, that by continuing to carry on long and expensive
wars, the sum of interest paid to strangers should exceed all that the
nation can gain by her trade. In this case, there must be a general
balance of payments against her every year, which very soon would
manifest itself by the most fatal consequences.

The bank of England would be the first to feel them, by the departure of
all the coin and precious metals. Trade would feel them next, and then
indeed they would become universal.

In such a situation, I fairly acknowlege, that I cannot discover any
expedient to avoid a bankruptcy. Engaging the foreign creditors to
become citizens, by the allurements of the greatest privileges, and
bills of naturalization, are vain speculations. Unless some resource,
hidden from me, should, upon such an occasion, open itself, in the deep
recesses of future events, I believe the nation would soon be driven
upon the fatal rock of bankruptcy. The idea of a nation’s becoming
bankrupt to itself, I have always looked upon as a contradiction; but
that it may become bankrupt to the rest of the world, is quite
consistent with reason and common sense.

I shall not take upon me to suggest what mode of bankruptcy would in
such a case be the best; a total, or a partial one. The partial, I am
afraid, would, in England, work effects almost as hurtful as the other.
But if ever the case should happen, the only way will be, to watch over
every symptom of the approaching catastrophe, and to improve
circumstances to the best advantage.

Of what infinite consequence is it then for a British statesman to
inquire into the amount of debts owing to strangers, and into the state
of the balance of trade? In speaking of exchange, I threw out many
things concerning the idea of putting that branch of business into the
hands of the bank, in conjunction with the exchequer. Were the state
brought into the dilemma of either submitting to this gradual decline of
trade, from a cause which could not be removed; or of being pushed to
the necessity of leaping into the terrible gulph of a deliberate
bankruptcy; in such a dilemma, I say, what infinite advantages might not
be drawn from the management of exchange?

I have heard it said, that the debt owing to strangers was a great
advantage to England; because it drew people to that market where their
funds are settled. I allow all the force any one can give to this
proposition: But alas! what would it avail, whenever England becomes
incapable to furnish goods equivalent to all her imports from abroad,
added to all she owes to her foreign creditors?

I am very far from supposing the present situation of England to
forebode the approach of any such disaster; but it is good to represent
to one’s self some determinate object, by which we may judge of our
situation in times to come.

Debts have increased far beyond the imagination of every mortal. Great
men have uttered prophecies, which have proved false, concerning the
consequences of a debt of one hundred millions. From this most people
conclude, that they will go on until some unforeseen accident shall dash
the fabric to pieces. I have been pretending to shew how they may go on
in a perpetual chain. But alas! one fatal combination was there omitted;
and now that it has been taken in, I think it serves as a datum, to
resolve the most important problem of this science, viz. How to
determine the exact extent of public credit. The solution of which is,
That it is not necessary that public credit should ever fail, from any
augmentation of debts whatever, due to natives; and that it must fail,
so soon as the nation becomes totally unable either to export
commodities equal to all their imports and foreign debts, or to pay off
a proportional part of their capital, sufficient to turn the balance to
the right side.

From this proposition two corollaries may be drawn.

1_mo_, That the most important object in paying off debts, is to get
quit of those due to strangers.

2_do_, That whatever circumstance has a tendency towards diminishing the
burden of foreign debts, should be encouraged.

If it be said, that whenever our foreign debts exceed the balance of our
trade, the best way would be to break faith with strangers, and keep it
with the subjects of the state: I answer, that were the thing possible,
which I apprehend it is not, the consequence might prove equally

The greatest of all the inconveniencies proceeding from a bankruptcy, is
the ruin of industry, and the stop put to circulation. Can it then be
supposed, that a country might execute so glaring a scheme of treachery
to all her neighbours, and still continue her correspondence with them
in the open way of trade? Certainly not. Were all foreign trade to be
stopt at once, what a revolution would it occasion! The circulation of
foreign trade, in the city of London only, exceeds perhaps the amount of
all the taxes. A stop put to that would occasion such a stagnation, as
would ruin the nation as much as if the bankruptcy were to become
universal. I do not here pretend minutely to trace consequences, which
are infinite: all that can be done, is to suggest hints, which every one
may pursue, in proportion to the extent of his combinations.

The intention of touching upon this subject at all, is to shew, that the
expedient of a spunge, which is frequently talked of as a remedy against
the consequence of debts, is, perhaps, more dangerous than any thing
that can be feared from them. The reason is, that the spunge implies a
more sudden bankruptcy than any one brought on in a gradual way, by
natural causes.

