advanced to the public, and for which it re-ed and in ready money, for answering occa. ceived interest, began first to exceed its capi- sional demands, is so much dead stock, which, tal stock, or the sum for which it paid a dividend to the proprietors of bank stock; or, in other words, that the bank began to have an undivided capital, over and above its divided one. It has continued to have an undivided capital of the same kind ever since. In 1746, the bank had, upon different occasions, advanced to the public L. 11,686,800, and its divided capital had been raised by different calls to his country. and subscriptions to L. 10,780,000. The state which circulates in any country, and by means of those two sums has continued to be the same of which, the produce of its land and la ever since. In pursuance of the 4th of George bour is annually circulated and distributed III. c. 25, the bank agreed to pay to govern- to the proper consumers, is, in the same manment for the renewal of its charter L.110,000, ner as the ready money of the dealer, all dead without interest or re-payment. This sum, stock. It is a very valuable part of the capitherefore did not increase either of those two tal of the country, which produces nothing to other sums. the country. The judicious operations of The dividend of the bank has varied accord-banking, by substituting paper in the room of ing to the variations in the rate of the interest a great part of this gold and silver, enable the which it has, at different times, received for the money it had advanced to the public, as well as according to other circumstances. This rate of interest has gradually been reduced from eight to three per cent. For some years past, the bank dividend has been at five and ahalf per cent.

so long as it remains in this situation, produces nothing, either to him or to his country. The judicious operations of banking enable him to convert this dead stock into active and productive stock; into materials to work upon; into tools to work with; and into provi sions and subsistence to work for; into stock which produces something both to himself and The gold and silver money

country to convert a great part of this dead stock into active and productive stock; into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and The stability of the bank of England is corn of the country, produces itself not a sinequal to that of the British government. All gle pile of either. The judicious operations that it has advanced to the public must be lost of banking, by providing, if I may be allowed before its creditors can sustain any loss. No so violent a metaphor, a sort of waggon-way other banking company in England can be through the air, enable the country to convert, established by act of parliament, or can con as it were, a great part of its highways into sist of more than six members. It acts, not good pastures, and corn fields, and thereby to only as an ordinary bank, but as a great en- increase, very considerably, the annual progine of state. It receives and pays the great-duce of its land and labour. The commerce er part of the annuities which are due to the and industry of the country, however, it must creditors of the public; it circulates exchequer be acknowledged, though they may be somebills; and it advances to government the an- what augmented, cannot be altogether so senual amount of the land and malt taxes, which cure, when they are thus, as it were, suspendare frequently not paid up till some years there-ed upon the Dædalian wings of paper money, after. In these different operations, its duty as when they travel about upon the solid to the public may sometimes have obliged it, ground of gold and silver. Over and above without any fault of its directors, to overstock the accidents to which they are exposed from the circulation with paper money. It like the unskilfulness of the conductors of this pawise discounts merchants' bills, and has, upon per money, they are liable to several others, several different occasions, supported the credit from which no prudence or skill of those conof the principal houses, not only of England, ductors can guard them. but of Hamburgh and Holland. Upon one An unsuccessful war, for example, in which occasion, in 1763, it is said to have advan- the enemy got possession of the capital, and ced for this purpose, in one week, about consequently of that treasure which supported L. 1,600,000, a great part of it in bullion. I do the credit of the paper money, would occasion not, however, pretend to warrant either the a much greater confusion in a country where greatness of the sum, or the shortness of the time. Upon other occasions, this great company has been reduced to the necessity of paying in sixpences.

