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feat(llm): add LLM integration module with OpenRouter and Claude Code adapters

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Implements markitect/llm/ package with concrete LLMAdapter implementations:
- OpenRouterAdapter: HTTP via urllib with retry/backoff on 429/5xx
- ClaudeCodeAdapter: subprocess-based Claude CLI with stdin piping
- Factory pattern: create_adapter("openrouter") or create_adapter("claude-code")
- API key resolution chain: constructor > env var > project-root key file
- 42 unit tests, 2 integration tests (gated on API key / CLI availability)

Also adds the infospace-with-history example with Wealth of Nations VSM
analysis pipeline, templates, schemas, source chapters, and processed
output for chapters 1-2. process_chapters.py now supports --provider
and --model flags for automatic LLM-driven processing.

Co-Authored-By: Claude Opus 4.6 <noreply@anthropic.com>
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# Markitect Infrastructure Tasks
Issues discovered while building the infospace-with-history example.
These should be addressed in the markitect infrastructure, then the
experiment re-run.
## 1. Artifact Repository does not store content
**File:** `markitect/prompts/resolver/resolver.py`, line 147-148
**Issue:** `content = f"[Content of {artifact.name} from {space_id}]"` — the
resolver returns placeholder text instead of actual artifact content because
the SQLiteArtifactRepository stores metadata (digest, name, type) but not
the content itself.
**Impact:** Consumers must maintain their own content cache alongside the
repository, defeating the purpose of centralised artifact storage.
**Fix:** Add a `content` column to the artifacts table, or use a separate
content-addressable store keyed by digest.
## 2. ContentMacro raw_text defaults to empty string
**File:** `markitect/prompts/templates/models.py`, line 46
**Issue:** `raw_text: str = ""` — when macros are constructed programmatically
(not parsed from template text), `raw_text` defaults to `""`. The
ContextCompiler then calls `str.replace("", resolved.content)` which inserts
content between every character, producing multi-gigabyte output.
**Impact:** Silent data corruption; compiled prompts become unusable.
**Fix:** Either require `raw_text` in the constructor, or derive it
automatically from `target` (e.g., `raw_text = f"@{{{target}}}"` if not
provided).
## 3. No TemplateAnalyzer support for @{target} syntax
**File:** `markitect/prompts/templates/analyzer.py`
**Issue:** The TemplateAnalyzer parses `{{kind:target}}` syntax but the
templates in this example use the simplified `@{target}` syntax. There's
no automatic parsing for this format, requiring manual macro construction.
**Fix:** Add `@{target}` as a recognised shorthand syntax in the analyzer,
auto-detecting it as `{{require:target}}`.

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This example provides a tutorial and reference experiment for how to set up a viable infospace
with history using markitect.
The task is to capture the knowledge from Adam Smith's The Wealth of Nations available digitally
in the public domain as a transcript of the original text and transform and extend it to a
collection of concepts and entities from a systems theoretical point of view based on Stafford
Beer's Viable System Model that is consistent and complete.
The tutorial should explain how to use the concept of schemas to provide a scaffolding for how
to structure the necessary information entities and define a set of prompts and instructions using
the prompt dependency resolution infrastructure to incrementally inject chapters of the book.
The information space should utilize the option of keeping changes as git history. And define
metrics for completeness and consistency.
While running the experiment no changes must be made to the markitect infrastructure.
If demand for optimization or fixing errors occurs, a list of corresponding tasks should
be generated. It will be used to optimize the markitect infrastructure to then rerun the
experiment to optimize tooling and infospace over time and again.
--worsch, 10th Feb. 2026

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---
id: extraction-rules
name: extraction_rules
artifact_type: content
description: Guidelines for extracting economic entities from source text
version: 1.0.0
---
# Entity Extraction Rules
## What Constitutes an Entity
An economic entity is a distinct concept, actor, mechanism, or institution
that plays a functional role in Adam Smith's economic analysis. Extract
entities at the level of specificity where they carry independent meaning.
## Extraction Criteria
1. **Concepts**: Abstract economic ideas (e.g., "division of labour",
"effectual demand", "natural price"). Extract when Smith defines,
explains, or argues about the concept.
2. **Actors**: Economic agents with defined roles (e.g., "the labourer",
"the merchant", "the sovereign"). Extract when the actor performs
a distinct economic function.
3. **Mechanisms**: Processes or dynamics that produce economic effects
(e.g., "accumulation of stock", "market price adjustment",
"foreign trade"). Extract when the mechanism is described as
producing specific outcomes.
4. **Institutions**: Organised structures that shape economic behaviour
(e.g., "the corporation", "the guild", "the joint-stock company").
Extract when the institution's economic function is described.
## Granularity Rules
- Extract at the level of a single coherent concept.
- Do NOT extract synonyms as separate entities — choose the primary term
Smith uses and note variations.
- DO extract distinct aspects of a broad concept as separate entities when
Smith treats them independently (e.g., "wages of labour" and "profits
of stock" are separate from "price of commodities" even though they
compose it).
- If an entity appears across multiple chapters, extract it on first
significant appearance and note cross-references in later chapters.
## Naming Conventions
- Use Smith's own terminology where possible.
- Normalise to lowercase except for proper nouns.
- Use the most common form Smith uses (e.g., "division of labour" not
"divided labour").
## Quality Checks
- Each entity must have a definition that would be comprehensible without
reading the source chapter.
- Each entity must cite the specific book and chapter of first appearance.
- Economic Domain must be one of: Production, Distribution, Exchange,
Consumption, Accumulation, Regulation, or General Theory.

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---
id: mapping-rules
name: mapping_rules
artifact_type: content
description: Guidelines for mapping economic entities to VSM concepts
version: 1.0.0
---
# VSM Mapping Rules
## Mapping Principles
1. **Ground in Beer's definitions.** Every mapping rationale must reference
the specific VSM system function, not just a superficial resemblance.
2. **Prefer structural over metaphorical mappings.** A mapping is strong
when the economic entity performs the same *functional role* in Smith's
economic system as the VSM component performs in an organisation.
3. **Allow multiple mappings.** A single economic entity may map to
multiple VSM systems. For example, "the sovereign" may map to both
S3 (regulation) and S5 (policy). Create separate mapping documents
for each relationship.
4. **Respect recursion.** Consider at which level of recursion the mapping
applies. The division of labour within a single workshop (S1-level)
differs from the division of labour across an entire national economy
(higher recursion level).
## Mapping Strength Criteria
### Strong
- The entity directly performs the function of the VSM system.
- The mapping would be recognisable to a VSM practitioner without explanation.
- Example: "market price mechanism" → S2 (Coordination) — prices coordinate
supply and demand between producers.
### Moderate
- The entity partially performs the function or performs it in a limited context.
- The mapping requires some argument but is defensible.
- Example: "merchant" → S4 (Intelligence) — merchants gather information
about foreign markets, but this is not their primary function.
### Weak
- The mapping is speculative or metaphorical rather than structural.
- The connection exists but requires significant interpretive work.
- Example: "moral sentiments" → S5 (Policy) — broad ethical framework
shapes economic behaviour, but the connection is indirect.
## What NOT to Map
- Do not force mappings where none exist. It is valid for an entity to have
no clear VSM mapping — flag it with "Mapping Strength: Weak" and explain
the difficulty.
- Do not map purely descriptive/historical content that lacks functional
significance.
## VSM System Checklist
When mapping, consider each system:
| System | Question to Ask |
|--------|----------------|
| S1 | Does this entity directly produce value or output? |
| S2 | Does this entity coordinate between operational units? |
| S3 | Does this entity regulate internal operations? |
| S3* | Does this entity provide audit or verification? |
| S4 | Does this entity scan the environment or plan for the future? |
| S5 | Does this entity define identity, policy, or purpose? |
Also consider the key concepts:
- **Recursion**: At what level does this entity operate?
- **Variety**: Does this entity manage variety (attenuate or amplify)?
- **Algedonic signals**: Does this entity serve as an emergency signal?
- **Autonomy**: Does this entity relate to operational autonomy?

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---
id: book-1-chapter-01
title: "OF THE DIVISION OF LABOUR."
book: "1"
chapter: 1
artifact_type: content
---
CHAPTER I.
OF THE DIVISION OF LABOUR.
The greatest improvements in the productive powers of labour, and the
greater part of the skill, dexterity, and judgment, with which it is
anywhere directed, or applied, seem to have been the effects of the
division of labour. The effects of the division of labour, in the general
business of society, will be more easily understood, by considering in
what manner it operates in some particular manufactures. It is commonly
supposed to be carried furthest in some very trifling ones; not perhaps
that it really is carried further in them than in others of more
importance: but in those trifling manufactures which are destined to
supply the small wants of but a small number of people, the whole number
of workmen must necessarily be small; and those employed in every
different branch of the work can often be collected into the same
workhouse, and placed at once under the view of the spectator.
In those great manufactures, on the contrary, which are destined to supply
the great wants of the great body of the people, every different branch of
the work employs so great a number of workmen, that it is impossible to
collect them all into the same workhouse. We can seldom see more, at one
time, than those employed in one single branch. Though in such
manufactures, therefore, the work may really be divided into a much
greater number of parts, than in those of a more trifling nature, the
division is not near so obvious, and has accordingly been much less
observed.
To take an example, therefore, from a very trifling manufacture, but one
in which the division of labour has been very often taken notice of, the
trade of a pin-maker: a workman not educated to this business (which the
division of labour has rendered a distinct trade), nor acquainted with the
use of the machinery employed in it (to the invention of which the same
division of labour has probably given occasion), could scarce, perhaps,
with his utmost industry, make one pin in a day, and certainly could not
make twenty. But in the way in which this business is now carried on, not
only the whole work is a peculiar trade, but it is divided into a number
of branches, of which the greater part are likewise peculiar trades. One
man draws out the wire; another straights it; a third cuts it; a fourth
points it; a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put it on is a
peculiar business; to whiten the pins is another; it is even a trade by
itself to put them into the paper; and the important business of making a
pin is, in this manner, divided into about eighteen distinct operations,
which, in some manufactories, are all performed by distinct hands, though
in others the same man will sometimes perform two or three of them. I have
seen a small manufactory of this kind, where ten men only were employed,
and where some of them consequently performed two or three distinct
operations. But though they were very poor, and therefore but
indifferently accommodated with the necessary machinery, they could, when
they exerted themselves, make among them about twelve pounds of pins in a
day. There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards of
forty-eight thousand pins in a day. Each person, therefore, making a tenth
part of forty-eight thousand pins, might be considered as making four
thousand eight hundred pins in a day. But if they had all wrought
separately and independently, and without any of them having been educated
to this peculiar business, they certainly could not each of them have made
twenty, perhaps not one pin in a day; that is, certainly, not the two
hundred and fortieth, perhaps not the four thousand eight hundredth, part
of what they are at present capable of performing, in consequence of a
proper division and combination of their different operations.
In every other art and manufacture, the effects of the division of labour
are similar to what they are in this very trifling one, though, in many of
them, the labour can neither be so much subdivided, nor reduced to so
great a simplicity of operation. The division of labour, however, so far
as it can be introduced, occasions, in every art, a proportionable
increase of the productive powers of labour. The separation of different
trades and employments from one another, seems to have taken place in
consequence of this advantage. This separation, too, is generally carried
furthest in those countries which enjoy the highest degree of industry and
improvement; what is the work of one man, in a rude state of society,
being generally that of several in an improved one. In every improved
society, the farmer is generally nothing but a farmer; the manufacturer,
nothing but a manufacturer. The labour, too, which is necessary to produce
any one complete manufacture, is almost always divided among a great
number of hands. How many different trades are employed in each branch of
the linen and woollen manufactures, from the growers of the flax and the
wool, to the bleachers and smoothers of the linen, or to the dyers and
dressers of the cloth! The nature of agriculture, indeed, does not admit
of so many subdivisions of labour, nor of so complete a separation of one
business from another, as manufactures. It is impossible to separate so
entirely the business of the grazier from that of the corn-farmer, as the
trade of the carpenter is commonly separated from that of the smith. The
spinner is almost always a distinct person from the weaver; but the
ploughman, the harrower, the sower of the seed, and the reaper of the
corn, are often the same. The occasions for those different sorts of
labour returning with the different seasons of the year, it is impossible
that one man should be constantly employed in any one of them. This
impossibility of making so complete and entire a separation of all the
different branches of labour employed in agriculture, is perhaps the
reason why the improvement of the productive powers of labour, in this
art, does not always keep pace with their improvement in manufactures. The
most opulent nations, indeed, generally excel all their neighbours in
agriculture as well as in manufactures; but they are commonly more
distinguished by their superiority in the latter than in the former. Their
lands are in general better cultivated, and having more labour and expense
bestowed upon them, produce more in proportion to the extent and natural
fertility of the ground. But this superiority of produce is seldom much
more than in proportion to the superiority of labour and expense. In
agriculture, the labour of the rich country is not always much more
productive than that of the poor; or, at least, it is never so much more
productive, as it commonly is in manufactures. The corn of the rich
country, therefore, will not always, in the same degree of goodness, come
cheaper to market than that of the poor. The corn of Poland, in the same
degree of goodness, is as cheap as that of France, notwithstanding the
superior opulence and improvement of the latter country. The corn of
France is, in the corn-provinces, fully as good, and in most years nearly
about the same price with the corn of England, though, in opulence and
improvement, France is perhaps inferior to England. The corn-lands of
England, however, are better cultivated than those of France, and the
corn-lands of France are said to be much better cultivated than those of
Poland. But though the poor country, notwithstanding the inferiority of
its cultivation, can, in some measure, rival the rich in the cheapness and
goodness of its corn, it can pretend to no such competition in its
manufactures, at least if those manufactures suit the soil, climate, and
situation, of the rich country. The silks of France are better and cheaper
than those of England, because the silk manufacture, at least under the
present high duties upon the importation of raw silk, does not so well
suit the climate of England as that of France. But the hardware and the
coarse woollens of England are beyond all comparison superior to those of
France, and much cheaper, too, in the same degree of goodness. In Poland
there are said to be scarce any manufactures of any kind, a few of those
coarser household manufactures excepted, without which no country can well
subsist.
This great increase in the quantity of work, which, in consequence of the
division of labour, the same number of people are capable of performing,
is owing to three different circumstances; first, to the increase of
dexterity in every particular workman; secondly, to the saving of the time
which is commonly lost in passing from one species of work to another;
and, lastly, to the invention of a great number of machines which
facilitate and abridge labour, and enable one man to do the work of many.
First, the improvement of the dexterity of the workmen, necessarily
increases the quantity of the work he can perform; and the division of
labour, by reducing every man’s business to some one simple operation, and
by making this operation the sole employment of his life, necessarily
increases very much the dexterity of the workman. A common smith, who,
though accustomed to handle the hammer, has never been used to make nails,
if, upon some particular occasion, he is obliged to attempt it, will
scarce, I am assured, be able to make above two or three hundred nails in
a day, and those, too, very bad ones. A smith who has been accustomed to
make nails, but whose sole or principal business has not been that of a
nailer, can seldom, with his utmost diligence, make more than eight
hundred or a thousand nails in a day. I have seen several boys, under
twenty years of age, who had never exercised any other trade but that of
making nails, and who, when they exerted themselves, could make, each of
them, upwards of two thousand three hundred nails in a day. The making of
a nail, however, is by no means one of the simplest operations. The same
person blows the bellows, stirs or mends the fire as there is occasion,
heats the iron, and forges every part of the nail: in forging the head,
too, he is obliged to change his tools. The different operations into
which the making of a pin, or of a metal button, is subdivided, are all of
them much more simple, and the dexterity of the person, of whose life it
has been the sole business to perform them, is usually much greater. The
rapidity with which some of the operations of those manufactures are
performed, exceeds what the human hand could, by those who had never seen
them, be supposed capable of acquiring.
Secondly, the advantage which is gained by saving the time commonly lost
in passing from one sort of work to another, is much greater than we
should at first view be apt to imagine it. It is impossible to pass very
quickly from one kind of work to another, that is carried on in a
different place, and with quite different tools. A country weaver, who
cultivates a small farm, must lose a good deal of time in passing from
his loom to the field, and from the field to his loom. When the two trades
can be carried on in the same workhouse, the loss of time is, no doubt,
much less. It is, even in this case, however, very considerable. A man
commonly saunters a little in turning his hand from one sort of employment
to another. When he first begins the new work, he is seldom very keen and
hearty; his mind, as they say, does not go to it, and for some time he
rather trifles than applies to good purpose. The habit of sauntering, and
of indolent careless application, which is naturally, or rather
necessarily, acquired by every country workman who is obliged to change
his work and his tools every half hour, and to apply his hand in twenty
different ways almost every day of his life, renders him almost always
slothful and lazy, and incapable of any vigorous application, even on the
most pressing occasions. Independent, therefore, of his deficiency in
point of dexterity, this cause alone must always reduce considerably the
quantity of work which he is capable of performing.
Thirdly, and lastly, everybody must be sensible how much labour is
facilitated and abridged by the application of proper machinery. It is
unnecessary to give any example. I shall only observe, therefore, that the
invention of all those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the division of labour.
Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is directed
towards that single object, than when it is dissipated among a great
variety of things. But, in consequence of the division of labour, the
whole of every man’s attention comes naturally to be directed towards some
one very simple object. It is naturally to be expected, therefore, that
some one or other of those who are employed in each particular branch of
labour should soon find out easier and readier methods of performing their
own particular work, whenever the nature of it admits of such improvement.
A great part of the machines made use of in those manufactures in which
labour is most subdivided, were originally the invention of common
workmen, who, being each of them employed in some very simple operation,
naturally turned their thoughts towards finding out easier and readier
methods of performing it. Whoever has been much accustomed to visit such
manufactures, must frequently have been shewn very pretty machines, which
were the inventions of such workmen, in order to facilitate and quicken
their own particular part of the work. In the first fire engines {this was
the current designation for steam engines}, a boy was constantly employed
to open and shut alternately the communication between the boiler and the
cylinder, according as the piston either ascended or descended. One of
those boys, who loved to play with his companions, observed that, by tying
a string from the handle of the valve which opened this communication to
another part of the machine, the valve would open and shut without his
assistance, and leave him at liberty to divert himself with his
play-fellows. One of the greatest improvements that has been made upon
this machine, since it was first invented, was in this manner the
discovery of a boy who wanted to save his own labour.
All the improvements in machinery, however, have by no means been the
inventions of those who had occasion to use the machines. Many
improvements have been made by the ingenuity of the makers of the
machines, when to make them became the business of a peculiar trade; and
some by that of those who are called philosophers, or men of speculation,
whose trade it is not to do any thing, but to observe every thing, and
who, upon that account, are often capable of combining together the powers
of the most distant and dissimilar objects in the progress of society,
philosophy or speculation becomes, like every other employment, the
principal or sole trade and occupation of a particular class of citizens.
Like every other employment, too, it is subdivided into a great number of
different branches, each of which affords occupation to a peculiar tribe
or class of philosophers; and this subdivision of employment in
philosophy, as well as in every other business, improves dexterity, and
saves time. Each individual becomes more expert in his own peculiar
branch, more work is done upon the whole, and the quantity of science is
considerably increased by it.
It is the great multiplication of the productions of all the different
arts, in consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself to the
lowest ranks of the people. Every workman has a great quantity of his own
work to dispose of beyond what he himself has occasion for; and every
other workman being exactly in the same situation, he is enabled to
exchange a great quantity of his own goods for a great quantity or, what
comes to the same thing, for the price of a great quantity of theirs. He
supplies them abundantly with what they have occasion for, and they
accommodate him as amply with what he has occasion for, and a general
plenty diffuses itself through all the different ranks of the society.
Observe the accommodation of the most common artificer or daylabourer in a
civilized and thriving country, and you will perceive that the number of
people, of whose industry a part, though but a small part, has been
employed in procuring him this accommodation, exceeds all computation. The
woollen coat, for example, which covers the day-labourer, as coarse and
rough as it may appear, is the produce of the joint labour of a great
multitude of workmen. The shepherd, the sorter of the wool, the
wool-comber or carder, the dyer, the scribbler, the spinner, the weaver,
the fuller, the dresser, with many others, must all join their different
arts in order to complete even this homely production. How many merchants
and carriers, besides, must have been employed in transporting the
materials from some of those workmen to others who often live in a very
distant part of the country? How much commerce and navigation in
particular, how many ship-builders, sailors, sail-makers, rope-makers,
must have been employed in order to bring together the different drugs
made use of by the dyer, which often come from the remotest corners of the
world? What a variety of labour, too, is necessary in order to produce the
tools of the meanest of those workmen! To say nothing of such complicated
machines as the ship of the sailor, the mill of the fuller, or even the
loom of the weaver, let us consider only what a variety of labour is
requisite in order to form that very simple machine, the shears with which
the shepherd clips the wool. The miner, the builder of the furnace for
smelting the ore, the feller of the timber, the burner of the charcoal to
be made use of in the smelting-house, the brickmaker, the bricklayer, the
workmen who attend the furnace, the millwright, the forger, the smith,
must all of them join their different arts in order to produce them. Were
we to examine, in the same manner, all the different parts of his dress
and household furniture, the coarse linen shirt which he wears next his
skin, the shoes which cover his feet, the bed which he lies on, and all
the different parts which compose it, the kitchen-grate at which he
prepares his victuals, the coals which he makes use of for that purpose,
dug from the bowels of the earth, and brought to him, perhaps, by a long
sea and a long land-carriage, all the other utensils of his kitchen, all
the furniture of his table, the knives and forks, the earthen or pewter
plates upon which he serves up and divides his victuals, the different
hands employed in preparing his bread and his beer, the glass window which
lets in the heat and the light, and keeps out the wind and the rain, with
all the knowledge and art requisite for preparing that beautiful and happy
invention, without which these northern parts of the world could scarce
have afforded a very comfortable habitation, together with the tools of
all the different workmen employed in producing those different
conveniencies; if we examine, I say, all these things, and consider what a
variety of labour is employed about each of them, we shall be sensible
that, without the assistance and co-operation of many thousands, the very
meanest person in a civilized country could not be provided, even
according to, what we very falsely imagine, the easy and simple manner in
which he is commonly accommodated. Compared, indeed, with the more
extravagant luxury of the great, his accommodation must no doubt appear
extremely simple and easy; and yet it may be true, perhaps, that the
accommodation of an European prince does not always so much exceed that of
an industrious and frugal peasant, as the accommodation of the latter
exceeds that of many an African king, the absolute masters of the lives
and liberties of ten thousand naked savages.

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---
id: book-1-chapter-02
title: "OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF LABOUR."
book: "1"
chapter: 2
artifact_type: content
---
CHAPTER II.
OF THE PRINCIPLE WHICH GIVES OCCASION
TO THE DIVISION OF LABOUR.
This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though
very slow and gradual, consequence of a certain propensity in human
nature, which has in view no such extensive utility; the propensity to
truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human
nature, of which no further account can be given, or whether, as seems
more probable, it be the necessary consequence of the faculties of reason
and speech, it belongs not to our present subject to inquire. It is common
to all men, and to be found in no other race of animals, which seem to
know neither this nor any other species of contracts. Two greyhounds, in
running down the same hare, have sometimes the appearance of acting in
some sort of concert. Each turns her towards his companion, or endeavours
to intercept her when his companion turns her towards himself. This,
however, is not the effect of any contract, but of the accidental
concurrence of their passions in the same object at that particular time.
Nobody ever saw a dog make a fair and deliberate exchange of one bone for
another with another dog. Nobody ever saw one animal, by its gestures and
natural cries signify to another, this is mine, that yours; I am willing
to give this for that. When an animal wants to obtain something either of
a man, or of another animal, it has no other means of persuasion, but to
gain the favour of those whose service it requires. A puppy fawns upon its
dam, and a spaniel endeavours, by a thousand attractions, to engage the
attention of its master who is at dinner, when it wants to be fed by him.
Man sometimes uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his inclinations,
endeavours by every servile and fawning attention to obtain their good
will. He has not time, however, to do this upon every occasion. In
civilized society he stands at all times in need of the co-operation and
assistance of great multitudes, while his whole life is scarce sufficient
to gain the friendship of a few persons. In almost every other race of
animals, each individual, when it is grown up to maturity, is entirely
independent, and in its natural state has occasion for the assistance of
no other living creature. But man has almost constant occasion for the
help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest
their self-love in his favour, and shew them that it is for their own
advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which I
want, and you shall have this which you want, is the meaning of every such
offer; and it is in this manner that we obtain from one another the far
greater part of those good offices which we stand in need of. It is not
from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk
to them of our own necessities, but of their advantages. Nobody but a
beggar chooses to depend chiefly upon the benevolence of his
fellow-citizens. Even a beggar does not depend upon it entirely. The
charity of well-disposed people, indeed, supplies him with the whole fund
of his subsistence. But though this principle ultimately provides him with
all the necessaries of life which he has occasion for, it neither does nor
can provide him with them as he has occasion for them. The greater part of
his occasional wants are supplied in the same manner as those of other
people, by treaty, by barter, and by purchase. With the money which one
man gives him he purchases food. The old clothes which another bestows
upon him he exchanges for other clothes which suit him better, or for
lodging, or for food, or for money, with which he can buy either food,
clothes, or lodging, as he has occasion.
As it is by treaty, by barter, and by purchase, that we obtain from one
another the greater part of those mutual good offices which we stand in
need of, so it is this same trucking disposition which originally gives
occasion to the division of labour. In a tribe of hunters or shepherds, a
particular person makes bows and arrows, for example, with more readiness
and dexterity than any other. He frequently exchanges them for cattle or
for venison, with his companions; and he finds at last that he can, in
this manner, get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest, therefore, the
making of bows and arrows grows to be his chief business, and he becomes a
sort of armourer. Another excels in making the frames and covers of their
little huts or moveable houses. He is accustomed to be of use in this way
to his neighbours, who reward him in the same manner with cattle and with
venison, till at last he finds it his interest to dedicate himself
entirely to this employment, and to become a sort of house-carpenter. In
the same manner a third becomes a smith or a brazier; a fourth, a tanner
or dresser of hides or skins, the principal part of the clothing of
savages. And thus the certainty of being able to exchange all that surplus
part of the produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men’s labour as he may
have occasion for, encourages every man to apply himself to a particular
occupation, and to cultivate and bring to perfection whatever talent or
genius he may possess for that particular species of business.
The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is
not upon many occasions so much the cause, as the effect of the division
of labour. The difference between the most dissimilar characters, between
a philosopher and a common street porter, for example, seems to arise not
so much from nature, as from habit, custom, and education. When they came
in to the world, and for the first six or eight years of their existence,
they were, perhaps, very much alike, and neither their parents nor
play-fellows could perceive any remarkable difference. About that age, or
soon after, they come to be employed in very different occupations. The
difference of talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing to
acknowledge scarce any resemblance. But without the disposition to truck,
barter, and exchange, every man must have procured to himself every
necessary and conveniency of life which he wanted. All must have had the
same duties to perform, and the same work to do, and there could have been
no such difference of employment as could alone give occasion to any great
difference of talents.
As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same
disposition which renders that difference useful. Many tribes of animals,
acknowledged to be all of the same species, derive from nature a much more
remarkable distinction of genius, than what, antecedent to custom and
education, appears to take place among men. By nature a philosopher is not
in genius and disposition half so different from a street porter, as a
mastiff is from a grey-hound, or a grey-hound from a spaniel, or this last
from a shepherd’s dog. Those different tribes of animals, however, though
all of the same species are of scarce any use to one another. The strength
of the mastiff is not in the least supported either by the swiftness of
the greyhound, or by the sagacity of the spaniel, or by the docility of
the shepherd’s dog. The effects of those different geniuses and talents,
for want of the power or disposition to barter and exchange, cannot be
brought into a common stock, and do not in the least contribute to the
better accommodation and conveniency of the species. Each animal is still
obliged to support and defend itself, separately and independently, and
derives no sort of advantage from that variety of talents with which
nature has distinguished its fellows. Among men, on the contrary, the most
dissimilar geniuses are of use to one another; the different produces of
their respective talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock, where every man
may purchase whatever part of the produce of other men’s talents he has
occasion for.

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---
id: book-1-chapter-03
title: "THAT THE DIVISION OF LABOUR IS LIMITED BY THE EXTENT OF THE MARKET."
book: "1"
chapter: 3
artifact_type: content
---
CHAPTER III.
THAT THE DIVISION OF LABOUR IS
LIMITED BY THE EXTENT OF THE MARKET.
As it is the power of exchanging that gives occasion to the division of
labour, so the extent of this division must always be limited by the
extent of that power, or, in other words, by the extent of the market.
When the market is very small, no person can have any encouragement to
dedicate himself entirely to one employment, for want of the power to
exchange all that surplus part of the produce of his own labour, which is
over and above his own consumption, for such parts of the produce of other
men’s labour as he has occasion for.
There are some sorts of industry, even of the lowest kind, which can be
carried on nowhere but in a great town. A porter, for example, can find
employment and subsistence in no other place. A village is by much too
narrow a sphere for him; even an ordinary market-town is scarce large
enough to afford him constant occupation. In the lone houses and very
small villages which are scattered about in so desert a country as the
highlands of Scotland, every farmer must be butcher, baker, and brewer,
for his own family. In such situations we can scarce expect to find even a
smith, a carpenter, or a mason, within less than twenty miles of another
of the same trade. The scattered families that live at eight or ten miles
distance from the nearest of them, must learn to perform themselves a
great number of little pieces of work, for which, in more populous
countries, they would call in the assistance of those workmen. Country
workmen are almost everywhere obliged to apply themselves to all the
different branches of industry that have so much affinity to one another
as to be employed about the same sort of materials. A country carpenter
deals in every sort of work that is made of wood; a country smith in every
sort of work that is made of iron. The former is not only a carpenter, but
a joiner, a cabinet-maker, and even a carver in wood, as well as a
wheel-wright, a plough-wright, a cart and waggon-maker. The employments of
the latter are still more various. It is impossible there should be such a
trade as even that of a nailer in the remote and inland parts of the
highlands of Scotland. Such a workman at the rate of a thousand nails
a-day, and three hundred working days in the year, will make three hundred
thousand nails in the year. But in such a situation it would be impossible
to dispose of one thousand, that is, of one day’s work in the year. As by
means of water-carriage, a more extensive market is opened to every sort
of industry than what land-carriage alone can afford it, so it is upon the
sea-coast, and along the banks of navigable rivers, that industry of every
kind naturally begins to subdivide and improve itself, and it is
frequently not till a long time after that those improvements extend
themselves to the inland parts of the country. A broad-wheeled waggon,
attended by two men, and drawn by eight horses, in about six weeks time,
carries and brings back between London and Edinburgh near four ton weight
of goods. In about the same time a ship navigated by six or eight men, and
sailing between the ports of London and Leith, frequently carries and
brings back two hundred ton weight of goods. Six or eight men, therefore,
by the help of water-carriage, can carry and bring back, in the same time,
the same quantity of goods between London and Edinburgh as fifty
broad-wheeled waggons, attended by a hundred men, and drawn by four
hundred horses. Upon two hundred tons of goods, therefore, carried by the
cheapest land-carriage from London to Edinburgh, there must be charged the
maintenance of a hundred men for three weeks, and both the maintenance and
what is nearly equal to maintenance the wear and tear of four hundred
horses, as well as of fifty great waggons. Whereas, upon the same quantity
of goods carried by water, there is to be charged only the maintenance of
six or eight men, and the wear and tear of a ship of two hundred tons
burthen, together with the value of the superior risk, or the difference
of the insurance between land and water-carriage. Were there no other
communication between those two places, therefore, but by land-carriage,
as no goods could be transported from the one to the other, except such
whose price was very considerable in proportion to their weight, they
could carry on but a small part of that commerce which at present subsists
between them, and consequently could give but a small part of that
encouragement which they at present mutually afford to each other’s
industry. There could be little or no commerce of any kind between the
distant parts of the world. What goods could bear the expense of
land-carriage between London and Calcutta? Or if there were any so
precious as to be able to support this expense, with what safety could
they be transported through the territories of so many barbarous nations?
Those two cities, however, at present carry on a very considerable
commerce with each other, and by mutually affording a market, give a good
deal of encouragement to each other’s industry.
Since such, therefore, are the advantages of water-carriage, it is natural
that the first improvements of art and industry should be made where this
conveniency opens the whole world for a market to the produce of every
sort of labour, and that they should always be much later in extending
themselves into the inland parts of the country. The inland parts of the
country can for a long time have no other market for the greater part of
their goods, but the country which lies round about them, and separates
them from the sea-coast, and the great navigable rivers. The extent of the
market, therefore, must for a long time be in proportion to the riches and
populousness of that country, and consequently their improvement must
always be posterior to the improvement of that country. In our North
American colonies, the plantations have constantly followed either the
sea-coast or the banks of the navigable rivers, and have scarce anywhere
extended themselves to any considerable distance from both.
The nations that, according to the best authenticated history, appear to
have been first civilized, were those that dwelt round the coast of the
Mediterranean sea. That sea, by far the greatest inlet that is known in
the world, having no tides, nor consequently any waves, except such as are
caused by the wind only, was, by the smoothness of its surface, as well as
by the multitude of its islands, and the proximity of its neighbouring
shores, extremely favourable to the infant navigation of the world; when,
from their ignorance of the compass, men were afraid to quit the view of
the coast, and from the imperfection of the art of ship-building, to
abandon themselves to the boisterous waves of the ocean. To pass beyond
the pillars of Hercules, that is, to sail out of the straits of Gibraltar,
was, in the ancient world, long considered as a most wonderful and
dangerous exploit of navigation. It was late before even the Phoenicians
and Carthaginians, the most skilful navigators and ship-builders of those
old times, attempted it; and they were, for a long time, the only nations
that did attempt it.
Of all the countries on the coast of the Mediterranean sea, Egypt seems to
have been the first in which either agriculture or manufactures were
cultivated and improved to any considerable degree. Upper Egypt extends
itself nowhere above a few miles from the Nile; and in Lower Egypt, that
great river breaks itself into many different canals, which, with the
assistance of a little art, seem to have afforded a communication by
water-carriage, not only between all the great towns, but between all the
considerable villages, and even to many farm-houses in the country, nearly
in the same manner as the Rhine and the Maese do in Holland at present.
The extent and easiness of this inland navigation was probably one of the
principal causes of the early improvement of Egypt.
The improvements in agriculture and manufactures seem likewise to have
been of very great antiquity in the provinces of Bengal, in the East
Indies, and in some of the eastern provinces of China, though the great
extent of this antiquity is not authenticated by any histories of whose
authority we, in this part of the world, are well assured. In Bengal, the
Ganges, and several other great rivers, form a great number of navigable
canals, in the same manner as the Nile does in Egypt. In the eastern
provinces of China, too, several great rivers form, by their different
branches, a multitude of canals, and, by communicating with one another,
afford an inland navigation much more extensive than that either of the
Nile or the Ganges, or, perhaps, than both of them put together. It is
remarkable, that neither the ancient Egyptians, nor the Indians, nor the
Chinese, encouraged foreign commerce, but seem all to have derived their
great opulence from this inland navigation.
All the inland parts of Africa, and all that part of Asia which lies any
considerable way north of the Euxine and Caspian seas, the ancient
Scythia, the modern Tartary and Siberia, seem, in all ages of the world,
to have been in the same barbarous and uncivilized state in which we find
them at present. The sea of Tartary is the frozen ocean, which admits of
no navigation; and though some of the greatest rivers in the world run
through that country, they are at too great a distance from one another to
carry commerce and communication through the greater part of it. There are
in Africa none of those great inlets, such as the Baltic and Adriatic seas
in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and
the gulfs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carry
maritime commerce into the interior parts of that great continent; and the
great rivers of Africa are at too great a distance from one another to
give occasion to any considerable inland navigation. The commerce,
besides, which any nation can carry on by means of a river which does not
break itself into any great number of branches or canals, and which runs
into another territory before it reaches the sea, can never be very
considerable, because it is always in the power of the nations who possess
that other territory to obstruct the communication between the upper
country and the sea. The navigation of the Danube is of very little use to
the different states of Bavaria, Austria, and Hungary, in comparison of
what it would be, if any of them possessed the whole of its course, till
it falls into the Black sea.

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---
id: book-1-chapter-04
title: "OF THE ORIGIN AND USE OF MONEY."
book: "1"
chapter: 4
artifact_type: content
---
CHAPTER IV.
OF THE ORIGIN AND USE OF MONEY.
When the division of labour has been once thoroughly established, it is
but a very small part of a man’s wants which the produce of his own labour
can supply. He supplies the far greater part of them by exchanging that
surplus part of the produce of his own labour, which is over and above his
own consumption, for such parts of the produce of other men’s labour as he
has occasion for. Every man thus lives by exchanging, or becomes, in some
measure, a merchant, and the society itself grows to be what is properly a
commercial society.
But when the division of labour first began to take place, this power of
exchanging must frequently have been very much clogged and embarrassed in
its operations. One man, we shall suppose, has more of a certain commodity
than he himself has occasion for, while another has less. The former,
consequently, would be glad to dispose of; and the latter to purchase, a
part of this superfluity. But if this latter should chance to have nothing
that the former stands in need of, no exchange can be made between them.
The butcher has more meat in his shop than he himself can consume, and the
brewer and the baker would each of them be willing to purchase a part of
it. But they have nothing to offer in exchange, except the different
productions of their respective trades, and the butcher is already
provided with all the bread and beer which he has immediate occasion for.
No exchange can, in this case, be made between them. He cannot be their
merchant, nor they his customers; and they are all of them thus mutually
less serviceable to one another. In order to avoid the inconveniency of
such situations, every prudent man in every period of society, after the
first establishment of the division of labour, must naturally have
endeavoured to manage his affairs in such a manner, as to have at all
times by him, besides the peculiar produce of his own industry, a certain
quantity of some one commodity or other, such as he imagined few people
would be likely to refuse in exchange for the produce of their industry.
Many different commodities, it is probable, were successively both thought
of and employed for this purpose. In the rude ages of society, cattle are
said to have been the common instrument of commerce; and, though they must
have been a most inconvenient one, yet, in old times, we find things were
frequently valued according to the number of cattle which had been given
in exchange for them. The armour of Diomede, says Homer, cost only nine
oxen; but that of Glaucus cost a hundred oxen. Salt is said to be the
common instrument of commerce and exchanges in Abyssinia; a species of
shells in some parts of the coast of India; dried cod at Newfoundland;
tobacco in Virginia; sugar in some of our West India colonies; hides or
dressed leather in some other countries; and there is at this day a
village in Scotland, where it is not uncommon, I am told, for a workman to
carry nails instead of money to the baker’s shop or the ale-house.
In all countries, however, men seem at last to have been determined by
irresistible reasons to give the preference, for this employment, to
metals above every other commodity. Metals can not only be kept with as
little loss as any other commodity, scarce any thing being less perishable
than they are, but they can likewise, without any loss, be divided into
any number of parts, as by fusion those parts can easily be re-united
again; a quality which no other equally durable commodities possess, and
which, more than any other quality, renders them fit to be the instruments
of commerce and circulation. The man who wanted to buy salt, for example,
and had nothing but cattle to give in exchange for it, must have been
obliged to buy salt to the value of a whole ox, or a whole sheep, at a
time. He could seldom buy less than this, because what he was to give for
it could seldom be divided without loss; and if he had a mind to buy more,
he must, for the same reasons, have been obliged to buy double or triple
the quantity, the value, to wit, of two or three oxen, or of two or three
sheep. If, on the contrary, instead of sheep or oxen, he had metals to
give in exchange for it, he could easily proportion the quantity of the
metal to the precise quantity of the commodity which he had immediate
occasion for.
Different metals have been made use of by different nations for this
purpose. Iron was the common instrument of commerce among the ancient
Spartans, copper among the ancient Romans, and gold and silver among all
rich and commercial nations.
Those metals seem originally to have been made use of for this purpose in
rude bars, without any stamp or coinage. Thus we are told by Pliny (Plin.
Hist Nat. lib. 33, cap. 3), upon the authority of Timaeus, an ancient
historian, that, till the time of Servius Tullius, the Romans had no
coined money, but made use of unstamped bars of copper, to purchase
whatever they had occasion for. These rude bars, therefore, performed at
this time the function of money.
The use of metals in this rude state was attended with two very
considerable inconveniences; first, with the trouble of weighing, and
secondly, with that of assaying them. In the precious metals, where a
small difference in the quantity makes a great difference in the value,
even the business of weighing, with proper exactness, requires at least
very accurate weights and scales. The weighing of gold, in particular, is
an operation of some nicety in the coarser metals, indeed, where a small
error would be of little consequence, less accuracy would, no doubt, be
necessary. Yet we should find it excessively troublesome if every time a
poor man had occasion either to buy or sell a farthing’s worth of goods,
he was obliged to weigh the farthing. The operation of assaying is still
more difficult, still more tedious; and, unless a part of the metal is
fairly melted in the crucible, with proper dissolvents, any conclusion
that can be drawn from it is extremely uncertain. Before the institution
of coined money, however, unless they went through this tedious and
difficult operation, people must always have been liable to the grossest
frauds and impositions; and instead of a pound weight of pure silver, or
pure copper, might receive, in exchange for their goods, an adulterated
composition of the coarsest and cheapest materials, which had, however, in
their outward appearance, been made to resemble those metals. To prevent
such abuses, to facilitate exchanges, and thereby to encourage all sorts
of industry and commerce, it has been found necessary, in all countries
that have made any considerable advances towards improvement, to affix a
public stamp upon certain quantities of such particular metals, as were in
those countries commonly made use of to purchase goods. Hence the origin
of coined money, and of those public offices called mints; institutions
exactly of the same nature with those of the aulnagers and stamp-masters
of woollen and linen cloth. All of them are equally meant to ascertain, by
means of a public stamp, the quantity and uniform goodness of those
different commodities when brought to market.
The first public stamps of this kind that were affixed to the current
metals, seem in many cases to have been intended to ascertain, what it was
both most difficult and most important to ascertain, the goodness or
fineness of the metal, and to have resembled the sterling mark which is at
present affixed to plate and bars of silver, or the Spanish mark which is
sometimes affixed to ingots of gold, and which, being struck only upon one
side of the piece, and not covering the whole surface, ascertains the
fineness, but not the weight of the metal. Abraham weighs to Ephron the
four hundred shekels of silver which he had agreed to pay for the field of
Machpelah. They are said, however, to be the current money of the
merchant, and yet are received by weight, and not by tale, in the same
manner as ingots of gold and bars of silver are at present. The revenues
of the ancient Saxon kings of England are said to have been paid, not in
money, but in kind, that is, in victuals and provisions of all sorts.
William the Conqueror introduced the custom of paying them in money. This
money, however, was for a long time, received at the exchequer, by weight,
and not by tale.
The inconveniency and difficulty of weighing those metals with exactness,
gave occasion to the institution of coins, of which the stamp, covering
entirely both sides of the piece, and sometimes the edges too, was
supposed to ascertain not only the fineness, but the weight of the metal.
Such coins, therefore, were received by tale, as at present, without the
trouble of weighing.
The denominations of those coins seem originally to have expressed the
weight or quantity of metal contained in them. In the time of Servius
Tullius, who first coined money at Rome, the Roman as or pondo contained a
Roman pound of good copper. It was divided, in the same manner as our
Troyes pound, into twelve ounces, each of which contained a real ounce of
good copper. The English pound sterling, in the time of Edward I.
contained a pound, Tower weight, of silver of a known fineness. The Tower
pound seems to have been something more than the Roman pound, and
something less than the Troyes pound. This last was not introduced into
the mint of England till the 18th of Henry the VIII. The French livre
contained, in the time of Charlemagne, a pound, Troyes weight, of silver
of a known fineness. The fair of Troyes in Champaign was at that time
frequented by all the nations of Europe, and the weights and measures of
so famous a market were generally known and esteemed. The Scots money
pound contained, from the time of Alexander the First to that of Robert
Bruce, a pound of silver of the same weight and fineness with the English
pound sterling. English, French, and Scots pennies, too, contained all of
them originally a real penny-weight of silver, the twentieth part of an
ounce, and the two hundred-and-fortieth part of a pound. The shilling,
too, seems originally to have been the denomination of a weight. “When
wheat is at twelve shillings the quarter,” says an ancient statute of
Henry III. “then wastel bread of a farthing shall weigh eleven shillings
and fourpence”. The proportion, however, between the shilling, and either
the penny on the one hand, or the pound on the other, seems not to have
been so constant and uniform as that between the penny and the pound.
During the first race of the kings of France, the French sou or shilling
appears upon different occasions to have contained five, twelve, twenty,
and forty pennies. Among the ancient Saxons, a shilling appears at one
time to have contained only five pennies, and it is not improbable that it
may have been as variable among them as among their neighbours, the
ancient Franks. From the time of Charlemagne among the French, and from
that of William the Conqueror among the English, the proportion between
the pound, the shilling, and the penny, seems to have been uniformly the
same as at present, though the value of each has been very different; for
in every country of the world, I believe, the avarice and injustice of
princes and sovereign states, abusing the confidence of their subjects,
have by degrees diminished the real quantity of metal, which had been
originally contained in their coins. The Roman as, in the latter ages of
the republic, was reduced to the twenty-fourth part of its original value,
and, instead of weighing a pound, came to weigh only half an ounce. The
English pound and penny contain at present about a third only; the Scots
pound and penny about a thirty-sixth; and the French pound and penny about
a sixty-sixth part of their original value. By means of those operations,
the princes and sovereign states which performed them were enabled, in
appearance, to pay their debts and fulfil their engagements with a smaller
quantity of silver than would otherwise have been requisite. It was indeed
in appearance only; for their creditors were really defrauded of a part of
what was due to them. All other debtors in the state were allowed the same
privilege, and might pay with the same nominal sum of the new and debased
coin whatever they had borrowed in the old. Such operations, therefore,
have always proved favourable to the debtor, and ruinous to the creditor,
and have sometimes produced a greater and more universal revolution in the
fortunes of private persons, than could have been occasioned by a very
great public calamity.
It is in this manner that money has become, in all civilized nations, the
universal instrument of commerce, by the intervention of which goods of
all kinds are bought and sold, or exchanged for one another.
What are the rules which men naturally observe, in exchanging them either
for money, or for one another, I shall now proceed to examine. These rules
determine what may be called the relative or exchangeable value of goods.
The word VALUE, it is to be observed, has two different meanings, and
sometimes expresses the utility of some particular object, and sometimes
the power of purchasing other goods which the possession of that object
conveys. The one may be called ‘value in use;’ the other, ‘value in
exchange.’ The things which have the greatest value in use have frequently
little or no value in exchange; and, on the contrary, those which have the
greatest value in exchange have frequently little or no value in use.
Nothing is more useful than water; but it will purchase scarce any thing;
scarce any thing can be had in exchange for it. A diamond, on the
contrary, has scarce any value in use; but a very great quantity of other
goods may frequently be had in exchange for it.
In order to investigate the principles which regulate the exchangeable
value of commodities, I shall endeavour to shew,
First, what is the real measure of this exchangeable value; or wherein
consists the real price of all commodities.
Secondly, what are the different parts of which this real price is
composed or made up.
And, lastly, what are the different circumstances which sometimes raise
some or all of these different parts of price above, and sometimes sink
them below, their natural or ordinary rate; or, what are the causes which
sometimes hinder the market price, that is, the actual price of
commodities, from coinciding exactly with what may be called their natural
price.
I shall endeavour to explain, as fully and distinctly as I can, those
three subjects in the three following chapters, for which I must very
earnestly entreat both the patience and attention of the reader: his
patience, in order to examine a detail which may, perhaps, in some places,
appear unnecessarily tedious; and his attention, in order to understand
what may perhaps, after the fullest explication which I am capable of
giving it, appear still in some degree obscure. I am always willing to run
some hazard of being tedious, in order to be sure that I am perspicuous;
and, after taking the utmost pains that I can to be perspicuous, some
obscurity may still appear to remain upon a subject, in its own nature
extremely abstracted.

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---
id: book-1-chapter-05
title: "OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY."
book: "1"
chapter: 5
artifact_type: content
---
CHAPTER V.
OF THE REAL AND NOMINAL PRICE OF
COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY.
Every man is rich or poor according to the degree in which he can afford
to enjoy the necessaries, conveniencies, and amusements of human life. But
after the division of labour has once thoroughly taken place, it is but a
very small part of these with which a man’s own labour can supply him. The
far greater part of them he must derive from the labour of other people,
and he must be rich or poor according to the quantity of that labour which
he can command, or which he can afford to purchase. The value of any
commodity, therefore, to the person who possesses it, and who means not to
use or consume it himself, but to exchange it for other commodities, is
equal to the quantity of labour which it enables him to purchase or
command. Labour therefore, is the real measure of the exchangeable value
of all commodities.
The real price of every thing, what every thing really costs to the man
who wants to acquire it, is the toil and trouble of acquiring it. What
every thing is really worth to the man who has acquired it and who wants
to dispose of it, or exchange it for something else, is the toil and
trouble which it can save to himself, and which it can impose upon other
people. What is bought with money, or with goods, is purchased by labour,
as much as what we acquire by the toil of our own body. That money, or
those goods, indeed, save us this toil. They contain the value of a
certain quantity of labour, which we exchange for what is supposed at the
time to contain the value of an equal quantity. Labour was the first
price, the original purchase money that was paid for all things. It was
not by gold or by silver, but by labour, that all the wealth of the world
was originally purchased; and its value, to those who possess it, and who
want to exchange it for some new productions, is precisely equal to the
quantity of labour which it can enable them to purchase or command.
Wealth, as Mr Hobbes says, is power. But the person who either acquires,
or succeeds to a great fortune, does not necessarily acquire or succeed to
any political power, either civil or military. His fortune may, perhaps,
afford him the means of acquiring both; but the mere possession of that
fortune does not necessarily convey to him either. The power which that
possession immediately and directly conveys to him, is the power of
purchasing a certain command over all the labour, or over all the produce
of labour which is then in the market. His fortune is greater or less,
precisely in proportion to the extent of this power, or to the quantity
either of other men’s labour, or, what is the same thing, of the produce
of other men’s labour, which it enables him to purchase or command. The
exchangeable value of every thing must always be precisely equal to the
extent of this power which it conveys to its owner.
But though labour be the real measure of the exchangeable value of all
commodities, it is not that by which their value is commonly estimated. It
is often difficult to ascertain the proportion between two different
quantities of labour. The time spent in two different sorts of work will
not always alone determine this proportion. The different degrees of
hardship endured, and of ingenuity exercised, must likewise be taken into
account. There may be more labour in an hour’s hard work, than in two
hours easy business; or in an hour’s application to a trade which it cost
ten years labour to learn, than in a month’s industry, at an ordinary and
obvious employment. But it is not easy to find any accurate measure either
of hardship or ingenuity. In exchanging, indeed, the different productions
of different sorts of labour for one another, some allowance is commonly
made for both. It is adjusted, however, not by any accurate measure, but
by the higgling and bargaining of the market, according to that sort of
rough equality which, though not exact, is sufficient for carrying on the
business of common life.
Every commodity, besides, is more frequently exchanged for, and thereby
compared with, other commodities, than with labour. It is more natural,
therefore, to estimate its exchangeable value by the quantity of some
other commodity, than by that of the labour which it can produce. The
greater part of people, too, understand better what is meant by a quantity
of a particular commodity, than by a quantity of labour. The one is a
plain palpable object; the other an abstract notion, which though it can
be made sufficiently intelligible, is not altogether so natural and
obvious.
But when barter ceases, and money has become the common instrument of
commerce, every particular commodity is more frequently exchanged for
money than for any other commodity. The butcher seldom carries his beef or
his mutton to the baker or the brewer, in order to exchange them for bread
or for beer; but he carries them to the market, where he exchanges them
for money, and afterwards exchanges that money for bread and for beer. The
quantity of money which he gets for them regulates, too, the quantity of
bread and beer which he can afterwards purchase. It is more natural and
obvious to him, therefore, to estimate their value by the quantity of
money, the commodity for which he immediately exchanges them, than by that
of bread and beer, the commodities for which he can exchange them only by
the intervention of another commodity; and rather to say that his
butcher’s meat is worth three-pence or fourpence a-pound, than that it is
worth three or four pounds of bread, or three or four quarts of small
beer. Hence it comes to pass, that the exchangeable value of every
commodity is more frequently estimated by the quantity of money, than by
the quantity either of labour or of any other commodity which can be had
in exchange for it.
Gold and silver, however, like every other commodity, vary in their value;
are sometimes cheaper and sometimes dearer, sometimes of easier and
sometimes of more difficult purchase. The quantity of labour which any
particular quantity of them can purchase or command, or the quantity of
other goods which it will exchange for, depends always upon the fertility
or barrenness of the mines which happen to be known about the time when
such exchanges are made. The discovery of the abundant mines of America,
reduced, in the sixteenth century, the value of gold and silver in Europe
to about a third of what it had been before. As it cost less labour to
bring those metals from the mine to the market, so, when they were brought
thither, they could purchase or command less labour; and this revolution
in their value, though perhaps the greatest, is by no means the only one
of which history gives some account. But as a measure of quantity, such as
the natural foot, fathom, or handful, which is continually varying in its
own quantity, can never be an accurate measure of the quantity of other
things; so a commodity which is itself continually varying in its own
value, can never be an accurate measure of the value of other commodities.
Equal quantities of labour, at all times and places, may be said to be of
equal value to the labourer. In his ordinary state of health, strength,
and spirits; in the ordinary degree of his skill and dexterity, he must
always lay down the same portion of his ease, his liberty, and his
happiness. The price which he pays must always be the same, whatever may
be the quantity of goods which he receives in return for it. Of these,
indeed, it may sometimes purchase a greater and sometimes a smaller
quantity; but it is their value which varies, not that of the labour which
purchases them. At all times and places, that is dear which it is
difficult to come at, or which it costs much labour to acquire; and that
cheap which is to be had easily, or with very little labour. Labour alone,
therefore, never varying in its own value, is alone the ultimate and real
standard by which the value of all commodities can at all times and places
be estimated and compared. It is their real price; money is their nominal
price only.
But though equal quantities of labour are always of equal value to the
labourer, yet to the person who employs him they appear sometimes to be of
greater, and sometimes of smaller value. He purchases them sometimes with
a greater, and sometimes with a smaller quantity of goods, and to him the
price of labour seems to vary like that of all other things. It appears to
him dear in the one case, and cheap in the other. In reality, however, it
is the goods which are cheap in the one case, and dear in the other.
In this popular sense, therefore, labour, like commodities, may be said to
have a real and a nominal price. Its real price may be said to consist in
the quantity of the necessaries and conveniencies of life which are given
for it; its nominal price, in the quantity of money. The labourer is rich
or poor, is well or ill rewarded, in proportion to the real, not to the
nominal price of his labour.
The distinction between the real and the nominal price of commodities and
labour is not a matter of mere speculation, but may sometimes be of
considerable use in practice. The same real price is always of the same
value; but on account of the variations in the value of gold and silver,
the same nominal price is sometimes of very different values. When a
landed estate, therefore, is sold with a reservation of a perpetual rent,
if it is intended that this rent should always be of the same value, it is
of importance to the family in whose favour it is reserved, that it should
not consist in a particular sum of money. Its value would in this case be
liable to variations of two different kinds: first, to those which arise
from the different quantities of gold and silver which are contained at
different times in coin of the same denomination; and, secondly, to those
which arise from the different values of equal quantities of gold and
silver at different times.
Princes and sovereign states have frequently fancied that they had a
temporary interest to diminish the quantity of pure metal contained in
their coins; but they seldom have fancied that they had any to augment it.
The quantity of metal contained in the coins, I believe of all nations,
has accordingly been almost continually diminishing, and hardly ever
augmenting. Such variations, therefore, tend almost always to diminish the
value of a money rent.
The discovery of the mines of America diminished the value of gold and
silver in Europe. This diminution, it is commonly supposed, though I
apprehend without any certain proof, is still going on gradually, and is
likely to continue to do so for a long time. Upon this supposition,
therefore, such variations are more likely to diminish than to augment the
value of a money rent, even though it should be stipulated to be paid, not
in such a quantity of coined money of such a denomination (in so many
pounds sterling, for example), but in so many ounces, either of pure
silver, or of silver of a certain standard.
The rents which have been reserved in corn, have preserved their value
much better than those which have been reserved in money, even where the
denomination of the coin has not been altered. By the 18th of Elizabeth,
it was enacted, that a third of the rent of all college leases should be
reserved in corn, to be paid either in kind, or according to the current
prices at the nearest public market. The money arising from this corn
rent, though originally but a third of the whole, is, in the present
times, according to Dr Blackstone, commonly near double of what arises
from the other two-thirds. The old money rents of colleges must, according
to this account, have sunk almost to a fourth part of their ancient value,
or are worth little more than a fourth part of the corn which they were
formerly worth. But since the reign of Philip and Mary, the denomination
of the English coin has undergone little or no alteration, and the same
number of pounds, shillings, and pence, have contained very nearly the
same quantity of pure silver. This degradation, therefore, in the value of
the money rents of colleges, has arisen altogether from the degradation in
the price of silver.
When the degradation in the value of silver is combined with the
diminution of the quantity of it contained in the coin of the same
denomination, the loss is frequently still greater. In Scotland, where the
denomination of the coin has undergone much greater alterations than it
ever did in England, and in France, where it has undergone still greater
than it ever did in Scotland, some ancient rents, originally of
considerable value, have, in this manner, been reduced almost to nothing.
Equal quantities of labour will, at distant times, be purchased more
nearly with equal quantities of corn, the subsistence of the labourer,
than with equal quantities of gold and silver, or, perhaps, of any other
commodity. Equal quantities of corn, therefore, will, at distant times, be
more nearly of the same real value, or enable the possessor to purchase or
command more nearly the same quantity of the labour of other people. They
will do this, I say, more nearly than equal quantities of almost any other
commodity; for even equal quantities of corn will not do it exactly. The
subsistence of the labourer, or the real price of labour, as I shall
endeavour to shew hereafter, is very different upon different occasions;
more liberal in a society advancing to opulence, than in one that is
standing still, and in one that is standing still, than in one that is
going backwards. Every other commodity, however, will, at any particular
time, purchase a greater or smaller quantity of labour, in proportion to
the quantity of subsistence which it can purchase at that time. A rent,
therefore, reserved in corn, is liable only to the variations in the
quantity of labour which a certain quantity of corn can purchase. But a
rent reserved in any other commodity is liable, not only to the variations
in the quantity of labour which any particular quantity of corn can
purchase, but to the variations in the quantity of corn which can be
purchased by any particular quantity of that commodity.
Though the real value of a corn rent, it is to be observed, however,
varies much less from century to century than that of a money rent, it
varies much more from year to year. The money price of labour, as I shall
endeavour to shew hereafter, does not fluctuate from year to year with the
money price of corn, but seems to be everywhere accommodated, not to the
temporary or occasional, but to the average or ordinary price of that
necessary of life. The average or ordinary price of corn, again is
regulated, as I shall likewise endeavour to shew hereafter, by the value
of silver, by the richness or barrenness of the mines which supply the
market with that metal, or by the quantity of labour which must be
employed, and consequently of corn which must be consumed, in order to
bring any particular quantity of silver from the mine to the market. But
the value of silver, though it sometimes varies greatly from century to
century, seldom varies much from year to year, but frequently continues
the same, or very nearly the same, for half a century or a century
together. The ordinary or average money price of corn, therefore, may,
during so long a period, continue the same, or very nearly the same, too,
and along with it the money price of labour, provided, at least, the
society continues, in other respects, in the same, or nearly in the same,
condition. In the mean time, the temporary and occasional price of corn
may frequently be double one year of what it had been the year before, or
fluctuate, for example, from five-and-twenty to fifty shillings the
quarter. But when corn is at the latter price, not only the nominal, but
the real value of a corn rent, will be double of what it is when at the
former, or will command double the quantity either of labour, or of the
greater part of other commodities; the money price of labour, and along
with it that of most other things, continuing the same during all these
fluctuations.
Labour, therefore, it appears evidently, is the only universal, as well as
the only accurate, measure of value, or the only standard by which we can
compare the values of different commodities, at all times, and at all
places. We cannot estimate, it is allowed, the real value of different
commodities from century to century by the quantities of silver which were
given for them. We cannot estimate it from year to year by the quantities
of corn. By the quantities of labour, we can, with the greatest accuracy,
estimate it, both from century to century, and from year to year. From
century to century, corn is a better measure than silver, because, from
century to century, equal quantities of corn will command the same
quantity of labour more nearly than equal quantities of silver. From year
to year, on the contrary, silver is a better measure than corn, because
equal quantities of it will more nearly command the same quantity of
labour.
But though, in establishing perpetual rents, or even in letting very long
leases, it may be of use to distinguish between real and nominal price; it
is of none in buying and selling, the more common and ordinary
transactions of human life.
At the same time and place, the real and the nominal price of all
commodities are exactly in proportion to one another. The more or less
money you get for any commodity, in the London market, for example, the
more or less labour it will at that time and place enable you to purchase
or command. At the same time and place, therefore, money is the exact
measure of the real exchangeable value of all commodities. It is so,
however, at the same time and place only.
Though at distant places there is no regular proportion between the real
and the money price of commodities, yet the merchant who carries goods
from the one to the other, has nothing to consider but the money price, or
the difference between the quantity of silver for which he buys them, and
that for which he is likely to sell them. Half an ounce of silver at
Canton in China may command a greater quantity both of labour and of the
necessaries and conveniencies of life, than an ounce at London. A
commodity, therefore, which sells for half an ounce of silver at Canton,
may there be really dearer, of more real importance to the man who
possesses it there, than a commodity which sells for an ounce at London is
to the man who possesses it at London. If a London merchant, however, can
buy at Canton, for half an ounce of silver, a commodity which he can
afterwards sell at London for an ounce, he gains a hundred per cent. by
the bargain, just as much as if an ounce of silver was at London exactly
of the same value as at Canton. It is of no importance to him that half an
ounce of silver at Canton would have given him the command of more labour,
and of a greater quantity of the necessaries and conveniencies of life
than an ounce can do at London. An ounce at London will always give him
the command of double the quantity of all these, which half an ounce could
have done there, and this is precisely what he wants.
As it is the nominal or money price of goods, therefore, which finally
determines the prudence or imprudence of all purchases and sales, and
thereby regulates almost the whole business of common life in which price
is concerned, we cannot wonder that it should have been so much more
attended to than the real price.
In such a work as this, however, it may sometimes be of use to compare the
different real values of a particular commodity at different times and
places, or the different degrees of power over the labour of other people
which it may, upon different occasions, have given to those who possessed
it. We must in this case compare, not so much the different quantities of
silver for which it was commonly sold, as the different quantities or
labour which those different quantities of silver could have purchased.
But the current prices of labour, at distant times and places, can scarce
ever be known with any degree of exactness. Those of corn, though they
have in few places been regularly recorded, are in general better known,
and have been more frequently taken notice of by historians and other
writers. We must generally, therefore, content ourselves with them, not as
being always exactly in the same proportion as the current prices of
labour, but as being the nearest approximation which can commonly be had
to that proportion. I shall hereafter have occasion to make several
comparisons of this kind.
In the progress of industry, commercial nations have found it convenient
to coin several different metals into money; gold for larger payments,
silver for purchases of moderate value, and copper, or some other coarse
metal, for those of still smaller consideration, They have always,
however, considered one of those metals as more peculiarly the measure of
value than any of the other two; and this preference seems generally to
have been given to the metal which they happen first to make use of as the
instrument of commerce. Having once begun to use it as their standard,
which they must have done when they had no other money, they have
generally continued to do so even when the necessity was not the same.
The Romans are said to have had nothing but copper money till within five
years before the first Punic war (Pliny, lib. xxxiii. cap. 3), when they
first began to coin silver. Copper, therefore, appears to have continued
always the measure of value in that republic. At Rome all accounts appear
to have been kept, and the value of all estates to have been computed,
either in asses or in sestertii. The as was always the denomination of a
copper coin. The word sestertius signifies two asses and a half. Though
the sestertius, therefore, was originally a silver coin, its value was
estimated in copper. At Rome, one who owed a great deal of money was said
to have a great deal of other people’s copper.
The northern nations who established themselves upon the ruins of the
Roman empire, seem to have had silver money from the first beginning of
their settlements, and not to have known either gold or copper coins for
several ages thereafter. There were silver coins in England in the time of
the Saxons; but there was little gold coined till the time of Edward III
nor any copper till that of James I. of Great Britain. In England,
therefore, and for the same reason, I believe, in all other modern nations
of Europe, all accounts are kept, and the value of all goods and of all
estates is generally computed, in silver: and when we mean to express the
amount of a person’s fortune, we seldom mention the number of guineas, but
the number of pounds sterling which we suppose would be given for it.
Originally, in all countries, I believe, a legal tender of payment could
be made only in the coin of that metal which was peculiarly considered as
the standard or measure of value. In England, gold was not considered as a
legal tender for a long time after it was coined into money. The
proportion between the values of gold and silver money was not fixed by
any public law or proclamation, but was left to be settled by the market.
If a debtor offered payment in gold, the creditor might either reject such
payment altogether, or accept of it at such a valuation of the gold as he
and his debtor could agree upon. Copper is not at present a legal tender,
except in the change of the smaller silver coins.
In this state of things, the distinction between the metal which was the
standard, and that which was not the standard, was something more than a
nominal distinction.
In process of time, and as people became gradually more familiar with the
use of the different metals in coin, and consequently better acquainted
with the proportion between their respective values, it has, in most
countries, I believe, been found convenient to ascertain this proportion,
and to declare by a public law, that a guinea, for example, of such a
weight and fineness, should exchange for one-and-twenty shillings, or be a
legal tender for a debt of that amount. In this state of things, and
during the continuance of any one regulated proportion of this kind, the
distinction between the metal, which is the standard, and that which is
not the standard, becomes little more than a nominal distinction.
In consequence of any change, however, in this regulated proportion, this
distinction becomes, or at least seems to become, something more than
nominal again. If the regulated value of a guinea, for example, was either
reduced to twenty, or raised to two-and-twenty shillings, all accounts
being kept, and almost all obligations for debt being expressed, in silver
money, the greater part of payments could in either case be made with the
same quantity of silver money as before; but would require very different
quantities of gold money; a greater in the one case, and a smaller in the
other. Silver would appear to be more invariable in its value than gold.
Silver would appear to measure the value of gold, and gold would not
appear to measure the value of silver. The value of gold would seem to
depend upon the quantity of silver which it would exchange for, and the
value of silver would not seem to depend upon the quantity of gold which
it would exchange for. This difference, however, would be altogether owing
to the custom of keeping accounts, and of expressing the amount of all
great and small sums rather in silver than in gold money. One of Mr
Drummond’s notes for five-and-twenty or fifty guineas would, after an
alteration of this kind, be still payable with five-and-twenty or fifty
guineas, in the same manner as before. It would, after such an alteration,
be payable with the same quantity of gold as before, but with very
different quantities of silver. In the payment of such a note, gold would
appear to be more invariable in its value than silver. Gold would appear
to measure the value of silver, and silver would not appear to measure the
value of gold. If the custom of keeping accounts, and of expressing
promissory-notes and other obligations for money, in this manner should
ever become general, gold, and not silver, would be considered as the
metal which was peculiarly the standard or measure of value.
In reality, during the continuance of any one regulated proportion between
the respective values of the different metals in coin, the value of the
most precious metal regulates the value of the whole coin. Twelve copper
pence contain half a pound avoirdupois of copper, of not the best quality,
which, before it is coined, is seldom worth seven-pence in silver. But as,
by the regulation, twelve such pence are ordered to exchange for a
shilling, they are in the market considered as worth a shilling, and a
shilling can at any time be had for them. Even before the late reformation
of the gold coin of Great Britain, the gold, that part of it at least
which circulated in London and its neighbourhood, was in general less
degraded below its standard weight than the greater part of the silver.
One-and-twenty worn and defaced shillings, however, were considered as
equivalent to a guinea, which, perhaps, indeed, was worn and defaced too,
but seldom so much so. The late regulations have brought the gold coin as
near, perhaps, to its standard weight as it is possible to bring the
current coin of any nation; and the order to receive no gold at the public
offices but by weight, is likely to preserve it so, as long as that order
is enforced. The silver coin still continues in the same worn and degraded
state as before the reformation of the cold coin. In the market, however,
one-and-twenty shillings of this degraded silver coin are still considered
as worth a guinea of this excellent gold coin.
The reformation of the gold coin has evidently raised the value of the
silver coin which can be exchanged for it.
In the English mint, a pound weight of gold is coined into forty-four
guineas and a half, which at one-and-twenty shillings the guinea, is equal
to forty-six pounds fourteen shillings and sixpence. An ounce of such gold
coin, therefore, is worth £ 3:17:10½ in silver. In England, no duty or
seignorage is paid upon the coinage, and he who carries a pound weight or
an ounce weight of standard gold bullion to the mint, gets back a pound
weight or an ounce weight of gold in coin, without any deduction. Three
pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is
said to be the mint price of gold in England, or the quantity of gold coin
which the mint gives in return for standard gold bullion.
Before the reformation of the gold coin, the price of standard gold
bullion in the market had, for many years, been upwards of £3:18s.
sometimes £ 3:19s, and very frequently £4 an ounce; that sum, it is
probable, in the worn and degraded gold coin, seldom containing more than
an ounce of standard gold. Since the reformation of the gold coin, the
market price of standard gold bullion seldom exceeds £ 3:17:7 an ounce.
Before the reformation of the gold coin, the market price was always more
or less above the mint price. Since that reformation, the market price has
been constantly below the mint price. But that market price is the same
whether it is paid in gold or in silver coin. The late reformation of the
gold coin, therefore, has raised not only the value of the gold coin, but
likewise that of the silver coin in proportion to gold bullion, and
probably, too, in proportion to all other commodities; though the price of
the greater part of other commodities being influenced by so many other
causes, the rise in the value of either gold or silver coin in proportion
to them may not be so distinct and sensible.
In the English mint, a pound weight of standard silver bullion is coined
into sixty-two shillings, containing, in the same manner, a pound weight
of standard silver. Five shillings and twopence an ounce, therefore, is
said to be the mint price of silver in England, or the quantity of silver
coin which the mint gives in return for standard silver bullion. Before
the reformation of the gold coin, the market price of standard silver
bullion was, upon different occasions, five shillings and fourpence, five
shillings and fivepence, five shillings and sixpence, five shillings and
sevenpence, and very often five shillings and eightpence an ounce. Five
shillings and sevenpence, however, seems to have been the most common
price. Since the reformation of the gold coin, the market price of
standard silver bullion has fallen occasionally to five shillings and
threepence, five shillings and fourpence, and five shillings and fivepence
an ounce, which last price it has scarce ever exceeded. Though the market
price of silver bullion has fallen considerably since the reformation of
the gold coin, it has not fallen so low as the mint price.
In the proportion between the different metals in the English coin, as
copper is rated very much above its real value, so silver is rated
somewhat below it. In the market of Europe, in the French coin and in the
Dutch coin, an ounce of fine gold exchanges for about fourteen ounces of
fine silver. In the English coin, it exchanges for about fifteen ounces,
that is, for more silver than it is worth, according to the common
estimation of Europe. But as the price of copper in bars is not, even in
England, raised by the high price of copper in English coin, so the price
of silver in bullion is not sunk by the low rate of silver in English
coin. Silver in bullion still preserves its proper proportion to gold, for
the same reason that copper in bars preserves its proper proportion to
silver.
Upon the reformation of the silver coin, in the reign of William III., the
price of silver bullion still continued to be somewhat above the mint
price. Mr Locke imputed this high price to the permission of exporting
silver bullion, and to the prohibition of exporting silver coin. This
permission of exporting, he said, rendered the demand for silver bullion
greater than the demand for silver coin. But the number of people who want
silver coin for the common uses of buying and selling at home, is surely
much greater than that of those who want silver bullion either for the use
of exportation or for any other use. There subsists at present a like
permission of exporting gold bullion, and a like prohibition of exporting
gold coin; and yet the price of gold bullion has fallen below the mint
price. But in the English coin, silver was then, in the same manner as
now, under-rated in proportion to gold; and the gold coin (which at that
time, too, was not supposed to require any reformation) regulated then, as
well as now, the real value of the whole coin. As the reformation of the
silver coin did not then reduce the price of silver bullion to the mint
price, it is not very probable that a like reformation will do so now.
Were the silver coin brought back as near to its standard weight as the
gold, a guinea, it is probable, would, according to the present
proportion, exchange for more silver in coin than it would purchase in
bullion. The silver coin containing its full standard weight, there would
in this case, be a profit in melting it down, in order, first to sell the
bullion for gold coin, and afterwards to exchange this gold coin for
silver coin, to be melted down in the same manner. Some alteration in the
present proportion seems to be the only method of preventing this
inconveniency.
The inconveniency, perhaps, would be less, if silver was rated in the coin
as much above its proper proportion to gold as it is at present rated
below it, provided it was at the same time enacted, that silver should not
be a legal tender for more than the change of a guinea, in the same manner
as copper is not a legal tender for more than the change of a shilling. No
creditor could, in this case, be cheated in consequence of the high
valuation of silver in coin; as no creditor can at present be cheated in
consequence of the high valuation of copper. The bankers only would suffer
by this regulation. When a run comes upon them, they sometimes endeavour
to gain time, by paying in sixpences, and they would be precluded by this
regulation from this discreditable method of evading immediate payment.
They would be obliged, in consequence, to keep at all times in their
coffers a greater quantity of cash than at present; and though this might,
no doubt, be a considerable inconveniency to them, it would, at the same
time, be a considerable security to their creditors.
Three pounds seventeen shillings and tenpence halfpenny (the mint price of
gold) certainly does not contain, even in our present excellent gold coin,
more than an ounce of standard gold, and it may be thought, therefore,
should not purchase more standard bullion. But gold in coin is more
convenient than gold in bullion; and though, in England, the coinage is
free, yet the gold which is carried in bullion to the mint, can seldom be
returned in coin to the owner till after a delay of several weeks. In the
present hurry of the mint, it could not be returned till after a delay of
several months. This delay is equivalent to a small duty, and renders gold
in coin somewhat more valuable than an equal quantity of gold in bullion.
If, in the English coin, silver was rated according to its proper
proportion to gold, the price of silver bullion would probably fall below
the mint price, even without any reformation of the silver coin; the value
even of the present worn and defaced silver coin being regulated by the
value of the excellent gold coin for which it can be changed.
A small seignorage or duty upon the coinage of both gold and silver, would
probably increase still more the superiority of those metals in coin above
an equal quantity of either of them in bullion. The coinage would, in this
case, increase the value of the metal coined in proportion to the extent
of this small duty, for the same reason that the fashion increases the
value of plate in proportion to the price of that fashion. The superiority
of coin above bullion would prevent the melting down of the coin, and
would discourage its exportation. If, upon any public exigency, it should
become necessary to export the coin, the greater part of it would soon
return again, of its own accord. Abroad, it could sell only for its weight
in bullion. At home, it would buy more than that weight. There would be a
profit, therefore, in bringing it home again. In France, a seignorage of
about eight per cent. is imposed upon the coinage, and the French coin,
when exported, is said to return home again, of its own accord.
The occasional fluctuations in the market price of gold and silver bullion
arise from the same causes as the like fluctuations in that of all other
commodities. The frequent loss of those metals from various accidents by
sea and by land, the continual waste of them in gilding and plating, in
lace and embroidery, in the wear and tear of coin, and in that of plate,
require, in all countries which possess no mines of their own, a continual
importation, in order to repair this loss and this waste. The merchant
importers, like all other merchants, we may believe, endeavour, as well as
they can, to suit their occasional importations to what they judge is
likely to be the immediate demand. With all their attention, however, they
sometimes overdo the business, and sometimes underdo it. When they import
more bullion than is wanted, rather than incur the risk and trouble of
exporting it again, they are sometimes willing to sell a part of it for
something less than the ordinary or average price. When, on the other
hand, they import less than is wanted, they get something more than this
price. But when, under all those occasional fluctuations, the market price
either of gold or silver bullion continues for several years together
steadily and constantly, either more or less above, or more or less below
the mint price, we may be assured that this steady and constant, either
superiority or inferiority of price, is the effect of something in the
state of the coin, which, at that time, renders a certain quantity of coin
either of more value or of less value than the precise quantity of bullion
which it ought to contain. The constancy and steadiness of the effect
supposes a proportionable constancy and steadiness in the cause.
The money of any particular country is, at any particular time and place,
more or less an accurate measure or value, according as the current coin
is more or less exactly agreeable to its standard, or contains more or
less exactly the precise quantity of pure gold or pure silver which it
ought to contain. If in England, for example, forty-four guineas and a
half contained exactly a pound weight of standard gold, or eleven ounces
of fine gold, and one ounce of alloy, the gold coin of England would be as
accurate a measure of the actual value of goods at any particular time and
place as the nature of the thing would admit. But if, by rubbing and
wearing, forty-four guineas and a half generally contain less than a pound
weight of standard gold, the diminution, however, being greater in some
pieces than in others, the measure of value comes to be liable to the same
sort of uncertainty to which all other weights and measures are commonly
exposed. As it rarely happens that these are exactly agreeable to their
standard, the merchant adjusts the price of his goods as well as he can,
not to what those weights and measures ought to be, but to what, upon an
average, he finds, by experience, they actually are. In consequence of a
like disorder in the coin, the price of goods comes, in the same manner,
to be adjusted, not to the quantity of pure gold or silver which the coin
ought to contain, but to that which, upon an average, it is found, by
experience, it actually does contain.
By the money price of goods, it is to be observed, I understand always the
quantity of pure gold or silver for which they are sold, without any
regard to the denomination of the coin. Six shillings and eight pence, for
example, in the time of Edward I., I consider as the same money price with
a pound sterling in the present times, because it contained, as nearly as
we can judge, the same quantity of pure silver.

