Essay 5

The Balance Of Trade

by David Hume Icon

Export Bans

Nations who are ignorant of the nature of commerce usually prohibit the exports of valuable and useful commodities.

They do not consider that:

  • this prohibition acts directly contrary to their intention.
  • the more they export, the more will be raised at home, of which they themselves wil l always have the first offer

The ancient laws of Athens criminalized the exportation of figs. They deemed it too delicious for the palate of any foreigner. This ridiculous prohibition led to the word sycophants to mean spies from two GREEK words figs and discoverer.

There are proofs in many old acts of parliament of the same ignorance in the nature of commerce, particularly in the reign of Edward 3rd.

To this day, in the fertile country of France, grain exports are almost always prohibited to prevent famines. In reality, such a prohibition contributes more to their frequent famines.

The same jealous fear, with regard to money, also prevailed among several nations.

It required both reason and experience to convince people, that these prohibitions only raises the exchange against them and produce more exportation.

These errors are gross and palpable. But even in commercial nations, strong feelings still persist:

  • the jealousy with regard to the balance of trade, and
  • the fear that all their gold and silver will leave them.

These are groundless apprehensions.

Mercantile Estimates

All calculations on the balance of trade are founded on very uncertain facts and suppositions. The custom-house books and foreign exchange rates are insufficients ground of reasoning because it is impossible to know all the proportions of all the amounts in all nations.

The writings of Gee showed that the balance was greatly against foreign nations, that all coins would leave the country in five or six years. This struck the nation with a universal panic. But luckily, 20 years have gone with an expensive foreign war. Yet money is still more plentiful among us than before.

Dr. Swift was so quick in discerning the mistakes and absurdities of others. He says, in his short view of Ireland, that their whole cash was just £500,000. Out of this, the Irish remitted every year 1m to ENGLAND. This was disadvantageous as it meant that in three years, the current money of IRELAND would be reduced to less than £200,000.

The consequence of this situation, which must be owned to be , was, that, in a course of

In a course of 30 years, it is absolutely nothing. Yet I know not how, that opinion of the advance of riches in IRELAND, which gave the Doctor so much indignation, seems still to continue, and gain ground with everybody.

In short, this apprehension of the wrong balance of trade, appears of such a nature, that it discovers itself, wherever one is out of humour with the ministry, or is in low spirits.

It can never be refuted by a particular detail of all the exports, which counterbalance the imports, it may here be proper to form a general argument, that may prove the impossibility of this event, as long as we preserve our people and our in dustry.

Suppose 4/5 of all the money in Britain were annihilated in one night, and the nation reduced to the same condition, with regard to specie, as in the reigns of the Henrys and Edwards,

The price of all labour and commodities will sink. This would help us undersell our competitors in foreign markets. This will bring the money that we have lost and raise us to the level of our neighbours. At such a point, we immediately lose the advantage of our cheap labour and commodities. This stops the inflow of money by our fullness.

If all the money of Great Britain multiplied fivefold in a night, the prices of all labour and commodities will rise, preventing our neighbours from buying from us. Their commodities, on the other hand, will became comparatively so cheap, that it would cause our money to leave to buy them until we fall to a level with foreigners, and lose that great superiority of riches.

The same causes which correct these inequalities commonly prevent them from happening. They preserve money nearly proportionable to the art and industry of each nation.

Water remains always at a level with itself. If water were raised in any one place, the superior gravity there would depress it to reach a balance. The same cause redresses inequality when it happens and naturally prevents it without some violent external operation*.

*This violent external operation is the creation of the doctrine of the profit maximization from the marginal revolution which prevented natural balancing

No law, art, or industry was able to keep the money in SPAIN that it brought from the INDIES.

Nations currently gain in their trade with Spain And Portugal because it is impossible for Spain And Portugal to heap up money, more than any fluid beyond its proper level.

The sovereigns of Spain And Portugal have shown, that they wanted not inclination to keep their gold and silver to themselves, had it been in an y degree practicable.

A body of water can be raised above the level of another body if the former has no connection with the latter. Likewise with money, a very great inequality of money may occur if the link is cut off physically, (for all laws alone are ineffectual).

Europe has much more gold and silver than China because of:

  • China’s immense distance
  • the monopolies of our INDIA companies which obstruct the communication

But despite this great obstruction, the force of the causes abovementioned is still evident.