the whole circulation was carried on by paper, than in one where the greater part of it was carried on by gold and silver. The usual instrument of commerce having lost its value, It is not by augmenting the capital of the no exchanges could be made but either by country, but by rendering a greater part of barter or upon credit. All taxes having beer. that capital active and productive than would usually paid in paper money, the prince would otherwise be so, that the most judicious opera- not have wherewithal either to pay his troops, tions of banking can increase the industry of or to furnish his magazines; and the state of the country. That part of his capital which the country would be much more irretrievable a dealer is obliged to keep by him unemploy-than if the greater part of its circulation had

consisted in gold and silver. A prince, anxi-of ten and five shilling notes, it filled a stil ous to maintain his dominions at all times in greater part of that circulation. In the cur the state in which he can most easily defend rencies of North America, paper was commonthem, ought upon this account to guard not ly issued for so small a sum as a shilling, and only against that excessive multiplication of filled almost the whole of that circulation. In paper money which ruins the very banks some paper currencies of Yorkshire, it was is which issue it, but even against that multipli- sued even for so small a sum as a sixpence. eation of it which enables them to fill the greater part of the circulation of the country with

it.

Where the issuing of bank notes for sucl. very small sums is allowed, and commonly practised, many mean people are both enabled The circulation of every country may and encouraged to become bankers. A perbe considered as divided into two different son whose promissory note for £5, or even for branches; the circulation of the dealers with 20s. would be rejected by every body, will get one another, and the circulation between the it to be received without scruple when it is isdealers and the consumers. Though the same sued for so small a sum as a sixpence. But pieces of money, whether paper or metal, may the frequent bankruptcies to which such begbe employed sometimes in the one circulation garly bankers must be liable, may occasion a and sometimes in the other; yet as both are very considerable inconveniency, and someconstantly going on at the same time, each re- times even a very great calamity, to many quires a certain stock of money, of one kind poor people who had received their notes in or another, to carry it on. The value of the payment. goods circulated between the different dealers It were better, perhaps, that no bank notes never can exceed the value of those circulated were issued in any part of the kingdom for a between the dealers and the consumers; what- smaller sum than £5. Paper money would ever is bought by the dealers being ultimately then, probably, confine itself, in every part of destined to be sold to the consumers. The the kingdom, to the circulation between the circulation between the dealers, as it is carried different dealers, as much as it does at present on by wholesale, requires generally a pretty large sum for every particular transaction. That between the dealers and the consumers, on the contrary, as it is generally carried on by retail, frequently requires but very small ones, a shilling, or even a halfpenny, being often sufficient. But small sums circulate much faster than large ones. A shilling changes masters more frequently than a guinea, and a halfpenny more frequently than a shilling. Though the annual purchases of all the consumers, therefore, are at least equal in value to those of all the dealers, they can generally be transacted with a much smaller quantity of money; the same pieces, by a more rapid circulation, serving as the instrument of many more purchases of the one kind than of the o

ther.

in London, where no bank notes are issued under L. 10 value; L.5 being, in most part of the kingdom, a sum which, though it will purchase, perhaps, little more than half the quantity of goods, is as much considered, and is as seldom spent all at once, as L. 10 are amidst the profuse expense of London.

Where paper money, it is to be observed, is pretty much confined to the circulation be tween dealers and dealers, as at London, there is always plenty of gold and silver. Where it extends itself to a considerable part of the circulation between dealers and consumers, as in Scotland, and still more in North America, it banishes gold and silver almost entirely from the country; almost all the ordinary transactions of its interior commerce being thus carried on by paper. The suppression of ten and five shilling bank notes, somewhat relieved the scarcity of gold and silver in Scotland; and the suppression of twenty shilling notes will probably relieve it still more. Those metals are said to have become more abundant in America, since the suppression of some of their paper currencies. They are said, likewise, to have been more abundant before the institution of those cur. rencies.