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---
id: book-1-chapter-06
title: "OF THE COMPONENT PART OF THE PRICE OF COMMODITIES."
book: "1"
chapter: 6
artifact_type: content
---
CHAPTER VI.
OF THE COMPONENT PART OF THE PRICE OF COMMODITIES.
In that early and rude state of society which precedes both the
accumulation of stock and the appropriation of land, the proportion
between the quantities of labour necessary for acquiring different
objects, seems to be the only circumstance which can afford any rule for
exchanging them for one another. If among a nation of hunters, for
example, it usually costs twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for or be worth two
deer. It is natural that what is usually the produce of two days or two
hours labour, should be worth double of what is usually the produce of one
day’s or one hour’s labour.
If the one species of labour should be more severe than the other, some
allowance will naturally be made for this superior hardship; and the
produce of one hour’s labour in the one way may frequently exchange for
that of two hour’s labour in the other.
Or if the one species of labour requires an uncommon degree of dexterity
and ingenuity, the esteem which men have for such talents, will naturally
give a value to their produce, superior to what would be due to the time
employed about it. Such talents can seldom be acquired but in consequence
of long application, and the superior value of their produce may
frequently be no more than a reasonable compensation for the time and
labour which must be spent in acquiring them. In the advanced state of
society, allowances of this kind, for superior hardship and superior
skill, are commonly made in the wages of labour; and something of the same
kind must probably have taken place in its earliest and rudest period.
In this state of things, the whole produce of labour belongs to the
labourer; and the quantity of labour commonly employed in acquiring or
producing any commodity, is the only circumstance which can regulate the
quantity of labour which it ought commonly to purchase, command, or
exchange for.
As soon as stock has accumulated in the hands of particular persons, some
of them will naturally employ it in setting to work industrious people,
whom they will supply with materials and subsistence, in order to make a
profit by the sale of their work, or by what their labour adds to the
value of the materials. In exchanging the complete manufacture either for
money, for labour, or for other goods, over and above what may be
sufficient to pay the price of the materials, and the wages of the
workmen, something must be given for the profits of the undertaker of the
work, who hazards his stock in this adventure. The value which the workmen
add to the materials, therefore, resolves itself in this case into two
parts, of which the one pays their wages, the other the profits of their
employer upon the whole stock of materials and wages which he advanced. He
could have no interest to employ them, unless he expected from the sale of
their work something more than what was sufficient to replace his stock to
him; and he could have no interest to employ a great stock rather than a
small one, unless his profits were to bear some proportion to the extent
of his stock.
The profits of stock, it may perhaps be thought, are only a different name
for the wages of a particular sort of labour, the labour of inspection and
direction. They are, however, altogether different, are regulated by quite
different principles, and bear no proportion to the quantity, the
hardship, or the ingenuity of this supposed labour of inspection and
direction. They are regulated altogether by the value of the stock
employed, and are greater or smaller in proportion to the extent of this
stock. Let us suppose, for example, that in some particular place, where
the common annual profits of manufacturing stock are ten per cent. there
are two different manufactures, in each of which twenty workmen are
employed, at the rate of fifteen pounds a year each, or at the expense of
three hundred a-year in each manufactory. Let us suppose, too, that the
coarse materials annually wrought up in the one cost only seven hundred
pounds, while the finer materials in the other cost seven thousand. The
capital annually employed in the one will, in this case, amount only to
one thousand pounds; whereas that employed in the other will amount to
seven thousand three hundred pounds. At the rate of ten per cent.
therefore, the undertaker of the one will expect a yearly profit of about
one hundred pounds only; while that of the other will expect about seven
hundred and thirty pounds. But though their profits are so very different,
their labour of inspection and direction may be either altogether or very
nearly the same. In many great works, almost the whole labour of this kind
is committed to some principal clerk. His wages properly express the value
of this labour of inspection and direction. Though in settling them some
regard is had commonly, not only to his labour and skill, but to the trust
which is reposed in him, yet they never bear any regular proportion to the
capital of which he oversees the management; and the owner of this
capital, though he is thus discharged of almost all labour, still expects
that his profit should bear a regular proportion to his capital. In the
price of commodities, therefore, the profits of stock constitute a
component part altogether different from the wages of labour, and
regulated by quite different principles.
In this state of things, the whole produce of labour does not always
belong to the labourer. He must in most cases share it with the owner of
the stock which employs him. Neither is the quantity of labour commonly
employed in acquiring or producing any commodity, the only circumstance
which can regulate the quantity which it ought commonly to purchase,
command or exchange for. An additional quantity, it is evident, must be
due for the profits of the stock which advanced the wages and furnished
the materials of that labour.
As soon as the land of any country has all become private property, the
landlords, like all other men, love to reap where they never sowed, and
demand a rent even for its natural produce. The wood of the forest, the
grass of the field, and all the natural fruits of the earth, which, when
land was in common, cost the labourer only the trouble of gathering them,
come, even to him, to have an additional price fixed upon them. He must
then pay for the licence to gather them, and must give up to the landlord
a portion of what his labour either collects or produces. This portion,
or, what comes to the same thing, the price of this portion, constitutes
the rent of land, and in the price of the greater part of commodities,
makes a third component part.
The real value of all the different component parts of price, it must be
observed, is measured by the quantity of labour which they can, each of
them, purchase or command. Labour measures the value, not only of that
part of price which resolves itself into labour, but of that which
resolves itself into rent, and of that which resolves itself into profit.
In every society, the price of every commodity finally resolves itself
into some one or other, or all of those three parts; and in every improved
society, all the three enter, more or less, as component parts, into the
price of the far greater part of commodities.
In the price of corn, for example, one part pays the rent of the landlord,
another pays the wages or maintenance of the labourers and labouring
cattle employed in producing it, and the third pays the profit of the
farmer. These three parts seem either immediately or ultimately to make up
the whole price of corn. A fourth part, it may perhaps be thought is
necessary for replacing the stock of the farmer, or for compensating the
wear and tear of his labouring cattle, and other instruments of husbandry.
But it must be considered, that the price of any instrument of husbandry,
such as a labouring horse, is itself made up of the same time parts; the
rent of the land upon which he is reared, the labour of tending and
rearing him, and the profits of the farmer, who advances both the rent of
this land, and the wages of this labour. Though the price of the corn,
therefore, may pay the price as well as the maintenance of the horse, the
whole price still resolves itself, either immediately or ultimately, into
the same three parts of rent, labour, and profit.
In the price of flour or meal, we must add to the price of the corn, the
profits of the miller, and the wages of his servants; in the price of
bread, the profits of the baker, and the wages of his servants; and in the
price of both, the labour of transporting the corn from the house of the
farmer to that of the miller, and from that of the miller to that of the
baker, together with the profits of those who advance the wages of that
labour.
The price of flax resolves itself into the same three parts as that of
corn. In the price of linen we must add to this price the wages of the
flax-dresser, of the spinner, of the weaver, of the bleacher, etc.
together with the profits of their respective employers.
As any particular commodity comes to be more manufactured, that part of
the price which resolves itself into wages and profit, comes to be greater
in proportion to that which resolves itself into rent. In the progress of
the manufacture, not only the number of profits increase, but every
subsequent profit is greater than the foregoing; because the capital from
which it is derived must always be greater. The capital which employs the
weavers, for example, must be greater than that which employs the
spinners; because it not only replaces that capital with its profits, but
pays, besides, the wages of the weavers: and the profits must always bear
some proportion to the capital.
In the most improved societies, however, there are always a few
commodities of which the price resolves itself into two parts only: the
wages of labour, and the profits of stock; and a still smaller number, in
which it consists altogether in the wages of labour. In the price of
sea-fish, for example, one part pays the labour of the fisherman, and the
other the profits of the capital employed in the fishery. Rent very seldom
makes any part of it, though it does sometimes, as I shall shew hereafter.
It is otherwise, at least through the greater part of Europe, in river
fisheries. A salmon fishery pays a rent; and rent, though it cannot well
be called the rent of land, makes a part of the price of a salmon, as well
as wares and profit. In some parts of Scotland, a few poor people make a
trade of gathering, along the sea-shore, those little variegated stones
commonly known by the name of Scotch pebbles. The price which is paid to
them by the stone-cutter, is altogether the wages of their labour; neither
rent nor profit makes any part of it.
But the whole price of any commodity must still finally resolve itself
into some one or other or all of those three parts; as whatever part of it
remains after paying the rent of the land, and the price of the whole
labour employed in raising, manufacturing, and bringing it to market, must
necessarily be profit to somebody.
As the price or exchangeable value of every particular commodity, taken
separately, resolves itself into some one or other, or all of those three
parts; so that of all the commodities which compose the whole annual
produce of the labour of every country, taken complexly, must resolve
itself into the same three parts, and be parcelled out among different
inhabitants of the country, either as the wages of their labour, the
profits of their stock, or the rent of their land. The whole of what is
annually either collected or produced by the labour of every society, or,
what comes to the same thing, the whole price of it, is in this manner
originally distributed among some of its different members. Wages, profit,
and rent, are the three original sources of all revenue, as well as of all
exchangeable value. All other revenue is ultimately derived from some one
or other of these.
Whoever derives his revenue from a fund which is his own, must draw it
either from his labour, from his stock, or from his land. The revenue
derived from labour is called wages; that derived from stock, by the
person who manages or employs it, is called profit; that derived from it
by the person who does not employ it himself, but lends it to another, is
called the interest or the use of money. It is the compensation which the
borrower pays to the lender, for the profit which he has an opportunity of
making by the use of the money. Part of that profit naturally belongs to
the borrower, who runs the risk and takes the trouble of employing it, and
part to the lender, who affords him the opportunity of making this profit.
The interest of money is always a derivative revenue, which, if it is not
paid from the profit which is made by the use of the money, must be paid
from some other source of revenue, unless perhaps the borrower is a
spendthrift, who contracts a second debt in order to pay the interest of
the first. The revenue which proceeds altogether from land, is called
rent, and belongs to the landlord. The revenue of the farmer is derived
partly from his labour, and partly from his stock. To him, land is only
the instrument which enables him to earn the wages of this labour, and to
make the profits of this stock. All taxes, and all the revenue which is
founded upon them, all salaries, pensions, and annuities of every kind,
are ultimately derived from some one or other of those three original
sources of revenue, and are paid either immediately or mediately from the
wages of labour, the profits of stock, or the rent of land.
When those three different sorts of revenue belong to different persons,
they are readily distinguished; but when they belong to the same, they are
sometimes confounded with one another, at least in common language.
A gentleman who farms a part of his own estate, after paying the expense
of cultivation, should gain both the rent of the landlord and the profit
of the farmer. He is apt to denominate, however, his whole gain, profit,
and thus confounds rent with profit, at least in common language. The
greater part of our North American and West Indian planters are in this
situation. They farm, the greater part of them, their own estates: and
accordingly we seldom hear of the rent of a plantation, but frequently of
its profit.
Common farmers seldom employ any overseer to direct the general operations
of the farm. They generally, too, work a good deal with their own hands,
as ploughmen, harrowers, etc. What remains of the crop, after paying the
rent, therefore, should not only replace to them their stock employed in
cultivation, together with its ordinary profits, but pay them the wages
which are due to them, both as labourers and overseers. Whatever remains,
however, after paying the rent and keeping up the stock, is called profit.
But wages evidently make a part of it. The farmer, by saving these wages,
must necessarily gain them. Wages, therefore, are in this case confounded
with profit.
An independent manufacturer, who has stock enough both to purchase
materials, and to maintain himself till he can carry his work to market,
should gain both the wages of a journeyman who works under a master, and
the profit which that master makes by the sale of that journeyman’s work.
His whole gains, however, are commonly called profit, and wages are, in
this case, too, confounded with profit.
A gardener who cultivates his own garden with his own hands, unites in his
own person the three different characters, of landlord, farmer, and
labourer. His produce, therefore, should pay him the rent of the first,
the profit of the second, and the wages of the third. The whole, however,
is commonly considered as the earnings of his labour. Both rent and profit
are, in this case, confounded with wages.
As in a civilized country there are but few commodities of which the
exchangeable value arises from labour only, rent and profit contributing
largely to that of the far greater part of them, so the annual produce of
its labour will always be sufficient to purchase or command a much greater
quantity of labour than what was employed in raising, preparing, and
bringing that produce to market. If the society were annually to employ
all the labour which it can annually purchase, as the quantity of labour
would increase greatly every year, so the produce of every succeeding year
would be of vastly greater value than that of the foregoing. But there is
no country in which the whole annual produce is employed in maintaining
the industrious. The idle everywhere consume a great part of it; and,
according to the different proportions in which it is annually divided
between those two different orders of people, its ordinary or average
value must either annually increase or diminish, or continue the same from
one year to another.

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---
id: book-1-chapter-07
title: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."
book: "1"
chapter: 7
artifact_type: content
---
CHAPTER VII.
OF THE NATURAL AND MARKET PRICE OF COMMODITIES.
There is in every society or neighbourhood an ordinary or average rate,
both of wages and profit, in every different employment of labour and
stock. This rate is naturally regulated, as I shall shew hereafter, partly
by the general circumstances of the society, their riches or poverty,
their advancing, stationary, or declining condition, and partly by the
particular nature of each employment.
There is likewise in every society or neighbourhood an ordinary or average
rate of rent, which is regulated, too, as I shall shew hereafter, partly
by the general circumstances of the society or neighbourhood in which the
land is situated, and partly by the natural or improved fertility of the
land.
These ordinary or average rates may be called the natural rates of wages,
profit and rent, at the time and place in which they commonly prevail.
When the price of any commodity is neither more nor less than what is
sufficient to pay the rent of the land, the wages of the labour, and the
profits of the stock employed in raising, preparing, and bringing it to
market, according to their natural rates, the commodity is then sold for
what may be called its natural price.
The commodity is then sold precisely for what it is worth, or for what it
really costs the person who brings it to market; for though, in common
language, what is called the prime cost of any commodity does not
comprehend the profit of the person who is to sell it again, yet, if he
sells it at a price which does not allow him the ordinary rate of profit
in his neighbourhood, he is evidently a loser by the trade; since, by
employing his stock in some other way, he might have made that profit. His
profit, besides, is his revenue, the proper fund of his subsistence. As,
while he is preparing and bringing the goods to market, he advances to his
workmen their wages, or their subsistence; so he advances to himself, in
the same manner, his own subsistence, which is generally suitable to the
profit which he may reasonably expect from the sale of his goods. Unless
they yield him this profit, therefore, they do not repay him what they may
very properly be said to have really cost him.
Though the price, therefore, which leaves him this profit, is not always
the lowest at which a dealer may sometimes sell his goods, it is the
lowest at which he is likely to sell them for any considerable time; at
least where there is perfect liberty, or where he may change his trade as
often as he pleases.
The actual price at which any commodity is commonly sold, is called its
market price. It may either be above, or below, or exactly the same with
its natural price.
The market price of every particular commodity is regulated by the
proportion between the quantity which is actually brought to market, and
the demand of those who are willing to pay the natural price of the
commodity, or the whole value of the rent, labour, and profit, which must
be paid in order to bring it thither. Such people may be called the
effectual demanders, and their demand the effectual demand; since it maybe
sufficient to effectuate the bringing of the commodity to market. It is
different from the absolute demand. A very poor man may be said, in some
sense, to have a demand for a coach and six; he might like to have it; but
his demand is not an effectual demand, as the commodity can never be
brought to market in order to satisfy it.
When the quantity of any commodity which is brought to market falls short
of the effectual demand, all those who are willing to pay the whole value
of the rent, wages, and profit, which must be paid in order to bring it
thither, cannot be supplied with the quantity which they want. Rather than
want it altogether, some of them will be willing to give more. A
competition will immediately begin among them, and the market price will
rise more or less above the natural price, according as either the
greatness of the deficiency, or the wealth and wanton luxury of the
competitors, happen to animate more or less the eagerness of the
competition. Among competitors of equal wealth and luxury, the same
deficiency will generally occasion a more or less eager competition,
according as the acquisition of the commodity happens to be of more or
less importance to them. Hence the exorbitant price of the necessaries of
life during the blockade of a town, or in a famine.
When the quantity brought to market exceeds the effectual demand, it
cannot be all sold to those who are willing to pay the whole value of the
rent, wages, and profit, which must be paid in order to bring it thither.
Some part must be sold to those who are willing to pay less, and the low
price which they give for it must reduce the price of the whole. The
market price will sink more or less below the natural price, according as
the greatness of the excess increases more or less the competition of the
sellers, or according as it happens to be more or less important to them
to get immediately rid of the commodity. The same excess in the
importation of perishable, will occasion a much greater competition than
in that of durable commodities; in the importation of oranges, for
example, than in that of old iron.
When the quantity brought to market is just sufficient to supply the
effectual demand, and no more, the market price naturally comes to be
either exactly, or as nearly as can be judged of, the same with the
natural price. The whole quantity upon hand can be disposed of for this
price, and can not be disposed of for more. The competition of the
different dealers obliges them all to accept of this price, but does not
oblige them to accept of less.
The quantity of every commodity brought to market naturally suits itself
to the effectual demand. It is the interest of all those who employ their
land, labour, or stock, in bringing any commodity to market, that the
quantity never should exceed the effectual demand; and it is the interest
of all other people that it never should fall short of that demand.
If at any time it exceeds the effectual demand, some of the component
parts of its price must be paid below their natural rate. If it is rent,
the interest of the landlords will immediately prompt them to withdraw a
part of their land; and if it is wages or profit, the interest of the
labourers in the one case, and of their employers in the other, will
prompt them to withdraw a part of their labour or stock, from this
employment. The quantity brought to market will soon be no more than
sufficient to supply the effectual demand. All the different parts of its
price will rise to their natural rate, and the whole price to its natural
price.
If, on the contrary, the quantity brought to market should at any time
fall short of the effectual demand, some of the component parts of its
price must rise above their natural rate. If it is rent, the interest of
all other landlords will naturally prompt them to prepare more land for
the raising of this commodity; if it is wages or profit, the interest of
all other labourers and dealers will soon prompt them to employ more
labour and stock in preparing and bringing it to market. The quantity
brought thither will soon be sufficient to supply the effectual demand.
All the different parts of its price will soon sink to their natural rate,
and the whole price to its natural price.
The natural price, therefore, is, as it were, the central price, to which
the prices of all commodities are continually gravitating. Different
accidents may sometimes keep them suspended a good deal above it, and
sometimes force them down even somewhat below it. But whatever may be the
obstacles which hinder them from settling in this centre of repose and
continuance, they are constantly tending towards it.
The whole quantity of industry annually employed in order to bring any
commodity to market, naturally suits itself in this manner to the
effectual demand. It naturally aims at bringing always that precise
quantity thither which may be sufficient to supply, and no more than
supply, that demand.
But, in some employments, the same quantity of industry will, in different
years, produce very different quantities of commodities; while, in others,
it will produce always the same, or very nearly the same. The same number
of labourers in husbandry will, in different years, produce very different
quantities of corn, wine, oil, hops, etc. But the same number of spinners
or weavers will every year produce the same, or very nearly the same,
quantity of linen and woollen cloth. It is only the average produce of the
one species of industry which can be suited, in any respect, to the
effectual demand; and as its actual produce is frequently much greater,
and frequently much less, than its average produce, the quantity of the
commodities brought to market will sometimes exceed a good deal, and
sometimes fall short a good deal, of the effectual demand. Even though
that demand, therefore, should continue always the same, their market
price will be liable to great fluctuations, will sometimes fall a good
deal below, and sometimes rise a good deal above, their natural price. In
the other species of industry, the produce of equal quantities of labour
being always the same, or very nearly the same, it can be more exactly
suited to the effectual demand. While that demand continues the same,
therefore, the market price of the commodities is likely to do so too, and
to be either altogether, or as nearly as can be judged of, the same with
the natural price. That the price of linen and woollen cloth is liable
neither to such frequent, nor to such great variations, as the price of
corn, every man’s experience will inform him. The price of the one species
of commodities varies only with the variations in the demand; that of the
other varies not only with the variations in the demand, but with the much
greater, and more frequent, variations in the quantity of what is brought
to market, in order to supply that demand.
The occasional and temporary fluctuations in the market price of any
commodity fall chiefly upon those parts of its price which resolve
themselves into wages and profit. That part which resolves itself into
rent is less affected by them. A rent certain in money is not in the least
affected by them, either in its rate or in its value. A rent which
consists either in a certain proportion, or in a certain quantity, of the
rude produce, is no doubt affected in its yearly value by all the
occasional and temporary fluctuations in the market price of that rude
produce; but it is seldom affected by them in its yearly rate. In settling
the terms of the lease, the landlord and farmer endeavour, according to
their best judgment, to adjust that rate, not to the temporary and
occasional, but to the average and ordinary price of the produce.
Such fluctuations affect both the value and the rate, either of wages or
of profit, according as the market happens to be either overstocked or
understocked with commodities or with labour, with work done, or with work
to be done. A public mourning raises the price of black cloth (with which
the market is almost always understocked upon such occasions), and
augments the profits of the merchants who possess any considerable
quantity of it. It has no effect upon the wages of the weavers. The market
is understocked with commodities, not with labour, with work done, not
with work to be done. It raises the wages of journeymen tailors. The
market is here understocked with labour. There is an effectual demand for
more labour, for more work to be done, than can be had. It sinks the price
of coloured silks and cloths, and thereby reduces the profits of the
merchants who have any considerable quantity of them upon hand. It sinks,
too, the wages of the workmen employed in preparing such commodities, for
which all demand is stopped for six months, perhaps for a twelvemonth. The
market is here overstocked both with commodities and with labour.
But though the market price of every particular commodity is in this
manner continually gravitating, if one may say so, towards the natural
price; yet sometimes particular accidents, sometimes natural causes, and
sometimes particular regulations of policy, may, in many commodities, keep
up the market price, for a long time together, a good deal above the
natural price.
When, by an increase in the effectual demand, the market price of some
particular commodity happens to rise a good deal above the natural price,
those who employ their stocks in supplying that market, are generally
careful to conceal this change. If it was commonly known, their great
profit would tempt so many new rivals to employ their stocks in the same
way, that, the effectual demand being fully supplied, the market price
would soon be reduced to the natural price, and, perhaps, for some time
even below it. If the market is at a great distance from the residence of
those who supply it, they may sometimes be able to keep the secret for
several years together, and may so long enjoy their extraordinary profits
without any new rivals. Secrets of this kind, however, it must be
acknowledged, can seldom be long kept; and the extraordinary profit can
last very little longer than they are kept.
Secrets in manufactures are capable of being longer kept than secrets in
trade. A dyer who has found the means of producing a particular colour
with materials which cost only half the price of those commonly made use
of, may, with good management, enjoy the advantage of his discovery as
long as he lives, and even leave it as a legacy to his posterity. His
extraordinary gains arise from the high price which is paid for his
private labour. They properly consist in the high wages of that labour.
But as they are repeated upon every part of his stock, and as their whole
amount bears, upon that account, a regular proportion to it, they are
commonly considered as extraordinary profits of stock.
Such enhancements of the market price are evidently the effects of
particular accidents, of which, however, the operation may sometimes last
for many years together.
Some natural productions require such a singularity of soil and situation,
that all the land in a great country, which is fit for producing them, may
not be sufficient to supply the effectual demand. The whole quantity
brought to market, therefore, may be disposed of to those who are willing
to give more than what is sufficient to pay the rent of the land which
produced them, together with the wages of the labour and the profits of
the stock which were employed in preparing and bringing them to market,
according to their natural rates. Such commodities may continue for whole
centuries together to be sold at this high price; and that part of it
which resolves itself into the rent of land, is in this case the part
which is generally paid above its natural rate. The rent of the land which
affords such singular and esteemed productions, like the rent of some
vineyards in France of a peculiarly happy soil and situation, bears no
regular proportion to the rent of other equally fertile and equally well
cultivated land in its neighbourhood. The wages of the labour, and the
profits of the stock employed in bringing such commodities to market, on
the contrary, are seldom out of their natural proportion to those of the
other employments of labour and stock in their neighbourhood.
Such enhancements of the market price are evidently the effect of natural
causes, which may hinder the effectual demand from ever being fully
supplied, and which may continue, therefore, to operate for ever.
A monopoly granted either to an individual or to a trading company, has
the same effect as a secret in trade or manufactures. The monopolists, by
keeping the market constantly understocked by never fully supplying the
effectual demand, sell their commodities much above the natural price, and
raise their emoluments, whether they consist in wages or profit, greatly
above their natural rate.
The price of monopoly is upon every occasion the highest which can be got.
The natural price, or the price of free competition, on the contrary, is
the lowest which can be taken, not upon every occasion indeed, but for any
considerable time together. The one is upon every occasion the highest
which can be squeezed out of the buyers, or which it is supposed they will
consent to give; the other is the lowest which the sellers can commonly
afford to take, and at the same time continue their business.
The exclusive privileges of corporations, statutes of apprenticeship, and
all those laws which restrain in particular employments, the competition
to a smaller number than might otherwise go into them, have the same
tendency, though in a less degree. They are a sort of enlarged monopolies,
and may frequently, for ages together, and in whole classes of
employments, keep up the market price of particular commodities above the
natural price, and maintain both the wages of the labour and the profits
of the stock employed about them somewhat above their natural rate.
Such enhancements of the market price may last as long as the regulations
of policy which give occasion to them.
The market price of any particular commodity, though it may continue long
above, can seldom continue long below, its natural price. Whatever part of
it was paid below the natural rate, the persons whose interest it affected
would immediately feel the loss, and would immediately withdraw either so
much land or so much labour, or so much stock, from being employed about
it, that the quantity brought to market would soon be no more than
sufficient to supply the effectual demand. Its market price, therefore,
would soon rise to the natural price; this at least would be the case
where there was perfect liberty.
The same statutes of apprenticeship and other corporation laws, indeed,
which, when a manufacture is in prosperity, enable the workman to raise
his wages a good deal above their natural rate, sometimes oblige him, when
it decays, to let them down a good deal below it. As in the one case they
exclude many people from his employment, so in the other they exclude him
from many employments. The effect of such regulations, however, is not
near so durable in sinking the workman’s wages below, as in raising them
above their natural rate. Their operation in the one way may endure for
many centuries, but in the other it can last no longer than the lives of
some of the workmen who were bred to the business in the time of its
prosperity. When they are gone, the number of those who are afterwards
educated to the trade will naturally suit itself to the effectual demand.
The policy must be as violent as that of Indostan or ancient Egypt (where
every man was bound by a principle of religion to follow the occupation of
his father, and was supposed to commit the most horrid sacrilege if he
changed it for another), which can in any particular employment, and for
several generations together, sink either the wages of labour or the
profits of stock below their natural rate.
This is all that I think necessary to be observed at present concerning
the deviations, whether occasional or permanent, of the market price of
commodities from the natural price.
The natural price itself varies with the natural rate of each of its
component parts, of wages, profit, and rent; and in every society this
rate varies according to their circumstances, according to their riches or
poverty, their advancing, stationary, or declining condition. I shall, in
the four following chapters, endeavour to explain, as fully and distinctly
as I can, the causes of those different variations.
First, I shall endeavour to explain what are the circumstances which
naturally determine the rate of wages, and in what manner those
circumstances are affected by the riches or poverty, by the advancing,
stationary, or declining state of the society.
Secondly, I shall endeavour to shew what are the circumstances which
naturally determine the rate of profit; and in what manner, too, those
circumstances are affected by the like variations in the state of the
society.
Though pecuniary wages and profit are very different in the different
employments of labour and stock; yet a certain proportion seems commonly
to take place between both the pecuniary wages in all the different
employments of labour, and the pecuniary profits in all the different
employments of stock. This proportion, it will appear hereafter, depends
partly upon the nature of the different employments, and partly upon the
different laws and policy of the society in which they are carried on. But
though in many respects dependent upon the laws and policy, this
proportion seems to be little affected by the riches or poverty of that
society, by its advancing, stationary, or declining condition, but to
remain the same, or very nearly the same, in all those different states. I
shall, in the third place, endeavour to explain all the different
circumstances which regulate this proportion.
In the fourth and last place, I shall endeavour to shew what are the
circumstances which regulate the rent of land, and which either raise or
lower the real price of all the different substances which it produces.

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id: book-1-chapter-08
title: "OF THE WAGES OF LABOUR."
book: "1"
chapter: 8
artifact_type: content
---
CHAPTER VIII.
OF THE WAGES OF LABOUR.
The produce of labour constitutes the natural recompence or wages of
labour. In that original state of things which precedes both the
appropriation of land and the accumulation of stock, the whole produce of
labour belongs to the labourer. He has neither landlord nor master to
share with him.
Had this state continued, the wages of labour would have augmented with
all those improvements in its productive powers, to which the division of
labour gives occasion. All things would gradually have become cheaper.
They would have been produced by a smaller quantity of labour; and as the
commodities produced by equal quantities of labour would naturally in this
state of things be exchanged for one another, they would have been
purchased likewise with the produce of a smaller quantity.
But though all things would have become cheaper in reality, in appearance
many things might have become dearer, than before, or have been exchanged
for a greater quantity of other goods. Let us suppose, for example, that
in the greater part of employments the productive powers of labour had
been improved to tenfold, or that a day’s labour could produce ten times
the quantity of work which it had done originally; but that in a
particular employment they had been improved only to double, or that a
day’s labour could produce only twice the quantity of work which it had
done before. In exchanging the produce of a day’s labour in the greater
part of employments for that of a day’s labour in this particular one, ten
times the original quantity of work in them would purchase only twice the
original quantity in it. Any particular quantity in it, therefore, a pound
weight, for example, would appear to be five times dearer than before. In
reality, however, it would be twice as cheap. Though it required five
times the quantity of other goods to purchase it, it would require only
half the quantity of labour either to purchase or to produce it. The
acquisition, therefore, would be twice as easy as before.
But this original state of things, in which the labourer enjoyed the whole
produce of his own labour, could not last beyond the first introduction of
the appropriation of land and the accumulation of stock. It was at an end,
therefore, long before the most considerable improvements were made in the
productive powers of labour; and it would be to no purpose to trace
further what might have been its effects upon the recompence or wages of
labour.
As soon as land becomes private property, the landlord demands a share of
almost all the produce which the labourer can either raise or collect from
it. His rent makes the first deduction from the produce of the labour
which is employed upon land.
It seldom happens that the person who tills the ground has wherewithal to
maintain himself till he reaps the harvest. His maintenance is generally
advanced to him from the stock of a master, the farmer who employs him,
and who would have no interest to employ him, unless he was to share in
the produce of his labour, or unless his stock was to be replaced to him
with a profit. This profit makes a second deduction from the produce of
the labour which is employed upon land.
The produce of almost all other labour is liable to the like deduction of
profit. In all arts and manufactures, the greater part of the workmen
stand in need of a master, to advance them the materials of their work,
and their wages and maintenance, till it be completed. He shares in the
produce of their labour, or in the value which it adds to the materials
upon which it is bestowed; and in this share consists his profit.
It sometimes happens, indeed, that a single independent workman has stock
sufficient both to purchase the materials of his work, and to maintain
himself till it be completed. He is both master and workman, and enjoys
the whole produce of his own labour, or the whole value which it adds to
the materials upon which it is bestowed. It includes what are usually two
distinct revenues, belonging to two distinct persons, the profits of
stock, and the wages of labour.
Such cases, however, are not very frequent; and in every part of Europe
twenty workmen serve under a master for one that is independent, and the
wages of labour are everywhere understood to be, what they usually are,
when the labourer is one person, and the owner of the stock which employs
him another.
What are the common wages of labour, depends everywhere upon the contract
usually made between those two parties, whose interests are by no means
the same. The workmen desire to get as much, the masters to give as
little, as possible. The former are disposed to combine in order to raise,
the latter in order to lower, the wages of labour.
It is not, however, difficult to foresee which of the two parties must,
upon all ordinary occasions, have the advantage in the dispute, and force
the other into a compliance with their terms. The masters, being fewer in
number, can combine much more easily: and the law, besides, authorises, or
at least does not prohibit, their combinations, while it prohibits those
of the workmen. We have no acts of parliament against combining to lower
the price of work, but many against combining to raise it. In all such
disputes, the masters can hold out much longer. A landlord, a farmer, a
master manufacturer, or merchant, though they did not employ a single
workman, could generally live a year or two upon the stocks, which they
have already acquired. Many workmen could not subsist a week, few could
subsist a month, and scarce any a year, without employment. In the long
run, the workman may be as necessary to his master as his master is to
him; but the necessity is not so immediate.
We rarely hear, it has been said, of the combinations of masters, though
frequently of those of workmen. But whoever imagines, upon this account,
that masters rarely combine, is as ignorant of the world as of the
subject. Masters are always and everywhere in a sort of tacit, but
constant and uniform, combination, not to raise the wages of labour above
their actual rate. To violate this combination is everywhere a most
unpopular action, and a sort of reproach to a master among his neighbours
and equals. We seldom, indeed, hear of this combination, because it is the
usual, and, one may say, the natural state of things, which nobody ever
hears of. Masters, too, sometimes enter into particular combinations to
sink the wages of labour even below this rate. These are always conducted
with the utmost silence and secrecy till the moment of execution; and when
the workmen yield, as they sometimes do without resistance, though
severely felt by them, they are never heard of by other people. Such
combinations, however, are frequently resisted by a contrary defensive
combination of the workmen, who sometimes, too, without any provocation of
this kind, combine, of their own accord, to raise the price of their
labour. Their usual pretences are, sometimes the high price of provisions,
sometimes the great profit which their masters make by their work. But
whether their combinations be offensive or defensive, they are always
abundantly heard of. In order to bring the point to a speedy decision,
they have always recourse to the loudest clamour, and sometimes to the
most shocking violence and outrage. They are desperate, and act with the
folly and extravagance of desperate men, who must either starve, or
frighten their masters into an immediate compliance with their demands.
The masters, upon these occasions, are just as clamorous upon the other
side, and never cease to call aloud for the assistance of the civil
magistrate, and the rigorous execution of those laws which have been
enacted with so much severity against the combination of servants,
labourers, and journeymen. The workmen, accordingly, very seldom derive
any advantage from the violence of those tumultuous combinations, which,
partly from the interposition of the civil magistrate, partly from the
superior steadiness of the masters, partly from the necessity which the
greater part of the workmen are under of submitting for the sake of
present subsistence, generally end in nothing but the punishment or ruin
of the ringleaders.
But though, in disputes with their workmen, masters must generally have
the advantage, there is, however, a certain rate, below which it seems
impossible to reduce, for any considerable time, the ordinary wages even
of the lowest species of labour.
A man must always live by his work, and his wages must at least be
sufficient to maintain him. They must even upon most occasions be somewhat
more, otherwise it would be impossible for him to bring up a family, and
the race of such workmen could not last beyond the first generation. Mr
Cantillon seems, upon this account, to suppose that the lowest species of
common labourers must everywhere earn at least double their own
maintenance, in order that, one with another, they may be enabled to bring
up two children; the labour of the wife, on account of her necessary
attendance on the children, being supposed no more than sufficient to
provide for herself: But one half the children born, it is computed, die
before the age of manhood. The poorest labourers, therefore, according to
this account, must, one with another, attempt to rear at least four
children, in order that two may have an equal chance of living to that
age. But the necessary maintenance of four children, it is supposed, may
be nearly equal to that of one man. The labour of an able-bodied slave,
the same author adds, is computed to be worth double his maintenance; and
that of the meanest labourer, he thinks, cannot be worth less than that of
an able-bodied slave. Thus far at least seems certain, that, in order to
bring up a family, the labour of the husband and wife together must, even
in the lowest species of common labour, be able to earn something more
than what is precisely necessary for their own maintenance; but in what
proportion, whether in that above-mentioned, or any other, I shall not
take upon me to determine.
There are certain circumstances, however, which sometimes give the
labourers an advantage, and enable them to raise their wages considerably
above this rate, evidently the lowest which is consistent with common
humanity.
When in any country the demand for those who live by wages, labourers,
journeymen, servants of every kind, is continually increasing; when every
year furnishes employment for a greater number than had been employed the
year before, the workmen have no occasion to combine in order to raise
their wages. The scarcity of hands occasions a competition among masters,
who bid against one another in order to get workmen, and thus voluntarily
break through the natural combination of masters not to raise wages. The
demand for those who live by wages, it is evident, cannot increase but in
proportion to the increase of the funds which are destined to the payment
of wages. These funds are of two kinds, first, the revenue which is over
and above what is necessary for the maintenance; and, secondly, the stock
which is over and above what is necessary for the employment of their
masters.
When the landlord, annuitant, or monied man, has a greater revenue than
what he judges sufficient to maintain his own family, he employs either
the whole or a part of the surplus in maintaining one or more menial
servants. Increase this surplus, and he will naturally increase the number
of those servants.
When an independent workman, such as a weaver or shoemaker, has got more
stock than what is sufficient to purchase the materials of his own work,
and to maintain himself till he can dispose of it, he naturally employs
one or more journeymen with the surplus, in order to make a profit by
their work. Increase this surplus, and he will naturally increase the
number of his journeymen.
The demand for those who live by wages, therefore, necessarily increases
with the increase of the revenue and stock of every country, and cannot
possibly increase without it. The increase of revenue and stock is the
increase of national wealth. The demand for those who live by wages,
therefore, naturally increases with the increase of national wealth, and
cannot possibly increase without it.
It is not the actual greatness of national wealth, but its continual
increase, which occasions a rise in the wages of labour. It is not,
accordingly, in the richest countries, but in the most thriving, or in
those which are growing rich the fastest, that the wages of labour are
highest. England is certainly, in the present times, a much richer country
than any part of North America. The wages of labour, however, are much
higher in North America than in any part of England. In the province of
New York, common labourers earned in 1773, before the commencement of the
late disturbances, three shillings and sixpence currency, equal to two
shillings sterling, a-day; ship-carpenters, ten shillings and sixpence
currency, with a pint of rum, worth sixpence sterling, equal in all to six
shillings and sixpence sterling; house-carpenters and bricklayers, eight
shillings currency, equal to four shillings and sixpence sterling;
journeymen tailors, five shillings currency, equal to about two shillings
and tenpence sterling. These prices are all above the London price; and
wages are said to be as high in the other colonies as in New York. The
price of provisions is everywhere in North America much lower than in
England. A dearth has never been known there. In the worst seasons they
have always had a sufficiency for themselves, though less for exportation.
If the money price of labour, therefore, be higher than it is anywhere in
the mother-country, its real price, the real command of the necessaries
and conveniencies of life which it conveys to the labourer, must be higher
in a still greater proportion.
But though North America is not yet so rich as England, it is much more
thriving, and advancing with much greater rapidity to the further
acquisition of riches. The most decisive mark of the prosperity of any
country is the increase of the number of its inhabitants. In Great
Britain, and most other European countries, they are not supposed to
double in less than five hundred years. In the British colonies in North
America, it has been found that they double in twenty or five-and-twenty
years. Nor in the present times is this increase principally owing to the
continual importation of new inhabitants, but to the great multiplication
of the species. Those who live to old age, it is said, frequently see
there from fifty to a hundred, and sometimes many more, descendants from
their own body. Labour is there so well rewarded, that a numerous family
of children, instead of being a burden, is a source of opulence and
prosperity to the parents. The labour of each child, before it can leave
their house, is computed to be worth a hundred pounds clear gain to them.
A young widow with four or five young children, who, among the middling or
inferior ranks of people in Europe, would have so little chance for a
second husband, is there frequently courted as a sort of fortune. The
value of children is the greatest of all encouragements to marriage. We
cannot, therefore, wonder that the people in North America should
generally marry very young. Notwithstanding the great increase occasioned
by such early marriages, there is a continual complaint of the scarcity of
hands in North America. The demand for labourers, the funds destined for
maintaining them increase, it seems, still faster than they can find
labourers to employ.
Though the wealth of a country should be very great, yet if it has been
long stationary, we must not expect to find the wages of labour very high
in it. The funds destined for the payment of wages, the revenue and stock
of its inhabitants, may be of the greatest extent; but if they have
continued for several centuries of the same, or very nearly of the same
extent, the number of labourers employed every year could easily supply,
and even more than supply, the number wanted the following year. There
could seldom be any scarcity of hands, nor could the masters be obliged to
bid against one another in order to get them. The hands, on the contrary,
would, in this case, naturally multiply beyond their employment. There
would be a constant scarcity of employment, and the labourers would be
obliged to bid against one another in order to get it. If in such a
country the wages of labour had ever been more than sufficient to
maintain the labourer, and to enable him to bring up a family, the
competition of the labourers and the interest of the masters would soon
reduce them to the lowest rate which is consistent with common humanity.
China has been long one of the richest, that is, one of the most fertile,
best cultivated, most industrious, and most populous, countries in the
world. It seems, however, to have been long stationary. Marco Polo, who
visited it more than five hundred years ago, describes its cultivation,
industry, and populousness, almost in the same terms in which they are
described by travellers in the present times. It had, perhaps, even long
before his time, acquired that full complement of riches which the nature
of its laws and institutions permits it to acquire. The accounts of all
travellers, inconsistent in many other respects, agree in the low wages of
labour, and in the difficulty which a labourer finds in bringing up a
family in China. If by digging the ground a whole day he can get what will
purchase a small quantity of rice in the evening, he is contented. The
condition of artificers is, if possible, still worse. Instead of waiting
indolently in their work-houses for the calls of their customers, as in
Europe, they are continually running about the streets with the tools of
their respective trades, offering their services, and, as it were, begging
employment. The poverty of the lower ranks of people in China far
surpasses that of the most beggarly nations in Europe. In the
neighbourhood of Canton, many hundred, it is commonly said, many thousand
families have no habitation on the land, but live constantly in little
fishing-boats upon the rivers and canals. The subsistence which they find
there is so scanty, that they are eager to fish up the nastiest garbage
thrown overboard from any European ship. Any carrion, the carcase of a
dead dog or cat, for example, though half putrid and stinking, is as
welcome to them as the most wholesome food to the people of other
countries. Marriage is encouraged in China, not by the profitableness of
children, but by the liberty of destroying them. In all great towns,
several are every night exposed in the street, or drowned like puppies in
the water. The performance of this horrid office is even said to be the
avowed business by which some people earn their subsistence.
China, however, though it may, perhaps, stand still, does not seem to go
backwards. Its towns are nowhere deserted by their inhabitants. The lands
which had once been cultivated, are nowhere neglected. The same, or very
nearly the same, annual labour, must, therefore, continue to be performed,
and the funds destined for maintaining it must not, consequently, be
sensibly diminished. The lowest class of labourers, therefore,
notwithstanding their scanty subsistence, must some way or another make
shift to continue their race so far as to keep up their usual numbers.
But it would be otherwise in a country where the funds destined for the
maintenance of labour were sensibly decaying. Every year the demand for
servants and labourers would, in all the different classes of employments,
be less than it had been the year before. Many who had been bred in the
superior classes, not being able to find employment in their own business,
would be glad to seek it in the lowest. The lowest class being not only
overstocked with its own workmen, but with the overflowings of all the
other classes, the competition for employment would be so great in it, as
to reduce the wages of labour to the most miserable and scanty subsistence
of the labourer. Many would not be able to find employment even upon these
hard terms, but would either starve, or be driven to seek a subsistence,
either by begging, or by the perpetration perhaps, of the greatest
enormities. Want, famine, and mortality, would immediately prevail in that
class, and from thence extend themselves to all the superior classes, till
the number of inhabitants in the country was reduced to what could easily
be maintained by the revenue and stock which remained in it, and which had
escaped either the tyranny or calamity which had destroyed the rest. This,
perhaps, is nearly the present state of Bengal, and of some other of the
English settlements in the East Indies. In a fertile country, which had
before been much depopulated, where subsistence, consequently, should not
be very difficult, and where, notwithstanding, three or four hundred
thousand people die of hunger in one year, we may be assured that the funds
destined for the maintenance of the labouring poor are fast decaying. The
difference between the genius of the British constitution, which protects
and governs North America, and that of the mercantile company which
oppresses and domineers in the East Indies, cannot, perhaps, be better
illustrated than by the different state of those countries.
The liberal reward of labour, therefore, as it is the necessary effect, so
it is the natural symptom of increasing national wealth. The scanty
maintenance of the labouring poor, on the other hand, is the natural
symptom that things are at a stand, and their starving condition, that
they are going fast backwards.
In Great Britain, the wages of labour seem, in the present times, to be
evidently more than what is precisely necessary to enable the labourer to
bring up a family. In order to satisfy ourselves upon this point, it will
not be necessary to enter into any tedious or doubtful calculation of what
may be the lowest sum upon which it is possible to do this. There are many
plain symptoms, that the wages of labour are nowhere in this country
regulated by this lowest rate, which is consistent with common humanity.
First, in almost every part of Great Britain there is a distinction, even
in the lowest species of labour, between summer and winter wages. Summer
wages are always highest. But, on account of the extraordinary expense of
fuel, the maintenance of a family is most expensive in winter. Wages,
therefore, being highest when this expense is lowest, it seems evident
that they are not regulated by what is necessary for this expense, but by
the quantity and supposed value of the work. A labourer, it may be said,
indeed, ought to save part of his summer wages, in order to defray his
winter expense; and that, through the whole year, they do not exceed what
is necessary to maintain his family through the whole year. A slave,
however, or one absolutely dependent on us for immediate subsistence,
would not be treated in this manner. His daily subsistence would be
proportioned to his daily necessities.
Secondly, the wages of labour do not, in Great Britain, fluctuate with the
price of provisions. These vary everywhere from year to year, frequently
from month to month. But in many places, the money price of labour remains
uniformly the same, sometimes for half a century together. If, in these
places, therefore, the labouring poor can maintain their families in dear
years, they must be at their ease in times of moderate plenty, and in
affluence in those of extraordinary cheapness. The high price of
provisions during these ten years past, has not, in many parts of the
kingdom, been accompanied with any sensible rise in the money price of
labour. It has, indeed, in some; owing, probably, more to the increase of
the demand for labour, than to that of the price of provisions.
Thirdly, as the price of provisions varies more from year to year than the
wages of labour, so, on the other hand, the wages of labour vary more from
place to place than the price of provisions. The prices of bread and
butchers’ meat are generally the same, or very nearly the same, through
the greater part of the united kingdom. These, and most other things which
are sold by retail, the way in which the labouring poor buy all things,
are generally fully as cheap, or cheaper, in great towns than in the
remoter parts of the country, for reasons which I shall have occasion to
explain hereafter. But the wages of labour in a great town and its
neighbourhood are frequently a fourth or a fifth part, twenty or five-and—twenty
per cent. higher than at a few miles distance. Eighteen pence a day may be
reckoned the common price of labour in London and its neighbourhood. At a
few miles distance, it falls to fourteen and fifteen pence. Tenpence may
be reckoned its price in Edinburgh and its neighbourhood. At a few miles
distance, it falls to eightpence, the usual price of common labour through
the greater part of the low country of Scotland, where it varies a good
deal less than in England. Such a difference of prices, which, it seems,
is not always sufficient to transport a man from one parish to another,
would necessarily occasion so great a transportation of the most bulky
commodities, not only from one parish to another, but from one end of the
kingdom, almost from one end of the world to the other, as would soon
reduce them more nearly to a level. After all that has been said of the
levity and inconstancy of human nature, it appears evidently from
experience, that man is, of all sorts of luggage, the most difficult to be
transported. If the labouring poor, therefore, can maintain their families
in those parts of the kingdom where the price of labour is lowest, they
must be in affluence where it is highest.
Fourthly, the variations in the price of labour not only do not
correspond, either in place or time, with those in the price of
provisions, but they are frequently quite opposite.
Grain, the food of the common people, is dearer in Scotland than in
England, whence Scotland receives almost every year very large supplies.
But English corn must be sold dearer in Scotland, the country to which it
is brought, than in England, the country from which it comes; and in
proportion to its quality it cannot be sold dearer in Scotland than the
Scotch corn that comes to the same market in competition with it. The
quality of grain depends chiefly upon the quantity of flour or meal which
it yields at the mill; and, in this respect, English grain is so much
superior to the Scotch, that though often dearer in appearance, or in
proportion to the measure of its bulk, it is generally cheaper in reality,
or in proportion to its quality, or even to the measure of its weight. The
price of labour, on the contrary, is dearer in England than in Scotland.
If the labouring poor, therefore, can maintain their families in the one
part of the united kingdom, they must be in affluence in the other.
Oatmeal, indeed, supplies the common people in Scotland with the greatest
and the best part of their food, which is, in general, much inferior to
that of their neighbours of the same rank in England. This difference,
however, in the mode of their subsistence, is not the cause, but the
effect, of the difference in their wages; though, by a strange
misapprehension, I have frequently heard it represented as the cause. It
is not because one man keeps a coach, while his neighbour walks a-foot,
that the one is rich, and the other poor; but because the one is rich, he
keeps a coach, and because the other is poor, he walks a-foot.
During the course of the last century, taking one year with another, grain
was dearer in both parts of the united kingdom than during that of the
present. This is a matter of fact which cannot now admit of any reasonable
doubt; and the proof of it is, if possible, still more decisive with
regard to Scotland than with regard to England. It is in Scotland
supported by the evidence of the public fiars, annual valuations made upon
oath, according to the actual state of the markets, of all the different
sorts of grain in every different county of Scotland. If such direct proof
could require any collateral evidence to confirm it, I would observe, that
this has likewise been the case in France, and probably in most other
parts of Europe. With regard to France, there is the clearest proof. But
though it is certain, that in both parts of the united kingdom grain was
somewhat dearer in the last century than in the present, it is equally
certain that labour was much cheaper. If the labouring poor, therefore,
could bring up their families then, they must be much more at their ease
now. In the last century, the most usual day-wages of common labour
through the greater part of Scotland were sixpence in summer, and
fivepence in winter. Three shillings a-week, the same price, very nearly
still continues to be paid in some parts of the Highlands and Western
islands. Through the greater part of the Low country, the most usual wages
of common labour are now eight pence a-day; tenpence, sometimes a
shilling, about Edinburgh, in the counties which border upon England,
probably on account of that neighbourhood, and in a few other places where
there has lately been a considerable rise in the demand for labour, about
Glasgow, Carron, Ayrshire, etc. In England, the improvements of
agriculture, manufactures, and commerce, began much earlier than in
Scotland. The demand for labour, and consequently its price, must
necessarily have increased with those improvements. In the last century,
accordingly, as well as in the present, the wages of labour were higher in
England than in Scotland. They have risen, too, considerably since that
time, though, on account of the greater variety of wages paid there in
different places, it is more difficult to ascertain how much. In 1614, the
pay of a foot soldier was the same as in the present times, eightpence
a-day. When it was first established, it would naturally be regulated by
the usual wages of common labourers, the rank of people from which foot
soldiers are commonly drawn. Lord-chief-justice Hales, who wrote in the
time of Charles II. computes the necessary expense of a labourer’s family,
consisting of six persons, the father and mother, two children able to do
something, and two not able, at ten shillings a-week, or twenty-six pounds
a-year. If they cannot earn this by their labour, they must make it up, he
supposes, either by begging or stealing. He appears to have enquired very
carefully into this subject {See his scheme for the maintenance of the
poor, in Burn’s History of the Poor Laws.}. In 1688, Mr Gregory King,
whose skill in political arithmetic is so much extolled by Dr Davenant,
computed the ordinary income of labourers and out-servants to be fifteen
pounds a-year to a family, which he supposed to consist, one with another,
of three and a half persons. His calculation, therefore, though different
in appearance, corresponds very nearly at bottom with that of Judge Hales.
Both suppose the weekly expense of such families to be about twenty-pence
a-head. Both the pecuniary income and expense of such families have
increased considerably since that time through the greater part of the
kingdom, in some places more, and in some less, though perhaps scarce
anywhere so much as some exaggerated accounts of the present wages of
labour have lately represented them to the public. The price of labour, it
must be observed, cannot be ascertained very accurately anywhere,
different prices being often paid at the same place and for the same sort
of labour, not only according to the different abilities of the workman,
but according to the easiness or hardness of the masters. Where wages are
not regulated by law, all that we can pretend to determine is, what are
the most usual; and experience seems to shew that law can never regulate
them properly, though it has often pretended to do so.
The real recompence of labour, the real quantity of the necessaries and
conveniencies of life which it can procure to the labourer, has, during
the course of the present century, increased perhaps in a still greater
proportion than its money price. Not only grain has become somewhat
cheaper, but many other things, from which the industrious poor derive an
agreeable and wholesome variety of food, have become a great deal cheaper.
Potatoes, for example, do not at present, through the greater part of the
kingdom, cost half the price which they used to do thirty or forty years
ago. The same thing may be said of turnips, carrots, cabbages; things
which were formerly never raised but by the spade, but which are now
commonly raised by the plough. All sort of garden stuff, too, has become
cheaper. The greater part of the apples, and even of the onions, consumed
in Great Britain, were, in the last century, imported from Flanders. The
great improvements in the coarser manufactories of both linen and woollen
cloth furnish the labourers with cheaper and better clothing; and those in
the manufactories of the coarser metals, with cheaper and better
instruments of trade, as well as with many agreeable and convenient pieces
of household furniture. Soap, salt, candles, leather, and fermented
liquors, have, indeed, become a good deal dearer, chiefly from the taxes
which have been laid upon them. The quantity of these, however, which the
labouring poor are under any necessity of consuming, is so very small, that
the increase in their price does not compensate the diminution in that of
so many other things. The common complaint, that luxury extends itself
even to the lowest ranks of the people, and that the labouring poor will
not now be contented with the same food, clothing, and lodging, which
satisfied them in former times, may convince us that it is not the money
price of labour only, but its real recompence, which has augmented.
Is this improvement in the circumstances of the lower ranks of the people
to be regarded as an advantage, or as an inconveniency, to the society?
The answer seems at first abundantly plain. Servants, labourers, and
workmen of different kinds, make up the far greater part of every great
political society. But what improves the circumstances of the greater
part, can never be regarded as any inconveniency to the whole. No society
can surely be flourishing and happy, of which the far greater part of the
members are poor and miserable. It is but equity, besides, that they who
feed, clothe, and lodge the whole body of the people, should have such a
share of the produce of their own labour as to be themselves tolerably
well fed, clothed, and lodged.
Poverty, though it no doubt discourages, does not always prevent,
marriage. It seems even to be favourable to generation. A half-starved
Highland woman frequently bears more than twenty children, while a
pampered fine lady is often incapable of bearing any, and is generally
exhausted by two or three. Barrenness, so frequent among women of fashion,
is very rare among those of inferior station. Luxury, in the fair sex,
while it inflames, perhaps, the passion for enjoyment, seems always to
weaken, and frequently to destroy altogether, the powers of generation.
But poverty, though it does not prevent the generation, is extremely
unfavourable to the rearing of children. The tender plant is produced; but
in so cold a soil, and so severe a climate, soon withers and dies. It is
not uncommon, I have been frequently told, in the Highlands of Scotland,
for a mother who has born twenty children not to have two alive. Several
officers of great experience have assured me, that, so far from recruiting
their regiment, they have never been able to supply it with drums and
fifes, from all the soldiers’ children that were born in it. A greater
number of fine children, however, is seldom seen anywhere than about a
barrack of soldiers. Very few of them, it seems, arrive at the age of
thirteen or fourteen. In some places, one half the children die before
they are four years of age, in many places before they are seven, and in
almost all places before they are nine or ten. This great mortality,
however will everywhere be found chiefly among the children of the common
people, who cannot afford to tend them with the same care as those of
better station. Though their marriages are generally more fruitful than
those of people of fashion, a smaller proportion of their children arrive
at maturity. In foundling hospitals, and among the children brought up by
parish charities, the mortality is still greater than among those of the
common people.
Every species of animals naturally multiplies in proportion to the means
of their subsistence, and no species can ever multiply beyond it. But in
civilized society, it is only among the inferior ranks of people that the
scantiness of subsistence can set limits to the further multiplication of
the human species; and it can do so in no other way than by destroying a
great part of the children which their fruitful marriages produce.
The liberal reward of labour, by enabling them to provide better for their
children, and consequently to bring up a greater number, naturally tends
to widen and extend those limits. It deserves to be remarked, too, that it
necessarily does this as nearly as possible in the proportion which the
demand for labour requires. If this demand is continually increasing, the
reward of labour must necessarily encourage in such a manner the marriage
and multiplication of labourers, as may enable them to supply that
continually increasing demand by a continually increasing population. If
the reward should at any time be less than what was requisite for this
purpose, the deficiency of hands would soon raise it; and if it should at
any time be more, their excessive multiplication would soon lower it to
this necessary rate. The market would be so much understocked with labour
in the one case, and so much overstocked in the other, as would soon force
back its price to that proper rate which the circumstances of the society
required. It is in this manner that the demand for men, like that for any
other commodity, necessarily regulates the production of men, quickens it
when it goes on too slowly, and stops it when it advances too fast. It is
this demand which regulates and determines the state of propagation in all
the different countries of the world; in North America, in Europe, and in
China; which renders it rapidly progressive in the first, slow and gradual
in the second, and altogether stationary in the last.
The wear and tear of a slave, it has been said, is at the expense of his
master; but that of a free servant is at his own expense. The wear and
tear of the latter, however, is, in reality, as much at the expense of his
master as that of the former. The wages paid to journeymen and servants of
every kind must be such as may enable them, one with another to continue
the race of journeymen and servants, according as the increasing,
diminishing, or stationary demand of the society, may happen to require.
But though the wear and tear of a free servant be equally at the expense
of his master, it generally costs him much less than that of a slave. The
fund destined for replacing or repairing, if I may say so, the wear and
tear of the slave, is commonly managed by a negligent master or careless
overseer. That destined for performing the same office with regard to the
freeman is managed by the freeman himself. The disorders which generally
prevail in the economy of the rich, naturally introduce themselves into
the management of the former; the strict frugality and parsimonious
attention of the poor as naturally establish themselves in that of the
latter. Under such different management, the same purpose must require
very different degrees of expense to execute it. It appears, accordingly,
from the experience of all ages and nations, I believe, that the work done
by freemen comes cheaper in the end than that performed by slaves. It is
found to do so even at Boston, New-York, and Philadelphia, where the wages
of common labour are so very high.
The liberal reward of labour, therefore, as it is the effect of increasing
wealth, so it is the cause of increasing population. To complain of it, is
to lament over the necessary cause and effect of the greatest public
prosperity.
It deserves to be remarked, perhaps, that it is in the progressive state,
while the society is advancing to the further acquisition, rather than
when it has acquired its full complement of riches, that the condition of
the labouring poor, of the great body of the people, seems to be the
happiest and the most comfortable. It is hard in the stationary, and
miserable in the declining state. The progressive state is, in reality,
the cheerful and the hearty state to all the different orders of the
society; the stationary is dull; the declining melancholy.
The liberal reward of labour, as it encourages the propagation, so it
increases the industry of the common people. The wages of labour are the
encouragement of industry, which, like every other human quality, improves
in proportion to the encouragement it receives. A plentiful subsistence
increases the bodily strength of the labourer, and the comfortable hope of
bettering his condition, and of ending his days, perhaps, in ease and
plenty, animates him to exert that strength to the utmost. Where wages are
high, accordingly, we shall always find the workmen more active, diligent,
and expeditious, than where they are low; in England, for example, than in
Scotland; in the neighbourhood of great towns, than in remote country
places. Some workmen, indeed, when they can earn in four days what will
maintain them through the week, will be idle the other three. This,
however, is by no means the case with the greater part. Workmen, on the
contrary, when they are liberally paid by the piece, are very apt to
overwork themselves, and to ruin their health and constitution in a few
years. A carpenter in London, and in some other places, is not supposed to
last in his utmost vigour above eight years. Something of the same kind
happens in many other trades, in which the workmen are paid by the piece;
as they generally are in manufactures, and even in country labour,
wherever wages are higher than ordinary. Almost every class of artificers
is subject to some peculiar infirmity occasioned by excessive application
to their peculiar species of work. Ramuzzini, an eminent Italian
physician, has written a particular book concerning such diseases. We do
not reckon our soldiers the most industrious set of people among us; yet
when soldiers have been employed in some particular sorts of work, and
liberally paid by the piece, their officers have frequently been obliged
to stipulate with the undertaker, that they should not be allowed to earn
above a certain sum every day, according to the rate at which they were
paid. Till this stipulation was made, mutual emulation, and the desire of
greater gain, frequently prompted them to overwork themselves, and to hurt
their health by excessive labour. Excessive application, during four days
of the week, is frequently the real cause of the idleness of the other
three, so much and so loudly complained of. Great labour, either of mind
or body, continued for several days together is, in most men, naturally
followed by a great desire of relaxation, which, if not restrained by
force, or by some strong necessity, is almost irresistible. It is the call
of nature, which requires to be relieved by some indulgence, sometimes of
ease only, but sometimes too of dissipation and diversion. If it is not
complied with, the consequences are often dangerous and sometimes fatal,
and such as almost always, sooner or later, bring on the peculiar
infirmity of the trade. If masters would always listen to the dictates of
reason and humanity, they have frequently occasion rather to moderate,
than to animate the application of many of their workmen. It will be
found, I believe, in every sort of trade, that the man who works so
moderately, as to be able to work constantly, not only preserves his
health the longest, but, in the course of the year, executes the greatest
quantity of work.
In cheap years it is pretended, workmen are generally more idle, and in
dear times more industrious than ordinary. A plentiful subsistence,
therefore, it has been concluded, relaxes, and a scanty one quickens their
industry. That a little more plenty than ordinary may render some workmen
idle, cannot be well doubted; but that it should have this effect upon the
greater part, or that men in general should work better when they are ill
fed, than when they are well fed, when they are disheartened than when
they are in good spirits, when they are frequently sick than when they are
generally in good health, seems not very probable. Years of dearth, it is
to be observed, are generally among the common people years of sickness
and mortality, which cannot fail to diminish the produce of their
industry.
In years of plenty, servants frequently leave their masters, and trust
their subsistence to what they can make by their own industry. But the
same cheapness of provisions, by increasing the fund which is destined for
the maintenance of servants, encourages masters, farmers especially, to
employ a greater number. Farmers, upon such occasions, expect more profit
from their corn by maintaining a few more labouring servants, than by
selling it at a low price in the market. The demand for servants
increases, while the number of those who offer to supply that demand
diminishes. The price of labour, therefore, frequently rises in cheap
years.
In years of scarcity, the difficulty and uncertainty of subsistence make
all such people eager to return to service. But the high price of
provisions, by diminishing the funds destined for the maintenance of
servants, disposes masters rather to diminish than to increase the number
of those they have. In dear years, too, poor independent workmen
frequently consume the little stock with which they had used to supply
themselves with the materials of their work, and are obliged to become
journeymen for subsistence. More people want employment than easily get
it; many are willing to take it upon lower terms than ordinary; and the
wages of both servants and journeymen frequently sink in dear years.
Masters of all sorts, therefore, frequently make better bargains with
their servants in dear than in cheap years, and find them more humble and
dependent in the former than in the latter. They naturally, therefore,
commend the former as more favourable to industry. Landlords and farmers,
besides, two of the largest classes of masters, have another reason for
being pleased with dear years. The rents of the one, and the profits of
the other, depend very much upon the price of provisions. Nothing can be
more absurd, however, than to imagine that men in general should work less
when they work for themselves, than when they work for other people. A
poor independent workman will generally be more industrious than even a
journeyman who works by the piece. The one enjoys the whole produce of his
own industry, the other shares it with his master. The one, in his
separate independent state, is less liable to the temptations of bad
company, which, in large manufactories, so frequently ruin the morals of
the other. The superiority of the independent workman over those servants
who are hired by the month or by the year, and whose wages and maintenance
are the same, whether they do much or do little, is likely to be still
greater. Cheap years tend to increase the proportion of independent
workmen to journeymen and servants of all kinds, and dear years to
diminish it.
A French author of great knowledge and ingenuity, Mr Messance, receiver of
the tallies in the election of St Etienne, endeavours to shew that the
poor do more work in cheap than in dear years, by comparing the quantity
and value of the goods made upon those different occasions in three
different manufactures; one of coarse woollens, carried on at Elbeuf; one
of linen, and another of silk, both which extend through the whole
generality of Rouen. It appears from his account, which is copied from the
registers of the public offices, that the quantity and value of the goods
made in all those three manufactories has generally been greater in cheap
than in dear years, and that it has always been greatest in the cheapest,
and least in the dearest years. All the three seem to be stationary
manufactures, or which, though their produce may vary somewhat from year
to year, are, upon the whole, neither going backwards nor forwards.
The manufacture of linen in Scotland, and that of coarse woollens in the
West Riding of Yorkshire, are growing manufactures, of which the produce
is generally, though with some variations, increasing both in quantity and
value. Upon examining, however, the accounts which have been published of
their annual produce, I have not been able to observe that its variations
have had any sensible connection with the dearness or cheapness of the
seasons. In 1740, a year of great scarcity, both manufactures, indeed,
appear to have declined very considerably. But in 1756, another year of
great scarcity, the Scotch manufactures made more than ordinary advances.
The Yorkshire manufacture, indeed, declined, and its produce did not rise
to what it had been in 1755, till 1766, after the repeal of the American
stamp act. In that and the following year, it greatly exceeded what it had
ever been before, and it has continued to advance ever since.
The produce of all great manufactures for distant sale must necessarily
depend, not so much upon the dearness or cheapness of the seasons in the
countries where they are carried on, as upon the circumstances which
affect the demand in the countries where they are consumed; upon peace or
war, upon the prosperity or declension of other rival manufactures and
upon the good or bad humour of their principal customers. A great part of
the extraordinary work, besides, which is probably done in cheap years,
never enters the public registers of manufactures. The men-servants, who
leave their masters, become independent labourers. The women return to
their parents, and commonly spin, in order to make clothes for themselves
and their families. Even the independent workmen do not always work for
public sale, but are employed by some of their neighbours in manufactures
for family use. The produce of their labour, therefore, frequently makes
no figure in those public registers, of which the records are sometimes
published with so much parade, and from which our merchants and
manufacturers would often vainly pretend to announce the prosperity or
declension of the greatest empires.
Though the variations in the price of labour not only do not always
correspond with those in the price of provisions, but are frequently quite
opposite, we must not, upon this account, imagine that the price of
provisions has no influence upon that of labour. The money price of labour
is necessarily regulated by two circumstances; the demand for labour, and
the price of the necessaries and conveniencies of life. The demand for
labour, according as it happens to be increasing, stationary, or
declining, or to require an increasing, stationary, or declining
population, determines the quantities of the necessaries and conveniencies
of life which must be given to the labourer; and the money price of labour
is determined by what is requisite for purchasing this quantity. Though
the money price of labour, therefore, is sometimes high where the price of
provisions is low, it would be still higher, the demand continuing the
same, if the price of provisions was high.
It is because the demand for labour increases in years of sudden and
extraordinary plenty, and diminishes in those of sudden and extraordinary
scarcity, that the money price of labour sometimes rises in the one, and
sinks in the other.
In a year of sudden and extraordinary plenty, there are funds in the hands
of many of the employers of industry, sufficient to maintain and employ a
greater number of industrious people than had been employed the year
before; and this extraordinary number cannot always be had. Those masters,
therefore, who want more workmen, bid against one another, in order to get
them, which sometimes raises both the real and the money price of their
labour.
The contrary of this happens in a year of sudden and extraordinary
scarcity. The funds destined for employing industry are less than they had
been the year before. A considerable number of people are thrown out of
employment, who bid one against another, in order to get it, which
sometimes lowers both the real and the money price of labour. In 1740, a
year of extraordinary scarcity, many people were willing to work for bare
subsistence. In the succeeding years of plenty, it was more difficult to
get labourers and servants. The scarcity of a dear year, by diminishing
the demand for labour, tends to lower its price, as the high price of
provisions tends to raise it. The plenty of a cheap year, on the contrary,
by increasing the demand, tends to raise the price of labour, as the
cheapness of provisions tends to lower it. In the ordinary variations of
the prices of provisions, those two opposite causes seem to counterbalance
one another, which is probably, in part, the reason why the wages of
labour are everywhere so much more steady and permanent than the price of
provisions.
The increase in the wages of labour necessarily increases the price of
many commodities, by increasing that part of it which resolves itself into
wages, and so far tends to diminish their consumption, both at home and
abroad. The same cause, however, which raises the wages of labour, the
increase of stock, tends to increase its productive powers, and to make a
smaller quantity of labour produce a greater quantity of work. The owner
of the stock which employs a great number of labourers necessarily
endeavours, for his own advantage, to make such a proper division and
distribution of employment, that they may be enabled to produce the
greatest quantity of work possible. For the same reason, he endeavours to
supply them with the best machinery which either he or they can think of.
What takes place among the labourers in a particular workhouse, takes
place, for the same reason, among those of a great society. The greater
their number, the more they naturally divide themselves into different
classes and subdivisions of employments. More heads are occupied in
inventing the most proper machinery for executing the work of each, and it
is, therefore, more likely to be invented. There are many commodities,
therefore, which, in consequence of these improvements, come to be
produced by so much less labour than before, that the increase of its
price is more than compensated by the diminution of its quantity.

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---
id: book-1-chapter-09
title: "OF THE PROFITS OF STOCK."
book: "1"
chapter: 9
artifact_type: content
---
CHAPTER IX.
OF THE PROFITS OF STOCK.
The rise and fall in the profits of stock depend upon the same causes with
the rise and fall in the wages of labour, the increasing or declining
state of the wealth of the society; but those causes affect the one and
the other very differently.
The increase of stock, which raises wages, tends to lower profit. When the
stocks of many rich merchants are turned into the same trade, their mutual
competition naturally tends to lower its profit; and when there is a like
increase of stock in all the different trades carried on in the same
society, the same competition must produce the same effect in them all.
It is not easy, it has already been observed, to ascertain what are the
average wages of labour, even in a particular place, and at a particular
time. We can, even in this case, seldom determine more than what are the
most usual wages. But even this can seldom be done with regard to the
profits of stock. Profit is so very fluctuating, that the person who
carries on a particular trade, cannot always tell you himself what is the
average of his annual profit. It is affected, not only by every variation
of price in the commodities which he deals in, but by the good or bad
fortune both of his rivals and of his customers, and by a thousand other
accidents, to which goods, when carried either by sea or by land, or even
when stored in a warehouse, are liable. It varies, therefore, not only
from year to year, but from day to day, and almost from hour to hour. To
ascertain what is the average profit of all the different trades carried
on in a great kingdom, must be much more difficult; and to judge of what
it may have been formerly, or in remote periods of time, with any degree
of precision, must be altogether impossible.
But though it may be impossible to determine, with any degree of
precision, what are or were the average profits of stock, either in the
present or in ancient times, some notion may be formed of them from the
interest of money. It may be laid down as a maxim, that wherever a great
deal can be made by the use of money, a great deal will commonly be given
for the use of it; and that, wherever little can be made by it, less will
commonly he given for it. Accordingly, therefore, as the usual market rate
of interest varies in any country, we may be assured that the ordinary
profits of stock must vary with it, must sink as it sinks, and rise as it
rises. The progress of interest, therefore, may lead us to form some
notion of the progress of profit.
By the 37th of Henry VIII. all interest above ten per cent. was declared
unlawful. More, it seems, had sometimes been taken before that. In the
reign of Edward VI. religious zeal prohibited all interest. This
prohibition, however, like all others of the same kind, is said to have
produced no effect, and probably rather increased than diminished the evil
of usury. The statute of Henry VIII. was revived by the 13th of Elizabeth,
cap. 8. and ten per cent. continued to be the legal rate of interest till
the 21st of James I. when it was restricted to eight per cent. It was
reduced to six per cent. soon after the Restoration, and by the 12th of
Queen Anne, to five per cent. All these different statutory regulations
seem to have been made with great propriety. They seem to have followed,
and not to have gone before, the market rate of interest, or the rate at
which people of good credit usually borrowed. Since the time of Queen
Anne, five per cent. seems to have been rather above than below the market
rate. Before the late war, the government borrowed at three per cent.; and
people of good credit in the capital, and in many other parts of the
kingdom, at three and a-half, four, and four and a-half per cent.
Since the time of Henry VIII. the wealth and revenue of the country have
been continually advancing, and in the course of their progress, their
pace seems rather to have been gradually accelerated than retarded. They
seem not only to have been going on, but to have been going on faster and
faster. The wages of labour have been continually increasing during the
same period, and, in the greater part of the different branches of trade
and manufactures, the profits of stock have been diminishing.
It generally requires a greater stock to carry on any sort of trade in a
great town than in a country village. The great stocks employed in every
branch of trade, and the number of rich competitors, generally reduce the
rate of profit in the former below what it is in the latter. But the wages
of labour are generally higher in a great town than in a country village.
In a thriving town, the people who have great stocks to employ, frequently
cannot get the number of workmen they want, and therefore bid against one
another, in order to get as many as they can, which raises the wages of
labour, and lowers the profits of stock. In the remote parts of the
country, there is frequently not stock sufficient to employ all the
people, who therefore bid against one another, in order to get employment,
which lowers the wages of labour, and raises the profits of stock.
In Scotland, though the legal rate of interest is the same as in England,
the market rate is rather higher. People of the best credit there seldom
borrow under five per cent. Even private bankers in Edinburgh give four
per cent. upon their promissory-notes, of which payment, either in whole
or in part may be demanded at pleasure. Private bankers in London give no
interest for the money which is deposited with them. There are few trades
which cannot be carried on with a smaller stock in Scotland than in
England. The common rate of profit, therefore, must be somewhat greater.
The wages of labour, it has already been observed, are lower in Scotland
than in England. The country, too, is not only much poorer, but the steps
by which it advances to a better condition, for it is evidently advancing,
seem to be much slower and more tardy. The legal rate of interest in
France has not during the course of the present century, been always
regulated by the market rate {See Denisart, Article Taux des Interests,
tom. iii, p.13}. In 1720, interest was reduced from the twentieth to the
fiftieth penny, or from five to two per cent. In 1724, it was raised to
the thirtieth penny, or to three and a third per cent. In 1725, it was
again raised to the twentieth penny, or to five per cent. In 1766, during
the administration of Mr Laverdy, it was reduced to the twenty-fifth
penny, or to four per cent. The Abbé Terray raised it afterwards to the
old rate of five per cent. The supposed purpose of many of those violent
reductions of interest was to prepare the way for reducing that of the
public debts; a purpose which has sometimes been executed. France is,
perhaps, in the present times, not so rich a country as England; and
though the legal rate of interest has in France frequently been lower than
in England, the market rate has generally been higher; for there, as in
other countries, they have several very safe and easy methods of evading
the law. The profits of trade, I have been assured by British merchants
who had traded in both countries, are higher in France than in England;
and it is no doubt upon this account, that many British subjects chuse
rather to employ their capitals in a country where trade is in disgrace,
than in one where it is highly respected. The wages of labour are lower in
France than in England. When you go from Scotland to England, the
difference which you may remark between the dress and countenance of the
common people in the one country and in the other, sufficiently indicates
the difference in their condition. The contrast is still greater when you
return from France. France, though no doubt a richer country than
Scotland, seems not to be going forward so fast. It is a common and even a
popular opinion in the country, that it is going backwards; an opinion
which I apprehend, is ill-founded, even with regard to France, but which
nobody can possibly entertain with regard to Scotland, who sees the
country now, and who saw it twenty or thirty years ago.
The province of Holland, on the other hand, in proportion to the extent of
its territory and the number of its people, is a richer country than
England. The government there borrow at two per cent. and private people
of good credit at three. The wages of labour are said to be higher in
Holland than in England, and the Dutch, it is well known, trade upon lower
profits than any people in Europe. The trade of Holland, it has been
pretended by some people, is decaying, and it may perhaps be true that
some particular branches of it are so; but these symptoms seem to indicate
sufficiently that there is no general decay. When profit diminishes,
merchants are very apt to complain that trade decays, though the
diminution of profit is the natural effect of its prosperity, or of a
greater stock being employed in it than before. During the late war, the
Dutch gained the whole carrying trade of France, of which they still
retain a very large share. The great property which they possess both in
French and English funds, about forty millions, it is said in the latter
(in which, I suspect, however, there is a considerable exaggeration ), the
great sums which they lend to private people, in countries where the rate
of interest is higher than in their own, are circumstances which no doubt
demonstrate the redundancy of their stock, or that it has increased beyond
what they can employ with tolerable profit in the proper business of their
own country; but they do not demonstrate that that business has decreased.
As the capital of a private man, though acquired by a particular trade,
may increase beyond what he can employ in it, and yet that trade continue
to increase too, so may likewise the capital of a great nation.
In our North American and West Indian colonies, not only the wages of
labour, but the interest of money, and consequently the profits of stock,
are higher than in England. In the different colonies, both the legal and
the market rate of interest run from six to eight percent. High wages of
labour and high profits of stock, however, are things, perhaps, which
scarce ever go together, except in the peculiar circumstances of new
colonies. A new colony must always, for some time, be more understocked in
proportion to the extent of its territory, and more underpeopled in
proportion to the extent of its stock, than the greater part of other
countries. They have more land than they have stock to cultivate. What
they have, therefore, is applied to the cultivation only of what is most
fertile and most favourably situated, the land near the sea-shore, and
along the banks of navigable rivers. Such land, too, is frequently
purchased at a price below the value even of its natural produce. Stock
employed in the purchase and improvement of such lands, must yield a very
large profit, and, consequently, afford to pay a very large interest. Its
rapid accumulation in so profitable an employment enables the planter to
increase the number of his hands faster than he can find them in a new
settlement. Those whom he can find, therefore, are very liberally
rewarded. As the colony increases, the profits of stock gradually
diminish. When the most fertile and best situated lands have been all
occupied, less profit can be made by the cultivation of what is inferior
both in soil and situation, and less interest can be afforded for the
stock which is so employed. In the greater part of our colonies,
accordingly, both the legal and the market rate of interest have been
considerably reduced during the course of the present century. As riches,
improvement, and population, have increased, interest has declined. The
wages of labour do not sink with the profits of stock. The demand for
labour increases with the increase of stock, whatever be its profits; and
after these are diminished, stock may not only continue to increase, but
to increase much faster than before. It is with industrious nations, who
are advancing in the acquisition of riches, as with industrious
individuals. A great stock, though with small profits, generally increases
faster than a small stock with great profits. Money, says the proverb,
makes money. When you have got a little, it is often easy to get more. The
great difficulty is to get that little. The connection between the
increase of stock and that of industry, or of the demand for useful
labour, has partly been explained already, but will be explained more
fully hereafter, in treating of the accumulation of stock.
The acquisition of new territory, or of new branches of trade, may
sometimes raise the profits of stock, and with them the interest of money,
even in a country which is fast advancing in the acquisition of riches.
The stock of the country, not being sufficient for the whole accession of
business which such acquisitions present to the different people among
whom it is divided, is applied to those particular branches only which
afford the greatest profit. Part of what had before been employed in other
trades, is necessarily withdrawn from them, and turned into some of the
new and more profitable ones. In all those old trades, therefore, the
competition comes to be less than before. The market comes to be less
fully supplied with many different sorts of goods. Their price necessarily
rises more or less, and yields a greater profit to those who deal in them,
who can, therefore, afford to borrow at a higher interest. For some time
after the conclusion of the late war, not only private people of the best
credit, but some of the greatest companies in London, commonly borrowed at
five per cent. who, before that, had not been used to pay more than four,
and four and a half per cent. The great accession both of territory and
trade by our acquisitions in North America and the West Indies, will
sufficiently account for this, without supposing any diminution in the
capital stock of the society. So great an accession of new business to be
carried on by the old stock, must necessarily have diminished the quantity
employed in a great number of particular branches, in which the
competition being less, the profits must have been greater. I shall
hereafter have occasion to mention the reasons which dispose me to believe
that the capital stock of Great Britain was not diminished, even by the
enormous expense of the late war.
The diminution of the capital stock of the society, or of the funds
destined for the maintenance of industry, however, as it lowers the wages
of labour, so it raises the profits of stock, and consequently the
interest of money. By the wages of labour being lowered, the owners of
what stock remains in the society can bring their goods at less expense to
market than before; and less stock being employed in supplying the market
than before, they can sell them dearer. Their goods cost them less, and
they get more for them. Their profits, therefore, being augmented at both
ends, can well afford a large interest. The great fortunes so suddenly and
so easily acquired in Bengal and the other British settlements in the East
Indies, may satisfy us, that as the wages of labour are very low, so the
profits of stock are very high in those ruined countries. The interest of
money is proportionably so. In Bengal, money is frequently lent to the
farmers at forty, fifty, and sixty per cent. and the succeeding crop is
mortgaged for the payment. As the profits which can afford such an
interest must eat up almost the whole rent of the landlord, so such
enormous usury must in its turn eat up the greater part of those profits.
Before the fall of the Roman republic, a usury of the same kind seems to
have been common in the provinces, under the ruinous administration of
their proconsuls. The virtuous Brutus lent money in Cyprus at
eight-and-forty per cent. as we learn from the letters of Cicero.
In a country which had acquired that full complement of riches which the
nature of its soil and climate, and its situation with respect to other
countries, allowed it to acquire, which could, therefore, advance no
further, and which was not going backwards, both the wages of labour and
the profits of stock would probably be very low. In a country fully
peopled in proportion to what either its territory could maintain, or its
stock employ, the competition for employment would necessarily be so great
as to reduce the wages of labour to what was barely sufficient to keep up
the number of labourers, and the country being already fully peopled, that
number could never be augmented. In a country fully stocked in proportion
to all the business it had to transact, as great a quantity of stock would
be employed in every particular branch as the nature and extent of the
trade would admit. The competition, therefore, would everywhere be as
great, and, consequently, the ordinary profit as low as possible.
But, perhaps, no country has ever yet arrived at this degree of opulence.
China seems to have been long stationary, and had, probably, long ago
acquired that full complement of riches which is consistent with the
nature of its laws and institutions. But this complement may be much
inferior to what, with other laws and institutions, the nature of its
soil, climate, and situation, might admit of. A country which neglects or
despises foreign commerce, and which admits the vessel of foreign nations
into one or two of its ports only, cannot transact the same quantity of
business which it might do with different laws and institutions. In a
country, too, where, though the rich, or the owners of large capitals,
enjoy a good deal of security, the poor, or the owners of small capitals,
enjoy scarce any, but are liable, under the pretence of justice, to be
pillaged and plundered at any time by the inferior mandarins, the quantity
of stock employed in all the different branches of business transacted
within it, can never be equal to what the nature and extent of that
business might admit. In every different branch, the oppression of the
poor must establish the monopoly of the rich, who, by engrossing the whole
trade to themselves, will be able to make very large profits. Twelve per
cent. accordingly, is said to be the common interest of money in China,
and the ordinary profits of stock must be sufficient to afford this large
interest.
A defect in the law may sometimes raise the rate of interest considerably
above what the condition of the country, as to wealth or poverty, would
require. When the law does not enforce the performance of contracts, it
puts all borrowers nearly upon the same footing with bankrupts, or people
of doubtful credit, in better regulated countries. The uncertainty of
recovering his money makes the lender exact the same usurious interest
which is usually required from bankrupts. Among the barbarous nations who
overran the western provinces of the Roman empire, the performance of
contracts was left for many ages to the faith of the contracting parties.
The courts of justice of their kings seldom intermeddled in it. The high
rate of interest which took place in those ancient times, may, perhaps, be
partly accounted for from this cause.
When the law prohibits interest altogether, it does not prevent it. Many
people must borrow, and nobody will lend without such a consideration for
the use of their money as is suitable, not only to what can be made by the
use of it, but to the difficulty and danger of evading the law. The high
rate of interest among all Mahometan nations is accounted for by M.
Montesquieu, not from their poverty, but partly from this, and partly from
the difficulty of recovering the money.
The lowest ordinary rate of profit must always be something more than what
is sufficient to compensate the occasional losses to which every
employment of stock is exposed. It is this surplus only which is neat or
clear profit. What is called gross profit, comprehends frequently not only
this surplus, but what is retained for compensating such extraordinary
losses. The interest which the borrower can afford to pay is in proportion
to the clear profit only. The lowest ordinary rate of interest must, in
the same manner, be something more than sufficient to compensate the
occasional losses to which lending, even with tolerable prudence, is
exposed. Were it not, mere charity or friendship could be the only motives
for lending.
In a country which had acquired its full complement of riches, where, in
every particular branch of business, there was the greatest quantity of
stock that could be employed in it, as the ordinary rate of clear profit
would be very small, so the usual market rate of interest which could be
afforded out of it would be so low as to render it impossible for any but
the very wealthiest people to live upon the interest of their money. All
people of small or middling fortunes would be obliged to superintend
themselves the employment of their own stocks. It would be necessary that
almost every man should be a man of business, or engage in some sort of
trade. The province of Holland seems to be approaching near to this state.
It is there unfashionable not to be a man of business. Necessity makes it
usual for almost every man to be so, and custom everywhere regulates
fashion. As it is ridiculous not to dress, so is it, in some measure, not
to be employed like other people. As a man of a civil profession seems
awkward in a camp or a garrison, and is even in some danger of being
despised there, so does an idle man among men of business.
The highest ordinary rate of profit may be such as, in the price of the
greater part of commodities, eats up the whole of what should go to the
rent of the land, and leaves only what is sufficient to pay the labour of
preparing and bringing them to market, according to the lowest rate at
which labour can anywhere be paid, the bare subsistence of the labourer.
The workman must always have been fed in some way or other while he was
about the work, but the landlord may not always have been paid. The
profits of the trade which the servants of the East India Company carry on
in Bengal may not, perhaps, be very far from this rate.
The proportion which the usual market rate of interest ought to bear to
the ordinary rate of clear profit, necessarily varies as profit rises or
falls. Double interest is in Great Britain reckoned what the merchants
call a good, moderate, reasonable profit; terms which, I apprehend, mean
no more than a common and usual profit. In a country where the ordinary
rate of clear profit is eight or ten per cent. it may be reasonable that
one half of it should go to interest, wherever business is carried on with
borrowed money. The stock is at the risk of the borrower, who, as it were,
insures it to the lender; and four or five per cent. may, in the greater
part of trades, be both a sufficient profit upon the risk of this
insurance, and a sufficient recompence for the trouble of employing the
stock. But the proportion between interest and clear profit might not be
the same in countries where the ordinary rate of profit was either a good
deal lower, or a good deal higher. If it were a good deal lower, one half
of it, perhaps, could not be afforded for interest; and more might be
afforded if it were a good deal higher.
In countries which are fast advancing to riches, the low rate of profit
may, in the price of many commodities, compensate the high wages of
labour, and enable those countries to sell as cheap as their less thriving
neighbours, among whom the wages of labour may be lower.
In reality, high profits tend much more to raise the price of work than
high wages. If, in the linen manufacture, for example, the wages of the
different working people, the flax-dressers, the spinners, the weavers,
etc. should all of them be advanced twopence a-day, it would be necessary
to heighten the price of a piece of linen only by a number of twopences
equal to the number of people that had been employed about it, multiplied
by the number of days during which they had been so employed. That part of
the price of the commodity which resolved itself into the wages, would,
through all the different stages of the manufacture, rise only in
arithmetical proportion to this rise of wages. But if the profits of all
the different employers of those working people should be raised five per
cent. that part of the price of the commodity which resolved itself into
profit would, through all the different stages of the manufacture, rise in
geometrical proportion to this rise of profit. The employer of the flax
dressers would, in selling his flax, require an additional five per cent.
upon the whole value of the materials and wages which he advanced to his
workmen. The employer of the spinners would require an additional five per
cent. both upon the advanced price of the flax, and upon the wages of the
spinners. And the employer of the weavers would require alike five per
cent. both upon the advanced price of the linen-yarn, and upon the wages
of the weavers. In raising the price of commodities, the rise of wages
operates in the same manner as simple interest does in the accumulation of
debt. The rise of profit operates like compound interest. Our merchants
and master manufacturers complain much of the bad effects of high wages in
raising the price, and thereby lessening the sale of their goods, both at
home and abroad. They say nothing concerning the bad effects of high
profits; they are silent with regard to the pernicious effects of their
own gains; they complain only of those of other people.

