of trade, which he wants. He sells, therefore, CHAP II. MONEY, CONSIDERED AS A PARTICULAN BRANCH OF THE GENERAL STOCK OF THE SOCIETY, OR OF THE EXPENSE OF MAINTAINING THE NATIONAL CAPITAL. IT has been shown in the First Book, that the The produce of land, mines, and fisheries, price of the greater part of commodities rewhen their natural fertility is equal, is in pro-solves itself into three parts, of which one pays portion to the extent and proper application of the wages of the labour, another the profits of the capitals employed about them. When the the stock, and a third the rent of the land capitals are equal, and equally well applied, it is in proportion to their natural fertility. which had been employed in producing and bringing them to market: that there are, indeed, some commodities of which the price is made up of two of those parts only, the wages of labour, and the profits of stock; and a very few in which it consists altogether in one, the wages of labour; but that the price of every commodity necessarily resolves itself into some one or other, or all, of those three parts; every part of it which goes neither to rent nor to wages, being necessarily profit to somebody. 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. Since this is the case, it has been observed, A man must be perfectly crazy, who, where with regard to every particular commodity, 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 Come one or other of those three ways. taken separately, it must be so with regard to all the commodities which compose the whole annual produce of the land and labour of every country, taken complexly. The whole In those unfortunate countries, indeed, price or excl.angeable value of that annual where men are continually afraid of the vio- produce must resolve itself into the same three lence of their superiors, they frequently bury parts, and be parcelled out among the diffeor conceal a great part of their stock, in or-rent inhabitants of the country, either as the der to have it always at hand to carry with wages of their labour, the profits of their them to some place of safety, in case of their stock, or the rent of their land. 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 these times, considered as no contemptible part of the re- The gross rent of a private estate comprevenue of the greatest sovereigns in Europe. hends whatever is paid by the farmer; the It consisted in such treasure as was found neat rent, what remains free to the landconcealed in the earth, and to which no parti- lord, after deducting the expense of managecular person could prove any right. This was ment, of repairs, and all other necessary regarded, in those times, as so important an charges; or what, without hurting his estate, object, that it was always considered as belong- he can afford to place in his stock reserved for ing to the sovereign, and neither to the immediate consumption, or to spend upon his finder nor to the proprietor of the land, unless table, equipage, the ornaments of his house the right to it had been conveyed to the latter and furniture, his private enjoyments and by an express clause in his charter. It was amusements. His real wealth is in proporput upon the same footing with gold and sil- tion, not to his gross, but to his neat rent. ver mines, which, without a special clause in The gross revenue of all the inhabitants 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. But though the whole value of the annual produce of the land and labour of every country, is thus divided among, and constitutes a revenue to, its different inhabitants; yet, as in the rent of a private estate, we distinguish between the gross rent and the neat rent, so may we likewise in the revenue of all the inhabitants of a great country. Note 15. of a great country comprehends the whole annual produce of their land and labour; the neat revenue, what remains free to them, after deducting the expense of maintaining, first, their fixed, and, secondly, their circulating capital, or what, without encroaching up on their capital, they can place in their stock re- | who employs a thousand a-year in the main- The expense of maintaining the fixed capital in a great country, may very properly be compared to that of repairs in a private estate. The expense of repairs may frequently be necessary for supporting the produce of the estate, and consequently both the gross and the neat rent of the landlord. When by a more proper direction, however, it can be diminished without occasioning any diminution of produce, the gross rent remains at least the same as before, and the neat rent is necessarily augmented. ther in the fixed capital of the society, or in The intention of the fixed capital is to in- But though the whole expense of maintaincrease the productive powers of labour, or to ing the fixed capital is thus necessarily exenable the same number of labourers to per- cluded from the neat revenue of the society, it form a much greater quantity of work. In a is not the same case with that of maintaining farm where all the necessary buildings, fences, the circulating capital. Of the four parts of drains, communications, &c. are in the most which this latter capital is composed, money, perfect good order, the same number of la-provisions, matertals, and finished work, the bourers and labouring cattle will raise a much three last, it has already been observed, are greater produce, than in one of equal extent regularly withdrawn from it, and placed eiand equally good ground, but not farnished with equal conveniencies. In manufactures, the same number of hands, assisted with the best machinery, will work up a much greater quantity of goods than with more imperfect instruments of trade. The expense which is properly laid out upon a fixed