---
id: book-4-chapter-06
title: "OF TREATIES OF COMMERCE."
book: "4"
chapter: 6
artifact_type: content
---

CHAPTER VI.
OF TREATIES OF COMMERCE.



      When a nation binds itself by treaty, either to permit the entry of
      certain goods from one foreign country which it prohibits from all others,
      or to exempt the goods of one country from duties to which it subjects
      those of all others, the country, or at least the merchants and
      manufacturers of the country, whose commerce is so favoured, must
      necessarily derive great advantage from the treaty. Those merchants and
      manufacturers enjoy a sort of monopoly in the country which is so
      indulgent to them. That country becomes a market, both more extensive and
      more advantageous for their goods: more extensive, because the goods of
      other nations being either excluded or subjected to heavier duties, it
      takes off a greater quantity of theirs; more advantageous, because the
      merchants of the favoured country, enjoying a sort of monopoly there, will
      often sell their goods for a better price than if exposed to the free
      competition of all other nations.

      Such treaties, however, though they may be advantageous to the merchants
      and manufacturers of the favoured, are necessarily disadvantageous to
      those of the favouring country. A monopoly is thus granted against them to
      a foreign nation; and they must frequently buy the foreign goods they have
      occasion for, dearer than if the free competition of other nations was
      admitted. That part of its own produce with which such a nation purchases
      foreign goods, must consequently be sold cheaper; because, when two things
      are exchanged for one another, the cheapness of the one is a necessary
      consequence, or rather is the same thing, with the dearness of the other.
      The exchangeable value of its annual produce, therefore, is likely to be
      diminished by every such treaty. This diminution, however, can scarce
      amount to any positive loss, but only to a lessening of the gain which it
      might otherwise make. Though it sells its goods cheaper than it otherwise
      might do, it will not probably sell them for less than they cost; nor, as
      in the case of bounties, for a price which will not replace the capital
      employed in bringing them to market, together with the ordinary profits of
      stock. The trade could not go on long if it did. Even the favouring
      country, therefore, may still gain by the trade, though less than if there
      was a free competition.

      Some treaties of commerce, however, have been supposed advantageous, upon
      principles very different from these; and a commercial country has
      sometimes granted a monopoly of this kind, against itself, to certain
      goods of a foreign nation, because it expected, that in the whole commerce
      between them, it would annually sell more than it would buy, and that a
      balance in gold and silver would be annually returned to it. It is upon
      this principle that the treaty of commerce between England and Portugal,
      concluded in 1703 by Mr Methuen, has been so much commended. The following
      is a literal translation of that treaty, which consists of three articles
      only.

      ART. I. His sacred royal majesty of Portugal promises, both in his own
      name and that of his successors, to admit for ever hereafter, into
      Portugal, the woollen cloths, and the rest of the woollen manufactures of
      the British, as was accustomed, till they were prohibited by the law;
      nevertheless upon this condition:

      ART. II. That is to say, that her sacred royal majesty of Great Britain
      shall, in her own name, and that of her successors, be obliged, for ever
      hereafter, to admit the wines of the growth of Portugal into Britain; so
      that at no time, whether there shall be peace or war between the kingdoms
      of Britain and France, any thing more shall be demanded for these wines by
      the name of custom or duty, or by whatsoever other title, directly or
      indirectly, whether they shall be imported into Great Britain in pipes or
      hogsheads, or other casks, than what shall be demanded for the like
      quantity or measure of French wine, deducting or abating a third part of
      the custom or duty. But if, at any time, this deduction or abatement of
      customs, which is to be made as aforesaid, shall in any manner be
      attempted and prejudiced, it shall be just and lawful for his sacred royal
      majesty of Portugal, again to prohibit the woollen cloths, and the rest of
      the British woollen manufactures.

      ART. III. The most excellent lords the plenipotentiaries promise and take
      upon themselves, that their above named masters shall ratify this treaty;
      and within the space of two months the ratification shall be exchanged.