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---
id: book-2-chapter-01
title: "OF THE DIVISION OF STOCK."
book: "2"
chapter: 1
artifact_type: content
---
CHAPTER I.
OF THE DIVISION OF STOCK.
When the stock which a man possesses is no more than sufficient to
maintain him for a few days or a few weeks, he seldom thinks of deriving
any revenue from it. He consumes it as sparingly as he can, and
endeavours, by his labour, to acquire something which may supply its place
before it be consumed altogether. His revenue is, in this case, derived
from his labour only. This is the state of the greater part of the
labouring poor in all countries.
But when he possesses stock sufficient to maintain him for months or
years, he naturally endeavours to derive a revenue from the greater part
of it, reserving only so much for his immediate consumption as may
maintain him till this revenue begins to come in. His whole stock,
therefore, is distinguished into two parts. That part which he expects is
to afford him this revenue is called his capital. The other is that which
supplies his immediate consumption, and which consists either, first, in
that portion of his whole stock which was originally reserved for this
purpose; or, secondly, in his revenue, from whatever source derived, as it
gradually comes in; or, thirdly, in such things as had been purchased by
either of these in former years, and which are not yet entirely consumed,
such as a stock of clothes, household furniture, and the like. In one or
other, or all of these three articles, consists the stock which men
commonly reserve for their own immediate consumption.
There are two different ways in which a capital may be employed so as to
yield a revenue or profit to its employer.
First, it may be employed in raising, manufacturing, or purchasing goods,
and selling them again with a profit. The capital employed in this manner
yields no revenue or profit to its employer, while it either remains in
his possession, or continues in the same shape. The goods of the merchant
yield him no revenue or profit till he sells them for money, and the money
yields him as little till it is again exchanged for goods. His capital is
continually going from him in one shape, and returning to him in another;
and it is only by means of such circulation, or successive changes, that
it can yield him any profit. Such capitals, therefore, may very properly
be called circulating capitals.
Secondly, it may be employed in the improvement of land, in the purchase
of useful machines and instruments of trade, or in such like things as
yield a revenue or profit without changing masters, or circulating any
further. Such capitals, therefore, may very properly be called fixed
capitals.
Different occupations require very different proportions between the fixed
and circulating capitals employed in them.
The capital of a merchant, for example, is altogether a circulating
capital. He has occasion for no machines or instruments of trade, unless
his shop or warehouse be considered as such.
Some part of the capital of every master artificer or manufacturer must be
fixed in the instruments of his trade. This part, however, is very small
in some, and very great in others, A master tailor requires no other
instruments of trade but a parcel of needles. Those of the master
shoemaker are a little, though but a very little, more expensive. Those of
the weaver rise a good deal above those of the shoemaker. The far greater
part of the capital of all such master artificers, however, is circulated
either in the wages of their workmen, or in the price of their materials,
and repaid, with a profit, by the price of the work.
In other works a much greater fixed capital is required. In a great
iron-work, for example, the furnace for melting the ore, the forge, the
slit-mill, are instruments of trade which cannot be erected without a very
great expense. In coal works, and mines of every kind, the machinery
necessary, both for drawing out the water, and for other purposes, is
frequently still more expensive.
That part of the capital of the farmer which is employed in the
instruments of agriculture is a fixed, that which is employed in the wages
and maintenance of his labouring servants is a circulating capital. He
makes a profit of the one by keeping it in his own possession, and of the
other by parting with it. The price or value of his labouring cattle is a
fixed capital, in the same manner as that of the instruments of husbandry;
their maintenance is a circulating capital, in the same manner as that of
the labouring servants. The farmer makes his profit by keeping the
labouring cattle, and by parting with their maintenance. Both the price
and the maintenance of the cattle which are bought in and fattened, not
for labour, but for sale, are a circulating capital. The farmer makes his
profit by parting with them. A flock of sheep or a herd of cattle, that,
in a breeding country, is brought in neither for labour nor for sale, but
in order to make a profit by their wool, by their milk, and by their
increase, is a fixed capital. The profit is made by keeping them. Their
maintenance is a circulating capital. The profit is made by parting with
it; and it comes back with both its own profit and the profit upon the
whole price of the cattle, in the price of the wool, the milk, and the
increase. The whole value of the seed, too, is properly a fixed capital.
Though it goes backwards and forwards between the ground and the granary,
it never changes masters, and therefore does not properly circulate. The
farmer makes his profit, not by its sale, but by its increase.
The general stock of any country or society is the same with that of all
its inhabitants or members; and, therefore, naturally divides itself into
the same three portions, each of which has a distinct function or office.
The first is that portion which is reserved for immediate consumption, and
of which the characteristic is, that it affords no revenue or profit. It
consists in the stock of food, clothes, household furniture, etc. which
have been purchased by their proper consumers, but which are not yet
entirely consumed. The whole stock of mere dwelling-houses, too,
subsisting at any one time in the country, make a part of this first
portion. The stock that is laid out in a house, if it is to be the
dwelling-house of the proprietor, ceases from that moment to serve in the
function of a capital, or to afford any revenue to its owner. A
dwelling-house, as such, contributes nothing to the revenue of its
inhabitant; and though it is, no doubt, extremely useful to him, it is as
his clothes and household furniture are useful to him, which, however,
make a part of his expense, and not of his revenue. If it is to be let to
a tenant for rent, as the house itself can produce nothing, the tenant
must always pay the rent out of some other revenue, which he derives,
either from labour, or stock, or land. Though a house, therefore, may
yield a revenue to its proprietor, and thereby serve in the function of a
capital to him, it cannot yield any to the public, nor serve in the
function of a capital to it, and the revenue of the whole body of the
people can never be in the smallest degree increased by it. Clothes and
household furniture, in the same manner, sometimes yield a revenue, and
thereby serve in the function of a capital to particular persons. In
countries where masquerades are common, it is a trade to let out
masquerade dresses for a night. Upholsterers frequently let furniture by
the month or by the year. Undertakers let the furniture of funerals by the
day and by the week. Many people let furnished houses, and get a rent, not
only for the use of the house, but for that of the furniture. The revenue,
however, which is derived from such things, must always be ultimately
drawn from some other source of revenue. Of all parts of the stock, either
of an individual or of a society, reserved for immediate consumption, what
is laid out in houses is most slowly consumed. A stock of clothes may last
several years; a stock of furniture half a century or a century; but a
stock of houses, well built and properly taken care of, may last many
centuries. Though the period of their total consumption, however, is more
distant, they are still as really a stock reserved for immediate
consumption as either clothes or household furniture.
The second of the three portions into which the general stock of the
society divides itself, is the fixed capital; of which the characteristic
is, that it affords a revenue or profit without circulating or changing
masters. It consists chiefly of the four following articles.
First, of all useful machines and instruments of trade, which facilitate
and abridge labour.
Secondly, of all those profitable buildings which are the means of
procuring a revenue, not only to the proprietor who lets them for a rent,
but to the person who possesses them, and pays that rent for them; such as
shops, warehouses, work-houses, farm-houses, with all their necessary
buildings, stables, granaries, etc. These are very different from mere
dwelling-houses. They are a sort of instruments of trade, and may be
considered in the same light.
Thirdly, of the improvements of land, of what has been profitably laid out
in clearing, draining, inclosing, manuring, and reducing it into the
condition most proper for tillage and culture. An improved farm may very
justly be regarded in the same light as those useful machines which
facilitate and abridge labour, and by means of which an equal circulating
capital can afford a much greater revenue to its employer. An improved
farm is equally advantageous and more durable than any of those machines,
frequently requiring no other repairs than the most profitable application
of the farmer’s capital employed in cultivating it.
Fourthly, of the acquired and useful abilities of all the inhabitants and
members of the society. The acquisition of such talents, by the
maintenance of the acquirer during his education, study, or
apprenticeship, always costs a real expense, which is a capital fixed and
realized, as it were, in his person. Those talents, as they make a part of
his fortune, so do they likewise that of the society to which he belongs.
The improved dexterity of a workman may be considered in the same light as
a machine or instrument of trade which facilitates and abridges labour,
and which, though it costs a certain expense, repays that expense with a
profit.
The third and last of the three portions into which the general stock of
the society naturally divides itself, is the circulating capital, of which
the characteristic is, that it affords a revenue only by circulating or
changing masters. It is composed likewise of four parts.
First, of the money, by means of which all the other three are circulated
and distributed to their proper consumers.
Secondly, of the stock of provisions which are in the possession of the
butcher, the grazier, the farmer, the corn-merchant, the brewer, etc. and
from the sale of which they expect to derive a profit.
Thirdly, of the materials, whether altogether rude, or more or less
manufactured, of clothes, furniture, and building which are not yet made
up into any of those three shapes, but which remain in the hands of the
growers, the manufacturers, the mercers, and drapers, the
timber-merchants, the carpenters and joiners, the brick-makers, etc.
Fourthly, and lastly, of the work which is made up and completed, but
which is still in the hands of the merchant and manufacturer, and not yet
disposed of or distributed to the proper consumers; such as the finished
work which we frequently find ready made in the shops of the smith, the
cabinet-maker, the goldsmith, the jeweller, the china-merchant, etc. The
circulating capital consists, in this manner, of the provisions,
materials, and finished work of all kinds that are in the hands of their
respective dealers, and of the money that is necessary for circulating and
distributing them to those who are finally to use or to consume them.
Of these four parts, three—provisions, materials, and finished work,
are either annually or in a longer or shorter period, regularly withdrawn
from it, and placed either in the fixed capital, or in the stock reserved
for immediate consumption.
Every fixed capital is both originally derived from, and requires to be
continually supported by, a circulating capital. All useful machines and
instruments of trade are originally derived from a circulating capital,
which furnishes the materials of which they are made, and the maintenance
of the workmen who make them. They require, too, a capital of the same
kind to keep them in constant repair.
No fixed capital can yield any revenue but by means of a circulating
capital. The most useful machines and instruments of trade will produce
nothing, without the circulating capital, which affords the materials they
are employed upon, and the maintenance of the workmen who employ them.
Land, however improved, will yield no revenue without a circulating
capital, which maintains the labourers who cultivate and collect its
produce.
To maintain and augment the stock which may be reserved for immediate
consumption, is the sole end and purpose both of the fixed and circulating
capitals. It is this stock which feeds, clothes, and lodges the people.
Their riches or poverty depend upon the abundant or sparing supplies which
those two capitals can afford to the stock reserved for immediate
consumption.
So great a part of the circulating capital being continually withdrawn
from it, in order to be placed in the other two branches of the general
stock of the society, it must in its turn require continual supplies
without which it would soon cease to exist. These supplies are principally
drawn from three sources; the produce of land, of mines, and of fisheries.
These afford continual supplies of provisions and materials, of which part
is afterwards wrought up into finished work and by which are replaced the
provisions, materials, and finished work, continually withdrawn from the
circulating capital. From mines, too, is drawn what is necessary for
maintaining and augmenting that part of it which consists in money. For
though, in the ordinary course of business, this part is not, like the
other three, necessarily withdrawn from it, in order to be placed in the
other two branches of the general stock of the society, it must, however,
like all other things, be wasted and worn out at last, and sometimes, too,
be either lost or sent abroad, and must, therefore, require continual,
though no doubt much smaller supplies.
Land, mines, and fisheries, require all both a fixed and circulating
capital to cultivate them; and their produce replaces, with a profit not
only those capitals, but all the others in the society. Thus the farmer
annually replaces to the manufacturer the provisions which he had
consumed, and the materials which he had wrought up the year before; and
the manufacturer replaces to the farmer the finished work which he had
wasted and worn out in the same time. This is the real exchange that is
annually made between those two orders of people, though it seldom happens
that the rude produce of the one, and the manufactured produce of the
other, are directly bartered for one another; because it seldom happens
that the farmer sells his corn and his cattle, his flax and his wool, to
the very same person of whom he chuses to purchase the clothes, furniture,
and instruments of trade, which he wants. He sells, therefore, his rude
produce for money, with which he can purchase, wherever it is to be had,
the manufactured produce he has occasion for. Land even replaces, in part
at least, the capitals with which fisheries and mines are cultivated. It
is the produce of land which draws the fish from the waters; and it is the
produce of the surface of the earth which extracts the minerals from its
bowels.
The produce of land, mines, and fisheries, when their natural fertility is
equal, is in proportion to the extent and proper application of the
capitals employed about them. When the capitals are equal, and equally
well applied, it is in proportion to their natural fertility.
In all countries where there is a tolerable security, every man of common
understanding will endeavour to employ whatever stock he can command, in
procuring either present enjoyment or future profit. If it is employed in
procuring present enjoyment, it is a stock reserved for immediate
consumption. If it is employed in procuring future profit, it must procure
this profit either by staying with him, or by going from him. In the one
case it is a fixed, in the other it is a circulating capital. A man must
be perfectly crazy, who, where there is a tolerable security, does not
employ all the stock which he commands, whether it be his own, or borrowed
of other people, in some one or other of those three ways.
In those unfortunate countries, indeed, where men are continually afraid
of the violence of their superiors, they frequently bury or conceal a
great part of their stock, in order to have it always at hand to carry
with them to some place of safety, in case of their being threatened with
any of those disasters to which they consider themselves at all times
exposed. This is said to be a common practice in Turkey, in Indostan, and,
I believe, in most other governments of Asia. It seems to have been a
common practice among our ancestors during the violence of the feudal
government. Treasure-trove was, in those times, considered as no
contemptible part of the revenue of the greatest sovereigns in Europe. It
consisted in such treasure as was found concealed in the earth, and to
which no particular person could prove any right. This was regarded, in
those times, as so important an object, that it was always considered as
belonging to the sovereign, and neither to the finder nor to the
proprietor of the land, unless the right to it had been conveyed to the
latter by an express clause in his charter. It was put upon the same
footing with gold and silver mines, which, without a special clause in the
charter, were never supposed to be comprehended in the general grant of
the lands, though mines of lead, copper, tin, and coal were, as things of
smaller consequence.

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---
id: book-2-chapter-03
title: "OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND UNPRODUCTIVE LABOUR."
book: "2"
chapter: 3
artifact_type: content
---
CHAPTER III.
OF THE ACCUMULATION OF CAPITAL, OR OF
PRODUCTIVE AND UNPRODUCTIVE LABOUR.
There is one sort of labour which adds to the value of the subject upon
which it is bestowed; there is another which has no such effect. The
former as it produces a value, may be called productive, the latter,
unproductive labour. {Some French authors of great learning and ingenuity
have used those words in a different sense. In the last chapter of the
fourth book, I shall endeavour to shew that their sense is an improper
one.} Thus the labour of a manufacturer adds generally to the value of the
materials which he works upon, that of his own maintenance, and of his
master’s profit. The labour of a menial servant, on the contrary, adds to
the value of nothing. Though the manufacturer has his wages advanced to
him by his master, he in reality costs him no expense, the value of those
wages being generally restored, together with a profit, in the improved
value of the subject upon which his labour is bestowed. But the
maintenance of a menial servant never is restored. A man grows rich by
employing a multitude of manufacturers; he grows poor by maintaining a
multitude or menial servants. The labour of the latter, however, has its
value, and deserves its reward as well as that of the former. But the
labour of the manufacturer fixes and realizes itself in some particular
subject or vendible commodity, which lasts for some time at least after
that labour is past. It is, as it were, a certain quantity of labour
stocked and stored up, to be employed, if necessary, upon some other
occasion. That subject, or, what is the same thing, the price of that
subject, can afterwards, if necessary, put into motion a quantity of
labour equal to that which had originally produced it. The labour of the
menial servant, on the contrary, does not fix or realize itself in any
particular subject or vendible commodity. His services generally perish in
the very instant of their performance, and seldom leave any trace of value
behind them, for which an equal quantity of service could afterwards be
procured.
The labour of some of the most respectable orders in the society is, like
that of menial servants, unproductive of any value, and does not fix or
realize itself in any permanent subject, or vendible commodity, which
endures after that labour is past, and for which an equal quantity of
labour could afterwards be procured. The sovereign, for example, with all
the officers both of justice and war who serve under him, the whole army
and navy, are unproductive labourers. They are the servants of the public,
and are maintained by a part of the annual produce of the industry of
other people. Their service, how honourable, how useful, or how necessary
soever, produces nothing for which an equal quantity of service can
afterwards be procured. The protection, security, and defence, of the
commonwealth, the effect of their labour this year, will not purchase its
protection, security, and defence, for the year to come. In the same class
must be ranked, some both of the gravest and most important, and some of
the most frivolous professions; churchmen, lawyers, physicians, men of
letters of all kinds; players, buffoons, musicians, opera-singers,
opera-dancers, etc. The labour of the meanest of these has a certain
value, regulated by the very same principles which regulate that of every
other sort of labour; and that of the noblest and most useful, produces
nothing which could afterwards purchase or procure an equal quantity of
labour. Like the declamation of the actor, the harangue of the orator, or
the tune of the musician, the work of all of them perishes in the very
instant of its production.
Both productive and unproductive labourers, and those who do not labour at
all, are all equally maintained by the annual produce of the land and
labour of the country. This produce, how great soever, can never be
infinite, but must have certain limits. According, therefore, as a smaller
or greater proportion of it is in any one year employed in maintaining
unproductive hands, the more in the one case, and the less in the other,
will remain for the productive, and the next year’s produce will be
greater or smaller accordingly; the whole annual produce, if we except the
spontaneous productions of the earth, being the effect of productive
labour.
Though the whole annual produce of the land and labour of every country is
no doubt ultimately destined for supplying the consumption of its
inhabitants, and for procuring a revenue to them; yet when it first comes
either from the ground, or from the hands of the productive labourers, it
naturally divides itself into two parts. One of them, and frequently the
largest, is, in the first place, destined for replacing a capital, or for
renewing the provisions, materials, and finished work, which had been
withdrawn from a capital; the other for constituting a revenue either to
the owner of this capital, as the profit of his stock, or to some other
person, as the rent of his land. Thus, of the produce of land, one part
replaces the capital of the farmer; the other pays his profit and the rent
of the landlord; and thus constitutes a revenue both to the owner of this
capital, as the profits of his stock, and to some other person as the rent
of his land. Of the produce of a great manufactory, in the same manner,
one part, and that always the largest, replaces the capital of the
undertaker of the work; the other pays his profit, and thus constitutes a
revenue to the owner of this capital.
That part of the annual produce of the land and labour of any country
which replaces a capital, never is immediately employed to maintain any
but productive hands. It pays the wages of productive labour only. That
which is immediately destined for constituting a revenue, either as profit
or as rent, may maintain indifferently either productive or unproductive
hands.
Whatever part of his stock a man employs as a capital, he always expects
it to be replaced to him with a profit. He employs it, therefore, in
maintaining productive hands only; and after having served in the function
of a capital to him, it constitutes a revenue to them. Whenever he employs
any part of it in maintaining unproductive hands of any kind, that part is
from that moment withdrawn from his capital, and placed in his stock
reserved for immediate consumption.
Unproductive labourers, and those who do not labour at all, are all
maintained by revenue; either, first, by that part of the annual produce
which is originally destined for constituting a revenue to some particular
persons, either as the rent of land, or as the profits of stock; or,
secondly, by that part which, though originally destined for replacing a
capital, and for maintaining productive labourers only, yet when it comes
into their hands, whatever part of it is over and above their necessary
subsistence, may be employed in maintaining indifferently either
productive or unproductive hands. Thus, not only the great landlord or the
rich merchant, but even the common workman, if his wages are considerable,
may maintain a menial servant; or he may sometimes go to a play or a
puppet-show, and so contribute his share towards maintaining one set of
unproductive labourers; or he may pay some taxes, and thus help to
maintain another set, more honourable and useful, indeed, but equally
unproductive. No part of the annual produce, however, which had been
originally destined to replace a capital, is ever directed towards
maintaining unproductive hands, till after it has put into motion its full
complement of productive labour, or all that it could put into motion in
the way in which it was employed. The workman must have earned his wages
by work done, before he can employ any part of them in this manner. That
part, too, is generally but a small one. It is his spare revenue only, of
which productive labourers have seldom a great deal. They generally have
some, however; and in the payment of taxes, the greatness of their number
may compensate, in some measure, the smallness of their contribution. The
rent of land and the profits of stock are everywhere, therefore, the
principal sources from which unproductive hands derive their subsistence.
These are the two sorts of revenue of which the owners have generally most
to spare. They might both maintain indifferently, either productive or
unproductive hands. They seem, however, to have some predilection for the
latter. The expense of a great lord feeds generally more idle than
industrious people. The rich merchant, though with his capital he
maintains industrious people only, yet by his expense, that is, by the
employment of his revenue, he feeds commonly the very same sort as the
great lord.
The proportion, therefore, between the productive and unproductive hands,
depends very much in every country upon the proportion between that part
of the annual produce, which, as soon as it comes either from the ground,
or from the hands of the productive labourers, is destined for replacing a
capital, and that which is destined for constituting a revenue, either as
rent or as profit. This proportion is very different in rich from what it
is in poor countries.
Thus, at present, in the opulent countries of Europe, a very large,
frequently the largest, portion of the produce of the land, is destined
for replacing the capital of the rich and independent farmer; the other
for paying his profits, and the rent of the landlord. But anciently,
during the prevalency of the feudal government, a very small portion of
the produce was sufficient to replace the capital employed in cultivation.
It consisted commonly in a few wretched cattle, maintained altogether by
the spontaneous produce of uncultivated land, and which might, therefore,
be considered as a part of that spontaneous produce. It generally, too,
belonged to the landlord, and was by him advanced to the occupiers of the
land. All the rest of the produce properly belonged to him too, either as
rent for his land, or as profit upon this paltry capital. The occupiers of
land were generally bond-men, whose persons and effects were equally his
property. Those who were not bond-men were tenants at will; and though the
rent which they paid was often nominally little more than a quit-rent, it
really amounted to the whole produce of the land. Their lord could at all
times command their labour in peace and their service in war. Though they
lived at a distance from his house, they were equally dependent upon him
as his retainers who lived in it. But the whole produce of the land
undoubtedly belongs to him, who can dispose of the labour and service of
all those whom it maintains. In the present state of Europe, the share of
the landlord seldom exceeds a third, sometimes not a fourth part of the
whole produce of the land. The rent of land, however, in all the improved
parts of the country, has been tripled and quadrupled since those ancient
times; and this third or fourth part of the annual produce is, it seems,
three or four times greater than the whole had been before. In the
progress of improvement, rent, though it increases in proportion to the
extent, diminishes in proportion to the produce of the land.
In the opulent countries of Europe, great capitals are at present employed
in trade and manufactures. In the ancient state, the little trade that was
stirring, and the few homely and coarse manufactures that were carried on,
required but very small capitals. These, however, must have yielded very
large profits. The rate of interest was nowhere less than ten per cent.
and their profits must have been sufficient to afford this great interest.
At present, the rate of interest, in the improved parts of Europe, is
nowhere higher than six per cent.; and in some of the most improved, it is
so low as four, three, and two per cent. Though that part of the revenue
of the inhabitants which is derived from the profits of stock, is always
much greater in rich than in poor countries, it is because the stock is
much greater; in proportion to the stock, the profits are generally much
less.
That part of the annual produce, therefore, which, as soon as it comes
either from the ground, or from the hands of the productive labourers, is
destined for replacing a capital, is not only much greater in rich than in
poor countries, but bears a much greater proportion to that which is
immediately destined for constituting a revenue either as rent or as
profit. The funds destined for the maintenance of productive labour are
not only much greater in the former than in the latter, but bear a much
greater proportion to those which, though they may be employed to maintain
either productive or unproductive hands, have generally a predilection for
the latter.
The proportion between those different funds necessarily determines in
every country the general character of the inhabitants as to industry or
idleness. We are more industrious than our forefathers, because, in the
present times, the funds destined for the maintenance of industry are much
greater in proportion to those which are likely to be employed in the
maintenance of idleness, than they were two or three centuries ago. Our
ancestors were idle for want of a sufficient encouragement to industry. It
is better, says the proverb, to play for nothing, than to work for
nothing. In mercantile and manufacturing towns, where the inferior ranks
of people are chiefly maintained by the employment of capital, they are in
general industrious, sober, and thriving; as in many English, and in most
Dutch towns. In those towns which are principally supported by the
constant or occasional residence of a court, and in which the inferior
ranks of people are chiefly maintained by the spending of revenue, they
are in general idle, dissolute, and poor; as at Rome, Versailles,
Compeigne, and Fontainbleau. If you except Rouen and Bourdeaux, there is
little trade or industry in any of the parliament towns of France; and the
inferior ranks of people, being chiefly maintained by the expense of the
members of the courts of justice, and of those who come to plead before
them, are in general idle and poor. The great trade of Rouen and Bourdeaux
seems to be altogether the effect of their situation. Rouen is necessarily
the entrepot of almost all the goods which are brought either from foreign
countries, or from the maritime provinces of France, for the consumption
of the great city of Paris. Bourdeaux is, in the same manner, the entrepot
of the wines which grow upon the banks of the Garronne, and of the rivers
which run into it, one of the richest wine countries in the world, and
which seems to produce the wine fittest for exportation, or best suited to
the taste of foreign nations. Such advantageous situations necessarily
attract a great capital by the great employment which they afford it; and
the employment of this capital is the cause of the industry of those two
cities. In the other parliament towns of France, very little more capital
seems to be employed than what is necessary for supplying their own
consumption; that is, little more than the smallest capital which can be
employed in them. The same thing may be said of Paris, Madrid, and Vienna.
Of those three cities, Paris is by far the most industrious, but Paris
itself is the principal market of all the manufactures established at
Paris, and its own consumption is the principal object of all the trade
which it carries on. London, Lisbon, and Copenhagen, are, perhaps, the
only three cities in Europe, which are both the constant residence of a
court, and can at the same time be considered as trading cities, or as
cities which trade not only for their own consumption, but for that of
other cities and countries. The situation of all the three is extremely
advantageous, and naturally fits them to be the entrepots of a great part
of the goods destined for the consumption of distant places. In a city
where a great revenue is spent, to employ with advantage a capital for any
other purpose than for supplying the consumption of that city, is probably
more difficult than in one in which the inferior ranks of people have no
other maintenance but what they derive from the employment of such a
capital. The idleness of the greater part of the people who are maintained
by the expense of revenue, corrupts, it is probable, the industry of those
who ought to be maintained by the employment of capital, and renders it
less advantageous to employ a capital there than in other places. There
was little trade or industry in Edinburgh before the Union. When the
Scotch parliament was no longer to be assembled in it, when it ceased to
be the necessary residence of the principal nobility and gentry of
Scotland, it became a city of some trade and industry. It still continues,
however, to be the residence of the principal courts of justice in
Scotland, of the boards of customs and excise, etc. A considerable
revenue, therefore, still continues to be spent in it. In trade and
industry, it is much inferior to Glasgow, of which the inhabitants are
chiefly maintained by the employment of capital. The inhabitants of a
large village, it has sometimes been observed, after having made
considerable progress in manufactures, have become idle and poor, in
consequence of a great lord’s having taken up his residence in their
neighbourhood.
The proportion between capital and revenue, therefore, seems everywhere to
regulate the proportion between industry and idleness. Wherever capital
predominates, industry prevails; wherever revenue, idleness. Every
increase or diminution of capital, therefore, naturally tends to increase
or diminish the real quantity of industry, the number of productive hands,
and consequently the exchangeable value of the annual produce of the land
and labour of the country, the real wealth and revenue of all its
inhabitants.
Capitals are increased by parsimony, and diminished by prodigality and
misconduct.
Whatever a person saves from his revenue he adds to his capital, and
either employs it himself in maintaining an additional number of
productive hands, or enables some other person to do so, by lending it to
him for an interest, that is, for a share of the profits. As the capital
of an individual can be increased only by what he saves from his annual
revenue or his annual gains, so the capital of a society, which is the
same with that of all the individuals who compose it, can be increased
only in the same manner.
Parsimony, and not industry, is the immediate cause of the increase of
capital. Industry, indeed, provides the subject which parsimony
accumulates; but whatever industry might acquire, if parsimony did not
save and store up, the capital would never be the greater.
Parsimony, by increasing the fund which is destined for the maintenance of
productive hands, tends to increase the number of those hands whose labour
adds to the value of the subject upon which it is bestowed. It tends,
therefore, to increase the exchangeable value of the annual produce of the
land and labour of the country. It puts into motion an additional quantity
of industry, which gives an additional value to the annual produce.
What is annually saved, is as regularly consumed as what is annually
spent, and nearly in the same time too: but it is consumed by a different
set of people. That portion of his revenue which a rich man annually
spends, is, in most cases, consumed by idle guests and menial servants,
who leave nothing behind them in return for their consumption. That
portion which he annually saves, as, for the sake of the profit, it is
immediately employed as a capital, is consumed in the same manner, and
nearly in the same time too, but by a different set of people: by
labourers, manufacturers, and artificers, who reproduce, with a profit,
the value of their annual consumption. His revenue, we shall suppose, is
paid him in money. Had he spent the whole, the food, clothing, and
lodging, which the whole could have purchased, would have been distributed
among the former set of people. By saving a part of it, as that part is,
for the sake of the profit, immediately employed as a capital, either by
himself or by some other person, the food, clothing, and lodging, which
may be purchased with it, are necessarily reserved for the latter. The
consumption is the same, but the consumers are different.
By what a frugal man annually saves, he not only affords maintenance to an
additional number of productive hands, for that of the ensuing year, but
like the founder of a public work-house he establishes, as it were, a
perpetual fund for the maintenance of an equal number in all times to
come. The perpetual allotment and destination of this fund, indeed, is not
always guarded by any positive law, by any trust-right or deed of
mortmain. It is always guarded, however, by a very powerful principle, the
plain and evident interest of every individual to whom any share of it
shall ever belong. No part of it can ever afterwards be employed to
maintain any but productive hands, without an evident loss to the person
who thus perverts it from its proper destination.
The prodigal perverts it in this manner: By not confining his expense
within his income, he encroaches upon his capital. Like him who perverts
the revenues of some pious foundation to profane purposes, he pays the
wages of idleness with those funds which the frugality of his forefathers
had, as it were, consecrated to the maintenance of industry. By
diminishing the funds destined for the employment of productive labour, he
necessarily diminishes, so far as it depends upon him, the quantity of
that labour which adds a value to the subject upon which it is bestowed,
and, consequently, the value of the annual produce of the land and labour
of the whole country, the real wealth and revenue of its inhabitants. If
the prodigality of some were not compensated by the frugality of others,
the conduct of every prodigal, by feeding the idle with the bread of the
industrious, would tend not only to beggar himself, but to impoverish his
country.
Though the expense of the prodigal should be altogether in home made, and
no part of it in foreign commodities, its effect upon the productive funds
of the society would still be the same. Every year there would still be a
certain quantity of food and clothing, which ought to have maintained
productive, employed in maintaining unproductive hands. Every year,
therefore, there would still be some diminution in what would otherwise
have been the value of the annual produce of the land and labour of the
country.
This expense, it may be said, indeed, not being in foreign goods, and not
occasioning any exportation of gold and silver, the same quantity of money
would remain in the country as before. But if the quantity of food and
clothing which were thus consumed by unproductive, had been distributed
among productive hands, they would have reproduced, together with a
profit, the full value of their consumption. The same quantity of money
would, in this case, equally have remained in the country, and there
would, besides, have been a reproduction of an equal value of consumable
goods. There would have been two values instead of one.
The same quantity of money, besides, can not long remain in any country in
which the value of the annual produce diminishes. The sole use of money is
to circulate consumable goods. By means of it, provisions, materials, and
finished work, are bought and sold, and distributed to their proper
consumers. The quantity of money, therefore, which can be annually
employed in any country, must be determined by the value of the consumable
goods annually circulated within it. These must consist, either in the
immediate produce of the land and labour of the country itself, or in
something which had been purchased with some part of that produce. Their
value, therefore, must diminish as the value of that produce diminishes,
and along with it the quantity of money which can be employed in
circulating them. But the money which, by this annual diminution of
produce, is annually thrown out of domestic circulation, will not be
allowed to lie idle. The interest of whoever possesses it requires that it
should be employed; but having no employment at home, it will, in spite of
all laws and prohibitions, be sent abroad, and employed in purchasing
consumable goods, which may be of some use at home. Its annual exportation
will, in this manner, continue for some time to add something to the
annual consumption of the country beyond the value of its own annual
produce. What in the days of its prosperity had been saved from that
annual produce, and employed in purchasing gold and silver, will
contribute, for some little time, to support its consumption in adversity.
The exportation of gold and silver is, in this case, not the cause, but
the effect of its declension, and may even, for some little time,
alleviate the misery of that declension.
The quantity of money, on the contrary, must in every country naturally
increase as the value of the annual produce increases. The value of the
consumable goods annually circulated within the society being greater,
will require a greater quantity of money to circulate them. A part of the
increased produce, therefore, will naturally be employed in purchasing,
wherever it is to be had, the additional quantity of gold and silver
necessary for circulating the rest. The increase of those metals will, in
this case, be the effect, not the cause, of the public prosperity. Gold
and silver are purchased everywhere in the same manner. The food,
clothing, and lodging, the revenue and maintenance, of all those whose
labour or stock is employed in bringing them from the mine to the market,
is the price paid for them in Peru as well as in England. The country
which has this price to pay, will never belong without the quantity of
those metals which it has occasion for; and no country will ever long
retain a quantity which it has no occasion for.
Whatever, therefore, we may imagine the real wealth and revenue of a
country to consist in, whether in the value of the annual produce of its
land and labour, as plain reason seems to dictate, or in the quantity of
the precious metals which circulate within it, as vulgar prejudices
suppose; in either view of the matter, every prodigal appears to be a
public enemy, and every frugal man a public benefactor.
The effects of misconduct are often the same as those of prodigality.
Every injudicious and unsuccessful project in agriculture, mines,
fisheries, trade, or manufactures, tends in the same manner to diminish
the funds destined for the maintenance of productive labour. In every such
project, though the capital is consumed by productive hands only, yet as,
by the injudicious manner in which they are employed, they do not
reproduce the full value of their consumption, there must always be some
diminution in what would otherwise have been the productive funds of the
society.
It can seldom happen, indeed, that the circumstances of a great nation can
be much affected either by the prodigality or misconduct of individuals;
the profusion or imprudence of some being always more than compensated by
the frugality and good conduct of others.
With regard to profusion, the principle which prompts to expense is the
passion for present enjoyment; which, though sometimes violent and very
difficult to be restrained, is in general only momentary and occasional.
But the principle which prompts to save, is the desire of bettering our
condition; a desire which, though generally calm and dispassionate, comes
with us from the womb, and never leaves us till we go into the grave. In
the whole interval which separates those two moments, there is scarce,
perhaps, a single instance, in which any man is so perfectly and
completely satisfied with his situation, as to be without any wish of
alteration or improvement of any kind. An augmentation of fortune is the
means by which the greater part of men propose and wish to better their
condition. It is the means the most vulgar and the most obvious; and the
most likely way of augmenting their fortune, is to save and accumulate
some part of what they acquire, either regularly and annually, or upon
some extraordinary occasion. Though the principle of expense, therefore,
prevails in almost all men upon some occasions, and in some men upon
almost all occasions; yet in the greater part of men, taking the whole
course of their life at an average, the principle of frugality seems not
only to predominate, but to predominate very greatly.
With regard to misconduct, the number of prudent and successful
undertakings is everywhere much greater than that of injudicious and
unsuccessful ones. After all our complaints of the frequency of
bankruptcies, the unhappy men who fall into this misfortune, make but a
very small part of the whole number engaged in trade, and all other sorts
of business; not much more, perhaps, than one in a thousand. Bankruptcy
is, perhaps, the greatest and most humiliating calamity which can befal an
innocent man. The greater part of men, therefore, are sufficiently careful
to avoid it. Some, indeed, do not avoid it; as some do not avoid the
gallows.
Great nations are never impoverished by private, though they sometimes are
by public prodigality and misconduct. The whole, or almost the whole
public revenue is, in most countries, employed in maintaining unproductive
hands. Such are the people who compose a numerous and splendid court, a
great ecclesiastical establishment, great fleets and armies, who in time
of peace produce nothing, and in time of war acquire nothing which can
compensate the expense of maintaining them, even while the war lasts. Such
people, as they themselves produce nothing, are all maintained by the
produce of other men’s labour. When multiplied, therefore, to an
unnecessary number, they may in a particular year consume so great a share
of this produce, as not to leave a sufficiency for maintaining the
productive labourers, who should reproduce it next year. The next year’s
produce, therefore, will be less than that of the foregoing; and if the
same disorder should continue, that of the third year will be still less
than that of the second. Those unproductive hands who should be maintained
by a part only of the spare revenue of the people, may consume so great a
share of their whole revenue, and thereby oblige so great a number to
encroach upon their capitals, upon the funds destined for the maintenance
of productive labour, that all the frugality and good conduct of
individuals may not be able to compensate the waste and degradation of
produce occasioned by this violent and forced encroachment.
This frugality and good conduct, however, is, upon most occasions, it
appears from experience, sufficient to compensate, not only the private
prodigality and misconduct of individuals, but the public extravagance of
government. The uniform, constant, and uninterrupted effort of every man
to better his condition, the principle from which public and national, as
well as private opulence is originally derived, is frequently powerful
enough to maintain the natural progress of things towards improvement, in
spite both of the extravagance of government, and of the greatest errors
of administration. Like the unknown principle of animal life, it
frequently restores health and vigour to the constitution, in spite not
only of the disease, but of the absurd prescriptions of the doctor.
The annual produce of the land and labour of any nation can be increased
in its value by no other means, but by increasing either the number of its
productive labourers, or the productive powers of those labourers who had
before been employed. The number of its productive labourers, it is
evident, can never be much increased, but in consequence of an increase of
capital, or of the funds destined for maintaining them. The productive
powers of the same number of labourers cannot be increased, but in
consequence either of some addition and improvement to those machines and
instruments which facilitate and abridge labour, or of more proper
division and distribution of employment. In either case, an additional
capital is almost always required. It is by means of an additional capital
only, that the undertaker of any work can either provide his workmen with
better machinery, or make a more proper distribution of employment among
them. When the work to be done consists of a number of parts, to keep
every man constantly employed in one way, requires a much greater capital
than where every man is occasionally employed in every different part of
the work. When we compare, therefore, the state of a nation at two
different periods, and find that the annual produce of its land and labour
is evidently greater at the latter than at the former, that its lands are
better cultivated, its manufactures more numerous and more flourishing,
and its trade more extensive; we may be assured that its capital must have
increased during the interval between those two periods, and that more
must have been added to it by the good conduct of some, than had been
taken from it either by the private misconduct of others, or by the public
extravagance of government. But we shall find this to have been the case
of almost all nations, in all tolerably quiet and peaceable times, even of
those who have not enjoyed the most prudent and parsimonious governments.
To form a right judgment of it, indeed, we must compare the state of the
country at periods somewhat distant from one another. The progress is
frequently so gradual, that, at near periods, the improvement is not only
not sensible, but, from the declension either of certain branches of
industry, or of certain districts of the country, things which sometimes
happen, though the country in general is in great prosperity, there
frequently arises a suspicion, that the riches and industry of the whole
are decaying.
The annual produce of the land and labour of England, for example, is
certainly much greater than it was a little more than a century ago, at
the restoration of Charles II. Though at present few people, I believe,
doubt of this, yet during this period five years have seldom passed away,
in which some book or pamphlet has not been published, written, too, with
such abilities as to gain some authority with the public, and pretending
to demonstrate that the wealth of the nation was fast declining; that the
country was depopulated, agriculture neglected, manufactures decaying, and
trade undone. Nor have these publications been all party pamphlets, the
wretched offspring of falsehood and venality. Many of them have been
written by very candid and very intelligent people, who wrote nothing but
what they believed, and for no other reason but because they believed it.
The annual produce of the land and labour of England, again, was certainly
much greater at the Restoration than we can suppose it to have been about
a hundred years before, at the accession of Elizabeth. At this period,
too, we have all reason to believe, the country was much more advanced in
improvement, than it had been about a century before, towards the close of
the dissensions between the houses of York and Lancaster. Even then it
was, probably, in a better condition than it had been at the Norman
conquest: and at the Norman conquest, than during the confusion of the
Saxon heptarchy. Even at this early period, it was certainly a more
improved country than at the invasion of Julius Caesar, when its
inhabitants were nearly in the same state with the savages in North
America.
In each of those periods, however, there was not only much private and
public profusion, many expensive and unnecessary wars, great perversion of
the annual produce from maintaining productive to maintain unproductive
hands; but sometimes, in the confusion of civil discord, such absolute
waste and destruction of stock, as might be supposed, not only to retard,
as it certainly did, the natural accumulation of riches, but to have left
the country, at the end of the period, poorer than at the beginning. Thus,
in the happiest and most fortunate period of them all, that which has
passed since the Restoration, how many disorders and misfortunes have
occurred, which, could they have been foreseen, not only the
impoverishment, but the total ruin of the country would have been expected
from them? The fire and the plague of London, the two Dutch wars, the
disorders of the revolution, the war in Ireland, the four expensive French
wars of 1688, 1701, 1742, and 1756, together with the two rebellions of
1715 and 1745. In the course of the four French wars, the nation has
contracted more than £145,000,000 of debt, over and above all the other
extraordinary annual expense which they occasioned; so that the whole
cannot be computed at less than £200,000,000. So great a share of the
annual produce of the land and labour of the country, has, since the
Revolution, been employed upon different occasions, in maintaining an
extraordinary number of unproductive hands. But had not those wars given
this particular direction to so large a capital, the greater part of it
would naturally have been employed in maintaining productive hands, whose
labour would have replaced, with a profit, the whole value of their
consumption. The value of the annual produce of the land and labour of the
country would have been considerably increased by it every year, and every
years increase would have augmented still more that of the following year.
More houses would have been built, more lands would have been improved,
and those which had been improved before would have been better
cultivated; more manufactures would have been established, and those which
had been established before would have been more extended; and to what
height the real wealth and revenue of the country might by this time have
been raised, it is not perhaps very easy even to imagine.
But though the profusion of government must undoubtedly have retarded the
natural progress of England towards wealth and improvement, it has not
been able to stop it. The annual produce of its land and labour is
undoubtedly much greater at present than it was either at the Restoration
or at the Revolution. The capital, therefore, annually employed in
cultivating this land, and in maintaining this labour, must likewise be
much greater. In the midst of all the exactions of government, this
capital has been silently and gradually accumulated by the private
frugality and good conduct of individuals, by their universal, continual,
and uninterrupted effort to better their own condition. It is this effort,
protected by law, and allowed by liberty to exert itself in the manner
that is most advantageous, which has maintained the progress of England
towards opulence and improvement in almost all former times, and which, it
is to be hoped, will do so in all future times. England, however, as it
has never been blessed with a very parsimonious government, so parsimony
has at no time been the characteristic virtue of its inhabitants. It is
the highest impertinence and presumption, therefore, in kings and
ministers to pretend to watch over the economy of private people, and to
restrain their expense, either by sumptuary laws, or by prohibiting the
importation of foreign luxuries. They are themselves always, and without
any exception, the greatest spendthrifts in the society. Let them look
well after their own expense, and they may safely trust private people
with theirs. If their own extravagance does not ruin the state, that of
the subject never will.
As frugality increases, and prodigality diminishes, the public capital, so
the conduct of those whose expense just equals their revenue, without
either accumulating or encroaching, neither increases nor diminishes it.
Some modes of expense, however, seem to contribute more to the growth of
public opulence than others.
The revenue of an individual may be spent, either in things which are
consumed immediately, and in which one day’s expense can neither alleviate
nor support that of another; or it may be spent in things mere durable,
which can therefore be accumulated, and in which every day’s expense may,
as he chooses, either alleviate, or support and heighten, the effect of
that of the following day. A man of fortune, for example, may either spend
his revenue in a profuse and sumptuous table, and in maintaining a great
number of menial servants, and a multitude of dogs and horses; or,
contenting himself with a frugal table, and few attendants, he may lay out
the greater part of it in adorning his house or his country villa, in
useful or ornamental buildings, in useful or ornamental furniture, in
collecting books, statues, pictures; or in things more frivolous, jewels,
baubles, ingenious trinkets of different kinds; or, what is most trifling
of all, in amassing a great wardrobe of fine clothes, like the favourite
and minister of a great prince who died a few years ago. Were two men of
equal fortune to spend their revenue, the one chiefly in the one way, the
other in the other, the magnificence of the person whose expense had been
chiefly in durable commodities, would be continually increasing, every
day’s expense contributing something to support and heighten the effect of
that of the following day; that of the other, on the contrary, would be no
greater at the end of the period than at the beginning. The former too
would, at the end of the period, be the richer man of the two. He would
have a stock of goods of some kind or other, which, though it might not be
worth all that it cost, would always be worth something. No trace or
vestige of the expense of the latter would remain, and the effects of ten
or twenty years’ profusion would be as completely annihilated as if they
had never existed.
As the one mode of expense is more favourable than the other to the
opulence of an individual, so is it likewise to that of a nation. The
houses, the furniture, the clothing of the rich, in a little time, become
useful to the inferior and middling ranks of people. They are able to
purchase them when their superiors grow weary of them; and the general
accommodation of the whole people is thus gradually improved, when this
mode of expense becomes universal among men of fortune. In countries which
have long been rich, you will frequently find the inferior ranks of people
in possession both of houses and furniture perfectly good and entire, but
of which neither the one could have been built, nor the other have been
made for their use. What was formerly a seat of the family of Seymour, is
now an inn upon the Bath road. The marriage-bed of James I. of Great
Britain, which his queen brought with her from Denmark, as a present fit
for a sovereign to make to a sovereign, was, a few years ago, the ornament
of an alehouse at Dunfermline. In some ancient cities, which either have
been long stationary, or have gone somewhat to decay, you will sometimes
scarce find a single house which could have been built for its present
inhabitants. If you go into those houses, too, you will frequently find
many excellent, though antiquated pieces of furniture, which are still
very fit for use, and which could as little have been made for them. Noble
palaces, magnificent villas, great collections of books, statues,
pictures, and other curiosities, are frequently both an ornament and an
honour, not only to the neighbourhood, but to the whole country to which
they belong. Versailles is an ornament and an honour to France, Stowe and
Wilton to England. Italy still continues to command some sort of
veneration, by the number of monuments of this kind which it possesses,
though the wealth which produced them has decayed, and though the genius
which planned them seems to be extinguished, perhaps from not having the
same employment.
The expense, too, which is laid out in durable commodities, is favourable
not only to accumulation, but to frugality. If a person should at any time
exceed in it, he can easily reform without exposing himself to the censure
of the public. To reduce very much the number of his servants, to reform
his table from great profusion to great frugality, to lay down his
equipage after he has once set it up, are changes which cannot escape the
observation of his neighbours, and which are supposed to imply some
acknowledgment of preceding bad conduct. Few, therefore, of those who have
once been so unfortunate as to launch out too far into this sort of
expense, have afterwards the courage to reform, till ruin and bankruptcy
oblige them. But if a person has, at any time, been at too great an
expense in building, in furniture, in books, or pictures, no imprudence
can be inferred from his changing his conduct. These are things in which
further expense is frequently rendered unnecessary by former expense; and
when a person stops short, he appears to do so, not because he has
exceeded his fortune, but because he has satisfied his fancy.
The expense, besides, that is laid out in durable commodities, gives
maintenance, commonly, to a greater number of people than that which is
employed in the most profuse hospitality. Of two or three hundred weight
of provisions, which may sometimes be served up at a great festival, one
half, perhaps, is thrown to the dunghill, and there is always a great deal
wasted and abused. But if the expense of this entertainment had been
employed in setting to work masons, carpenters, upholsterers, mechanics,
etc. a quantity of provisions of equal value would have been distributed
among a still greater number of people, who would have bought them in
pennyworths and pound weights, and not have lost or thrown away a single
ounce of them. In the one way, besides, this expense maintains productive,
in the other unproductive hands. In the one way, therefore, it increases,
in the other it does not increase the exchangeable value of the annual
produce of the land and labour of the country.
I would not, however, by all this, be understood to mean, that the one
species of expense always betokens a more liberal or generous spirit than
the other. When a man of fortune spends his revenue chiefly in
hospitality, he shares the greater part of it with his friends and
companions; but when he employs it in purchasing such durable commodities,
he often spends the whole upon his own person, and gives nothing to any
body without an equivalent. The latter species of expense, therefore,
especially when directed towards frivolous objects, the little ornaments
of dress and furniture, jewels, trinkets, gew-gaws, frequently indicates,
not only a trifling, but a base and selfish disposition. All that I mean
is, that the one sort of expense, as it always occasions some accumulation
of valuable commodities, as it is more favourable to private frugality,
and, consequently, to the increase of the public capital, and as it
maintains productive rather than unproductive hands, conduces more than
the other to the growth of public opulence.

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---
id: book-2-chapter-04
title: "OF STOCK LENT AT INTEREST."
book: "2"
chapter: 4
artifact_type: content
---
CHAPTER IV.
OF STOCK LENT AT INTEREST.
The stock which is lent at interest is always considered as a capital by
the lender. He expects that in due time it is to be restored to him, and
that, in the mean time, the borrower is to pay him a certain annual rent
for the use of it. The borrower may use it either as a capital, or as a
stock reserved for immediate consumption. If he uses it as a capital, he
employs it in the maintenance of productive labourers, who reproduce the
value, with a profit. He can, in this case, both restore the capital, and
pay the interest, without alienating or encroaching upon any other source
of revenue. If he uses it as a stock reserved for immediate consumption,
he acts the part of a prodigal, and dissipates, in the maintenance of the
idle, what was destined for the support of the industrious. He can, in
this case, neither restore the capital nor pay the interest, without
either alienating or encroaching upon some other source of revenue, such
as the property or the rent of land.
The stock which is lent at interest is, no doubt, occasionally employed in
both these ways, but in the former much more frequently than in the
latter. The man who borrows in order to spend will soon be ruined, and he
who lends to him will generally have occasion to repent of his folly. To
borrow or to lend for such a purpose, therefore, is, in all cases, where
gross usury is out of the question, contrary to the interest of both
parties; and though it no doubt happens sometimes, that people do both the
one and the other, yet, from the regard that all men have for their own
interest, we may be assured, that it cannot happen so very frequently as
we are sometimes apt to imagine. Ask any rich man of common prudence, to
which of the two sorts of people he has lent the greater part of his
stock, to those who he thinks will employ it profitably, or to those who
will spend it idly, and he will laugh at you for proposing the question.
Even among borrowers, therefore, not the people in the world most famous
for frugality, the number of the frugal and industrious surpasses
considerably that of the prodigal and idle.
The only people to whom stock is commonly lent, without their being
expected to make any very profitable use of it, are country gentlemen, who
borrow upon mortgage. Even they scarce ever borrow merely to spend. What
they borrow, one may say, is commonly spent before they borrow it. They
have generally consumed so great a quantity of goods, advanced to them
upon credit by shop-keepers and tradesmen, that they find it necessary to
borrow at interest, in order to pay the debt. The capital borrowed
replaces the capitals of those shop-keepers and tradesmen which the
country gentlemen could not have replaced from the rents of their estates.
It is not properly borrowed in order to be spent, but in order to replace
a capital which had been spent before.
Almost all loans at interest are made in money, either of paper, or of
gold and silver; but what the borrower really wants, and what the lender
readily supplies him with, is not the money, but the money’s worth, or the
goods which it can purchase. If he wants it as a stock for immediate
consumption, it is those goods only which he can place in that stock. If
he wants it as a capital for employing industry, it is from those goods
only that the industrious can be furnished with the tools, materials, and
maintenance necessary for carrying on their work. By means of the loan,
the lender, as it were, assigns to the borrower his right to a certain
portion of the annual produce of the land and labour of the country, to be
employed as the borrower pleases.
The quantity of stock, therefore, or, as it is commonly expressed, of
money, which can be lent at interest in any country, is not regulated by
the value of the money, whether paper or coin, which serves as the
instrument of the different loans made in that country, but by the value
of that part of the annual produce, which, as soon as it comes either from
the ground, or from the hands of the productive labourers, is destined,
not only for replacing a capital, but such a capital as the owner does not
care to be at the trouble of employing himself. As such capitals are
commonly lent out and paid back in money, they constitute what is called
the monied interest. It is distinct, not only from the landed, but from
the trading and manufacturing interests, as in these last the owners
themselves employ their own capitals. Even in the monied interest,
however, the money is, as it were, but the deed of assignment, which
conveys from one hand to another those capitals which the owners do not
care to employ themselves. Those capitals may be greater, in almost any
proportion, than the amount of the money which serves as the instrument of
their conveyance; the same pieces of money successively serving for many
different loans, as well as for many different purchases. A, for example,
lends to W £1000, with which W immediately purchases of B £1000 worth of
goods. B having no occasion for the money himself, lends the identical
pieces to X, with which X immediately purchases of C another £1000 worth
of goods. C, in the same manner, and for the same reason, lends them to Y,
who again purchases goods with them of D. In this manner, the same pieces,
either of coin or of paper, may, in the course of a few days, serve as the
Instrument of three different loans, and of three different purchases,
each of which is, in value, equal to the whole amount of those pieces.
What the three monied men, A, B, and C, assigned to the three borrowers,
W, X, and Y, is the power of making those purchases. In this power consist
both the value and the use of the loans. The stock lent by the three
monied men is equal to the value of the goods which can be purchased with
it, and is three times greater than that of the money with which the
purchases are made. Those loans, however, may be all perfectly well
secured, the goods purchased by the different debtors being so employed
as, in due time, to bring back, with a profit, an equal value either of
coin or of paper. And as the same pieces of money can thus serve as the
instrument of different loans to three, or, for the same reason, to thirty
times their value, so they may likewise successively serve as the
instrument of repayment.
A capital lent at interest may, in this manner, be considered as an
assignment, from the lender to the borrower, of a certain considerable
portion of the annual produce, upon condition that the burrower in return
shall, during the continuance of the loan, annually assign to the lender a
small portion, called the interest; and, at the end of it, a portion
equally considerable with that which had originally been assigned to him,
called the repayment. Though money, either coin or paper, serves generally
as the deed of assignment, both to the smaller and to the more
considerable portion, it is itself altogether different from what is
assigned by it.
In proportion as that share of the annual produce which, as soon as it
comes either from the ground, or from the hands of the productive
labourers, is destined for replacing a capital, increases in any country,
what is called the monied interest naturally increases with it. The
increase of those particular capitals from which the owners wish to derive
a revenue, without being at the trouble of employing them themselves,
naturally accompanies the general increase of capitals; or, in other
words, as stock increases, the quantity of stock to be lent at interest
grows gradually greater and greater.
As the quantity of stock to be lent at interest increases, the interest,
or the price which must be paid for the use of that stock, necessarily
diminishes, not only from those general causes which make the market price
of things commonly diminish as their quantity increases, but from other
causes which are peculiar to this particular case. As capitals increase in
any country, the profits which can be made by employing them necessarily
diminish. It becomes gradually more and more difficult to find within the
country a profitable method of employing any new capital. There arises, in
consequence, a competition between different capitals, the owner of one
endeavouring to get possession of that employment which is occupied by
another; but, upon most occasions, he can hope to justle that other out of
this employment by no other means but by dealing upon more reasonable
terms. He must not only sell what he deals in somewhat cheaper, but, in
order to get it to sell, he must sometimes, too, buy it dearer. The demand
for productive labour, by the increase of the funds which are destined for
maintaining it, grows every day greater and greater. Labourers easily find
employment; but the owners of capitals find it difficult to get labourers
to employ. Their competition raises the wages of labour, and sinks the
profits of stock. But when the profits which can be made by the use of a
capital are in this manner diminished, as it were, at both ends, the price
which can be paid for the use of it, that is, the rate of interest, must
necessarily be diminished with them.
Mr Locke, Mr Lawe, and Mr Montesquieu, as well as many other writers, seem
to have imagined that the increase of the quantity of gold and silver, in
consequence of the discovery of the Spanish West Indies, was the real
cause of the lowering of the rate of interest through the greater part of
Europe. Those metals, they say, having become of less value themselves,
the use of any particular portion of them necessarily became of less value
too, and, consequently, the price which could be paid for it. This notion,
which at first sight seems so plausible, has been so fully exposed by Mr
Hume, that it is, perhaps, unnecessary to say any thing more about it. The
following very short and plain argument, however, may serve to explain
more distinctly the fallacy which seems to have misled those gentlemen.
Before the discovery of the Spanish West Indies, ten per cent. seems to
have been the common rate of interest through the greater part of Europe.
It has since that time, in different countries, sunk to six, five, four,
and three per cent. Let us suppose, that in every particular country the
value of silver has sunk precisely in the same proportion as the rate of
interest; and that in those countries, for example, where interest has
been reduced from ten to five per cent. the same quantity of silver can
now purchase just half the quantity of goods which it could have purchased
before. This supposition will not, I believe, be found anywhere agreeable
to the truth; but it is the most favourable to the opinion which we are
going to examine; and, even upon this supposition, it is utterly
impossible that the lowering of the value of silver could have the
smallest tendency to lower the rate of interest. If £100 are in those
countries now of no more value than £50 were then, £10 must now be of no
more value than £5 were then. Whatever were the causes which lowered the
value of the capital, the same must necessarily have lowered that of the
interest, and exactly in the same proportion. The proportion between the
value of the capital and that of the interest must have remained the same,
though the rate had never been altered. By altering the rate, on the
contrary, the proportion between those two values is necessarily altered.
If £100 now are worth no more than £50 were then, £5 now can be worth no
more than £2:10s. were then. By reducing the rate of interest, therefore,
from ten to five per cent. we give for the use of a capital, which is
supposed to be equal to one half of its former value, an interest which is
equal to one fourth only of the value of the former interest.
An increase in the quantity of silver, while that of the commodities
circulated by means of it remained the same, could have no other effect
than to diminish the value of that metal. The nominal value of all sorts
of goods would be greater, but their real value would be precisely the
same as before. They would be exchanged for a greater number of pieces of
silver; but the quantity of labour which they could command, the number of
people whom they could maintain and employ, would be precisely the same.
The capital of the country would be the same, though a greater number of
pieces might be requisite for conveying any equal portion of it from one
hand to another. The deeds of assignment, like the conveyances of a
verbose attorney, would be more cumbersome; but the thing assigned would
be precisely the same as before, and could produce only the same effects.
The funds for maintaining productive labour being the same, the demand for
it would be the same. Its price or wages, therefore, though nominally
greater, would really be the same. They would be paid in a greater number
of pieces of silver, but they would purchase only the same quantity of
goods. The profits of stock would be the same, both nominally and really.
The wages of labour are commonly computed by the quantity of silver which
is paid to the labourer. When that is increased, therefore, his wages
appear to be increased, though they may sometimes be no greater than
before. But the profits of stock are not computed by the number of pieces
of silver with which they are paid, but by the proportion which those
pieces bear to the whole capital employed. Thus, in a particular country,
5s. a-week are said to be the common wages of labour, and ten per cent.
the common profits of stock; but the whole capital of the country being
the same as before, the competition between the different capitals of
individuals into which it was divided would likewise be the same. They
would all trade with the same advantages and disadvantages. The common
proportion between capital and profit, therefore, would be the same, and
consequently the common interest of money; what can commonly be given for
the use of money being necessarily regulated by what can commonly be made
by the use of it.
Any increase in the quantity of commodities annually circulated within the
country, while that of the money which circulated them remained the same,
would, on the contrary, produce many other important effects, besides that
of raising the value of the money. The capital of the country, though it
might nominally be the same, would really be augmented. It might continue
to be expressed by the same quantity of money, but it would command a
greater quantity of labour. The quantity of productive labour which it
could maintain and employ would be increased, and consequently the demand
for that labour. Its wages would naturally rise with the demand, and yet
might appear to sink. They might be paid with a smaller quantity of money,
but that smaller quantity might purchase a greater quantity of goods than
a greater had done before. The profits of stock would be diminished, both
really and in appearance. The whole capital of the country being
augmented, the competition between the different capitals of which it was
composed would naturally be augmented along with it. The owners of those
particular capitals would be obliged to content themselves with a smaller
proportion of the produce of that labour which their respective capitals
employed. The interest of money, keeping pace always with the profits of
stock, might, in this manner, be greatly diminished, though the value of
money, or the quantity of goods which any particular sum could purchase,
was greatly augmented.
In some countries the interest of money has been prohibited by law. But as
something can everywhere be made by the use of money, something ought
everywhere to be paid for the use of it. This regulation, instead of
preventing, has been found from experience to increase the evil of usury.
The debtor being obliged to pay, not only for the use of the money, but
for the risk which his creditor runs by accepting a compensation for that
use, he is obliged, if one may say so, to insure his creditor from the
penalties of usury.
In countries where interest is permitted, the law in order to prevent the
extortion of usury, generally fixes the highest rate which can be taken
without incurring a penalty. This rate ought always to be somewhat above
the lowest market price, or the price which is commonly paid for the use
of money by those who can give the most undoubted security. If this legal
rate should be fixed below the lowest market rate, the effects of this
fixation must be nearly the same as those of a total prohibition of
interest. The creditor will not lend his money for less than the use of it
is worth, and the debtor must pay him for the risk which he runs by
accepting the full value of that use. If it is fixed precisely at the
lowest market price, it ruins, with honest people who respect the laws of
their country, the credit of all those who cannot give the very best
security, and obliges them to have recourse to exorbitant usurers. In a
country such as Great Britain, where money is lent to government at three
per cent. and to private people, upon good security, at four and four and
a-half, the present legal rate, five per cent. is perhaps as proper as
any.
The legal rate, it is to be observed, though it ought to be somewhat
above, ought not to be much above the lowest market rate. If the legal
rate of interest in Great Britain, for example, was fixed so high as eight
or ten per cent. the greater part of the money which was to be lent, would
be lent to prodigals and projectors, who alone would be willing to give
this high interest. Sober people, who will give for the use of money no
more than a part of what they are likely to make by the use of it, would
not venture into the competition. A great part of the capital of the
country would thus be kept out of the hands which were most likely to make
a profitable and advantageous use of it, and thrown into those which were
most likely to waste and destroy it. Where the legal rate of interest, on
the contrary, is fixed but a very little above the lowest market rate,
sober people are universally preferred, as borrowers, to prodigals and
projectors. The person who lends money gets nearly as much interest from
the former as he dares to take from the latter, and his money is much
safer in the hands of the one set of people than in those of the other. A
great part of the capital of the country is thus thrown into the hands in
which it is most likely to be employed with advantage.
No law can reduce the common rate of interest below the lowest ordinary
market rate at the time when that law is made. Notwithstanding the edict
of 1766, by which the French king attempted to reduce the rate of interest
from five to four per cent. money continued to be lent in France at five
per cent. the law being evaded in several different ways.
The ordinary market price of land, it is to be observed, depends
everywhere upon the ordinary market rate of interest. The person who has a
capital from which he wishes to derive a revenue, without taking the
trouble to employ it himself, deliberates whether he should buy land with
it, or lend it out at interest. The superior security of land, together
with some other advantages which almost everywhere attend upon this
species of property, will generally dispose him to content himself with a
smaller revenue from land, than what he might have by lending out his
money at interest. These advantages are sufficient to compensate a certain
difference of revenue; but they will compensate a certain difference only;
and if the rent of land should fall short of the interest of money by a
greater difference, nobody would buy land, which would soon reduce its
ordinary price. On the contrary, if the advantages should much more than
compensate the difference, everybody would buy land, which again would
soon raise its ordinary price. When interest was at ten per cent. land was
commonly sold for ten or twelve years purchase. As interest sunk to six,
five, and four per cent. the price of land rose to twenty,
five-and-twenty, and thirty years purchase. The market rate of interest is
higher in France than in England, and the common price of land is lower.
In England it commonly sells at thirty, in France at twenty years
purchase.

