necessarily degraded below the value of gold and silver money.
During the continuance of this abuse (which prevailed chiefly in
1762, 1763, and 1764), while the exchange between London and
Carlisle was at par, that between London and Dumfries would
sometimes be four per cent against Dumfries, though this town is
not thirty miles distant from Carlisle. But at Carlisle, bills
were paid in gold and silver; whereas at Dumfries they were paid
in Scotch bank notes, and the uncertainty of getting those bank
notes exchanged for gold and silver coin had thus degraded them
four per cent below the value of that coin. The same Act of
Parliament which suppressed ten and five shilling bank notes
suppressed likewise this optional clause, and thereby restored
the exchange between England and Scotland to its natural rate, or
to what the course of trade and remittances might happen to make
it.
In the paper currencies of Yorkshire, the payment of so
small a sum as a sixpence sometimes depended upon the condition
that the holder of the note should bring the change of a guinea
to the person who issued it; a condition which the holders of
such notes might frequently find it very difficult to fulfil, and
which must have degraded this currency below the value of gold
and silver money. An Act of Parliament accordingly declared all
such clauses unlawful, and suppressed, in the same manner as in
Scotland, all promissory notes, payable to the bearer, under
twenty shillings value.
The paper currencies of North America consisted, not in bank
notes payable to the bearer on demand, but in government paper,
of which the payment was not exigible till several years after it
was issued; and though the colony governments paid no interest to
the holders of this paper, they declared it to be, and in fact
rendered it, a legal tender of payment for the full value for
which it was issued. But allowing the colony security to be
perfectly good, a hundred pounds payable fifteen years hence, for
example, in a country where interest at six per cent, is worth
little more than forty pounds ready money. To oblige a creditor,
therefore, to accept of this as full payment for a debt of a
hundred pounds actually paid down in ready money was an act of
such violent injustice as has scarce, perhaps, been attempted by
the government of any other country which pretended to be free.
It bears the evident marks of having originally been, what the
honest and downright Doctor Douglas assures us it was, a scheme
of fraudulent debtors to cheat their creditors. The government of
Pennsylvania, indeed, pretended, upon their first emission of
paper money, in 1722, to render their paper of equal value with
gold and silver by enacting penalties against all those who made
any difference in the price of their goods when they sold them
for a colony paper, and when they sold them for gold and silver;
a regulation equally tyrannical, but much less effectual than
that which it was meant to support. A positive law may render a
shilling a legal tender for guinea, because it may direct the
courts of justice to discharge the debtor who has made that
tender. But no positive law can oblige a person who sells goods,
and who is at liberty to sell or not to sell as he pleases, to
accept of a shilling as equivalent to a guinea in the price of
them. Notwithstanding any regulation of this kind, it appeared by
the course of exchange with Great Britain, that a hundred pounds
sterling was occasionally considered as equivalent, in some of
the colonies, to a hundred and thirty pounds, and in others to so
great a sum as eleven hundred pounds currency; this difference in
the value arising from the difference in the quantity of paper
emitted in the different colonies, and in the distance and
probability of the term of its final discharge and redemption.
No law, therefore, could be more equitable than the Act of
Parliament, so unjustly complained of in the colonies, which
declared that no paper currency to be emitted there in time
coming should be a legal tender of payment.
Pennsylvania was always more moderate in its emissions of
paper money than any other of our colonies. Its paper currency,
accordingly, is said never to have sunk below the value of the
gold and silver which was current in the colony before the first
emission of its paper money. Before that emission, the colony had
raised the denomination of its coin, and had, by act of assembly,
ordered five shillings sterling to pass in the colony for six and
threepence, and afterwards for six and eightpence. A pound colony
currency, therefore, even when that currency was gold and silver,
was more than thirty per cent below the value of a pound
sterling, and when that currency was turned into paper it was
seldom much more than thirty per cent below that value. The
pretence for raising the denomination of the coin, was to prevent
the exportation of gold and silver, by making equal quantities of
those metals pass for greater sums in the colony than they did in
the mother country. It was found, however, that the price of all
goods from the mother country rose exactly in proportion as they
raised the denomination of their coin, so that their gold and
silver were exported as fast as ever.
The paper of each colony being received in the payment of
the provincial taxes, for the full value for which it had been
issued, it necessarily derived from this use some additional
value over and above what it would have had from the real or
supposed distance of the term of its final discharge and
redemption. This additional value was greater or less, according
as the quantity of paper issued was more or less above what could
be employed in the payment of the taxes of the particular colony
which issued it. It was in all the colonies very much above what
could be employed in this manner.
A prince who should enact that a certain proportion of his
taxes should be paid in a paper money of a certain kind might
thereby give a certain value to this paper money, even though the
term of its final discharge and redemption should depend
altogether upon the will of the prince. If the bank which issued
this paper was careful to keep the quantity of it always somewhat
below what could easily be employed in this manner, the demand
for it might be such as to make it even bear a premium, or sell
for somewhat more in the market than the quantity of gold or
silver currency for which it was issued. Some people account in
this manner for what is called the Agio of the bank of Amsterdam,
or for the superiority of bank money over current money; though
this bank money, as they pretend, cannot be taken out of the bank
at the will of the owner. The greater part of foreign bills of
exchange must be paid in bank money, that is, by a transfer in
the books of the bank; and the directors of the bank, they
allege, are careful to keep the whole quantity of bank money
always below what this use occasions a demand for. It is upon
this account, they say, that bank money sells for a premium, or
bears an agio of four or five per cent above the same nominal sum
of the gold and silver currency of the country. This account of
the bank of Amsterdam, however, it will appear hereafter, is in a
great measure chimerical.
A paper currency which falls below the value of gold and
silver coin does not thereby sink the value of those metals, or
occasion equal quantities of them to exchange for a smaller
quantity of goods of any other kind. The proportion between the
value of gold and silver and that of goods of any other kind
depends in all cases not upon the nature or quantity of any
particular paper money, which may be current in any particular
country, but upon the richness or poverty of the mines, which
happen at any particular time to supply the great market of the
commercial world with those metals. It depends upon the
proportion between the quantity of labour which is necessary in
order to bring a certain quantity of gold and silver to market,
and that which is necessary in order to bring thither a certain
quantity of any other sort of goods.
If bankers are restrained from issuing any circulating bank
notes, or notes payable to the bearer, for less than a certain
sum, and if they are subjected to the obligation of an immediate
and unconditional payment of such bank notes as soon as
presented, their trade may, with safety to the public, be
rendered in all other respects perfectly free. The late
multiplication of banking companies in both parts of the United
Kingdom, an event by which many people have been much alarmed,
instead of diminishing, increases the security of the public. It
obliges all of them to be more circumspect in their conduct, and,
by not extending their currency beyond its due proportion to
their cash, to guard themselves against those malicious runs
which the rivalship of so many competitors is always ready to
bring upon them. It restrains the circulation of each particular
company within a narrower circle, and reduces their circulating
notes to a smaller number. By dividing the whole circulation into
a greater number of parts, the failure of any one company, an
accident which, in the course of things, must sometimes happen,
becomes of less consequence to the public. This free competition,
too, obliges all bankers to be more liberal in their dealings
with their customers, lest their rivals should carry them away.
In general, if any branch of trade, or any division of labour, be
advantageous to the public, the freer and more general the
competition, it will always be the more so.
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. 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 of 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 or 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 n oblest and most useful, 50 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