The skill and ingenuity of Europe in general surpasses perhaps that of CHINA with regard to manual arts and manufactures. Yet we trade to China at a great disadvantage. If not for our continual recruits from America, money would soon sink in EUROPE, and rise in CHINA until they both came to a level in both places.

If China were as near to us as Poland, they would drain us of our surplus coins and draw to themselves a larger share of the WEST Indies treasures.

How is the balance kept in the provinces of every kingdom among themselves, but by the force of this principle, which makes it impos sible for money to lose its level, and either to rise or sink beyond the pr oportion of the labour and commodities which are in each province?

Did not long experience make people easy on this head, what a fund of gloomy reflec tions might calculations afford to a melancholy YORKSHIREMAN, while he comp uted and magnified the sums drawn to LONDON by taxes, absentees, commodities, and found on comparison the opposite articles so much inferior?

Had the Heptarchy subsisted in ENGLAND, the legislature of each state had been continually alarmed by the fear of a wrong balance. The mutual hatred of these states would have been extremely violent because of their nearness. they would have loaded and oppressed all commerce, by a je alous and superfluous caution.

Since the union has removed the barriers between Scotland And England, which of these nations gains from the other by t his free commerce? Or if the former kingdom has received any encrease of ri ches, can it reasonably be accounted for by any thing but the encrease of i ts art and industry?

Le’ABBE DU BOS said that the English, before the union, feared that SCOTLAND would soon drain England of their treasure if an open trade allowed. In Scotland, a contrary apprehension prevailed.

What happens in small portions of mankind, must take place in greater.

The Roman provinces kept their balance with each other and with ITALY, independent of the legislature. This is similar to how the counties of GREAT BRITAIN, or the parishes of each county.

And any man who travels over EUROPE today sees, by the pr ices of commodities, that money, in spite of the absurd jealousy of princes and states, has brought itself nearly to a level.

The difference between one kingdom and another is not greater in this respect, than it is often between different provinces of the same kingdom.

Men naturally flock to capital cities, sea-ports, and navigable rivers. There we find more men, more industry, more commodities, and consequently more money; but still th e latter difference holds proportion with the former, and the level is pres erved.

Our jealousy and hatred of FRANCE is without bounds. The jealousy is reasonable and well-grounded.

These passions have occasioned innumerable barriers and obstru ctions upon commerce, where we are accused of being commonly the aggressors.

But what have we gained by the bargain?

We lost the FRENCH market for our woollen manufactures, and transferred the commerce of wine to Spain and Portugal, where we buy worse liquor at a higher price.

Many Englishmen who would think England would be absolutely ruined if FRENCH wine were sold in ENGLAND so cheaply as to supplant all our home-brewed liquors. But it would actually be advantageous to do so. Each acre of French vineyard which supplies ENGLAND with wine would require the French to import English wheat or barley which the English grow in an acre. This would thereby give us command of the better commodity.

The FRENCH king has many edicts:

  • prohibiting the planting of new vineyards, and
  • ordering all the recent ones to be grubbed up.

The French know of the superior value of grain over other products.

Mareschal Vauban complains often of the absurd duties which load the entry of those wines of Languedoc, Guienne, and other southern provinces, that are imported into Britanny and Normandy.

He entertained no doubt but these latter provinces could pre serve their balance, notwithstanding the open commerce which he recommends.

A few leagues more navigation to ENGLAND would make no difference; or if it did, that it must operate alike on the commodities of both kingdoms.

There is indeed one expedient by which it is possible to sink, and another by which we may raise money beyond its natural level in a ny kingdom;

but these cases, when examined, will be found to resolve into o ur general theory, and to bring additional authority to it.

I scarcely know any method of sink , but those institutions of

Banks, funds, and paper-credit sink money below its level. These are so much practised in this kingdom.

These render paper equivalent to money and circulate it throughout the whole state and raise proportionably the price of labour and commodities. They either banish most of those precious metals, or prevent their farther encrease.

We fancy, because an individual would be much richer, were his stock of money doubled, that the same good effect would follow were the money of every one encreased; not considering, that this would raise as much the p rice of every commodity, and reduce every man, in time, to the same conditi on as before.