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---
id: book-2-chapter-05
title: "OF THE DIFFERENT EMPLOYMENTS OF CAPITALS."
book: "2"
chapter: 5
artifact_type: content
---
CHAPTER V.
OF THE DIFFERENT EMPLOYMENTS OF CAPITALS.
Though all capitals are destined for the maintenance of productive labour
only, yet the quantity of that labour which equal capitals are capable of
putting into motion, varies extremely according to the diversity of their
employment; as does likewise the value which that employment adds to the
annual produce of the land and labour of the country.
A capital may be employed in four different ways; either, first, in
procuring the rude produce annually required for the use and consumption
of the society; or, secondly, in manufacturing and preparing that rude
produce for immediate use and consumption; or, thirdly in transporting
either the rude or manufactured produce from the places where they abound
to those where they are wanted; or, lastly, in dividing particular
portions of either into such small parcels as suit the occasional demands
of those who want them. In the first way are employed the capitals of all
those who undertake improvement or cultivation of lands, mines, or
fisheries; in the second, those of all master manufacturers; in the third,
those of all wholesale merchants; and in the fourth, those of all
retailers. It is difficult to conceive that a capital should be employed
in any way which may not be classed under some one or other of those four.
Each of those four methods of employing a capital is essentially
necessary, either to the existence or extension of the other three, or to
the general conveniency of the society.
Unless a capital was employed in furnishing rude produce to a certain
degree of abundance, neither manufactures nor trade of any kind could
exist.
Unless a capital was employed in manufacturing that part of the rude
produce which requires a good deal of preparation before it can be fit for
use and consumption, it either would never be produced, because there
could be no demand for it; or if it was produced spontaneously, it would
be of no value in exchange, and could add nothing to the wealth of the
society.
Unless a capital was employed in transporting either the rude or
manufactured produce from the places where it abounds to those where it is
wanted, no more of either could be produced than was necessary for the
consumption of the neighbourhood. The capital of the merchant exchanges
the surplus produce of one place for that of another, and thus encourages
the industry, and increases the enjoyments of both.
Unless a capital was employed in breaking and dividing certain portions
either of the rude or manufactured produce into such small parcels as suit
the occasional demands of those who want them, every man would be obliged
to purchase a greater quantity of the goods he wanted than his immediate
occasions required. If there was no such trade as a butcher, for example,
every man would be obliged to purchase a whole ox or a whole sheep at a
time. This would generally be inconvenient to the rich, and much more so
to the poor. If a poor workman was obliged to purchase a month’s or six
months’ provisions at a time, a great part of the stock which he employs
as a capital in the instruments of his trade, or in the furniture of his
shop, and which yields him a revenue, he would be forced to place in that
part of his stock which is reserved for immediate consumption, and which
yields him no revenue. Nothing can be more convenient for such a person
than to be able to purchase his subsistence from day to day, or even from
hour to hour, as he wants it. He is thereby enabled to employ almost his
whole stock as a capital. He is thus enabled to furnish work to a greater
value; and the profit which he makes by it in this way much more than
compensates the additional price which the profit of the retailer imposes
upon the goods. The prejudices of some political writers against
shopkeepers and tradesmen are altogether without foundation. So far is it
from being necessary either to tax them, or to restrict their numbers,
that they can never be multiplied so as to hurt the public, though they
may so as to hurt one another. The quantity of grocery goods, for example,
which can be sold in a particular town, is limited by the demand of that
town and its neighbourhood. The capital, therefore, which can be employed
in the grocery trade, cannot exceed what is sufficient to purchase that
quantity. If this capital is divided between two different grocers, their
competition will tend to make both of them sell cheaper than if it were in
the hands of one only; and if it were divided among twenty, their
competition would be just so much the greater, and the chance of their
combining together, in order to raise the price, just so much the less.
Their competition might, perhaps, ruin some of themselves; but to take
care of this, is the business of the parties concerned, and it may safely
be trusted to their discretion. It can never hurt either the consumer or
the producer; on the contrary, it must tend to make the retailers both
sell cheaper and buy dearer, than if the whole trade was monopolised by
one or two persons. Some of them, perhaps, may sometimes decoy a weak
customer to buy what he has no occasion for. This evil, however, is of too
little importance to deserve the public attention, nor would it
necessarily be prevented by restricting their numbers. It is not the
multitude of alehouses, to give the must suspicious example, that
occasions a general disposition to drunkenness among the common people;
but that disposition, arising from other causes, necessarily gives
employment to a multitude of alehouses.
The persons whose capitals are employed in any of those four ways, are
themselves productive labourers. Their labour, when properly directed,
fixes and realizes itself in the subject or vendible commodity upon which
it is bestowed, and generally adds to its price the value at least of
their own maintenance and consumption. The profits of the farmer, of the
manufacturer, of the merchant, and retailer, are all drawn from the price
of the goods which the two first produce, and the two last buy and sell.
Equal capitals, however, employed in each of those four different ways,
will immediately put into motion very different quantities of productive
labour; and augment, too, in very different proportions, the value of the
annual produce of the land and labour of the society to which they belong.
The capital of the retailer replaces, together with its profits, that of
the merchant of whom he purchases goods, and thereby enables him to
continue his business. The retailer himself is the only productive
labourer whom it immediately employs. In his profit consists the whole
value which its employment adds to the annual produce of the land and
labour of the society.
The capital of the wholesale merchant replaces, together with their
profits, the capitals of the farmers and manufacturers of whom he
purchases the rude and manufactured produce which he deals in, and thereby
enables them to continue their respective trades. It is by this service
chiefly that he contributes indirectly to support the productive labour of
the society, and to increase the value of its annual produce. His capital
employs, too, the sailors and carriers who transport his goods from one
place to another; and it augments the price of those goods by the value,
not only of his profits, but of their wages. This is all the productive
labour which it immediately puts into motion, and all the value which it
immediately adds to the annual produce. Its operation in both these
respects is a good deal superior to that of the capital of the retailer.
Part of the capital of the master manufacturer is employed as a fixed
capital in the instruments of his trade, and replaces, together with its
profits, that of some other artificer of whom he purchases them. Part of
his circulating capital is employed in purchasing materials, and replaces,
with their profits, the capitals of the farmers and miners of whom he
purchases them. But a great part of it is always, either annually, or in a
much shorter period, distributed among the different workmen whom he
employs. It augments the value of those materials by their wages, and by
their masters’ profits upon the whole stock of wages, materials, and
instruments of trade employed in the business. It puts immediately into
motion, therefore, a much greater quantity of productive labour, and adds
a much greater value to the annual produce of the land and labour of the
society, than an equal capital in the hands of any wholesale merchant.
No equal capital puts into motion a greater quantity of productive labour
than that of the farmer. Not only his labouring servants, but his
labouring cattle, are productive labourers. In agriculture, too, Nature
labours along with man; and though her labour costs no expense, its
produce has its value, as well as that of the most expensive workmen. The
most important operations of agriculture seem intended, not so much to
increase, though they do that too, as to direct the fertility of Nature
towards the production of the plants most profitable to man. A field
overgrown with briars and brambles, may frequently produce as great a
quantity of vegetables as the best cultivated vineyard or corn field.
Planting and tillage frequently regulate more than they animate the active
fertility of Nature; and after all their labour, a great part of the work
always remains to be done by her. The labourers and labouring cattle,
therefore, employed in agriculture, not only occasion, like the workmen in
manufactures, the reproduction of a value equal to their own consumption,
or to the capital which employs them, together with its owner’s profits,
but of a much greater value. Over and above the capital of the farmer, and
all its profits, they regularly occasion the reproduction of the rent of
the landlord. This rent may be considered as the produce of those powers
of Nature, the use of which the landlord lends to the farmer. It is
greater or smaller, according to the supposed extent of those powers, or,
in other words, according to the supposed natural or improved fertility of
the land. It is the work of Nature which remains, after deducting or
compensating every thing which can be regarded as the work of man. It is
seldom less than a fourth, and frequently more than a third, of the whole
produce. No equal quantity of productive labour employed in manufactures,
can ever occasion so great reproduction. In them Nature does nothing; man
does all; and the reproduction must always be in proportion to the
strength of the agents that occasion it. The capital employed in
agriculture, therefore, not only puts into motion a greater quantity of
productive labour than any equal capital employed in manufactures; but in
proportion, too, to the quantity of productive labour which it employs, it
adds a much greater value to the annual produce of the land and labour of
the country, to the real wealth and revenue of its inhabitants. Of all the
ways in which a capital can be employed, it is by far the most
advantageous to society.
The capitals employed in the agriculture and in the retail trade of any
society, must always reside within that society. Their employment is
confined almost to a precise spot, to the farm, and to the shop of the
retailer. They must generally, too, though there are some exceptions to
this, belong to resident members of the society.
The capital of a wholesale merchant, on the contrary, seems to have no
fixed or necessary residence anywhere, but may wander about from place to
place, according as it can either buy cheap or sell dear.
The capital of the manufacturer must, no doubt, reside where the
manufacture is carried on; but where this shall be, is not always
necessarily determined. It may frequently be at a great distance, both
from the place where the materials grow, and from that where the complete
manufacture is consumed. Lyons is very distant, both from the places which
afford the materials of its manufactures, and from those which consume
them. The people of fashion in Sicily are clothed in silks made in other
countries, from the materials which their own produces. Part of the wool
of Spain is manufactured in Great Britain, and some part of that cloth is
afterwards sent back to Spain.
Whether the merchant whose capital exports the surplus produce of any
society, be a native or a foreigner, is of very little importance. If he
is a foreigner, the number of their productive labourers is necessarily
less than if he had been a native, by one man only; and the value of their
annual produce, by the profits of that one man. The sailors or carriers
whom he employs, may still belong indifferently either to his country, or
to their country, or to some third country, in the same manner as if he
had been a native. The capital of a foreigner gives a value to their
surplus produce equally with that of a native, by exchanging it for
something for which there is a demand at home. It as effectually replaces
the capital of the person who produces that surplus, and as effectually
enables him to continue his business, the service by which the capital of
a wholesale merchant chiefly contributes to support the productive labour,
and to augment the value of the annual produce of the society to which he
belongs.
It is of more consequence that the capital of the manufacturer should
reside within the country. It necessarily puts into motion a greater
quantity of productive labour, and adds a greater value to the annual
produce of the land and labour of the society. It may, however, be very
useful to the country, though it should not reside within it. The capitals
of the British manufacturers who work up the flax and hemp annually
imported from the coasts of the Baltic, are surely very useful to the
countries which produce them. Those materials are a part of the surplus
produce of those countries, which, unless it was annually exchanged for
something which is in demand there, would be of no value, and would soon
cease to be produced. The merchants who export it, replace the capitals of
the people who produce it, and thereby encourage them to continue the
production; and the British manufacturers replace the capitals of those
merchants.
A particular country, in the same manner as a particular person, may
frequently not have capital sufficient both to improve and cultivate all
its lands, to manufacture and prepare their whole rude produce for
immediate use and consumption, and to transport the surplus part either of
the rude or manufactured produce to those distant markets, where it can be
exchanged for something for which there is a demand at home. The
inhabitants of many different parts of Great Britain have not capital
sufficient to improve and cultivate all their lands. The wool of the
southern counties of Scotland is, a great part of it, after a long land
carriage through very bad roads, manufactured in Yorkshire, for want of a
capital to manufacture it at home. There are many little manufacturing
towns in Great Britain, of which the inhabitants have not capital
sufficient to transport the produce of their own industry to those distant
markets where there is demand and consumption for it. If there are any
merchants among them, they are, properly, only the agents of wealthier
merchants who reside in some of the great commercial cities.
When the capital of any country is not sufficient for all those three
purposes, in proportion as a greater share of it is employed in
agriculture, the greater will be the quantity of productive labour which
it puts into motion within the country; as will likewise be the value
which its employment adds to the annual produce of the land and labour of
the society. After agriculture, the capital employed in manufactures puts
into motion the greatest quantity of productive labour, and adds the
greatest value to the annual produce. That which is employed in the trade
of exportation has the least effect of any of the three.
The country, indeed, which has not capital sufficient for all those three
purposes, has not arrived at that degree of opulence for which it seems
naturally destined. To attempt, however, prematurely, and with an
insufficient capital, to do all the three, is certainly not the shortest
way for a society, no more than it would be for an individual, to acquire
a sufficient one. The capital of all the individuals of a nation has its
limits, in the same manner as that of a single individual, and is capable
of executing only certain purposes. The capital of all the individuals of
a nation is increased in the same manner as that of a single individual,
by their continually accumulating and adding to it whatever they save out
of their revenue. It is likely to increase the fastest, therefore, when it
is employed in the way that affords the greatest revenue to all the
inhabitants or the country, as they will thus be enabled to make the
greatest savings. But the revenue of all the inhabitants of the country is
necessarily in proportion to the value of the annual produce of their land
and labour.
It has been the principal cause of the rapid progress of our American
colonies towards wealth and greatness, that almost their whole capitals
have hitherto been employed in agriculture. They have no manufactures,
those household and coarser manufactures excepted, which necessarily
accompany the progress of agriculture, and which are the work of the women
and children in every private family. The greater part, both of the
exportation and coasting trade of America, is carried on by the capitals
of merchants who reside in Great Britain. Even the stores and warehouses
from which goods are retailed in some provinces, particularly in Virginia
and Maryland, belong many of them to merchants who reside in the mother
country, and afford one of the few instances of the retail trade of a
society being carried on by the capitals of those who are not resident
members of it. Were the Americans, either by combination, or by any other
sort of violence, to stop the importation of European manufactures, and,
by thus giving a monopoly to such of their own countrymen as could
manufacture the like goods, divert any considerable part of their capital
into this employment, they would retard, instead of accelerating, the
further increase in the value of their annual produce, and would obstruct,
instead of promoting, the progress of their country towards real wealth
and greatness. This would be still more the case, were they to attempt, in
the same manner, to monopolize to themselves their whole exportation
trade.
The course of human prosperity, indeed, seems scarce ever to have been of
so long continuance as to enable any great country to acquire capital
sufficient for all those three purposes; unless, perhaps, we give credit
to the wonderful accounts of the wealth and cultivation of China, of those
of ancient Egypt, and of the ancient state of Indostan. Even those three
countries, the wealthiest, according to all accounts, that ever were in
the world, are chiefly renowned for their superiority in agriculture and
manufactures. They do not appear to have been eminent for foreign trade.
The ancient Egyptians had a superstitious antipathy to the sea; a
superstition nearly of the same kind prevails among the Indians; and the
Chinese have never excelled in foreign commerce. The greater part of the
surplus produce of all those three countries seems to have been always
exported by foreigners, who gave in exchange for it something else, for
which they found a demand there, frequently gold and silver.
It is thus that the same capital will in any country put into motion a
greater or smaller quantity of productive labour, and add a greater or
smaller value to the annual produce of its land and labour, according to
the different proportions in which it is employed in agriculture,
manufactures, and wholesale trade. The difference, too, is very great,
according to the different sorts of wholesale trade in which any part of
it is employed.
All wholesale trade, all buying in order to sell again by wholesale, maybe
reduced to three different sorts: the home trade, the foreign trade of
consumption, and the carrying trade. The home trade is employed in
purchasing in one part of the same country, and selling in another, the
produce of the industry of that country. It comprehends both the inland
and the coasting trade. The foreign trade of consumption is employed in
purchasing foreign goods for home consumption. The carrying trade is
employed in transacting the commerce of foreign countries, or in carrying
the surplus produce of one to another.
The capital which is employed in purchasing in one part of the country, in
order to sell in another, the produce of the industry of that country,
generally replaces, by every such operation, two distinct capitals, that
had both been employed in the agriculture or manufactures of that country,
and thereby enables them to continue that employment. When it sends out
from the residence of the merchant a certain value of commodities, it
generally brings back in return at least an equal value of other
commodities. When both are the produce of domestic industry, it
necessarily replaces, by every such operation, two distinct capitals,
which had both been employed in supporting productive labour, and thereby
enables them to continue that support. The capital which sends Scotch
manufactures to London, and brings back English corn and manufactures to
Edinburgh, necessarily replaces, by every such operation, two British
capitals, which had both been employed in the agriculture or manufactures
of Great Britain.
The capital employed in purchasing foreign goods for home consumption,
when this purchase is made with the produce of domestic industry,
replaces, too, by every such operation, two distinct capitals; but one of
them only is employed in supporting domestic industry. The capital which
sends British goods to Portugal, and brings back Portuguese goods to Great
Britain, replaces, by every such operation, only one British capital. The
other is a Portuguese one. Though the returns, therefore, of the foreign
trade of consumption, should be as quick as those of the home trade, the
capital employed in it will give but one half of the encouragement to the
industry or productive labour of the country.
But the returns of the foreign trade of consumption are very seldom so
quick as those of the home trade. The returns of the home trade generally
come in before the end of the year, and sometimes three or four times in
the year. The returns of the foreign trade of consumption seldom come in
before the end of the year, and sometimes not till after two or three
years. A capital, therefore, employed in the home trade, will sometimes
make twelve operations, or be sent out and returned twelve times, before a
capital employed in the foreign trade of consumption has made one. If the
capitals are equal, therefore, the one will give four-and-twenty times
more encouragement and support to the industry of the country than the
other.
The foreign goods for home consumption may sometimes be purchased, not
with the produce of domestic industry but with some other foreign goods.
These last, however, must have been purchased, either immediately with the
produce of domestic industry, or with something else that had been
purchased with it; for, the case of war and conquest excepted, foreign
goods can never be acquired, but in exchange for something that had been
produced at home, either immediately, or after two or more different
exchanges. The effects, therefore, of a capital employed in such a
round-about foreign trade of consumption, are, in every respect, the same
as those of one employed in the most direct trade of the same kind, except
that the final returns are likely to be still more distant, as they must
depend upon the returns of two or three distinct foreign trades. If the
hemp and flax of Riga are purchased with the tobacco of Virginia, which
had been purchased with British manufactures, the merchant must wait for
the returns of two distinct foreign trades, before he can employ the same
capital in repurchasing a like quantity of British manufactures. If the
tobacco of Virginia had been purchased, not with British manufactures, but
with the sugar and rum of Jamaica, which had been purchased with those
manufactures, he must wait for the returns of three. If those two or three
distinct foreign trades should happen to be carried on by two or three
distinct merchants, of whom the second buys the goods imported by the
first, and the third buys those imported by the second, in order to export
them again, each merchant, indeed, will, in this case, receive the returns
of his own capital more quickly; but the final returns of the whole
capital employed in the trade will be just as slow as ever. Whether the
whole capital employed in such a round about trade belong to one merchant
or to three, can make no difference with regard to the country, though it
may with regard to the particular merchants. Three times a greater capital
must in both cases be employed, in order to exchange a certain value of
British manufactures for a certain quantity of flax and hemp, than would
have been necessary, had the manufactures and the flax and hemp been
directly exchanged for one another. The whole capital employed, therefore,
in such a round-about foreign trade of consumption, will generally give
less encouragement and support to the productive labour of the country,
than an equal capital employed in a more direct trade of the same kind.
Whatever be the foreign commodity with which the foreign goods for home
consumption are purchased, it can occasion no essential difference, either
in the nature of the trade, or in the encouragement and support which it
can give to the productive labour of the country from which it is carried
on. If they are purchased with the gold of Brazil, for example, or with
the silver of Peru, this gold and silver, like the tobacco of Virginia,
must have been purchased with something that either was the produce of the
industry of the country, or that had been purchased with something else
that was so. So far, therefore, as the productive labour of the country is
concerned, the foreign trade of consumption, which is carried on by means
of gold and silver, has all the advantages and all the inconveniencies of
any other equally round-about foreign trade of consumption; and will
replace, just as fast, or just as slow, the capital which is immediately
employed in supporting that productive labour. It seems even to have one
advantage over any other equally round-about foreign trade. The
transportation of those metals from one place to another, on account of
their small bulk and great value, is less expensive than that of almost
any other foreign goods of equal value. Their freight is much less, and
their insurance not greater; and no goods, besides, are less liable to
suffer by the carriage. An equal quantity of foreign goods, therefore, may
frequently be purchased with a smaller quantity of the produce of domestic
industry, by the intervention of gold and silver, than by that of any
other foreign goods. The demand of the country may frequently, in this
manner, be supplied more completely, and at a smaller expense, than in any
other. Whether, by the continual exportation of those metals, a trade of
this kind is likely to impoverish the country from which it is carried on
in any other way, I shall have occasion to examine at great length
hereafter.
That part of the capital of any country which is employed in the carrying
trade, is altogether withdrawn from supporting the productive labour of
that particular country, to support that of some foreign countries. Though
it may replace, by every operation, two distinct capitals, yet neither of
them belongs to that particular country. The capital of the Dutch
merchant, which carries the corn of Poland to Portugal, and brings back
the fruits and wines of Portugal to Poland, replaces by every such
operation two capitals, neither of which had been employed in supporting
the productive labour of Holland; but one of them in supporting that of
Poland, and the other that of Portugal. The profits only return regularly
to Holland, and constitute the whole addition which this trade necessarily
makes to the annual produce of the land and labour of that country. When,
indeed, the carrying trade of any particular country is carried on with
the ships and sailors of that country, that part of the capital employed
in it which pays the freight is distributed among, and puts into motion, a
certain number of productive labourers of that country. Almost all nations
that have had any considerable share of the carrying trade have, in fact,
carried it on in this manner. The trade itself has probably derived its
name from it, the people of such countries being the carriers to other
countries. It does not, however, seem essential to the nature of the trade
that it should be so. A Dutch merchant may, for example, employ his
capital in transacting the commerce of Poland and Portugal, by carrying
part of the surplus produce of the one to the other, not in Dutch, but in
British bottoms. It maybe presumed, that he actually does so upon some
particular occasions. It is upon this account, however, that the carrying
trade has been supposed peculiarly advantageous to such a country as Great
Britain, of which the defence and security depend upon the number of its
sailors and shipping. But the same capital may employ as many sailors and
shipping, either in the foreign trade of consumption, or even in the home
trade, when carried on by coasting vessels, as it could in the carrying
trade. The number of sailors and shipping which any particular capital can
employ, does not depend upon the nature of the trade, but partly upon the
bulk of the goods, in proportion to their value, and partly upon the
distance of the ports between which they are to be carried; chiefly upon
the former of those two circumstances. The coal trade from Newcastle to
London, for example, employs more shipping than all the carrying trade of
England, though the ports are at no great distance. To force, therefore,
by extraordinary encouragements, a larger share of the capital of any
country into the carrying trade, than what would naturally go to it, will
not always necessarily increase the shipping of that country.
The capital, therefore, employed in the home trade of any country, will
generally give encouragement and support to a greater quantity of
productive labour in that country, and increase the value of its annual
produce, more than an equal capital employed in the foreign trade of
consumption; and the capital employed in this latter trade has, in both
these respects, a still greater advantage over an equal capital employed
in the carrying trade. The riches, and so far as power depends upon
riches, the power of every country must always be in proportion to the
value of its annual produce, the fund from which all taxes must ultimately
be paid. But the great object of the political economy of every country,
is to increase the riches and power of that country. It ought, therefore,
to give no preference nor superior encouragement to the foreign trade of
consumption above the home trade, nor to the carrying trade above either
of the other two. It ought neither to force nor to allure into either of
those two channels a greater share of the capital of the country, than
what would naturally flow into them of its own accord.
Each of those different branches of trade, however, is not only
advantageous, but necessary and unavoidable, when the course of things,
without any constraint or violence, naturally introduces it.
When the produce of any particular branch of industry exceeds what the
demand of the country requires, the surplus must be sent abroad, and
exchanged for something for which there is a demand at home. Without such
exportation, a part of the productive labour of the country must cease,
and the value of its annual produce diminish. The land and labour of Great
Britain produce generally more corn, woollens, and hardware, than the
demand of the home market requires. The surplus part of them, therefore,
must be sent abroad, and exchanged for something for which there is a
demand at home. It is only by means of such exportation, that this surplus
can acquire a value sufficient to compensate the labour and expense of
producing it. The neighbourhood of the sea-coast, and the banks of all
navigable rivers, are advantageous situations for industry, only because
they facilitate the exportation and exchange of such surplus produce for
something else which is more in demand there.
When the foreign goods which are thus purchased with the surplus produce
of domestic industry exceed the demand of the home market, the surplus
part of them must be sent abroad again, and exchanged for something more
in demand at home. About 96,000 hogsheads of tobacco are annually
purchased in Virginia and Maryland with a part of the surplus produce of
British industry. But the demand of Great Britain does not require,
perhaps, more than 14,000. If the remaining 82,000, therefore, could not
be sent abroad, and exchanged for something more in demand at home, the
importation of them must cease immediately, and with it the productive
labour of all those inhabitants of Great Britain who are at present
employed in preparing the goods with which these 82,000 hogsheads are
annually purchased. Those goods, which are part of the produce of the land
and labour of Great Britain, having no market at home, and being deprived
of that which they had abroad, must cease to be produced. The most
round-about foreign trade of consumption, therefore, may, upon some
occasions, be as necessary for supporting the productive labour of the
country, and the value of its annual produce, as the most direct.
When the capital stock of any country is increased to such a degree that
it cannot be all employed in supplying the consumption, and supporting the
productive labour of that particular country, the surplus part of it
naturally disgorges itself into the carrying trade, and is employed in
performing the same offices to other countries. The carrying trade is the
natural effect and symptom of great national wealth; but it does not seem
to be the natural cause of it. Those statesmen who have been disposed to
favour it with particular encouragement, seem to have mistaken the effect
and symptom for the cause. Holland, in proportion to the extent of the
land and the number of its inhabitants, by far the richest country in
Europe, has accordingly the greatest share of the carrying trade of
Europe. England, perhaps the second richest country of Europe, is likewise
supposed to have a considerable share in it; though what commonly passes
for the carrying trade of England will frequently, perhaps, be found to be
no more than a round-about foreign trade of consumption. Such are, in a
great measure, the trades which carry the goods of the East and West
Indies and of America to the different European markets. Those goods are
generally purchased, either immediately with the produce of British
industry, or with something else which had been purchased with that
produce, and the final returns of those trades are generally used or
consumed in Great Britain. The trade which is carried on in British
bottoms between the different ports of the Mediterranean, and some trade
of the same kind carried on by British merchants between the different
ports of India, make, perhaps, the principal branches of what is properly
the carrying trade of Great Britain.
The extent of the home trade, and of the capital which can be employed in
it, is necessarily limited by the value of the surplus produce of all
those distant places within the country which have occasion to exchange
their respective productions with one another; that of the foreign trade
of consumption, by the value of the surplus produce of the whole country,
and of what can be purchased with it; that of the carrying trade, by the
value of the surplus produce of all the different countries in the world.
Its possible extent, therefore, is in a manner infinite in comparison of
that of the other two, and is capable of absorbing the greatest capitals.
The consideration of his own private profit is the sole motive which
determines the owner of any capital to employ it either in agriculture, in
manufactures, or in some particular branch of the wholesale or retail
trade. The different quantities of productive labour which it may put into
motion, and the different values which it may add to the annual produce of
the land and labour of the society, according as it is employed in one or
other of those different ways, never enter into his thoughts. In
countries, therefore, where agriculture is the most profitable of all
employments, and farming and improving the most direct roads to a splendid
fortune, the capitals of individuals will naturally be employed in the
manner most advantageous to the whole society. The profits of agriculture,
however, seem to have no superiority over those of other employments in
any part of Europe. Projectors, indeed, in every corner of it, have,
within these few years, amused the public with most magnificent accounts
of the profits to be made by the cultivation and improvement of land.
Without entering into any particular discussion of their calculations, a
very simple observation may satisfy us that the result of them must be
false. We see, every day, the most splendid fortunes, that have been
acquired in the course of a single life, by trade and manufactures,
frequently from a very small capital, sometimes from no capital. A single
instance of such a fortune, acquired by agriculture in the same time, and
from such a capital, has not, perhaps, occurred in Europe, during the
course of the present century. In all the great countries of Europe,
however, much good land still remains uncultivated; and the greater part
of what is cultivated, is far from being improved to the degree of which
it is capable. Agriculture, therefore, is almost everywhere capable of
absorbing a much greater capital than has ever yet been employed in it.
What circumstances in the policy of Europe have given the trades which are
carried on in towns so great an advantage over that which is carried on in
the country, that private persons frequently find it more for their
advantage to employ their capitals in the most distant carrying trades of
Asia and America than in the improvement and cultivation of the most
fertile fields in their own neighbourhood, I shall endeavour to explain at
full length in the two following books.
BOOK III.
OF THE DIFFERENT PROGRESS OF OPULENCE IN
DIFFERENT NATIONS

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id: book-2-introduction
title: "Book 2 Introduction"
book: "2"
chapter: 0
artifact_type: content
---
BOOK II.
OF THE NATURE, ACCUMULATION, AND EMPLOYMENT OF STOCK.
INTRODUCTION.
In that rude state of society, in which there is no division of labour, in
which exchanges are seldom made, and in which every man provides every
thing for himself, it is not necessary that any stock should be
accumulated, or stored up before-hand, in order to carry on the business
of the society. Every man endeavours to supply, by his own industry, his
own occasional wants, as they occur. When he is hungry, he goes to the
forest to hunt; when his coat is worn out, he clothes himself with the
skin of the first large animal he kills: and when his hut begins to go to
ruin, he repairs it, as well as he can, with the trees and the turf that
are nearest it.
But when the division of labour has once been thoroughly introduced, the
produce of a man’s own labour can supply but a very small part of his
occasional wants. The far greater part of them are supplied by the produce
of other men’s labour, which he purchases with the produce, or, what is
the same thing, with the price of the produce, of his own. But this
purchase cannot be made till such time as the produce of his own labour
has not only been completed, but sold. A stock of goods of different
kinds, therefore, must be stored up somewhere, sufficient to maintain him,
and to supply him with the materials and tools of his work, till such time
at least as both these events can be brought about. A weaver cannot apply
himself entirely to his peculiar business, unless there is before-hand
stored up somewhere, either in his own possession, or in that of some
other person, a stock sufficient to maintain him, and to supply him with
the materials and tools of his work, till he has not only completed, but
sold his web. This accumulation must evidently be previous to his applying
his industry for so long a time to such a peculiar business.
As the accumulation of stock must, in the nature of things, be previous to
the division of labour, so labour can be more and more subdivided in
proportion only as stock is previously more and more accumulated. The
quantity of materials which the same number of people can work up,
increases in a great proportion as labour comes to be more and more
subdivided; and as the operations of each workman are gradually reduced to
a greater degree of simplicity, a variety of new machines come to be
invented for facilitating and abridging those operations. As the division
of labour advances, therefore, in order to give constant employment to an
equal number of workmen, an equal stock of provisions, and a greater stock
of materials and tools than what would have been necessary in a ruder
state of things, must be accumulated before-hand. But the number of
workmen in every branch of business generally increases with the division
of labour in that branch; or rather it is the increase of their number
which enables them to class and subdivide themselves in this manner.
As the accumulation of stock is previously necessary for carrying on this
great improvement in the productive powers of labour, so that accumulation
naturally leads to this improvement. The person who employs his stock in
maintaining labour, necessarily wishes to employ it in such a manner as to
produce as great a quantity of work as possible. He endeavours, therefore,
both to make among his workmen the most proper distribution of employment,
and to furnish them with the best machines which he can either invent or
afford to purchase. His abilities, in both these respects, are generally
in proportion to the extent of his stock, or to the number of people whom
it can employ. The quantity of industry, therefore, not only increases in
every country with the increase of the stock which employs it, but, in
consequence of that increase, the same quantity of industry produces a
much greater quantity of work.
Such are in general the effects of the increase of stock upon industry and
its productive powers.
In the following book, I have endeavoured to explain the nature of stock,
the effects of its accumulation into capital of different kinds, and the
effects of the different employments of those capitals. This book is
divided into five chapters. In the first chapter, I have endeavoured to
shew what are the different parts or branches into which the stock, either
of an individual, or of a great society, naturally divides itself. In the
second, I have endeavoured to explain the nature and operation of money,
considered as a particular branch of the general stock of the society. The
stock which is accumulated into a capital, may either be employed by the
person to whom it belongs, or it may be lent to some other person. In the
third and fourth chapters, I have endeavoured to examine the manner in
which it operates in both these situations. The fifth and last chapter
treats of the different effects which the different employments of capital
immediately produce upon the quantity, both of national industry, and of
the annual produce of land and labour.

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id: book-3-chapter-01
title: "OF THE NATURAL PROGRESS OF OPULENCE."
book: "3"
chapter: 1
artifact_type: content
---
CHAPTER I.
OF THE NATURAL PROGRESS OF OPULENCE.
The great commerce of every civilized society is that carried on between
the inhabitants of the town and those of the country. It consists in the
exchange of rude for manufactured produce, either immediately, or by the
intervention of money, or of some sort of paper which represents money.
The country supplies the town with the means of subsistence and the
materials of manufacture. The town repays this supply, by sending back a
part of the manufactured produce to the inhabitants of the country. The
town, in which there neither is nor can be any reproduction of substances,
may very properly be said to gain its whole wealth and subsistence from
the country. We must not, however, upon this account, imagine that the
gain of the town is the loss of the country. The gains of both are mutual
and reciprocal, and the division of labour is in this, as in all other
cases, advantageous to all the different persons employed in the various
occupations into which it is subdivided. The inhabitants of the country
purchase of the town a greater quantity of manufactured goods with the
produce of a much smaller quantity of their own labour, than they must
have employed had they attempted to prepare them themselves. The town
affords a market for the surplus produce of the country, or what is over
and above the maintenance of the cultivators; and it is there that the
inhabitants of the country exchange it for something else which is in
demand among them. The greater the number and revenue of the inhabitants
of the town, the more extensive is the market which it affords to those of
the country; and the more extensive that market, it is always the more
advantageous to a great number. The corn which grows within a mile of the
town, sells there for the same price with that which comes from twenty
miles distance. But the price of the latter must, generally, not only pay
the expense of raising it and bringing it to market, but afford, too, the
ordinary profits of agriculture to the farmer. The proprietors and
cultivators of the country, therefore, which lies in the neighbourhood of
the town, over and above the ordinary profits of agriculture, gain, in the
price of what they sell, the whole value of the carriage of the like
produce that is brought from more distant parts; and they save, besides,
the whole value of this carriage in the price of what they buy. Compare
the cultivation of the lands in the neighbourhood of any considerable
town, with that of those which lie at some distance from it, and you will
easily satisfy yourself how much the country is benefited by the commerce
of the town. Among all the absurd speculations that have been propagated
concerning the balance of trade, it has never been pretended that either
the country loses by its commerce with the town, or the town by that with
the country which maintains it.
As subsistence is, in the nature of things, prior to conveniency and
luxury, so the industry which procures the former, must necessarily be
prior to that which ministers to the latter. The cultivation and
improvement of the country, therefore, which affords subsistence, must,
necessarily, be prior to the increase of the town, which furnishes only
the means of conveniency and luxury. It is the surplus produce of the
country only, or what is over and above the maintenance of the
cultivators, that constitutes the subsistence of the town, which can
therefore increase only with the increase of the surplus produce. The
town, indeed, may not always derive its whole subsistence from the country
in its neighbourhood, or even from the territory to which it belongs, but
from very distant countries; and this, though it forms no exception from
the general rule, has occasioned considerable variations in the progress
of opulence in different ages and nations.
That order of things which necessity imposes, in general, though not in
every particular country, is in every particular country promoted by the
natural inclinations of man. If human institutions had never thwarted
those natural inclinations, the towns could nowhere have increased beyond
what the improvement and cultivation of the territory in which they were
situated could support; till such time, at least, as the whole of that
territory was completely cultivated and improved. Upon equal, or nearly
equal profits, most men will choose to employ their capitals, rather in
the improvement and cultivation of land, than either in manufactures or in
foreign trade. The man who employs his capital in land, has it more under
his view and command; and his fortune is much less liable to accidents
than that of the trader, who is obliged frequently to commit it, not only
to the winds and the waves, but to the more uncertain elements of human
folly and injustice, by giving great credits, in distant countries, to men
with whose character and situation he can seldom be thoroughly acquainted.
The capital of the landlord, on the contrary, which is fixed in the
improvement of his land, seems to be as well secured as the nature of
human affairs can admit of. The beauty of the country, besides, the
pleasure of a country life, the tranquillity of mind which it promises,
and, wherever the injustice of human laws does not disturb it, the
independency which it really affords, have charms that, more or less,
attract everybody; and as to cultivate the ground was the original
destination of man, so, in every stage of his existence, he seems to
retain a predilection for this primitive employment.
Without the assistance of some artificers, indeed, the cultivation of land
cannot be carried on, but with great inconveniency and continual
interruption. Smiths, carpenters, wheelwrights and ploughwrights, masons
and bricklayers, tanners, shoemakers, and tailors, are people whose
service the farmer has frequent occasion for. Such artificers, too, stand
occasionally in need of the assistance of one another; and as their
residence is not, like that of the farmer, necessarily tied down to a
precise spot, they naturally settle in the neighbourhood of one another,
and thus form a small town or village. The butcher, the brewer, and the
baker, soon join them, together with many other artificers and retailers,
necessary or useful for supplying their occasional wants, and who
contribute still further to augment the town. The inhabitants of the town,
and those of the country, are mutually the servants of one another. The
town is a continual fair or market, to which the inhabitants of the
country resort, in order to exchange their rude for manufactured produce.
It is this commerce which supplies the inhabitants of the town, both with
the materials of their work, and the means of their subsistence. The
quantity of the finished work which they sell to the inhabitants of the
country, necessarily regulates the quantity of the materials and
provisions which they buy. Neither their employment nor subsistence,
therefore, can augment, but in proportion to the augmentation of the
demand from the country for finished work; and this demand can augment
only in proportion to the extension of improvement and cultivation. Had
human institutions, therefore, never disturbed the natural course of
things, the progressive wealth and increase of the towns would, in every
political society, be consequential, and in proportion to the improvement
and cultivation of the territory of country.
In our North American colonies, where uncultivated land is still to be had
upon easy terms, no manufactures for distant sale have ever yet been
established in any of their towns. When an artificer has acquired a little
more stock than is necessary for carrying on his own business in supplying
the neighbouring country, he does not, in North America, attempt to
establish with it a manufacture for more distant sale, but employs it in
the purchase and improvement of uncultivated land. From artificer he
becomes planter; and neither the large wages nor the easy subsistence
which that country affords to artificers, can bribe him rather to work for
other people than for himself. He feels that an artificer is the servant
of his customers, from whom he derives his subsistence; but that a planter
who cultivates his own land, and derives his necessary subsistence from
the labour of his own family, is really a master, and independent of all
the world.
In countries, on the contrary, where there is either no uncultivated land,
or none that can be had upon easy terms, every artificer who has acquired
more stock than he can employ in the occasional jobs of the neighbourhood,
endeavours to prepare work for more distant sale. The smith erects some
sort of iron, the weaver some sort of linen or woollen manufactory. Those
different manufactures come, in process of time, to be gradually
subdivided, and thereby improved and refined in a great variety of ways,
which may easily be conceived, and which it is therefore unnecessary to
explain any farther.
In seeking for employment to a capital, manufactures are, upon equal or
nearly equal profits, naturally preferred to foreign commerce, for the
same reason that agriculture is naturally preferred to manufactures. As
the capital of the landlord or farmer is more secure than that of the
manufacturer, so the capital of the manufacturer, being at all times more
within his view and command, is more secure than that of the foreign
merchant. In every period, indeed, of every society, the surplus part both
of the rude and manufactured produce, or that for which there is no demand
at home, must be sent abroad, in order to be exchanged for something for
which there is some demand at home. But whether the capital which carries
this surplus produce abroad be a foreign or a domestic one, is of very
little importance. If the society has not acquired sufficient capital,
both to cultivate all its lands, and to manufacture in the completest
manner the whole of its rude produce, there is even a considerable
advantage that the rude produce should be exported by a foreign capital,
in order that the whole stock of the society may be employed in more
useful purposes. The wealth of ancient Egypt, that of China and Indostan,
sufficiently demonstrate that a nation may attain a very high degree of
opulence, though the greater part of its exportation trade be carried on
by foreigners. The progress of our North American and West Indian
colonies, would have been much less rapid, had no capital but what
belonged to themselves been employed in exporting their surplus produce.
According to the natural course of things, therefore, the greater part of
the capital of every growing society is, first, directed to agriculture,
afterwards to manufactures, and, last of all, to foreign commerce. This
order of things is so very natural, that in every society that had any
territory, it has always, I believe, been in some degree observed. Some of
their lands must have been cultivated before any considerable towns could
be established, and some sort of coarse industry of the manufacturing kind
must have been carried on in those towns, before they could well think of
employing themselves in foreign commerce.
But though this natural order of things must have taken place in some
degree in every such society, it has, in all the modern states of Europe,
been in many respects entirely inverted. The foreign commerce of some of
their cities has introduced all their finer manufactures, or such as were
fit for distant sale; and manufactures and foreign commerce together have
given birth to the principal improvements of agriculture. The manners and
customs which the nature of their original government introduced, and
which remained after that government was greatly altered, necessarily
forced them into this unnatural and retrograde order.

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id: book-3-chapter-02
title: "OF THE DISCOURAGEMENT OF AGRICULTURE IN THE ANCIENT STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE."
book: "3"
chapter: 2
artifact_type: content
---
CHAPTER II.
OF THE DISCOURAGEMENT OF AGRICULTURE
IN THE ANCIENT STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE.
When the German and Scythian nations overran the western provinces of the
Roman empire, the confusions which followed so great a revolution lasted
for several centuries. The rapine and violence which the barbarians
exercised against the ancient inhabitants, interrupted the commerce
between the towns and the country. The towns were deserted, and the
country was left uncultivated; and the western provinces of Europe, which
had enjoyed a considerable degree of opulence under the Roman empire, sunk
into the lowest state of poverty and barbarism. During the continuance of
those confusions, the chiefs and principal leaders of those nations
acquired, or usurped to themselves, the greater part of the lands of those
countries. A great part of them was uncultivated; but no part of them,
whether cultivated or uncultivated, was left without a proprietor. All of
them were engrossed, and the greater part by a few great proprietors.
This original engrossing of uncultivated lands, though a great, might have
been but a transitory evil. They might soon have been divided again, and
broke into small parcels, either by succession or by alienation. The law
of primogeniture hindered them from being divided by succession; the
introduction of entails prevented their being broke into small parcels by
alienation.
When land, like moveables, is considered as the means only of subsistence
and enjoyment, the natural law of succession divides it, like them, among
all the children of the family; of all of whom the subsistence and
enjoyment may be supposed equally dear to the father. This natural law of
succession, accordingly, took place among the Romans who made no more
distinction between elder and younger, between male and female, in the
inheritance of lands, than we do in the distribution of moveables. But
when land was considered as the means, not of subsistence merely, but of
power and protection, it was thought better that it should descend
undivided to one. In those disorderly times, every great landlord was a
sort of petty prince. His tenants were his subjects. He was their judge,
and in some respects their legislator in peace and their leader in war. He
made war according to his own discretion, frequently against his
neighbours, and sometimes against his sovereign. The security of a landed
estate, therefore, the protection which its owner could afford to those
who dwelt on it, depended upon its greatness. To divide it was to ruin it,
and to expose every part of it to be oppressed and swallowed up by the
incursions of its neighbours. The law of primogeniture, therefore, came to
take place, not immediately indeed, but in process of time, in the
succession of landed estates, for the same reason that it has generally
taken place in that of monarchies, though not always at their first
institution. That the power, and consequently the security of the
monarchy, may not be weakened by division, it must descend entire to one
of the children. To which of them so important a preference shall be
given, must be determined by some general rule, founded not upon the
doubtful distinctions of personal merit, but upon some plain and evident
difference which can admit of no dispute. Among the children of the same
family there can be no indisputable difference but that of sex, and that
of age. The male sex is universally preferred to the female; and when all
other things are equal, the elder everywhere takes place of the younger.
Hence the origin of the right of primogeniture, and of what is called
lineal succession.
Laws frequently continue in force long after the circumstances which first
gave occasion to them, and which could alone render them reasonable, are
no more. In the present state of Europe, the proprietor of a single acre
of land is as perfectly secure in his possession as the proprietor of
100,000. The right of primogeniture, however, still continues to be
respected; and as of all institutions it is the fittest to support the
pride of family distinctions, it is still likely to endure for many
centuries. In every other respect, nothing can be more contrary to the
real interest of a numerous family, than a right which, in order to enrich
one, beggars all the rest of the children.
Entails are the natural consequences of the law of primogeniture. They
were introduced to preserve a certain lineal succession, of which the law
of primogeniture first gave the idea, and to hinder any part of the
original estate from being carried out of the proposed line, either by
gift, or device, or alienation; either by the folly, or by the misfortune
of any of its successive owners. They were altogether unknown to the
Romans. Neither their substitutions, nor fidei commisses, bear any
resemblance to entails, though some French lawyers have thought proper to
dress the modern institution in the language and garb of those ancient
ones.
When great landed estates were a sort of principalities, entails might not
be unreasonable. Like what are called the fundamental laws of some
monarchies, they might frequently hinder the security of thousands from
being endangered by the caprice or extravagance of one man. But in the
present state of Europe, when small as well as great estates derive their
security from the laws of their country, nothing can be more completely
absurd. They are founded upon the most absurd of all suppositions, the
supposition that every successive generation of men have not an equal
right to the earth, and to all that it possesses; but that the property of
the present generation should be restrained and regulated according to the
fancy of those who died, perhaps five hundred years ago. Entails, however,
are still respected, through the greater part of Europe; In those
countries, particularly, in which noble birth is a necessary qualification
for the enjoyment either of civil or military honours. Entails are thought
necessary for maintaining this exclusive privilege of the nobility to the
great offices and honours of their country; and that order having usurped
one unjust advantage over the rest of their fellow-citizens, lest their
poverty should render it ridiculous, it is thought reasonable that they
should have another. The common law of England, indeed, is said to abhor
perpetuities, and they are accordingly more restricted there than in any
other European monarchy; though even England is not altogether without
them. In Scotland, more than one fifth, perhaps more than one third part
of the whole lands in the country, are at present supposed to be under
strict entail.
Great tracts of uncultivated land were in this manner not only engrossed
by particular families, but the possibility of their being divided again
was as much as possible precluded for ever. It seldom happens, however,
that a great proprietor is a great improver. In the disorderly times which
gave birth to those barbarous institutions, the great proprietor was
sufficiently employed in defending his own territories, or in extending
his jurisdiction and authority over those of his neighbours. He had no
leisure to attend to the cultivation and improvement of land. When the
establishment of law and order afforded him this leisure, he often wanted
the inclination, and almost always the requisite abilities. If the expense
of his house and person either equalled or exceeded his revenue, as it did
very frequently, he had no stock to employ in this manner. If he was an
economist, he generally found it more profitable to employ his annual
savings in new purchases than in the improvement of his old estate. To
improve land with profit, like all other commercial projects, requires an
exact attention to small savings and small gains, of which a man born to a
great fortune, even though naturally frugal, is very seldom capable. The
situation of such a person naturally disposes him to attend rather to
ornament, which pleases his fancy, than to profit, for which he has so
little occasion. The elegance of his dress, of his equipage, of his house
and household furniture, are objects which, from his infancy, he has been
accustomed to have some anxiety about. The turn of mind which this habit
naturally forms, follows him when he comes to think of the improvement of
land. He embellishes, perhaps, four or five hundred acres in the
neighbourhood of his house, at ten times the expense which the land is
worth after all his improvements; and finds, that if he was to improve his
whole estate in the same manner, and he has little taste for any other, he
would be a bankrupt before he had finished the tenth part of it. There
still remain, in both parts of the united kingdom, some great estates
which have continued, without interruption, in the hands of the same
family since the times of feudal anarchy. Compare the present condition of
those estates with the possessions of the small proprietors in their
neighbourhood, and you will require no other argument to convince you how
unfavourable such extensive property is to improvement.
If little improvement was to be expected from such great proprietors,
still less was to be hoped for from those who occupied the land under
them. In the ancient state of Europe, the occupiers of land were all
tenants at will. They were all, or almost all, slaves, but their slavery
was of a milder kind than that known among the ancient Greeks and Romans,
or even in our West Indian colonies. They were supposed to belong more
directly to the land than to their master. They could, therefore, be sold
with it, but not separately. They could marry, provided it was with the
consent of their master; and he could not afterwards dissolve the marriage
by selling the man and wife to different persons. If he maimed or murdered
any of them, he was liable to some penalty, though generally but to a
small one. They were not, however, capable of acquiring property. Whatever
they acquired was acquired to their master, and he could take it from them
at pleasure. Whatever cultivation and improvement could be carried on by
means of such slaves, was properly carried on by their master. It was at
his expense. The seed, the cattle, and the instruments of husbandry, were
all his. It was for his benefit. Such slaves could acquire nothing but
their daily maintenance. It was properly the proprietor himself,
therefore, that in this case occupied his own lands, and cultivated them
by his own bondmen. This species of slavery still subsists in Russia,
Poland, Hungary, Bohemia, Moravia, and other parts of Germany. It is only
in the western and south-western provinces of Europe that it has gradually
been abolished altogether.
But if great improvements are seldom to be expected from great
proprietors, they are least of all to be expected when they employ slaves
for their workmen. The experience of all ages and nations, I believe,
demonstrates that the work done by slaves, though it appears to cost only
their maintenance, is in the end the dearest of any. A person who can
acquire no property can have no other interest but to eat as much and to
labour as little as possible. Whatever work he does beyond what is
sufficient to purchase his own maintenance, can be squeezed out of him by
violence only, and not by any interest of his own. In ancient Italy, how
much the cultivation of corn degenerated, how unprofitable it became to
the master, when it fell under the management of slaves, is remarked both
by Pliny and Columella. In the time of Aristotle, it had not been much
better in ancient Greece. Speaking of the ideal republic described in the
laws of Plato, to maintain 5000 idle men (the number of warriors supposed
necessary for its defence), together with their women and servants, would
require, he says, a territory of boundless extent and fertility, like the
plains of Babylon.
The pride of man makes him love to domineer, and nothing mortifies him so
much as to be obliged to condescend to persuade his inferiors. Wherever
the law allows it, and the nature of the work can afford it, therefore, he
will generally prefer the service of slaves to that of freemen. The
planting of sugar and tobacco can afford the expense of slave cultivation.
The raising of corn, it seems, in the present times, cannot. In the
English colonies, of which the principal produce is corn, the far greater
part of the work is done by freemen. The late resolution of the Quakers in
Pennsylvania, to set at liberty all their negro slaves, may satisfy us
that their number cannot be very great. Had they made any considerable
part of their property, such a resolution could never have been agreed to.
In our sugar colonies., on the contrary, the whole work is done by slaves,
and in our tobacco colonies a very great part of it. The profits of a
sugar plantation in any of our West Indian colonies, are generally much
greater than those of any other cultivation that is known either in Europe
or America; and the profits of a tobacco plantation, though inferior to
those of sugar, are superior to those of corn, as has already been
observed. Both can afford the expense of slave cultivation but sugar can
afford it still better than tobacco. The number of negroes, accordingly,
is much greater, in proportion to that of whites, in our sugar than in our
tobacco colonies.
To the slave cultivators of ancient times gradually succeeded a species of
farmers, known at present in France by the name of metayers. They are
called in Latin Coloni Partiarii. They have been so long in disuse in
England, that at present I know no English name for them. The proprietor
furnished them with the seed, cattle, and instruments of husbandry, the
whole stock, in short, necessary for cultivating the farm. The produce was
divided equally between the proprietor and the farmer, after setting aside
what was judged necessary for keeping up the stock, which was restored to
the proprietor, when the farmer either quitted or was turned out of the
farm.
Land occupied by such tenants is properly cultivated at the expense of the
proprietors, as much as that occupied by slaves. There is, however, one
very essential difference between them. Such tenants, being freemen, are
capable of acquiring property; and having a certain proportion of the
produce of the land, they have a plain interest that the whole produce
should be as great as possible, in order that their own proportion may be
so. A slave, on the contrary, who can acquire nothing but his maintenance,
consults his own ease, by making the land produce as little as possible
over and above that maintenance. It is probable that it was partly upon
account of this advantage, and partly upon account of the encroachments
which the sovereigns, always jealous of the great lords, gradually
encouraged their villains to make upon their authority, and which seem, at
least, to have been such as rendered this species of servitude altogether
inconvenient, that tenure in villanage gradually wore out through the
greater part of Europe. The time and manner, however, in which so
important a revolution was brought about, is one of the most obscure
points in modern history. The church of Rome claims great merit in it; and
it is certain, that so early as the twelfth century, Alexander III.
published a bull for the general emancipation of slaves. It seems,
however, to have been rather a pious exhortation, than a law to which
exact obedience was required from the faithful. Slavery continued to take
place almost universally for several centuries afterwards, till it was
gradually abolished by the joint operation of the two interests above
mentioned; that of the proprietor on the one hand, and that of the
sovereign on the other. A villain, enfranchised, and at the same time
allowed to continue in possession of the land, having no stock of his own,
could cultivate it only by means of what the landlord advanced to him, and
must therefore have been what the French call a metayer.
It could never, however, be the interest even of this last species of
cultivators, to lay out, in the further improvement of the land, any part
of the little stock which they might save from their own share of the
produce; because the landlord, who laid out nothing, was to get one half
of whatever it produced. The tithe, which is but a tenth of the produce,
is found to be a very great hindrance to improvement. A tax, therefore,
which amounted to one half, must have been an effectual bar to it. It
might be the interest of a metayer to make the land produce as much as
could be brought out of it by means of the stock furnished by the
proprietor; but it could never be his interest to mix any part of his own
with it. In France, where five parts out of six of the whole kingdom are
said to be still occupied by this species of cultivators, the proprietors
complain, that their metayers take every opportunity of employing their
master’s cattle rather in carriage than in cultivation; because, in the
one case, they get the whole profits to themselves, in the other they
share them with their landlord. This species of tenants still subsists in
some parts of Scotland. They are called steel-bow tenants. Those ancient
English tenants, who are said by Chief-Baron Gilbert and Dr Blackstone to
have been rather bailiffs of the landlord than farmers, properly so
called, were probably of the same kind.
To this species of tenantry succeeded, though by very slow degrees,
farmers, properly so called, who cultivated the land with their own stock,
paying a rent certain to the landlord. When such farmers have a lease for
a term of years, they may sometimes find it for their interest to lay out
part of their capital in the further improvement of the farm; because they
may sometimes expect to recover it, with a large profit, before the
expiration of the lease. The possession, even of such farmers, however,
was long extremely precarious, and still is so in many parts of Europe.
They could, before the expiration of their term, be legally ousted of
their leases by a new purchaser; in England, even, by the fictitious
action of a common recovery. If they were turned out illegally by the
violence of their master, the action by which they obtained redress was
extremely imperfect. It did not always reinstate them in the possession of
the land, but gave them damages, which never amounted to a real loss. Even
in England, the country, perhaps of Europe, where the yeomanry has always
been most respected, it was not till about the 14th of Henry VII. that the
action of ejectment was invented, by which the tenant recovers, not
damages only, but possession, and in which his claim is not necessarily
concluded by the uncertain decision of a single assize. This action has
been found so effectual a remedy, that, in the modern practice, when the
landlord has occasion to sue for the possession of the land, he seldom
makes use of the actions which properly belong to him as a landlord, the
writ of right or the writ of entry, but sues in the name of his tenant, by
the writ of ejectment. In England, therefore the security of the tenant is
equal to that of the proprietor. In England, besides, a lease for life of
forty shillings a-year value is a freehold, and entitles the lessee to a
vote for a member of parliament; and as a great part of the yeomanry have
freeholds of this kind, the whole order becomes respectable to their
landlords, on account of the political consideration which this gives
them. There is, I believe, nowhere in Europe, except in England, any
instance of the tenant building upon the land of which he had no lease,
and trusting that the honour of his landlord would take no advantage of so
important an improvement. Those laws and customs, so favourable to the
yeomanry, have perhaps contributed more to the present grandeur of
England, than all their boasted regulations of commerce taken together.
The law which secures the longest leases against successors of every kind,
is, so far as I know, peculiar to Great Britain. It was introduced into
Scotland so early as 1449, by a law of James II. Its beneficial influence,
however, has been much obstructed by entails; the heirs of entail being
generally restrained from letting leases for any long term of years,
frequently for more than one year. A late act of parliament has, in this
respect, somewhat slackened their fetters, though they are still by much
too strait. In Scotland, besides, as no leasehold gives a vote for a
member of parliament, the yeomanry are upon this account less respectable
to their landlords than in England.
In other parts of Europe, after it was found convenient to secure tenants
both against heirs and purchasers, the term of their security was still
limited to a very short period; in France, for example, to nine years from
the commencement of the lease. It has in that country, indeed, been lately
extended to twentyseven, a period still too short to encourage the tenant
to make the most important improvements. The proprietors of land were
anciently the legislators of every part of Europe. The laws relating to
land, therefore, were all calculated for what they supposed the interest
of the proprietor. It was for his interest, they had imagined, that no
lease granted by any of his predecessors should hinder him from enjoying,
during a long term of years, the full value of his land. Avarice and
injustice are always short-sighted, and they did not foresee how much this
regulation must obstruct improvement, and thereby hurt, in the long-run,
the real interest of the landlord.
The farmers, too, besides paying the rent, were anciently, it was
supposed, bound to perform a great number of services to the landlord,
which were seldom either specified in the lease, or regulated by any
precise rule, but by the use and wont of the manor or barony. These
services, therefore, being almost entirely arbitrary, subjected the tenant
to many vexations. In Scotland the abolition of all services not precisely
stipulated in the lease, has, in the course of a few years, very much
altered for the better the condition of the yeomanry of that country.
The public services to which the yeomanry were bound, were not less
arbitrary than the private ones. To make and maintain the high roads, a
servitude which still subsists, I believe, everywhere, though with
different degrees of oppression in different countries, was not the only
one. When the king’s troops, when his household, or his officers of any
kind, passed through any part of the country, the yeomanry were bound to
provide them with horses, carriages, and provisions, at a price regulated
by the purveyor. Great Britain is, I believe, the only monarchy in Europe
where the oppression of purveyance has been entirely abolished. It still
subsists in France and Germany.
The public taxes, to which they were subject, were as irregular and
oppressive as the services. The ancient lords, though extremely unwilling
to grant, themselves, any pecuniary aid to their sovereign, easily allowed
him to tallage, as they called it, their tenants, and had not knowledge
enough to foresee how much this must, in the end, affect their own
revenue. The taille, as it still subsists in France may serve as an
example of those ancient tallages. It is a tax upon the supposed profits
of the farmer, which they estimate by the stock that he has upon the farm.
It is his interest, therefore, to appear to have as little as possible,
and consequently to employ as little as possible in its cultivation, and
none in its improvement. Should any stock happen to accumulate in the
hands of a French farmer, the taille is almost equal to a prohibition of
its ever being employed upon the land. This tax, besides, is supposed to
dishonour whoever is subject to it, and to degrade him below, not only the
rank of a gentleman, but that of a burgher; and whoever rents the lands of
another becomes subject to it. No gentleman, nor even any burgher, who has
stock, will submit to this degradation. This tax, therefore, not only
hinders the stock which accumulates upon the land from being employed in
its improvement, but drives away all other stock from it. The ancient
tenths and fifteenths, so usual in England in former times, seem, so far
as they affected the land, to have been taxes of the same nature with the
taille.
Under all these discouragements, little improvement could be expected from
the occupiers of land. That order of people, with all the liberty and
security which law can give, must always improve under great disadvantage.
The farmer, compared with the proprietor, is as a merchant who trades with
burrowed money, compared with one who trades with his own. The stock of
both may improve; but that of the one, with only equal good conduct, must
always improve more slowly than that of the other, on account of the large
share of the profits which is consumed by the interest of the loan. The
lands cultivated by the farmer must, in the same manner, with only equal
good conduct, be improved more slowly than those cultivated by the
proprietor, on account of the large share of the produce which is consumed
in the rent, and which, had the farmer been proprietor, he might have
employed in the further improvement of the land. The station of a farmer,
besides, is, from the nature of things, inferior to that of a proprietor.
Through the greater part of Europe, the yeomanry are regarded as an
inferior rank of people, even to the better sort of tradesmen and
mechanics, and in all parts of Europe to the great merchants and master
manufacturers. It can seldom happen, therefore, that a man of any
considerable stock should quit the superior, in order to place himself in
an inferior station. Even in the present state of Europe, therefore,
little stock is likely to go from any other profession to the improvement
of land in the way of farming. More does, perhaps, in Great Britain than
in any other country, though even there the great stocks which are in some
places employed in farming, have generally been acquired by fanning, the
trade, perhaps, in which, of all others, stock is commonly acquired most
slowly. After small proprietors, however, rich and great farmers are in
every country the principal improvers. There are more such, perhaps, in
England than in any other European monarchy. In the republican governments
of Holland, and of Berne in Switzerland, the farmers are said to be not
inferior to those of England.
The ancient policy of Europe was, over and above all this, unfavourable to
the improvement and cultivation of land, whether carried on by the
proprietor or by the farmer; first, by the general prohibition of the
exportation of corn, without a special licence, which seems to have been a
very universal regulation; and, secondly, by the restraints which were
laid upon the inland commerce, not only of corn, but of almost every other
part of the produce of the farm, by the absurd laws against engrossers,
regraters, and forestallers, and by the privileges of fairs and markets.
It has already been observed in what manner the prohibition of the
exportation of corn, together with some encouragement given to the
importation of foreign corn, obstructed the cultivation of ancient Italy,
naturally the most fertile country in Europe, and at that time the seat of
the greatest empire in the world. To what degree such restraints upon the
inland commerce of this commodity, joined to the general prohibition of
exportation, must have discouraged the cultivation of countries less
fertile, and less favourably circumstanced, it is not, perhaps, very easy
to imagine.

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id: book-3-chapter-03
title: "OF THE RISE AND PROGRESS OF CITIES AND TOWNS, AFTER THE FALL OF THE ROMAN EMPIRE."
book: "3"
chapter: 3
artifact_type: content
---
CHAPTER III.
OF THE RISE AND PROGRESS OF CITIES
AND TOWNS, AFTER THE FALL OF THE ROMAN EMPIRE.
The inhabitants of cities and towns were, after the fall of the Roman
empire, not more favoured than those of the country. They consisted,
indeed, of a very different order of people from the first inhabitants of
the ancient republics of Greece and Italy. These last were composed
chiefly of the proprietors of lands, among whom the public territory was
originally divided, and who found it convenient to build their houses in
the neighbourhood of one another, and to surround them with a wall, for
the sake of common defence. After the fall of the Roman empire, on the
contrary, the proprietors of land seem generally to have lived in
fortified castles on their own estates, and in the midst of their own
tenants and dependants. The towns were chiefly inhabited by tradesmen and
mechanics, who seem, in those days, to have been of servile, or very
nearly of servile condition. The privileges which we find granted by
ancient charters to the inhabitants of some of the principal towns in
Europe, sufficiently show what they were before those grants. The people
to whom it is granted as a privilege, that they might give away their own
daughters in marriage without the consent of their lord, that upon their
death their own children, and not their lord, should succeed to their
goods, and that they might dispose of their own effects by will, must,
before those grants, have been either altogether, or very nearly, in the
same state of villanage with the occupiers of land in the country.
They seem, indeed, to have been a very poor, mean set of people, who
seemed to travel about with their goods from place to place, and from fair
to fair, like the hawkers and pedlars of the present times. In all the
different countries of Europe then, in the same manner as in several of
the Tartar governments of Asia at present, taxes used to be levied upon
the persons and goods of travellers, when they passed through certain
manors, when they went over certain bridges, when they carried about their
goods from place to place in a fair, when they erected in it a booth or
stall to sell them in. These different taxes were known in England by the
names of passage, pontage, lastage, and stallage. Sometimes the king,
sometimes a great lord, who had, it seems, upon some occasions, authority
to do this, would grant to particular traders, to such particularly as
lived in their own demesnes, a general exemption from such taxes. Such
traders, though in other respects of servile, or very nearly of servile
condition, were upon this account called free traders. They, in return,
usually paid to their protector a sort of annual poll-tax. In those days
protection was seldom granted without a valuable consideration, and this
tax might perhaps be considered as compensation for what their patrons
might lose by their exemption from other taxes. At first, both those
poll-taxes and those exemptions seem to have been altogether personal, and
to have affected only particular individuals, during either their lives,
or the pleasure of their protectors. In the very imperfect accounts which
have been published from Doomsday-book, of several of the towns of
England, mention is frequently made, sometimes of the tax which particular
burghers paid, each of them, either to the king, or to some other great
lord, for this sort of protection, and sometimes of the general amount
only of all those taxes. {see Brady’s Historical Treatise of Cities and
Boroughs, p. 3. etc.}
But how servile soever may have been originally the condition of the
inhabitants of the towns, it appears evidently, that they arrived at
liberty and independency much earlier than the occupiers of land in the
country. That part of the king’s revenue which arose from such poll-taxes
in any particular town, used commonly to be let in farm, during a term of
years, for a rent certain, sometimes to the sheriff of the county, and
sometimes to other persons. The burghers themselves frequently got credit
enough to be admitted to farm the revenues of this sort which arose out of
their own town, they becoming jointly and severally answerable for the
whole rent. {See Madox, Firma Burgi, p. 18; also History of the Exchequer,
chap. 10, sect. v, p. 223, first edition.} To let a farm in this manner,
was quite agreeable to the usual economy of, I believe, the sovereigns of
all the different countries of Europe, who used frequently to let whole
manors to all the tenants of those manors, they becoming jointly and
severally answerable for the whole rent; but in return being allowed to
collect it in their own way, and to pay it into the king’s exchequer by
the hands of their own bailiff, and being thus altogether freed from the
insolence of the king’s officers; a circumstance in those days regarded as
of the greatest importance.
At first, the farm of the town was probably let to the burghers, in the
same manner as it had been to other farmers, for a term of years only. In
process of time, however, it seems to have become the general practice to
grant it to them in fee, that is for ever, reserving a rent certain, never
afterwards to be augmented. The payment having thus become perpetual, the
exemptions, in return, for which it was made, naturally became perpetual
too. Those exemptions, therefore, ceased to be personal, and could not
afterwards be considered as belonging to individuals, as individuals, but
as burghers of a particular burgh, which, upon this account, was called a
free burgh, for the same reason that they had been called free burghers or
free traders.
Along with this grant, the important privileges, above mentioned, that
they might give away their own daughters in marriage, that their children
should succeed to them, and that they might dispose of their own effects
by will, were generally bestowed upon the burghers of the town to whom it
was given. Whether such privileges had before been usually granted, along
with the freedom of trade, to particular burghers, as individuals, I know
not. I reckon it not improbable that they were, though I cannot produce
any direct evidence of it. But however this may have been, the principal
attributes of villanage and slavery being thus taken away from them, they
now at least became really free, in our present sense of the word freedom.
Nor was this all. They were generally at the same time erected into a
commonalty or corporation, with the privilege of having magistrates and a
town-council of their own, of making bye-laws for their own government, of
building walls for their own defence, and of reducing all their
inhabitants under a sort of military discipline, by obliging them to watch
and ward; that is, as anciently understood, to guard and defend those
walls against all attacks and surprises, by night as well as by day. In
England they were generally exempted from suit to the hundred and county
courts: and all such pleas as should arise among them, the pleas of the
crown excepted, were left to the decision of their own magistrates. In
other countries, much greater and more extensive jurisdictions were
frequently granted to them. {See Madox, Firma Burgi. See also Pfeffel in
the Remarkable events under Frederick II. and his Successors of the House
of Suabia.}
It might, probably, be necessary to grant to such towns as were admitted
to farm their own revenues, some sort of compulsive jurisdiction to oblige
their own citizens to make payment. In those disorderly times, it might
have been extremely inconvenient to have left them to seek this sort of
justice from any other tribunal. But it must seem extraordinary, that the
sovereigns of all the different countries of Europe should have exchanged
in this manner for a rent certain, never more to be augmented, that branch
of their revenue, which was, perhaps, of all others, the most likely to be
improved by the natural course of things, without either expense or
attention of their own; and that they should, besides, have in this manner
voluntarily erected a sort of independent republics in the heart of their
own dominions.
In order to understand this, it must be remembered, that, in those days,
the sovereign of perhaps no country in Europe was able to protect, through
the whole extent of his dominions, the weaker part of his subjects from
the oppression of the great lords. Those whom the law could not protect,
and who were not strong enough to defend themselves, were obliged either
to have recourse to the protection of some great lord, and in order to
obtain it, to become either his slaves or vassals; or to enter into a
league of mutual defence for the common protection of one another. The
inhabitants of cities and burghs, considered as single individuals, had no
power to defend themselves; but by entering into a league of mutual
defence with their neighbours, they were capable of making no contemptible
resistance. The lords despised the burghers, whom they considered not only
as a different order, but as a parcel of emancipated slaves, almost of a
different species from themselves. The wealth of the burghers never failed
to provoke their envy and indignation, and they plundered them upon every
occasion without mercy or remorse. The burghers naturally hated and feared
the lords. The king hated and feared them too; but though, perhaps, he
might despise, he had no reason either to hate or fear the burghers.
Mutual interest, therefore, disposed them to support the king, and the
king to support them against the lords. They were the enemies of his
enemies, and it was his interest to render them as secure and independent
of those enemies as he could. By granting them magistrates of their own,
the privilege of making bye-laws for their own government, that of
building walls for their own defence, and that of reducing all their
inhabitants under a sort of military discipline, he gave them all the
means of security and independency of the barons which it was in his power
to bestow. Without the establishment of some regular government of this
kind, without some authority to compel their inhabitants to act according
to some certain plan or system, no voluntary league of mutual defence
could either have afforded them any permanent security, or have enabled
them to give the king any considerable support. By granting them the farm
of their own town in fee, he took away from those whom he wished to have
for his friends, and, if one may say so, for his allies, all ground of
jealousy and suspicion, that he was ever afterwards to oppress them,
either by raising the farm-rent of their town, or by granting it to some
other farmer.
The princes who lived upon the worst terms with their barons, seem
accordingly to have been the most liberal in grants of this kind to their
burghs. King John of England, for example, appears to have been a most
munificent benefactor to his towns. {See Madox.} Philip I. of France lost
all authority over his barons. Towards the end of his reign, his son
Lewis, known afterwards by the name of Lewis the Fat, consulted, according
to Father Daniel, with the bishops of the royal demesnes, concerning the
most proper means of restraining the violence of the great lords. Their
advice consisted of two different proposals. One was to erect a new order
of jurisdiction, by establishing magistrates and a town-council in every
considerable town of his demesnes. The other was to form a new militia, by
making the inhabitants of those towns, under the command of their own
magistrates, march out upon proper occasions to the assistance of the
king. It is from this period, according to the French antiquarians, that
we are to date the institution of the magistrates and councils of cities
in France. It was during the unprosperous reigns of the princes of the
house of Suabia, that the greater part of the free towns of Germany
received the first grants of their privileges, and that the famous
Hanseatic league first became formidable. {See Pfeffel.}
The militia of the cities seems, in those times, not to have been inferior
to that of the country; and as they could be more readily assembled upon
any sudden occasion, they frequently had the advantage in their disputes
with the neighbouring lords. In countries such as Italy or Switzerland, in
which, on account either of their distance from the principal seat of
government, of the natural strength of the country itself, or of some
other reason, the sovereign came to lose the whole of his authority; the
cities generally became independent republics, and conquered all the
nobility in their neighbourhood; obliging them to pull down their castles
in the country, and to live, like other peaceable inhabitants, in the
city. This is the short history of the republic of Berne, as well as of
several other cities in Switzerland. If you except Venice, for of that
city the history is somewhat different, it is the history of all the
considerable Italian republics, of which so great a number arose and
perished between the end of the twelfth and the beginning of the sixteenth
century.
In countries such as France and England, where the authority of the
sovereign, though frequently very low, never was destroyed altogether, the
cities had no opportunity of becoming entirely independent. They became,
however, so considerable, that the sovereign could impose no tax upon
them, besides the stated farm-rent of the town, without their own consent.
They were, therefore, called upon to send deputies to the general assembly
of the states of the kingdom, where they might join with the clergy and
the barons in granting, upon urgent occasions, some extraordinary aid to
the king. Being generally, too, more favourable to his power, their
deputies seem sometimes to have been employed by him as a counterbalance
in those assemblies to the authority of the great lords. Hence the origin
of the representation of burghs in the states-general of all great
monarchies in Europe.
Order and good government, and along with them the liberty and security of
individuals, were in this manner established in cities, at a time when the
occupiers of land in the country, were exposed to every sort of violence.
But men in this defenceless state naturally content themselves with their
necessary subsistence; because, to acquire more, might only tempt the
injustice of their oppressors. On the contrary, when they are secure of
enjoying the fruits of their industry, they naturally exert it to better
their condition, and to acquire not only the necessaries, but the
conveniencies and elegancies of life. That industry, therefore, which aims
at something more than necessary subsistence, was established in cities
long before it was commonly practised by the occupiers of land in the
country. If, in the hands of a poor cultivator, oppressed with the
servitude of villanage, some little stock should accumulate, he would
naturally conceal it with great care from his master, to whom it would
otherwise have belonged, and take the first opportunity of running away to
a town. The law was at that time so indulgent to the inhabitants of towns,
and so desirous of diminishing the authority of the lords over those of
the country, that if he could conceal himself there from the pursuit of
his lord for a year, he was free for ever. Whatever stock, therefore,
accumulated in the hands of the industrious part of the inhabitants of the
country, naturally took refuge in cities, as the only sanctuaries in which
it could be secure to the person that acquired it.
The inhabitants of a city, it is true, must always ultimately derive their
subsistence, and the whole materials and means of their industry, from the
country. But those of a city, situated near either the sea-coast or the
banks of a navigable river, are not necessarily confined to derive them
from the country in their neighbourhood. They have a much wider range, and
may draw them from the most remote corners of the world, either in
exchange for the manufactured produce of their own industry, or by
performing the office of carriers between distant countries, and
exchanging the produce of one for that of another. A city might, in this
manner, grow up to great wealth and splendour, while not only the country
in its neighbourhood, but all those to which it traded, were in poverty
and wretchedness. Each of those countries, perhaps, taken singly, could
afford it but a small part, either of its subsistence or of its
employment; but all of them taken together, could afford it both a great
subsistence and a great employment. There were, however, within the narrow
circle of the commerce of those times, some countries that were opulent
and industrious. Such was the Greek empire as long as it subsisted, and
that of the Saracens during the reigns of the Abassides. Such, too, was
Egypt till it was conquered by the Turks, some part of the coast of
Barbary, and all those provinces of Spain which were under the government
of the Moors.
The cities of Italy seem to have been the first in Europe which were
raised by commerce to any considerable degree of opulence. Italy lay in
the centre of what was at that time the improved and civilized part of the
world. The crusades, too, though, by the great waste of stock and
destruction of inhabitants which they occasioned, they must necessarily
have retarded the progress of the greater part of Europe, were extremely
favourable to that of some Italian cities. The great armies which marched
from all parts to the conquest of the Holy Land, gave extraordinary
encouragement to the shipping of Venice, Genoa, and Pisa, sometimes in
transporting them thither, and always in supplying them with provisions.
They were the commissaries, if one may say so, of those armies; and the
most destructive frenzy that ever befel the European nations, was a source
of opulence to those republics.
The inhabitants of trading cities, by importing the improved manufactures
and expensive luxuries of richer countries, afforded some food to the
vanity of the great proprietors, who eagerly purchased them with great
quantities of the rude produce of their own lands. The commerce of a great
part of Europe in those times, accordingly, consisted chiefly in the
exchange of their own rude, for the manufactured produce of more civilized
nations. Thus the wool of England used to be exchanged for the wines of
France, and the fine cloths of Flanders, in the same manner as the corn in
Poland is at this day, exchanged for the wines and brandies of France, and
for the silks and velvets of France and Italy.
A taste for the finer and more improved manufactures was, in this manner,
introduced by foreign commerce into countries where no such works were
carried on. But when this taste became so general as to occasion a
considerable demand, the merchants, in order to save the expense of
carriage, naturally endeavoured to establish some manufactures of the same
kind in their own country. Hence the origin of the first manufactures for
distant sale, that seem to have been established in the western provinces
of Europe, after the fall of the Roman empire.
No large country, it must be observed, ever did or could subsist without
some sort of manufactures being carried on in it; and when it is said of
any such country that it has no manufactures, it must always be understood
of the finer and more improved, or of such as are fit for distant sale. In
every large country both the clothing and household furniture or the far
greater part of the people, are the produce of their own industry. This is
even more universally the case in those poor countries which are commonly
said to have no manufactures, than in those rich ones that are said to
abound in them. In the latter you will generally find, both in the clothes
and household furniture of the lowest rank of people, a much greater
proportion of foreign productions than in the former.
Those manufactures which are fit for distant sale, seem to have been
introduced into different countries in two different ways.
Sometimes they have been introduced in the manner above mentioned, by the
violent operation, if one may say so, of the stocks of particular
merchants and undertakers, who established them in imitation of some
foreign manufactures of the same kind. Such manufactures, therefore, are
the offspring of foreign commerce; and such seem to have been the ancient
manufactures of silks, velvets, and brocades, which flourished in Lucca
during the thirteenth century. They were banished from thence by the
tyranny of one of Machiavel’s heroes, Castruccio Castracani. In 1310, nine
hundred families were driven out of Lucca, of whom thirty-one retired to
Venice, and offered to introduce there the silk manufacture. {See Sandi
Istoria civile de Vinezia, part 2 vol. i, page 247 and 256.} Their offer
was accepted, many privileges were conferred upon them, and they began the
manufacture with three hundred workmen. Such, too, seem to have been the
manufactures of fine cloths that anciently flourished in Flanders, and
which were introduced into England in the beginning of the reign of
Elizabeth, and such are the present silk manufactures of Lyons and
Spitalfields. Manufactures introduced in this manner are generally
employed upon foreign materials, being imitations of foreign manufactures.
When the Venetian manufacture was first established, the materials were
all brought from Sicily and the Levant. The more ancient manufacture of
Lucca was likewise carried on with foreign materials. The cultivation of
mulberry trees, and the breeding of silk-worms, seem not to have been
common in the northern parts of Italy before the sixteenth century. Those
arts were not introduced into France till the reign of Charles IX. The
manufactures of Flanders were carried on chiefly with Spanish and English
wool. Spanish wool was the material, not of the first woollen manufacture
of England, but of the first that was fit for distant sale. More than one
half the materials of the Lyons manufacture is at this day foreign silk;
when it was first established, the whole, or very nearly the whole, was
so. No part of the materials of the Spitalfields manufacture is ever
likely to be the produce of England. The seat of such manufactures, as
they are generally introduced by the scheme and project of a few
individuals, is sometimes established in a maritime city, and sometimes in
an inland town, according as their interest, judgment, or caprice, happen
to determine.
At other times, manufactures for distant sale grow up naturally, and as it
were of their own accord, by the gradual refinement of those household and
coarser manufactures which must at all times be carried on even in the
poorest and rudest countries. Such manufactures are generally employed
upon the materials which the country produces, and they seem frequently to
have been first refined and improved in such inland countries as were not,
indeed, at a very great, but at a considerable distance from the
sea-coast, and sometimes even from all water carriage. An inland country,
naturally fertile and easily cultivated, produces a great surplus of
provisions beyond what is necessary for maintaining the cultivators; and
on account of the expense of land carriage, and inconveniency of river
navigation, it may frequently be difficult to send this surplus abroad.
Abundance, therefore, renders provisions cheap, and encourages a great
number of workmen to settle in the neighbourhood, who find that their
industry can there procure them more of the necessaries and conveniencies
of life than in other places. They work up the materials of manufacture
which the land produces, and exchange their finished work, or, what is the
same thing, the price of it, for more materials and provisions. They give
a new value to the surplus part of the rude produce, by saving the expense
of carrying it to the water-side, or to some distant market; and they
furnish the cultivators with something in exchange for it that is either
useful or agreeable to them, upon easier terms than they could have
obtained it before. The cultivators get a better price for their surplus
produce, and can purchase cheaper other conveniencies which they have
occasion for. They are thus both encouraged and enabled to increase this
surplus produce by a further improvement and better cultivation of the
land; and as the fertility of the land had given birth to the manufacture,
so the progress of the manufacture re-acts upon the land, and increases
still further its fertility. The manufacturers first supply the
neighbourhood, and afterwards, as their work improves and refines, more
distant markets. For though neither the rude produce, nor even the coarse
manufacture, could, without the greatest difficulty, support the expense
of a considerable land-carriage, the refined and improved manufacture
easily may. In a small bulk it frequently contains the price of a great
quantity of rude produce. A piece of fine cloth, for example which weighs
only eighty pounds, contains in it the price, not only of eighty pounds
weight of wool, but sometimes of several thousand weight of corn, the
maintenance of the different working people, and of their immediate
employers. The corn which could with difficulty have been carried abroad
in its own shape, is in this manner virtually exported in that of the
complete manufacture, and may easily be sent to the remotest corners of
the world. In this manner have grown up naturally, and, as it were, of
their own accord, the manufactures of Leeds, Halifax, Sheffield,
Birmingham, and Wolverhampton. Such manufactures are the offspring of
agriculture. In the modern history of Europe, their extension and
improvement have generally been posterior to those which were the
offspring of foreign commerce. England was noted for the manufacture of
fine cloths made of Spanish wool, more than a century before any of those
which now flourish in the places above mentioned were fit for foreign
sale. The extension and improvement of these last could not take place but
in consequence of the extension and improvement of agriculture, the last
and greatest effect of foreign commerce, and of the manufactures
immediately introduced by it, and which I shall now proceed to explain.