capital of any kind, is always repaid with great profit, and Increases the annual produce by a much greater value than that of the support which such improvements require. This support, however, still requires a certain portion of that produce. The circulating capital of a society is in this A certain quantity of materials, and the la- respect different from that of an individual. bour of a certain number of workmen, both That of an individual is totally excluded from of which might have been immediately em- making any part of his neat revenue, which ployed to augment the food, clothing, and must consist altogether in his profits. But lodging, the subsistence and conveniencies of though the circulating capital of every indivi the society, are thus diverted to another em- dual makes a part of that of the society to ployment, highly advantageous indeed, but still which he belongs, it is not upon that account different from this one. It is upon this ac- totally excluded from making a part likewise count that all such improvements in mechan- of their neat revenue. Though the whole ics, as enable the same number of workmen to goods in a merchant's shop must by no means perform an equal quantity of work with be placed in his own stock reserved for immecheaper and simpler machinery than had been diate consumption, they may in that of other usual before, are always regarded as advanta- people, who, from a revenue derived fro geous to every society. A certain quantity of other funds, may regularly replace their vamaterials, and the labour of a certain number lue to him, together with its profits, without of workmen, which had before been employed occasioning any diminution either of his capiin supporting a more complex and expensive tal or of theirs. machinery, can afterwards be applied to augment the quantity of work which that or any other machinery is useful only for performing. The undertaker of some great manufactory, Money, therefore, is the only part of the cir culating capital of a society, of which the maintenance can occasion any diminution in their neat revenue which he can annually purchase or consume, we mean commonly to assertain what is or ought to be his way of living, or the quantity and quality of the necessaries and conveniencies of life in which he can with propriety indulge himself. The fixed capital, and that part of the cirulating capital which consists in money, so far as they affect the revenue of the society, bear a very great resemblance to one another. First, as those machines and instruments of trade, &c. require a certain expense, first to ercct them, and afterwards to support them, When, by any particular sum of money, both which expenses, though they make a we mean not only to express the amount of part of the gross, are deductions from the neat the metal pieces of which it is composed, but revenue of the society; so the stock of money to include in its signification some obscure rewhich circulates in any country must require ference to the goods which can be had in exa certain expense, first to collect it, and after- change for them, the wealth or revenue which wards to support it; both which expenses, it in this case denotes, is equal only to one of though they make a part of the gross, are, in the two values which are thus intimated somethe same manner, deductions from the neat what ambiguously by the same word, and to the revenue of the society. A certain quantity of latter more properly than to the former, to the very valuable materials, gold and silver, and money's worth more properly than to the money. of very curious labour, instead of augmenting Thus, if guinea be the weekly pension of the stock reserved for immediate consumption, a particular person, he can in the course of the subsistence, conveniencies, and amusements the week purchase with it a certain quantity of of individuals, is employed in supporting that great but expensive instrument of commerce, by means of which every individual in the society has his subsistence, conveniencies, and amusements, regularly distributed to him in their proper proportions. subsistence, conveniencies, and amusements. In proportion as this quantity is great or small, so are his real riches, his real weekly revenue. His weekly revenue is certainly not equal both to the guinea and to what can be purchased with it, but only to one or other of those two equal values, and to the latter more properly than to the former, to the guinea's worth rather than to the guinea. Secondly, as the machines and instruments of trade, &c. which compose the fixed capital either of an individual or of a society, make no part either of the gross or of the neat re- If the pension of such a person was paid venue of either; so money, by means of which to him, not in gold, but in a weekly bill for a the whole revenue of the society is regularly guinea, his revenue surely would not so prodistributed among all its different members, perly consist in the piece of paper, as in makes itself no part of that revenue. The what he could get for it. A guinea may be great wheel of circulation is altogether diffe- considered as a bill for a certain quantity of rent from the goods which are circulated by necessaries and conveniencies upon all the means of it. The revenue of the society con- tradesmen in the neighbourhood sists altogether in those goods, and not in the nue of the person to whom it is paid, does not wheel which circulates them. In computing ei- so properly consist in the piece of gold, as in ther the gross or the neat revenue of any socie- what he can get for it, or in what he can exty, we must always, from the whole annual cir- change it for. If it could be exchanged for culation of money and goods, deduct the whole nothing, it would, like a bill upon a bankrupt, value