It is only in our public negotiations and foreign transactions that most of money is advantageous.

Our paper is there absolutely insignificant, we feel, by its means, all the ill effec ts arising from a great abundance of money, without reaping any of the advantages.

Suppse that:

  • there are 12 millions of paper circulating in the kingdom as money.
  • the real cash of the kingdom were 18 millions.

The total stock would be 30 million.

Here is a state which is found by experience to be a ble to hold a stock of s. I say, if it be able to hold it, it must of necessity have acquired it in gold and silver, had we not obstructed t he entrance of these metals by this new invention of paper.

It would have acquired that sum from all the kingdoms of the world. If you remove these 12 millions, money in this state is below its level, compared with our neighbours. We must immediately draw from all of them, till we be full and saturate, so to speak, and can hold no more.

By our present politics, we are as careful to stuff the nation with this fine commodity of bank-bills and chequer-not es, as if we were afraid of being overburthened with the precious metals.

The great plenty of bullion in FRANCE is due to their lack of paper-credit. The French people have large sums in their coffers because:

  • The French have no banks
  • Merchants bills do not there circulate as with us
  • Usury or lending on interest is not directly permitted.

Great quantities of plate are used in private houses. The churches are full of it.

This makes provisions and labour cheaper among them than in nations are less rich in gold and silver. This gives them an advantage in trade and in great public emergencies.

The same trend prevailed a few years ago in Genoa, which still uses Chinaware instead of plate to trade with ENGLAND and HOLLAND.

The senate foresaw the consequence so they prohibited the use of that brittle commodity beyond a certain extent while the use of silverware was left unlimited.

In their recent distresses, they felt the good effect of this ordinance. Our tax on plate is, perhaps, in this view, somewhat impolitic.

Before the introduction of paper-money into our colonies, they had gold and silver sufficient for their circulation.

Since the introduction of Chinaware, the least inconveniency that has followed is the total banishment of the precious metals.

After the abolition of paper, can it be doubted but money will return, while these colonies possess manu factures and commodities, the only thing valuable in commerce, and for whos e sake alone all men desire money.

What pity Lycurgus did not think of paper-credit when he wanted to banish gold and silver from Sparta!

It would have served his purpose better than the lumps of iron he used as money. It would also have prevented more effectually all commerce with strangers because of its low value.

All these questions of trade and money are extremely complicated.

Paper-credit and banks can be placed in a certain way to emphasize their advantages over their disadvantages.

They banish coin and bullion from a state. But coin and bullion are not of so great conse quence as not to admit of a compensation, and even an overbalance from the encrease of industry and of credit, which may be promoted by the right use of paper-money.

It is well known of what advantage it is to a merchant to b e able to discount his bills upon occasion;

and every thing that facilitate s this species of traffic is favourable to the general commerce of a state.

But private bankers are enabled to give such credit by the credit they rec eive from the depositing of money in their shops.

The bank of ENGLAND in the same manner, from the liberty it has to issue its notes in all paymen ts.

There was an invention of this kind, which was fallen upon some years a go by the banks of EDINBURGH; and which, as it is one of the most ingenious ideas that has been executed in commerce, has also been thought advantageo us to SCOTLAND.

It is there called a BANK-CREDIT:

A man goes to the bank and finds surety for 1,000 pounds. He can draw out this money whenever he wants, and he pays only the ordinary interest for it, while it is in his hands.

He may, when he pleases, repay any sum so small as 20 pounds, and the interest is discounted from the very day of the repayment.

These have many advantages. As a man may find surety nearly to the amount of his substance, and hi s bank-credit is equivalent to ready money, a merchant does hereby in a manner coin his houses, furniture, goods in his warehouse, foreign debts due to him, ships. He can, upon occasion, employ them in all payments, as if they were the current money of the country.

If a man borrows 1,000 pounds from a private hand, besides that it is n ot always to be found when required, he pays interest for it, whether he be using it or not.

His bank-credit costs him nothing except during the very moment, in which it is of service to him: And this circumstance is of equal advantage as if he had borrowed money at much lower interest.

Merchants, likewise, from this invention, acquire a great facility in supporting each other’s credit, which is a considerable security against bankruptcies. A man, when his own bank-credit is exhausted, goes to any of his neighbours who is not in the same condition; and he gets the money, which he replaces at his convenience.