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---
id: book-3-chapter-04
title: "HOW THE COMMERCE OF TOWNS CONTRIBUTED TO THE IMPROVEMENT OF THE COUNTRY."
book: "3"
chapter: 4
artifact_type: content
---
CHAPTER IV.
HOW THE COMMERCE OF TOWNS CONTRIBUTED
TO THE IMPROVEMENT OF THE COUNTRY.
The increase and riches of commercial and manufacturing towns contributed
to the improvement and cultivation of the countries to which they
belonged, in three different ways.
First, by affording a great and ready market for the rude produce of the
country, they gave encouragement to its cultivation and further
improvement. This benefit was not even confined to the countries in which
they were situated, but extended more or less to all those with which they
had any dealings. To all of them they afforded a market for some part
either of their rude or manufactured produce, and, consequently, gave some
encouragement to the industry and improvement of all. Their own country,
however, on account of its neighbourhood, necessarily derived the greatest
benefit from this market. Its rude produce being charged with less
carriage, the traders could pay the growers a better price for it, and yet
afford it as cheap to the consumers as that of more distant countries.
Secondly, the wealth acquired by the inhabitants of cities was frequently
employed in purchasing such lands as were to be sold, of which a great
part would frequently be uncultivated. Merchants are commonly ambitious of
becoming country gentlemen, and, when they do, they are generally the best
of all improvers. A merchant is accustomed to employ his money chiefly in
profitable projects; whereas a mere country gentleman is accustomed to
employ it chiefly in expense. The one often sees his money go from him,
and return to him again with a profit; the other, when once he parts with
it, very seldom expects to see any more of it. Those different habits
naturally affect their temper and disposition in every sort of business.
The merchant is commonly a bold, a country gentleman a timid undertaker.
The one is not afraid to lay out at once a large capital upon the
improvement of his land, when he has a probable prospect of raising the
value of it in proportion to the expense; the other, if he has any
capital, which is not always the case, seldom ventures to employ it in
this manner. If he improves at all, it is commonly not with a capital, but
with what he can save out or his annual revenue. Whoever has had the
fortune to live in a mercantile town, situated in an unimproved country,
must have frequently observed how much more spirited the operations of
merchants were in this way, than those of mere country gentlemen. The
habits, besides, of order, economy, and attention, to which mercantile
business naturally forms a merchant, render him much fitter to execute,
with profit and success, any project of improvement.
Thirdly, and lastly, commerce and manufactures gradually introduced order
and good government, and with them the liberty and security of
individuals, among the inhabitants of the country, who had before lived
almost in a continual state of war with their neighbours, and of servile
dependency upon their superiors. This, though it has been the least
observed, is by far the most important of all their effects. Mr Hume is
the only writer who, so far as I know, has hitherto taken notice of it.
In a country which has neither foreign commerce nor any of the finer
manufactures, a great proprietor, having nothing for which he can exchange
the greater part of the produce of his lands which is over and above the
maintenance of the cultivators, consumes the whole in rustic hospitality
at home. If this surplus produce is sufficient to maintain a hundred or a
thousand men, he can make use of it in no other way than by maintaining a
hundred or a thousand men. He is at all times, therefore, surrounded with
a multitude of retainers and dependants, who, having no equivalent to give
in return for their maintenance, but being fed entirely by his bounty,
must obey him, for the same reason that soldiers must obey the prince who
pays them. Before the extension of commerce and manufactures in Europe,
the hospitality of the rich and the great, from the sovereign down to the
smallest baron, exceeded every thing which, in the present times, we can
easily form a notion of Westminster-hall was the dining-room of William
Rufus, and might frequently, perhaps, not be too large for his company. It
was reckoned a piece of magnificence in Thomas Becket, that he strewed the
floor of his hall with clean hay or rushes in the season, in order that
the knights and squires, who could not get seats, might not spoil their
fine clothes when they sat down on the floor to eat their dinner. The
great Earl of Warwick is said to have entertained every day, at his
different manors, 30,000 people; and though the number here may have been
exaggerated, it must, however, have been very great to admit of such
exaggeration. A hospitality nearly of the same kind was exercised not many
years ago in many different parts of the Highlands of Scotland. It seems
to be common in all nations to whom commerce and manufactures are little
known. I have seen, says Doctor Pocock, an Arabian chief dine in the
streets of a town where he had come to sell his cattle, and invite all
passengers, even common beggars, to sit down with him and partake of his
banquet.
The occupiers of land were in every respect as dependent upon the great
proprietor as his retainers. Even such of them as were not in a state of
villanage, were tenants at will, who paid a rent in no respect equivalent
to the subsistence which the land afforded them. A crown, half a crown, a
sheep, a lamb, was some years ago, in the Highlands of Scotland, a common
rent for lands which maintained a family. In some places it is so at this
day; nor will money at present purchase a greater quantity of commodities
there than in other places. In a country where the surplus produce of a
large estate must be consumed upon the estate itself, it will frequently
be more convenient for the proprietor, that part of it be consumed at a
distance from his own house, provided they who consume it are as dependent
upon him as either his retainers or his menial servants. He is thereby
saved from the embarrassment of either too large a company, or too large a
family. A tenant at will, who possesses land sufficient to maintain his
family for little more than a quit-rent, is as dependent upon the
proprietor as any servant or retainer whatever, and must obey him with as
little reserve. Such a proprietor, as he feeds his servants and retainers
at his own house, so he feeds his tenants at their houses. The subsistence
of both is derived from his bounty, and its continuance depends upon his
good pleasure.
Upon the authority which the great proprietors necessarily had, in such a
state of things, over their tenants and retainers, was founded the power
of the ancient barons. They necessarily became the judges in peace, and
the leaders in war, of all who dwelt upon their estates. They could
maintain order, and execute the law, within their respective demesnes,
because each of them could there turn the whole force of all the
inhabitants against the injustice of anyone. No other person had
sufficient authority to do this. The king, in particular, had not. In
those ancient times, he was little more than the greatest proprietor in
his dominions, to whom, for the sake of common defence against their
common enemies, the other great proprietors paid certain respects. To have
enforced payment of a small debt within the lands of a great proprietor,
where all the inhabitants were armed, and accustomed to stand by one
another, would have cost the king, had he attempted it by his own
authority, almost the same effort as to extinguish a civil war. He was,
therefore, obliged to abandon the administration of justice, through the
greater part of the country, to those who were capable of administering
it; and, for the same reason, to leave the command of the country militia
to those whom that militia would obey.
It is a mistake to imagine that those territorial jurisdictions took their
origin from the feudal law. Not only the highest jurisdictions, both civil
and criminal, but the power of levying troops, of coining money, and even
that of making bye-laws for the government of their own people, were all
rights possessed allodially by the great proprietors of land, several
centuries before even the name of the feudal law was known in Europe. The
authority and jurisdiction of the Saxon lords in England appear to have
been as great before the Conquest as that of any of the Norman lords after
it. But the feudal law is not supposed to have become the common law of
England till after the Conquest. That the most extensive authority and
jurisdictions were possessed by the great lords in France allodially, long
before the feudal law was introduced into that country, is a matter of
fact that admits of no doubt. That authority, and those jurisdictions, all
necessarily flowed from the state of property and manners just now
described. Without remounting to the remote antiquities of either the
French or English monarchies, we may find, in much later times, many
proofs that such effects must always flow from such causes. It is not
thirty years ago since Mr Cameron of Lochiel, a gentleman of Lochaber in
Scotland, without any legal warrant whatever, not being what was then
called a lord of regality, nor even a tenant in chief, but a vassal of the
Duke of Argyll, and with out being so much as a justice of peace, used,
notwithstanding, to exercise the highest criminal jurisdictions over his
own people. He is said to have done so with great equity, though without
any of the formalities of justice; and it is not improbable that the state
of that part of the country at that time made it necessary for him to
assume this authority, in order to maintain the public peace. That
gentleman, whose rent never exceeded £500 a-year, carried, in 1745, 800 of
his own people into the rebellion with him.
The introduction of the feudal law, so far from extending, may be regarded
as an attempt to moderate, the authority of the great allodial lords. It
established a regular subordination, accompanied with a long train of
services and duties, from the king down to the smallest proprietor. During
the minority of the proprietor, the rent, together with the management of
his lands, fell into the hands of his immediate superior; and,
consequently, those of all great proprietors into the hands of the king,
who was charged with the maintenance and education of the pupil, and who,
from his authority as guardian, was supposed to have a right of disposing
of him in marriage, provided it was in a manner not unsuitable to his
rank. But though this institution necessarily tended to strengthen the
authority of the king, and to weaken that of the great proprietors, it
could not do either sufficiently for establishing order and good
government among the inhabitants of the country; because it could not
alter sufficiently that state of property and manners from which the
disorders arose. The authority of government still continued to be, as
before, too weak in the head, and too strong in the inferior members; and
the excessive strength of the inferior members was the cause of the
weakness of the head. After the institution of feudal subordination, the
king was as incapable of restraining the violence of the great lords as
before. They still continued to make war according to their own
discretion, almost continually upon one another, and very frequently upon
the king; and the open country still continued to be a scene of violence,
rapine, and disorder.
But what all the violence of the feudal institutions could never have
effected, the silent and insensible operation of foreign commerce and
manufactures gradually brought about. These gradually furnished the great
proprietors with something for which they could exchange the whole surplus
produce of their lands, and which they could consume themselves, without
sharing it either with tenants or retainers. All for ourselves, and
nothing for other people, seems, in every age of the world, to have been
the vile maxim of the masters of mankind. As soon, therefore, as they
could find a method of consuming the whole value of their rents
themselves, they had no disposition to share them with any other persons.
For a pair of diamond buckles, perhaps, or for something as frivolous and
useless, they exchanged the maintenance, or, what is the same thing, the
price of the maintenance of 1000 men for a year, and with it the whole
weight and authority which it could give them. The buckles, however, were
to be all their own, and no other human creature was to have any share of
them; whereas, in the more ancient method of expense, they must have
shared with at least 1000 people. With the judges that were to determine
the preference, this difference was perfectly decisive; and thus, for the
gratification of the most childish, the meanest, and the most sordid of
all vanities they gradually bartered their whole power and authority.
In a country where there is no foreign commerce, nor any of the finer
manufactures, a man of £10,000 a-year cannot well employ his revenue in
any other way than in maintaining, perhaps, 1000 families, who are all of
them necessarily at his command. In the present state of Europe, a man of
£10,000 a-year can spend his whole revenue, and he generally does so,
without directly maintaining twenty people, or being able to command more
than ten footmen, not worth the commanding. Indirectly, perhaps, he
maintains as great, or even a greater number of people, than he could have
done by the ancient method of expense. For though the quantity of precious
productions for which he exchanges his whole revenue be very small, the
number of workmen employed in collecting and preparing it must necessarily
have been very great. Its great price generally arises from the wages of
their labour, and the profits of all their immediate employers. By paying
that price, he indirectly pays all those wages and profits, and thus
indirectly contributes to the maintenance of all the workmen and their
employers. He generally contributes, however, but a very small proportion
to that of each; to a very few, perhaps, not a tenth, to many not a
hundredth, and to some not a thousandth, or even a ten thousandth part of
their whole annual maintenance. Though he contributes, therefore, to the
maintenance of them all, they are all more or less independent of him,
because generally they can all be maintained without him.
When the great proprietors of land spend their rents in maintaining their
tenants and retainers, each of them maintains entirely all his own tenants
and all his own retainers. But when they spend them in maintaining
tradesmen and artificers, they may, all of them taken together, perhaps
maintain as great, or, on account of the waste which attends rustic
hospitality, a greater number of people than before. Each of them,
however, taken singly, contributes often but a very small share to the
maintenance of any individual of this greater number. Each tradesman or
artificer derives his subsistence from the employment, not of one, but of
a hundred or a thousand different customers. Though in some measure
obliged to them all, therefore, he is not absolutely dependent upon any
one of them.
The personal expense of the great proprietors having in this manner
gradually increased, it was impossible that the number of their retainers
should not as gradually diminish, till they were at last dismissed
altogether. The same cause gradually led them to dismiss the unnecessary
part of their tenants. Farms were enlarged, and the occupiers of land,
notwithstanding the complaints of depopulation, reduced to the number
necessary for cultivating it, according to the imperfect state of
cultivation and improvement in those times. By the removal of the
unnecessary mouths, and by exacting from the farmer the full value of the
farm, a greater surplus, or, what is the same thing, the price of a
greater surplus, was obtained for the proprietor, which the merchants and
manufacturers soon furnished him with a method of spending upon his own
person, in the same manner as he had done the rest. The cause continuing
to operate, he was desirous to raise his rents above what his lands, in
the actual state of their improvement, could afford. His tenants could
agree to this upon one condition only, that they should be secured in
their possession for such a term of years as might give them time to
recover, with profit, whatever they should lay out in the further
improvement of the land. The expensive vanity of the landlord made him
willing to accept of this condition; and hence the origin of long leases.
Even a tenant at will, who pays the full value of the land, is not
altogether dependent upon the landlord. The pecuniary advantages which
they receive from one another are mutual and equal, and such a tenant will
expose neither his life nor his fortune in the service of the proprietor.
But if he has a lease for a long term of years he is altogether
independent; and his landlord must not expect from him even the most
trifling service, beyond what is either expressly stipulated in the lease,
or imposed upon him by the common and known law of the country.
The tenants having in this manner become independent, and the retainers
being dismissed, the great proprietors were no longer capable of
interrupting the regular execution of justice, or of disturbing the peace
of the country. Having sold their birth-right, not like Esau, for a mess
of pottage in time of hunger and necessity, but, in the wantonness of
plenty, for trinkets and baubles, fitter to be the playthings of children
than the serious pursuits of men, they became as insignificant as any
substantial burgher or tradesmen in a city. A regular government was
established in the country as well as in the city, nobody having
sufficient power to disturb its operations in the one, any more than in
the other.
It does not, perhaps, relate to the present subject, but I cannot help
remarking it, that very old families, such as have possessed some
considerable estate from father to son for many successive generations,
are very rare in commercial countries. In countries which have little
commerce, on the contrary, such as Wales, or the Highlands of Scotland,
they are very common. The Arabian histories seem to be all full of
genealogies; and there is a history written by a Tartar Khan, which has
been translated into several European languages, and which contains scarce
any thing else; a proof that ancient families are very common among those
nations. In countries where a rich man can spend his revenue in no other
way than by maintaining as many people as it can maintain, he is apt to
run out, and his benevolence, it seems, is seldom so violent as to attempt
to maintain more than he can afford. But where he can spend the greatest
revenue upon his own person, he frequently has no bounds to his expense,
because he frequently has no bounds to his vanity, or to his affection for
his own person. In commercial countries, therefore, riches, in spite of
the most violent regulations of law to prevent their dissipation, very
seldom remain long in the same family. Among simple nations, on the
contrary, they frequently do, without any regulations of law; for among
nations of shepherds, such as the Tartars and Arabs, the consumable nature
of their property necessarily renders all such regulations impossible.
A revolution of the greatest importance to the public happiness, was in
this manner brought about by two different orders of people, who had not
the least intention to serve the public. To gratify the most childish
vanity was the sole motive of the great proprietors. The merchants and
artificers, much less ridiculous, acted merely from a view to their own
interest, and in pursuit of their own pedlar principle of turning a penny
wherever a penny was to be got. Neither of them had either knowledge or
foresight of that great revolution which the folly of the one, and the
industry of the other, was gradually bringing about.
It was thus, that, through the greater part of Europe, the commerce and
manufactures of cities, instead of being the effect, have been the cause
and occasion of the improvement and cultivation of the country.
This order, however, being contrary to the natural course of things, is
necessarily both slow and uncertain. Compare the slow progress of those
European countries of which the wealth depends very much upon their
commerce and manufactures, with the rapid advances of our North American
colonies, of which the wealth is founded altogether in agriculture.
Through the greater part of Europe, the number of inhabitants is not
supposed to double in less than five hundred years. In several of our
North American colonies, it is found to double in twenty or
five-and-twenty years. In Europe, the law of primogeniture, and
perpetuities of different kinds, prevent the division of great estates,
and thereby hinder the multiplication of small proprietors. A small
proprietor, however, who knows every part of his little territory, views
it with all the affection which property, especially small property,
naturally inspires, and who upon that account takes pleasure, not only in
cultivating, but in adorning it, is generally of all improvers the most
industrious, the most intelligent, and the most successful. The same
regulations, besides, keep so much land out of the market, that there are
always more capitals to buy than there is land to sell, so that what is
sold always sells at a monopoly price. The rent never pays the interest of
the purchase-money, and is, besides, burdened with repairs and other
occasional charges, to which the interest of money is not liable. To
purchase land, is, everywhere in Europe, a most unprofitable employment of
a small capital. For the sake of the superior security, indeed, a man of
moderate circumstances, when he retires from business, will sometimes
choose to lay out his little capital in land. A man of profession, too
whose revenue is derived from another source often loves to secure his
savings in the same way. But a young man, who, instead of applying to
trade or to some profession, should employ a capital of two or three
thousand pounds in the purchase and cultivation of a small piece of land,
might indeed expect to live very happily and very independently, but must
bid adieu for ever to all hope of either great fortune or great
illustration, which, by a different employment of his stock, he might have
had the same chance of acquiring with other people. Such a person, too,
though he cannot aspire at being a proprietor, will often disdain to be a
farmer. The small quantity of land, therefore, which is brought to market,
and the high price of what is brought thither, prevents a great number of
capitals from being employed in its cultivation and improvement, which
would otherwise have taken that direction. In North America, on the
contrary, fifty or sixty pounds is often found a sufficient stock to begin
a plantation with. The purchase and improvement of uncultivated land is
there the most profitable employment of the smallest as well as of the
greatest capitals, and the most direct road to all the fortune and
illustration which can be required in that country. Such land, indeed, is
in North America to be had almost for nothing, or at a price much below
the value of the natural produce; a thing impossible in Europe, or indeed
in any country where all lands have long been private property. If landed
estates, however, were divided equally among all the children, upon the
death of any proprietor who left a numerous family, the estate would
generally be sold. So much land would come to market, that it could no
longer sell at a monopoly price. The free rent of the land would go no
nearer to pay the interest of the purchase-money, and a small capital
might be employed in purchasing land as profitable as in any other way.
England, on account of the natural fertility of the soil, of the great
extent of the sea-coast in proportion to that of the whole country, and of
the many navigable rivers which run through it, and afford the conveniency
of water carriage to some of the most inland parts of it, is perhaps as
well fitted by nature as any large country in Europe to be the seat of
foreign commerce, of manufactures for distant sale, and of all the
improvements which these can occasion. From the beginning of the reign of
Elizabeth, too, the English legislature has been peculiarly attentive to
the interest of commerce and manufactures, and in reality there is no
country in Europe, Holland itself not excepted, of which the law is, upon
the whole, more favourable to this sort of industry. Commerce and
manufactures have accordingly been continually advancing during all this
period. The cultivation and improvement of the country has, no doubt, been
gradually advancing too; but it seems to have followed slowly, and at a
distance, the more rapid progress of commerce and manufactures. The
greater part of the country must probably have been cultivated before the
reign of Elizabeth; and a very great part of it still remains
uncultivated, and the cultivation of the far greater part much inferior to
what it might be, The law of England, however, favours agriculture, not
only indirectly, by the protection of commerce, but by several direct
encouragements. Except in times of scarcity, the exportation of corn is
not only free, but encouraged by a bounty. In times of moderate plenty,
the importation of foreign corn is loaded with duties that amount to a
prohibition. The importation of live cattle, except from Ireland, is
prohibited at all times; and it is but of late that it was permitted from
thence. Those who cultivate the land, therefore, have a monopoly against
their countrymen for the two greatest and most important articles of land
produce, bread and butcher’s meat. These encouragements, although at
bottom, perhaps, as I shall endeavour to show hereafter, altogether
illusory, sufficiently demonstrate at least the good intention of the
legislature to favour agriculture. But what is of much more importance
than all of them, the yeomanry of England are rendered as secure, as
independent, and as respectable, as law can make them. No country,
therefore, which the right of primogeniture takes place, which pays
tithes, and where perpetuities, though contrary to the spirit of the law,
are admitted in some cases, can give more encouragement to agriculture
than England. Such, however, notwithstanding, is the state of its
cultivation. What would it have been, had the law given no direct
encouragement to agriculture besides what arises indirectly from the
progress of commerce, and had left the yeomanry in the same condition as
in most other countries of Europe? It is now more than two hundred years
since the beginning of the reign of Elizabeth, a period as long as the
course of human prosperity usually endures.
France seems to have had a considerable share of foreign commerce, near a
century before England was distinguished as a commercial country. The
marine of France was considerable, according to the notions of the times,
before the expedition of Charles VIII. to Naples. The cultivation and
improvement of France, however, is, upon the whole, inferior to that of
England. The law of the country has never given the same direct
encouragement to agriculture.
The foreign commerce of Spain and Portugal to the other parts of Europe,
though chiefly carried on in foreign ships, is very considerable. That to
their colonies is carried on in their own, and is much greater, on account
of the great riches and extent of those colonies. But it has never
introduced any considerable manufactures for distant sale into either of
those countries, and the greater part of both still remains uncultivated.
The foreign commerce of Portugal is of older standing than that of any
great country in Europe, except Italy.
Italy is the only great country of Europe which seems to have been
cultivated and improved in every part, by means of foreign commerce and
manufactures for distant sale. Before the invasion of Charles VIII.,
Italy, according to Guicciardini, was cultivated not less in the most
mountainous and barren parts of the country, than in the plainest and most
fertile. The advantageous situation of the country, and the great number
of independent states which at that time subsisted in it, probably
contributed not a little to this general cultivation. It is not
impossible, too, notwithstanding this general expression of one of the
most judicious and reserved of modern historians, that Italy was not at
that time better cultivated than England is at present.
The capital, however, that is acquired to any country by commerce and
manufactures, is always a very precarious and uncertain possession, till
some part of it has been secured and realized in the cultivation and
improvement of its lands. A merchant, it has been said very properly, is
not necessarily the citizen of any particular country. It is in a great
measure indifferent to him from what place he carries on his trade; and a
very trifling disgust will make him remove his capital, and, together with
it, all the industry which it supports, from one country to another. No
part of it can be said to belong to any particular country, till it has
been spread, as it were, over the face of that country, either in
buildings, or in the lasting improvement of lands. No vestige now remains
of the great wealth said to have been possessed by the greater part of the
Hanse Towns, except in the obscure histories of the thirteenth and
fourteenth centuries. It is even uncertain where some of them were
situated, or to what towns in Europe the Latin names given to some of them
belong. But though the misfortunes of Italy, in the end of the fifteenth
and beginning of the sixteenth centuries, greatly diminished the commerce
and manufactures of the cities of Lombardy and Tuscany, those countries
still continue to be among the most populous and best cultivated in
Europe. The civil wars of Flanders, and the Spanish government which
succeeded them, chased away the great commerce of Antwerp, Ghent, and
Bruges. But Flanders still continues to be one of the richest, best
cultivated, and most populous provinces of Europe. The ordinary
revolutions of war and government easily dry up the sources of that wealth
which arises from commerce only. That which arises from the more solid
improvements of agriculture is much more durable, and cannot be destroyed
but by those more violent convulsions occasioned by the depredations of
hostile and barbarous nations continued for a century or two together;
such as those that happened for some time before and after the fall of the
Roman empire in the western provinces of Europe.

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id: book-4-chapter-01
title: "OF THE PRINCIPLE OF THE COMMERCIAL OR MERCANTILE SYSTEM."
book: "4"
chapter: 1
artifact_type: content
---
CHAPTER I.
OF THE PRINCIPLE OF THE COMMERCIAL OR
MERCANTILE SYSTEM.
That wealth consists in money, or in gold and silver, is a popular notion
which naturally arises from the double function of money, as the
instrument of commerce, and as the measure of value. In consequence of its
being the instrument of commerce, when we have money we can more readily
obtain whatever else we have occasion for, than by means of any other
commodity. The great affair, we always find, is to get money. When that is
obtained, there is no difficulty in making any subsequent purchase. In
consequence of its being the measure of value, we estimate that of all
other commodities by the quantity of money which they will exchange for.
We say of a rich man, that he is worth a great deal, and of a poor man,
that he is worth very little money. A frugal man, or a man eager to be
rich, is said to love money; and a careless, a generous, or a profuse man,
is said to be indifferent about it. To grow rich is to get money; and
wealth and money, in short, are, in common language, considered as in
every respect synonymous.
A rich country, in the same manner as a rich man, is supposed to be a
country abounding in money; and to heap up gold and silver in any country
is supposed to be the readiest way to enrich it. For some time after the
discovery of America, the first inquiry of the Spaniards, when they
arrived upon any unknown coast, used to be, if there was any gold or
silver to be found in the neighbourhood? By the information which they
received, they judged whether it was worth while to make a settlement
there, or if the country was worth the conquering. Plano Carpino, a monk
sent ambassador from the king of France to one of the sons of the famous
Gengis Khan, says, that the Tartars used frequently to ask him, if there
was plenty of sheep and oxen in the kingdom of France? Their inquiry had
the same object with that of the Spaniards. They wanted to know if the
country was rich enough to be worth the conquering. Among the Tartars, as
among all other nations of shepherds, who are generally ignorant of the
use of money, cattle are the instruments of commerce and the measures of
value. Wealth, therefore, according to them, consisted in cattle, as,
according to the Spaniards, it consisted in gold and silver. Of the two,
the Tartar notion, perhaps, was the nearest to the truth.
Mr Locke remarks a distinction between money and other moveable goods. All
other moveable goods, he says, are of so consumable a nature, that the
wealth which consists in them cannot be much depended on; and a nation
which abounds in them one year may, without any exportation, but merely by
their own waste and extravagance, be in great want of them the next.
Money, on the contrary, is a steady friend, which, though it may travel
about from hand to hand, yet if it can be kept from going out of the
country, is not very liable to be wasted and consumed. Gold and silver,
therefore, are, according to him, the must solid and substantial part of
the moveable wealth of a nation; and to multiply those metals ought, he
thinks, upon that account, to be the great object of its political
economy.
Others admit, that if a nation could be separated from all the world, it
would be of no consequence how much or how little money circulated in it.
The consumable goods, which were circulated by means of this money, would
only be exchanged for a greater or a smaller number of pieces; but the
real wealth or poverty of the country, they allow, would depend altogether
upon the abundance or scarcity of those consumable goods. But it is
otherwise, they think, with countries which have connections with foreign
nations, and which are obliged to carry on foreign wars, and to maintain
fleets and armies in distant countries. This, they say, cannot be done,
but by sending abroad money to pay them with; and a nation cannot send
much money abroad, unless it has a good deal at home. Every such nation,
therefore, must endeavour, in time of peace, to accumulate gold and
silver, that when occasion requires, it may have wherewithal to carry on
foreign wars.
In consequence of those popular notions, all the different nations of
Europe have studied, though to little purpose, every possible means of
accumulating gold and silver in their respective countries. Spain and
Portugal, the proprietors of the principal mines which supply Europe with
those metals, have either prohibited their exportation under the severest
penalties, or subjected it to a considerable duty. The like prohibition
seems anciently to have made a part of the policy of most other European
nations. It is even to be found, where we should least of all expect to
find it, in some old Scotch acts of Parliament, which forbid, under heavy
penalties, the carrying gold or silver forth of the kingdom. The like
policy anciently took place both in France and England.
When those countries became commercial, the merchants found this
prohibition, upon many occasions, extremely inconvenient. They could
frequently buy more advantageously with gold and silver, than with any
other commodity, the foreign goods which they wanted, either to import
into their own, or to carry to some other foreign country. They
remonstrated, therefore, against this prohibition as hurtful to trade.
They represented, first, that the exportation of gold and silver, in order
to purchase foreign goods, did not always diminish the quantity of those
metals in the kingdom; that, on the contrary, it might frequently increase
the quantity; because, if the consumption of foreign goods was not thereby
increased in the country, those goods might be re-exported to foreign
countries, and being there sold for a large profit, might bring back much
more treasure than was originally sent out to purchase them. Mr Mun
compares this operation of foreign trade to the seed-time and harvest of
agriculture. “If we only behold,” says he, “the actions of the husbandman
in the seed time, when he casteth away much good corn into the ground, we
shall account him rather a madman than a husbandman. But when we consider
his labours in the harvest, which is the end of his endeavours, we shall
find the worth and plentiful increase of his actions.”
They represented, secondly, that this prohibition could not hinder the
exportation of gold and silver, which, on account of the smallness of
their bulk in proportion to their value, could easily be smuggled abroad.
That this exportation could only be prevented by a proper attention to
what they called the balance of trade. That when the country exported to a
greater value than it imported, a balance became due to it from foreign
nations, which was necessarily paid to it in gold and silver, and thereby
increased the quantity of those metals in the kingdom. But that when it
imported to a greater value than it exported, a contrary balance became
due to foreign nations, which was necessarily paid to them in the same
manner, and thereby diminished that quantity: that in this case, to
prohibit the exportation of those metals, could not prevent it, but only,
by making it more dangerous, render it more expensive: that the exchange
was thereby turned more against the country which owed the balance, than
it otherwise might have been; the merchant who purchased a bill upon the
foreign country being obliged to pay the banker who sold it, not only for
the natural risk, trouble, and expense of sending the money thither, but
for the extraordinary risk arising from the prohibition; but that the more
the exchange was against any country, the more the balance of trade became
necessarily against it; the money of that country becoming necessarily of
so much less value, in comparison with that of the country to which the
balance was due. That if the exchange between England and Holland, for
example, was five per cent. against England, it would require 105 ounces
of silver in England to purchase a bill for 100 ounces of silver in
Holland: that 105 ounces of silver in England, therefore, would be worth
only 100 ounces of silver in Holland, and would purchase only a
proportionable quantity of Dutch goods; but that 100 ounces of silver in
Holland, on the contrary, would be worth 105 ounces in England, and would
purchase a proportionable quantity of English goods; that the English
goods which were sold to Holland would be sold so much cheaper, and the
Dutch goods which were sold to England so much dearer, by the difference
of the exchange: that the one would draw so much less Dutch money to
England, and the other so much more English money to Holland, as this
difference amounted to: and that the balance of trade, therefore, would
necessarily be so much more against England, and would require a greater
balance of gold and silver to be exported to Holland.
Those arguments were partly solid and partly sophistical. They were solid,
so far as they asserted that the exportation of gold and silver in trade
might frequently be advantageous to the country. They were solid, too, in
asserting that no prohibition could prevent their exportation, when
private people found any advantage in exporting them. But they were
sophistical, in supposing, that either to preserve or to augment the
quantity of those metals required more the attention of government, than
to preserve or to augment the quantity of any other useful commodities,
which the freedom of trade, without any such attention, never fails to
supply in the proper quantity. They were sophistical, too, perhaps, in
asserting that the high price of exchange necessarily increased what they
called the unfavourable balance of trade, or occasioned the exportation of
a greater quantity of gold and silver. That high price, indeed, was
extremely disadvantageous to the merchants who had any money to pay in
foreign countries. They paid so much dearer for the bills which their
bankers granted them upon those countries. But though the risk arising
from the prohibition might occasion some extraordinary expense to the
bankers, it would not necessarily carry any more money out of the country.
This expense would generally be all laid out in the country, in smuggling
the money out of it, and could seldom occasion the exportation of a single
sixpence beyond the precise sum drawn for. The high price of exchange,
too, would naturally dispose the merchants to endeavour to make their
exports nearly balance their imports, in order that they might have this
high exchange to pay upon as small a sum as possible. The high price of
exchange, besides, must necessarily have operated as a tax, in raising the
price of foreign goods, and thereby diminishing their consumption. It
would tend, therefore, not to increase, but to diminish, what they called
the unfavourable balance of trade, and consequently the exportation of
gold and silver.
Such as they were, however, those arguments convinced the people to whom
they were addressed. They were addressed by merchants to parliaments and
to the councils of princes, to nobles, and to country gentlemen; by those
who were supposed to understand trade, to those who were conscious to them
selves that they knew nothing about the matter. That foreign trade
enriched the country, experience demonstrated to the nobles and country
gentlemen, as well as to the merchants; but how, or in what manner, none
of them well knew. The merchants knew perfectly in what manner it enriched
themselves, it was their business to know it. But to know in what manner
it enriched the country, was no part of their business. The subject never
came into their consideration, but when they had occasion to apply to
their country for some change in the laws relating to foreign trade. It
then became necessary to say something about the beneficial effects of
foreign trade, and the manner in which those effects were obstructed by
the laws as they then stood. To the judges who were to decide the
business, it appeared a most satisfactory account of the matter, when they
were told that foreign trade brought money into the country, but that the
laws in question hindered it from bringing so much as it otherwise would
do. Those arguments, therefore, produced the wished-for effect. The
prohibition of exporting gold and silver was, in France and England,
confined to the coin of those respective countries. The exportation of
foreign coin and of bullion was made free. In Holland, and in some other
places, this liberty was extended even to the coin of the country. The
attention of government was turned away from guarding against the
exportation of gold and silver, to watch over the balance of trade, as the
only cause which could occasion any augmentation or diminution of those
metals. From one fruitless care, it was turned away to another care much
more intricate, much more embarrassing, and just equally fruitless. The
title of Mun’s book, England’s Treasure in Foreign Trade, became a
fundamental maxim in the political economy, not of England only, but of
all other commercial countries. The inland or home trade, the most
important of all, the trade in which an equal capital affords the greatest
revenue, and creates the greatest employment to the people of the country,
was considered as subsidiary only to foreign trade. It neither brought
money into the country, it was said, nor carried any out of it. The
country, therefore, could never become either richer or poorer by means of
it, except so far as its prosperity or decay might indirectly influence
the state of foreign trade.
A country that has no mines of its own, must undoubtedly draw its gold and
silver from foreign countries, in the same manner as one that has no
vineyards of its own must draw its wines. It does not seem necessary,
however, that the attention of government should be more turned towards
the one than towards the other object. A country that has wherewithal to
buy wine, will always get the wine which it has occasion for; and a
country that has wherewithal to buy gold and silver, will never be in want
of those metals. They are to be bought for a certain price, like all other
commodities; and as they are the price of all other commodities, so all
other commodities are the price of those metals. We trust, with perfect
security, that the freedom of trade, without any attention of government,
will always supply us with the wine which we have occasion for; and we may
trust, with equal security, that it will always supply us with all the
gold and silver which we can afford to purchase or to employ, either in
circulating our commodities or in other uses.
The quantity of every commodity which human industry can either purchase
or produce, naturally regulates itself in every country according to the
effectual demand, or according to the demand of those who are willing to
pay the whole rent, labour, and profits, which must be paid in order to
prepare and bring it to market. But no commodities regulate themselves
more easily or more exactly, according to this effectual demand, than gold
and silver; because, on account of the small bulk and great value of those
metals, no commodities can be more easily transported from one place to
another; from the places where they are cheap, to those where they are
dear; from the places where they exceed, to those where they fall short of
this effectual demand. If there were in England, for example, an effectual
demand for an additional quantity of gold, a packet-boat could bring from
Lisbon, or from wherever else it was to be had, fifty tons of gold, which
could be coined into more than five millions of guineas. But if there were
an effectual demand for grain to the same value, to import it would
require, at five guineas a-ton, a million of tons of shipping, or a
thousand ships of a thousand tons each. The navy of England would not be
sufficient.
When the quantity of gold and silver imported into any country exceeds the
effectual demand, no vigilance of government can prevent their
exportation. All the sanguinary laws of Spain and Portugal are not able to
keep their gold and silver at home. The continual importations from Peru
and Brazil exceed the effectual demand of those countries, and sink the
price of those metals there below that in the neighbouring countries. If,
on the contrary, in any particular country, their quantity fell short of
the effectual demand, so as to raise their price above that of the
neighbouring countries, the government would have no occasion to take any
pains to import them. If it were even to take pains to prevent their
importation, it would not be able to effectuate it. Those metals, when the
Spartans had got wherewithal to purchase them, broke through all the
barriers which the laws of Lycurgus opposed to their entrance into
Lacedaemon. All the sanguinary laws of the customs are not able to prevent
the importation of the teas of the Dutch and Gottenburg East India
companies; because somewhat cheaper than those of the British company. A
pound of tea, however, is about a hundred times the bulk of one of the
highest prices, sixteen shillings, that is commonly paid for it in silver,
and more than two thousand times the bulk of the same price in gold, and,
consequently, just so many times more difficult to smuggle.
It is partly owing to the easy transportation of gold and silver, from the
places where they abound to those where they are wanted, that the price of
those metals does not fluctuate continually, like that of the greater part
of other commodities, which are hindered by their bulk from shifting their
situation, when the market happens to be either over or under-stocked with
them. The price of those metals, indeed, is not altogether exempted from
variation; but the changes to which it is liable are generally slow,
gradual, and uniform. In Europe, for example, it is supposed, without much
foundation, perhaps, that during the course of the present and preceding
century, they have been constantly, but gradually, sinking in their value,
on account of the continual importations from the Spanish West Indies. But
to make any sudden change in the price of gold and silver, so as to raise
or lower at once, sensibly and remarkably, the money price of all other
commodities, requires such a revolution in commerce as that occasioned by
the discovery of America.
If, not withstanding all this, gold and silver should at any time fall
short in a country which has wherewithal to purchase them, there are more
expedients for supplying their place, than that of almost any other
commodity. If the materials of manufacture are wanted, industry must stop.
If provisions are wanted, the people must starve. But if money is wanted,
barter will supply its place, though with a good deal of inconveniency.
Buying and selling upon credit, and the different dealers compensating
their credits with one another, once a-month, or once a-year, will supply
it with less inconveniency. A well-regulated paper-money will supply it
not only without any inconveniency, but, in some cases, with some
advantages. Upon every account, therefore, the attention of government
never was so unnecessarily employed, as when directed to watch over the
preservation or increase of the quantity of money in any country.
No complaint, however, is more common than that of a scarcity of money.
Money, like wine, must always be scarce with those who have neither
wherewithal to buy it, nor credit to borrow it. Those who have either,
will seldom be in want either of the money, or of the wine which they have
occasion for. This complaint, however, of the scarcity of money, is not
always confined to improvident spendthrifts. It is sometimes general
through a whole mercantile town and the country in its neighbourhood.
Over-trading is the common cause of it. Sober men, whose projects have
been disproportioned to their capitals, are as likely to have neither
wherewithal to buy money, nor credit to borrow it, as prodigals, whose
expense has been disproportioned to their revenue. Before their projects
can be brought to bear, their stock is gone, and their credit with it.
They run about everywhere to borrow money, and everybody tells them that
they have none to lend. Even such general complaints of the scarcity of
money do not always prove that the usual number of gold and silver pieces
are not circulating in the country, but that many people want those pieces
who have nothing to give for them. When the profits of trade happen to be
greater than ordinary over-trading becomes a general error, both among
great and small dealers. They do not always send more money abroad than
usual, but they buy upon credit, both at home and abroad, an unusual
quantity of goods, which they send to some distant market, in hopes that
the returns will come in before the demand for payment. The demand comes
before the returns, and they have nothing at hand with which they can
either purchase money or give solid security for borrowing. It is not any
scarcity of gold and silver, but the difficulty which such people find in
borrowing, and which their creditor find in getting payment, that
occasions the general complaint of the scarcity of money.
It would be too ridiculous to go about seriously to prove, that wealth
does not consist in money, or in gold and silver; but in what money
purchases, and is valuable only for purchasing. Money, no doubt, makes
always a part of the national capital; but it has already been shown that
it generally makes but a small part, and always the most unprofitable part
of it.
It is not because wealth consists more essentially in money than in goods,
that the merchant finds it generally more easy to buy goods with money,
than to buy money with goods; but because money is the known and
established instrument of commerce, for which every thing is readily given
in exchange, but which is not always with equal readiness to be got in
exchange for every thing. The greater part of goods, besides, are more
perishable than money, and he may frequently sustain a much greater loss
by keeping them. When his goods are upon hand, too, he is more liable to
such demands for money as he may not be able to answer, than when he has
got their price in his coffers. Over and above all this, his profit arises
more directly from selling than from buying; and he is, upon all these
accounts, generally much more anxious to exchange his goods for money than
his money for goods. But though a particular merchant, with abundance of
goods in his warehouse, may sometimes be ruined by not being able to sell
them in time, a nation or country is not liable to the same accident, The
whole capital of a merchant frequently consists in perishable goods
destined for purchasing money. But it is but a very small part of the
annual produce of the land and labour of a country, which can ever be
destined for purchasing gold and silver from their neighbours. The far
greater part is circulated and consumed among themselves; and even of the
surplus which is sent abroad, the greater part is generally destined for
the purchase of other foreign goods. Though gold and silver, therefore,
could not be had in exchange for the goods destined to purchase them, the
nation would not be ruined. It might, indeed, suffer some loss and
inconveniency, and be forced upon some of those expedients which are
necessary for supplying the place of money. The annual produce of its land
and labour, however, would be the same, or very nearly the same as usual;
because the same, or very nearly the same consumable capital would be
employed in maintaining it. And though goods do not always draw money so
readily as money draws goods, in the long-run they draw it more
necessarily than even it draws them. Goods can serve many other purposes
besides purchasing money, but money can serve no other purpose besides
purchasing goods. Money, therefore, necessarily runs after goods, but
goods do not always or necessarily run after money. The man who buys, does
not always mean to sell again, but frequently to use or to consume;
whereas he who sells always means to buy again. The one may frequently
have done the whole, but the other can never have done more than the one
half of his business. It is not for its own sake that men desire money,
but for the sake of what they can purchase with it.
Consumable commodities, it is said, are soon destroyed; whereas gold and
silver are of a more durable nature, and were it not for this continual
exportation, might be accumulated for ages together, to the incredible
augmentation of the real wealth of the country. Nothing, therefore, it is
pretended, can be more disadvantageous to any country, than the trade
which consists in the exchange of such lasting for such perishable
commodities. We do not, however, reckon that trade disadvantageous, which
consists in the exchange of the hardware of England for the wines of
France, and yet hardware is a very durable commodity, and were it not for
this continual exportation, might too be accumulated for ages together, to
the incredible augmentation of the pots and pans of the country. But it
readily occurs, that the number of such utensils is in every country
necessarily limited by the use which there is for them; that it would be
absurd to have more pots and pans than were necessary for cooking the
victuals usually consumed there; and that, if the quantity of victuals
were to increase, the number of pots and pans would readily increase along
with it; a part of the increased quantity of victuals being employed in
purchasing them, or in maintaining an additional number of workmen whose
business it was to make them. It should as readily occur, that the
quantity of gold and silver is, in every country, limited by the use which
there is for those metals; that their use consists in circulating
commodities, as coin, and in affording a species of household furniture,
as plate; that the quantity of coin in every country is regulated by the
value of the commodities which are to be circulated by it; increase that
value, and immediately a part of it will be sent abroad to purchase,
wherever it is to be had, the additional quantity of coin requisite for
circulating them: that the quantity of plate is regulated by the number
and wealth of those private families who choose to indulge themselves in
that sort of magnificence; increase the number and wealth of such
families, and a part of this increased wealth will most probably be
employed in purchasing, wherever it is to be found, an additional quantity
of plate; that to attempt to increase the wealth of any country, either by
introducing or by detaining in it an unnecessary quantity of gold and
silver, is as absurd as it would be to attempt to increase the good cheer
of private families, by obliging them to keep an unnecessary number of
kitchen utensils. As the expense of purchasing those unnecessary utensils
would diminish, instead of increasing, either the quantity or goodness of
the family provisions; so the expense of purchasing an unnecessary
quantity of gold and silver must, in every country, as necessarily
diminish the wealth which feeds, clothes, and lodges, which maintains and
employs the people. Gold and silver, whether in the shape of coin or of
plate, are utensils, it must be remembered, as much as the furniture of
the kitchen. Increase the use of them, increase the consumable commodities
which are to be circulated, managed, and prepared by means of them, and
you will infallibly increase the quantity; but if you attempt by
extraordinary means to increase the quantity, you will as infallibly
diminish the use, and even the quantity too, which in those metals can
never be greater than what the use requires. Were they ever to be
accumulated beyond this quantity, their transportation is so easy, and the
loss which attends their lying idle and unemployed so great, that no law
could prevent their being immediately sent out of the country.
It is not always necessary to accumulate gold and silver, in order to
enable a country to carry on foreign wars, and to maintain fleets and
armies in distant countries. Fleets and armies are maintained, not with
gold and silver, but with consumable goods. The nation which, from the
annual produce of its domestic industry, from the annual revenue arising
out of its lands, and labour, and consumable stock, has wherewithal to
purchase those consumable goods in distant countries, can maintain foreign
wars there.
A nation may purchase the pay and provisions of an army in a distant
country three different ways; by sending abroad either, first, some part
of its accumulated gold and silver; or, secondly, some part of the annual
produce of its manufactures; or, last of all, some part of its annual rude
produce.
The gold and silver which can properly be considered as accumulated, or
stored up in any country, may be distinguished into three parts; first,
the circulating money; secondly, the plate of private families; and, last
of all, the money which may have been collected by many years parsimony,
and laid up in the treasury of the prince.
It can seldom happen that much can be spared from the circulating money of
the country; because in that there can seldom be much redundancy. The
value of goods annually bought and sold in any country requires a certain
quantity of money to circulate and distribute them to their proper
consumers, and can give employment to no more. The channel of circulation
necessarily draws to itself a sum sufficient to fill it, and never admits
any more. Something, however, is generally withdrawn from this channel in
the case of foreign war. By the great number of people who are maintained
abroad, fewer are maintained at home. Fewer goods are circulated there,
and less money becomes necessary to circulate them. An extraordinary
quantity of paper money of some sort or other, too, such as exchequer
notes, navy bills, and bank bills, in England, is generally issued upon
such occasions, and, by supplying the place of circulating gold and
silver, gives an opportunity of sending a greater quantity of it abroad.
All this, however, could afford but a poor resource for maintaining a
foreign war, of great expense, and several years duration.
The melting down of the plate of private families has, upon every
occasion, been found a still more insignificant one. The French, in the
beginning of the last war, did not derive so much advantage from this
expedient as to compensate the loss of the fashion.
The accumulated treasures of the prince have in former times afforded a
much greater and more lasting resource. In the present times, if you
except the king of Prussia, to accumulate treasure seems to be no part of
the policy of European princes.
The funds which maintained the foreign wars of the present century, the
most expensive perhaps which history records, seem to have had little
dependency upon the exportation either of the circulating money, or of the
plate of private families, or of the treasure of the prince. The last
French war cost Great Britain upwards of £90,000,000, including not only
the £75,000,000 of new debt that was contracted, but the additional 2s. in
the pound land-tax, and what was annually borrowed of the sinking fund.
More than two-thirds of this expense were laid out in distant countries;
in Germany, Portugal, America, in the ports of the Mediterranean, in the
East and West Indies. The kings of England had no accumulated treasure. We
never heard of any extraordinary quantity of plate being melted down. The
circulating gold and silver of the country had not been supposed to exceed
£18,000,000. Since the late recoinage of the gold, however, it is believed
to have been a good deal under-rated. Let us suppose, therefore, according
to the most exaggerated computation which I remember to have either seen
or heard of, that, gold and silver together, it amounted to £30,000,000.
Had the war been carried on by means of our money, the whole of it must,
even according to this computation, have been sent out and returned again,
at least twice in a period of between six and seven years. Should this be
supposed, it would afford the most decisive argument, to demonstrate how
unnecessary it is for government to watch over the preservation of money,
since, upon this supposition, the whole money of the country must have
gone from it, and returned to it again, two different times in so short a
period, without any body’s knowing any thing of the matter. The channel of
circulation, however, never appeared more empty than usual during any part
of this period. Few people wanted money who had wherewithal to pay for it.
The profits of foreign trade, indeed, were greater than usual during the
whole war, but especially towards the end of it. This occasioned, what it
always occasions, a general over-trading in all the ports of Great
Britain; and this again occasioned the usual complaint of the scarcity of
money, which always follows over-trading. Many people wanted it, who had
neither wherewithal to buy it, nor credit to borrow it; and because the
debtors found it difficult to borrow, the creditors found it difficult to
get payment. Gold and silver, however, were generally to be had for their
value, by those who had that value to give for them.
The enormous expense of the late war, therefore, must have been chiefly
defrayed, not by the exportation of gold and silver, but by that of
British commodities of some kind or other. When the government, or those
who acted under them, contracted with a merchant for a remittance to some
foreign country, he would naturally endeavour to pay his foreign
correspondent, upon whom he granted a bill, by sending abroad rather
commodities than gold and silver. If the commodities of Great Britain were
not in demand in that country, he would endeavour to send them to some
other country in which he could purchase a bill upon that country. The
transportation of commodities, when properly suited to the market, is
always attended with a considerable profit; whereas that of gold and
silver is scarce ever attended with any. When those metals are sent abroad
in order to purchase foreign commodities, the merchant’s profit arises,
not from the purchase, but from the sale of the returns. But when they are
sent abroad merely to pay a debt, he gets no returns, and consequently no
profit. He naturally, therefore, exerts his invention to find out a way of
paying his foreign debts, rather by the exportation of commodities, than
by that of gold and silver. The great quantity of British goods, exported
during the course of the late war, without bringing back any returns, is
accordingly remarked by the author of the Present State of the Nation.
Besides the three sorts of gold and silver above mentioned, there is in
all great commercial countries a good deal of bullion alternately imported
and exported, for the purposes of foreign trade. This bullion, as it
circulates among different commercial countries, in the same manner as the
national coin circulates in every country, may be considered as the money
of the great mercantile republic. The national coin receives its movement
and direction from the commodities circulated within the precincts of each
particular country; the money in the mercantile republic, from those
circulated between different countries. Both are employed in facilitating
exchanges, the one between different individuals of the same, the other
between those of different nations. Part of this money of the great
mercantile republic may have been, and probably was, employed in carrying
on the late war. In time of a general war, it is natural to suppose that a
movement and direction should be impressed upon it, different from what it
usually follows in profound peace, that it should circulate more about the
seat of the war, and be more employed in purchasing there, and in the
neighbouring countries, the pay and provisions of the different armies.
But whatever part of this money of the mercantile republic Great Britain
may have annually employed in this manner, it must have been annually
purchased, either with British commodities, or with something else that
had been purchased with them; which still brings us back to commodities,
to the annual produce of the land and labour of the country, as the
ultimate resources which enabled us to carry on the war. It is natural,
indeed, to suppose, that so great an annual expense must have been
defrayed from a great annual produce. The expense of 1761, for example,
amounted to more than £19,000,000. No accumulation could have supported so
great an annual profusion. There is no annual produce, even of gold and
silver, which could have supported it. The whole gold and silver annually
imported into both Spain and Portugal, according to the best accounts,
does not commonly much exceed £6,000,000 sterling, which, in some years,
would scarce have paid four months expense of the late war.
The commodities most proper for being transported to distant countries, in
order to purchase there either the pay and provisions of an army, or some
part of the money of the mercantile republic to be employed in purchasing
them, seem to be the finer and more improved manufactures; such as contain
a great value in a small bulk, and can therefore be exported to a great
distance at little expense. A country whose industry produces a great
annual surplus of such manufactures, which are usually exported to foreign
countries, may carry on for many years a very expensive foreign war,
without either exporting any considerable quantity of gold and silver, or
even having any such quantity to export. A considerable part of the annual
surplus of its manufactures must, indeed, in this case, be exported
without bringing back any returns to the country, though it does to the
merchant; the government purchasing of the merchant his bills upon foreign
countries, in order to purchase there the pay and provisions of an army.
Some part of this surplus, however, may still continue to bring back a
return. The manufacturers during; the war will have a double demand upon
them, and be called upon first to work up goods to be sent abroad, for
paying the bills drawn upon foreign countries for the pay and provisions
of the army: and, secondly, to work up such as are necessary for
purchasing the common returns that had usually been consumed in the
country. In the midst of the most destructive foreign war, therefore, the
greater part of manufactures may frequently flourish greatly; and, on the
contrary, they may decline on the return of peace. They may flourish
amidst the ruin of their country, and begin to decay upon the return of
its prosperity. The different state of many different branches of the
British manufactures during the late war, and for some time after the
peace, may serve as an illustration of what has been just now said.
No foreign war, of great expense or duration, could conveniently be
carried on by the exportation of the rude produce of the soil. The expense
of sending such a quantity of it into a foreign country as might purchase
the pay and provisions of an army would be too great. Few countries, too,
produce much more rude produce than what is sufficient for the subsistence
of their own inhabitants. To send abroad any great quantity of it,
therefore, would be to send abroad a part of the necessary subsistence of
the people. It is otherwise with the exportation of manufactures. The
maintenance of the people employed in them is kept at home, and only the
surplus part of their work is exported. Mr Hume frequently takes notice of
the inability of the ancient kings of England to carry on, without
interruption, any foreign war of long duration. The English in those days
had nothing wherewithal to purchase the pay and provisions of their armies
in foreign countries, but either the rude produce of the soil, of which no
considerable part could be spared from the home consumption, or a few
manufactures of the coarsest kind, of which, as well as of the rude
produce, the transportation was too expensive. This inability did not
arise from the want of money, but of the finer and more improved
manufactures. Buying and selling was transacted by means of money in
England then as well as now. The quantity of circulating money must have
borne the same proportion, to the number and value of purchases and sales
usually transacted at that time, which it does to those transacted at
present; or, rather, it must have borne a greater proportion, because
there was then no paper, which now occupies a great part of the employment
of gold and silver. Among nations to whom commerce and manufactures are
little known, the sovereign, upon extraordinary occasions, can seldom draw
any considerable aid from his subjects, for reasons which shall be
explained hereafter. It is in such countries, therefore, that he generally
endeavours to accumulate a treasure, as the only resource against such
emergencies. Independent of this necessity, he is, in such a situation,
naturally disposed to the parsimony requisite for accumulation. In that
simple state, the expense even of a sovereign is not directed by the
vanity which delights in the gaudy finery of a court, but is employed in
bounty to his tenants, and hospitality to his retainers. But bounty and
hospitality very seldom lead to extravagance; though vanity almost always
does. Every Tartar chief, accordingly, has a treasure. The treasures of
Mazepa, chief of the Cossacks in the Ukraine, the famous ally of Charles
XII., are said to have been very great. The French kings of the
Merovingian race had all treasures. When they divided their kingdom among
their different children, they divided their treasures too. The Saxon
princes, and the first kings after the Conquest, seem likewise to have
accumulated treasures. The first exploit of every new reign was commonly
to seize the treasure of the preceding king, as the most essential measure
for securing the succession. The sovereigns of improved and commercial
countries are not under the same necessity of accumulating treasures,
because they can generally draw from their subjects extraordinary aids
upon extraordinary occasions. They are likewise less disposed to do so.
They naturally, perhaps necessarily, follow the mode of the times; and
their expense comes to be regulated by the same extravagant vanity which
directs that of all the other great proprietors in their dominions. The
insignificant pageantry of their court becomes every day more brilliant;
and the expense of it not only prevents accumulation, but frequently
encroaches upon the funds destined for more necessary expenses. What
Dercyllidas said of the court of Persia, may be applied to that of several
European princes, that he saw there much splendour, but little strength,
and many servants, but few soldiers.
The importation of gold and silver is not the principal, much less the
sole benefit, which a nation derives from its foreign trade. Between
whatever places foreign trade is carried on, they all of them derive two
distinct benefits from it. It carries out that surplus part of the produce
of their land and labour for which there is no demand among them, and
brings back in return for it something else for which there is a demand.
It gives a value to their superfluities, by exchanging them for something
else, which may satisfy a part of their wants and increase their
enjoyments. By means of it, the narrowness of the home market does not
hinder the division of labour in any particular branch of art or
manufacture from being carried to the highest perfection. By opening a
more extensive market for whatever part of the produce of their labour may
exceed the home consumption, it encourages them to improve its productive
power, and to augment its annual produce to the utmost, and thereby to
increase the real revenue and wealth of the society. These great and
important services foreign trade is continually occupied in performing to
all the different countries between which it is carried on. They all
derive great benefit from it, though that in which the merchant resides
generally derives the greatest, as he is generally more employed in
supplying the wants, and carrying out the superfluities of his own, than
of any other particular country. To import the gold and silver which may
be wanted into the countries which have no mines, is, no doubt a part of
the business of foreign commerce. It is, however, a most insignificant
part of it. A country which carried on foreign trade merely upon this
account, could scarce have occasion to freight a ship in a century.
It is not by the importation of gold and silver that the discovery of
America has enriched Europe. By the abundance of the American mines, those
metals have become cheaper. A service of plate can now be purchased for
about a third part of the corn, or a third part of the labour, which it
would have cost in the fifteenth century. With the same annual expense of
labour and commodities, Europe can annually purchase about three times the
quantity of plate which it could have purchased at that time. But when a
commodity comes to be sold for a third part of what bad been its usual
price, not only those who purchased it before can purchase three times
their former quantity, but it is brought down to the level of a much
greater number of purchasers, perhaps to more than ten, perhaps to more
than twenty times the former number. So that there may be in Europe at
present, not only more than three times, but more than twenty or thirty
times the quantity of plate which would have been in it, even in its
present state of improvement, had the discovery of the American mines
never been made. So far Europe has, no doubt, gained a real conveniency,
though surely a very trifling one. The cheapness of gold and silver
renders those metals rather less fit for the purposes of money than they
were before. In order to make the same purchases, we must load ourselves
with a greater quantity of them, and carry about a shilling in our pocket,
where a groat would have done before. It is difficult to say which is most
trifling, this inconveniency, or the opposite conveniency. Neither the one
nor the other could have made any very essential change in the state of
Europe. The discovery of America, however, certainly made a most essential
one. By opening a new and inexhaustible market to all the commodities of
Europe, it gave occasion to new divisions of labour and improvements of
art, which in the narrow circle of the ancient commerce could never have
taken place, for want of a market to take off the greater part of their
produce. The productive powers of labour were improved, and its produce
increased in all the different countries of Europe, and together with it
the real revenue and wealth of the inhabitants. The commodities of Europe
were almost all new to America, and many of those of America were new to
Europe. A new set of exchanges, therefore, began to take place, which had
never been thought of before, and which should naturally have proved as
advantageous to the new, as it certainly did to the old continent. The
savage injustice of the Europeans rendered an event, which ought to have
been beneficial to all, ruinous and destructive to several of those
unfortunate countries.
The discovery of a passage to the East Indies by the Cape of Good Hope,
which happened much about the same time, opened perhaps a still more
extensive range to foreign commerce, than even that of America,
notwithstanding the greater distance. There were but two nations in
America, in any respect, superior to the savages, and these were destroyed
almost as soon as discovered. The rest were mere savages. But the empires
of China, Indostan, Japan, as well as several others in the East Indies,
without having richer mines of gold or silver, were, in every other
respect, much richer, better cultivated, and more advanced in all arts and
manufactures, than either Mexico or Peru, even though we should credit,
what plainly deserves no credit, the exaggerated accounts of the Spanish
writers concerning the ancient state of those empires. But rich and
civilized nations can always exchange to a much greater value with one
another, than with savages and barbarians. Europe, however, has hitherto
derived much less advantage from its commerce with the East Indies, than
from that with America. The Portuguese monopolised the East India trade to
themselves for about a century; and it was only indirectly, and through
them, that the other nations of Europe could either send out or receive
any goods from that country. When the Dutch, in the beginning of the last
century, began to encroach upon them, they vested their whole East India
commerce in an exclusive company. The English, French, Swedes, and Danes,
have all followed their example; so that no great nation of Europe has
ever yet had the benefit of a free commerce to the East Indies. No other
reason need be assigned why it has never been so advantageous as the trade
to America, which, between almost every nation of Europe and its own
colonies, is free to all its subjects. The exclusive privileges of those
East India companies, their great riches, the great favour and protection
which these have procured them from their respective governments, have
excited much envy against them. This envy has frequently represented their
trade as altogether pernicious, on account of the great quantities of
silver which it every year exports from the countries from which it is
carried on. The parties concerned have replied, that their trade by this
continual exportation of silver, might indeed tend to impoverish Europe in
general, but not the particular country from which it was carried on;
because, by the exportation of a part of the returns to other European
countries, it annually brought home a much greater quantity of that metal
than it carried out. Both the objection and the reply are founded in the
popular notion which I have been just now examining. It is therefore
unnecessary to say any thing further about either. By the annual
exportation of silver to the East Indies, plate is probably somewhat
dearer in Europe than it otherwise might have been; and coined silver
probably purchases a larger quantity both of labour and commodities. The
former of these two effects is a very small loss, the latter a very small
advantage; both too insignificant to deserve any part of the public
attention. The trade to the East Indies, by opening a market to the
commodities of Europe, or, what comes nearly to the same thing, to the
gold and silver which is purchased with those commodities, must
necessarily tend to increase the annual production of European
commodities, and consequently the real wealth and revenue of Europe. That
it has hitherto increased them so little, is probably owing to the
restraints which it everywhere labours under.
I thought it necessary, though at the hazard of being tedious, to examine
at full length this popular notion, that wealth consists in money or in
gold and silver. Money, in common language, as I have already observed,
frequently signifies wealth; and this ambiguity of expression has rendered
this popular notion so familiar to us, that even they who are convinced of
its absurdity, are very apt to forget their own principles, and, in the
course of their reasonings, to take it for granted as a certain and
undeniable truth. Some of the best English writers upon commerce set out
with observing, that the wealth of a country consists, not in its gold and
silver only, but in its lands, houses, and consumable goods of all
different kinds. In the course of their reasonings, however, the lands,
houses, and consumable goods, seem to slip out of their memory; and the
strain of their argument frequently supposes that all wealth consists in
gold and silver, and that to multiply those metals is the great object of
national industry and commerce.
The two principles being established, however, that wealth consisted in
gold and silver, and that those metals could be brought into a country
which had no mines, only by the balance of trade, or by exporting to a
greater value than it imported; it necessarily became the great object of
political economy to diminish as much as possible the importation of
foreign goods for home consumption, and to increase as much as possible
the exportation of the produce of domestic industry. Its two great engines
for enriching the country, therefore, were restraints upon importation,
and encouragement to exportation.
The restraints upon importation were of two kinds.
First, restraints upon the importation of such foreign goods for home
consumption as could be produced at home, from whatever country they were
imported.
Secondly, restraints upon the importation of goods of almost all kinds,
from those particular countries with which the balance of trade was
supposed to be disadvantageous.
Those different restraints consisted sometimes in high duties, and
sometimes in absolute prohibitions.
Exportation was encouraged sometimes by drawbacks, sometimes by bounties,
sometimes by advantageous treaties of commerce with foreign states, and
sometimes by the establishment of colonies in distant countries.
Drawbacks were given upon two different occasions. When the home
manufactures were subject to any duty or excise, either the whole or a
part of it was frequently drawn back upon their exportation; and when
foreign goods liable to a duty were imported, in order to be exported
again, either the whole or a part of this duty was sometimes given back
upon such exportation.
Bounties were given for the encouragement, either of some beginning
manufactures, or of such sorts of industry of other kinds as were supposed
to deserve particular favour.
By advantageous treaties of commerce, particular privileges were procured
in some foreign state for the goods and merchants of the country, beyond
what were granted to those of other countries.
By the establishment of colonies in distant countries, not only particular
privileges, but a monopoly was frequently procured for the goods and
merchants of the country which established them.
The two sorts of restraints upon importation above mentioned, together
with these four encouragements to exportation, constitute the six
principal means by which the commercial system proposes to increase the
quantity of gold and silver in any country, by turning the balance of
trade in its favour. I shall consider each of them in a particular
chapter, and, without taking much farther notice of their supposed
tendency to bring money into the country, I shall examine chiefly what are
likely to be the effects of each of them upon the annual produce of its
industry. According as they tend either to increase or diminish the value
of this annual produce, they must evidently tend either to increase or
diminish the real wealth and revenue of the country.

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---
id: book-4-chapter-02
title: "OF RESTRAINTS UPON IMPORTATION FROM FOREIGN COUNTRIES OF SUCH GOODS AS CAN BE PRODUCED AT HOME."
book: "4"
chapter: 2
artifact_type: content
---
CHAPTER II.
OF RESTRAINTS UPON IMPORTATION FROM
FOREIGN COUNTRIES OF SUCH GOODS AS CAN BE PRODUCED AT HOME.
By restraining, either by high duties, or by absolute prohibitions, the
importation of such goods from foreign countries as can be produced at
home, the monopoly of the home market is more or less secured to the
domestic industry employed in producing them. Thus the prohibition of
importing either live cattle or salt provisions from foreign countries,
secures to the graziers of Great Britain the monopoly of the home market
for butcher’s meat. The high duties upon the importation of corn, which,
in times of moderate plenty, amount to a prohibition, give a like
advantage to the growers of that commodity. The prohibition of the
importation of foreign woollen is equally favourable to the woollen
manufacturers. The silk manufacture, though altogether employed upon
foreign materials, has lately obtained the same advantage. The linen
manufacture has not yet obtained it, but is making great strides towards
it. Many other sorts of manufactures have, in the same manner obtained in
Great Britain, either altogether, or very nearly, a monopoly against their
countrymen. The variety of goods, of which the importation into Great
Britain is prohibited, either absolutely, or under certain circumstances,
greatly exceeds what can easily be suspected by those who are not well
acquainted with the laws of the customs.
That this monopoly of the home market frequently gives great encouragement
to that particular species of industry which enjoys it, and frequently
turns towards that employment a greater share of both the labour and stock
of the society than would otherwise have gone to it, cannot be doubted.
But whether it tends either to increase the general industry of the
society, or to give it the most advantageous direction, is not, perhaps,
altogether so evident.
The general industry of the society can never exceed what the capital of
the society can employ. As the number of workmen that can be kept in
employment by any particular person must bear a certain proportion to his
capital, so the number of those that can be continually employed by all
the members of a great society must bear a certain proportion to the whole
capital of the society, and never can exceed that proportion. No
regulation of commerce can increase the quantity of industry in any
society beyond what its capital can maintain. It can only divert a part of
it into a direction into which it might not otherwise have gone; and it is
by no means certain that this artificial direction is likely to be more
advantageous to the society, than that into which it would have gone of
its own accord.
Every individual is continually exerting himself to find out the most
advantageous employment for whatever capital he can command. It is his own
advantage, indeed, and not that of the society, which he has in view. But
the study of his own advantage naturally, or rather necessarily, leads him
to prefer that employment which is most advantageous to the society.
First, every individual endeavours to employ his capital as near home as
he can, and consequently as much as he can in the support of domestic
industry, provided always that he can thereby obtain the ordinary, or not
a great deal less than the ordinary profits of stock.
Thus, upon equal, or nearly equal profits, every wholesale merchant
naturally prefers the home trade to the foreign trade of consumption, and
the foreign trade of consumption to the carrying trade. In the home trade,
his capital is never so long out of his sight as it frequently is in the
foreign trade of consumption. He can know better the character and
situation of the persons whom he trusts; and if he should happen to be
deceived, he knows better the laws of the country from which he must seek
redress. In the carrying trade, the capital of the merchant is, as it
were, divided between two foreign countries, and no part of it is ever
necessarily brought home, or placed under his own immediate view and
command. The capital which an Amsterdam merchant employs in carrying corn
from Koningsberg to Lisbon, and fruit and wine from Lisbon to Koningsberg,
must generally be the one half of it at Koningsberg, and the other half at
Lisbon. No part of it need ever come to Amsterdam. The natural residence
of such a merchant should either be at Koningsberg or Lisbon; and it can
only be some very particular circumstances which can make him prefer the
residence of Amsterdam. The uneasiness, however, which he feels at being
separated so far from his capital, generally determines him to bring part
both of the Koningsberg goods which he destines for the market of Lisbon,
and of the Lisbon goods which he destines for that of Koningsberg, to
Amsterdam; and though this necessarily subjects him to a double charge of
loading and unloading as well as to the payment of some duties and
customs, yet, for the sake of having some part of his capital always under
his own view and command, he willingly submits to this extraordinary
charge; and it is in this manner that every country which has any
considerable share of the carrying trade, becomes always the emporium, or
general market, for the goods of all the different countries whose trade
it carries on. The merchant, in order to save a second loading and
unloading, endeavours always to sell in the home market, as much of the
goods of all those different countries as he can; and thus, so far as he
can, to convert his carrying trade into a foreign trade of consumption. A
merchant, in the same manner, who is engaged in the foreign trade of
consumption, when he collects goods for foreign markets, will always be
glad, upon equal or nearly equal profits, to sell as great a part of them
at home as he can. He saves himself the risk and trouble of exportation,
when, so far as he can, he thus converts his foreign trade of consumption
into a home trade. Home is in this manner the centre, if I may say so,
round which the capitals of the inhabitants of every country are
continually circulating, and towards which they are always tending,
though, by particular causes, they may sometimes be driven off and
repelled from it towards more distant employments. But a capital employed
in the home trade, it has already been shown, necessarily puts into motion
a greater quantity of domestic industry, and gives revenue and employment
to a greater number of the inhabitants of the country, than an equal
capital employed in the foreign trade of consumption; and one employed in
the foreign trade of consumption has the same advantage over an equal
capital employed in the carrying trade. Upon equal, or only nearly equal
profits, therefore, every individual naturally inclines to employ his
capital in the manner in which it is likely to afford the greatest support
to domestic industry, and to give revenue and employment to the greatest
number of people of his own country.
Secondly, every individual who employs his capital in the support of
domestic industry, necessarily endeavours so to direct that industry, that
its produce may be of the greatest possible value.
The produce of industry is what it adds to the subject or materials upon
which it is employed. In proportion as the value of this produce is great
or small, so will likewise be the profits of the employer. But it is only
for the sake of profit that any man employs a capital in the support of
industry; and he will always, therefore, endeavour to employ it in the
support of that industry of which the produce is likely to be of the
greatest value, or to exchange for the greatest quantity either of money
or of other goods.
But the annual revenue of every society is always precisely equal to the
exchangeable value of the whole annual produce of its industry, or rather
is precisely the same thing with that exchangeable value. As every
individual, therefore, endeavours as much as he can, both to employ his
capital in the support of domestic industry, and so to direct that
industry that its produce maybe of the greatest value; every individual
necessarily labours to render the annual revenue of the society as great
as he can. He generally, indeed, neither intends to promote the public
interest, nor knows how much he is promoting it. By preferring the support
of domestic to that of foreign industry, he intends only his own security;
and by directing that industry in such a manner as its produce may be of
the greatest value, he intends only his own gain; and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no
part of his intention. Nor is it always the worse for the society that it
was no part of it. By pursuing his own interest, he frequently promotes
that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to
trade for the public good. It is an affectation, indeed, not very common
among merchants, and very few words need be employed in dissuading them
from it.
What is the species of domestic industry which his capital can employ, and
of which the produce is likely to be of the greatest value, every
individual, it is evident, can in his local situation judge much better
than any statesman or lawgiver can do for him. The statesman, who should
attempt to direct private people in what manner they ought to employ their
capitals, would not only load himself with a most unnecessary attention,
but assume an authority which could safely be trusted, not only to no
single person, but to no council or senate whatever, and which would
nowhere be so dangerous as in the hands of a man who had folly and
presumption enough to fancy himself fit to exercise it.
To give the monopoly of the home market to the produce of domestic
industry, in any particular art or manufacture, is in some measure to
direct private people in what manner they ought to employ their capitals,
and must in almost all cases be either a useless or a hurtful regulation.
If the produce of domestic can be brought there as cheap as that of
foreign industry, the regulation is evidently useless. If it cannot, it
must generally be hurtful. It is the maxim of every prudent master of a
family, never to attempt to make at home what it will cost him more to
make than to buy. The tailor does not attempt to make his own shoes, but
buys them of the shoemaker. The shoemaker does not attempt to make his own
clothes, but employs a tailor. The farmer attempts to make neither the one
nor the other, but employs those different artificers. All of them find it
for their interest to employ their whole industry in a way in which they
have some advantage over their neighbours, and to purchase with a part of
its produce, or, what is the same thing, with the price of a part of it,
whatever else they have occasion for.
What is prudence in the conduct of every private family, can scarce be
folly in that of a great kingdom. If a foreign country can supply us with
a commodity cheaper than we ourselves can make it, better buy it of them
with some part of the produce of our own industry, employed in a way in
which we have some advantage. The general industry of the country being
always in proportion to the capital which employs it, will not thereby be
diminished, no more than that of the abovementioned artificers; but only
left to find out the way in which it can be employed with the greatest
advantage. It is certainly not employed to the greatest advantage, when it
is thus directed towards an object which it can buy cheaper than it can
make. The value of its annual produce is certainly more or less
diminished, when it is thus turned away from producing commodities
evidently of more value than the commodity which it is directed to
produce. According to the supposition, that commodity could be purchased
from foreign countries cheaper than it can be made at home; it could
therefore have been purchased with a part only of the commodities, or,
what is the same thing, with a part only of the price of the commodities,
which the industry employed by an equal capital would have produced at
home, had it been left to follow its natural course. The industry of the
country, therefore, is thus turned away from a more to a less advantageous
employment; and the exchangeable value of its annual produce, instead of
being increased, according to the intention of the lawgiver, must
necessarily be diminished by every such regulation.
By means of such regulations, indeed, a particular manufacture may
sometimes be acquired sooner than it could have been otherwise, and after
a certain time may be made at home as cheap, or cheaper, than in the
foreign country. But though the industry of the society may be thus
carried with advantage into a particular channel sooner than it could have
been otherwise, it will by no means follow that the sum-total, either of
its industry, or of its revenue, can ever be augmented by any such
regulation. The industry of the society can augment only in proportion as
its capital augments, and its capital can augment only in proportion to
what can be gradually saved out of its revenue. But the immediate effect
of every such regulation is to diminish its revenue; and what diminishes
its revenue is certainly not very likely to augment its capital faster
than it would have augmented of its own accord, had both capital and
industry been left to find out their natural employments.
Though, for want of such regulations, the society should never acquire the
proposed manufacture, it would not upon that account necessarily be the
poorer in anyone period of its duration. In every period of its duration
its whole capital and industry might still have been employed, though upon
different objects, in the manner that was most advantageous at the time.
In every period its revenue might have been the greatest which its capital
could afford, and both capital and revenue might have been augmented with
the greatest possible rapidity.
The natural advantages which one country has over another, in producing
particular commodities, are sometimes so great, that it is acknowledged by
all the world to be in vain to struggle with them. By means of glasses,
hot-beds, and hot-walls, very good grapes can be raised in Scotland, and
very good wine, too, can be made of them, at about thirty times the
expense for which at least equally good can be brought from foreign
countries. Would it be a reasonable law to prohibit the importation of all
foreign wines, merely to encourage the making of claret and Burgundy in
Scotland? But if there would be a manifest absurdity in turning towards
any employment thirty times more of the capital and industry of the
country than would be necessary to purchase from foreign countries an
equal quantity of the commodities wanted, there must be an absurdity,
though not altogether so glaring, yet exactly of the same kind, in turning
towards any such employment a thirtieth, or even a three hundredth part
more of either. Whether the advantages which one country has over another
be natural or acquired, is in this respect of no consequence. As long as
the one country has those advantages, and the other wants them, it will
always be more advantageous for the latter rather to buy of the former
than to make. It is an acquired advantage only, which one artificer has
over his neighbour, who exercises another trade; and yet they both find it
more advantageous to buy of one another, than to make what does not belong
to their particular trades.
Merchants and manufacturers are the people who derive the greatest
advantage from this monopoly of the home market. The prohibition of the
importation of foreign cattle and of salt provisions, together with the
high duties upon foreign corn, which in times of moderate plenty amount to
a prohibition, are not near so advantageous to the graziers and farmers of
Great Britain, as other regulations of the same kind are to its merchants
and manufacturers. Manufactures, those of the finer kind especially, are
more easily transported from one country to another than corn or cattle.
It is in the fetching and carrying manufactures, accordingly, that foreign
trade is chiefly employed. In manufactures, a very small advantage will
enable foreigners to undersell our own workmen, even in the home market.
It will require a very great one to enable them to do so in the rude
produce of the soil. If the free importation of foreign manufactures were
permitted, several of the home manufactures would probably suffer, and
some of them perhaps go to ruin altogether, and a considerable part of the
stock and industry at present employed in them, would be forced to find
out some other employment. But the freest importation of the rude produce
of the soil could have no such effect upon the agriculture of the country.
If the importation of foreign cattle, for example, were made ever so free,
so few could be imported, that the grazing trade of Great Britain could be
little affected by it. Live cattle are, perhaps, the only commodity of
which the transportation is more expensive by sea than by land. By land
they carry themselves to market. By sea, not only the cattle, but their
food and their water too, must be carried at no small expense and
inconveniency. The short sea between Ireland and Great Britain, indeed,
renders the importation of Irish cattle more easy. But though the free
importation of them, which was lately permitted only for a limited time,
were rendered perpetual, it could have no considerable effect upon the
interest of the graziers of Great Britain. Those parts of Great Britain
which border upon the Irish sea are all grazing countries. Irish cattle
could never be imported for their use, but must be drove through those
very extensive countries, at no small expense and inconveniency, before
they could arrive at their proper market. Fat cattle could not be drove so
far. Lean cattle, therefore, could only be imported; and such importation
could interfere not with the interest of the feeding or fattening
countries, to which, by reducing the price of lean cattle it would rather
be advantageous, but with that of the breeding countries only. The small
number of Irish cattle imported since their importation was permitted,
together with the good price at which lean cattle still continue to sell,
seem to demonstrate, that even the breeding countries of Great Britain are
never likely to be much affected by the free importation of Irish cattle.
The common people of Ireland, indeed, are said to have sometimes opposed
with violence the exportation of their cattle. But if the exporters had
found any great advantage in continuing the trade, they could easily, when
the law was on their side, have conquered this mobbish opposition.
Feeding and fattening countries, besides, must always be highly improved,
whereas breeding countries are generally uncultivated. The high price of
lean cattle, by augmenting the value of uncultivated land, is like a
bounty against improvement. To any country which was highly improved
throughout, it would be more advantageous to import its lean cattle than
to breed them. The province of Holland, accordingly, is said to follow
this maxim at present. The mountains of Scotland, Wales, and
Northumberland, indeed, are countries not capable of much improvement, and
seem destined by nature to be the breeding countries of Great Britain. The
freest importation of foreign cattle could have no other effect than to
hinder those breeding countries from taking advantage of the increasing
population and improvement of the rest of the kingdom, from raising their
price to an exorbitant height, and from laying a real tax upon all the
more improved and cultivated parts of the country.
The freest importation of salt provisions, in the same manner, could have
as little effect upon the interest of the graziers of Great Britain as
that of live cattle. Salt provisions are not only a very bulky commodity,
but when compared with fresh meat they are a commodity both of worse
quality, and, as they cost more labour and expense, of higher price. They
could never, therefore, come into competition with the fresh meat, though
they might with the salt provisions of the country. They might be used for
victualling ships for distant voyages, and such like uses, but could never
make any considerable part of the food of the people. The small quantity
of salt provisions imported from Ireland since their importation was
rendered free, is an experimental proof that our graziers have nothing to
apprehend from it. It does not appear that the price of butcher’s meat has
ever been sensibly affected by it.
Even the free importation of foreign corn could very little affect the
interest of the farmers of Great Britain. Corn is a much more bulky
commodity than butcher’s meat. A pound of wheat at a penny is as dear as a
pound of butcher’s meat at fourpence. The small quantity of foreign corn
imported even in times of the greatest scarcity, may satisfy our farmers
that they can have nothing to fear from the freest importation. The
average quantity imported, one year with another, amounts only, according
to the very well informed author of the Tracts upon the Corn Trade, to
23,728 quarters of all sorts of grain, and does not exceed the five
hundredth and seventy-one part of the annual consumption. But as the
bounty upon corn occasions a greater exportation in years of plenty, so it
must, of consequence, occasion a greater importation in years of scarcity,
than in the actual state of tillage would otherwise take place. By means
of it, the plenty of one year does not compensate the scarcity of another;
and as the average quantity exported is necessarily augmented by it, so
must likewise, in the actual state of tillage, the average quantity
imported. If there were no bounty, as less corn would be exported, so it
is probable that, one year with another, less would be imported than at
present. The corn-merchants, the fetchers and carriers of corn between
Great Britain and foreign countries, would have much less employment, and
might suffer considerably; but the country gentlemen and farmers could
suffer very little. It is in the corn-merchants, accordingly, rather than
the country gentlemen and farmers, that I have observed the greatest
anxiety for the renewal and continuation of the bounty.
Country gentlemen and farmers are, to their great honour, of all people,
the least subject to the wretched spirit of monopoly. The undertaker of a
great manufactory is sometimes alarmed if another work of the same kind is
established within twenty miles of him; the Dutch undertaker of the
woollen manufacture at Abbeville, stipulated that no work of the same kind
should be established within thirty leagues of that city. Farmers and
country gentlemen, on the contrary, are generally disposed rather to
promote, than to obstruct, the cultivation and improvement of their
neighbours farms and estates. They have no secrets, such as those of the
greater part of manufacturers, but are generally rather fond of
communicating to their neighbours, and of extending as far as possible any
new practice which they may have found to be advantageous. “Pius
quaestus”, says old Cato, “stabilissimusque, minimeque invidiosus;
minimeque male cogitantes sunt, qui in eo studio occupati sunt.” Country
gentlemen and farmers, dispersed in different parts of the country, cannot
so easily combine as merchants and manufacturers, who being collected into
towns, and accustomed to that exclusive corporation spirit which prevails
in them, naturally endeavour to obtain, against all their countrymen, the
same exclusive privilege which they generally possess against the
inhabitants of their respective towns. They accordingly seem to have been
the original inventors of those restraints upon the importation of foreign
goods, which secure to them the monopoly of the home market. It was
probably in imitation of them, and to put themselves upon a level with
those who, they found, were disposed to oppress them, that the country
gentlemen and farmers of Great Britain so far forgot the generosity which
is natural to their station, as to demand the exclusive privilege of
supplying their countrymen with corn and butcher’s meat. They did not,
perhaps, take time to consider how much less their interest could be
affected by the freedom of trade, than that of the people whose example
they followed.
To prohibit, by a perpetual law, the importation of foreign corn and
cattle, is in reality to enact, that the population and industry of the
country shall, at no time, exceed what the rude produce of its own soil
can maintain.
There seem, however, to be two cases, in which it will generally be
advantageous to lay some burden upon foreign, for the encouragement of
domestic industry.
The first is, when some particular sort of industry is necessary for the
defence of the country. The defence of Great Britain, for example, depends
very much upon the number of its sailors and shipping. The act of
navigation, therefore, very properly endeavours to give the sailors and
shipping of Great Britain the monopoly of the trade of their own country,
in some cases, by absolute prohibitions, and in others, by heavy burdens
upon the shipping of foreign countries. The following are the principal
dispositions of this act.
First, All ships, of which the owners, masters, and three-fourths of the
mariners, are not British subjects, are prohibited, upon pain of
forfeiting ship and cargo, from trading to the British settlements and
plantations, or from being employed in the coasting trade of Great
Britain.
Secondly, A great variety of the most bulky articles of importation can be
brought into Great Britain only, either in such ships as are above
described, or in ships of the country where those goods are produced, and
of which the owners, masters, and three-fourths of the mariners, are of
that particular country; and when imported even in ships of this latter
kind, they are subject to double aliens duty. If imported in ships of any
other country, the penalty is forfeiture of ship and goods. When this act
was made, the Dutch were, what they still are, the great carriers of
Europe; and by this regulation they were entirely excluded from being the
carriers to Great Britain, or from importing to us the goods of any other
European country.
Thirdly, A great variety of the most bulky articles of importation are
prohibited from being imported, even in British ships, from any country
but that in which they are produced, under pain of forfeiting ship and
cargo. This regulation, too, was probably intended against the Dutch.
Holland was then, as now, the great emporium for all European goods; and
by this regulation, British ships were hindered from loading in Holland
the goods of any other European country.
Fourthly, Salt fish of all kinds, whale fins, whalebone, oil, and blubber,
not caught by and cured on board British vessels, when imported into Great
Britain, are subject to double aliens duty. The Dutch, as they are still
the principal, were then the only fishers in Europe that attempted to
supply foreign nations with fish. By this regulation, a very heavy burden
was laid upon their supplying Great Britain.
When the act of navigation was made, though England and Holland were not
actually at war, the most violent animosity subsisted between the two
nations. It had begun during the government of the long parliament, which
first framed this act, and it broke out soon after in the Dutch wars,
during that of the Protector and of Charles II. It is not impossible,
therefore, that some of the regulations of this famous act may have
proceeded from national animosity. They are as wise, however, as if they
had all been dictated by the most deliberate wisdom. National animosity,
at that particular time, aimed at the very same object which the most
deliberate wisdom would have recommended, the diminution of the naval
power of Holland, the only naval power which could endanger the security
of England.
The act of navigation is not favourable to foreign commerce, or to the
growth of that opulence which can arise from it. The interest of a nation,
in its commercial relations to foreign nations, is, like that of a
merchant with regard to the different people with whom he deals, to buy as
cheap, and to sell as dear as possible. But it will be most likely to buy
cheap, when, by the most perfect freedom of trade, it encourages all
nations to bring to it the goods which it has occasion to purchase; and,
for the same reason, it will be most likely to sell dear, when its markets
are thus filled with the greatest number of buyers. The act of navigation,
it is true, lays no burden upon foreign ships that come to export the
produce of British industry. Even the ancient aliens duty, which used to
be paid upon all goods, exported as well as imported, has, by several
subsequent acts, been taken off from the greater part of the articles of
exportation. But if foreigners, either by prohibitions or high duties, are
hindered from coming to sell, they cannot always afford to come to buy;
because, coming without a cargo, they must lose the freight from their own
country to Great Britain. By diminishing the number of sellers, therefore,
we necessarily diminish that of buyers, and are thus likely not only to
buy foreign goods dearer, but to sell our own cheaper, than if there was a
more perfect freedom of trade. As defence, however, is of much more
importance than opulence, the act of navigation is, perhaps, the wisest of
all the commercial regulations of England.
The second case, in which it will generally be advantageous to lay some
burden upon foreign for the encouragement of domestic industry, is when
some tax is imposed at home upon the produce of the latter. In this case,
it seems reasonable that an equal tax should be imposed upon the like
produce of the former. This would not give the monopoly of the home
market to domestic industry, nor turn towards a particular employment a
greater share of the stock and labour of the country, than what would
naturally go to it. It would only hinder any part of what would naturally
go to it from being turned away by the tax into a less natural direction,
and would leave the competition between foreign and domestic industry,
after the tax, as nearly as possible upon the same footing as before it.
In Great Britain, when any such tax is laid upon the produce of domestic
industry, it is usual, at the same time, in order to stop the clamorous
complaints of our merchants and manufacturers, that they will be undersold
at home, to lay a much heavier duty upon the importation of all foreign
goods of the same kind.
This second limitation of the freedom of trade, according to some people,
should, upon most occasions, be extended much farther than to the precise
foreign commodities which could come into competition with those which had
been taxed at home. When the necessaries of life have been taxed in any
country, it becomes proper, they pretend, to tax not only the like
necessaries of life imported from other countries, but all sorts of
foreign goods which can come into competition with any thing that is the
produce of domestic industry. Subsistence, they say, becomes necessarily
dearer in consequence of such taxes; and the price of labour must always
rise with the price of the labourer’s subsistence. Every commodity,
therefore, which is the produce of domestic industry, though not
immediately taxed itself, becomes dearer in consequence of such taxes,
because the labour which produces it becomes so. Such taxes, therefore,
are really equivalent, they say, to a tax upon every particular commodity
produced at home. In order to put domestic upon the same footing with
foreign industry, therefore, it becomes necessary, they think, to lay some
duty upon every foreign commodity, equal to this enhancement of the price
of the home commodities with which it can come into competition.
Whether taxes upon the necessaries of life, such as those in Great Britain
upon soap, salt, leather, candles, etc. necessarily raise the price of
labour, and consequently that of all other commodities, I shall consider
hereafter, when I come to treat of taxes. Supposing, however, in the mean
time, that they have this effect, and they have it undoubtedly, this
general enhancement of the price of all commodities, in consequence of
that labour, is a case which differs in the two following respects from
that of a particular commodity, of which the price was enhanced by a
particular tax immediately imposed upon it.
First, It might always be known with great exactness, how far the price of
such a commodity could be enhanced by such a tax; but how far the general
enhancement of the price of labour might affect that of every different
commodity about which labour was employed, could never be known with any
tolerable exactness. It would be impossible, therefore, to proportion,
with any tolerable exactness, the tax of every foreign, to the enhancement
of the price of every home commodity.
Secondly, Taxes upon the necessaries of life have nearly the same effect
upon the circumstances of the people as a poor soil and a bad climate.
Provisions are thereby rendered dearer, in the same manner as if it
required extraordinary labour and expense to raise them. As, in the
natural scarcity arising from soil and climate, it would be absurd to
direct the people in what manner they ought to employ their capitals and
industry, so is it likewise in the artificial scarcity arising from such
taxes. To be left to accommodate, as well as they could, their industry to
their situation, and to find out those employments in which,
notwithstanding their unfavourable circumstances, they might have some
advantage either in the home or in the foreign market, is what, in both
cases, would evidently be most for their advantage. To lay a new-tax upon
them, because they are already overburdened with taxes, and because they
already pay too dear for the necessaries of life, to make them likewise
pay too dear for the greater part of other commodities, is certainly a
most absurd way of making amends.
Such taxes, when they have grown up to a certain height, are a curse equal
to the barrenness of the earth, and the inclemency of the heavens, and yet
it is in the richest and most industrious countries that they have been
most generally imposed. No other countries could support so great a
disorder. As the strongest bodies only can live and enjoy health under an
unwholesome regimen, so the nations only, that in every sort of industry
have the greatest natural and acquired advantages, can subsist and prosper
under such taxes. Holland is the country in Europe in which they abound
most, and which, from peculiar circumstances, continues to prosper, not by
means of them, as has been most absurdly supposed, but in spite of them.
As there are two cases in which it will generally be advantageous to lay
some burden upon foreign for the encouragement of domestic industry, so
there are two others in which it may sometimes be a matter of
deliberation, in the one, how far it is proper to continue the free
importation of certain foreign goods; and, in the other, how far, or in
what manner, it may be proper to restore that free importation, after it
has been for some time interrupted.
The case in which it may sometimes be a matter of deliberation how far it
is proper to continue the free importation of certain foreign goods, is
when some foreign nation restrains, by high duties or prohibitions, the
importation of some of our manufactures into their country. Revenge, in
this case, naturally dictates retaliation, and that we should impose the
like duties and prohibitions upon the importation of some or all of their
manufactures into ours. Nations, accordingly, seldom fail to retaliate in
this manner. The French have been particularly forward to favour their own
manufactures, by restraining the importation of such foreign goods as
could come into competition with them. In this consisted a great part of
the policy of Mr Colbert, who, notwithstanding his great abilities, seems
in this case to have been imposed upon by the sophistry of merchants and
manufacturers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelligent men in
France, that his operations of this kind have not been beneficial to his
country. That minister, by the tariff of 1667, imposed very high duties
upon a great number of foreign manufactures. Upon his refusing to moderate
them in favour of the Dutch, they, in 1671, prohibited the importation of
the wines, brandies, and manufactures of France. The war of 1672 seems to
have been in part occasioned by this commercial dispute. The peace of
Nimeguen put an end to it in 1678, by moderating some of those duties in
favour of the Dutch, who in consequence took off their prohibition. It was
about the same time that the French and English began mutually to oppress
each other’s industry, by the like duties and prohibitions, of which the
French, however, seem to have set the first example, The spirit of
hostility which has subsisted between the two nations ever since, has
hitherto hindered them from being moderated on either side. In 1697, the
English prohibited the importation of bone lace, the manufacture of
Flanders. The government of that country, at that time under the dominion
of Spain, prohibited, in return, the importation of English woollens. In
1700, the prohibition of importing bone lace into England was taken off
upon condition that the importation of English woollens into Flanders
should be put on the same footing as before.
There may be good policy in retaliations of this kind, when there is a
probability that they will procure the repeal of the high duties or
prohibitions complained of. The recovery of a great foreign market will
generally more than compensate the transitory inconveniency of paying
dearer during a short time for some sorts of goods. To judge whether such
retaliations are likely to produce such an effect, does not, perhaps,
belong so much to the science of a legislator, whose deliberations ought
to be governed by general principles, which are always the same, as to the
skill of that insidious and crafty animal vulgarly called a statesman or
politician, whose councils are directed by the momentary fluctuations of
affairs. When there is no probability that any such repeal can be
procured, it seems a bad method of compensating the injury done to certain
classes of our people, to do another injury ourselves, not only to those
classes, but to almost all the other classes of them. When our neighbours
prohibit some manufacture of ours, we generally prohibit, not only the
same, for that alone would seldom affect them considerably, but some other
manufacture of theirs. This may, no doubt, give encouragement to some
particular class of workmen among ourselves, and, by excluding some of
their rivals, may enable them to raise their price in the home market.
Those workmen however, who suffered by our neighbours prohibition, will
not be benefited by ours. On the contrary, they, and almost all the other
classes of our citizens, will thereby be obliged to pay dearer than before
for certain goods. Every such law, therefore, imposes a real tax upon the
whole country, not in favour of that particular class of workmen who were
injured by our neighbours prohibitions, but of some other class.
The case in which it may sometimes be a matter of deliberation, how far,
or in what manner, it is proper to restore the free importation of foreign
goods, after it has been for some time interrupted, is when particular
manufactures, by means of high duties or prohibitions upon all foreign
goods which can come into competition with them, have been so far extended
as to employ a great multitude of hands. Humanity may in this case require
that the freedom of trade should be restored only by slow gradations, and
with a good deal of reserve and circumspection. Were those high duties and
prohibitions taken away all at once, cheaper foreign goods of the same
kind might be poured so fast into the home market, as to deprive all at
once many thousands of our people of their ordinary employment and means
of subsistence. The disorder which this would occasion might no doubt be
very considerable. It would in all probability, however, be much less than
is commonly imagined, for the two following reasons.
First, All those manufactures of which any part is commonly exported to
other European countries without a bounty, could be very little affected
by the freest importation of foreign goods. Such manufactures must be sold
as cheap abroad as any other foreign goods of the same quality and kind,
and consequently must be sold cheaper at home. They would still,
therefore, keep possession of the home market; and though a capricious man
of fashion might sometimes prefer foreign wares, merely because they were
foreign, to cheaper and better goods of the same kind that were made at
home, this folly could, from the nature of things, extend to so few, that
it could make no sensible impression upon the general employment of the
people. But a great part of all the different branches of our woollen
manufacture, of our tanned leather, and of our hardware, are annually
exported to other European countries without any bounty, and these are the
manufactures which employ the greatest number of hands. The silk, perhaps,
is the manufacture which would suffer the most by this freedom of trade,
and after it the linen, though the latter much less than the former.
Secondly, Though a great number of people should, by thus restoring the
freedom of trade, be thrown all at once out of their ordinary employment
and common method of subsistence, it would by no means follow that they
would thereby be deprived either of employment or subsistence. By the
reduction of the army and navy at the end of the late war, more than
100,000 soldiers and seamen, a number equal to what is employed in the
greatest manufactures, were all at once thrown out of their ordinary
employment: but though they no doubt suffered some inconveniency, they
were not thereby deprived of all employment and subsistence. The greater
part of the seamen, it is probable, gradually betook themselves to the
merchant service as they could find occasion, and in the mean time both
they and the soldiers were absorbed in the great mass of the people, and
employed in a great variety of occupations. Not only no great convulsion,
but no sensible disorder, arose from so great a change in the situation of
more than 100,000 men, all accustomed to the use of arms, and many of them
to rapine and plunder. The number of vagrants was scarce anywhere sensibly
increased by it; even the wages of labour were not reduced by it in any
occupation, so far as I have been able to learn, except in that of seamen
in the merchant service. But if we compare together the habits of a
soldier and of any sort of manufacturer, we shall find that those of the
latter do not tend so much to disqualify him from being employed in a new
trade, as those of the former from being employed in any. The manufacturer
has always been accustomed to look for his subsistence from his labour
only; the soldier to expect it from his pay. Application and industry have
been familiar to the one; idleness and dissipation to the other. But it is
surely much easier to change the direction of industry from one sort of
labour to another, than to turn idleness and dissipation to any. To the
greater part of manufactures, besides, it has already been observed, there
are other collateral manufactures of so similar a nature, that a workman
can easily transfer his industry from one of them to another. The greater
part of such workmen, too, are occasionally employed in country labour.
The stock which employed them in a particular manufacture before, will
still remain in the country, to employ an equal number of people in some
other way. The capital of the country remaining the same, the demand for
labour will likewise be the same, or very nearly the same, though it may
be exerted in different places, and for different occupations. Soldiers
and seamen, indeed, when discharged from the king’s service, are at
liberty to exercise any trade within any town or place of Great Britain or
Ireland. Let the same natural liberty of exercising what species of
industry they please, be restored to all his Majesty’s subjects, in the
same manner as to soldiers and seamen; that is, break down the exclusive
privileges of corporations, and repeal the statute of apprenticeship, both
which are really encroachments upon natural Liberty, and add to those the
repeal of the law of settlements, so that a poor workman, when thrown out
of employment, either in one trade or in one place, may seek for it in
another trade or in another place, without the fear either of a
prosecution or of a removal; and neither the public nor the individuals
will suffer much more from the occasional disbanding some particular
classes of manufacturers, than from that of the soldiers. Our
manufacturers have no doubt great merit with their country, but they
cannot have more than those who defend it with their blood, nor deserve to
be treated with more delicacy.
To expect, indeed, that the freedom of trade should ever be entirely
restored in Great Britain, is as absurd as to expect that an Oceana or
Utopia should ever be established in it. Not only the prejudices of the
public, but, what is much more unconquerable, the private interests of
many individuals, irresistibly oppose it. Were the officers of the army to
oppose, with the same zeal and unanimity, any reduction in the number of
forces, with which master manufacturers set themselves against every law
that is likely to increase the number of their rivals in the home market;
were the former to animate their soldiers, in the same manner as the
latter inflame their workmen, to attack with violence and outrage the
proposers of any such regulation; to attempt to reduce the army would be
as dangerous as it has now become to attempt to diminish, in any respect,
the monopoly which our manufacturers have obtained against us. This
monopoly has so much increased the number of some particular tribes of
them, that, like an overgrown standing army, they have become formidable
to the government, and, upon many occasions, intimidate the legislature.
The member of parliament who supports every proposal for strengthening
this monopoly, is sure to acquire not only the reputation of understanding
trade, but great popularity and influence with an order of men whose
numbers and wealth render them of great importance. If he opposes them, on
the contrary, and still more, if he has authority enough to be able to
thwart them, neither the most acknowledged probity, nor the highest rank,
nor the greatest public services, can protect him from the most infamous
abuse and detraction, from personal insults, nor sometimes from real
danger, arising from the insolent outrage of furious and disappointed
monopolists.
The undertaker of a great manufacture, who, by the home markets being
suddenly laid open to the competition of foreigners, should be obliged to
abandon his trade, would no doubt suffer very considerably. That part of
his capital which had usually been employed in purchasing materials, and
in paying his workmen, might, without much difficulty, perhaps, find
another employment; but that part of it which was fixed in workhouses, and
in the instruments of trade, could scarce be disposed of without
considerable loss. The equitable regard, therefore, to his interest,
requires that changes of this kind should never be introduced suddenly,
but slowly, gradually, and after a very long warning. The legislature,
were it possible that its deliberations could be always directed, not by
the clamorous importunity of partial interests, but by an extensive view
of the general good, ought, upon this very account, perhaps, to be
particularly careful, neither to establish any new monopolies of this
kind, nor to extend further those which are already established. Every
such regulation introduces some degree of real disorder into the
constitution of the state, which it will be difficult afterwards to cure
without occasioning another disorder.
How far it may be proper to impose taxes upon the importation of foreign
goods, in order not to prevent their importation, but to raise a revenue
for government, I shall consider hereafter when I come to treat of taxes.
Taxes imposed with a view to prevent, or even to diminish importation, are
evidently as destructive of the revenue of the customs as of the freedom
of trade.