Were natural and irresistible causes to operate a total failure of all
profit upon the trade of Britain, one cannot say how far the other
nations of Europe might not find it their interest to assist _us_,
providing we did our utmost to preserve our good faith to _them_. And as
I think I have made it sufficiently evident that nothing can be gained
by openly violating such engagements, the best resolution a nation can
take, is to adhere to them to the last extremity, and to banish from
their thoughts every idea which may be repugnant to them.


                                CHAP. X.
         _Methods of contracting and paying off Public Debts._

We are now to collect together, in one view, the several methods of
contracting and paying off the debts of a nation. Such methods may be
deduced, either from principles, or from what practice has pointed out.

The foundation upon which public credit is built, is the existence of a
sure and sufficient fund for performing the engagements contracted.

When, in the early times of public credit, the repayment of the capital
was the chief object of the lender, a much more extensive fund was
necessary than at present, when no more is required than the payment of
the interest. As such funds never can be formed but from taxes, or
general contributions from the people, the greater they are, the larger
must the contribution be. Whenever therefore there is occasion to
contract debt, the chief object of a statesman’s care should be, to
model the spirit of his people so as to dispose them to concur in the
proper resolutions to render the plan proposed as easy as possible in
the execution.

In the first place, the body of the people must be made sensible that
the consequence of contracting debts must imply a diminution upon the
income of some individuals; but that the fewer the obstacles thrown in
the way of the loan are, the less will that diminution be.

In the second place, he must gain the confidence of his people, so far
as to impress them with a firm belief that he will consult _their_ good,
and nothing else, in what he undertakes.

And in the last place, he must gain the confidence of those from whom he
is to borrow; and convince them that all covenants between the public
and them will be religiously performed.

In a limited and free government, these three requisites are essential
to the firm establishment of public credit.

Where the power of the statesman is unlimited, he may substitute his
authority over the people, in the place of confidence; but with respect
to those who are to lend, he will find no room for any such
substitution: confidence _here_ is the only expedient.

All therefore that is required as to the people, is to _enable_ them to
do what he requires of them.

For that purpose he must establish credit with them, for finding the
contributions he is to exact of them; because they will have as much
occasion for it, in paying what is demanded of them by authority, as he
himself has in paying what he is obliged to in consequence of his

If this general plan be not followed, the consequence will be, that
taxes will fail on one hand, and public credit on the other.

If all this operation cannot be previously concerted, the plan of
borrowing must be circumscribed to funds previously established.

When money is borrowed before the fund is prepared, every obstacle which
occurs in establishing it is a drawback upon the confidence of those who
lend, and renders the conditions less favourable to the state which

In the contract of loan, the first article to be agreed upon is the rate
of interest. We have, in the beginning of this book, examined the causes
of its rise and fall; and have in general determined, that when the
demand is for borrowing, interest rises; when for lending, interest

As the object of the borrower is to have interest low, the statesman who
intends to borrow, must use all possible means to increase the quantity
of money in circulation.

But if coin alone be used as money, and if this coin be sent out of the
country, when borrowed, and if what is sent away cannot be replaced at
will, the scheme of augmenting money becomes impracticable: it will
daily become more scarce, more difficult to procure, and interest must
rise higher every day. Symbolical or paper money, that is credit, must
then be established at home, upon the firmest basis: this will enable
every one to pay what he owes; consequently, the taxes will be paid, the
creditors will receive what is due to them regularly, money will every
year augment in proportion as debts are contracted; and if borrowing do
not augment beyond that proportion, interest will not rise; and if
borrowing should fall below that proportion, interest will sink.

Is not this whole doctrine verified in the strongest manner by the
operation of the Missisippi? At the death of the late King of France,
money had disappeared. Some years before, he had, for seven millions in
coin, engaged his kingdom for thirty-two millions; upon a distant fund
indeed, but still it became a debt to be paid. Paper money had not been
introduced three years, when interest fell to 2 _per cent._ The paper
indeed was a bubble _in fact_; but we have shewn that it became so from
bad management only.

By the augmentation of money, capitals cease to be so valuable. By the
melting down of property, the very capital, though in the hands of the
state, may be turned into money by the creditor, whenever he has
occasion for it; in the same way as the coin which is buried in the
vaults of the town-house of Amsterdam, is constantly performing all the
uses of circulation.