After this practice had taken place during some years at EDINBURGH, several companies of merchants at GLASGOW carried the matter farther.

They associated themselves into different banks, and issued notes so low as 10 shillings, which they used in payments for goods, manufactures, tradesmen’s labour. These notes, from the established credit of the companies, p assed as money in all payments throughout the country.

By this means, a stock of 5,000 pounds was able to perform the same operations as if it were 7,000. Merchants were thereby enabled to trade to a greater extent, and to require less profit in all their transactions.

But whatever other advantages result from these inventions, it must still be allowed t hat, besides giving too great facility to credit, which is dangerous, they banish the precious metals.

This is proven by comparing the past and present condition of SCOTLAND. After the recoinage made after the union, they found that there was nearly 1m of coins in Scotland. Such an amount would not make 1/3 of the great encrease of riches, commerce and manufactures.

Paper-credit is almost the only expedient to sink money below its level. It is also the only expedient to raise money above it.

This latter practice is destructive by gathering large sums into a public treasure, locking them up and preventing their circulation.

The makes the fluid stop communicating with other fluids and raises it to whatever height.

To prove this, we need only return to our f irst supposition, of annihilating the half or any part of our cash; where we found, that the immediate consequence of such an event would be the attra ction of an equal sum from all the neighbouring kingdoms.

Nor does there se em to be any necessary bounds set, by the nature of things, to this practice of hoarding. A small city, like GENEVA, continuing this policy for ages, might engross 9/10 of the money of EUROPE.

There seems, indeed, in t he nature of man, an invincible obstacle to that immense growth of riches.

  • A weak state with an enormous treasure will soon become a prey to its poorer but more powerful neighbours.
  • A great state would dissipate its wealth in wasteful projects and destroy, with it the industry, morals, and numbers of its people, which is much more valuable than money.

The fluid, in this case, raised too high bursts andd estroys the vessel that contains it. It mixes itself with the surrounding element and soon falls to its proper level.

So little are we commonly acquainted with this principle, that, though all historians agree in relating uniformly so recent an event , as the immense treasure amassed by Henry 7th of around 2.7m pounds

,) we rather reject their concurring testimony, than admit of a fact, which agrees so ill with our inveterate prejudices.

This sum might be 3/4 of all the money in ENGLAND.

But how can such a sum be amassed in 20 years by a cunning, rapacious, frugal, and almost absolute monarch?

The reduction of the circulating money was never sensibly felt by the people. The sinking of the prices of all commodities would immediately replace it, by giving ENGLAND the advantage in its commerce with the neighbouring kingdoms.

Have we not an instance, in the small republic of ATHENS with its allies, who, in about 50 years, between the MEDIAN and PELOPONN ESIAN wars, amassed ha sum not much inferior to that of Henry 7th?

All the GREEK historians and orators agree that the ATHENIANS collected in the citadel more than 10,000 talents, which they afterwards dissipated to their own ruin, in rash and imprudent enterprizes.

But when this money was set a running, and beg an to communicate with the surrounding fluid; what was the consequence?

Did it remain in the state? No. For we find, by the memorable census mentioned by DEMOSTHENES and POLYBIUS, that 50 years later, the whole value of th e republic, comprehending lands, houses, commodities, slaves, and money, was less than 6,000 talents.

What an ambitious high-spirited people was this, to collect and keep in their treasury, with a view to conquests, a sum, which it was every day in the power of the citizens, by a single vote, to distribute a mong themselves, and which would have gone near to triple the riches of every individual!

For we must observe, that the numbers and private riches of the ATHENIANS are said, by ancient writers, to have been no greater at the beginning of the PELOPONNESIAN war, than at the beginning of the MACEDONIAN .

Money was little more plentiful in GREECE during the age of Philip and Perseus, than in England during that of Henry 7th. Yet these two monarchs in 30 years collected from the small kingdom of Macedon, a larger treasure than that of Henry 7th.

PAULUS MILIUS brought to ROME about 1.7m pounds Sterling. Pliny says 2.4m. That was but a part of the MACEDONIAN treasure. The rest was dissipated by the resistance and flight of PERSEUS.