      By this treaty, the crown of Portugal becomes bound to admit the English
      woollens upon the same footing as before the prohibition; that is, not to
      raise the duties which had been paid before that time. But it does not
      become bound to admit them upon any better terms than those of any other
      nation, of France or Holland, for example. The crown of Great Britain, on
      the contrary, becomes bound to admit the wines of Portugal, upon paying
      only two-thirds of the duty which is paid for those of France, the wines
      most likely to come into competition with them. So far this treaty,
      therefore, is evidently advantageous to Portugal, and disadvantageous to
      Great Britain.

      It has been celebrated, however, as a masterpiece of the commercial policy
      of England. Portugal receives annually from the Brazils a greater quantity
      of gold than can be employed in its domestic commerce, whether in the
      shape of coin or of plate. The surplus is too valuable to be allowed to
      lie idle and locked up in coffers; and as it can find no advantageous
      market at home, it must, notwithstanding; any prohibition, be sent abroad,
      and exchanged for something for which there is a more advantageous market
      at home. A large share of it comes annually to England, in return either
      for English goods, or for those of other European nations that receive
      their returns through England. Mr Barretti was informed, that the weekly
      packet-boat from Lisbon brings, one week with another, more than £50,000
      in gold to England. The sum had probably been exaggerated. It would amount
      to more than £2,600,000 a year, which is more than the Brazils are
      supposed to afford.

      Our merchants were, some years ago, out of humour with the crown of
      Portugal. Some privileges which had been granted them, not by treaty, but
      by the free grace of that crown, at the solicitation, indeed, it is
      probable, and in return for much greater favours, defence and protection
      from the crown of Great Britain, had been either infringed or revoked. The
      people, therefore, usually most interested in celebrating the Portugal
      trade, were then rather disposed to represent it as less advantageous than
      it had commonly been imagined. The far greater part, almost the whole,
      they pretended, of this annual importation of gold, was not on account of
      Great Britain, but of other European nations; the fruits and wines of
      Portugal annually imported into Great Britain nearly compensating the
      value of the British goods sent thither.

      Let us suppose, however, that the whole was on account of Great Britain,
      and that it amounted to a still greater sum than Mr Barretti seems to
      imagine; this trade would not, upon that account, be more advantageous
      than any other, in which, for the same value sent out, we received an
      equal value of consumable goods in return.

      It is but a very small part of this importation which, it can be supposed,
      is employed as an annual addition, either to the plate or to the coin of
      the kingdom. The rest must all be sent abroad, and exchanged for
      consumable goods of some kind or other. But if those consumable goods were
      purchased directly with the produce of English industry, it would be more
      for the advantage of England, than first to purchase with that produce the
      gold of Portugal, and afterwards to purchase with that gold those
      consumable goods. A direct foreign trade of consumption is always more
      advantageous than a round-about one; and to bring the same value of
      foreign goods to the home market requires a much smaller capital in the
      one way than in the ether. If a smaller share of its industry, therefore,
      had been employed in producing goods fit for the Portugal market, and a
      greater in producing those lit for the other markets, where those
      consumable goods for which there is a demand in Great Britain are to be
      had, it would have been more for the advantage of England. To procure both
      the gold which it wants for its own use, and the consumable goods, would,
      in this way, employ a much smaller capital than at present. There would be
      a spare capital, therefore, to be employed for other purposes, in exciting
      an additional quantity of industry, and in raising a greater annual
      produce.

      Though Britain were entirely excluded from the Portugal trade, it could
      find very little difficulty in procuring all the annual supplies of gold
      which it wants, either for the purposes of plate, or of coin, or of
      foreign trade. Gold, like every other commodity, is always somewhere or
      another to be got for its value by those who have that value to give for
      it. The annual surplus of gold in Portugal, besides, would still be sent
      abroad, and though not carried away by Great Britain, would be carried
      away by some other nation, which would be glad to sell it again for its
      price, in the same manner as Great Britain does at present. In buying gold
      of Portugal, indeed, we buy it at the first hand; whereas, in buying it of
      any other nation, except Spain, we should buy it at the second, and might
      pay somewhat dearer. This difference, however, would surely be too
      insignificant to deserve the public attention.