Paper money may be so regulated as either to confine itself very much to the circulation between the different dealers, or to extend itself likewise to a great part of that between the dealers and the consumers. Where no bank notes are circulated under £10 value, as in London, paper money confines itself very much to the circulation between the dealers. When a ten pound bank note comes into the hands of a consumer, he is generally obliged to change it at the first shop where he has oc- Though paper money should be pretty casion to purchase five shillings worth of much confined to the circulation between deal. goods; so that it often returns into the hands ers and dealers, yet banks and bankers might of a dealer before the consumer has spent the still be able to give nearly the same assistance fortieth part of the money. Where bank to the industry and commerce of the country, notes are issued for so small sums as 20s. as as they had done when paper money filled alin Scotland, paper money extends itself to a most the whole circulation. The ready moconsiderable part of the circulation between ney which a dealer is obliged to keep by him, dealers and consumers. Before the act of for answering occasional demands, is destined parliament which put a stop to the circulation altogether for the circulation between himself

and other dealers of whom he buys goods. He has no occasion to keep any by him for the circulation between himself and the consumers, who are his customers, and who bring ready money to him, instead of taking any from him. Though no paper money, therefore, was allowed to be issued, but for such sums as would confine it pretty much to the circulation between dealers and dealers; yet partly by discounting real bills of exchange, and party by lending upon cash-accounts, banks and bankers might still be able to relieve the greater part of those dealers from the necessity of keeping any considerable part of their stock by them unemployed, and in ready money, for answering occasional demands. They might still be able to give the utmost assistance which banks and bankers can with propriety give to traders of every kind.

To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.

shilling bank notes, there was then more paper money in the country than at present. The proportion between the price of provisions in Scotland and that in England is the same now as before the great multiplication of banking companies in Scotland. Corn is, upon most occasions, fully as cheap in England as in France, though there is a great deal of paper money in England, and scarce any in France. In 1751 and 1752, when Mr Hume published his Political Discourses, and soon after the great multiplication of paper money in Scotland, there was a very sensible rise in the price of provisions, owing, probably, to the badness of the seasons, and not to the multiplication of paper money.

It would be otherwise, indeed, with a paper money, consisting in promissory notes, of which the immediate payment depended, in any respect, either upon the good will of those who issued them, or upon a condition which the holder of the notes might not always have it in his power to fulfil, or of which the payment was not exigible till after a certain number of years, and which, in the mean time, bore no interest. Such a paper money would, no doubt, fall more or less below the value of gold and silver, according as the difficulty or uncertainty of obtaining immediate payment was supposed to be greater or less, or according to the greater or less distance of time at which payment was exigible,

Some years ago the different banking coinpanies of Scotland were in the practice of inserting into their bank notes, what they called an optional clause; by which they promised payment to the bearer, either as soon as the note should be presented, or, in the option of the directors, six months after such presentment, together with the legal interest for the said six months. The directors of some of those banks sometimes took advantage of this optional clause, and sometimes threatened those who demanded gold and silver in exchange for a considerable number of their notes, that they would take advantage of it, unless such

A paper money, consisting in bank notes, issued by people of undoubted credit, payable upon demand, without any condition, and, in fact, always readily paid as soon as presented, is, in every respect, equal in value to gold and silver money, since gold and sil-demanders would content themselves with a ver money can at any time be had for it. Whatever is either bought or sold for such paper, must necessarily be bought or sold as cheap as it could have been for gold and sil

ver.

The increase of paper money, it has been said, by augmenting the quantity, and cousequently diminishing the value, of the whole currency, necessarily augments the money price of commodities. But as the quantity of gold and silver, which is taken from the currency, is always equal to the quantity of paper which is added to it, paper money does not necessarily increase the quantity of the whole currency. From the beginning of the last century to the present time, provisions never were cheaper in Scotland than in 1759, though, from the circulation of ten and five

part of what they demanded. The promissory notes of those banking companies constituted, at that time, the far greater part of the currency of Scotland, which this uncertainty of payment necessarily degraded below the va lue 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 these bank notes exchanged for gold and silver coin, had thus de graded them four per cent. below the value of

that com. The same act of parliament which | of the colonies, to L. 130, and in others to so suppressed ten and five shilling bank notes, great a sum as L. 1100 currency; this differ. suppressed likewise this optional clause, and ence in the value arising from the difference thereby restored the exchange between Eng- in the quantity of paper emitted in the dif land and Scotland to its natural rate, or to ferent colonies, and in the distance and pro. what the course of trade and remittances might bability of the term of its final discharge and happen to make it. redemption.