We may learn from STANIAN, that the canton of BERNE had 300,000 pounds lent at interest, and had above six times as much in their treasury. Here then is a sum hoarded of 1.8m pounds Sterling, which is at least quadruple what should naturally circulate in such a petty state.

Yet no one, who travels in the Pais De Vaux, or any part of that canton, observes any want of money more than could be supposed in a country of that extent, soil, and situation.

On the contrary, there are scarce any inland provinces in the continent of FRANCE or GERMANY, where the inhabitants are at this time so opulent, thoug h that canton has vastly encreased its treasure since 1714, the time when S TANIAN wrote his judicious account of Switzerland.

The account given by APPIAN of the treasure of the PTOLEMIES, is so prodigious, that one cannot admit of it; and so much the less, because the historian says, that the other successors of ALEXANDER were also frugal, and had many of them t reasures not much inferior.

For this saving humour of the neighbouring prin ces must necessarily have checked the frugality of the EGYPTIAN monarchs, a ccording to the foregoing theory. The sum he mentions is 740,000 talents, o r 191,166,666 pounds 13 shillings and 4 pence, according to Dr. Arbuthnot’s computation.

Yet APPIAN says, that he extracted his account from the public records; and he was himself a native of ALEXANDRIA.

From these principles we may learn what judgment we ought to form of those numberless bars, obstructions, and imposts, which all nations of EUROPE, and none more than ENGLAND, have put on trade; from an exorbitant desire of amassing money, which never will heap up beyond its level, while it circulates; or from an ill-grounded apprehension of losing their coin, which never will sink below it.

Could anything scatter our riches, it would be such impolitic contrivances.

But this general ill-effect, however, results from them, that they deprive neighbouring nations of that fr ee communication and exchange which the Author of the world has intended, b y giving them soils, climates, and geniuses, so different from each other.

Our modern politics embraces the only method of banishing money, the using of paper-credit. They reject the only method of amassing it, the practice of hoarding. They adopt a hundred contrivances, which check industry, and rob ourselves and our neighbours of the common benefits of art and nature.

All taxes on foreign commodities, are not to be regarded as prejudicial or useless, but those only which are founded on the jealousy above-mentioned.

A tax on GERMAN linen encourages home manufac tures, and thereby multiplies our people and industry.

A tax on brandy encreases the sale of rum, and supports our southern colonies. It is necessary, that imposts should be levied, for the support of government, it may be thought more convenient to lay them on foreign commodities, which can easily be intercepted at the port, and subjected to the impost.

We should always remember the maxim of Dr. Swift, that in the arithmetic of the customs, 2 + 2 = 1.

If the duties on wine were lowered to 1/3, they would yield much more to the government than at present. Our people might thereby afford to drink commonly a better and more wholesome liquor. No prejudice would ensue to the balance of trade, of which we are so jealous.

The manufacture of ale beyond the agriculture is bu t inconsiderable, and gives employment to few hands. The transport of wine and corn would not be much inferior.

But are there not frequent instances, you will say, of st ates and kingdoms, which were formerly rich and opulent, and are now poor a nd beggarly?

Has not the money left them, with which they formerly abounded?

I answer, If they lose their trade, industry, and people, they cannot exp ect to keep their gold and silver: For these precious metals will hold prop ortion to the former advantages.

When Lisbon and Amsterdam got the East-india trade from Venice and Genoa, they also got the profits and money from it.

Where the seat of government is transferred, where expensive armies are maintained at a distance, where great funds are possessed by for eigners; there naturally follows from these causes a reduction of the coin.

But these are violent and forcible methods of carrying away money, commonly attended with the transport of people and industry. But where these remain, and the drain is not continued, the money always finds its way back again, by a hundred canals, of which we have no notion or suspicion.

Since the revolution and through the three long wars, so many nations have spent immense treasures, more than half of what Europe presently has, in FLANDERS. But these have mostly returned to their original countries and have followed the art and industry which raised them.

For over 1,000 years, the money of EUROPE has been flowing to ROME by an open and sensible current. But it has been emptied by many secret and insensible canals. The lack of industry and commerce renders at present the papal dominions the poorest territory in all ITALY.

A government must preserve its people and manufactures carefully. It may safely entrust its money to the course of human affairs, without fear or jealousy. It only should give attention to money so far as it affects the people and their manufactures.


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