The method, therefore, of borrowing money to the best advantage, is
previously to establish a fund of credit, arising from annual taxes; to
provide the people who are to pay them with money in proportion to their
property or industry; and to prevent the latter from ever failing for
want of the medium, money, for carrying it on.

So long as interest stands high, relatively to other states with which
you are at war, throw as much money as possible into the hands of your
creditors, in payment of the debts already contracted; because the more
you throw in there, the more you will draw out, if you have occasion to
borrow more; and if you have no occasion to borrow more, the lower you
will reduce the interest, by augmenting the fund of money to be lent.

From these principles I conclude, that every nation which sets out by
contracting debts with its own citizens, must _begin_ by borrowing upon
condition of repaying the capital in a short term of years. This is also
the best method to engage the people to contribute largely without
murmuring. The reason is, that when taxes begin to be imposed, the mass
of circulation becomes proportionally augmented; and the paying back
considerable sums to the creditors, prevents, on the one hand, the debts
from increasing so fast, and supplies circulation, and facilitates new
borrowings on the other. While this plan of augmenting circulation is
carrying on, the statesman must prevent his expence abroad from
diminishing it proportionally at home. This is to be accomplished by
opening loans for foreign expence in foreign countries, and by paying
the _interest only_ of such loans, with the greatest punctuality.

The difficulty of performing this, is no argument against it. It must
either be done, or credit will be hurt; because without obtaining credit
abroad, it is impossible to defray any expence incurred abroad, beyond
what the metals of your country and the exports from it can pay: that
is, in other words, beyond the quantity of metals exported, and general
balance in your favour upon all reciprocal payments with the world.

If it be said, that nations never pay the interest of their debts any
where but at home, I answer, that it is so much the worse for them;
because wherever the debts or interest is to be paid, the lender always
states his account as if the payment were made in his own house. All the
expence to him of sending his money to the place of subscription, and of
drawing back his returns, are compared with the interest offered by the
borrower; and if upon the whole the lender finds his account in the
bargain, he subscribes; otherwise not. Since therefore the money
borrowed must in this case be sent abroad, it is an advantage for the
borrower to be under an obligation to provide a method of sending it;
and by that means he will borrow cheaper than he can do, when he refunds
to every lender all his expence and trouble in getting his interest
remitted to him.

I am now deducing principles, and therefore shall not enter into a
discussion of the many objections which occur against this plan, from
foreign considerations; such as the facility it might procure to a
statesman of defrauding his foreign creditors, and several others which
might be formed: all I say is, that this is a cheaper and more
systematical way of borrowing, and it has this good effect, that it
constantly points out the state of the external debt, from which alone a
bankruptcy is to be feared.

Were a favourable balance to return after an expensive war, the payment
of this foreign debt would be the consequence, as much as now when the
payment is made at home, and rather more so; because who ever owed a
balance (to England, I suppose) would then pay his debts at London, with
money due by England, payable at Antwerp, for example; consequently, he
would transfer at discount; and when he transferred in favour of an
Englishman, the debts may be considered as discharged upon the foreign
fund, and stated a-new upon the funds payable in London. Could the
payment of the interest of the public debts be rendred susceptible of
such transfers upon all occasions, it would, I imagine, have a
remarkable effect in favour of public credit.

This thought suggested itself, while I was considering the situation of
a country where borrowing is in its infancy; and it occurred as an
expedient _for preventing foreign expence from draining the country of
the money necessary for circulation at home._ _This_, in every
combination of circumstances, is the most important object of a
statesman’s care, while he is engaged in wars abroad.

Now whether the money of a country be paper or coin, it is equally taken
out of circulation, by every foreign payment. When it is coin, it goes
out of the country, as well as out of circulation: when it is paper, it
does not go out of the country, certainly, but by coming upon the debtor
in it for payment, it is equally taken out of circulation; and what the
debtor gives for it (viz. a bill of exchange upon another country) goes
out of the country. And unless that bill of exchange can be paid with
value exported in merchandize, it will remain a debt upon the country,
contracted in favour of some other nation.