of the money, of which not a single be of no more value than the most useless farthing can ever make any part of either. piece of paper. It is the ambiguity of language only which can make this proposition appear either doubtful or paradoxical. When properly explained and understood, it is almost self-evident. The reve Though the weekly or yearly revenue of all the different inhabitants of any country, in the same manner, may be, and in reality frequently is, paid to them in money, their real riches, When we talk of any particular sum of however, the real weekly or yearly revenue of money, we sometimes mean nothing but the all of them taken together, must always be metal pieces of which it is composed, and great or small, in proportion to the quantity sometimes we include in our meaning some of consumable goods which they can all of obscure reference to the goods which can be had in exchange for it, or to the power of purchasing which the possession of it conveys. Thus, when we say that the circulating money of England has been computed at eighteen millions, we mean only to express the amount of the metal pieces, which some writers have Though we frequently, therefore, express a computed, or rather have supposed, to circu- person's revenue by the metal pieces which are late in that country. But when we say that annually paid to him, it is because the amount man is worth fifty or a hundred pounds a-year, of those pieces regulates the extent of his we mean commonly to express, not only the power of purchasing, or the value of the goods amount of the metal pieces which are annual- which he can annually afford to consume ly paid to him, but the value of the goods We still consider bis revenue as consisting in a them purchase with this money. The whole revenue of all of them taken together is evidently not equal to both the money and the consumable goods, but only to one or other of those two values, and to the latter more properly than to the former. this power of purchasing or consuming, and not in the pieces which convey it. But if this is sufficiently evident, even with regard to an individual, it is still more so with regard to a society. The amount of the meal pieces which are annually paid to an individual, is often precisely equal to his revenue, and is upon that account the shortest and best expression of its value. But the amount of the metal pieces which circulate in a society, can never be equal to the revenue of all its members. As the same guinea which pays the weekly pension of one man to-day, may pay that of another to-morrow, and that of a third the day thereafter, the amount of the metal pieces which annually circulate in any country, must always be of much less value than the whole money pensions annually paid with them. But the power of purchasing, or the goods which can successively be bought with the whole of those money pensions, as they are successively paid, must always be precisely of the same value with those pensions; as must likewise be the revenue of the different persons to whom they are paid. That revenue, therefore, cannot consist in those metal pieces, of which the amount is so much inferior to its value, but in the power of purchasing, in the goods which can successively be bought with them as they circulate from hand to hand. Money, therefore, the great wheel of circulation, the great instrument of commerce, like all other instruments of trade, though it makes a part, and a very valuable part, of the capital, makes no part of the revenue of the society to which it belongs; and though the metal pieces of which it is composed, in the course of their annual circulation, distribute to every man the revenue which properly belongs to him, they make themselves no part of that revenue. culating capital which furnishes the materials The substitution of paper in the room of There are several different sorts of paper money; but the circulating notes of banks and bankers are the species which is best known, and which seems best adapted for this purpose. When the people of any particular country have such confidence in the fortune, probity, and prudence of a particular banker, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him, those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them. A particular banker lends among his castomers his own promissory notes, to the extent, we shall suppose, of a hundred thousand pounds. As those notes serve all the purposes of money, his debtors pay him the same interest as if he had lent them so much money. This interest is the source of his gain. Though Thirdly, and lastly, the machines and in- some of those notes are continually coming struments of trade, &c. which compose the back upon him for payment, part of them fixed capital, bear this further resemblance to continue to circulate for months and years tothat part of the circulating capital which con- gether. Though he has generally in circulasists in money; that as every saving in the tion, therefore, notes to the extent of a hun. expense of erecting and supporting those ma- dred thousand pounds, twenty thousand pounds chines, which does not diminish the introduc-in gold and silver may, frequently, be a suffitive powers of labour, is an improvement of cient provision for answering occasional dethe neat revenue of the society; so every sav-mands. By this operation, therefore, twenty ing in the expense of collecting and support- thousand pounds in gold and silver perform ing that part of the circulating capital which consists in money is an improvement of exactly the same kind. It is sufficiently obvious, and it has partly, too, been explained already, in what manner every saving in the expense of supporting the fixed capital is an improvement of the neat revenue of the society. The whole capital