An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

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 demanders would content themselves with a

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 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 these 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 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, payable to the bearer, under 20s. value.

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, �100, payable fifteen years hence, for example, in a country where

interest is at six per cent., is worth little more than �40 ready money. ,

To oblige a creditor, therefore, to accept of this as full payment for a

debt of �100, 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 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 �100

sterling was occasionally considered as equivalent, in some of the colonies,

to �130, and in others to so great a sum as �1100 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 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 �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 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, the 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 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.

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. { 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