This I hope will be sufficient to recall to mind what has been so fully
explained in the 13th chapter upon banks; where the same question was
stated with regard to the payments Scotland was obliged to make to
England, towards the end of last war. The same principles operate in the
case before us, and may be applied to every circumstance of it; with
this difference only, that here the statesman’s interest is more closely
connected with that of his banks than was the case during the distress
in Scotland: because if he does not support them by a systematical chain
of conduct, he will drain the fund of circulation by his remittances;
his credit will fail; his taxes will not be paid; and his people will be
oppressed. But if he pursues his plan systematically, circulation will
be kept full; his credit will be supported; his taxes will be paid; his
people will be easy: because no check will be put either to industry or
to consumption for want of money; a great part of the former solid
property will be melted down into money; whatever part of that money is
lent to the state will be, by that operation, consolidated into a new
species of property, the public funds; and if after the borrowing scheme
is over (that is, when peace is restored) circulation should be
contracted, a part of the money will stagnate in the hands of
individuals, and will, in their favour, be realized in that part of the
solid property which was melted down in order to produce it. That is,
lands will be sold by the former proprietors, and will be acquired by
those who have money not realized in stock; and for which circulation
has no farther demand. This is the reason why, at the end of every war
which has run the nation in debt, lands have constantly risen in their
value, even when considerable quantities of them have been offered to

If it be said that the stock-holders are those whom we commonly see
buying the lands, and not those who have sums not realized:

I shall, in answer, observe, that the stock-holders can only buy lands
by selling their stock, to those who have money not realized; so it is
still the money not realized which is employed in buying every article
of solid property: and even after that operation, the money still
remains in circulation; because it is impossible to realize even paper
money itself, except when the creditor in it becomes proprietor of the
property upon which it is secured; and if the money be coin, it is plain
that this cannot be realized any farther than it is by nature. When
therefore we say, that a man realizes his money, we do not mean any
thing farther, than that he gives his money to another in exchange for
solid property. Thus when an estate is bought in a country where banks
upon mortgage are established, a part of the price is commonly taken out
of circulation altogether; because in consequence of the price paid, the
bank is refunded what it had melted down of the land sold; consequently,
that paper becomes consolidated a-new, as it were, with the lands which
are relieved of the mortgage.

But when lands are sold in a country where there is no paper, the price
remains in circulation as before; and if the quantity of coin in
circulation should exceed the uses for it, a case which seldom happens
in these days, it would be exported, and realized abroad.

When this complicated and systematical scheme of credit is not
established, the infallible consequence is, that money disappears:
consequently, interest rises. The taxes formerly imposed cannot be paid:
consequently, it is in vain to seek to augment them; because in
proportion as they are augmented, they become less productive. If money
be borrowed upon remote funds, engaged for other debts previously
contracted, and if public faith be at all events to be preserved, the
consequence must then be, that the public will be eat up by usurers.

This was the case in England during the wars of Queen Anne.

So early as 1706, government, as has been said, began to borrow at 6
_per cent._ upon funds already engaged. What was the consequence? The
exchequer having no money to pay the interest as it fell due, paid with
tallies; these fell to great discount, and had they remained long in
that discredited situation, lending would have stopt, or interest would
have risen, as in France, so high as to lose the name of interest
altogether. This was the case, in the example above cited, when seven
millions ready money, borrowed by the late King of France, became a debt
of thirty-two millions on the state.

Upon the occasion above mentioned, government availed themselves of the
bank of England, as I say every private citizen should have a power to
do, on every occasion, when his credit is good, though money should fail
him. They engaged the bank to discount all tallies issued for interest
of debts; that is, in other words, to turn those sticks into money: but
as public credit was so low that money could not be found to discharge
even the interest of the advance made by the bank, the government
consented, that all advances of that kind should bear compound interest
quarterly, at 6 _per cent._ What a monstrous profit to the bank! what a
charge upon the state! Had banks of circulation upon mortgages been
established at that time, money would have come in at a moderate simple
interest to individuals, who would have availed themselves of them, for
the payment of all public burdens. Instead of which, industry was made
to suffer; the public money did not come in; taxation stopt; expences
went on, and deficiencies were paid by the public at this monstrous

On the other hand, had it not been for the assistance the bank then gave
the state, in circulating those exchequer tallies, bills, &c. it is very
certain that credit would have failed as totally in England as it had
done in France in 1708, when Desmaretz undertook the finances. This
minister had no bank to avail himself of, and accordingly he run France
in debt at the rate of two hundred millions of livres _per annum_,
during seven campaigns; of which, I am persuaded, he did not receive one
half, or near it, in effective value.

What I have said will, I hope, be sufficient to shew that the only way
for any state to borrow, is previously to provide a fund for making good
what is agreed upon with the lenders; and that all expedients to supply
the want of it will in the end bring great expence upon the people,
either by involving them in an excessive burden of debts, in case public
engagements should be held sacred, as has constantly been the case in
Great Britain; or by driving the state to a bankruptcy, as was the case
in France upon the death of the late King. I call it a bankruptcy,
because _all_ that was owing was not paid. A man who pays no more than
19_s._ 11¾_d._ in the pound, is a bankrupt, as well as he who cannot pay
one farthing.