      Almost all our gold, it is said, comes from Portugal. With other nations,
      the balance of trade is either against as, or not much in our favour. But
      we should remember, that the more gold we import from one country, the
      less we must necessarily import from all others. The effectual demand for
      gold, like that for every other commodity, is in every country limited to
      a certain quantity. If nine-tenths of this quantity are imported from one
      country, there remains a tenth only to be imported from all others. The
      more gold, besides, that is annually imported from some particular
      countries, over and above what is requisite for plate and for coin, the
      more must necessarily be exported to some others: and the more that most
      insignificant object of modern policy, the balance of trade, appears to be
      in our favour with some particular countries, the more it must necessarily
      appear to be against us with many others.

      It was upon this silly notion, however, that England could not subsist
      without the Portugal trade, that, towards the end of the late war, France
      and Spain, without pretending either offence or provocation, required the
      king of Portugal to exclude all British ships from his ports, and, for the
      security of this exclusion, to receive into them French or Spanish
      garrisons. Had the king of Portugal submitted to those ignominious terms
      which his brother-in-law the king of Spain proposed to him, Britain would
      have been freed from a much greater inconveniency than the loss of the
      Portugal trade, the burden of supporting a very weak ally, so unprovided
      of every thing for his own defence, that the whole power of England, had
      it been directed to that single purpose, could scarce, perhaps, have
      defended him for another campaign. The loss of the Portugal trade would,
      no doubt, have occasioned a considerable embarrassment to the merchants at
      that time engaged in it, who might not, perhaps, have found out, for a
      year or two, any other equally advantageous method of employing their
      capitals; and in this would probably have consisted all the inconveniency
      which England could have suffered from this notable piece of commercial
      policy.

      The great annual importation of gold and silver is neither for the purpose
      of plate nor of coin, but of foreign trade. A round-about foreign trade of
      consumption can be carried on more advantageously by means of these metals
      than of almost any other goods. As they are the universal instruments of
      commerce, they are more readily received in return for all commodities
      than any other goods; and, on account of their small bulk and great value,
      it costs less to transport them backward and forward from one place to
      another than almost any other sort of merchandize, and they lose less of
      their value by being so transported. Of all the commodities, therefore,
      which are bought in one foreign country, for no other purpose but to be
      sold or exchanged again for some other goods in another, there are none so
      convenient as gold and silver. In facilitating all the different
      round-about foreign trades of consumption which are carried on in Great
      Britain, consists the principal advantage of the Portugal trade; and
      though it is not a capital advantage, it is, no doubt, a considerable one.

      That any annual addition which, it can reasonably be supposed, is made
      either to the plate or to the coin of the kingdom, could require but a
      very small annual importation of gold and silver, seems evident enough;
      and though we had no direct trade with Portugal, this small quantity could
      always, somewhere or another, be very easily got.

      Though the goldsmiths trade be very considerable in Great Britain, the far
      greater part of the new plate which they annually sell, is made from other
      old plate melted down; so that the addition annually made to the whole
      plate of the kingdom cannot be very great, and could require but a very
      small annual importation.