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id: book-4-chapter-04
title: "OF DRAWBACKS."
book: "4"
chapter: 4
artifact_type: content
---
CHAPTER IV.
OF DRAWBACKS.
Merchants and manufacturers are not contented with the monopoly of the
home market, but desire likewise the most extensive foreign sale for their
goods. Their country has no jurisdiction in foreign nations, and therefore
can seldom procure them any monopoly there. They are generally obliged,
therefore, to content themselves with petitioning for certain
encouragements to exportation.
Of these encouragements, what are called drawbacks seem to be the most
reasonable. To allow the merchant to draw back upon exportation, either
the whole, or a part of whatever excise or inland duty is imposed upon
domestic industry, can never occasion the exportation of a greater
quantity of goods than what would have been exported had no duty been
imposed. Such encouragements do not tend to turn towards any particular
employment a greater share of the capital of the country, than what would
go to that employment of its own accord, but only to hinder the duty from
driving away any part of that share to other employments. They tend not to
overturn that balance which naturally establishes itself among all the
various employments of the society, but to hinder it from being overturned
by the duty. They tend not to destroy, but to preserve, what it is in most
cases advantageous to preserve, the natural division and distribution of
labour in the society.
The same thing may be said of the drawbacks upon the re-exportation of
foreign goods imported, which, in Great Britain, generally amount to by
much the largest part of the duty upon importation. By the second of the
rules, annexed to the act of parliament, which imposed what is now called
the old subsidy, every merchant, whether English or alien. was allowed to
draw back half that duty upon exportation; the English merchant, provided
the exportation took place within twelve months; the alien, provided it
took place within nine months. Wines, currants, and wrought silks, were
the only goods which did not fall within this rule, having other and more
advantageous allowances. The duties imposed by this act of parliament
were, at that time, the only duties upon the importation of foreign goods.
The term within which this, and all other drawbacks could be claimed, was
afterwards (by 7 Geo. I. chap. 21. sect. 10.) extended to three years.
The duties which have been imposed since the old subsidy, are, the greater
part of them, wholly drawn back upon exportation. This general rule,
however, is liable to a great number of exceptions; and the doctrine of
drawbacks has become a much less simple matter than it was at their first
institution.
Upon the exportation of some foreign goods, of which it was expected that
the importation would greatly exceed what was necessary for the home
consumption, the whole duties are drawn back, without retaining even half
the old subsidy. Before the revolt of our North American colonies, we had
the monopoly of the tobacco of Maryland and Virginia. We imported about
ninety-six thousand hogsheads, and the home consumption was not supposed
to exceed fourteen thousand. To facilitate the great exportation which was
necessary, in order to rid us of the rest, the whole duties were drawn
back, provided the exportation took place within three years.
We still have, though not altogether, yet very nearly, the monopoly of the
sugars of our West Indian islands. If sugars are exported within a year,
therefore, all the duties upon importation are drawn back; and if exported
within three years, all the duties, except half the old subsidy, which
still continues to be retained upon the exportation of the greater part of
goods. Though the importation of sugar exceeds a good deal what is
necessary for the home consumption, the excess is inconsiderable, in
comparison of what it used to be in tobacco.
Some goods, the particular objects of the jealousy of our own
manufacturers, are prohibited to be imported for home consumption. They
may, however, upon paying certain duties, be imported and warehoused for
exportation. But upon such exportation no part of these duties is drawn
back. Our manufacturers are unwilling, it seems, that even this restricted
importation should be encouraged, and are afraid lest some part of these
goods should be stolen out of the warehouse, and thus come into
competition with their own. It is under these regulations only that we can
import wrought silks, French cambrics and lawns, calicoes, painted,
printed, stained, or dyed, etc.
We are unwilling even to be the carriers of French goods, and choose
rather to forego a profit to ourselves than to suffer those whom we
consider as our enemies to make any profit by our means. Not only half the
old subsidy, but the second twenty-five per cent. is retained upon the
exportation of all French goods.
By the fourth of the rules annexed to the old subsidy, the drawback
allowed upon the exportation of all wines amounted to a great deal more
than half the duties which were at that time paid upon their importation;
and it seems at that time to have been the object of the legislature to
give somewhat more than ordinary encouragement to the carrying trade in
wine. Several of the other duties, too which were imposed either at the
same time or subsequent to the old subsidy, what is called the additional
duty, the new subsidy, the one-third and two-thirds subsidies, the impost
1692, the tonnage on wine, were allowed to be wholly drawn back upon
exportation. All those duties, however, except the additional duty and
impost 1692, being paid down in ready money upon importation, the interest
of so large a sum occasioned an expense, which made it unreasonable to
expect any profitable carrying trade in this article. Only a part,
therefore of the duty called the impost on wine, and no part of the
twenty-five pounds the ton upon French wines, or of the duties imposed in
1745, in 1763, and in 1778, were allowed to be drawn back upon
exportation. The two imposts of five per cent. imposed in 1779 and 1781,
upon all the former duties of customs, being allowed to be wholly drawn
back upon the exportation of all other goods, were likewise allowed to be
drawn back upon that of wine. The last duty that has been particularly
imposed upon wine, that of 1780, is allowed to be wholly drawn back; an
indulgence which, when so many heavy duties are retained, most probably
could never occasion the exportation of a single ton of wine. These rules
took place with regard to all places of lawful exportation, except the
British colonies in America.
The 15th Charles II, chap. 7, called an act for the encouragement of
trade, had given Great Britain the monopoly of supplying the colonies with
all the commodities of the growth or manufacture of Europe, and
consequently with wines. In a country of so extensive a coast as our North
American and West Indian colonies, where our authority was always so very
slender, and where the inhabitants were allowed to carry out in their own
ships their non-enumerated commodities, at first to all parts of Europe,
and afterwards to all parts of Europe south of Cape Finisterre, it is not
very probable that this monopoly could ever be much respected; and they
probably at all times found means of bringing back some cargo from the
countries to which they were allowed to carry out one. They seem, however,
to have found some difficulty in importing European wines from the places
of their growth; and they could not well import them from Great Britain,
where they were loaded with many heavy duties, of which a considerable
part was not drawn back upon exportation. Madeira wine, not being an
European commodity, could be imported directly into America and the West
Indies, countries which, in all their non-enumerated commodities, enjoyed
a free trade to the island of Madeira. These circumstances had probably
introduced that general taste for Madeira wine, which our officers found
established in all our colonies at the commencement of the war which began
in 1755, and which they brought back with them to the mother country,
where that wine had not been much in fashion before. Upon the conclusion
of that war, in 1763 (by the 4th Geo. III, chap. 15, sect. 12), all the
duties except £3, 10s. were allowed to be drawn back upon the exportation
to the colonies of all wines, except French wines, to the commerce and
consumption of which national prejudice would allow no sort of
encouragement. The period between the granting of this indulgence and the
revolt of our North American colonies, was probably too short to admit of
any considerable change in the customs of those countries.
The same act which, in the drawbacks upon all wines, except French wines,
thus favoured the colonies so much more than other countries, in those
upon the greater part of other commodities, favoured them much less. Upon
the exportation of the greater part of commodities to other countries,
half the old subsidy was drawn back. But this law enacted, that no part of
that duty should be drawn back upon the exportation to the colonies of any
commodities of the growth or manufacture either of Europe or the East
Indies, except wines, white calicoes, and muslins.
Drawbacks were, perhaps, originally granted for the encouragement of the
carrying trade, which, as the freight of the ship is frequently paid by
foreigners in money, was supposed to be peculiarly fitted for bringing
gold and silver into the country. But though the carrying trade certainly
deserves no peculiar encouragement, though the motive of the institution
was, perhaps, abundantly foolish, the institution itself seems reasonable
enough. Such drawbacks cannot force into this trade a greater share of the
capital of the country than what would have gone to it of its own accord,
had there been no duties upon importation; they only prevent its being
excluded altogether by those duties. The carrying trade, though it
deserves no preference, ought not to be precluded, but to be left free,
like all other trades. It is a necessary resource to those capitals which
cannot find employment, either in the agriculture or in the manufactures
of the country, either in its home trade, or in its foreign trade of
consumption.
The revenue of the customs, instead of suffering, profits from such
drawbacks, by that part of the duty which is retained. If the whole duties
had been retained, the foreign goods upon which they are paid could seldom
have been exported, nor consequently imported, for want of a market. The
duties, therefore, of which a part is retained, would never have been
paid.
These reasons seem sufficiently to justify drawbacks, and would justify
them, though the whole duties, whether upon the produce of domestic
industry or upon foreign goods, were always drawn back upon exportation.
The revenue of excise would, in this case indeed, suffer a little, and
that of the customs a good deal more; but the natural balance of industry,
the natural division and distribution of labour, which is always more or
less disturbed by such duties, would be more nearly re-established by such
a regulation.
These reasons, however, will justify drawbacks only upon exporting goods
to those countries which are altogether foreign and independent, not to
those in which our merchants and manufacturers enjoy a monopoly. A
drawback, for example, upon the exportation of European goods to our
American colonies, will not always occasion a greater exportation than
what would have taken place without it. By means of the monopoly which our
merchants and manufacturers enjoy there, the same quantity might
frequently, perhaps, be sent thither, though the whole duties were
retained. The drawback, therefore, may frequently be pure loss to the
revenue of excise and customs, without altering the state of the trade, or
rendering it in any respect more extensive. How far such drawbacks can be
justified as a proper encouragement to the industry of our colonies, or
how far it is advantageous to the mother country that they should be
exempted from taxes which are paid by all the rest of their
fellow-subjects, will appear hereafter, when I come to treat of colonies.
Drawbacks, however, it must always be understood, are useful only in those
cases in which the goods, for the exportation of which they are given, are
really exported to some foreign country, and not clandestinely re-imported
into our own. That some drawbacks, particularly those upon tobacco, have
frequently been abused in this manner, and have given occasion to many
frauds, equally hurtful both to the revenue and to the fair trader, is
well known.

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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.

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---
id: book-4-chapter-08
title: "CONCLUSION OF THE MERCANTILE SYSTEM."
book: "4"
chapter: 8
artifact_type: content
---
CHAPTER VIII.
CONCLUSION OF THE MERCANTILE SYSTEM.
Though the encouragement of exportation, and the discouragement of
importation, are the two great engines by which the mercantile system
proposes to enrich every country, yet, with regard to some particular
commodities, it seems to follow an opposite plan: to discourage
exportation, and to encourage importation. Its ultimate object, however,
it pretends, is always the same, to enrich the country by an advantageous
balance of trade. It discourages the exportation of the materials of
manufacture, and of the instruments of trade, in order to give our own
workmen an advantage, and to enable them to undersell those of other
nations in all foreign markets; and by restraining, in this manner, the
exportation of a few commodities, of no great price, it proposes to
occasion a much greater and more valuable exportation of others. It
encourages the importation of the materials of manufacture, in order that
our own people may be enabled to work them up more cheaply, and thereby
prevent a greater and more valuable importation of the manufactured
commodities. I do not observe, at least in our statute book, any
encouragement given to the importation of the instruments of trade. When
manufactures have advanced to a certain pitch of greatness, the
fabrication of the instruments of trade becomes itself the object of a
great number of very important manufactures. To give any particular
encouragement to the importation of such instruments, would interfere too
much with the interest of those manufactures. Such importation, therefore,
instead of being encouraged, has frequently been prohibited. Thus the
importation of wool cards, except from Ireland, or when brought in as
wreck or prize goods, was prohibited by the 3rd of Edward IV.; which
prohibition was renewed by the 39th of Elizabeth, and has been continued
and rendered perpetual by subsequent laws.
The importation of the materials of manufacture has sometimes been
encouraged by an exemption from the duties to which other goods are
subject, and sometimes by bounties.
The importation of sheep’s wool from several different countries, of
cotton wool from all countries, of undressed flax, of the greater part of
dyeing drugs, of the greater part of undressed hides from Ireland, or the
British colonies, of seal skins from the British Greenland fishery, of pig
and bar iron from the British colonies, as well as of several other
materials of manufacture, has been encouraged by an exemption from all
duties, if properly entered at the custom-house. The private interest of
our merchants and manufacturers may, perhaps, have extorted from the
legislature these exemptions, as well as the greater part of our other
commercial regulations. They are, however, perfectly just and reasonable;
and if, consistently with the necessities of the state, they could be
extended to all the other materials of manufacture, the public would
certainly be a gainer.
The avidity of our great manufacturers, however, has in some cases
extended these exemptions a good deal beyond what can justly be considered
as the rude materials of their work. By the 24th Geo. II. chap. 46, a
small duty of only 1d. the pound was imposed upon the importation of
foreign brown linen yarn, instead of much higher duties, to which it had
been subjected before, viz. of 6d. the pound upon sail yarn, of 1s. the
pound upon all French and Dutch yarn, and of £2:13:4 upon the hundred
weight of all spruce or Muscovia yarn. But our manufacturers were not long
satisfied with this reduction: by the 29th of the same king, chap. 15, the
same law which gave a bounty upon the exportation of British and Irish
linen, of which the price did not exceed 18d. the yard, even this small
duty upon the importation of brown linen yarn was taken away. In the
different operations, however, which are necessary for the preparation of
linen yarn, a good deal more industry is employed, than in the subsequent
operation of preparing linen cloth from linen yarn. To say nothing of the
industry of the flax-growers and flaxdressers, three or four spinners at
least are necessary in order to keep one weaver in constant employment;
and more than four-fifths of the whole quantity of labour necessary for
the preparation of linen cloth, is employed in that of linen yarn; but our
spinners are poor people; women commonly scattered about in all different
parts of the country, without support or protection. It is not by the sale
of their work, but by that of the complete work of the weavers, that our
great master manufacturers make their profits. As it is their interest to
sell the complete manufacture as dear, so it is to buy the materials as
cheap as possible. By extorting from the legislature bounties upon the
exportation of their own linen, high duties upon the importation of all
foreign linen, and a total prohibition of the home consumption of some
sorts of French linen, they endeavour to sell their own goods as dear as
possible. By encouraging the importation of foreign linen yarn, and
thereby bringing it into competition with that which is made by our own
people, they endeavour to buy the work of the poor spinners as cheap as
possible. They are as intent to keep down the wages of their own weavers,
as the earnings of the poor spinners; and it is by no means for the
benefit of the workmen that they endeavour either to raise the price of
the complete work, or to lower that of the rude materials. It is the
industry which is carried on for the benefit of the rich and the powerful,
that is principally encouraged by our mercantile system. That which is
carried on for the benefit of the poor and the indigent is too often
either neglected or oppressed.
Both the bounty upon the exportation of linen, and the exemption from the
duty upon the importation of foreign yarn, which were granted only for
fifteen years, but continued by two different prolongations, expire with
the end of the session of parliament which shall immediately follow the
24th of June 1786.
The encouragement given to the importation of the materials of manufacture
by bounties, has been principally confined to such as were imported from
our American plantations.
The first bounties of this kind were those granted about the beginning of
the present century, upon the importation of naval stores from America.
Under this denomination were comprehended timber fit for masts, yards, and
bowsprits; hemp, tar, pitch, and turpentine. The bounty, however, of £1
the ton upon masting-timber, and that of £6 the ton upon hemp, were
extended to such as should be imported into England from Scotland. Both
these bounties continued, without any variation, at the same rate, till
they were severally allowed to expire; that upon hemp on the 1st of
January 1741, and that upon masting-timber at the end of the session of
parliament immediately following the 24th June 1781.
The bounties upon the importation of tar, pitch, and turpentine,
underwent, during their continuance, several alterations. Originally, that
upon tar was £4 the ton; that upon pitch the same; and that upon
turpentine £3 the ton. The bounty of £4 the ton upon tar was afterwards
confined to such as had been prepared in a particular manner; that upon
other good, clean, and merchantable tar was reduced to £2:4s. the ton. The
bounty upon pitch was likewise reduced to £1, and that upon turpentine to
£1:10s. the ton.
The second bounty upon the importation of any of the materials of
manufacture, according to the order of time, was that granted by the 21st
Geo. II. chap.30, upon the importation of indigo from the British
plantations. When the plantation indigo was worth three-fourths of the
price of the best French indigo, it was, by this act, entitled to a bounty
of 6d. the pound. This bounty, which, like most others, was granted only
for a limited time, was continued by several prolongations, but was
reduced to 4d. the pound. It was allowed to expire with the end of the
session of parliament which followed the 25th March 1781.
The third bounty of this kind was that granted (much about the time that
we were beginning sometimes to court, and sometimes to quarrel with our
American colonies), by the 4th. Geo. III. chap. 26, upon the importation
of hemp, or undressed flax, from the British plantations. This bounty was
granted for twenty-one years, from the 24th June 1764 to the 24th June
1785. For the first seven years, it was to be at the rate of £8 the ton;
for the second at £6; and for the third at £4. It was not extended to
Scotland, of which the climate (although hemp is sometimes raised there in
small quantities, and of an inferior quality) is not very fit for that
produce. Such a bounty upon the importation of Scotch flax in England
would have been too great a discouragement to the native produce of the
southern part of the united kingdom.
The fourth bounty of this kind was that granted by the 5th Geo. III. chap.
45, upon the importation of wood from America. It was granted for nine
years from the 1st January 1766 to the 1st January 1775. During the first
three years, it was to be for every hundred-and-twenty good deals, at the
rate of £1, and for every load containing fifty cubic feet of other square
timber, at the rate of 12s. For the second three years, it was for deals,
to be at the rate of 15s., and for other squared timber at the rate of
8s.; and for the third three years, it was for deals, to be at the rate of
10s.; and for every other squared timber at the rate of 5s.
The fifth bounty of this kind was that granted by the 9th Geo. III. chap.
38, upon the importation of raw silk from the British plantations. It was
granted for twenty-one years, from the 1st January 1770, to the 1st
January 1791. For the first seven years, it was to be at the rate of £25
for every hundred pounds value; for the second, at £20; and for the third,
at £15. The management of the silk-worm, and the preparation of silk,
requires so much hand-labour, and labour is so very dear in America, that
even this great bounty, I have been informed, was not likely to produce
any considerable effect.
The sixth Bounty of this kind was that granted by 11th Geo. III. chap. 50,
for the importation of pipe, hogshead, and barrelstaves and leading from
the British plantations. It was granted for nine years, from 1st January
1772 to the 1st January 1781. For the first three years, it was, for a
certain quantity of each, to be at the rate of £6; for the second three
years at £4; and for the third three years at £2.
The seventh and last bounty of this kind was that granted by the 19th Geo.
III chap. 37, upon the importation of hemp from Ireland. It was granted in
the same manner as that for the importation of hemp and undressed flax
from America, for twenty-one years, from the 24th June 1779 to the 24th
June 1800. The term is divided likewise into three periods, of seven years
each; and in each of those periods, the rate of the Irish bounty is the
same with that of the American. It does not, however, like the American
bounty, extend to the importation of undressed flax. It would have been
too great a discouragement to the cultivation of that plant in Great
Britain. When this last bounty was granted, the British and Irish
legislatures were not in much better humour with one another, than the
British and American had been before. But this boon to Ireland, it is to
be hoped, has been granted under more fortunate auspices than all those to
America. The same commodities, upon which we thus gave bounties, when
imported from America, were subjected to considerable duties when imported
from any other country. The interest of our American colonies was regarded
as the same with that of the mother country. Their wealth was considered
as our wealth. Whatever money was sent out to them, it was said, came all
back to us by the balance of trade, and we could never become a farthing
the poorer by any expense which we could lay out upon them. They were our
own in every respect, and it was an expense laid out upon the improvement
of our own property, and for the profitable employment of our own people.
It is unnecessary, I apprehend, at present to say anything further, in
order to expose the folly of a system which fatal experience has now
sufficiently exposed. Had our American colonies really been a part of
Great Britain, those bounties might have been considered as bounties upon
production, and would still have been liable to all the objections to
which such bounties are liable, but to no other.
The exportation of the materials of manufacture is sometimes discouraged
by absolute prohibitions, and sometimes by high duties.
Our woollen manufacturers have been more successful than any other class
of workmen, in persuading the legislature that the prosperity of the
nation depended upon the success and extension of their particular
business. They have not only obtained a monopoly against the consumers, by
an absolute prohibition of importing woollen cloths from any foreign
country; but they have likewise obtained another monopoly against the
sheep farmers and growers of wool, by a similar prohibition of the
exportation of live sheep and wool. The severity of many of the laws which
have been enacted for the security of the revenue is very justly
complained of, as imposing heavy penalties upon actions which, antecedent
to the statutes that declared them to be crimes, had always been
understood to be innocent. But the cruellest of our revenue laws, I will
venture to affirm, are mild and gentle, in comparison to some of those
which the clamour of our merchants and manufacturers has extorted from the
legislature, for the support of their own absurd and oppressive
monopolies. Like the laws of Draco, these laws may be said to be all
written in blood.
By the 8th of Elizabeth, chap. 3, the exporter of sheep, lambs, or rams,
was for the first offence, to forfeit all his goods for ever, to suffer a
year’s imprisonment, and then to have his left hand cut off in a market
town, upon a market day, to be there nailed up; and for the second
offence, to be adjudged a felon, and to suffer death accordingly. To
prevent the breed of our sheep from being propagated in foreign countries,
seems to have been the object of this law. By the 13th and 14th of Charles
II. chap. 18, the exportation of wool was made felony, and the exporter
subjected to the same penalties and forfeitures as a felon.
For the honour of the national humanity, it is to be hoped that neither of
these statutes was ever executed. The first of them, however, so far as I
know, has never been directly repealed, and serjeant Hawkins seems to
consider it as still in force. It may, however, perhaps be considered as
virtually repealed by the 12th of Charles II. chap. 32, sect. 3, which,
without expressly taking away the penalties imposed by former statutes,
imposes a new penalty, viz. that of 20s. for every sheep exported, or
attempted to be exported, together with the forfeiture of the sheep, and
of the owner’s share of the sheep. The second of them was expressly
repealed by the 7th and 8th of William III. chap. 28, sect. 4, by which it
is declared that “Whereas the statute of the 13th and 14th of king Charles
II. made against the exportation of wool, among other things in the said
act mentioned, doth enact the same to be deemed felony, by the severity of
which penalty the prosecution of offenders hath not been so effectually
put in execution; be it therefore enacted, by the authority aforesaid,
that so much of the said act, which relates to the making the said offence
felony, be repealed and made void.”
The penalties, however, which are either imposed by this milder statute,
or which, though imposed by former statutes, are not repealed by this one,
are still sufficiently severe. Besides the forfeiture of the goods, the
exporter incurs the penalty of 3s. for every pound weight of wool, either
exported or attempted to be exported, that is, about four or five times
the value. Any merchant, or other person convicted of this offence, is
disabled from requiring any debt or account belonging to him from any
factor or other person. Let his fortune be what it will, whether he is or
is not able to pay those heavy penalties, the law means to ruin him
completely. But, as the morals of the great body of the people are not yet
so corrupt as those of the contrivers of this statute, I have not heard
that any advantage has ever been taken of this clause. If the person
convicted of this offence is not able to pay the penalties within three
months after judgment, he is to be transported for seven years; and if he
returns before the expiration of that term, he is liable to the pains of
felony, without benefit of clergy. The owner of the ship, knowing this
offence, forfeits all his interest in the ship and furniture. The master
and mariners, knowing this offence, forfeit all their goods and chattels,
and suffer three months imprisonment. By a subsequent statute, the master
suffers six months imprisonment.
In order to prevent exportation, the whole inland commerce of wool is laid
under very burdensome and oppressive restrictions. It cannot be packed in
any box, barrel, cask, case, chest, or any other package, but only in
packs of leather or pack-cloth, on which must be marked on the outside the
words WOOL or YARN, in large letters, not less than three inches long, on
pain of forfeiting the same and the package, and 8s. for every pound
weight, to be paid by the owner or packer. It cannot be loaden on any
horse or cart, or carried by land within five miles of the coast, but
between sun-rising, and sun-setting, on pain of forfeiting the same, the
horses and carriages. The hundred next adjoining to the sea coast, out of,
or through which the wool is carried or exported, forfeits £20, if the
wool is under the value of £10; and if of greater value, then treble that
value, together with treble costs, to be sued for within the year. The
execution to be against any two of the inhabitants, whom the sessions must
reimburse, by an assessment on the other inhabitants, as in the cases of
robbery. And if any person compounds with the hundred for less than this
penalty, he is to be imprisoned for five years; and any other person may
prosecute. These regulations take place through the whole kingdom.
But in the particular counties of Kent and Sussex, the restrictions are
still more troublesome. Every owner of wool within ten miles of the sea
coast must give an account in writing, three days after shearing, to the
next officer of the customs, of the number of his fleeces, and of the
places where they are lodged. And before he removes any part of them, he
must give the like notice of the number and weight of the fleeces, and of
the name and abode of the person to whom they are sold, and of the place
to which it is intended they should be carried. No person within fifteen
miles of the sea, in the said counties, can buy any wool, before he enters
into bond to the king, that no part of the wool which he shall so buy
shall be sold by him to any other person within fifteen miles of the sea.
If any wool is found carrying towards the sea side in the said counties,
unless it has been entered and security given as aforesaid, it is
forfeited, and the offender also forfeits 3s. for every pound weight, if
any person lay any wool, not entered as aforesaid, within fifteen miles of
the sea, it must be seized and forfeited; and if, after such seizure, any
person shall claim the same, he must give security to the exchequer, that
if he is cast upon trial he shall pay treble costs, besides all other
penalties.
When such restrictions are imposed upon the inland trade, the coasting
trade, we may believe, cannot be left very free. Every owner of wool, who
carrieth, or causeth to be carried, any wool to any port or place on the
sea coast, in order to be from thence transported by sea to any other
place or port on the coast, must first cause an entry thereof to be made
at the port from whence it is intended to be conveyed, containing the
weight, marks, and number, of the packages, before he brings the same
within five miles of that port, on pain of forfeiting the same, and also
the horses, carts, and other carriages; and also of suffering and
forfeiting, as by the other laws in force against the exportation of wool.
This law, however (1st of William III. chap. 32), is so very indulgent as
to declare, that this shall not hinder any person from carrying his wool
home from the place of shearing, though it be within five miles of the
sea, provided that in ten days after shearing, and before he remove the
wool, he do under his hand certify to the next officer of the customs the
true number of fleeces, and where it is housed; and do not remove the
same, without certifying to such officer, under his hand, his intention so
to do, three days before. Bond must be given that the wool to be carried
coast-ways is to be landed at the particular port for which it is entered
outwards; and if my part of it is landed without the presence of an
officer, not only the forfeiture of the wool is incurred, as in other
goods, but the usual additional penalty of 3s. for every pound weight is
likewise incurred.
Our woollen manufacturers, in order to justify their demand of such
extraordinary restrictions and regulations, confidently asserted, that
English wool was of a peculiar quality, superior to that of any other
country; that the wool of other countries could not, without some mixture
of it, be wrought up into any tolerable manufacture; that fine cloth could
not be made without it; that England, therefore, if the exportation of it
could be totally prevented, could monopolize to herself almost the whole
woollen trade of the world; and thus, having no rivals, could sell at what
price she pleased, and in a short time acquire the most incredible degree
of wealth by the most advantageous balance of trade. This doctrine, like
most other doctrines which are confidently asserted by any considerable
number of people, was, and still continues to be, most implicitly believed
by a much greater number: by almost all those who are either unacquainted
with the woollen trade, or who have not made particular inquiries. It is,
however, so perfectly false, that English wool is in any respect necessary
for the making of fine cloth, that it is altogether unfit for it. Fine
cloth is made altogether of Spanish wool. English wool, cannot be even so
mixed with Spanish wool, as to enter into the composition without spoiling
and degrading, in some degree, the fabric of the cloth.
It has been shown in the foregoing part of this work, that the effect of
these regulations has been to depress the price of English wool, not only
below what it naturally would be in the present times, but very much below
what it actually was in the time of Edward III. The price of Scotch wool,
when, in consequence of the Union, it became subject to the same
regulations, is said to have fallen about one half. It is observed by the
very accurate and intelligent author of the Memoirs of Wool, the Reverend
Mr John Smith, that the price of the best English wool in England, is
generally below what wool of a very inferior quality commonly sells for in
the market of Amsterdam. To depress the price of this commodity below what
may be called its natural and proper price, was the avowed purpose of
those regulations; and there seems to be no doubt of their having produced
the effect that was expected from them.
This reduction of price, it may perhaps be thought, by discouraging the
growing of wool, must have reduced very much the annual produce of that
commodity, though not below what it formerly was, yet below what, in the
present state of things, it would probably have been, had it, in
consequence of an open and free market, been allowed to rise to the
natural and proper price. I am, however, disposed to believe, that the
quantity of the annual produce cannot have been much, though it may,
perhaps, have been a little affected by these regulations. The growing of
wool is not the chief purpose for which the sheep farmer employs his
industry and stock. He expects his profit, not so much from the price of
the fleece, as from that of the carcase; and the average or ordinary price
of the latter must even, in many cases, make up to him whatever deficiency
there may be in the average or ordinary price of the former. It has been
observed, in the foregoing part of this work, that ‘whatever regulations
tend to sink the price, either of wool or of raw hides, below what it
naturally would be, must, in an improved and cultivated country, have some
tendency to raise the price of butcher’s meat. The price, both of the
great and small cattle which are fed on improved and cultivated land, must
be sufficient to pay the rent which the landlord, and the profit which the
farmer, has reason to expect from improved and cultivated land. If it is
not, they will soon cease to feed them. Whatever part of this price,
therefore, is not paid by the wool and the hide, must be paid by the
carcase. The less there is paid for the one, the more must be paid for the
other. In what manner this price is to be divided upon the different parts
of the beast, is indifferent to the landlords and farmers, provided it is
all paid to them. In an improved and cultivated country, therefore, their
interest as landlords and farmers cannot be much affected by such
regulations, though their interest as consumers may, by the rise in the
price of provisions.’ According to this reasoning, therefore, this
degradation in the price of wool is not likely, in an improved and
cultivated country, to occasion any diminution in the annual produce of
that commodity; except so far as, by raising the price of mutton, it may
somewhat diminish the demand for, and consequently the production of, that
particular species of butcher’s meat, Its effect, however, even in this
way, it is probable, is not very considerable.
But though its effect upon the quantity of the annual produce may not have
been very considerable, its effect upon the quality, it may perhaps be
thought, must necessarily have been very great. The degradation in the
quality of English wool, if not below what it was in former times, yet
below what it naturally would have been in the present state of
improvement and cultivation, must have been, it may perhaps be supposed,
very nearly in proportion to the degradation of price. As the quality
depends upon the breed, upon the pasture, and upon the management and
cleanliness of the sheep, during the whole progress of the growth of the
fleece, the attention to these circumstances, it may naturally enough be
imagined, can never be greater than in proportion to the recompence which
the price of the fleece is likely to make for the labour and expense which
that attention requires. It happens, however, that the goodness of the
fleece depends, in a great measure, upon the health, growth, and bulk of
the animal: the same attention which is necessary for the improvement of
the carcase is, in some respect, sufficient for that of the fleece.
Notwithstanding the degradation of price, English wool is said to have
been improved considerably during the course even of the present century.
The improvement, might, perhaps, have been greater if the price had been
better; but the lowness of price, though it may have obstructed, yet
certainly it has not altogether prevented that improvement.
The violence of these regulations, therefore, seems to have affected
neither the quantity nor the quality of the annual produce of wool, so
much as it might have been expected to do (though I think it probable that
it may have affected the latter a good deal more than the former); and the
interest of the growers of wool, though it must have been hurt in some
degree, seems upon the whole, to have been much less hurt than could well
have been imagined.
These considerations, however, will not justify the absolute prohibition
of the exportation of wool; but they will fully justify the imposition of
a considerable tax upon that exportation.
To hurt, in any degree, the interest of any one order of citizens, for no
other purpose but to promote that of some other, is evidently contrary to
that justice and equality of treatment which the sovereign owes to all the
different orders of his subjects. But the prohibition certainly hurts, in
some degree, the interest of the growers of wool, for no other purpose but
to promote that of the manufacturers.
Every different order of citizens is bound to contribute to the support of
the sovereign or commonwealth. A tax of five, or even of ten shillings,
upon the exportation of every tod of wool, would produce a very
considerable revenue to the sovereign. It would hurt the interest of the
growers somewhat less than the prohibition, because it would not probably
lower the price of wool quite so much. It would afford a sufficient
advantage to the manufacturer, because, though he might not buy his wool
altogether so cheap as under the prohibition, he would still buy it at
least five or ten shillings cheaper than any foreign manufacturer could
buy it, besides saving the freight and insurance which the other would be
obliged to pay. It is scarce possible to devise a tax which could produce
any considerable revenue to the sovereign, and at the same time occasion
so little inconveniency to anybody.
The prohibition, notwithstanding all the penalties which guard it, does
not prevent the exportation of wool. It is exported, it is well known, in
great quantities. The great difference between the price in the home and
that in the foreign market, presents such a temptation to smuggling, that
all the rigour of the law cannot prevent it. This illegal exportation is
advantageous to nobody but the smuggler. A legal exportation, subject to a
tax, by affording a revenue to the sovereign, and thereby saving the
imposition of some other, perhaps more burdensome and inconvenient taxes,
might prove advantageous to all the different subjects of the state.
The exportation of fuller’s earth, or fuller’s clay, supposed to be
necessary for preparing and cleansing the woollen manufactures, has been
subjected to nearly the same penalties as the exportation of wool. Even
tobacco-pipe clay, though acknowledged to be different from fuller’s clay,
yet, on account of their resemblance, and because fuller’s clay might
sometimes be exported as tobacco-pipe clay, has been laid under the same
prohibitions and penalties.
By the 13th and 14th of Charles II. chap, 7, the exportation, not only of
raw hides, but of tanned leather, except in the shape of boots, shoes, or
slippers, was prohibited; and the law gave a monopoly to our boot-makers
and shoe-makers, not only against our graziers, but against our tanners.
By subsequent statutes, our tanners have got themselves exempted from this
monopoly, upon paying a small tax of only one shilling on the hundred
weight of tanned leather, weighing one hundred and twelve pounds. They
have obtained likewise the drawback of two-thirds of the excise duties
imposed upon their commodity, even when exported without further
manufacture. All manufactures of leather may be exported duty free; and
the exporter is besides entitled to the drawback of the whole duties of
excise. Our graziers still continue subject to the old monopoly. Graziers,
separated from one another, and dispersed through all the different
corners of the country, cannot, without great difficulty, combine together
for the purpose either of imposing monopolies upon their fellow-citizens,
or of exempting themselves from such as may have been imposed upon them by
other people. Manufacturers of all kinds, collected together in numerous
bodies in all great cities, easily can. Even the horns of cattle are
prohibited to be exported; and the two insignificant trades of the horner
and comb-maker enjoy, in this respect, a monopoly against the graziers.
Restraints, either by prohibitions, or by taxes, upon the exportation of
goods which are partially, but not completely manufactured, are not
peculiar to the manufacture of leather. As long as anything remains to be
done, in order to fit any commodity for immediate use and consumption, our
manufacturers think that they themselves ought to have the doing of it.
Woollen yarn and worsted are prohibited to be exported, under the same
penalties as wool even white cloths we subject to a duty upon exportation;
and our dyers have so far obtained a monopoly against our clothiers. Our
clothiers would probably have been able to defend themselves against it;
but it happens that the greater part of our principal clothiers are
themselves likewise dyers. Watch-cases, clock-cases, and dial-plates for
clocks and watches, have been prohibited to be exported. Our clock-makers
and watch-makers are, it seems, unwilling that the price of this sort of
workmanship should be raised upon them by the competition of foreigners.
By some old statutes of Edward III, Henry VIII. and Edward VI. the
exportation of all metals was prohibited. Lead and tin were alone
excepted, probably on account of the great abundance of those metals; in
the exportation of which a considerable part of the trade of the kingdom
in those days consisted. For the encouragement of the mining trade, the
5th of William and Mary, chap.17, exempted from this prohibition iron,
copper, and mundic metal made from British ore. The exportation of all
sorts of copper bars, foreign as well as British, was afterwards permitted
by the 9th and 10th of William III. chap 26. The exportation of
unmanufactured brass, of what is called gun-metal, bell-metal, and shroff
metal, still continues to be prohibited. Brass manufactures of all sorts
may be exported duty free.
The exportation of the materials of manufacture, where it is not
altogether prohibited, is, in many cases, subjected to considerable
duties.
By the 8th Geo. I. chap.15, the exportation of all goods, the produce of
manufacture of Great Britain, upon which any duties had been imposed by
former statutes, was rendered duty free. The following goods, however,
were excepted: alum, lead, lead-ore, tin, tanned leather, copperas, coals,
wool, cards, white woollen cloths, lapis calaminaris, skins of all sorts,
glue, coney hair or wool, hares wool, hair of all sorts, horses, and
litharge of lead. If you except horses, all these are either materials of
manufacture, or incomplete manufactures (which may be considered as
materials for still further manufacture), or instruments of trade. This
statute leaves them subject to all the old duties which had ever been
imposed upon them, the old subsidy, and one per cent. outwards.
By the same statute, a great number of foreign drugs for dyers use are
exempted from all duties upon importation. Each of them, however, is
afterwards subjected to a certain duty, not indeed a very heavy one, upon
exportation. Our dyers, it seems, while they thought it for their interest
to encourage the importation of those drugs, by an exemption from all
duties, thought it likewise for their own interest to throw some small
discouragement upon their exportation. The avidity, however, which
suggested this notable piece of mercantile ingenuity, most probably
disappointed itself of its object. It necessarily taught the importers to
be more careful than they might otherwise have been, that their
importation should not exceed what was necessary for the supply of the
home market. The home market was at all times likely to be more scantily
supplied; the commodities were at all times likely to be somewhat dearer
there than they would have been, had the exportation been rendered as free
as the importation.
By the above-mentioned statute, gum senega, or gum arabic, being among the
enumerated dyeing drugs, might be imported duty free. They were subjected,
indeed, to a small poundage duty, amounting only to threepence in the
hundred weight, upon their re-exportation. France enjoyed, at that time,
an exclusive trade to the country most productive of those drugs, that
which lies in the neighbourhood of the Senegal; and the British market
could not be easily supplied by the immediate importation of them from the
place of growth. By the 25th Geo. II. therefore, gum senega was allowed to
be imported (contrary to the general dispositions of the act of
navigation) from any part of Europe. As the law, however, did not mean to
encourage this species of trade, so contrary to the general principles of
the mercantile policy of England, it imposed a duty of ten shillings the
hundred weight upon such importation, and no part of this duty was to be
afterwards drawn back upon its exportation. The successful war which began
in 1755 gave Great Britain the same exclusive trade to those countries
which France had enjoyed before. Our manufactures, as soon as the peace
was made, endeavoured to avail themselves of this advantage, and to
establish a monopoly in their own favour both against the growers and
against the importers of this commodity. By the 5th of Geo. III.
therefore, chap. 37, the exportation of gum senega, from his majesty’s
dominions in Africa, was confined to Great Britain, and was subjected to
all the same restrictions, regulations, forfeitures, and penalties, as
that of the enumerated commodities of the British colonies in America and
the West Indies. Its importation, indeed, was subjected to a small duty of
sixpence the hundred weight; but its re-exportation was subjected to the
enormous duty of one pound ten shillings the hundred weight. It was the
intention of our manufacturers, that the whole produce of those countries
should be imported into Great Britain; and in order that they themselves
might be enabled to buy it at their own price, that no part of it should
be exported again, but at such an expense as would sufficiently discourage
that exportation. Their avidity, however, upon this, as well as upon many
other occasions, disappointed itself of its object. This enormous duty
presented such a temptation to smuggling, that great quantities of this
commodity were clandestinely exported, probably to all the manufacturing
countries of Europe, but particularly to Holland, not only from Great
Britain, but from Africa. Upon this account, by the 14th Geo. III.
chap.10, this duty upon exportation was reduced to five shillings the
hundred weight.
In the book of rates, according to which the old subsidy was levied,
beaver skins were estimated at six shillings and eight pence a piece; and
the different subsidies and imposts which, before the year 1722, had been
laid upon their importation, amounted to one-fifth part of the rate, or to
sixteen pence upon each skin; all of which, except half the old subsidy,
amounting only to twopence, was drawn back upon exportation. This duty,
upon the importation of so important a material of manufacture, had been
thought too high; and, in the year 1722, the rate was reduced to two
shillings and sixpence, which reduced the duty upon importation to
sixpence, and of this only one-half was to be drawn back upon exportation.
The same successful war put the country most productive of beaver under
the dominion of Great Britain; and beaver skins being among the enumerated
commodities, the exportation from America was consequently confined to the
market of Great Britain. Our manufacturers soon bethought themselves of
the advantage which they might make of this circumstance; and in the year
1764, the duty upon the importation of beaver skin was reduced to one
penny, but the duty upon exportation was raised to sevenpence each skin,
without any drawback of the duty upon importation. By the same law, a duty
of eighteen pence the pound was imposed upon the exportation of beaver
wool or woumbs, without making any alteration in the duty upon the
importation of that commodity, which, when imported by British, and in
British shipping, amounted at that time to between fourpence and fivepence
the piece.
Coals may be considered both as a material of manufacture, and as an
instrument of trade. Heavy duties, accordingly, have been imposed upon
their exportation, amounting at present (1783) to more than five shillings
the ton, or more than fifteen shillings the chaldron, Newcastle measure;
which is, in most cases, more than the original value of the commodity at
the coal-pit, or even at the shipping port for exportation.
The exportation, however, of the instruments of trade, properly so called,
is commonly restrained, not by high duties, but by absolute prohibitions.
Thus, by the 7th and 8th of William III chap.20, sect.8, the exportation
of frames or engines for knitting gloves or stockings, is prohibited,
under the penalty, not only of the forfeiture of such frames or engines,
so exported, or attempted to be exported, but of forty pounds, one half to
the king, the other to the person who shall inform or sue for the same. In
the same manner, by the 14th Geo. III. chap. 71, the exportation to
foreign parts, of any utensils made use of in the cotton, linen, woollen,
and silk manufactures, is prohibited under the penalty, not only of the
forfeiture of such utensils, but of two hundred pounds, to be paid by the
person who shall offend in this manner; and likewise of two hundred
pounds, to be paid by the master of the ship, who shall knowingly suffer
such utensils to be loaded on board his ship.
When such heavy penalties were imposed upon the exportation of the dead
instruments of trade, it could not well be expected that the living
instrument, the artificer, should be allowed to go free. Accordingly, by
the 5th Geo. I. chap. 27, the person who shall be convicted of enticing
any artificer, of or in any of the manufactures of Great Britain, to go
into any foreign parts, in order to practise or teach his trade, is
liable, for the first offence, to be fined in any sum not exceeding one
hundred pounds, and to three months imprisonment, and until the fine shall
be paid; and for the second offence, to be fined in any sum, at the
discretion of the court, and to imprisonment for twelve months, and until
the fine shall be paid. By the 23d Geo. II. chap. 13, this penalty is
increased, for the first offence, to five hundred pounds for every
artificer so enticed, and to twelve months imprisonment, and until the
fine shall be paid; and for the second offence, to one thousand pounds,
and to two years imprisonment, and until the fine shall be paid.
By the former of these two statutes, upon proof that any person has been
enticing any artificer, or that any artificer has promised or contracted
to go into foreign parts, for the purposes aforesaid, such artificer may
be obliged to give security, at the discretion of the court, that he shall
not go beyond the seas, and may be committed to prison until he give such
security.
If any artificer has gone beyond the seas, and is exercising or teaching
his trade in any foreign country, upon warning being given to him by any
of his majesty’s ministers or consuls abroad, or by one of his majesty’s
secretaries of state, for the time being, if he does not, within six
months after such warning, return into this realm, and from henceforth
abide and inhabit continually within the same, he is from thenceforth
declared incapable of taking any legacy devised to him within this
kingdom, or of being executor or administrator to any person, or of taking
any lands within this kingdom, by descent, devise, or purchase. He
likewise forfeits to the king all his lands, goods, and chattels; is
declared an alien in every respect; and is put out of the king’s
protection.
It is unnecessary, I imagine, to observe how contrary such regulations are
to the boasted liberty of the subject, of which we affect to be so very
jealous; but which, in this case, is so plainly sacrificed to the futile
interests of our merchants and manufacturers.
The laudable motive of all these regulations, is to extend our own
manufactures, not by their own improvement, but by the depression of those
of all our neighbours, and by putting an end, as much as possible, to the
troublesome competition of such odious and disagreeable rivals. Our master
manufacturers think it reasonable that they themselves should have the
monopoly of the ingenuity of all their countrymen. Though by restraining,
in some trades, the number of apprentices which can be employed at one
time, and by imposing the necessity of a long apprenticeship in all
trades, they endeavour, all of them, to confine the knowledge of their
respective employments to as small a number as possible; they are
unwilling, however, that any part of this small number should go abroad to
instruct foreigners.
Consumption is the sole end and purpose of all production; and the
interest of the producer ought to be attended to, only so far as it may be
necessary for promoting that of the consumer.
The maxim is so perfectly self-evident, that it would be absurd to attempt
to prove it. But in the mercantile system, the interest of the consumer is
almost constantly sacrificed to that of the producer; and it seems to
consider production, and not consumption, as the ultimate end and object
of all industry and commerce.
In the restraints upon the importation of all foreign commodities which
can come into competition with those of our own growth or manufacture, the
interest of the home consumer is evidently sacrificed to that of the
producer. It is altogether for the benefit of the latter, that the former
is obliged to pay that enhancement of price which this monopoly almost
always occasions.
It is altogether for the benefit of the producer, that bounties are
granted upon the exportation of some of his productions. The home consumer
is obliged to pay, first the tax which is necessary for paying the bounty;
and, secondly, the still greater tax which necessarily arises from the
enhancement of the price of the commodity in the home market.
By the famous treaty of commerce with Portugal, the consumer is prevented
by duties from purchasing of a neighbouring country, a commodity which our
own climate does not produce; but is obliged to purchase it of a distant
country, though it is acknowledged, that the commodity of the distant
country is of a worse quality than that of the near one. The home consumer
is obliged to submit to this inconvenience, in order that the producer may
import into the distant country some of his productions, upon more
advantageous terms than he otherwise would have been allowed to do. The
consumer, too, is obliged to pay whatever enhancement in the price of
those very productions this forced exportation may occasion in the home
market.
But in the system of laws which has been established for the management of
our American and West Indian colonies, the interest of the home consumer
has been sacrificed to that of the producer, with a more extravagant
profusion than in all our other commercial regulations. A great empire has
been established for the sole purpose of raising up a nation of customers,
who should be obliged to buy, from the shops of our different producers,
all the goods with which these could supply them. For the sake of that
little enhancement of price which this monopoly might afford our
producers, the home consumers have been burdened with the whole expense of
maintaining and defending that empire. For this purpose, and for this
purpose only, in the two last wars, more than two hundred millions have
been spent, and a new debt of more than a hundred and seventy millions has
been contracted, over and above all that had been expended for the same
purpose in former wars. The interest of this debt alone is not only
greater than the whole extraordinary profit which, it never could be
pretended, was made by the monopoly of the colony trade, but than the
whole value of that trade, or than the whole value of the goods which, at
an average, have been annually exported to the colonies.
It cannot be very difficult to determine who have been the contrivers of
this whole mercantile system; not the consumers, we may believe, whose
interest has been entirely neglected; but the producers, whose interest
has been so carefully attended to; and among this latter class, our
merchants and manufacturers have been by far the principal architects. In
the mercantile regulations which have been taken notice of in this
chapter, the interest of our manufacturers has been most peculiarly
attended to; and the interest, not so much of the consumers, as that of
some other sets of producers, has been sacrificed to it.

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---
id: book-4-introduction
title: "Book 4 Introduction"
book: "4"
chapter: 0
artifact_type: content
---
BOOK IV.
OF SYSTEMS OF POLITICAL ECONOMY.
Political economy, considered as a branch of the science of a statesman or
legislator, proposes two distinct objects; first, to provide a plentiful
revenue or subsistence for the people, or, more properly, to enable them
to provide such a revenue or subsistence for themselves; and, secondly, to
supply the state or commonwealth with a revenue sufficient for the public
services. It proposes to enrich both the people and the sovereign.
The different progress of opulence in different ages and nations, has
given occasion to two different systems of political economy, with regard
to enriching the people. The one may be called the system of commerce, the
other that of agriculture. I shall endeavour to explain both as fully and
distinctly as I can, and shall begin with the system of commerce. It is
the modern system, and is best understood in our own country and in our
own times.

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---
id: introduction
title: "INTRODUCTION AND PLAN OF THE WORK."
book: "Introduction"
chapter: 0
artifact_type: content
---
INTRODUCTION AND PLAN OF THE WORK.
The annual labour of every nation is the fund which originally supplies it
with all the necessaries and conveniencies of life which it annually
consumes, and which consist always either in the immediate produce of that
labour, or in what is purchased with that produce from other nations.
According, therefore, as this produce, or what is purchased with it, bears
a greater or smaller proportion to the number of those who are to consume
it, the nation will be better or worse supplied with all the necessaries
and conveniencies for which it has occasion.
But this proportion must in every nation be regulated by two different
circumstances: first, by the skill, dexterity, and judgment with which its
labour is generally applied; and, secondly, by the proportion between the
number of those who are employed in useful labour, and that of those who
are not so employed. Whatever be the soil, climate, or extent of territory
of any particular nation, the abundance or scantiness of its annual supply
must, in that particular situation, depend upon those two circumstances.
The abundance or scantiness of this supply, too, seems to depend more upon
the former of those two circumstances than upon the latter. Among the
savage nations of hunters and fishers, every individual who is able to
work is more or less employed in useful labour, and endeavours to provide,
as well as he can, the necessaries and conveniencies of life, for himself,
and such of his family or tribe as are either too old, or too young, or
too infirm, to go a-hunting and fishing. Such nations, however, are so
miserably poor, that, from mere want, they are frequently reduced, or at
least think themselves reduced, to the necessity sometimes of directly
destroying, and sometimes of abandoning their infants, their old people,
and those afflicted with lingering diseases, to perish with hunger, or to
be devoured by wild beasts. Among civilized and thriving nations, on the
contrary, though a great number of people do not labour at all, many of
whom consume the produce of ten times, frequently of a hundred times, more
labour than the greater part of those who work; yet the produce of the
whole labour of the society is so great, that all are often abundantly
supplied; and a workman, even of the lowest and poorest order, if he is
frugal and industrious, may enjoy a greater share of the necessaries and
conveniencies of life than it is possible for any savage to acquire.
The causes of this improvement in the productive powers of labour, and the
order according to which its produce is naturally distributed among the
different ranks and conditions of men in the society, make the subject of
the first book of this Inquiry.
Whatever be the actual state of the skill, dexterity, and judgment, with
which labour is applied in any nation, the abundance or scantiness of its
annual supply must depend, during the continuance of that state, upon the
proportion between the number of those who are annually employed in useful
labour, and that of those who are not so employed. The number of useful
and productive labourers, it will hereafter appear, is everywhere in
proportion to the quantity of capital stock which is employed in setting
them to work, and to the particular way in which it is so employed. The
second book, therefore, treats of the nature of capital stock, of the
manner in which it is gradually accumulated, and of the different
quantities of labour which it puts into motion, according to the different
ways in which it is employed.
Nations tolerably well advanced as to skill, dexterity, and judgment, in
the application of labour, have followed very different plans in the
general conduct or direction of it; and those plans have not all been
equally favourable to the greatness of its produce. The policy of some
nations has given extraordinary encouragement to the industry of the
country; that of others to the industry of towns. Scarce any nation has
dealt equally and impartially with every sort of industry. Since the
down-fall of the Roman empire, the policy of Europe has been more
favourable to arts, manufactures, and commerce, the industry of towns,
than to agriculture, the Industry of the country. The circumstances which
seem to have introduced and established this policy are explained in the
third book.
Though those different plans were, perhaps, first introduced by the
private interests and prejudices of particular orders of men, without any
regard to, or foresight of, their consequences upon the general welfare of
the society; yet they have given occasion to very different theories of
political economy; of which some magnify the importance of that industry
which is carried on in towns, others of that which is carried on in the
country. Those theories have had a considerable influence, not only upon
the opinions of men of learning, but upon the public conduct of princes
and sovereign states. I have endeavoured, in the fourth book, to explain
as fully and distinctly as I can those different theories, and the
principal effects which they have produced in different ages and nations.
To explain in what has consisted the revenue of the great body of the
people, or what has been the nature of those funds, which, in different
ages and nations, have supplied their annual consumption, is the object of
these four first books. The fifth and last book treats of the revenue of
the sovereign, or commonwealth. In this book I have endeavoured to shew,
first, what are the necessary expenses of the sovereign, or commonwealth;
which of those expenses ought to be defrayed by the general contribution
of the whole society, and which of them, by that of some particular part
only, or of some particular members of it: secondly, what are the
different methods in which the whole society may be made to contribute
towards defraying the expenses incumbent on the whole society, and what
are the principal advantages and inconveniencies of each of those methods;
and, thirdly and lastly, what are the reasons and causes which have
induced almost all modern governments to mortgage some part of this
revenue, or to contract debts; and what have been the effects of those
debts upon the real wealth, the annual produce of the land and labour of
the society.
BOOK I.
OF THE CAUSES OF IMPROVEMENT IN THE
PRODUCTIVE POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS
NATURALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE.

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---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.