I now come to the methods of paying off debts when already contracted.

Public debts may be divided into two classes, redeemable and
irredeemable. Redeemable debts may be paid off in several ways, which we
shall briefly enumerate before we compare their several advantages.

First then, such _debts_ may be paid off at once, by refunding to the
creditors the whole capital, with all arrears of interest.

2_do_, _They_ may be paid off yearly, according to a certain rule to
determine the preference, and order of payment: for this purpose, a
determinate sum must be set apart as a sinking fund.

3_tio_, _They_ may be paid off cumulatively and proportionally every
year, by incorporating the sinking fund into the money appropriated for
discharging the interest, and by placing all that is paid beyond the
interest, as payment in part of the capital.

4_to_, _They_ may be paid in one sense, as shall be farther explained,
by reducing the interest upon the capitals, without diminishing them.

5_to_, _They_ may be paid off by converting them into annuities for

6_to_, And lastly, _they_ may be paid off under the value of the
capitals, by the means of lotteries; where the state may gain what the
creditors choose to lose from a desire of gaining.

To one or other of these methods may be reduced all the fair and honest
expedients which a state may employ to get rid of their debts, without
any breach of public faith, or without proceeding to the extremity of
prescribing conditions of payment, which the creditors are forced to
accept against their will.

As for the irredeemable debts, I apprehend, that, without consent of the
creditors, no change upon the condition of loan can justly be made.

I shall next point out the advantages and disadvantages of the several
methods of discharging debts, as they may affect the separate, or
cumulative interest of a state.

Were large debts which have subsisted for a long time to be paid off all
at once, it would occasion a sudden and a violent revolution, which is
always attended with inconveniences.

Were, for example, the proprietors of lands to consent to sell off a
part of their estates for the payment of the public debts, the quantity
of land brought to market, would sink the price of it very considerably;
from which would arise a great detriment to landlords. I shall not here
inquire from whence such a sum of money could come.

Could a treasure be brought from India (let me suppose) sufficient at
once to discharge the debts of Great Britain, circulation would become
so glutted with money, that interest would fall to nothing. This would
be a temporary loss to all the former creditors, until they had time to
lend to the other states of Europe, who would, in consequence of the
revolution, sink the rate of interest upon their own debts. Something
like this was the consequence of paying off all the debts of France with
bank notes in 1720, upon which interest fell, as we have observed above,
to 2 _per cent._

When, in the second place, debts are paid off partially every year,
according to a certain rule, it is expedient to have the capitals
reduced into shares of a determinate value, as is the practice in
France, that they may be drawn out as in a lottery. The lots drawn may
then be paid, and no detriment will follow to any particular creditor,
more than to another: because if by being paid there be either profit or
loss to the creditor, it will affect the value of the whole stock in
proportion. If, upon the establishment of such a plan, the stock be
found to rise, it will be a proof that either the interest formerly paid
was below the common rate, or that the credit of the state was looked
upon as precarious: if it should sink, contrary conclusions may safely
be drawn.

This is a common method of paying off debts in France, where funds are
more commonly divided into shares than in Great Britain.

In 1759, the King opened a subscription for seventy-two millions of
livres upon the general farms: this sum was divided into seventy-two
thousand actions, bearing 5 _per cent._ and it was stipulated, that upon
the renewal of the farms in 1762, twelve thousand actions should be
drawn by lot, and paid off monthly; so that in six months the whole debt
was to be discharged.

The third method of applying what is annually paid above the interest,
in extinction of the capital, is the measure proposed by Cardinal
Richlieu for discharging the debts of France; only the Cardinal went to
work in a very arbitrary way, both in determining the interest, and in
fixing a value upon the capital, equally detrimental to the creditors.

To apply this to an example. Had England at the time government first
established a sinking fund, arising out of the savings which were made
upon reducing the rate of interest, from time to time, continued to pay
to the creditors the same annual sums as formerly; and thereby applied
what was paid beyond the interest, to the payment of the capital, there
could not have been any misapplication of the sinking fund; and the
debts by this time would have been greatly diminished. Whereas by
applying the sinking fund to the service of the year, for the ease of
the people and advantage of the creditors, the consequences _may_ prove
exceedingly inconvenient.