      It is the same case with the coin. Nobody imagines, I believe, that even
      the greater part of the annual coinage, amounting, for ten years together,
      before the late reformation of the gold coin, to upwards of £800,000
      a-year in gold, was an annual addition to the money before current in the
      kingdom. In a country where the expense of the coinage is defrayed by the
      government, the value of the coin, even when it contains its full standard
      weight of gold and silver, can never be much greater than that of an equal
      quantity of those metals uncoined, because it requires only the trouble of
      going to the mint, and the delay, perhaps, of a few weeks, to procure for
      any quantity of uncoined gold and silver an equal quantity of those metals
      in coin; but in every country the greater part of the current coin is
      almost always more or less worn, or otherwise degenerated from its
      standard. In Great Britain it was, before the late reformation, a good
      deal so, the gold being more than two per cent., and the silver more than
      eight per cent. below its standard weight. But if forty-four guineas and
      a-half, containing their full standard weight, a pound weight of gold,
      could purchase very little more than a pound weight of uncoined gold;
      forty-four guineas and a-half, wanting a part of their weight, could not
      purchase a pound weight, and something was to be added, in order to make
      up the deficiency. The current price of gold bullion at market, therefore,
      instead of being the same with the mint price, or £46:14:6, was then about
      £47:14s., and sometimes about £48. When the greater part of the coin,
      however, was in this degenerate condition, forty four guineas and a-half,
      fresh from the mint, would purchase no more goods in the market than any
      other ordinary guineas; because, when they came into the coffers of the
      merchant, being confounded with other money, they could not afterwards be
      distinguished without more trouble than the difference was worth. Like
      other guineas, they were worth no more than £46:14:6. If thrown into the
      melting pot, however, they produced, without any sensible loss, a pound
      weight of standard gold, which could be sold at any time for between
      £47:14s. and £48, either in gold or silver, as fit for all the purposes of
      coin as that which had been melted down. There was an evident profit,
      therefore, in melting down new-coined money; and it was done so
      instantaneously, that no precaution of government could prevent it. The
      operations of the mint were, upon this account, somewhat like the web of
      Penelope; the work that was done in the day was undone in the night. The
      mint was employed, not so much in making daily additions to the coin, as
      in replacing the very best part of it, which was daily melted down.

      Were the private people who carry their gold and silver to the mint to pay
      themselves for the coinage, it would add to the value of those metals, in
      the same manner as the fashion does to that of plate. Coined gold and
      silver would be more valuable than uncoined. The seignorage, if it was not
      exorbitant, would add to the bullion the whole value of the duty; because,
      the government having everywhere the exclusive privilege of coining, no
      coin can come to market cheaper than they think proper to afford it. If
      the duty was exorbitant, indeed, that is, if it was very much above the
      real value of the labour and expense requisite for coinage, false coiners,
      both at home and abroad, might be encouraged, by the great difference
      between the value of bullion and that of coin, to pour in so great a
      quantity of counterfeit money as might reduce the value of the government
      money. In France, however, though the seignorage is eight per cent., no
      sensible inconveniency of this kind is found to arise from it. The dangers
      to which a false coiner is everywhere exposed, if he lives in the country
      of which he counterfeits the coin, and to which his agents or
      correspondents are exposed, if he lives in a foreign country, are by far
      too great to be incurred for the sake of a profit of six or seven per
      cent.

      The seignorage in France raises the value of the coin higher than in
      proportion to the quantity of pure gold which it contains. Thus, by the
      edict of January 1726, the mint price of fine gold of twenty-four carats
      was fixed at seven hundred and forty livres nine sous and one denier
      one-eleventh the mark of eight Paris ounces. {See Dictionnaire des
      Monnoies, tom. ii. article Seigneurage, p. 439, par 81. Abbot de
      Bazinghen, Conseiller-Commissaire en la Cour des Monnoies à Paris.} The
      gold coin of France, making an allowance for the remedy of the mint,
      contains twenty-one carats and three-fourths of fine gold, and two carats
      one-fourth of alloy. The mark of standard gold, therefore, is worth no
      more than about six hundred and seventy-one livres ten deniers. But in
      France this mark of standard gold is coined into thirty louis d’ors of
      twenty-four livres each, or into seven hundred and twenty livres. The
      coinage, therefore, increases the value of a mark of standard gold
      bullion, by the difference between six hundred and seventy-one livres ten
      deniers and seven hundred and twenty livres, or by forty-eight livres
      nineteen sous and two deniers.