of the undertaker of every work is necessarily divided between his fixed and his circulating capital. While his whole capital remains the same, the smaller the one part, the greater must necessarily be the other. It is the cir all the functions which a hundred thousand ers, the whole circulation may thus be con-one foreign country, in order to supply the ducted with a fifth part only of the gold and consumption of another, or in what is called silver which would otherwise have been requi- the carrying trade, whatever profit they make will be in addition to the neat revenue of their site. Let us suppose, for example, that the whole own country. It is like a new fund, created circulating money of some particular country for carrying on a new trade; domestic busiamounted, at a particular time, to one million ness being now transacted by paper, and the sterling, that sum being then sufficient for gold and silver being converted into a fund circulating the whole annual produce of their for this new trade. land and labour; let us suppose, too, that If they employ it in purchasing foreign some time thereafter, different banks and goods for home consumption, they may either, hankers issued promissory notes payable to first, purchase such goods as are likely to be the bearer, to the extent of one million, re- consumed by idle people, who produce noserving in their different coffers two hundred thing, such as foreign wines, foreign silks, thousand pounds for answering occasional de- &c.; or, secondly, they may purchase an adinands; there would remain, therefore, in cir. ditional stock of materials, tools, and proviculation, eight hundred thousand pounds in sions, in order to maintain and employ an adgold and silver, and a million of bank notes, ditional number of industrious people, who or eighteen hundred thousand pounds of pa- reproduce, with a profit, the value of their per and money together. But the annual pro-annual consumption. duce of the land and labour of the country So far as it is employed in the first way, is had before required only one million to circulate and distribute it to its proper consumers, and that annual produce cannot be immediately augmented by those operations of banking. One million, therefore, will be sufficient to circulate it after them. The goods So far as it is employed in the second way, to be bought and sold being precisely the same it promotes industry; and though it increases as before, the same quantity of money will be the consumption of the society, it provides a sufficient for buying and selling them. The permanent fund for supporting that consumpchannel of circulation, if I may be allowed tion; the people who consume reproducing, such an expression, will remain precisely the with a profit, the whole value of their annual same as before. One million we have sup-consumption. The gross revenue of the soposed sufficient to fill that channel. What-ciety, the annual produce of their land and ever, therefore, is poured into it beyond this labour, is increased by the whole value which sum, cannot run into it, but must overflow. the labour of those workmen adds to the maOne million eight hundred thousand pounds terials upon which they are employed, and are poured into it. Eight hundred thousand their neat revenue by what remains of this vapounds, therefore, must overflow, that sum lue, after deducting what is necessary for being over and above what can be employed supporting the tools and instruments of their in the circulation of the country. But though this sum cannot be employed at home, it is That the greater part of the gold and silver too valuable to be allowed to lie idle. It will, which being forced abroad by those operatherefore, be sent abroad, in order to seek that tions of banking, is employed in purchasing profitable employment which it cannot find at foreign goods for home consumption, is, and home. But the paper cannot go abroad; be- must be, employed in purchasing those of this cause at a distance from the banks which issue second kind, seems not only probable, but alit, and from the country in which payment of most unavoidable. Though some particu promotes prodigality, increases expense and consumption, without increasing production, or establishing any permanent fund for supporting that expense, and is in every respect hurtful to the society. trade. But the it can be exacted by law, it will not be re-lar men may sometimes increase their expense ceived in common payments. Gold and sil- very considerably, though their revenue docs ver, therefore, to the amount of eight hun- not increase at all, we may be assured that dred thousand pounds, will be sent abroad, no class or order of men ever does so; beand the channel of home circulation will re-cause, though the principles of common prumain filled with a million of paper instead of dence do not always govern the conduct of a million of those metals which filled it be- every individual, they always influence that of fore. the majority of every class or order. But though so great a quantity of gold and revenue of idle people, considered as a class silver is thus sent abroad, we must not ima- or order, cannot, in the smallest degree, be gine that it is sent abroad for nothing, or that increased by those operations of banking. its proprietors make a present of it to foreign Their expense in general, therefore, cannot nations. They will exchange it for foreign be much increased by them, though that of a goods of some kind or another, in order to few individuals among them may, and in supply the consumption either of some other reality sometimes is. The demand of idle foreign country, or of their own. people, therefore, for foreign goods, being the If they employ it in purchasing goods in same, or very nearly the same as before, a |