The fourth method of reducing debts is that adopted by Great Britain,
viz. by reducing the interest paid upon them. From this we discover the
reason why taxes, even in time of war, are seldom augmented in this
kingdom much above the proportion of the interest of the money borrowed.

We have, in the second chapter of the first book, boldly declared this
to be against principles, and the authors of such a scheme were there
stigmatized as men of no foresight: we now see how much people may be
mistaken in their conclusions in political matters, when they are formed
upon too narrow combinations.

Were capitals intended _ever_ to be paid, no doubt the conclusion would
be just; but if it be resolved, that capitals shall never be considered
as the object of attention, and that the interest alone shall be looked
upon as the real burden, then all payment of capitals is unnecessary,
except so far as by paying a part of them, it may serve to reduce the
interest upon the rest, by making money regorge in the market beyond the
uses found for it.

This plan cannot be carried on while a nation is engaged in an expensive
war, which absorbs all the money to be lent: but it becomes the object
of a statesman’s care, after peace is restored, and when trade begins to
bring in a balance upon exportations.

We have seen how that balance tends every year to diminish the capitals
due to strangers, and to keep money at home. Then is the time to extend
taxation beyond the uses found for money to pay the interest. Two or
three millions extraordinary, raised at the close of a war, and thrown
into the hands of the creditors of Great Britain, in extinction of their
capitals, would soon engage them to cry for mercy. They would find no
outlet but France for such sums; and it is precisely after a war, that
France is busy in playing off the arbitrary operations on her debts,
which reduces her credit too low for any one to trust her with money.
Let peace continue for a few years, confidence will there advance apace,
and then it will become more difficult to make money regorge in England.

To say that taxes are already beyond all bounds, is, in other words, to
say the nation is no more in a state of defence: because should Britain
be again involved in an unavoidable war, the consequence will be, either
to render more taxes indispensable, or to oblige the nation to submit to
any terms demanded by her enemies.

If it be therefore true, that taxes may still be augmented, the most
proper time for augmenting them, is, at the very close of a war; because
then every circumstance favours the scheme, as we shall now explain.

We have said above, and experience proves the truth of it, that at the
end of a war circulation becomes too full for domestic uses; and that
the superfluity of money is realized upon property. This is the
consequence of a sudden stop in national expence. Were taxes at such a
time augmented, part of this regorging money would find a vent by the
augmentation upon domestic circulation which taxes would occasion; which
augmentation would circulate into the exchequer, instead of becoming
consolidated with property, as has been said, and coming into the hands
of government, would be poured into those of the creditors, in payment
of part of their capitals. There it would regorge a-new; because it is
observed, in general, that those who have property in the funds are not
apt to squander money when unexpectedly thrown into their hands; on the
contrary, they are commonly found to live very much within their

Footnote 37:

  Experience shews, that when the debts of a nation have come to a
  height, the public creditors become people of great consequence, upon
  account of the ease and affluence of their circumstances. They are not
  exposed to the many hidden expences incident to land proprietors. They
  are a class in the state but lately known; the capital of their wealth
  is hid; and opinions concerning their figure and rank are as yet
  unformed. Whereas the family of a land proprietor is known; his
  expence _may surpass_ that of his predecessors without much
  observation; but if it should _fall below_ it, he commonly sinks in
  the estimation of his neighbours, who seldom combine circumstances
  which can only be guessed at. An heir to a landed estate, is bred up
  from his infancy with the notion of living like his father: the son of
  a monied man has commonly very different sentiments; and even when any
  of this class takes a turn to expence, the lustre of it is all
  displayed round their own bodies; that is, in their own house, and in
  their own families: no country seats, hounds, horses, servants in
  every quarter, family interest to keep up, little oeconomy in
  spending. In a word, every one feels better than I can describe, that
  landed men commonly exceed, and monied men commonly live within their

But suppose it should not immediately regorge, it would then increase
expence and consumption; consequently, would advance industry, and
render every branch of excises more productive. In every combination we
can form, public opulence would be augmented: money would regorge at
last; and then the creditors would come with their application to
government to suspend the reimbursement of capitals, and to accept, in
lieu of that, a diminution upon the interest.

This is the golden opportunity for diminishing the public burden
occasioned by debts; and this method of compassing so desirable an end,
is far preferable to that of compelling creditors to submit to a
diminution, by offering a sudden reimbursement, which was put in
practice in Britain in the year 1749, as has been observed. Had the
public waited with patience one year longer, and then thrown in a few
millions more than they did into the hands of the creditors, the
proposal of reducing the interest would have come from the other
quarter; which in all bargains with creditors is of the greatest
consequence to the debtor.