      A seignorage will, in many cases, take away altogether, and will in all
      cases diminish, the profit of melting down the new coin. This profit
      always arises from the difference between the quantity of bullion which
      the common currency ought to contain and that which it actually does
      contain. If this difference is less than the seignorage, there will be
      loss instead of profit. If it is equal to the seignorage, there will be
      neither profit nor loss. If it is greater than the seignorage, there will,
      indeed, be some profit, but less than if there was no seignorage. If,
      before the late reformation of the gold coin, for example, there had been
      a seignorage of five per cent. upon the coinage, there would have been a
      loss of three per cent. upon the melting down of the gold coin. If the
      seignorage had been two per cent., there would have been neither profit
      nor loss. If the seignorage had been one per cent., there would have been
      a profit but of one per cent. only, instead of two per cent. Wherever
      money is received by tale, therefore, and not by weight, a seignorage is
      the most effectual preventive of the melting down of the coin, and, for
      the same reason, of its exportation. It is the best and heaviest pieces
      that are commonly either melted down or exported, because it is upon such
      that the largest profits are made.

      The law for the encouragement of the coinage, by rendering it duty-free,
      was first enacted during the reign of Charles II. for a limited time, and
      afterwards continued, by different prolongations, till 1769, when it was
      rendered perpetual. The bank of England, in order to replenish their
      coffers with money, are frequently obliged to carry bullion to the mint;
      and it was more for their interest, they probably imagined, that the
      coinage should be at the expense of the government than at their own. It
      was probably out of complaisance to this great company, that the
      government agreed to render this law perpetual. Should the custom of
      weighing gold, however, come to be disused, as it is very likely to be on
      account of its inconveniency; should the gold coin of England come to be
      received by tale, as it was before the late recoinage this great company
      may, perhaps, find that they have, upon this, as upon some other
      occasions, mistaken their own interest not a little.

      Before the late recoinage, when the gold currency of England was two per
      cent. below its standard weight, as there was no seignorage, it was two
      per cent. below the value of that quantity of standard gold bullion which
      it ought to have contained. When this great company, therefore, bought
      gold bullion in order to have it coined, they were obliged to pay for it
      two per cent. more than it was worth after the coinage. But if there had
      been a seignorage of two per cent. upon the coinage, the common gold
      currency, though two per cent. below its standard weight, would,
      notwithstanding, have been equal in value to the quantity of standard gold
      which it ought to have contained; the value of the fashion compensating in
      this case the diminution of the weight. They would, indeed, have had the
      seignorage to pay, which being two per cent., their loss upon the whole
      transaction would have been two per cent., exactly the same, but no
      greater than it actually was.

      If the seignorage had been five per cent. and the gold currency only two
      per cent. below its standard weight, the bank would, in this case, have
      gained three per cent. upon the price of the bullion; but as they would
      have had a seignorage of five per cent. to pay upon the coinage, their
      loss upon the whole transaction would, in the same manner, have been
      exactly two per cent.

      If the seignorage had been only one per cent., and the gold currency two
      per cent. below its standard weight, the bank would, in this case, have
      lost only one per cent. upon the price of the bullion; but as they would
      likewise have had a seignorage of one per cent. to pay, their loss upon
      the whole transaction would have been exactly two per cent., in the same
      manner as in all other cases.

      If there was a reasonable seignorage, while at the same time the coin
      contained its full standard weight, as it has done very nearly since the
      late recoinage, whatever the bank might lose by the seignorage, they would
      gain upon the price of the bullion; and whatever they might gain upon the
      price of the bullion, they would lose by the seignorage. They would
      neither lose nor gain, therefore, upon the whole transaction, and they
      would in this, as in all the foregoing cases, be exactly in the same
      situation as if there was no seignorage.