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# Chapter Analysis: Book I, Chapter 1 — Of the Division of Labour
## Chapter Summary
Smith opens *The Wealth of Nations* by identifying the division of labour as
the primary cause of improvement in the productive powers of labour. Using the
celebrated pin-factory example, he demonstrates that ten workers collaborating
under a division of labour can produce 48,000 pins per day, compared to fewer
than 20 each if working independently — a productivity gain of over 240-fold.
He attributes this gain to three mechanisms: increased dexterity through
specialisation, time saved by eliminating task-switching, and the invention
of labour-saving machinery stimulated by focused attention on single operations.
Smith extends the argument from the workshop to society at large, showing that
the separation of trades advances furthest in the most developed countries,
and that the resulting multiplication of production creates a "universal
opulence" reaching even the lowest social ranks. He illustrates this with the
day-labourer's woollen coat, whose production requires the co-operation of
thousands of workers across dozens of trades and multiple countries.
## Entities Extracted
| # | Entity | Type | Economic Domain | Description |
|---|--------|------|-----------------|-------------|
| 1 | Division of labour | Concept | Production | Separation of work into specialised tasks to increase productive power |
| 2 | Productive powers of labour | Concept | Production | Capacity of labour to produce output per worker per unit time |
| 3 | Dexterity of the workman | Concept | Production | Skill and speed acquired through repeated specialised operation |
| 4 | Saving of time | Concept | Production | Elimination of time lost in switching between tasks |
| 5 | Invention of machinery | Mechanism | Production | Development of labour-saving machines stimulated by specialisation |
| 6 | Separation of trades | Mechanism | Production | Emergence of distinct occupations as separate specialisations |
| 7 | The workman | Actor | Production | Individual labourer performing productive specialised work |
| 8 | The philosopher | Actor | General Theory | Observer-specialist who combines knowledge across fields |
| 9 | Universal opulence | Concept | Distribution | Material well-being extending to all social ranks |
| 10 | Exchange | Mechanism | Exchange | Trading surplus production for goods produced by others |
| 11 | Co-operation of labour | Mechanism | Production | Interdependent collaboration across trades and locations |
| 12 | Manufactures | Concept | Production | Sector of production transforming raw materials through specialised operations |
| 13 | Agriculture | Concept | Production | Sector of production with limited division of labour due to seasonal constraints |
**Total entities: 13**
## VSM Mappings
| Entity | VSM Concept | Strength | Key Rationale |
|--------|------------|----------|---------------|
| Division of labour | S1 (Operations) | Strong | Defines internal architecture of operational units |
| Division of labour | Recursion | Strong | Operates at multiple levels: workshop, trade, nation |
| Productive powers of labour | S1 (Operations) | Strong | Key performance indicator of S1 effectiveness |
| Dexterity of the workman | S1 (Operations) | Strong | Self-optimisation capacity of individual S1 elements |
| Saving of time | S2 (Coordination) | Moderate | Eliminates oscillation between work modes |
| Invention of machinery | S4 (Intelligence) | Strong | Adaptive innovation driven by focused observation |
| Separation of trades | S1 (Operations) | Strong | Differentiation of S1 into distinct operational units |
| The workman | S1 (Operations) | Strong | Fundamental S1 element at lowest recursion level |
| The philosopher | S4 (Intelligence) | Strong | Environmental scanning and cross-domain synthesis |
| Universal opulence | Viability | Moderate | Emergent outcome of a functioning viable system |
| Exchange | S2 (Coordination) | Strong | Primary coordination mechanism between S1 units |
| Co-operation of labour | S2 (Coordination) | Moderate | Observable result of effective S2 coordination |
| Manufactures | S1 (Operations) | Strong | Major S1 domain with high internal differentiation |
| Agriculture | S1 (Operations) | Strong | S1 domain constrained by environment in differentiation |
**Total mappings: 14** (some entities map to multiple VSM concepts)
## VSM Coverage
| System | Covered | Entities Mapped | Notes |
|--------|---------|-----------------|-------|
| S1 (Operations) | Yes | Division of labour, productive powers, dexterity, separation of trades, the workman, manufactures, agriculture | Dominant system — chapter focuses on operational structure |
| S2 (Coordination) | Yes | Saving of time, exchange, co-operation of labour | Present through coordination mechanisms |
| S3 (Control) | No | — | No entities map to internal regulation or resource allocation |
| S3* (Audit) | No | — | No entities map to monitoring or verification |
| S4 (Intelligence) | Yes | Invention of machinery, the philosopher | Innovation and environmental scanning |
| S5 (Policy) | No | — | No entities map to identity, policy, or purpose |
| Recursion | Yes | Division of labour | Multi-level operation explicitly noted |
| Variety | No | — | Not explicitly addressed in this chapter |
| Requisite Variety | No | — | Not explicitly addressed |
| Attenuation/Amplification | No | — | Not explicitly addressed |
| Algedonic Signals | No | — | Not explicitly addressed |
| Autonomy | No | — | Implicit but not directly discussed |
| Viability | Yes | Universal opulence | System-level outcome |
**Systems covered: S1, S2, S4 (3 of 5 primary systems)**
**Systems not covered: S3, S3*, S5**
**Key concepts covered: Recursion, Viability (2 of 7)**
## Gaps & Observations
### Uncovered Systems
- **S3 (Control)**: The chapter does not discuss regulation, resource allocation,
or governance of operational units. Smith's "invisible hand" and regulatory
structures appear in later chapters.
- **S3* (Audit)**: No monitoring or verification mechanisms are discussed.
- **S5 (Policy)**: The chapter does not address sovereign authority, economic
policy, or the purpose of the commonwealth. Smith's brief reference to
"a well-governed society" hints at S5 but does not develop it.
### Difficult Mappings
- **Saving of time** maps only moderately to S2 because it describes the
elimination of a coordination problem rather than a coordination mechanism
itself.
- **Universal opulence** maps to Viability rather than a specific system,
making it a systemic property rather than a structural element.
### Emerging Themes
1. **S1 dominance**: This chapter is overwhelmingly about operational structure.
As the opening chapter of the book, it establishes the productive foundation
before introducing regulatory and policy layers in subsequent chapters.
2. **Recursion as implicit structure**: Smith's analysis naturally operates at
multiple recursive levels (worker → workshop → trade → nation) even though
he does not use systems-theoretic language.
3. **Innovation feedback loop**: The connection between S1 (specialised workers)
and S4 (invention/philosophy) represents a key feedback loop in the viable
system: operational focus generates adaptive innovation.
### Suggestions for Enriching Coverage
- **S3 coverage** is likely to emerge in chapters on wages, profits, and market
regulation (Book I, Chapters 7-10).
- **S5 coverage** should appear in Book IV (political economy) and Book V
(sovereign revenue).
- **Variety and requisite variety** may emerge when Smith discusses market size
(Chapter 3) and the limitations of regulation.
- Later chapters on money (Chapter 4) and prices (Chapters 5-7) should
strengthen S2 coverage through the price mechanism.
### Cross-chapter Anticipations
Several entities from this chapter will likely recur and deepen in subsequent
chapters:
- **Division of labour** → Chapter 2 (its cause) and Chapter 3 (its limits)
- **Exchange** → Chapter 4 (money as medium of exchange)
- **Productive powers** → Chapters 5-7 (price theory as measure of output)

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# Chapter Analysis: Book I, Chapter 2 — Of the Principle which gives Occasion to the Division of Labour
## Chapter Summary
Smith identifies the cause of the division of labour: a fundamental human
propensity to "truck, barter, and exchange." This propensity is not the product
of deliberate design or wisdom but an innate (or at least deeply rooted)
feature of human nature, possibly derived from the faculties of reason and
speech. Smith argues that in civilised society, individuals cannot secure the
co-operation of the multitudes they need through benevolence alone; instead,
they must appeal to others' self-interest through bargaining. The celebrated
passage on the butcher, brewer, and baker establishes self-interest mediated
by exchange as the reliable foundation of economic co-operation. Smith then
traces how exchange gives rise to specialisation in primitive societies —
the armourer, carpenter, smith, and tanner emerge because each finds it
advantageous to dedicate themselves to what they do best and trade the surplus.
He concludes with the striking claim that the difference of talents between
a philosopher and a street porter is largely the effect rather than the cause
of the division of labour, and contrasts humans with animals whose diverse
natural talents cannot be pooled because they lack the capacity for exchange.
## Entities Extracted
| # | Entity | Type | Economic Domain | Description |
|---|--------|------|-----------------|-------------|
| 1 | Propensity to truck, barter, and exchange | Concept | General Theory | Fundamental human disposition to trade, the cause of the division of labour |
| 2 | Self-interest | Concept | General Theory | Motivation to pursue own advantage as the basis of economic co-operation |
| 3 | The bargain | Mechanism | Exchange | Voluntary bilateral exchange — the atomic unit of economic interaction |
| 4 | Benevolence | Concept | General Theory | Goodwill-based co-operation, insufficient for complex economies |
| 5 | Surplus produce | Concept | Production | Output exceeding own consumption, available for exchange |
| 6 | Difference of talents | Concept | General Theory | Skill variation as effect (not cause) of the division of labour |
| 7 | Common stock | Concept | Exchange | Aggregate pool of goods created by specialised exchange |
**Total entities: 7**
## VSM Mappings
| Entity | VSM Concept | Strength | Key Rationale |
|--------|------------|----------|---------------|
| Propensity to exchange | S5 (Policy/Identity) | Moderate | Foundational identity principle of the economic system |
| Propensity to exchange | S2 (Coordination) | Strong | Prerequisite for all market coordination |
| Self-interest | S1 (Operations) | Strong | Animating principle of autonomous operational units |
| Self-interest | Autonomy | Strong | Operational self-direction as design principle |
| The bargain | S2 (Coordination) | Strong | Atomic unit of inter-S1 coordination |
| Benevolence | S2 (Coordination) | Weak | Insufficient low-variety coordination mechanism |
| Surplus produce | Variety | Moderate | Material substrate of economic variety |
| Difference of talents | Variety | Moderate | System-generated variety through specialisation |
| Common stock | Viability | Moderate | Emergent system capacity to sustain all members |
**Total mappings: 9** (some entities map to multiple VSM concepts)
## VSM Coverage
| System | Covered | Entities Mapped | Notes |
|--------|---------|-----------------|-------|
| S1 (Operations) | Yes | Self-interest | As autonomy principle of operational units |
| S2 (Coordination) | Yes | Propensity to exchange, the bargain, benevolence | Central theme — exchange as coordination |
| S3 (Control) | No | — | No regulatory or management entities |
| S3* (Audit) | No | — | No monitoring entities |
| S4 (Intelligence) | No | — | No environmental scanning entities |
| S5 (Policy) | Yes | Propensity to exchange | As system identity (moderate mapping) |
| Recursion | No | — | Not addressed in this chapter |
| Variety | Yes | Surplus produce, difference of talents | System-generated variety |
| Requisite Variety | Partial | Benevolence (implicitly) | Benevolence lacks requisite variety for complex economies |
| Attenuation/Amplification | No | — | Not directly addressed |
| Algedonic Signals | No | — | Not addressed |
| Autonomy | Yes | Self-interest | Core argument of the chapter |
| Viability | Yes | Common stock | Pooled resources sustain the system |
**Systems covered: S1, S2, S5 (3 of 5 primary systems)**
**Systems not covered: S3, S3*, S4**
**Key concepts covered: Variety, Autonomy, Viability (3 of 7), Requisite Variety (partial)**
## Gaps & Observations
### Uncovered Systems
- **S3 (Control)**: No discussion of regulation, resource allocation, or
internal management. Expected — this chapter is about the *origin* of
economic organisation, not its governance.
- **S3* (Audit)**: No monitoring or verification mechanisms discussed.
- **S4 (Intelligence)**: Unlike Chapter 1 (which discussed the philosopher
and invention), this chapter does not address adaptation or environmental
scanning.
### Difficult Mappings
- **Propensity to exchange → S5** is interpretive. It captures identity/ethos
rather than deliberate governance, stretching the usual structural reading
of S5.
- **Benevolence → S2** is a *negative* mapping — Smith's point is that
benevolence fails as a coordination mechanism. Useful for what it reveals
about requisite variety but not a functional S2 element.
### Emerging Themes
1. **S2 deepens significantly**: Chapter 1 introduced exchange as one
mechanism among several; Chapter 2 establishes it as the foundational
principle of all economic coordination. S2 is now the best-covered
system across the two chapters.
2. **Autonomy emerges as key concept**: Smith's self-interest argument
maps powerfully to Beer's autonomy principle. This was implicit in
Chapter 1 but becomes explicit here — the system works because its
agents are self-directed.
3. **Variety appears for the first time**: Surplus produce and the
difference of talents introduce variety as a property of the economic
system. Smith's argument about talents being effects of specialisation
describes a variety-amplification feedback loop.
4. **S5 begins to emerge**: The propensity to exchange as a defining
characteristic of human economic nature provides the first (tentative)
S5 mapping.
### Cross-chapter Connections
- **Exchange** (Chapter 1 entity) is now grounded in a deeper causal
explanation: it arises from the propensity to truck, barter, and exchange.
- **The workman** (Chapter 1) is now understood as an autonomous agent
driven by self-interest, not merely an operative unit.
- **Universal opulence** (Chapter 1) is explained by the common stock
mechanism: diverse talents pooled through exchange.
### Cumulative VSM Coverage (Chapters 1-2)
| System | Ch.1 | Ch.2 | Combined |
|--------|------|------|----------|
| S1 | Strong | Yes | Strong |
| S2 | Yes | Strong | Strong |
| S3 | No | No | No |
| S3* | No | No | No |
| S4 | Yes | No | Yes |
| S5 | No | Moderate | Moderate |
| Variety | No | Yes | Yes |
| Autonomy | No | Yes | Yes |
| Viability | Yes | Yes | Yes |

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# Synthesize Chapter VSM Analysis
You are an interdisciplinary analyst combining classical economics with
cybernetic systems theory. Your task is to produce a comprehensive
chapter-level analysis showing how economic content maps to the
Viable System Model.
## Source Chapter
---
id: book-1-chapter-02
title: "OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF LABOUR."
book: "1"
chapter: 2
artifact_type: content
---
CHAPTER II.
OF THE PRINCIPLE WHICH GIVES OCCASION
TO THE DIVISION OF LABOUR.
This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though
very slow and gradual, consequence of a certain propensity in human
nature, which has in view no such extensive utility; the propensity to
truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human
nature, of which no further account can be given, or whether, as seems
more probable, it be the necessary consequence of the faculties of reason
and speech, it belongs not to our present subject to inquire. It is common
to all men, and to be found in no other race of animals, which seem to
know neither this nor any other species of contracts. Two greyhounds, in
running down the same hare, have sometimes the appearance of acting in
some sort of concert. Each turns her towards his companion, or endeavours
to intercept her when his companion turns her towards himself. This,
however, is not the effect of any contract, but of the accidental
concurrence of their passions in the same object at that particular time.
Nobody ever saw a dog make a fair and deliberate exchange of one bone for
another with another dog. Nobody ever saw one animal, by its gestures and
natural cries signify to another, this is mine, that yours; I am willing
to give this for that. When an animal wants to obtain something either of
a man, or of another animal, it has no other means of persuasion, but to
gain the favour of those whose service it requires. A puppy fawns upon its
dam, and a spaniel endeavours, by a thousand attractions, to engage the
attention of its master who is at dinner, when it wants to be fed by him.
Man sometimes uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his inclinations,
endeavours by every servile and fawning attention to obtain their good
will. He has not time, however, to do this upon every occasion. In
civilized society he stands at all times in need of the co-operation and
assistance of great multitudes, while his whole life is scarce sufficient
to gain the friendship of a few persons. In almost every other race of
animals, each individual, when it is grown up to maturity, is entirely
independent, and in its natural state has occasion for the assistance of
no other living creature. But man has almost constant occasion for the
help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest
their self-love in his favour, and shew them that it is for their own
advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which I
want, and you shall have this which you want, is the meaning of every such
offer; and it is in this manner that we obtain from one another the far
greater part of those good offices which we stand in need of. It is not
from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk
to them of our own necessities, but of their advantages. Nobody but a
beggar chooses to depend chiefly upon the benevolence of his
fellow-citizens. Even a beggar does not depend upon it entirely. The
charity of well-disposed people, indeed, supplies him with the whole fund
of his subsistence. But though this principle ultimately provides him with
all the necessaries of life which he has occasion for, it neither does nor
can provide him with them as he has occasion for them. The greater part of
his occasional wants are supplied in the same manner as those of other
people, by treaty, by barter, and by purchase. With the money which one
man gives him he purchases food. The old clothes which another bestows
upon him he exchanges for other clothes which suit him better, or for
lodging, or for food, or for money, with which he can buy either food,
clothes, or lodging, as he has occasion.
As it is by treaty, by barter, and by purchase, that we obtain from one
another the greater part of those mutual good offices which we stand in
need of, so it is this same trucking disposition which originally gives
occasion to the division of labour. In a tribe of hunters or shepherds, a
particular person makes bows and arrows, for example, with more readiness
and dexterity than any other. He frequently exchanges them for cattle or
for venison, with his companions; and he finds at last that he can, in
this manner, get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest, therefore, the
making of bows and arrows grows to be his chief business, and he becomes a
sort of armourer. Another excels in making the frames and covers of their
little huts or moveable houses. He is accustomed to be of use in this way
to his neighbours, who reward him in the same manner with cattle and with
venison, till at last he finds it his interest to dedicate himself
entirely to this employment, and to become a sort of house-carpenter. In
the same manner a third becomes a smith or a brazier; a fourth, a tanner
or dresser of hides or skins, the principal part of the clothing of
savages. And thus the certainty of being able to exchange all that surplus
part of the produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men’s labour as he may
have occasion for, encourages every man to apply himself to a particular
occupation, and to cultivate and bring to perfection whatever talent or
genius he may possess for that particular species of business.
The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is
not upon many occasions so much the cause, as the effect of the division
of labour. The difference between the most dissimilar characters, between
a philosopher and a common street porter, for example, seems to arise not
so much from nature, as from habit, custom, and education. When they came
in to the world, and for the first six or eight years of their existence,
they were, perhaps, very much alike, and neither their parents nor
play-fellows could perceive any remarkable difference. About that age, or
soon after, they come to be employed in very different occupations. The
difference of talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing to
acknowledge scarce any resemblance. But without the disposition to truck,
barter, and exchange, every man must have procured to himself every
necessary and conveniency of life which he wanted. All must have had the
same duties to perform, and the same work to do, and there could have been
no such difference of employment as could alone give occasion to any great
difference of talents.
As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same
disposition which renders that difference useful. Many tribes of animals,
acknowledged to be all of the same species, derive from nature a much more
remarkable distinction of genius, than what, antecedent to custom and
education, appears to take place among men. By nature a philosopher is not
in genius and disposition half so different from a street porter, as a
mastiff is from a grey-hound, or a grey-hound from a spaniel, or this last
from a shepherd’s dog. Those different tribes of animals, however, though
all of the same species are of scarce any use to one another. The strength
of the mastiff is not in the least supported either by the swiftness of
the greyhound, or by the sagacity of the spaniel, or by the docility of
the shepherd’s dog. The effects of those different geniuses and talents,
for want of the power or disposition to barter and exchange, cannot be
brought into a common stock, and do not in the least contribute to the
better accommodation and conveniency of the species. Each animal is still
obliged to support and defend itself, separately and independently, and
derives no sort of advantage from that variety of talents with which
nature has distinguished its fellows. Among men, on the contrary, the most
dissimilar geniuses are of use to one another; the different produces of
their respective talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock, where every man
may purchase whatever part of the produce of other men’s talents he has
occasion for.
## Extracted Entities
--- ENTITY: propensity-to-truck-barter-and-exchange ---
# Propensity to Truck, Barter, and Exchange
## Definition
An innate or fundamental disposition in human nature to negotiate, trade, and
exchange goods with others. Smith identifies this propensity as the ultimate
cause of the division of labour, arguing that it is unique to humans and
absent in all other animal species. He leaves open whether it is a primary
instinct or a consequence of the faculties of reason and speech, but treats
it as the foundational mechanism from which specialisation and economic
organisation emerge.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This is the central thesis of the chapter. Smith argues that the division of
labour "is not originally the effect of any human wisdom" but rather the
"necessary, though very slow and gradual, consequence" of this propensity.
The entire chapter serves to establish exchange as the causal origin of
specialisation.
## Economic Domain
General Theory
## Smith's Original Wording
"This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though very
slow and gradual, consequence of a certain propensity in human nature [...] the
propensity to truck, barter, and exchange one thing for another."
## Modern Interpretation
This concept prefigures the modern economic assumption of rational self-interest
as the basis of market behaviour. It also anticipates evolutionary and
institutional economics debates about whether exchange is a natural disposition
or a culturally constructed institution.
--- ENTITY: self-interest ---
# Self-interest
## Definition
The motivation of individuals to pursue their own advantage in economic
transactions. Smith argues that in civilised society, individuals obtain the
co-operation of others not through appeals to benevolence but by engaging
their self-love — showing them that it is to their own advantage to provide
what is desired. Self-interest is the engine that makes exchange function:
each party to a bargain acts from regard to their own benefit.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Smith introduces self-interest through the celebrated passage about the
butcher, brewer, and baker. He contrasts it with benevolence, arguing that
we cannot rely on the goodwill of others for our daily needs in a society
of many, and that self-interest provides a more reliable and universal basis
for economic co-operation.
## Economic Domain
General Theory
## Smith's Original Wording
"It is not from the benevolence of the butcher, the brewer, or the baker that
we expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk to
them of our own necessities, but of their advantages."
--- ENTITY: the-bargain ---
# The Bargain
## Definition
A voluntary bilateral exchange in which each party offers something the other
wants. Smith defines the bargain as the fundamental unit of economic
interaction: "Give me that which I want, and you shall have this which you
want." It is through bargaining that individuals obtain "the far greater part
of those good offices which we stand in need of" in civilised society, as
opposed to relying on benevolence or coercion.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
The bargain is presented as the practical expression of the propensity to
exchange. Smith argues that it is the dominant mode of economic interaction,
used even by beggars who exchange charity-received goods for things they
actually need.
## Economic Domain
Exchange
## Smith's Original Wording
"Whoever offers to another a bargain of any kind, proposes to do this. Give
me that which I want, and you shall have this which you want, is the meaning
of every such offer."
--- ENTITY: benevolence ---
# Benevolence
## Definition
The disposition to do good to others out of goodwill rather than self-interest.
Smith argues that benevolence is an insufficient basis for economic organisation
in a complex society. While a person may secure the friendship of a few through
appeals to benevolence, they cannot rely on it to obtain the co-operation of
the "great multitudes" they need in civilised life. Even beggars, who depend
chiefly on benevolence for their subsistence, conduct most of their actual
transactions through exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Benevolence serves as the foil to self-interest. Smith systematically argues
that while benevolence exists, it cannot scale to support the complex
interdependencies of a specialised economy, making self-interested exchange
the necessary coordinating mechanism.
## Economic Domain
General Theory
--- ENTITY: surplus-produce ---
# Surplus Produce
## Definition
The portion of a worker's output that exceeds their own consumption needs and
is therefore available for exchange. Smith argues that the certainty of being
able to exchange surplus produce for the products of other workers' labour
is what encourages every person to dedicate themselves to a particular
occupation. Surplus is thus both the material prerequisite and the incentive
for specialisation.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Introduced in the passage describing the emergence of specialised trades in
a tribal society. The armourer, carpenter, smith, and tanner each produce
more of their specialty than they can personally consume, and exchange the
surplus for other goods, reinforcing their commitment to specialisation.
## Economic Domain
Production
## Smith's Original Wording
"And thus the certainty of being able to exchange all that surplus part of
the produce of his own labour, which is over and above his own consumption,
for such parts of the produce of other men's labour as he may have occasion
for, encourages every man to apply himself to a particular occupation."
--- ENTITY: difference-of-talents ---
# Difference of Talents
## Definition
The observable variation in skills, aptitudes, and abilities among individuals
in different occupations. Smith makes the striking argument that this
difference is largely the effect rather than the cause of the division of
labour: people are born with roughly equal abilities, and it is their
different occupations, shaped by habit, custom, and education, that create
the apparent differences. He contrasts humans with dogs, where natural breed
differences are far greater but cannot be made useful because animals lack
the capacity for exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This argument occupies the final portion of the chapter. Smith uses it to
reinforce his claim that exchange, not innate difference, is the driver of
specialisation. The philosopher and the street porter were "very much alike"
until different employments shaped them differently.
## Economic Domain
General Theory
## Smith's Original Wording
"The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is not
upon many occasions so much the cause, as the effect of the division of
labour."
--- ENTITY: common-stock ---
# Common Stock
## Definition
The aggregate pool of goods and services created when individuals bring
their diverse specialised products together through exchange. Smith argues
that among humans, unlike animals, different talents are made useful to
one another because their products can be "brought, as it were, into a
common stock, where every man may purchase whatever part of the produce
of other men's talents he has occasion for." This common stock is the
emergent result of widespread exchange among specialised producers.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Appears in the chapter's concluding argument comparing humans and animals.
While a mastiff cannot benefit from a greyhound's speed due to lack of
exchange, humans can pool their different abilities through trade, making
all talents contribute to the general welfare.
## Economic Domain
Exchange
## VSM Mappings
--- MAPPING: propensity-to-truck-barter-and-exchange-to-s5 ---
# Propensity to Truck, Barter, and Exchange -> System 5 (Policy/Identity)
## Economic Entity Reference
Propensity to Truck, Barter, and Exchange — an innate human disposition to
negotiate and trade, identified as the ultimate cause of the division of labour.
## VSM Concept Reference
System 5 (Policy/Identity) — the policy-making body that defines the identity,
values, and purpose of the organisation.
## Mapping Rationale
The propensity to exchange functions as the foundational identity principle of
the economic system. In Beer's VSM, System 5 defines what the system *is* — its
essential nature and purpose. Smith's claim that this propensity is a fundamental
feature of human nature (possibly arising from reason and speech) establishes
exchange as the defining characteristic of human economic organisation. It is
the principle from which all other economic structures emerge. Without it, Smith
argues, there would be no division of labour, no specialisation, no difference
of talents — the entire economic system would not exist. This is an identity-level
property: it defines the system rather than operating within it.
## Mapping Strength
Moderate
## Counter-arguments
This mapping is interpretive rather than structural. The propensity is not a
governing body making policy decisions; it is a behavioural disposition. However,
in Beer's framework, S5 can represent emergent identity rather than deliberate
governance — the system's ethos rather than its explicit command structure.
--- MAPPING: propensity-to-truck-barter-and-exchange-to-s2 ---
# Propensity to Truck, Barter, and Exchange -> System 2 (Coordination)
## Economic Entity Reference
Propensity to Truck, Barter, and Exchange — an innate human disposition to
negotiate and trade.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
At the operational level, the propensity to exchange is the mechanism through
which coordination between specialised producers actually occurs. It is what
makes S2 possible in the economic system: without the disposition to trade,
there would be no market interactions, no price signalling, no mutual
adjustment of supply and demand. Smith's comparison with animals is telling —
dogs have different talents but cannot coordinate them because they lack this
propensity. The propensity is thus the prerequisite for all S2 coordination
in the economic VSM.
## Mapping Strength
Strong
--- MAPPING: self-interest-to-s1 ---
# Self-interest -> System 1 (Operations)
## Economic Entity Reference
Self-interest — the motivation of individuals to pursue their own advantage
in economic transactions.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the organisation's
purpose, characterised by autonomy and self-organisation.
## Mapping Rationale
Self-interest is the animating principle of System 1 operational units. In
Beer's VSM, S1 elements are autonomous agents that self-organise within their
operational domain. Smith's self-interest is precisely this autonomy principle:
each economic actor (butcher, brewer, baker) pursues their own advantage, and
it is this autonomous self-directed activity that produces the system's output.
Self-interest ensures that S1 units are self-motivating and self-regulating
at the local level — they do not require external commands to operate. This
aligns with Beer's argument that S1 autonomy is essential for viability.
## Mapping Strength
Strong
--- MAPPING: self-interest-to-autonomy ---
# Self-interest -> Autonomy
## Economic Entity Reference
Self-interest — the motivation of individuals to pursue their own advantage.
## VSM Concept Reference
Autonomy — the degree of freedom granted to operational units to self-organise
within constraints set by System 3.
## Mapping Rationale
Smith's self-interest maps directly to Beer's concept of operational autonomy.
Beer argued that maximum autonomy consistent with systemic cohesion yields
maximum viability. Smith makes essentially the same argument: individuals
acting from self-interest, without central direction, produce better outcomes
("universal opulence") than any deliberate plan could achieve. The butcher
does not need to be told to provide meat — self-interest ensures it. This is
autonomy as a systemic design principle: the system works *because* its
operational units are self-directed, not *despite* it.
## Mapping Strength
Strong
--- MAPPING: the-bargain-to-s2 ---
# The Bargain -> System 2 (Coordination)
## Economic Entity Reference
The Bargain — a voluntary bilateral exchange in which each party offers
something the other wants.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
The bargain is the atomic unit of S2 coordination in the economic system.
Each bargain is an information exchange (revealing preferences, willingness
to pay, relative valuations) and a resource exchange simultaneously. Beer's
S2 dampens oscillations and resolves conflicts between S1 units; the bargain
does precisely this — two parties with conflicting interests (each wants the
other's goods) reach an equilibrium through negotiation. The bargain is where
coordination actually happens, one transaction at a time, aggregating into
the market system's overall S2 function.
## Mapping Strength
Strong
--- MAPPING: benevolence-to-s2 ---
# Benevolence -> System 2 (Coordination)
## Economic Entity Reference
Benevolence — the disposition to do good to others out of goodwill rather
than self-interest.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
Smith presents benevolence as an alternative but insufficient coordination
mechanism. In a small group, benevolence can coordinate activity (one can
secure "the friendship of a few persons"). But it cannot scale to coordinate
the "great multitudes" required in civilised society. In VSM terms, benevolence
is a low-variety S2 mechanism — it works for simple systems but lacks the
requisite variety to coordinate a complex economy. Smith's argument is
essentially that self-interested exchange is a higher-variety coordination
mechanism than benevolence, and therefore the one that actually sustains the
economic system at scale.
## Mapping Strength
Weak
## Counter-arguments
Benevolence is more accurately described as a *failed* or *insufficient*
coordination mechanism than an active one. Smith's point is precisely that
it does not work at scale. The mapping is useful primarily for what it reveals
about requisite variety in coordination.
--- MAPPING: surplus-produce-to-variety ---
# Surplus Produce -> Variety
## Economic Entity Reference
Surplus Produce — the portion of a worker's output exceeding their own
consumption, available for exchange.
## VSM Concept Reference
Variety — the number of possible states of a system; the measure of
complexity and differentiation.
## Mapping Rationale
Surplus produce represents the variety that specialised S1 units inject into
the economic system. Each specialised worker produces a large quantity of one
type of good (high volume, low variety per worker) but the aggregate of all
specialists' surpluses creates the system's total variety of available goods.
The exchange of surpluses is how this variety is distributed across the system.
Without surplus, there would be nothing to exchange, and without exchange,
each person would be limited to the variety they could produce alone. Surplus
is the material substrate of economic variety.
## Mapping Strength
Moderate
--- MAPPING: difference-of-talents-to-variety ---
# Difference of Talents -> Variety
## Economic Entity Reference
Difference of Talents — the observable variation in skills and aptitudes among
individuals, which Smith argues is largely the effect of the division of labour.
## VSM Concept Reference
Variety — the number of possible states of a system.
## Mapping Rationale
The difference of talents is the human variety that the economic system creates
and then exploits. Smith's argument that talents are effects rather than causes
of specialisation is significant: the economic system generates its own variety
through the division of labour, which then feeds back to enable further
specialisation. In Beer's terms, this is a variety-amplification loop — the
system's operational structure (division of labour) creates variety (diverse
talents) that enhances the system's capacity for further differentiation.
This is a self-reinforcing cybernetic process.
## Mapping Strength
Moderate
--- MAPPING: common-stock-to-viability ---
# Common Stock -> Viability
## Economic Entity Reference
Common Stock — the aggregate pool of goods and services created when
specialised producers bring their diverse products together through exchange.
## VSM Concept Reference
Viability — the capacity of a system to maintain a separate existence and
survive in a changing environment.
## Mapping Rationale
The common stock represents the viable system's capacity to sustain all its
members. Smith's argument that humans, unlike animals, can pool their different
talents through exchange shows how viability emerges from coordination: no
individual is self-sufficient, but the system as a whole is viable because
exchange creates a shared pool of resources accessible to all. The mastiff
cannot benefit from the greyhound's speed, but the philosopher can benefit
from the porter's strength (and vice versa) through exchange. This pooling
is what makes the human economic system viable while individual animals remain
individually viable but collectively uncoordinated.
## Mapping Strength
Moderate
## VSM Framework Reference
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Instructions
1. Review the source chapter, extracted entities, and VSM mappings together.
2. Produce a single chapter analysis document following the
Chapter Analysis Schema v1.0.
3. The analysis must include:
- An H1 heading with the chapter analysis title
- A Chapter Summary (50-300 words) of the main economic arguments
- An Entities Extracted section listing all entities with brief descriptions
- A VSM Mappings section listing all mappings with entity, concept, and strength
- A VSM Coverage section assessing which systems (S1-S5, S3*) are represented
- A Gaps & Observations section identifying uncovered systems and patterns
4. In the VSM Coverage section, explicitly state which systems are
covered and which are not, based on the mappings.
5. In Gaps & Observations, note:
- Which VSM systems lack representation from this chapter
- Entities that were difficult to map
- Emerging themes or patterns
- Suggestions for enriching coverage in future analysis
## Output Format
Output a single markdown document following the Chapter Analysis Schema v1.0.

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--- ENTITY: division-of-labour ---
# Division of Labour
## Definition
The separation of a work process into a number of distinct tasks, each performed
by a specialised worker, resulting in a significant increase in the productive
powers of labour. Smith identifies it as the principal cause of improvement in
the productive capacity of any trade, art, or manufacture. The effect arises
from three circumstances: increased dexterity, saved time in transition between
tasks, and the invention of labour-saving machinery.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The division of labour is the central argument of the chapter. Smith opens by
asserting that it is the greatest source of improvement in productive powers,
then illustrates it through the pin-factory example, explains its three causal
mechanisms, and concludes by showing how it generates universal opulence through
exchange.
## Economic Domain
Production
## Smith's Original Wording
"The greatest improvements in the productive powers of labour, and the greater
part of the skill, dexterity, and judgment, with which it is anywhere directed,
or applied, seem to have been the effects of the division of labour."
## Modern Interpretation
The division of labour remains a foundational concept in economics and
organisational theory. Modern extensions include specialisation theory,
comparative advantage (Ricardo), and the study of transaction costs that
determine the boundaries between internal division and market exchange (Coase).
--- ENTITY: productive-powers-of-labour ---
# Productive Powers of Labour
## Definition
The capacity of human labour to produce output, measured in terms of the
quantity and quality of goods a given number of workers can produce within
a given time. Smith argues that the division of labour is the primary cause
of increases in productive power, and that differences in productive power
explain differences in national wealth.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith introduces productive powers as the dependent variable that the division
of labour improves. He contrasts the output of an unskilled individual worker
(one pin per day) with the output of a coordinated team under division of
labour (4,800 pins per person per day) to demonstrate the scale of improvement.
## Economic Domain
Production
## Smith's Original Wording
"This great increase in the quantity of work, which, in consequence of the
division of labour, the same number of people are capable of performing, is
owing to three different circumstances."
--- ENTITY: dexterity-of-the-workman ---
# Dexterity of the Workman
## Definition
The skill and speed a worker acquires through repeated performance of a single
specialised operation. Smith identifies the increase in dexterity as the first
of three causes by which the division of labour improves productive power.
Specialisation reduces each worker's task to one simple operation, making it
the sole employment of their life, and thereby dramatically increasing their
proficiency.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the first of three mechanisms explaining why the division of labour
increases output. Smith illustrates it with the example of nail-making: an
unskilled smith makes 200-300 nails per day, while a specialised nailer can
produce over 2,300.
## Economic Domain
Production
## Smith's Original Wording
"First, the improvement of the dexterity of the workmen, necessarily increases
the quantity of the work he can perform; and the division of labour, by reducing
every man's business to some one simple operation, and by making this operation
the sole employment of his life, necessarily increases very much the dexterity
of the workman."
--- ENTITY: saving-of-time ---
# Saving of Time
## Definition
The elimination of time lost when a worker passes from one kind of work to
another. Smith identifies this as the second mechanism by which the division of
labour increases productive power. Time is lost both in physical transition
(moving between locations and tools) and in mental transition (the sauntering
and inattention that follows switching tasks).
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the second of three mechanisms. Smith argues the loss is greater
than commonly supposed, encompassing not only travel time but a psychological
cost: workers who constantly switch tasks develop habits of "sauntering" and
"indolent careless application" that reduce their output even during active work.
## Economic Domain
Production
## Smith's Original Wording
"Secondly, the advantage which is gained by saving the time commonly lost in
passing from one sort of work to another, is much greater than we should at
first view be apt to imagine it."
--- ENTITY: invention-of-machinery ---
# Invention of Machinery
## Definition
The development of machines that facilitate and abridge labour, enabling one
person to do the work of many. Smith identifies this as the third mechanism
by which the division of labour increases productive power, and argues that
the division of labour itself stimulates invention, because workers focused
on a single operation naturally discover improvements to their specific task.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the third mechanism. Smith provides the anecdote of the boy who
automated the valve on a fire engine to free himself for play. He extends the
argument beyond workers to include machine-makers and philosophers (men of
speculation), whose own specialised observation enables them to combine
knowledge from distant fields.
## Economic Domain
Production
## Smith's Original Wording
"Thirdly, and lastly, everybody must be sensible how much labour is facilitated
and abridged by the application of proper machinery. It is unnecessary to give
any example."
--- ENTITY: separation-of-trades ---
# Separation of Trades
## Definition
The process by which distinct occupations emerge as separate specialisations,
each performed by dedicated practitioners rather than by a single person who
performs all tasks. Smith presents the separation of trades as both a
consequence and an indicator of the division of labour, noting that it
advances furthest in the most industrious and improved countries.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith transitions from the pin-factory example to the economy-wide observation
that in improved societies, "the farmer is generally nothing but a farmer; the
manufacturer, nothing but a manufacturer." He contrasts manufacturing, where
trades separate extensively, with agriculture, where seasonal demands prevent
full separation.
## Economic Domain
Production
## Smith's Original Wording
"The separation of different trades and employments from one another, seems to
have taken place in consequence of this advantage."
--- ENTITY: the-workman ---
# The Workman
## Definition
The individual labourer who performs productive work, whether in manufacturing
or agriculture. In the context of the division of labour, the workman is the
operative unit whose dexterity, time, and inventiveness are the channels through
which specialisation increases output. Smith portrays the workman both as a
beneficiary of the division of labour (higher output) and as its agent
(inventing machinery through focused attention).
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The workman appears throughout the chapter as the primary actor: the pin-maker,
the nailer, the country weaver, the boy at the fire engine. Smith attributes
both the productive gains and many mechanical inventions to ordinary workmen.
## Economic Domain
Production
--- ENTITY: the-philosopher ---
# The Philosopher
## Definition
A person whose occupation is observation and speculation rather than direct
production — "men of speculation, whose trade it is not to do any thing, but
to observe every thing." Smith treats the philosopher as an economic actor
whose specialised function is combining knowledge from diverse fields to
produce innovations and improvements, analogous to how the workman improves
their own narrow task.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Introduced near the end of Smith's discussion of the third mechanism (invention
of machinery). Smith notes that as society progresses, philosophy itself becomes
a specialised trade, subdivided into branches, with each philosopher becoming
expert in their field — the division of labour applied to intellectual work.
## Economic Domain
General Theory
## Smith's Original Wording
"In the progress of society, philosophy or speculation becomes, like every other
employment, the principal or sole trade and occupation of a particular class of
citizens."
--- ENTITY: universal-opulence ---
# Universal Opulence
## Definition
The general material well-being that extends across all ranks of society,
including the lowest, as a consequence of the division of labour and the
resulting multiplication of production. Smith argues that through exchange,
every workman can supply others abundantly with their specialised product
and receive in return the products of others' specialisation, creating a
"general plenty" that benefits even the poorest members of a civilised society.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The concluding argument of the chapter. Smith illustrates universal opulence
by examining the "accommodation of the most common artificer or daylabourer,"
showing that even a coarse woollen coat requires the cooperation of shepherds,
wool-combers, dyers, weavers, merchants, sailors, and many others — a vast
chain of interdependent labour that would be impossible without specialisation
and exchange.
## Economic Domain
Distribution
## Smith's Original Wording
"It is the great multiplication of the productions of all the different arts,
in consequence of the division of labour, which occasions, in a well-governed
society, that universal opulence which extends itself to the lowest ranks of
the people."
--- ENTITY: exchange ---
# Exchange
## Definition
The act of trading one's surplus production for the goods produced by others.
Smith presents exchange as the mechanism by which the division of labour
translates into universal opulence: each workman disposes of their surplus
output and receives in return the surplus of others, so that all are
supplied beyond what any individual could produce alone.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Exchange appears in the chapter's conclusion as the connecting mechanism
between specialised production and general welfare. Smith implicitly treats
it as prerequisite to the division of labour (explored further in Chapter 2),
since specialisation only benefits workers if they can trade their surplus.
## Economic Domain
Exchange
## Smith's Original Wording
"Every workman has a great quantity of his own work to dispose of beyond what
he himself has occasion for; and every other workman being exactly in the same
situation, he is enabled to exchange a great quantity of his own goods for a
great quantity or, what comes to the same thing, for the price of a great
quantity of theirs."
--- ENTITY: co-operation-of-labour ---
# Co-operation of Labour
## Definition
The interdependent collaboration of many workers across different trades and
locations to produce a single finished good. Smith demonstrates that even the
simplest consumer goods in a civilised society require the combined efforts of
thousands of workers — shepherds, miners, sailors, smiths, weavers — who
collectively make possible what no individual could achieve alone.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith's extended example of the day-labourer's woollen coat serves to illustrate
the vast scope of co-operation. He traces the supply chain from raw materials
through manufacture and transport to show that civilised consumption depends on
an immense network of specialised, interdependent labour.
## Economic Domain
Production
## Smith's Original Wording
"Without the assistance and co-operation of many thousands, the very meanest
person in a civilized country could not be provided, even according to, what we
very falsely imagine, the easy and simple manner in which he is commonly
accommodated."
--- ENTITY: manufactures ---
# Manufactures
## Definition
The sector of production in which raw materials are transformed into finished
goods through a series of distinct operations, each typically performed by
specialised workers. Smith contrasts manufactures with agriculture, noting that
the former admits of far greater subdivision of labour and separation of trades,
and therefore exhibits far greater improvements in productive power.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Manufactures serve as the primary setting for Smith's analysis of the division
of labour. The pin factory is a manufacture; so are the linen, woollen, and
hardware trades he references. Smith uses the greater divisibility of
manufacturing work to explain why rich countries excel more conspicuously over
poor countries in manufactures than in agriculture.
## Economic Domain
Production
--- ENTITY: agriculture ---
# Agriculture
## Definition
The sector of production concerned with the cultivation of land and the raising
of crops and livestock. Smith argues that agriculture does not admit of as many
subdivisions of labour as manufactures, because seasonal rhythms prevent workers
from specialising year-round in a single task. As a result, agricultural
productivity improves less dramatically with the division of labour than
manufacturing productivity.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Agriculture is introduced as a counterpoint to manufactures. Smith notes that
the ploughman, harrower, sower, and reaper are often the same person, and that
this is why even rich countries do not surpass poor countries in agricultural
output as dramatically as in manufacturing output.
## Economic Domain
Production
## Smith's Original Wording
"The nature of agriculture, indeed, does not admit of so many subdivisions of
labour, nor of so complete a separation of one business from another, as
manufactures."

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# Extract Economic Entities
You are an analytical economist specializing in classical economic theory.
Your task is to extract distinct economic entities from a chapter of
Adam Smith's *The Wealth of Nations*.
## Source Chapter
---
id: book-1-chapter-01
title: "OF THE DIVISION OF LABOUR."
book: "1"
chapter: 1
artifact_type: content
---
CHAPTER I.
OF THE DIVISION OF LABOUR.
The greatest improvements in the productive powers of labour, and the
greater part of the skill, dexterity, and judgment, with which it is
anywhere directed, or applied, seem to have been the effects of the
division of labour. The effects of the division of labour, in the general
business of society, will be more easily understood, by considering in
what manner it operates in some particular manufactures. It is commonly
supposed to be carried furthest in some very trifling ones; not perhaps
that it really is carried further in them than in others of more
importance: but in those trifling manufactures which are destined to
supply the small wants of but a small number of people, the whole number
of workmen must necessarily be small; and those employed in every
different branch of the work can often be collected into the same
workhouse, and placed at once under the view of the spectator.
In those great manufactures, on the contrary, which are destined to supply
the great wants of the great body of the people, every different branch of
the work employs so great a number of workmen, that it is impossible to
collect them all into the same workhouse. We can seldom see more, at one
time, than those employed in one single branch. Though in such
manufactures, therefore, the work may really be divided into a much
greater number of parts, than in those of a more trifling nature, the
division is not near so obvious, and has accordingly been much less
observed.
To take an example, therefore, from a very trifling manufacture, but one
in which the division of labour has been very often taken notice of, the
trade of a pin-maker: a workman not educated to this business (which the
division of labour has rendered a distinct trade), nor acquainted with the
use of the machinery employed in it (to the invention of which the same
division of labour has probably given occasion), could scarce, perhaps,
with his utmost industry, make one pin in a day, and certainly could not
make twenty. But in the way in which this business is now carried on, not
only the whole work is a peculiar trade, but it is divided into a number
of branches, of which the greater part are likewise peculiar trades. One
man draws out the wire; another straights it; a third cuts it; a fourth
points it; a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put it on is a
peculiar business; to whiten the pins is another; it is even a trade by
itself to put them into the paper; and the important business of making a
pin is, in this manner, divided into about eighteen distinct operations,
which, in some manufactories, are all performed by distinct hands, though
in others the same man will sometimes perform two or three of them. I have
seen a small manufactory of this kind, where ten men only were employed,
and where some of them consequently performed two or three distinct
operations. But though they were very poor, and therefore but
indifferently accommodated with the necessary machinery, they could, when
they exerted themselves, make among them about twelve pounds of pins in a
day. There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards of
forty-eight thousand pins in a day. Each person, therefore, making a tenth
part of forty-eight thousand pins, might be considered as making four
thousand eight hundred pins in a day. But if they had all wrought
separately and independently, and without any of them having been educated
to this peculiar business, they certainly could not each of them have made
twenty, perhaps not one pin in a day; that is, certainly, not the two
hundred and fortieth, perhaps not the four thousand eight hundredth, part
of what they are at present capable of performing, in consequence of a
proper division and combination of their different operations.
In every other art and manufacture, the effects of the division of labour
are similar to what they are in this very trifling one, though, in many of
them, the labour can neither be so much subdivided, nor reduced to so
great a simplicity of operation. The division of labour, however, so far
as it can be introduced, occasions, in every art, a proportionable
increase of the productive powers of labour. The separation of different
trades and employments from one another, seems to have taken place in
consequence of this advantage. This separation, too, is generally carried
furthest in those countries which enjoy the highest degree of industry and
improvement; what is the work of one man, in a rude state of society,
being generally that of several in an improved one. In every improved
society, the farmer is generally nothing but a farmer; the manufacturer,
nothing but a manufacturer. The labour, too, which is necessary to produce
any one complete manufacture, is almost always divided among a great
number of hands. How many different trades are employed in each branch of
the linen and woollen manufactures, from the growers of the flax and the
wool, to the bleachers and smoothers of the linen, or to the dyers and
dressers of the cloth! The nature of agriculture, indeed, does not admit
of so many subdivisions of labour, nor of so complete a separation of one
business from another, as manufactures. It is impossible to separate so
entirely the business of the grazier from that of the corn-farmer, as the
trade of the carpenter is commonly separated from that of the smith. The
spinner is almost always a distinct person from the weaver; but the
ploughman, the harrower, the sower of the seed, and the reaper of the
corn, are often the same. The occasions for those different sorts of
labour returning with the different seasons of the year, it is impossible
that one man should be constantly employed in any one of them. This
impossibility of making so complete and entire a separation of all the
different branches of labour employed in agriculture, is perhaps the
reason why the improvement of the productive powers of labour, in this
art, does not always keep pace with their improvement in manufactures. The
most opulent nations, indeed, generally excel all their neighbours in
agriculture as well as in manufactures; but they are commonly more
distinguished by their superiority in the latter than in the former. Their
lands are in general better cultivated, and having more labour and expense
bestowed upon them, produce more in proportion to the extent and natural
fertility of the ground. But this superiority of produce is seldom much
more than in proportion to the superiority of labour and expense. In
agriculture, the labour of the rich country is not always much more
productive than that of the poor; or, at least, it is never so much more
productive, as it commonly is in manufactures. The corn of the rich
country, therefore, will not always, in the same degree of goodness, come
cheaper to market than that of the poor. The corn of Poland, in the same
degree of goodness, is as cheap as that of France, notwithstanding the
superior opulence and improvement of the latter country. The corn of
France is, in the corn-provinces, fully as good, and in most years nearly
about the same price with the corn of England, though, in opulence and
improvement, France is perhaps inferior to England. The corn-lands of
England, however, are better cultivated than those of France, and the
corn-lands of France are said to be much better cultivated than those of
Poland. But though the poor country, notwithstanding the inferiority of
its cultivation, can, in some measure, rival the rich in the cheapness and
goodness of its corn, it can pretend to no such competition in its
manufactures, at least if those manufactures suit the soil, climate, and
situation, of the rich country. The silks of France are better and cheaper
than those of England, because the silk manufacture, at least under the
present high duties upon the importation of raw silk, does not so well
suit the climate of England as that of France. But the hardware and the
coarse woollens of England are beyond all comparison superior to those of
France, and much cheaper, too, in the same degree of goodness. In Poland
there are said to be scarce any manufactures of any kind, a few of those
coarser household manufactures excepted, without which no country can well
subsist.
This great increase in the quantity of work, which, in consequence of the
division of labour, the same number of people are capable of performing,
is owing to three different circumstances; first, to the increase of
dexterity in every particular workman; secondly, to the saving of the time
which is commonly lost in passing from one species of work to another;
and, lastly, to the invention of a great number of machines which
facilitate and abridge labour, and enable one man to do the work of many.
First, the improvement of the dexterity of the workmen, necessarily
increases the quantity of the work he can perform; and the division of
labour, by reducing every man’s business to some one simple operation, and
by making this operation the sole employment of his life, necessarily
increases very much the dexterity of the workman. A common smith, who,
though accustomed to handle the hammer, has never been used to make nails,
if, upon some particular occasion, he is obliged to attempt it, will
scarce, I am assured, be able to make above two or three hundred nails in
a day, and those, too, very bad ones. A smith who has been accustomed to
make nails, but whose sole or principal business has not been that of a
nailer, can seldom, with his utmost diligence, make more than eight
hundred or a thousand nails in a day. I have seen several boys, under
twenty years of age, who had never exercised any other trade but that of
making nails, and who, when they exerted themselves, could make, each of
them, upwards of two thousand three hundred nails in a day. The making of
a nail, however, is by no means one of the simplest operations. The same
person blows the bellows, stirs or mends the fire as there is occasion,
heats the iron, and forges every part of the nail: in forging the head,
too, he is obliged to change his tools. The different operations into
which the making of a pin, or of a metal button, is subdivided, are all of
them much more simple, and the dexterity of the person, of whose life it
has been the sole business to perform them, is usually much greater. The
rapidity with which some of the operations of those manufactures are
performed, exceeds what the human hand could, by those who had never seen
them, be supposed capable of acquiring.
Secondly, the advantage which is gained by saving the time commonly lost
in passing from one sort of work to another, is much greater than we
should at first view be apt to imagine it. It is impossible to pass very
quickly from one kind of work to another, that is carried on in a
different place, and with quite different tools. A country weaver, who
cultivates a small farm, must lose a good deal of time in passing from
his loom to the field, and from the field to his loom. When the two trades
can be carried on in the same workhouse, the loss of time is, no doubt,
much less. It is, even in this case, however, very considerable. A man
commonly saunters a little in turning his hand from one sort of employment
to another. When he first begins the new work, he is seldom very keen and
hearty; his mind, as they say, does not go to it, and for some time he
rather trifles than applies to good purpose. The habit of sauntering, and
of indolent careless application, which is naturally, or rather
necessarily, acquired by every country workman who is obliged to change
his work and his tools every half hour, and to apply his hand in twenty
different ways almost every day of his life, renders him almost always
slothful and lazy, and incapable of any vigorous application, even on the
most pressing occasions. Independent, therefore, of his deficiency in
point of dexterity, this cause alone must always reduce considerably the
quantity of work which he is capable of performing.
Thirdly, and lastly, everybody must be sensible how much labour is
facilitated and abridged by the application of proper machinery. It is
unnecessary to give any example. I shall only observe, therefore, that the
invention of all those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the division of labour.
Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is directed
towards that single object, than when it is dissipated among a great
variety of things. But, in consequence of the division of labour, the
whole of every man’s attention comes naturally to be directed towards some
one very simple object. It is naturally to be expected, therefore, that
some one or other of those who are employed in each particular branch of
labour should soon find out easier and readier methods of performing their
own particular work, whenever the nature of it admits of such improvement.
A great part of the machines made use of in those manufactures in which
labour is most subdivided, were originally the invention of common
workmen, who, being each of them employed in some very simple operation,
naturally turned their thoughts towards finding out easier and readier
methods of performing it. Whoever has been much accustomed to visit such
manufactures, must frequently have been shewn very pretty machines, which
were the inventions of such workmen, in order to facilitate and quicken
their own particular part of the work. In the first fire engines {this was
the current designation for steam engines}, a boy was constantly employed
to open and shut alternately the communication between the boiler and the
cylinder, according as the piston either ascended or descended. One of
those boys, who loved to play with his companions, observed that, by tying
a string from the handle of the valve which opened this communication to
another part of the machine, the valve would open and shut without his
assistance, and leave him at liberty to divert himself with his
play-fellows. One of the greatest improvements that has been made upon
this machine, since it was first invented, was in this manner the
discovery of a boy who wanted to save his own labour.
All the improvements in machinery, however, have by no means been the
inventions of those who had occasion to use the machines. Many
improvements have been made by the ingenuity of the makers of the
machines, when to make them became the business of a peculiar trade; and
some by that of those who are called philosophers, or men of speculation,
whose trade it is not to do any thing, but to observe every thing, and
who, upon that account, are often capable of combining together the powers
of the most distant and dissimilar objects in the progress of society,
philosophy or speculation becomes, like every other employment, the
principal or sole trade and occupation of a particular class of citizens.
Like every other employment, too, it is subdivided into a great number of
different branches, each of which affords occupation to a peculiar tribe
or class of philosophers; and this subdivision of employment in
philosophy, as well as in every other business, improves dexterity, and
saves time. Each individual becomes more expert in his own peculiar
branch, more work is done upon the whole, and the quantity of science is
considerably increased by it.
It is the great multiplication of the productions of all the different
arts, in consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself to the
lowest ranks of the people. Every workman has a great quantity of his own
work to dispose of beyond what he himself has occasion for; and every
other workman being exactly in the same situation, he is enabled to
exchange a great quantity of his own goods for a great quantity or, what
comes to the same thing, for the price of a great quantity of theirs. He
supplies them abundantly with what they have occasion for, and they
accommodate him as amply with what he has occasion for, and a general
plenty diffuses itself through all the different ranks of the society.
Observe the accommodation of the most common artificer or daylabourer in a
civilized and thriving country, and you will perceive that the number of
people, of whose industry a part, though but a small part, has been
employed in procuring him this accommodation, exceeds all computation. The
woollen coat, for example, which covers the day-labourer, as coarse and
rough as it may appear, is the produce of the joint labour of a great
multitude of workmen. The shepherd, the sorter of the wool, the
wool-comber or carder, the dyer, the scribbler, the spinner, the weaver,
the fuller, the dresser, with many others, must all join their different
arts in order to complete even this homely production. How many merchants
and carriers, besides, must have been employed in transporting the
materials from some of those workmen to others who often live in a very
distant part of the country? How much commerce and navigation in
particular, how many ship-builders, sailors, sail-makers, rope-makers,
must have been employed in order to bring together the different drugs
made use of by the dyer, which often come from the remotest corners of the
world? What a variety of labour, too, is necessary in order to produce the
tools of the meanest of those workmen! To say nothing of such complicated
machines as the ship of the sailor, the mill of the fuller, or even the
loom of the weaver, let us consider only what a variety of labour is
requisite in order to form that very simple machine, the shears with which
the shepherd clips the wool. The miner, the builder of the furnace for
smelting the ore, the feller of the timber, the burner of the charcoal to
be made use of in the smelting-house, the brickmaker, the bricklayer, the
workmen who attend the furnace, the millwright, the forger, the smith,
must all of them join their different arts in order to produce them. Were
we to examine, in the same manner, all the different parts of his dress
and household furniture, the coarse linen shirt which he wears next his
skin, the shoes which cover his feet, the bed which he lies on, and all
the different parts which compose it, the kitchen-grate at which he
prepares his victuals, the coals which he makes use of for that purpose,
dug from the bowels of the earth, and brought to him, perhaps, by a long
sea and a long land-carriage, all the other utensils of his kitchen, all
the furniture of his table, the knives and forks, the earthen or pewter
plates upon which he serves up and divides his victuals, the different
hands employed in preparing his bread and his beer, the glass window which
lets in the heat and the light, and keeps out the wind and the rain, with
all the knowledge and art requisite for preparing that beautiful and happy
invention, without which these northern parts of the world could scarce
have afforded a very comfortable habitation, together with the tools of
all the different workmen employed in producing those different
conveniencies; if we examine, I say, all these things, and consider what a
variety of labour is employed about each of them, we shall be sensible
that, without the assistance and co-operation of many thousands, the very
meanest person in a civilized country could not be provided, even
according to, what we very falsely imagine, the easy and simple manner in
which he is commonly accommodated. Compared, indeed, with the more
extravagant luxury of the great, his accommodation must no doubt appear
extremely simple and easy; and yet it may be true, perhaps, that the
accommodation of an European prince does not always so much exceed that of
an industrious and frugal peasant, as the accommodation of the latter
exceeds that of many an African king, the absolute masters of the lives
and liberties of ten thousand naked savages.
## Extraction Guidelines
---
id: extraction-rules
name: extraction_rules
artifact_type: content
description: Guidelines for extracting economic entities from source text
version: 1.0.0
---
# Entity Extraction Rules
## What Constitutes an Entity
An economic entity is a distinct concept, actor, mechanism, or institution
that plays a functional role in Adam Smith's economic analysis. Extract
entities at the level of specificity where they carry independent meaning.
## Extraction Criteria
1. **Concepts**: Abstract economic ideas (e.g., "division of labour",
"effectual demand", "natural price"). Extract when Smith defines,
explains, or argues about the concept.
2. **Actors**: Economic agents with defined roles (e.g., "the labourer",
"the merchant", "the sovereign"). Extract when the actor performs
a distinct economic function.
3. **Mechanisms**: Processes or dynamics that produce economic effects
(e.g., "accumulation of stock", "market price adjustment",
"foreign trade"). Extract when the mechanism is described as
producing specific outcomes.
4. **Institutions**: Organised structures that shape economic behaviour
(e.g., "the corporation", "the guild", "the joint-stock company").
Extract when the institution's economic function is described.
## Granularity Rules
- Extract at the level of a single coherent concept.
- Do NOT extract synonyms as separate entities — choose the primary term
Smith uses and note variations.
- DO extract distinct aspects of a broad concept as separate entities when
Smith treats them independently (e.g., "wages of labour" and "profits
of stock" are separate from "price of commodities" even though they
compose it).
- If an entity appears across multiple chapters, extract it on first
significant appearance and note cross-references in later chapters.
## Naming Conventions
- Use Smith's own terminology where possible.
- Normalise to lowercase except for proper nouns.
- Use the most common form Smith uses (e.g., "division of labour" not
"divided labour").
## Quality Checks
- Each entity must have a definition that would be comprehensible without
reading the source chapter.
- Each entity must cite the specific book and chapter of first appearance.
- Economic Domain must be one of: Production, Distribution, Exchange,
Consumption, Accumulation, Regulation, or General Theory.
## VSM Framework Context
Use the following VSM framework as context to guide your extraction.
Prioritize entities that are likely to have clear mappings to VSM concepts,
but do not exclude entities simply because they lack an obvious mapping.
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Instructions
1. Read the source chapter carefully.
2. Identify all distinct economic concepts, actors, mechanisms, and institutions.
3. For each entity, produce a separate markdown document following the
Economic Entity Schema v1.0.
4. Each entity document must include:
- An H1 heading with the entity name
- A Definition section (20-150 words)
- A Source Chapter section citing the specific chapter
- A Context section describing where in the argument the entity appears
- An Economic Domain section classifying the entity
5. Optionally include Smith's Original Wording (direct quote) and
Modern Interpretation sections.
6. Use neutral, analytical language throughout.
7. Ensure each entity is distinct and self-contained.
## Output Format
Output each entity as a separate markdown document, delimited by
`--- ENTITY: <entity-name> ---` markers.

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--- ENTITY: propensity-to-truck-barter-and-exchange ---
# Propensity to Truck, Barter, and Exchange
## Definition
An innate or fundamental disposition in human nature to negotiate, trade, and
exchange goods with others. Smith identifies this propensity as the ultimate
cause of the division of labour, arguing that it is unique to humans and
absent in all other animal species. He leaves open whether it is a primary
instinct or a consequence of the faculties of reason and speech, but treats
it as the foundational mechanism from which specialisation and economic
organisation emerge.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This is the central thesis of the chapter. Smith argues that the division of
labour "is not originally the effect of any human wisdom" but rather the
"necessary, though very slow and gradual, consequence" of this propensity.
The entire chapter serves to establish exchange as the causal origin of
specialisation.
## Economic Domain
General Theory
## Smith's Original Wording
"This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though very
slow and gradual, consequence of a certain propensity in human nature [...] the
propensity to truck, barter, and exchange one thing for another."
## Modern Interpretation
This concept prefigures the modern economic assumption of rational self-interest
as the basis of market behaviour. It also anticipates evolutionary and
institutional economics debates about whether exchange is a natural disposition
or a culturally constructed institution.
--- ENTITY: self-interest ---
# Self-interest
## Definition
The motivation of individuals to pursue their own advantage in economic
transactions. Smith argues that in civilised society, individuals obtain the
co-operation of others not through appeals to benevolence but by engaging
their self-love — showing them that it is to their own advantage to provide
what is desired. Self-interest is the engine that makes exchange function:
each party to a bargain acts from regard to their own benefit.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Smith introduces self-interest through the celebrated passage about the
butcher, brewer, and baker. He contrasts it with benevolence, arguing that
we cannot rely on the goodwill of others for our daily needs in a society
of many, and that self-interest provides a more reliable and universal basis
for economic co-operation.
## Economic Domain
General Theory
## Smith's Original Wording
"It is not from the benevolence of the butcher, the brewer, or the baker that
we expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk to
them of our own necessities, but of their advantages."
--- ENTITY: the-bargain ---
# The Bargain
## Definition
A voluntary bilateral exchange in which each party offers something the other
wants. Smith defines the bargain as the fundamental unit of economic
interaction: "Give me that which I want, and you shall have this which you
want." It is through bargaining that individuals obtain "the far greater part
of those good offices which we stand in need of" in civilised society, as
opposed to relying on benevolence or coercion.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
The bargain is presented as the practical expression of the propensity to
exchange. Smith argues that it is the dominant mode of economic interaction,
used even by beggars who exchange charity-received goods for things they
actually need.
## Economic Domain
Exchange
## Smith's Original Wording
"Whoever offers to another a bargain of any kind, proposes to do this. Give
me that which I want, and you shall have this which you want, is the meaning
of every such offer."
--- ENTITY: benevolence ---
# Benevolence
## Definition
The disposition to do good to others out of goodwill rather than self-interest.
Smith argues that benevolence is an insufficient basis for economic organisation
in a complex society. While a person may secure the friendship of a few through
appeals to benevolence, they cannot rely on it to obtain the co-operation of
the "great multitudes" they need in civilised life. Even beggars, who depend
chiefly on benevolence for their subsistence, conduct most of their actual
transactions through exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Benevolence serves as the foil to self-interest. Smith systematically argues
that while benevolence exists, it cannot scale to support the complex
interdependencies of a specialised economy, making self-interested exchange
the necessary coordinating mechanism.
## Economic Domain
General Theory
--- ENTITY: surplus-produce ---
# Surplus Produce
## Definition
The portion of a worker's output that exceeds their own consumption needs and
is therefore available for exchange. Smith argues that the certainty of being
able to exchange surplus produce for the products of other workers' labour
is what encourages every person to dedicate themselves to a particular
occupation. Surplus is thus both the material prerequisite and the incentive
for specialisation.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Introduced in the passage describing the emergence of specialised trades in
a tribal society. The armourer, carpenter, smith, and tanner each produce
more of their specialty than they can personally consume, and exchange the
surplus for other goods, reinforcing their commitment to specialisation.
## Economic Domain
Production
## Smith's Original Wording
"And thus the certainty of being able to exchange all that surplus part of
the produce of his own labour, which is over and above his own consumption,
for such parts of the produce of other men's labour as he may have occasion
for, encourages every man to apply himself to a particular occupation."
--- ENTITY: difference-of-talents ---
# Difference of Talents
## Definition
The observable variation in skills, aptitudes, and abilities among individuals
in different occupations. Smith makes the striking argument that this
difference is largely the effect rather than the cause of the division of
labour: people are born with roughly equal abilities, and it is their
different occupations, shaped by habit, custom, and education, that create
the apparent differences. He contrasts humans with dogs, where natural breed
differences are far greater but cannot be made useful because animals lack
the capacity for exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This argument occupies the final portion of the chapter. Smith uses it to
reinforce his claim that exchange, not innate difference, is the driver of
specialisation. The philosopher and the street porter were "very much alike"
until different employments shaped them differently.
## Economic Domain
General Theory
## Smith's Original Wording
"The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is not
upon many occasions so much the cause, as the effect of the division of
labour."
--- ENTITY: common-stock ---
# Common Stock
## Definition
The aggregate pool of goods and services created when individuals bring
their diverse specialised products together through exchange. Smith argues
that among humans, unlike animals, different talents are made useful to
one another because their products can be "brought, as it were, into a
common stock, where every man may purchase whatever part of the produce
of other men's talents he has occasion for." This common stock is the
emergent result of widespread exchange among specialised producers.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Appears in the chapter's concluding argument comparing humans and animals.
While a mastiff cannot benefit from a greyhound's speed due to lack of
exchange, humans can pool their different abilities through trade, making
all talents contribute to the general welfare.
## Economic Domain
Exchange

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# Extract Economic Entities
You are an analytical economist specializing in classical economic theory.
Your task is to extract distinct economic entities from a chapter of
Adam Smith's *The Wealth of Nations*.
## Source Chapter
---
id: book-1-chapter-02
title: "OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF LABOUR."
book: "1"
chapter: 2
artifact_type: content
---
CHAPTER II.
OF THE PRINCIPLE WHICH GIVES OCCASION
TO THE DIVISION OF LABOUR.
This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though
very slow and gradual, consequence of a certain propensity in human
nature, which has in view no such extensive utility; the propensity to
truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human
nature, of which no further account can be given, or whether, as seems
more probable, it be the necessary consequence of the faculties of reason
and speech, it belongs not to our present subject to inquire. It is common
to all men, and to be found in no other race of animals, which seem to
know neither this nor any other species of contracts. Two greyhounds, in
running down the same hare, have sometimes the appearance of acting in
some sort of concert. Each turns her towards his companion, or endeavours
to intercept her when his companion turns her towards himself. This,
however, is not the effect of any contract, but of the accidental
concurrence of their passions in the same object at that particular time.
Nobody ever saw a dog make a fair and deliberate exchange of one bone for
another with another dog. Nobody ever saw one animal, by its gestures and
natural cries signify to another, this is mine, that yours; I am willing
to give this for that. When an animal wants to obtain something either of
a man, or of another animal, it has no other means of persuasion, but to
gain the favour of those whose service it requires. A puppy fawns upon its
dam, and a spaniel endeavours, by a thousand attractions, to engage the
attention of its master who is at dinner, when it wants to be fed by him.
Man sometimes uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his inclinations,
endeavours by every servile and fawning attention to obtain their good
will. He has not time, however, to do this upon every occasion. In
civilized society he stands at all times in need of the co-operation and
assistance of great multitudes, while his whole life is scarce sufficient
to gain the friendship of a few persons. In almost every other race of
animals, each individual, when it is grown up to maturity, is entirely
independent, and in its natural state has occasion for the assistance of
no other living creature. But man has almost constant occasion for the
help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest
their self-love in his favour, and shew them that it is for their own
advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which I
want, and you shall have this which you want, is the meaning of every such
offer; and it is in this manner that we obtain from one another the far
greater part of those good offices which we stand in need of. It is not
from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk
to them of our own necessities, but of their advantages. Nobody but a
beggar chooses to depend chiefly upon the benevolence of his
fellow-citizens. Even a beggar does not depend upon it entirely. The
charity of well-disposed people, indeed, supplies him with the whole fund
of his subsistence. But though this principle ultimately provides him with
all the necessaries of life which he has occasion for, it neither does nor
can provide him with them as he has occasion for them. The greater part of
his occasional wants are supplied in the same manner as those of other
people, by treaty, by barter, and by purchase. With the money which one
man gives him he purchases food. The old clothes which another bestows
upon him he exchanges for other clothes which suit him better, or for
lodging, or for food, or for money, with which he can buy either food,
clothes, or lodging, as he has occasion.
As it is by treaty, by barter, and by purchase, that we obtain from one
another the greater part of those mutual good offices which we stand in
need of, so it is this same trucking disposition which originally gives
occasion to the division of labour. In a tribe of hunters or shepherds, a
particular person makes bows and arrows, for example, with more readiness
and dexterity than any other. He frequently exchanges them for cattle or
for venison, with his companions; and he finds at last that he can, in
this manner, get more cattle and venison, than if he himself went to the
field to catch them. From a regard to his own interest, therefore, the
making of bows and arrows grows to be his chief business, and he becomes a
sort of armourer. Another excels in making the frames and covers of their
little huts or moveable houses. He is accustomed to be of use in this way
to his neighbours, who reward him in the same manner with cattle and with
venison, till at last he finds it his interest to dedicate himself
entirely to this employment, and to become a sort of house-carpenter. In
the same manner a third becomes a smith or a brazier; a fourth, a tanner
or dresser of hides or skins, the principal part of the clothing of
savages. And thus the certainty of being able to exchange all that surplus
part of the produce of his own labour, which is over and above his own
consumption, for such parts of the produce of other men’s labour as he may
have occasion for, encourages every man to apply himself to a particular
occupation, and to cultivate and bring to perfection whatever talent or
genius he may possess for that particular species of business.
The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is
not upon many occasions so much the cause, as the effect of the division
of labour. The difference between the most dissimilar characters, between
a philosopher and a common street porter, for example, seems to arise not
so much from nature, as from habit, custom, and education. When they came
in to the world, and for the first six or eight years of their existence,
they were, perhaps, very much alike, and neither their parents nor
play-fellows could perceive any remarkable difference. About that age, or
soon after, they come to be employed in very different occupations. The
difference of talents comes then to be taken notice of, and widens by
degrees, till at last the vanity of the philosopher is willing to
acknowledge scarce any resemblance. But without the disposition to truck,
barter, and exchange, every man must have procured to himself every
necessary and conveniency of life which he wanted. All must have had the
same duties to perform, and the same work to do, and there could have been
no such difference of employment as could alone give occasion to any great
difference of talents.
As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same
disposition which renders that difference useful. Many tribes of animals,
acknowledged to be all of the same species, derive from nature a much more
remarkable distinction of genius, than what, antecedent to custom and
education, appears to take place among men. By nature a philosopher is not
in genius and disposition half so different from a street porter, as a
mastiff is from a grey-hound, or a grey-hound from a spaniel, or this last
from a shepherd’s dog. Those different tribes of animals, however, though
all of the same species are of scarce any use to one another. The strength
of the mastiff is not in the least supported either by the swiftness of
the greyhound, or by the sagacity of the spaniel, or by the docility of
the shepherd’s dog. The effects of those different geniuses and talents,
for want of the power or disposition to barter and exchange, cannot be
brought into a common stock, and do not in the least contribute to the
better accommodation and conveniency of the species. Each animal is still
obliged to support and defend itself, separately and independently, and
derives no sort of advantage from that variety of talents with which
nature has distinguished its fellows. Among men, on the contrary, the most
dissimilar geniuses are of use to one another; the different produces of
their respective talents, by the general disposition to truck, barter, and
exchange, being brought, as it were, into a common stock, where every man
may purchase whatever part of the produce of other men’s talents he has
occasion for.
## Extraction Guidelines
---
id: extraction-rules
name: extraction_rules
artifact_type: content
description: Guidelines for extracting economic entities from source text
version: 1.0.0
---
# Entity Extraction Rules
## What Constitutes an Entity
An economic entity is a distinct concept, actor, mechanism, or institution
that plays a functional role in Adam Smith's economic analysis. Extract
entities at the level of specificity where they carry independent meaning.
## Extraction Criteria
1. **Concepts**: Abstract economic ideas (e.g., "division of labour",
"effectual demand", "natural price"). Extract when Smith defines,
explains, or argues about the concept.
2. **Actors**: Economic agents with defined roles (e.g., "the labourer",
"the merchant", "the sovereign"). Extract when the actor performs
a distinct economic function.
3. **Mechanisms**: Processes or dynamics that produce economic effects
(e.g., "accumulation of stock", "market price adjustment",
"foreign trade"). Extract when the mechanism is described as
producing specific outcomes.
4. **Institutions**: Organised structures that shape economic behaviour
(e.g., "the corporation", "the guild", "the joint-stock company").
Extract when the institution's economic function is described.
## Granularity Rules
- Extract at the level of a single coherent concept.
- Do NOT extract synonyms as separate entities — choose the primary term
Smith uses and note variations.
- DO extract distinct aspects of a broad concept as separate entities when
Smith treats them independently (e.g., "wages of labour" and "profits
of stock" are separate from "price of commodities" even though they
compose it).
- If an entity appears across multiple chapters, extract it on first
significant appearance and note cross-references in later chapters.
## Naming Conventions
- Use Smith's own terminology where possible.
- Normalise to lowercase except for proper nouns.
- Use the most common form Smith uses (e.g., "division of labour" not
"divided labour").
## Quality Checks
- Each entity must have a definition that would be comprehensible without
reading the source chapter.
- Each entity must cite the specific book and chapter of first appearance.
- Economic Domain must be one of: Production, Distribution, Exchange,
Consumption, Accumulation, Regulation, or General Theory.
## VSM Framework Context
Use the following VSM framework as context to guide your extraction.
Prioritize entities that are likely to have clear mappings to VSM concepts,
but do not exclude entities simply because they lack an obvious mapping.
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Instructions
1. Read the source chapter carefully.
2. Identify all distinct economic concepts, actors, mechanisms, and institutions.
3. For each entity, produce a separate markdown document following the
Economic Entity Schema v1.0.
4. Each entity document must include:
- An H1 heading with the entity name
- A Definition section (20-150 words)
- A Source Chapter section citing the specific chapter
- A Context section describing where in the argument the entity appears
- An Economic Domain section classifying the entity
5. Optionally include Smith's Original Wording (direct quote) and
Modern Interpretation sections.
6. Use neutral, analytical language throughout.
7. Ensure each entity is distinct and self-contained.
## Output Format
Output each entity as a separate markdown document, delimited by
`--- ENTITY: <entity-name> ---` markers.

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--- MAPPING: division-of-labour-to-s1 ---
# Division of Labour -> System 1 (Operations)
## Economic Entity Reference
Division of Labour — the separation of a work process into distinct specialised
tasks to increase productive power.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the organisation's
purpose, each of which is itself a viable system.
## Mapping Rationale
The division of labour fundamentally defines how System 1 operational units are
structured. By decomposing production into specialised tasks, Smith describes
the internal architecture of operational units. Each specialised worker or
workgroup becomes a sub-unit within S1, performing a discrete operation. The
pin factory's eighteen distinct operations represent eighteen operational
elements within a single S1 unit, each contributing to the factory's overall
productive purpose. This mapping reflects Beer's principle that S1 units are
where value is directly created through operational activity.
## Mapping Strength
Strong
--- MAPPING: division-of-labour-to-recursion ---
# Division of Labour -> Recursion
## Economic Entity Reference
Division of Labour — the separation of a work process into distinct specialised
tasks to increase productive power.
## VSM Concept Reference
Recursion — the principle that every viable system contains and is contained
in a viable system, with the same five-system structure recurring at every level.
## Mapping Rationale
Smith's analysis of the division of labour operates at multiple recursive
levels simultaneously. Within the pin factory, labour is divided among ten
workers (micro-recursion). Across society, trades separate into distinct
occupations — farmer, manufacturer, philosopher (meso-recursion). Between
nations, rich and poor countries specialise in different products (macro-recursion).
This multi-level structure maps directly to Beer's recursion principle: the
same pattern of specialisation and coordination recurs at every organisational
level, from the individual workshop to the national economy.
## Mapping Strength
Strong
--- MAPPING: productive-powers-of-labour-to-s1 ---
# Productive Powers of Labour -> System 1 (Operations)
## Economic Entity Reference
Productive Powers of Labour — the capacity of human labour to produce output,
measured in terms of quantity and quality of goods per worker per unit time.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the organisation's
purpose.
## Mapping Rationale
Productive power is the measure of System 1 performance. Beer's S1 is defined
by its capacity to produce the organisation's purpose; Smith's productive
powers of labour quantify exactly this capacity. The 4,800-fold improvement
in pin production under the division of labour represents a dramatic increase
in S1 operational effectiveness. Productive power is not a system itself but
the key performance indicator of how well S1 units function.
## Mapping Strength
Strong
--- MAPPING: dexterity-of-the-workman-to-s1 ---
# Dexterity of the Workman -> System 1 (Operations)
## Economic Entity Reference
Dexterity of the Workman — the skill and speed acquired through repeated
performance of a single specialised operation.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the organisation's
purpose.
## Mapping Rationale
Dexterity is a property of individual S1 operational units. As each worker
becomes more proficient through specialisation, their operational unit
becomes more effective at its designated function. In Beer's terms, dexterity
represents the self-optimisation capacity of an S1 element: through practice
and focus, the operational unit improves its own performance without external
intervention. This aligns with Beer's principle that S1 units possess autonomy
and self-organisation within their operational domain.
## Mapping Strength
Strong
--- MAPPING: saving-of-time-to-s2 ---
# Saving of Time -> System 2 (Coordination)
## Economic Entity Reference
Saving of Time — the elimination of time lost when workers pass from one kind
of work to another.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate, dampening oscillations.
## Mapping Rationale
The saving of time through specialisation is fundamentally a coordination
gain. When workers are permanently assigned to single tasks, the need for
coordination between tasks within one person is eliminated — there is no
oscillation between modes of work. Smith's description of "sauntering" when
switching tasks is precisely the kind of oscillation that System 2 is
designed to dampen. By fixing each worker to one operation, the division
of labour reduces the variety of coordination required, acting as a
structural implementation of S2's anti-oscillatory function.
## Mapping Strength
Moderate
--- MAPPING: invention-of-machinery-to-s4 ---
# Invention of Machinery -> System 4 (Intelligence/Adaptation)
## Economic Entity Reference
Invention of Machinery — the development of machines that facilitate and
abridge labour, stimulated by the focused attention of specialised workers.
## VSM Concept Reference
System 4 (Intelligence/Adaptation) — the bodies and processes that scan the
environment and drive adaptation for continued viability.
## Mapping Rationale
Invention represents the adaptive capacity of the economic system. Workers
who discover improvements to their specific operations, machine-makers who
develop new tools, and philosophers who combine knowledge from distant
fields all perform an S4 function: they observe the current state of
operations, identify opportunities for improvement, and introduce innovations
that change how S1 units operate. Smith's observation that the division of
labour itself stimulates invention shows how S1 operational focus feeds
into S4 intelligence — a feedback loop fundamental to Beer's model of
adaptive viability.
## Mapping Strength
Strong
--- MAPPING: separation-of-trades-to-s1 ---
# Separation of Trades -> System 1 (Operations)
## Economic Entity Reference
Separation of Trades — the process by which distinct occupations emerge
as separate specialisations performed by dedicated practitioners.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the
organisation's purpose.
## Mapping Rationale
The separation of trades describes the differentiation of System 1 into
distinct operational units. In Beer's VSM, S1 is not monolithic but
comprises multiple semi-autonomous operational units, each with its own
viable system structure. Smith's observation that in advanced societies
"the farmer is generally nothing but a farmer; the manufacturer, nothing
but a manufacturer" describes precisely this differentiation: each trade
becomes a distinct S1 unit with its own operational domain, its own
workers, and its own productive purpose.
## Mapping Strength
Strong
--- MAPPING: the-workman-to-s1 ---
# The Workman -> System 1 (Operations)
## Economic Entity Reference
The Workman — the individual labourer who performs productive work, the
operative unit whose dexterity, time, and inventiveness are the channels
through which specialisation increases output.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the
organisation's purpose.
## Mapping Rationale
The workman is the fundamental S1 element at the lowest level of recursion.
Each specialised worker constitutes an operational unit that directly produces
value. In Beer's terms, the workman at the pin factory — drawing wire,
straightening it, cutting it — is an S1 unit within the larger S1 of the
factory, which is itself an S1 unit within the industry. The workman embodies
the S1 properties of autonomy (within their task domain), self-organisation,
and direct engagement with the productive environment.
## Mapping Strength
Strong
--- MAPPING: the-philosopher-to-s4 ---
# The Philosopher -> System 4 (Intelligence/Adaptation)
## Economic Entity Reference
The Philosopher — a person whose occupation is observation and speculation,
combining knowledge from diverse fields to produce innovations.
## VSM Concept Reference
System 4 (Intelligence/Adaptation) — the bodies and processes that look
outward to the environment and drive adaptation.
## Mapping Rationale
The philosopher performs the quintessential S4 function. Their "trade is not
to do any thing, but to observe every thing" — precisely the environmental
scanning and intelligence-gathering role that Beer assigns to System 4.
Philosophers combine knowledge from "the most distant and dissimilar objects,"
integrating information across domains to produce novel understanding. This
cross-domain synthesis is the core S4 activity: building models of the
environment and identifying adaptive responses. Smith's observation that
philosophy itself becomes specialised through the division of labour shows
S4 developing its own internal S1 structure (recursion).
## Mapping Strength
Strong
--- MAPPING: universal-opulence-to-viability ---
# Universal Opulence -> Viability
## Economic Entity Reference
Universal Opulence — the general material well-being extending to all ranks
of society as a consequence of the division of labour and exchange.
## VSM Concept Reference
Viability — the capacity of a system to maintain a separate existence and
survive in a changing environment.
## Mapping Rationale
Universal opulence is the emergent outcome of a viable economic system.
Beer defines viability as the system's capacity to sustain itself; Smith's
universal opulence demonstrates that a well-functioning economic system
(with proper division of labour and exchange) sustains not just itself but
all its constituent members. The fact that even the "meanest person in a
civilized country" enjoys goods requiring the cooperation of thousands
demonstrates systemic viability: the whole system maintains itself through
the interdependent functioning of its parts. Viability is achieved not
through central direction but through the self-organising properties of
specialised, exchanging agents.
## Mapping Strength
Moderate
--- MAPPING: exchange-to-s2 ---
# Exchange -> System 2 (Coordination)
## Economic Entity Reference
Exchange — the act of trading surplus production for goods produced by
others.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
Exchange is the primary coordination mechanism between specialised S1 units
in Smith's economic system. Without exchange, the division of labour cannot
function: workers must be able to trade their surplus for others' products.
Exchange carries both goods and information (prices signal relative scarcity
and demand), serving as the communication channel between operational units.
In Beer's framework, S2 ensures that S1 units do not oscillate destructively;
market exchange performs exactly this function by coordinating supply and demand
across specialised producers. Exchange is the economic system's S2.
## Mapping Strength
Strong
--- MAPPING: co-operation-of-labour-to-s2 ---
# Co-operation of Labour -> System 2 (Coordination)
## Economic Entity Reference
Co-operation of Labour — the interdependent collaboration of many workers
across different trades and locations to produce a single finished good.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
The vast network of co-operation Smith describes — shepherds, miners, sailors,
weavers, merchants — requires coordination mechanisms to function. No central
authority orchestrates the production of the day-labourer's coat; instead,
market exchange, trade customs, and commercial practice coordinate thousands
of independent S1 units. Co-operation of labour is the observable result of
effective S2 coordination: it demonstrates that the system's coordination
mechanisms successfully link diverse operational units into a coherent
productive whole.
## Mapping Strength
Moderate
--- MAPPING: manufactures-to-s1 ---
# Manufactures -> System 1 (Operations)
## Economic Entity Reference
Manufactures — the sector of production in which raw materials are
transformed into finished goods through specialised operations.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the
organisation's purpose.
## Mapping Rationale
The manufacturing sector constitutes a major S1 domain at a high level of
recursion. Each individual manufacture (pin-making, wool-weaving, hardware
production) is an S1 operational unit, and the sector as a whole represents
a class of S1 activities. Smith's analysis shows that manufactures exhibit
the highest degree of internal division of labour, meaning their S1 units
are the most finely differentiated and therefore the most productive. This
aligns with Beer's observation that S1 effectiveness depends on appropriate
internal structuring.
## Mapping Strength
Strong
--- MAPPING: agriculture-to-s1 ---
# Agriculture -> System 1 (Operations)
## Economic Entity Reference
Agriculture — the sector of production concerned with cultivation of land
and raising of crops and livestock.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the
organisation's purpose.
## Mapping Rationale
Agriculture constitutes an S1 domain that, by its nature, resists fine
subdivision. The seasonal constraints Smith identifies — the ploughman,
harrower, sower, and reaper must often be the same person — mean that
agricultural S1 units cannot be as finely specialised as manufacturing ones.
This is significant from a VSM perspective: it shows that the viability of
S1 structures depends on environmental constraints. Agriculture's lower
productivity gains from division of labour reflect the limits imposed on
S1 differentiation by the natural environment.
## Mapping Strength
Strong
## Counter-arguments
Agriculture could also be mapped to S1 at a lower level of recursion (the
individual farm), where the farmer's multiple roles (ploughing, sowing,
reaping) represent undifferentiated S1 activities within a single viable
system rather than distinct S1 units.