The sum of interest thus diminished, upon an obligation to suspend the
reimbursements of capitals for a limited time, three questions will
naturally occur: 1. Whether the taxes should be diminished in
proportion: or 2. If they should be allowed to subsist with a view to
apply the overplus of them to national purposes: or 3. Whether it may
not be most adviseable to turn such a part of the debts into annuities
for lives, as may absorb the saving upon the former interest paid. The
first two questions I reserve for the following book, where they will be
fully examined; the last is the fifth expedient proposed for acquitting
the public debts. As the nature of it is abundantly evident, I shall
only repeat what I formerly observed, that this method of establishing a
sinking fund, has the advantage of being less exposed to misapplications
than any other.

The last expedient of paying off capitals, below the original value, by
the means of lotteries, should only take place after interest is brought
so low as to cut off any near prospect of reducing it still farther.

I shall not pretend to guess at the lowest point to which the rate of
interest may be brought, by the expedients of increasing money at will,
by the means of banks upon mortgage. I have in the seventh chapter of
the first part of this book, thrown out a hint of a land-bank, which
opens a very wide field of speculation; but in this place, it would be
unnecessary to enlarge upon that subject.

Let me suppose the rate of interest brought lower in Britain than
anywhere else, it will nevertheless be subject to periodical risings, on
many occasions.

Upon every such emergency, capitals will sink in the market below par.

It is then _only_ that a state can have recourse to this last expedient
of opening lotteries, and taking in subscriptions at the market price of
the funds subscribed into them. And although the annuities to be paid
upon the lottery fund be regulated by the rate of interest at the time,
and consequently considerably above the standard of the other debts; yet
the same methods of reducing it afterwards will constantly produce their
effects, and thereby diminish the capital by degrees.

In like manner, in time of war, when the public funds fall greatly in
their price, government may open new subscriptions, and receive payment
for them in their own paper at the market price, allowing a small
premium in the rate of interest. If the creditors willingly subscribe
upon these conditions, no violation of public faith can be alledged. By
this operation, the capitals will be diminished, and the advanced rate
of interest paid during the war, will return upon the peace to where it
was: then the new subscriptions may be paid off, or subscribed for again
at a lower rate than before.

Suppose it then resolved, that in time of war, the nation’s creditors
should be allowed, at certain times, to subscribe their capitals in
books opened at the bank for that purpose, one quarter _per cent._ above
the selling price. Would not this have the good effect of supporting the
price of stocks on one hand, and of reducing the capital of the national
debt upon the other? Example.

Let me suppose that in time of war, the 3 _per cents._ sell at 74¾,
might not government receive them at 75, and constitute the new
subscription at 4 _per cent._? What interest could any one have not to
subscribe, who at such a time intends to sell his stock? His 3 _per
cent._ sold to government at 75, and turned into a 4 _per cent._ would
afterwards, when sold in the market, produce ¼ _per cent._ more than if
it had not been subscribed into the new fund.

Perhaps in Change alley, where calculation is carried to the utmost
pitch of refinement, even this eventual advantage to government might
sink the value of the new 4 _per cents._ Let this be allowed. The answer
is, that when people compute with such nicety, and comprehend in their
calculations every circumstance the most minute, it is, I think, the
interest of a state (whose views should extend far beyond the period of
human life) to grant a premium upon such subscriptions more than
sufficient to indemnify the subscribers, according to the most rigid
calculation concerning their present advantage.

The smallest profit to be discovered by the nicest pen will engage the
monied man to subscribe; consequently, the capitals of debts may be
diminished, at a loss to the public almost imperceptible. And for this
imperceptible loss in the mean time, the greatest national advantage may
be obtained at a distant period.

It is now full time to close this book, which has swelled far beyond its
due proportion. The subject of credit and debts is so connected with
many questions relating to taxes, and to the application of their
amount, that the connection of the subject would have suffered little in
blending them together. But as I find it is a great relief to the memory
to interpose, now and then, a pause; and as taxes were intended to be
treated of by themselves, according to the plan I at first proposed, I
shall make no alteration in it.

At the end of the first and second books, I subjoined a chapter of
recapitulation; in the third book, this was supplied by a very full
table of contents; here, because of the intimate connection of the
subject of this and the following book, I shall refer the reader to the
end of the volume, for a full recapitulation of both.