      When the tax upon a commodity is so moderate as not to encourage
      smuggling, the merchant who deals in it, though he advances, does not
      properly pay the tax, as he gets it back in the price of the commodity.
      The tax is finally paid by the last purchaser or consumer. But money is a
      commodity, with regard to which every man is a merchant. Nobody buys it
      but in order to sell it again; and with regard to it there is, in ordinary
      cases, no last purchaser or consumer. When the tax upon coinage,
      therefore, is so moderate as not to encourage false coining, though every
      body advances the tax, nobody finally pays it; because every body gets it
      back in the advanced value of the coin.

      A moderate seignorage, therefore, would not, in any case, augment the
      expense of the bank, or of any other private persons who carry their
      bullion to the mint in order to be coined; and the want of a moderate
      seignorage does not in any case diminish it. Whether there is or is not a
      seignorage, if the currency contains its full standard weight, the coinage
      costs nothing to anybody; and if it is short of that weight, the coinage
      must always cost the difference between the quantity of bullion which
      ought to be contained in it, and that which actually is contained in it.

      The government, therefore, when it defrays the expense of coinage, not
      only incurs some small expense, but loses some small revenue which it
      might get by a proper duty; and neither the bank, nor any other private
      persons, are in the smallest degree benefited by this useless piece of
      public generosity.

      The directors of the bank, however, would probably be unwilling to agree
      to the imposition of a seignorage upon the authority of a speculation
      which promises them no gain, but only pretends to insure them from any
      loss. In the present state of the gold coin, and as long as it continues
      to be received by weight, they certainly would gain nothing by such a
      change. But if the custom of weighing the gold coin should ever go into
      disuse, as it is very likely to do, and if the gold coin should ever fall
      into the same state of degradation in which it was before the late
      recoinage, the gain, or more properly the savings, of the bank,
      in consequence of the imposition of a seignorage, would probably be very
      considerable. The bank of England is the only company which sends any
      considerable quantity of bullion to the mint, and the burden of the annual
      coinage falls entirely, or almost entirely, upon it. If this annual
      coinage had nothing to do but to repair the unavoidable losses and
      necessary wear and tear of the coin, it could seldom exceed fifty
      thousand, or at most a hundred thousand pounds. But when the coin is
      degraded below its standard weight, the annual coinage must, besides this,
      fill up the large vacuities which exportation and the melting pot are
      continually making in the current coin. It was upon this account, that
      during the ten or twelve years immediately preceding the late reformation
      of the gold coin, the annual coinage amounted, at an average, to more than
      £850,000. But if there had been a seignorage of four or five per cent.
      upon the gold coin, it would probably, even in the state in which things
      then were, have put an effectual stop to the business both of exportation
      and of the melting pot. The bank, instead of losing every year about two
      and a half per cent. upon the bullion which was to be coined into more
      than eight hundred and fifty thousand pounds, or incurring an annual loss
      of more than £21,250 pounds, would not probably have incurred the tenth
      part of that loss.

      The revenue allotted by parliament for defraying the expense of the
      coinage is but fourteen thousand pounds a-year; and the real expense which
      it costs the government, or the fees of the officers of the mint, do not,
      upon ordinary occasions, I am assured, exceed the half of that sum. The
      saving of so very small a sum, or even the gaining of another, which could
      not well be much larger, are objects too inconsiderable, it may be
      thought, to deserve the serious attention of government. But the saving of
      eighteen or twenty thousand pounds a-year, in case of an event which is
      not improbable, which has frequently happened before, and which is very
      likely to happen again, is surely an object which well deserves the
      serious attention, even of so great a company as the bank of England.

      Some of the foregoing reasonings and observations might, perhaps, have
      been more properly placed in those chapters of the first book which treat
      of the origin and use of money, and of the difference between the real and
      the nominal price of commodities. But as the law for the encouragement of
      coinage derives its origin from those vulgar prejudices which have been
      introduced by the mercantile system, I judged it more proper to reserve
      them for this chapter. Nothing could be more agreeable to the spirit of
      that system than a sort of bounty upon the production of money, the very
      thing which, it supposes, constitutes the wealth of every nation. It is
      one of its many admirable expedients for enriching the country.