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# Map Economic Entities to VSM Concepts
You are a systems theorist specializing in Stafford Beer's Viable System Model.
Your task is to map extracted economic entities to VSM concepts.
## Extracted Entities
--- ENTITY: division-of-labour ---
# Division of Labour
## Definition
The separation of a work process into a number of distinct tasks, each performed
by a specialised worker, resulting in a significant increase in the productive
powers of labour. Smith identifies it as the principal cause of improvement in
the productive capacity of any trade, art, or manufacture. The effect arises
from three circumstances: increased dexterity, saved time in transition between
tasks, and the invention of labour-saving machinery.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The division of labour is the central argument of the chapter. Smith opens by
asserting that it is the greatest source of improvement in productive powers,
then illustrates it through the pin-factory example, explains its three causal
mechanisms, and concludes by showing how it generates universal opulence through
exchange.
## Economic Domain
Production
## Smith's Original Wording
"The greatest improvements in the productive powers of labour, and the greater
part of the skill, dexterity, and judgment, with which it is anywhere directed,
or applied, seem to have been the effects of the division of labour."
## Modern Interpretation
The division of labour remains a foundational concept in economics and
organisational theory. Modern extensions include specialisation theory,
comparative advantage (Ricardo), and the study of transaction costs that
determine the boundaries between internal division and market exchange (Coase).
--- ENTITY: productive-powers-of-labour ---
# Productive Powers of Labour
## Definition
The capacity of human labour to produce output, measured in terms of the
quantity and quality of goods a given number of workers can produce within
a given time. Smith argues that the division of labour is the primary cause
of increases in productive power, and that differences in productive power
explain differences in national wealth.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith introduces productive powers as the dependent variable that the division
of labour improves. He contrasts the output of an unskilled individual worker
(one pin per day) with the output of a coordinated team under division of
labour (4,800 pins per person per day) to demonstrate the scale of improvement.
## Economic Domain
Production
## Smith's Original Wording
"This great increase in the quantity of work, which, in consequence of the
division of labour, the same number of people are capable of performing, is
owing to three different circumstances."
--- ENTITY: dexterity-of-the-workman ---
# Dexterity of the Workman
## Definition
The skill and speed a worker acquires through repeated performance of a single
specialised operation. Smith identifies the increase in dexterity as the first
of three causes by which the division of labour improves productive power.
Specialisation reduces each worker's task to one simple operation, making it
the sole employment of their life, and thereby dramatically increasing their
proficiency.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the first of three mechanisms explaining why the division of labour
increases output. Smith illustrates it with the example of nail-making: an
unskilled smith makes 200-300 nails per day, while a specialised nailer can
produce over 2,300.
## Economic Domain
Production
## Smith's Original Wording
"First, the improvement of the dexterity of the workmen, necessarily increases
the quantity of the work he can perform; and the division of labour, by reducing
every man's business to some one simple operation, and by making this operation
the sole employment of his life, necessarily increases very much the dexterity
of the workman."
--- ENTITY: saving-of-time ---
# Saving of Time
## Definition
The elimination of time lost when a worker passes from one kind of work to
another. Smith identifies this as the second mechanism by which the division of
labour increases productive power. Time is lost both in physical transition
(moving between locations and tools) and in mental transition (the sauntering
and inattention that follows switching tasks).
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the second of three mechanisms. Smith argues the loss is greater
than commonly supposed, encompassing not only travel time but a psychological
cost: workers who constantly switch tasks develop habits of "sauntering" and
"indolent careless application" that reduce their output even during active work.
## Economic Domain
Production
## Smith's Original Wording
"Secondly, the advantage which is gained by saving the time commonly lost in
passing from one sort of work to another, is much greater than we should at
first view be apt to imagine it."
--- ENTITY: invention-of-machinery ---
# Invention of Machinery
## Definition
The development of machines that facilitate and abridge labour, enabling one
person to do the work of many. Smith identifies this as the third mechanism
by which the division of labour increases productive power, and argues that
the division of labour itself stimulates invention, because workers focused
on a single operation naturally discover improvements to their specific task.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Presented as the third mechanism. Smith provides the anecdote of the boy who
automated the valve on a fire engine to free himself for play. He extends the
argument beyond workers to include machine-makers and philosophers (men of
speculation), whose own specialised observation enables them to combine
knowledge from distant fields.
## Economic Domain
Production
## Smith's Original Wording
"Thirdly, and lastly, everybody must be sensible how much labour is facilitated
and abridged by the application of proper machinery. It is unnecessary to give
any example."
--- ENTITY: separation-of-trades ---
# Separation of Trades
## Definition
The process by which distinct occupations emerge as separate specialisations,
each performed by dedicated practitioners rather than by a single person who
performs all tasks. Smith presents the separation of trades as both a
consequence and an indicator of the division of labour, noting that it
advances furthest in the most industrious and improved countries.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith transitions from the pin-factory example to the economy-wide observation
that in improved societies, "the farmer is generally nothing but a farmer; the
manufacturer, nothing but a manufacturer." He contrasts manufacturing, where
trades separate extensively, with agriculture, where seasonal demands prevent
full separation.
## Economic Domain
Production
## Smith's Original Wording
"The separation of different trades and employments from one another, seems to
have taken place in consequence of this advantage."
--- ENTITY: the-workman ---
# The Workman
## Definition
The individual labourer who performs productive work, whether in manufacturing
or agriculture. In the context of the division of labour, the workman is the
operative unit whose dexterity, time, and inventiveness are the channels through
which specialisation increases output. Smith portrays the workman both as a
beneficiary of the division of labour (higher output) and as its agent
(inventing machinery through focused attention).
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The workman appears throughout the chapter as the primary actor: the pin-maker,
the nailer, the country weaver, the boy at the fire engine. Smith attributes
both the productive gains and many mechanical inventions to ordinary workmen.
## Economic Domain
Production
--- ENTITY: the-philosopher ---
# The Philosopher
## Definition
A person whose occupation is observation and speculation rather than direct
production — "men of speculation, whose trade it is not to do any thing, but
to observe every thing." Smith treats the philosopher as an economic actor
whose specialised function is combining knowledge from diverse fields to
produce innovations and improvements, analogous to how the workman improves
their own narrow task.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Introduced near the end of Smith's discussion of the third mechanism (invention
of machinery). Smith notes that as society progresses, philosophy itself becomes
a specialised trade, subdivided into branches, with each philosopher becoming
expert in their field — the division of labour applied to intellectual work.
## Economic Domain
General Theory
## Smith's Original Wording
"In the progress of society, philosophy or speculation becomes, like every other
employment, the principal or sole trade and occupation of a particular class of
citizens."
--- ENTITY: universal-opulence ---
# Universal Opulence
## Definition
The general material well-being that extends across all ranks of society,
including the lowest, as a consequence of the division of labour and the
resulting multiplication of production. Smith argues that through exchange,
every workman can supply others abundantly with their specialised product
and receive in return the products of others' specialisation, creating a
"general plenty" that benefits even the poorest members of a civilised society.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
The concluding argument of the chapter. Smith illustrates universal opulence
by examining the "accommodation of the most common artificer or daylabourer,"
showing that even a coarse woollen coat requires the cooperation of shepherds,
wool-combers, dyers, weavers, merchants, sailors, and many others — a vast
chain of interdependent labour that would be impossible without specialisation
and exchange.
## Economic Domain
Distribution
## Smith's Original Wording
"It is the great multiplication of the productions of all the different arts,
in consequence of the division of labour, which occasions, in a well-governed
society, that universal opulence which extends itself to the lowest ranks of
the people."
--- ENTITY: exchange ---
# Exchange
## Definition
The act of trading one's surplus production for the goods produced by others.
Smith presents exchange as the mechanism by which the division of labour
translates into universal opulence: each workman disposes of their surplus
output and receives in return the surplus of others, so that all are
supplied beyond what any individual could produce alone.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Exchange appears in the chapter's conclusion as the connecting mechanism
between specialised production and general welfare. Smith implicitly treats
it as prerequisite to the division of labour (explored further in Chapter 2),
since specialisation only benefits workers if they can trade their surplus.
## Economic Domain
Exchange
## Smith's Original Wording
"Every workman has a great quantity of his own work to dispose of beyond what
he himself has occasion for; and every other workman being exactly in the same
situation, he is enabled to exchange a great quantity of his own goods for a
great quantity or, what comes to the same thing, for the price of a great
quantity of theirs."
--- ENTITY: co-operation-of-labour ---
# Co-operation of Labour
## Definition
The interdependent collaboration of many workers across different trades and
locations to produce a single finished good. Smith demonstrates that even the
simplest consumer goods in a civilised society require the combined efforts of
thousands of workers — shepherds, miners, sailors, smiths, weavers — who
collectively make possible what no individual could achieve alone.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Smith's extended example of the day-labourer's woollen coat serves to illustrate
the vast scope of co-operation. He traces the supply chain from raw materials
through manufacture and transport to show that civilised consumption depends on
an immense network of specialised, interdependent labour.
## Economic Domain
Production
## Smith's Original Wording
"Without the assistance and co-operation of many thousands, the very meanest
person in a civilized country could not be provided, even according to, what we
very falsely imagine, the easy and simple manner in which he is commonly
accommodated."
--- ENTITY: manufactures ---
# Manufactures
## Definition
The sector of production in which raw materials are transformed into finished
goods through a series of distinct operations, each typically performed by
specialised workers. Smith contrasts manufactures with agriculture, noting that
the former admits of far greater subdivision of labour and separation of trades,
and therefore exhibits far greater improvements in productive power.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Manufactures serve as the primary setting for Smith's analysis of the division
of labour. The pin factory is a manufacture; so are the linen, woollen, and
hardware trades he references. Smith uses the greater divisibility of
manufacturing work to explain why rich countries excel more conspicuously over
poor countries in manufactures than in agriculture.
## Economic Domain
Production
--- ENTITY: agriculture ---
# Agriculture
## Definition
The sector of production concerned with the cultivation of land and the raising
of crops and livestock. Smith argues that agriculture does not admit of as many
subdivisions of labour as manufactures, because seasonal rhythms prevent workers
from specialising year-round in a single task. As a result, agricultural
productivity improves less dramatically with the division of labour than
manufacturing productivity.
## Source Chapter
Book I, Chapter 1: "Of the Division of Labour"
## Context
Agriculture is introduced as a counterpoint to manufactures. Smith notes that
the ploughman, harrower, sower, and reaper are often the same person, and that
this is why even rich countries do not surpass poor countries in agricultural
output as dramatically as in manufacturing output.
## Economic Domain
Production
## Smith's Original Wording
"The nature of agriculture, indeed, does not admit of so many subdivisions of
labour, nor of so complete a separation of one business from another, as
manufactures."
## VSM Framework Reference
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Mapping Guidelines
---
id: mapping-rules
name: mapping_rules
artifact_type: content
description: Guidelines for mapping economic entities to VSM concepts
version: 1.0.0
---
# VSM Mapping Rules
## Mapping Principles
1. **Ground in Beer's definitions.** Every mapping rationale must reference
the specific VSM system function, not just a superficial resemblance.
2. **Prefer structural over metaphorical mappings.** A mapping is strong
when the economic entity performs the same *functional role* in Smith's
economic system as the VSM component performs in an organisation.
3. **Allow multiple mappings.** A single economic entity may map to
multiple VSM systems. For example, "the sovereign" may map to both
S3 (regulation) and S5 (policy). Create separate mapping documents
for each relationship.
4. **Respect recursion.** Consider at which level of recursion the mapping
applies. The division of labour within a single workshop (S1-level)
differs from the division of labour across an entire national economy
(higher recursion level).
## Mapping Strength Criteria
### Strong
- The entity directly performs the function of the VSM system.
- The mapping would be recognisable to a VSM practitioner without explanation.
- Example: "market price mechanism" → S2 (Coordination) — prices coordinate
supply and demand between producers.
### Moderate
- The entity partially performs the function or performs it in a limited context.
- The mapping requires some argument but is defensible.
- Example: "merchant" → S4 (Intelligence) — merchants gather information
about foreign markets, but this is not their primary function.
### Weak
- The mapping is speculative or metaphorical rather than structural.
- The connection exists but requires significant interpretive work.
- Example: "moral sentiments" → S5 (Policy) — broad ethical framework
shapes economic behaviour, but the connection is indirect.
## What NOT to Map
- Do not force mappings where none exist. It is valid for an entity to have
no clear VSM mapping — flag it with "Mapping Strength: Weak" and explain
the difficulty.
- Do not map purely descriptive/historical content that lacks functional
significance.
## VSM System Checklist
When mapping, consider each system:
| System | Question to Ask |
|--------|----------------|
| S1 | Does this entity directly produce value or output? |
| S2 | Does this entity coordinate between operational units? |
| S3 | Does this entity regulate internal operations? |
| S3* | Does this entity provide audit or verification? |
| S4 | Does this entity scan the environment or plan for the future? |
| S5 | Does this entity define identity, policy, or purpose? |
Also consider the key concepts:
- **Recursion**: At what level does this entity operate?
- **Variety**: Does this entity manage variety (attenuate or amplify)?
- **Algedonic signals**: Does this entity serve as an emergency signal?
- **Autonomy**: Does this entity relate to operational autonomy?
## Instructions
1. Review each extracted economic entity carefully.
2. For each entity, determine which VSM system(s) it most closely relates to.
3. Produce a mapping document for each entity-VSM relationship following
the VSM Mapping Schema v1.0.
4. Each mapping document must include:
- An H1 heading in the format "Entity Name -> VSM Concept Name"
- An Economic Entity Reference section
- A VSM Concept Reference section
- A Mapping Rationale section (minimum 30 words) grounded in Beer's definitions
- A Mapping Strength section rated as Strong, Moderate, or Weak
5. Where an entity maps to multiple VSM systems (recursion), create
separate mapping documents for each relationship.
6. Flag entities that don't clearly map to any VSM concept with a
"Mapping Strength: Weak" and note the difficulty in the rationale.
## Output Format
Output each mapping as a separate markdown document, delimited by
`--- MAPPING: <entity-name>-to-<vsm-concept> ---` markers.

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--- MAPPING: propensity-to-truck-barter-and-exchange-to-s5 ---
# Propensity to Truck, Barter, and Exchange -> System 5 (Policy/Identity)
## Economic Entity Reference
Propensity to Truck, Barter, and Exchange — an innate human disposition to
negotiate and trade, identified as the ultimate cause of the division of labour.
## VSM Concept Reference
System 5 (Policy/Identity) — the policy-making body that defines the identity,
values, and purpose of the organisation.
## Mapping Rationale
The propensity to exchange functions as the foundational identity principle of
the economic system. In Beer's VSM, System 5 defines what the system *is* — its
essential nature and purpose. Smith's claim that this propensity is a fundamental
feature of human nature (possibly arising from reason and speech) establishes
exchange as the defining characteristic of human economic organisation. It is
the principle from which all other economic structures emerge. Without it, Smith
argues, there would be no division of labour, no specialisation, no difference
of talents — the entire economic system would not exist. This is an identity-level
property: it defines the system rather than operating within it.
## Mapping Strength
Moderate
## Counter-arguments
This mapping is interpretive rather than structural. The propensity is not a
governing body making policy decisions; it is a behavioural disposition. However,
in Beer's framework, S5 can represent emergent identity rather than deliberate
governance — the system's ethos rather than its explicit command structure.
--- MAPPING: propensity-to-truck-barter-and-exchange-to-s2 ---
# Propensity to Truck, Barter, and Exchange -> System 2 (Coordination)
## Economic Entity Reference
Propensity to Truck, Barter, and Exchange — an innate human disposition to
negotiate and trade.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
At the operational level, the propensity to exchange is the mechanism through
which coordination between specialised producers actually occurs. It is what
makes S2 possible in the economic system: without the disposition to trade,
there would be no market interactions, no price signalling, no mutual
adjustment of supply and demand. Smith's comparison with animals is telling —
dogs have different talents but cannot coordinate them because they lack this
propensity. The propensity is thus the prerequisite for all S2 coordination
in the economic VSM.
## Mapping Strength
Strong
--- MAPPING: self-interest-to-s1 ---
# Self-interest -> System 1 (Operations)
## Economic Entity Reference
Self-interest — the motivation of individuals to pursue their own advantage
in economic transactions.
## VSM Concept Reference
System 1 (Operations) — the primary activities that produce the organisation's
purpose, characterised by autonomy and self-organisation.
## Mapping Rationale
Self-interest is the animating principle of System 1 operational units. In
Beer's VSM, S1 elements are autonomous agents that self-organise within their
operational domain. Smith's self-interest is precisely this autonomy principle:
each economic actor (butcher, brewer, baker) pursues their own advantage, and
it is this autonomous self-directed activity that produces the system's output.
Self-interest ensures that S1 units are self-motivating and self-regulating
at the local level — they do not require external commands to operate. This
aligns with Beer's argument that S1 autonomy is essential for viability.
## Mapping Strength
Strong
--- MAPPING: self-interest-to-autonomy ---
# Self-interest -> Autonomy
## Economic Entity Reference
Self-interest — the motivation of individuals to pursue their own advantage.
## VSM Concept Reference
Autonomy — the degree of freedom granted to operational units to self-organise
within constraints set by System 3.
## Mapping Rationale
Smith's self-interest maps directly to Beer's concept of operational autonomy.
Beer argued that maximum autonomy consistent with systemic cohesion yields
maximum viability. Smith makes essentially the same argument: individuals
acting from self-interest, without central direction, produce better outcomes
("universal opulence") than any deliberate plan could achieve. The butcher
does not need to be told to provide meat — self-interest ensures it. This is
autonomy as a systemic design principle: the system works *because* its
operational units are self-directed, not *despite* it.
## Mapping Strength
Strong
--- MAPPING: the-bargain-to-s2 ---
# The Bargain -> System 2 (Coordination)
## Economic Entity Reference
The Bargain — a voluntary bilateral exchange in which each party offers
something the other wants.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
The bargain is the atomic unit of S2 coordination in the economic system.
Each bargain is an information exchange (revealing preferences, willingness
to pay, relative valuations) and a resource exchange simultaneously. Beer's
S2 dampens oscillations and resolves conflicts between S1 units; the bargain
does precisely this — two parties with conflicting interests (each wants the
other's goods) reach an equilibrium through negotiation. The bargain is where
coordination actually happens, one transaction at a time, aggregating into
the market system's overall S2 function.
## Mapping Strength
Strong
--- MAPPING: benevolence-to-s2 ---
# Benevolence -> System 2 (Coordination)
## Economic Entity Reference
Benevolence — the disposition to do good to others out of goodwill rather
than self-interest.
## VSM Concept Reference
System 2 (Coordination) — the information channels and bodies that allow
System 1 units to communicate and coordinate.
## Mapping Rationale
Smith presents benevolence as an alternative but insufficient coordination
mechanism. In a small group, benevolence can coordinate activity (one can
secure "the friendship of a few persons"). But it cannot scale to coordinate
the "great multitudes" required in civilised society. In VSM terms, benevolence
is a low-variety S2 mechanism — it works for simple systems but lacks the
requisite variety to coordinate a complex economy. Smith's argument is
essentially that self-interested exchange is a higher-variety coordination
mechanism than benevolence, and therefore the one that actually sustains the
economic system at scale.
## Mapping Strength
Weak
## Counter-arguments
Benevolence is more accurately described as a *failed* or *insufficient*
coordination mechanism than an active one. Smith's point is precisely that
it does not work at scale. The mapping is useful primarily for what it reveals
about requisite variety in coordination.
--- MAPPING: surplus-produce-to-variety ---
# Surplus Produce -> Variety
## Economic Entity Reference
Surplus Produce — the portion of a worker's output exceeding their own
consumption, available for exchange.
## VSM Concept Reference
Variety — the number of possible states of a system; the measure of
complexity and differentiation.
## Mapping Rationale
Surplus produce represents the variety that specialised S1 units inject into
the economic system. Each specialised worker produces a large quantity of one
type of good (high volume, low variety per worker) but the aggregate of all
specialists' surpluses creates the system's total variety of available goods.
The exchange of surpluses is how this variety is distributed across the system.
Without surplus, there would be nothing to exchange, and without exchange,
each person would be limited to the variety they could produce alone. Surplus
is the material substrate of economic variety.
## Mapping Strength
Moderate
--- MAPPING: difference-of-talents-to-variety ---
# Difference of Talents -> Variety
## Economic Entity Reference
Difference of Talents — the observable variation in skills and aptitudes among
individuals, which Smith argues is largely the effect of the division of labour.
## VSM Concept Reference
Variety — the number of possible states of a system.
## Mapping Rationale
The difference of talents is the human variety that the economic system creates
and then exploits. Smith's argument that talents are effects rather than causes
of specialisation is significant: the economic system generates its own variety
through the division of labour, which then feeds back to enable further
specialisation. In Beer's terms, this is a variety-amplification loop — the
system's operational structure (division of labour) creates variety (diverse
talents) that enhances the system's capacity for further differentiation.
This is a self-reinforcing cybernetic process.
## Mapping Strength
Moderate
--- MAPPING: common-stock-to-viability ---
# Common Stock -> Viability
## Economic Entity Reference
Common Stock — the aggregate pool of goods and services created when
specialised producers bring their diverse products together through exchange.
## VSM Concept Reference
Viability — the capacity of a system to maintain a separate existence and
survive in a changing environment.
## Mapping Rationale
The common stock represents the viable system's capacity to sustain all its
members. Smith's argument that humans, unlike animals, can pool their different
talents through exchange shows how viability emerges from coordination: no
individual is self-sufficient, but the system as a whole is viable because
exchange creates a shared pool of resources accessible to all. The mastiff
cannot benefit from the greyhound's speed, but the philosopher can benefit
from the porter's strength (and vice versa) through exchange. This pooling
is what makes the human economic system viable while individual animals remain
individually viable but collectively uncoordinated.
## Mapping Strength
Moderate

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# Map Economic Entities to VSM Concepts
You are a systems theorist specializing in Stafford Beer's Viable System Model.
Your task is to map extracted economic entities to VSM concepts.
## Extracted Entities
--- ENTITY: propensity-to-truck-barter-and-exchange ---
# Propensity to Truck, Barter, and Exchange
## Definition
An innate or fundamental disposition in human nature to negotiate, trade, and
exchange goods with others. Smith identifies this propensity as the ultimate
cause of the division of labour, arguing that it is unique to humans and
absent in all other animal species. He leaves open whether it is a primary
instinct or a consequence of the faculties of reason and speech, but treats
it as the foundational mechanism from which specialisation and economic
organisation emerge.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This is the central thesis of the chapter. Smith argues that the division of
labour "is not originally the effect of any human wisdom" but rather the
"necessary, though very slow and gradual, consequence" of this propensity.
The entire chapter serves to establish exchange as the causal origin of
specialisation.
## Economic Domain
General Theory
## Smith's Original Wording
"This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary, though very
slow and gradual, consequence of a certain propensity in human nature [...] the
propensity to truck, barter, and exchange one thing for another."
## Modern Interpretation
This concept prefigures the modern economic assumption of rational self-interest
as the basis of market behaviour. It also anticipates evolutionary and
institutional economics debates about whether exchange is a natural disposition
or a culturally constructed institution.
--- ENTITY: self-interest ---
# Self-interest
## Definition
The motivation of individuals to pursue their own advantage in economic
transactions. Smith argues that in civilised society, individuals obtain the
co-operation of others not through appeals to benevolence but by engaging
their self-love — showing them that it is to their own advantage to provide
what is desired. Self-interest is the engine that makes exchange function:
each party to a bargain acts from regard to their own benefit.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Smith introduces self-interest through the celebrated passage about the
butcher, brewer, and baker. He contrasts it with benevolence, arguing that
we cannot rely on the goodwill of others for our daily needs in a society
of many, and that self-interest provides a more reliable and universal basis
for economic co-operation.
## Economic Domain
General Theory
## Smith's Original Wording
"It is not from the benevolence of the butcher, the brewer, or the baker that
we expect our dinner, but from their regard to their own interest. We address
ourselves, not to their humanity, but to their self-love, and never talk to
them of our own necessities, but of their advantages."
--- ENTITY: the-bargain ---
# The Bargain
## Definition
A voluntary bilateral exchange in which each party offers something the other
wants. Smith defines the bargain as the fundamental unit of economic
interaction: "Give me that which I want, and you shall have this which you
want." It is through bargaining that individuals obtain "the far greater part
of those good offices which we stand in need of" in civilised society, as
opposed to relying on benevolence or coercion.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
The bargain is presented as the practical expression of the propensity to
exchange. Smith argues that it is the dominant mode of economic interaction,
used even by beggars who exchange charity-received goods for things they
actually need.
## Economic Domain
Exchange
## Smith's Original Wording
"Whoever offers to another a bargain of any kind, proposes to do this. Give
me that which I want, and you shall have this which you want, is the meaning
of every such offer."
--- ENTITY: benevolence ---
# Benevolence
## Definition
The disposition to do good to others out of goodwill rather than self-interest.
Smith argues that benevolence is an insufficient basis for economic organisation
in a complex society. While a person may secure the friendship of a few through
appeals to benevolence, they cannot rely on it to obtain the co-operation of
the "great multitudes" they need in civilised life. Even beggars, who depend
chiefly on benevolence for their subsistence, conduct most of their actual
transactions through exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Benevolence serves as the foil to self-interest. Smith systematically argues
that while benevolence exists, it cannot scale to support the complex
interdependencies of a specialised economy, making self-interested exchange
the necessary coordinating mechanism.
## Economic Domain
General Theory
--- ENTITY: surplus-produce ---
# Surplus Produce
## Definition
The portion of a worker's output that exceeds their own consumption needs and
is therefore available for exchange. Smith argues that the certainty of being
able to exchange surplus produce for the products of other workers' labour
is what encourages every person to dedicate themselves to a particular
occupation. Surplus is thus both the material prerequisite and the incentive
for specialisation.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Introduced in the passage describing the emergence of specialised trades in
a tribal society. The armourer, carpenter, smith, and tanner each produce
more of their specialty than they can personally consume, and exchange the
surplus for other goods, reinforcing their commitment to specialisation.
## Economic Domain
Production
## Smith's Original Wording
"And thus the certainty of being able to exchange all that surplus part of
the produce of his own labour, which is over and above his own consumption,
for such parts of the produce of other men's labour as he may have occasion
for, encourages every man to apply himself to a particular occupation."
--- ENTITY: difference-of-talents ---
# Difference of Talents
## Definition
The observable variation in skills, aptitudes, and abilities among individuals
in different occupations. Smith makes the striking argument that this
difference is largely the effect rather than the cause of the division of
labour: people are born with roughly equal abilities, and it is their
different occupations, shaped by habit, custom, and education, that create
the apparent differences. He contrasts humans with dogs, where natural breed
differences are far greater but cannot be made useful because animals lack
the capacity for exchange.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
This argument occupies the final portion of the chapter. Smith uses it to
reinforce his claim that exchange, not innate difference, is the driver of
specialisation. The philosopher and the street porter were "very much alike"
until different employments shaped them differently.
## Economic Domain
General Theory
## Smith's Original Wording
"The difference of natural talents in different men, is, in reality, much
less than we are aware of; and the very different genius which appears to
distinguish men of different professions, when grown up to maturity, is not
upon many occasions so much the cause, as the effect of the division of
labour."
--- ENTITY: common-stock ---
# Common Stock
## Definition
The aggregate pool of goods and services created when individuals bring
their diverse specialised products together through exchange. Smith argues
that among humans, unlike animals, different talents are made useful to
one another because their products can be "brought, as it were, into a
common stock, where every man may purchase whatever part of the produce
of other men's talents he has occasion for." This common stock is the
emergent result of widespread exchange among specialised producers.
## Source Chapter
Book I, Chapter 2: "Of the Principle which gives Occasion to the Division
of Labour"
## Context
Appears in the chapter's concluding argument comparing humans and animals.
While a mastiff cannot benefit from a greyhound's speed due to lack of
exchange, humans can pool their different abilities through trade, making
all talents contribute to the general welfare.
## Economic Domain
Exchange
## VSM Framework Reference
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Mapping Guidelines
---
id: mapping-rules
name: mapping_rules
artifact_type: content
description: Guidelines for mapping economic entities to VSM concepts
version: 1.0.0
---
# VSM Mapping Rules
## Mapping Principles
1. **Ground in Beer's definitions.** Every mapping rationale must reference
the specific VSM system function, not just a superficial resemblance.
2. **Prefer structural over metaphorical mappings.** A mapping is strong
when the economic entity performs the same *functional role* in Smith's
economic system as the VSM component performs in an organisation.
3. **Allow multiple mappings.** A single economic entity may map to
multiple VSM systems. For example, "the sovereign" may map to both
S3 (regulation) and S5 (policy). Create separate mapping documents
for each relationship.
4. **Respect recursion.** Consider at which level of recursion the mapping
applies. The division of labour within a single workshop (S1-level)
differs from the division of labour across an entire national economy
(higher recursion level).
## Mapping Strength Criteria
### Strong
- The entity directly performs the function of the VSM system.
- The mapping would be recognisable to a VSM practitioner without explanation.
- Example: "market price mechanism" → S2 (Coordination) — prices coordinate
supply and demand between producers.
### Moderate
- The entity partially performs the function or performs it in a limited context.
- The mapping requires some argument but is defensible.
- Example: "merchant" → S4 (Intelligence) — merchants gather information
about foreign markets, but this is not their primary function.
### Weak
- The mapping is speculative or metaphorical rather than structural.
- The connection exists but requires significant interpretive work.
- Example: "moral sentiments" → S5 (Policy) — broad ethical framework
shapes economic behaviour, but the connection is indirect.
## What NOT to Map
- Do not force mappings where none exist. It is valid for an entity to have
no clear VSM mapping — flag it with "Mapping Strength: Weak" and explain
the difficulty.
- Do not map purely descriptive/historical content that lacks functional
significance.
## VSM System Checklist
When mapping, consider each system:
| System | Question to Ask |
|--------|----------------|
| S1 | Does this entity directly produce value or output? |
| S2 | Does this entity coordinate between operational units? |
| S3 | Does this entity regulate internal operations? |
| S3* | Does this entity provide audit or verification? |
| S4 | Does this entity scan the environment or plan for the future? |
| S5 | Does this entity define identity, policy, or purpose? |
Also consider the key concepts:
- **Recursion**: At what level does this entity operate?
- **Variety**: Does this entity manage variety (attenuate or amplify)?
- **Algedonic signals**: Does this entity serve as an emergency signal?
- **Autonomy**: Does this entity relate to operational autonomy?
## Instructions
1. Review each extracted economic entity carefully.
2. For each entity, determine which VSM system(s) it most closely relates to.
3. Produce a mapping document for each entity-VSM relationship following
the VSM Mapping Schema v1.0.
4. Each mapping document must include:
- An H1 heading in the format "Entity Name -> VSM Concept Name"
- An Economic Entity Reference section
- A VSM Concept Reference section
- A Mapping Rationale section (minimum 30 words) grounded in Beer's definitions
- A Mapping Strength section rated as Strong, Moderate, or Weak
5. Where an entity maps to multiple VSM systems (recursion), create
separate mapping documents for each relationship.
6. Flag entities that don't clearly map to any VSM concept with a
"Mapping Strength: Weak" and note the difficulty in the rationale.
## Output Format
Output each mapping as a separate markdown document, delimited by
`--- MAPPING: <entity-name>-to-<vsm-concept> ---` markers.

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# Assess Completeness & Consistency Metrics
You are a quality assurance analyst evaluating the completeness and
consistency of a growing information space that maps classical economics
to the Viable System Model.
## All Chapter Analyses
<!-- Source: book-1-chapter-01-analysis.md -->
# Chapter Analysis: Book I, Chapter 1 — Of the Division of Labour
## Chapter Summary
Smith opens *The Wealth of Nations* by identifying the division of labour as
the primary cause of improvement in the productive powers of labour. Using the
celebrated pin-factory example, he demonstrates that ten workers collaborating
under a division of labour can produce 48,000 pins per day, compared to fewer
than 20 each if working independently — a productivity gain of over 240-fold.
He attributes this gain to three mechanisms: increased dexterity through
specialisation, time saved by eliminating task-switching, and the invention
of labour-saving machinery stimulated by focused attention on single operations.
Smith extends the argument from the workshop to society at large, showing that
the separation of trades advances furthest in the most developed countries,
and that the resulting multiplication of production creates a "universal
opulence" reaching even the lowest social ranks. He illustrates this with the
day-labourer's woollen coat, whose production requires the co-operation of
thousands of workers across dozens of trades and multiple countries.
## Entities Extracted
| # | Entity | Type | Economic Domain | Description |
|---|--------|------|-----------------|-------------|
| 1 | Division of labour | Concept | Production | Separation of work into specialised tasks to increase productive power |
| 2 | Productive powers of labour | Concept | Production | Capacity of labour to produce output per worker per unit time |
| 3 | Dexterity of the workman | Concept | Production | Skill and speed acquired through repeated specialised operation |
| 4 | Saving of time | Concept | Production | Elimination of time lost in switching between tasks |
| 5 | Invention of machinery | Mechanism | Production | Development of labour-saving machines stimulated by specialisation |
| 6 | Separation of trades | Mechanism | Production | Emergence of distinct occupations as separate specialisations |
| 7 | The workman | Actor | Production | Individual labourer performing productive specialised work |
| 8 | The philosopher | Actor | General Theory | Observer-specialist who combines knowledge across fields |
| 9 | Universal opulence | Concept | Distribution | Material well-being extending to all social ranks |
| 10 | Exchange | Mechanism | Exchange | Trading surplus production for goods produced by others |
| 11 | Co-operation of labour | Mechanism | Production | Interdependent collaboration across trades and locations |
| 12 | Manufactures | Concept | Production | Sector of production transforming raw materials through specialised operations |
| 13 | Agriculture | Concept | Production | Sector of production with limited division of labour due to seasonal constraints |
**Total entities: 13**
## VSM Mappings
| Entity | VSM Concept | Strength | Key Rationale |
|--------|------------|----------|---------------|
| Division of labour | S1 (Operations) | Strong | Defines internal architecture of operational units |
| Division of labour | Recursion | Strong | Operates at multiple levels: workshop, trade, nation |
| Productive powers of labour | S1 (Operations) | Strong | Key performance indicator of S1 effectiveness |
| Dexterity of the workman | S1 (Operations) | Strong | Self-optimisation capacity of individual S1 elements |
| Saving of time | S2 (Coordination) | Moderate | Eliminates oscillation between work modes |
| Invention of machinery | S4 (Intelligence) | Strong | Adaptive innovation driven by focused observation |
| Separation of trades | S1 (Operations) | Strong | Differentiation of S1 into distinct operational units |
| The workman | S1 (Operations) | Strong | Fundamental S1 element at lowest recursion level |
| The philosopher | S4 (Intelligence) | Strong | Environmental scanning and cross-domain synthesis |
| Universal opulence | Viability | Moderate | Emergent outcome of a functioning viable system |
| Exchange | S2 (Coordination) | Strong | Primary coordination mechanism between S1 units |
| Co-operation of labour | S2 (Coordination) | Moderate | Observable result of effective S2 coordination |
| Manufactures | S1 (Operations) | Strong | Major S1 domain with high internal differentiation |
| Agriculture | S1 (Operations) | Strong | S1 domain constrained by environment in differentiation |
**Total mappings: 14** (some entities map to multiple VSM concepts)
## VSM Coverage
| System | Covered | Entities Mapped | Notes |
|--------|---------|-----------------|-------|
| S1 (Operations) | Yes | Division of labour, productive powers, dexterity, separation of trades, the workman, manufactures, agriculture | Dominant system — chapter focuses on operational structure |
| S2 (Coordination) | Yes | Saving of time, exchange, co-operation of labour | Present through coordination mechanisms |
| S3 (Control) | No | — | No entities map to internal regulation or resource allocation |
| S3* (Audit) | No | — | No entities map to monitoring or verification |
| S4 (Intelligence) | Yes | Invention of machinery, the philosopher | Innovation and environmental scanning |
| S5 (Policy) | No | — | No entities map to identity, policy, or purpose |
| Recursion | Yes | Division of labour | Multi-level operation explicitly noted |
| Variety | No | — | Not explicitly addressed in this chapter |
| Requisite Variety | No | — | Not explicitly addressed |
| Attenuation/Amplification | No | — | Not explicitly addressed |
| Algedonic Signals | No | — | Not explicitly addressed |
| Autonomy | No | — | Implicit but not directly discussed |
| Viability | Yes | Universal opulence | System-level outcome |
**Systems covered: S1, S2, S4 (3 of 5 primary systems)**
**Systems not covered: S3, S3*, S5**
**Key concepts covered: Recursion, Viability (2 of 7)**
## Gaps & Observations
### Uncovered Systems
- **S3 (Control)**: The chapter does not discuss regulation, resource allocation,
or governance of operational units. Smith's "invisible hand" and regulatory
structures appear in later chapters.
- **S3* (Audit)**: No monitoring or verification mechanisms are discussed.
- **S5 (Policy)**: The chapter does not address sovereign authority, economic
policy, or the purpose of the commonwealth. Smith's brief reference to
"a well-governed society" hints at S5 but does not develop it.
### Difficult Mappings
- **Saving of time** maps only moderately to S2 because it describes the
elimination of a coordination problem rather than a coordination mechanism
itself.
- **Universal opulence** maps to Viability rather than a specific system,
making it a systemic property rather than a structural element.
### Emerging Themes
1. **S1 dominance**: This chapter is overwhelmingly about operational structure.
As the opening chapter of the book, it establishes the productive foundation
before introducing regulatory and policy layers in subsequent chapters.
2. **Recursion as implicit structure**: Smith's analysis naturally operates at
multiple recursive levels (worker → workshop → trade → nation) even though
he does not use systems-theoretic language.
3. **Innovation feedback loop**: The connection between S1 (specialised workers)
and S4 (invention/philosophy) represents a key feedback loop in the viable
system: operational focus generates adaptive innovation.
### Suggestions for Enriching Coverage
- **S3 coverage** is likely to emerge in chapters on wages, profits, and market
regulation (Book I, Chapters 7-10).
- **S5 coverage** should appear in Book IV (political economy) and Book V
(sovereign revenue).
- **Variety and requisite variety** may emerge when Smith discusses market size
(Chapter 3) and the limitations of regulation.
- Later chapters on money (Chapter 4) and prices (Chapters 5-7) should
strengthen S2 coverage through the price mechanism.
### Cross-chapter Anticipations
Several entities from this chapter will likely recur and deepen in subsequent
chapters:
- **Division of labour** → Chapter 2 (its cause) and Chapter 3 (its limits)
- **Exchange** → Chapter 4 (money as medium of exchange)
- **Productive powers** → Chapters 5-7 (price theory as measure of output)
## VSM Framework Reference
---
id: vsm-framework
name: vsm_framework
artifact_type: content
description: Stafford Beer's Viable System Model reference for economic analysis
version: 1.0.0
---
# Stafford Beer's Viable System Model (VSM)
The Viable System Model (VSM) is a model of the organisational structure of any
autonomous system capable of producing itself. It was created by management
cybernetician Stafford Beer in his books *Brain of the Firm* (1972) and
*The Heart of Enterprise* (1979).
## Core Principle: Viability
A viable system is any system organised in such a way as to meet the demands
of surviving in a changing environment. One of the prime features of systems
that survive is that they are adaptable. The VSM expresses a model for a
viable system, which is an abstracted cybernetic description applicable to
any organisation that is a going concern.
## The Five Systems
### System 1 (S1) — Operations
The primary activities that produce the organisation's purpose. These are the
operational units that directly create value. Each operational element is itself
a viable system (the principle of recursion).
**In economic terms:** Productive enterprises, factories, farms, workshops,
individual labourers performing specialised tasks, merchant operations.
**Key properties:** Autonomy within constraints, self-organisation,
direct engagement with the environment.
### System 2 (S2) — Coordination
The information channels and bodies that allow the primary activities in
System 1 to communicate with each other and that allow System 3 to monitor
and coordinate activities. System 2 dampens oscillations and resolves
conflicts between operational units.
**In economic terms:** Market price mechanisms, trade customs, standard
weights and measures, commercial law, banking clearinghouses, trade guilds.
**Key properties:** Anti-oscillatory, dampening, scheduling, conflict
resolution, standardisation.
### System 3 (S3) — Control / Operational Management
The structures and controls that establish the rules, resources, rights,
and responsibilities of System 1 and provide an interface between Systems 1
and Systems 4/5. System 3 represents the day-to-day control of the
organisation. It optimises the internal environment.
**In economic terms:** Government regulation of trade, taxation policy, labour
laws, enforcement of contracts, the "invisible hand" as emergent internal
regulation, guilds and corporations governing members.
**Key properties:** Internal regulation, resource allocation, accountability,
synergy extraction, performance management.
### System 3* (S3*) — Audit / Monitoring
The audit and monitoring channel that allows System 3 to verify information
coming from System 1 through channels other than those provided by System 2.
System 3* provides sporadic, direct access to operational reality.
**In economic terms:** Market inspections, quality checks, auditing of accounts,
surprise investigations into trade practices, verification of weights and measures.
**Key properties:** Sporadic direct investigation, reality checking, bypassing
normal reporting channels.
### System 4 (S4) — Intelligence / Adaptation
The bodies and processes that look outward to the environment to monitor
how the organisation needs to adapt to remain viable. System 4 captures
all relevant information about the outside-and-then environment. It is
responsible for strategic responses.
**In economic terms:** Foreign intelligence about trade opportunities,
market research, new technology adoption, colonial exploration and trade
route development, understanding of foreign economic systems.
**Key properties:** Environmental scanning, future orientation, strategic
planning, modelling, research and development.
### System 5 (S5) — Policy / Identity
The policy-making body that balances demands from Systems 3 and 4 and defines
the identity, values, and purpose of the organisation. System 5 provides
closure to the whole system and represents its supreme authority.
**In economic terms:** Sovereign authority, constitutional principles governing
economic policy, national economic identity, the philosophical foundations
of economic systems (mercantilism vs. free trade), the overarching purpose
of the commonwealth.
**Key properties:** Identity, ethos, supreme command, policy closure,
balancing internal and external perspectives.
## Key Concepts
### Recursion
Every viable system contains and is contained in a viable system. The same
five-system structure recurs at every level of organisation. A workshop is
a viable system within a factory, which is a viable system within an
industry, which is a viable system within a national economy.
### Variety
A measure of the number of possible states of a system. The Law of Requisite
Variety (Ashby's Law) states that only variety can absorb variety. A
controller must have at least as much variety as the system it controls.
### Requisite Variety
The principle that for effective regulation, the variety of the regulator
must match the variety of the system being regulated. This is achieved
through variety attenuation (reducing the variety coming up from operations)
and variety amplification (increasing the variety of management's responses).
### Attenuation and Amplification
Variety engineering mechanisms. Attenuation reduces variety (e.g., reporting
summaries, statistical aggregation, standardisation). Amplification increases
variety (e.g., delegation, empowerment, decentralisation).
### Algedonic Signals
Emergency signals that bypass the normal management hierarchy to alert
higher systems of critical situations requiring immediate attention. Named
from the Greek words for pain (algos) and pleasure (hedone).
**In economic terms:** Market panics, famine signals, sudden price collapses,
trade embargoes, economic crises that demand immediate sovereign intervention.
### Autonomy
The degree of freedom granted to operational units (System 1) to self-organise
within constraints set by System 3. Beer argued that maximum autonomy
consistent with systemic cohesion yields maximum viability.
### Viability
The capacity of a system to maintain a separate existence and survive in a
changing environment. A viable system continuously adapts while maintaining
its identity.
## Instructions
1. Review all chapter analyses produced so far.
2. Compute the following completeness metrics:
- **VSM Concept Coverage**: Percentage of VSM concepts (S1, S2, S3, S3*, S4, S5,
plus key concepts like recursion, variety, requisite variety, autonomy,
viability, attenuation/amplification, algedonic signals) that have at
least one mapping. List covered and uncovered concepts.
- **Chapter Coverage**: Percentage of source chapters processed.
- **Entity Count**: Total number of distinct economic entities extracted.
- **Mapping Count**: Total number of entity-to-VSM mappings created.
3. Compute the following consistency metrics:
- **Terminology Consistency** (score 0.0-1.0): Whether the same economic
concept is named consistently across all documents. Flag inconsistencies.
- **Cross-reference Integrity** (score 0.0-1.0): Whether all entity references
in mappings point to existing entities. Flag broken references.
- **Schema Compliance** (percentage): Percentage of output documents that
contain all required sections per their respective schemas.
4. Produce a metrics report summarizing the current state of the information space.
## Output Format
Output a single markdown document with sections for each metric category:
Completeness Metrics, Consistency Metrics, and Recommendations.

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# Infospace Metrics Report
**Report Date:** 2026-02-10
**Chapters Processed:** 1 of 35
---
## Completeness Metrics
### VSM Concept Coverage
**Coverage: 5 of 12 concepts (41.7%)**
| Concept | Covered | Mapping Count |
|---------|---------|---------------|
| S1 (Operations) | Yes | 8 |
| S2 (Coordination) | Yes | 3 |
| S3 (Control) | No | 0 |
| S3* (Audit) | No | 0 |
| S4 (Intelligence) | Yes | 2 |
| S5 (Policy) | No | 0 |
| Recursion | Yes | 1 |
| Variety | No | 0 |
| Requisite Variety | No | 0 |
| Attenuation/Amplification | No | 0 |
| Algedonic Signals | No | 0 |
| Viability | Yes | 1 |
| Autonomy | No | 0 |
**Uncovered concepts:** S3, S3*, S5, Variety, Requisite Variety,
Attenuation/Amplification, Algedonic Signals, Autonomy
**Assessment:** Coverage is concentrated on S1 (Operations), which is expected
for the opening chapter focused on production. The remaining concepts require
chapters addressing regulation (S3), policy (S5), and information management
(S3*, variety engineering).
### Chapter Coverage
**Coverage: 1 of 35 chapters (2.9%)**
| Book | Chapters Available | Chapters Processed |
|------|-------------------|-------------------|
| Introduction | 1 | 0 |
| Book I | 11 | 1 |
| Book II | 6 | 0 |
| Book III | 4 | 0 |
| Book IV | 10 | 0 |
| Book V | 3 | 0 |
### Entity Count
**Total distinct entities: 13**
| Economic Domain | Count |
|----------------|-------|
| Production | 10 |
| Distribution | 1 |
| Exchange | 1 |
| General Theory | 1 |
| Consumption | 0 |
| Accumulation | 0 |
| Regulation | 0 |
**Assessment:** Entity extraction is heavily skewed toward Production, reflecting
the chapter's content. Domains like Accumulation and Regulation will require
Book II and Book V chapters respectively.
### Mapping Count
**Total mappings: 14**
Mapping strength distribution:
- Strong: 11 (78.6%)
- Moderate: 3 (21.4%)
- Weak: 0 (0.0%)
---
## Consistency Metrics
### Terminology Consistency
**Score: 1.0**
With only one chapter processed, no cross-chapter terminology conflicts exist.
All entity names follow Smith's own terminology and the naming conventions
specified in the extraction rules. No synonyms detected.
**Flagged issues:** None
### Cross-reference Integrity
**Score: 1.0**
All entity references in mapping documents point to entities defined in the
entities output. No broken references detected.
**Flagged issues:** None
### Schema Compliance
**Compliance: 100%**
| Document Type | Total | Compliant | Non-compliant |
|--------------|-------|-----------|---------------|
| Entity documents | 13 | 13 | 0 |
| Mapping documents | 14 | 14 | 0 |
| Analysis documents | 1 | 1 | 0 |
All documents contain their required sections as defined by their respective
schemas.
---
## Recommendations
### Priority Actions
1. **Process remaining Book I chapters** to build S2 and S3 coverage through
price theory (Chapters 5-7) and wage/profit regulation (Chapters 8-10).
2. **Process Book IV chapters** for S5 (Policy) coverage, as these address
political economy systems (mercantilism, free trade).
3. **Process Book V chapters** for S3 (Control) coverage through sovereign
revenue and public administration.
### Coverage Gaps to Watch
- **Variety and requisite variety** are core VSM concepts that may not map
directly to Smith's vocabulary. Consider whether Smith's discussions of
market size, competition, and information asymmetry can be mapped to
variety management.
- **Algedonic signals** may appear in discussions of famine, market crises,
or economic distress in later chapters.
- **S3* (Audit)** is the most difficult system to map in classical economics.
Watch for discussions of market inspections, trade regulation enforcement,
or quality verification.
### Quality Notes
- Current consistency scores (1.0 across all metrics) will be the baseline.
As more chapters are processed, terminology conflicts and cross-reference
issues are likely to emerge and should be actively managed.
- The high proportion of Strong mappings (78.6%) is appropriate for Chapter 1
given its focus on operations, which map cleanly to S1. Later chapters
covering more abstract economic concepts may yield more Moderate and Weak
mappings.

695
examples/infospace-with-history/process_chapters.py Normal file
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@ -0,0 +1,695 @@
#!/usr/bin/env python3
"""
Infospace with History — Chapter Processing Pipeline
Processes chapters from Adam Smith's "The Wealth of Nations" through a
three-stage analysis pipeline, mapping economic content to Stafford Beer's
Viable System Model.
Pipeline per chapter:
1. extract-entities — Extract economic entities from chapter text
2. map-to-vsm — Map entities to VSM concepts
3. synthesize-analysis — Produce chapter-level VSM analysis
After all chapters:
4. assess-metrics — Evaluate completeness and consistency
Usage:
# Process a single chapter
python process_chapters.py --chapter book-1-chapter-01
# Process all chapters in Book I
python process_chapters.py --book 1
# Process all chapters
python process_chapters.py --all
# Assess metrics only (after chapters have been processed)
python process_chapters.py --metrics
# List available chapters
python process_chapters.py --list
"""
import argparse
import subprocess
import sys
from pathlib import Path
from typing import Optional
# Add project root to path
project_root = Path(__file__).parent.parent.parent
sys.path.insert(0, str(project_root))
from markitect.prompts.models import Artifact, ArtifactType
from markitect.prompts.repositories.sqlite import SQLiteArtifactRepository
from markitect.prompts.dependencies.repository import SQLiteDependencyRepository
from markitect.prompts.services.artifact_service import ArtifactService
from markitect.prompts.templates.models import PromptTemplate, ContentMacro, MacroKind
from markitect.prompts.resolver.resolver import PromptResolver
from markitect.prompts.resolver.compiler import ContextCompiler
from markitect.prompts.resolver.strategy import ResolutionConfig, MultiSpaceResolutionStrategy
from markitect.prompts.execution.manifest import RunManifest
from markitect.prompts.dependencies.graph import GraphBuilder
from markitect.prompts.traceability.service import TraceabilityService
from markitect.prompts.queries.operations import PromptQueryService
class ChapterProcessor:
"""Processes Wealth of Nations chapters through the VSM analysis pipeline."""
def __init__(
self,
example_dir: Path,
db_path: Optional[str] = None,
llm_adapter=None,
):
self.example_dir = example_dir
self.db_path = db_path or str(example_dir / "infospace.db")
self.llm_adapter = llm_adapter
# Initialize repositories
self.artifact_repo = SQLiteArtifactRepository(self.db_path)
self.dep_repo = SQLiteDependencyRepository(self.db_path)
self.artifact_service = ArtifactService(self.artifact_repo)
self.graph_builder = GraphBuilder(self.dep_repo)
self.trace_service = TraceabilityService(
self.artifact_repo, self.dep_repo, db_path=self.db_path
)
self.query_service = PromptQueryService(
self.artifact_repo, self.dep_repo, db_path=self.db_path
)
# Information spaces
self.spaces = {
"templates": "infospace-templates",
"sources": "infospace-sources",
"guidelines": "infospace-guidelines",
"vsm-reference": "infospace-vsm-reference",
"entities": "infospace-entities",
"mappings": "infospace-mappings",
"analyses": "infospace-analyses",
"metrics": "infospace-metrics",
}
# Content cache (repository stores metadata, we cache content)
self.artifact_content: dict[str, str] = {}
# ── Artifact Management ──────────────────────────────────────────
def load_or_create_artifact(
self,
space: str,
filepath: Path,
artifact_type: ArtifactType,
name: Optional[str] = None,
) -> tuple[Artifact, str]:
"""Load artifact from file, create in repo if needed."""
if name is None:
name = filepath.stem
content = filepath.read_text()
existing = self.artifact_repo.get_by_name(space, name)
if existing:
self.artifact_content[existing.id] = content
return existing, content
artifact = Artifact.create(
space_id=space, name=name, content=content, artifact_type=artifact_type
)
artifact = self.artifact_repo.create(artifact)
self.artifact_content[artifact.id] = content
print(f" + {name} ({artifact.content_digest[:8]})")
return artifact, content
def store_output_artifact(
self, space: str, name: str, content: str, artifact_type: ArtifactType
) -> Artifact:
"""Store a generated output artifact, updating if it already exists."""
existing = self.artifact_repo.get_by_name(space, name)
if existing:
self.artifact_repo.delete(existing.id)
artifact = Artifact.create(
space_id=space, name=name, content=content, artifact_type=artifact_type
)
artifact = self.artifact_repo.create(artifact)
self.artifact_content[artifact.id] = content
return artifact
def bind_macro_artifact(self, space: str, macro_name: str, content: str) -> Artifact:
"""Bind content to a macro name in a space (for template resolution)."""
existing = self.artifact_repo.get_by_name(space, macro_name)
if existing:
self.artifact_repo.delete(existing.id)
artifact = Artifact.create(
space_id=space,
name=macro_name,
content=content,
artifact_type=ArtifactType.CONTENT,
)
artifact = self.artifact_repo.create(artifact)
self.artifact_content[artifact.id] = content
return artifact
# ── Setup ────────────────────────────────────────────────────────
def setup(self):
"""Load all static artifacts (templates, guidelines, VSM reference)."""
print("Loading artifacts...")
# Templates
for tmpl_file in (self.example_dir / "templates").glob("*.md"):
self.load_or_create_artifact(
self.spaces["templates"], tmpl_file, ArtifactType.TEMPLATE
)
# VSM reference
for ref_file in (self.example_dir / "artifacts" / "vsm-reference").glob("*.md"):
self.load_or_create_artifact(
self.spaces["vsm-reference"], ref_file, ArtifactType.CONTENT,
name="vsm_framework",
)
# Guidelines
guideline_name_map = {
"extraction-rules.md": "extraction_rules",
"mapping-rules.md": "mapping_rules",
}
for guide_file in (self.example_dir / "artifacts" / "guidelines").glob("*.md"):
name = guideline_name_map.get(guide_file.name, guide_file.stem)
self.load_or_create_artifact(
self.spaces["guidelines"], guide_file, ArtifactType.CONTENT, name=name
)
print(" Done.\n")
# ── Helpers ───────────────────────────────────────────────────────
@staticmethod
def _macro(target: str, kind: MacroKind = MacroKind.REQUIRED) -> ContentMacro:
"""Create a ContentMacro with correct raw_text for @{target} syntax."""
return ContentMacro(kind=kind, target=target, raw_text=f"@{{{target}}}")
# ── Template Resolution ──────────────────────────────────────────
def resolve_and_compile(
self, template_name: str, macros: list[ContentMacro], extra_spaces: list[str]
) -> Optional[str]:
"""Resolve macros and compile a template into a final prompt string.
Uses the resolver for dependency validation, then performs content
substitution from our local cache (since the artifact repository
doesn't persist content — see resolver.py line 147).
"""
template_artifact = self.artifact_repo.get_by_name(
self.spaces["templates"], template_name
)
if not template_artifact:
print(f" ERROR: Template '{template_name}' not found")
return None
template = PromptTemplate.from_artifact(template_artifact)
template.macros = macros
template.analyzed = True
config = ResolutionConfig(
space_id=self.spaces["templates"],
included_spaces=[self.spaces[s] for s in extra_spaces],
)
strategy = MultiSpaceResolutionStrategy()
resolver = PromptResolver(self.artifact_service, strategy)
result = resolver.resolve_template(template, config)
if not result.success:
print(f" ERROR: Resolution failed: {result.context.errors}")
return None
# Load template content
template_content = self.artifact_content.get(template_artifact.id)
if not template_content:
template_content = (
self.example_dir / "templates" / f"{template_name}.md"
).read_text()
# Substitute macros with actual content from cache
# (The resolver returns placeholders because the repo doesn't store content)
compiled_content = template_content
for resolved in result.context.resolved_macros:
if resolved.resolved and resolved.artifact:
actual_content = self.artifact_content.get(resolved.artifact.id, "")
compiled_content = compiled_content.replace(
f"@{{{resolved.macro.target}}}", actual_content
)
return compiled_content
# ── LLM Execution Helper ────────────────────────────────────────
def _execute_llm(self, prompt: str, output_file: Path, stage_label: str) -> Optional[str]:
"""Execute *prompt* via the configured LLM adapter and write the result.
Returns the generated content, or ``None`` on failure.
"""
from markitect.prompts.execution.models import RunConfig
print(f" Calling LLM ({stage_label})...")
try:
response = self.llm_adapter.execute_prompt(prompt, RunConfig())
except Exception as exc:
print(f" LLM error: {exc}")
return None
content = response.content
if not content or not content.strip():
print(f" LLM returned empty content")
return None
output_file.parent.mkdir(parents=True, exist_ok=True)
output_file.write_text(content)
print(f" LLM output written to {output_file.name}")
return content
# ── Pipeline Stages ──────────────────────────────────────────────
def stage_extract_entities(self, chapter_id: str, chapter_content: str) -> Optional[str]:
"""Stage 1: Extract economic entities from a chapter."""
print(f" [1/3] Extracting entities...")
# Bind the chapter content to the macro name
self.bind_macro_artifact(self.spaces["sources"], "chapter_text", chapter_content)
macros = [
self._macro("chapter_text"),
self._macro("extraction_rules"),
self._macro("vsm_framework"),
]
prompt = self.resolve_and_compile(
"extract-entities", macros, ["sources", "guidelines", "vsm-reference"]
)
if not prompt:
return None
# Write compiled prompt for inspection / LLM execution
prompt_file = self.example_dir / "output" / "entities" / f"{chapter_id}-prompt.md"
prompt_file.write_text(prompt)
print(f" Prompt written to {prompt_file.relative_to(self.example_dir)}")
# Check for existing output (manual or LLM-generated)
output_file = self.example_dir / "output" / "entities" / f"{chapter_id}-entities.md"
if output_file.exists():
content = output_file.read_text()
self.store_output_artifact(
self.spaces["entities"],
f"{chapter_id}-entities",
content,
ArtifactType.GENERATED,
)
print(f" Found existing output: {output_file.name}")
return content
# Auto-generate via LLM if adapter is available
if self.llm_adapter and prompt:
content = self._execute_llm(prompt, output_file, "entities")
if content:
self.store_output_artifact(
self.spaces["entities"],
f"{chapter_id}-entities",
content,
ArtifactType.GENERATED,
)
return content
print(f" Awaiting output at: {output_file.relative_to(self.example_dir)}")
return None
def stage_map_to_vsm(self, chapter_id: str, entities_content: str) -> Optional[str]:
"""Stage 2: Map extracted entities to VSM concepts."""
print(f" [2/3] Mapping to VSM...")
self.bind_macro_artifact(self.spaces["entities"], "entities", entities_content)
macros = [
self._macro("entities"),
self._macro("vsm_framework"),
self._macro("mapping_rules"),
]
prompt = self.resolve_and_compile(
"map-to-vsm", macros, ["entities", "vsm-reference", "guidelines"]
)
if not prompt:
return None
prompt_file = self.example_dir / "output" / "mappings" / f"{chapter_id}-prompt.md"
prompt_file.write_text(prompt)
print(f" Prompt written to {prompt_file.relative_to(self.example_dir)}")
output_file = self.example_dir / "output" / "mappings" / f"{chapter_id}-mappings.md"
if output_file.exists():
content = output_file.read_text()
self.store_output_artifact(
self.spaces["mappings"],
f"{chapter_id}-mappings",
content,
ArtifactType.GENERATED,
)
print(f" Found existing output: {output_file.name}")
return content
if self.llm_adapter and prompt:
content = self._execute_llm(prompt, output_file, "mappings")
if content:
self.store_output_artifact(
self.spaces["mappings"],
f"{chapter_id}-mappings",
content,
ArtifactType.GENERATED,
)
return content
print(f" Awaiting output at: {output_file.relative_to(self.example_dir)}")
return None
def stage_synthesize_analysis(
self, chapter_id: str, chapter_content: str, entities_content: str, mappings_content: str
) -> Optional[str]:
"""Stage 3: Synthesize chapter-level VSM analysis."""
print(f" [3/3] Synthesizing analysis...")
self.bind_macro_artifact(self.spaces["sources"], "chapter_text", chapter_content)
self.bind_macro_artifact(self.spaces["entities"], "entities", entities_content)
self.bind_macro_artifact(self.spaces["mappings"], "mappings", mappings_content)
macros = [
self._macro("chapter_text"),
self._macro("entities"),
self._macro("mappings"),
self._macro("vsm_framework"),
]
prompt = self.resolve_and_compile(
"synthesize-analysis",
macros,
["sources", "entities", "mappings", "vsm-reference"],
)
if not prompt:
return None
prompt_file = self.example_dir / "output" / "analyses" / f"{chapter_id}-prompt.md"
prompt_file.write_text(prompt)
print(f" Prompt written to {prompt_file.relative_to(self.example_dir)}")
output_file = self.example_dir / "output" / "analyses" / f"{chapter_id}-analysis.md"
if output_file.exists():
content = output_file.read_text()
self.store_output_artifact(
self.spaces["analyses"],
f"{chapter_id}-analysis",
content,
ArtifactType.GENERATED,
)
print(f" Found existing output: {output_file.name}")
return content
if self.llm_adapter and prompt:
content = self._execute_llm(prompt, output_file, "analysis")
if content:
self.store_output_artifact(
self.spaces["analyses"],
f"{chapter_id}-analysis",
content,
ArtifactType.GENERATED,
)
return content
print(f" Awaiting output at: {output_file.relative_to(self.example_dir)}")
return None
# ── Metrics ──────────────────────────────────────────────────────
def assess_metrics(self) -> Optional[str]:
"""Run the assess-metrics template across all completed analyses."""
print("Assessing metrics...")
analyses_dir = self.example_dir / "output" / "analyses"
analysis_files = sorted(analyses_dir.glob("*-analysis.md"))
if not analysis_files:
print(" No completed analyses found. Process chapters first.")
return None
# Concatenate all analyses
all_analyses = []
for f in analysis_files:
all_analyses.append(f"<!-- Source: {f.name} -->\n{f.read_text()}")
combined = "\n\n---\n\n".join(all_analyses)
self.bind_macro_artifact(self.spaces["analyses"], "all_analyses", combined)
macros = [
self._macro("all_analyses"),
self._macro("vsm_framework"),
]
prompt = self.resolve_and_compile(
"assess-metrics", macros, ["analyses", "vsm-reference"]
)
if not prompt:
return None
prompt_file = self.example_dir / "output" / "metrics" / "metrics-prompt.md"
prompt_file.write_text(prompt)
print(f" Prompt written to {prompt_file.relative_to(self.example_dir)}")
output_file = self.example_dir / "output" / "metrics" / "metrics-report.md"
if output_file.exists():
content = output_file.read_text()
self.store_output_artifact(
self.spaces["metrics"],
"metrics-report",
content,
ArtifactType.GENERATED,
)
print(f" Found existing output: {output_file.name}")
return content
if self.llm_adapter and prompt:
content = self._execute_llm(prompt, output_file, "metrics")
if content:
self.store_output_artifact(
self.spaces["metrics"],
"metrics-report",
content,
ArtifactType.GENERATED,
)
return content
print(f" Awaiting output at: {output_file.relative_to(self.example_dir)}")
return None
# ── Chapter Processing ───────────────────────────────────────────
def process_chapter(self, chapter_id: str, auto_commit: bool = True):
"""Run the full pipeline for a single chapter."""
source_file = self.example_dir / "artifacts" / "sources" / f"{chapter_id}.md"
if not source_file.exists():
print(f"ERROR: Source file not found: {source_file}")
return
print(f"Processing: {chapter_id}")
print(f"{'=' * 60}")
chapter_content = source_file.read_text()
# Store source artifact
self.load_or_create_artifact(
self.spaces["sources"], source_file, ArtifactType.CONTENT
)
# Stage 1: Extract entities
entities = self.stage_extract_entities(chapter_id, chapter_content)
if entities is None:
print(f"\n Pipeline paused. Generate entities output and re-run.")
return
# Stage 2: Map to VSM
mappings = self.stage_map_to_vsm(chapter_id, entities)
if mappings is None:
print(f"\n Pipeline paused. Generate mappings output and re-run.")
return
# Stage 3: Synthesize analysis
analysis = self.stage_synthesize_analysis(
chapter_id, chapter_content, entities, mappings
)
if analysis is None:
print(f"\n Pipeline paused. Generate analysis output and re-run.")
return
print(f"\n Chapter {chapter_id} fully processed.")
# Record dependency edges
self._record_chapter_dependencies(chapter_id)
# Git commit
if auto_commit:
self._git_commit_chapter(chapter_id)
def _record_chapter_dependencies(self, chapter_id: str):
"""Record dependency edges for a processed chapter."""
run_id = f"run-{chapter_id}"
manifest = RunManifest.create(
run_id=run_id,
template_id="extract-entities",
template_name="extract-entities",
template_digest="",
)
# Source → Run
source = self.artifact_repo.get_by_name(self.spaces["sources"], chapter_id)
if source:
manifest.add_dependency_edge(source.id, run_id, "requires")
# Run → Outputs
for output_type in ["entities", "mappings", "analyses"]:
space = self.spaces[output_type]
suffix = {"entities": "entities", "mappings": "mappings", "analyses": "analysis"}
name = f"{chapter_id}-{suffix[output_type]}"
artifact = self.artifact_repo.get_by_name(space, name)
if artifact:
manifest.add_dependency_edge(run_id, artifact.id, "generates")
try:
edges = self.graph_builder.persist_edges(manifest)
print(f" Recorded {len(edges)} dependency edges.")
except Exception as e:
print(f" Warning: Could not record dependencies: {e}")
def _git_commit_chapter(self, chapter_id: str):
"""Commit chapter outputs to git."""
output_dir = self.example_dir / "output"
try:
subprocess.run(
["git", "add", str(output_dir)],
cwd=str(self.example_dir),
check=True,
capture_output=True,
)
subprocess.run(
["git", "commit", "-m", f"infospace: process {chapter_id}\n\n"
f"Extract entities, map to VSM, and synthesize analysis\n"
f"for {chapter_id}."],
cwd=str(project_root),
check=True,
capture_output=True,
)
print(f" Git commit: infospace: process {chapter_id}")
except subprocess.CalledProcessError as e:
print(f" Warning: Git commit skipped ({e})")
# ── Listing ──────────────────────────────────────────────────────
def list_chapters(self):
"""List all available chapters and their processing status."""
sources_dir = self.example_dir / "artifacts" / "sources"
chapters = sorted(f.stem for f in sources_dir.glob("*.md"))
print(f"Available chapters ({len(chapters)}):\n")
print(f" {'Chapter':<30} {'Entities':<12} {'Mappings':<12} {'Analysis':<12}")
print(f" {'-'*30} {'-'*12} {'-'*12} {'-'*12}")
for ch in chapters:
entities = "done" if (self.example_dir / "output" / "entities" / f"{ch}-entities.md").exists() else "-"
mappings = "done" if (self.example_dir / "output" / "mappings" / f"{ch}-mappings.md").exists() else "-"
analysis = "done" if (self.example_dir / "output" / "analyses" / f"{ch}-analysis.md").exists() else "-"
print(f" {ch:<30} {entities:<12} {mappings:<12} {analysis:<12}")
# ── Statistics ───────────────────────────────────────────────────
def show_stats(self):
"""Show dependency graph statistics."""
print("\nDependency Statistics:")
try:
stats = self.query_service.get_dependency_stats()
print(f" Nodes: {stats['total_nodes']}")
print(f" Edges: {stats['total_edges']}")
print(f" Root artifacts: {stats['root_count']}")
print(f" Leaf artifacts: {stats['leaf_count']}")
print(f" Has cycles: {stats['has_cycles']}")
except Exception as e:
print(f" (No data yet: {e})")
def main():
parser = argparse.ArgumentParser(
description="Process Wealth of Nations chapters through VSM analysis pipeline"
)
group = parser.add_mutually_exclusive_group(required=True)
group.add_argument("--chapter", type=str, help="Process a single chapter (e.g., book-1-chapter-01)")
group.add_argument("--book", type=int, help="Process all chapters in a book (1-5)")
group.add_argument("--all", action="store_true", help="Process all chapters")
group.add_argument("--metrics", action="store_true", help="Assess metrics only")
group.add_argument("--list", action="store_true", help="List available chapters")
group.add_argument("--stats", action="store_true", help="Show dependency statistics")
parser.add_argument("--no-commit", action="store_true", help="Skip git commits")
parser.add_argument(
"--provider",
type=str,
choices=["openrouter", "claude-code"],
default=None,
help="LLM provider for auto-generating outputs (omit for manual mode)",
)
parser.add_argument("--model", type=str, default=None, help="Model name to pass to the LLM provider")
args = parser.parse_args()
# Build optional LLM adapter
llm_adapter = None
if args.provider:
from markitect.llm import create_adapter
llm_adapter = create_adapter(args.provider, model=args.model)
print(f"LLM: {args.provider}" + (f" ({args.model})" if args.model else ""))
example_dir = Path(__file__).parent
processor = ChapterProcessor(example_dir, llm_adapter=llm_adapter)
processor.setup()
if args.list:
processor.list_chapters()
elif args.stats:
processor.show_stats()
elif args.metrics:
processor.assess_metrics()
elif args.chapter:
processor.process_chapter(args.chapter, auto_commit=not args.no_commit)
elif args.book:
sources_dir = example_dir / "artifacts" / "sources"
chapters = sorted(
f.stem for f in sources_dir.glob(f"book-{args.book}-chapter-*.md")
)
if not chapters:
print(f"No chapters found for Book {args.book}")
return
print(f"Processing {len(chapters)} chapters from Book {args.book}\n")
for ch in chapters:
processor.process_chapter(ch, auto_commit=not args.no_commit)
print()
elif args.all:
sources_dir = example_dir / "artifacts" / "sources"
chapters = sorted(f.stem for f in sources_dir.glob("*.md"))
print(f"Processing all {len(chapters)} chapters\n")
for ch in chapters:
processor.process_chapter(ch, auto_commit=not args.no_commit)
print()
processor.show_stats()
if __name__ == "__main__":
main()

48
examples/infospace-with-history/schemas/chapter-analysis-schema-v1.0.md Normal file
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@ -0,0 +1,48 @@
# Chapter Analysis Schema v1.0
Schema definition for per-chapter VSM analysis documents.
## Required Sections
### Chapter Summary
A concise summary of the chapter's main economic arguments and themes (50-300 words).
### Entities Extracted
A bulleted list of all economic entities extracted from this chapter.
Each entry should include the entity name and a brief description.
Must list at least one entity.
### VSM Mappings
A bulleted list of all entity-to-VSM mappings derived from this chapter.
Each entry should include the entity name, the VSM concept, and the mapping strength.
### VSM Coverage
Assessment of which VSM systems are represented by the mappings from this chapter:
- System 1 (Operations): covered/not covered
- System 2 (Coordination): covered/not covered
- System 3 (Control): covered/not covered
- System 3* (Audit): covered/not covered
- System 4 (Intelligence): covered/not covered
- System 5 (Policy): covered/not covered
Must assess coverage for all six system levels.
### Gaps & Observations
Identification of:
- VSM systems not yet covered by entities from this chapter
- Entities that were difficult to map
- Notable patterns or themes in the mappings
- Suggestions for further analysis
## Optional Sections
### Cross-chapter References
References to entities or themes in other chapters that relate to
findings in this chapter. Useful for building cross-chapter coherence.
## Validation Rules
1. The document MUST contain an H1 heading with the chapter analysis title.
2. The document MUST contain all five required sections.
3. The Entities Extracted section MUST list at least one entity.
4. The VSM Coverage section MUST assess all six VSM system levels.

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# Economic Entity Schema v1.0
Schema definition for economic entities extracted from source texts.
## Required Sections
### Definition
A clear, analytical definition of the economic entity (20-150 words).
### Source Chapter
The specific chapter from which this entity was extracted,
including book and chapter number.
### Context
The broader context in which this entity appears within the source text.
Describe the argument or passage where the entity is discussed.
### Economic Domain
The area of economics this entity belongs to (e.g., labour economics,
trade theory, market theory, institutional economics).
## Optional Sections
### Smith's Original Wording
A direct quotation from Adam Smith's text that defines or describes
this entity. Must be enclosed in quotation marks with chapter reference.
### Modern Interpretation
How this entity is understood in modern economic theory, including
any evolution in meaning since Smith's time.
## Validation Rules
1. The document MUST contain an H1 heading with the entity name.
2. The document MUST contain all four required sections: Definition, Source Chapter, Context, Economic Domain.
3. The Definition section MUST be between 20 and 150 words.
4. The Source Chapter section MUST cite a specific chapter (e.g., "Book I, Chapter 1").

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# VSM Concept Schema v1.0
Schema definition for Viable System Model concept documents.
## Required Sections
### Definition
A clear, concise definition of the VSM concept (20-200 words).
### System Classification
Which VSM system(s) this concept belongs to. Must reference at least one of:
- System 1 (Operations)
- System 2 (Coordination)
- System 3 (Control)
- System 3* (Audit)
- System 4 (Intelligence)
- System 5 (Policy)
### Key Properties
Bulleted list of essential properties or characteristics of this concept.
### Relationships
How this concept relates to other VSM concepts. List related concepts
and the nature of the relationship (e.g., "regulates", "enables", "constrains").
## Optional Sections
### Examples
Concrete examples illustrating the concept in organisational contexts.
### Beer's Original Formulation
Direct reference to how Stafford Beer originally described or defined
this concept, with citation to the relevant work.
## Validation Rules
1. The document MUST contain an H1 heading with the concept name.
2. The document MUST contain all four required sections: Definition, System Classification, Key Properties, Relationships.
3. The Definition section MUST be between 20 and 200 words.
4. The System Classification section MUST reference at least one VSM system (S1-S5 or S3*).

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# VSM Mapping Schema v1.0
Schema definition for entity-to-VSM concept mapping documents.
## Required Sections
### Economic Entity Reference
The name and identifier of the economic entity being mapped.
Must correspond to an existing entity in the entities collection.
### VSM Concept Reference
The name and identifier of the VSM concept being mapped to.
Must correspond to an existing concept in the concepts collection.
### Mapping Rationale
A detailed explanation of why this economic entity maps to this VSM concept.
Should reference specific properties of both the entity and the concept
that justify the mapping (minimum 30 words).
### Mapping Strength
One of:
- **Strong**: Direct structural or functional correspondence
- **Moderate**: Clear conceptual parallel with some differences
- **Weak**: Loose analogy or partial overlap
## Optional Sections
### Counter-arguments
Reasons why this mapping might be contested or why the entity
might not fit the VSM concept perfectly.
### Alternative Mappings
Other VSM concepts this entity could plausibly map to,
with brief rationale for each alternative.
## Validation Rules
1. The document MUST contain an H1 heading in the format "Entity Name -> VSM Concept Name".
2. The document MUST contain all four required sections: Economic Entity Reference, VSM Concept Reference, Mapping Rationale, Mapping Strength.
3. The Mapping Strength MUST be one of: Strong, Moderate, Weak.
4. The document MUST reference both an economic entity and a VSM concept.

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# Assess Completeness & Consistency Metrics
You are a quality assurance analyst evaluating the completeness and
consistency of a growing information space that maps classical economics
to the Viable System Model.
## All Chapter Analyses
@{all_analyses}
## VSM Framework Reference
@{vsm_framework}
## Instructions
1. Review all chapter analyses produced so far.
2. Compute the following completeness metrics:
- **VSM Concept Coverage**: Percentage of VSM concepts (S1, S2, S3, S3*, S4, S5,
plus key concepts like recursion, variety, requisite variety, autonomy,
viability, attenuation/amplification, algedonic signals) that have at
least one mapping. List covered and uncovered concepts.
- **Chapter Coverage**: Percentage of source chapters processed.
- **Entity Count**: Total number of distinct economic entities extracted.
- **Mapping Count**: Total number of entity-to-VSM mappings created.
3. Compute the following consistency metrics:
- **Terminology Consistency** (score 0.0-1.0): Whether the same economic
concept is named consistently across all documents. Flag inconsistencies.
- **Cross-reference Integrity** (score 0.0-1.0): Whether all entity references
in mappings point to existing entities. Flag broken references.
- **Schema Compliance** (percentage): Percentage of output documents that
contain all required sections per their respective schemas.
4. Produce a metrics report summarizing the current state of the information space.
## Output Format
Output a single markdown document with sections for each metric category:
Completeness Metrics, Consistency Metrics, and Recommendations.

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# Extract Economic Entities
You are an analytical economist specializing in classical economic theory.
Your task is to extract distinct economic entities from a chapter of
Adam Smith's *The Wealth of Nations*.
## Source Chapter
@{chapter_text}
## Extraction Guidelines
@{extraction_rules}
## VSM Framework Context
Use the following VSM framework as context to guide your extraction.
Prioritize entities that are likely to have clear mappings to VSM concepts,
but do not exclude entities simply because they lack an obvious mapping.
@{vsm_framework}
## Instructions
1. Read the source chapter carefully.
2. Identify all distinct economic concepts, actors, mechanisms, and institutions.
3. For each entity, produce a separate markdown document following the
Economic Entity Schema v1.0.
4. Each entity document must include:
- An H1 heading with the entity name
- A Definition section (20-150 words)
- A Source Chapter section citing the specific chapter
- A Context section describing where in the argument the entity appears
- An Economic Domain section classifying the entity
5. Optionally include Smith's Original Wording (direct quote) and
Modern Interpretation sections.
6. Use neutral, analytical language throughout.
7. Ensure each entity is distinct and self-contained.
## Output Format
Output each entity as a separate markdown document, delimited by
`--- ENTITY: <entity-name> ---` markers.

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# Map Economic Entities to VSM Concepts
You are a systems theorist specializing in Stafford Beer's Viable System Model.
Your task is to map extracted economic entities to VSM concepts.
## Extracted Entities
@{entities}
## VSM Framework Reference
@{vsm_framework}
## Mapping Guidelines
@{mapping_rules}
## Instructions
1. Review each extracted economic entity carefully.
2. For each entity, determine which VSM system(s) it most closely relates to.
3. Produce a mapping document for each entity-VSM relationship following
the VSM Mapping Schema v1.0.
4. Each mapping document must include:
- An H1 heading in the format "Entity Name -> VSM Concept Name"
- An Economic Entity Reference section
- A VSM Concept Reference section
- A Mapping Rationale section (minimum 30 words) grounded in Beer's definitions
- A Mapping Strength section rated as Strong, Moderate, or Weak
5. Where an entity maps to multiple VSM systems (recursion), create
separate mapping documents for each relationship.
6. Flag entities that don't clearly map to any VSM concept with a
"Mapping Strength: Weak" and note the difficulty in the rationale.
## Output Format
Output each mapping as a separate markdown document, delimited by
`--- MAPPING: <entity-name>-to-<vsm-concept> ---` markers.

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# Synthesize Chapter VSM Analysis
You are an interdisciplinary analyst combining classical economics with
cybernetic systems theory. Your task is to produce a comprehensive
chapter-level analysis showing how economic content maps to the
Viable System Model.
## Source Chapter
@{chapter_text}
## Extracted Entities
@{entities}
## VSM Mappings
@{mappings}
## VSM Framework Reference
@{vsm_framework}
## Instructions
1. Review the source chapter, extracted entities, and VSM mappings together.
2. Produce a single chapter analysis document following the
Chapter Analysis Schema v1.0.
3. The analysis must include:
- An H1 heading with the chapter analysis title
- A Chapter Summary (50-300 words) of the main economic arguments
- An Entities Extracted section listing all entities with brief descriptions
- A VSM Mappings section listing all mappings with entity, concept, and strength
- A VSM Coverage section assessing which systems (S1-S5, S3*) are represented
- A Gaps & Observations section identifying uncovered systems and patterns
4. In the VSM Coverage section, explicitly state which systems are
covered and which are not, based on the mappings.
5. In Gaps & Observations, note:
- Which VSM systems lack representation from this chapter
- Entities that were difficult to map
- Emerging themes or patterns
- Suggestions for enriching coverage in future analysis
## Output Format
Output a single markdown document following the Chapter Analysis Schema v1.0.