                                INTO THE



                                BOOK V.
                            OF THEIR AMOUNT.



The subject of taxes is so closely connected with every branch of
political oeconomy, that I have not been able to avoid anticipating a
subject, which, according to my plan, is left for the conclusion of this

What has been hitherto introduced concerning taxation, in treating of
industry, trade, money, credit, and debts, relates principally to the
effects of taxes upon circulation, prices, and several other things
relatively to those subjects.

What therefore remains, not as yet touched upon, chiefly concerns the
principles which determine the nature of every tax, relatively to the
interest it is intended to affect.

To investigate the different consequences of taxes when imposed upon
possessions, and when upon consumption, are questions which relate
directly to the principles of taxation. But in this book I shall also
have occasion to trace out, farther than as yet I have done, certain
combinations concerning the effects which taxes have in multiplying the
fund of circulation: and as the augmentation of taxes tends greatly to
increase money, I am thence led to examine, how far the advantage gained
by the suppression of taxes may not be more than compensated to a
nation, by the inconveniences proceeding from so great a diminution of

Taxes have all along been supposed to enhance the price of living; we
shall therefore have an opportunity of investigating the proper extent
to be allowed to that general proposition.

                                CHAP. I.
                   _Of the different Kinds of Taxes._

Taxes have been established in all ages of the world, under different
names of tribute, tithe, tally, impost, duty, gabel, custom, subsidy,
excise; and many others needless to recapitulate, and foreign to my
subject to examine.

Though in every species of this voluminous category, there are certain
characteristic differences; yet one principle prevails in all, upon
which the definition may be founded.

I understand therefore by _tax_, in its most general acceptation, _a
certain contribution of fruits, service, or money, imposed upon the
individuals of a state, by the act or consent of the legislature, in
order to defray the expences of government_.

This definition may, I think, include, in general, all kinds of burdens
which can possibly be imposed. By fruits are understood either those of
the earth, of animals, or of man himself. By service, whatever man can
either by labour or ingenuity produce, while he himself remains free.
And under money is comprehended the equivalent given for what may be
exacted in the other two ways.

I have no occasion to consider the nature of such taxes as are not in
use in our days. Tributes of slaves from conquered nations are as little
known in our times, as contributions of subsistence from the subjects of
the state.

I divide, therefore, modern taxes into three classes. 1. Those upon
alienation, which I call proportional: 2. Those upon possessions, which
I call cumulative or arbitrary: and 3. Those exacted in service, which I
call personal. These terms must now be fully explained, that I may use
them hereafter without being misunderstood.

A proportional tax presents a simple notion.

It is paid by the buyer, who intends to consume, at the time of the
consumption, while the balance of wealth is turning against him; and is
consolidated with the price of the commodity.

Examples of this tax are all excises, customs, stamp-duties, postage,
coinage, and the like.

By this definition, two requisites are necessary for fixing the tax upon
any one: first, he must be a buyer; secondly, he must be a consumer. Let
this be retained.

A cumulative or arbitrary tax, presents various ideas at first sight,
and cannot well be defined until the nature of it has been illustrated
by examples.

It may be known, 1_mo_, By the intention of it; which is to affect the
possessor in such a manner as to make it difficult for him to augment
his income, in proportion to the tax he pays.

2_do_, By the object, when instead of being laid upon any determinate
piece of labour or consumption, it is made to affect past and not
present gains.

3_tio_, By the circumstances under which it is levied, which imply no
transition of property from hand to hand, nor any change in the balance
of wealth between individuals.

Examples of cumulative taxes are land-taxes, poll-taxes, window-taxes,
duties upon coaches and servants, that upon _industrie_, in France, and
many others.

A personal tax is known by its affecting the person, not the purse of
those who are laid under it. Examples of it are the _corvée_, in France;
the six days labour on the high roads, and the militia service before
pay was allowed, in England[38].

Footnote 38:

  The _corvée_ in France is the personal service of all the labouring
  classes, for carrying on public works. Were they paid for in money, it
  is computed they would amount to no more than 1 200 000 livres a year.
  This tax was omitted in the account of the French revenue.

Having thus explained what I mean by proportional, cumulative, and
personal taxes, it is proper to observe, that however different they may
prove in their effects and consequences, they all agree in this, that
they ought to impair the fruits and not the fund; the expences of the
person taxed, not the savings; the services, not the persons of those
who do them.

This holds true in every den