In the paper currencies of Yorkshire, the payment of so small a sum as 6d, 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, able to the bearer, under 20s. value.

No law, therefore, could be more equitable than the act of parliament, so unjustly com plained 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 curpay-rent 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 5s. sterling to pass in the colonies for 6s. 3d., and afterwards for 6s. 8d. A pound, colony currency, therefore, even when that currency was gold and silver, was more than thirty per cent. below the value of L.1 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 currencies of North America consisted, not in bank notes payable to the bearer on demand, but in a 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, L.100, payable fifteen years hence, for example, in a country where interest is at six per cent., is worth little more than L.40 ready money. To oblige a creditor, therefore, to accept of this as full payment for a debt of L. 100, actually paid down in ready money, was an act of such violent in-, justice, 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 hoThe paper of each colony being received in nest and downright Doctor Douglas assures the payment of the provincial taxes, for the us it was, a scheme of fraudulent debtors to full value for which it had been issued, it necheat their creditors. The government of cessarily derived from this use some additionPennsylvania, indeed, pretended, upon their al value, over and above what it would have first emission of paper money, in 1722, to had, from the real or supposed distance of the render their paper of equal value with gold term of its final discharge and redemption. and silver, by enacting penalties against all This additional value was greater or less, acthose who made any difference in the price of cording as the quantity of paper issued was their goods when they sold them for a colony more or less above what could be employed in paper, and when they sold them for gold and the payment of the taxes of the particular cosilver; a regulation equally tyrannical, but lony which issued it. It was in all the colomuch less effectual, than that which it was nies very much above what could be emplo7meant to support. A positive law may ren-ed in this manner. der a shilling a legal tender for a 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 L. 100 sterling was occasionally considered as equivalent, in some

A prince, who should enact that a certain proportion of his taxes snould 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 sometimes happen, becomes of less consemarket than the quantity of gold or silver cur- quence to the public. This free competition, rency for which it was issued, Some people too, obliges all bankers to be more liberal account in this manner for what is called the in their dealings with their customers, lest agio of the bank of Amsterdam, or for the su- their rivals should carry them away. In geperiority of bank money over current money, neral, if any branch of trade, or any division though this bank money, as they pretend, can- of labour, be advantageous to the public, the not be taken out of the bank at the will of the freer and more general the competition, it will owner. The greater part of foreign bills of ex- always be the more so. Notes 15, 16. change 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, the bank money sells for a premium, or bears an agio of four or five per cent. above the same OF THE ACCUMULATION OF CAPITAL, OR OF 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.

CHAP. III.

PRODUCTIVE AND UNPRODUCTIVE LABOUR.

THERE is one sort of labour which adds to the value of the subject upon which it is bestow

A paper currency which falls below the va-ed; there is another which has no such effect. lue 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 and 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.

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 la. bour of a menial servant, on the contrary, adds to the value of nothing. Though the manu. facturer 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 menia! 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, If bankers are restrained from issuing any however, has its value, and deserves its recirculating bank notes, or notes payable to ward as well as that of the former. But the the bearer, for less than a certain sum; and labour of the manufacturer fixes and realizes if they are subjected to the obligation of an itself in some particular subject or vendible immediate and unconditional payment of such commodity, which lasts for some time at least bank notes as soon as presented, their trade after that labour is past. It is, as it were, a may, with safety to the public, be rendered in certain quantity of labour stocked and stored all other respects perfectly free. The late up, to be employed, if necessary, upon some multiplication of banking companies in both other occasion. That subject, or, what is the parts of the united kingdom, an event by same thing, the price of that subject, can afwhich many people have been much alarmed, terwards, if necessary, out into motion a instead of diminishing, increases the security quantity of labour equal to that which had of the public. It obliges all of them to be originally produced it. The labour of the 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

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

*Some French authors of great learning and inge Ir nuity have used those words in a different sense. the last chapter of the fourth book, I shall endeavour to shew that their sense is an improper one.