Chapter 3j

International Barter Taxation

by Adam Smith Icon

79 It has been said that:

  • the Americans have no gold or silver money.
  • Their interior commerce is done by a paper currency.
    • Its gold and silver are all sent to Great Britain for the British commodities that they import from us.

Without gold and silver it is impossible to pay taxes. We already get all their gold and silver.

How can we draw from them what they do not have?

80 The current scarcity of gold and silver money in America is not the effect of the inability of the Americans to buy gold and silver money.

  • Wages in America are much higher than in England.
  • The price of provisions is much lower.

Most of the people must surely have the means to buy more of what they need. Therefore, the scarcity of those metals must be from choice, not necessity.

81 Gold and silver money is necessary or convenient for transacting domestic or foreign business.

82 Book 2 has shown that the domestic business of every country may be transacted through paper currency as conveniently as by gold and silver money, at least in peacetime.

It is convenient for the Americans to save as much as possible the cost of using gold and silver for currency.

  • They can always profitably employ more stock in their land improvements, than they can easily get.
  • They would rather employ their surplus produce for buying the tools, raw materials, furniture, and ironworks needed for building and extending their settlements and plantations, instead of using their surplus to buy gold and silver.

In this way, they buy active and productive stock, not dead stock.

  • The colony governments find it for their interest to supply the people paper money more than sufficient for transacting their domestic business.
  • Some of those governments, particularly that of Pennsylvania, derive a revenue from lending this paper money to their subjects at an interest.
  • Others, like that of Massachusetts Bay, advance this kind of paper money on extraordinary emergencies for defraying the public expence.
    • Afterwards, it redeems this money at a depreciated value, when it suits the colony’s convenience.
    • In this way in 1747, Massachusetts Bay paid most of its public debts with 10% of the metal money for which its paper bills were granted.

It is convenient:

  • for the planters to save the cost of using metal money in their domestic transactions, and
  • for the colony governments to supply them with a medium that enables them to save that cost, though with some very big disadvantages.

The redundancy of paper money banishes gold and silver from the colonies’ domestic transactions, for the same reason that it banished those metals from most of Scottish domestic transactions.

  • In both countries, this redundancy of paper money was created by the people’s enterprising and projecting spirit, not their poverty.
  • It is their desire of employing all the stock they can get, as active and productive stock.

In their exterior commerce with Great Britain, gold and silver are used exactly as they are needed.

  • Where those metals are not necessary, they seldom appear.
  • Where they are necessary, they are generally found.

Sometimes, It’s Better to Pay in Kind

84 In the commerce between Great Britain and the tobacco colonies, the British goods are generally advanced to the colonists at a pretty long credit.

  • They are afterwards paid for in tobacco at a certain price.
  • It is more convenient for the colonists to pay in tobacco than in gold and silver.

It would be more convenient for any merchant to pay for his suppliers’ goods with some of his other goods than in money.

  • Such a merchant would then have no stock unemployed.
  • He would not need ready money for answering occasional demands.
  • He could:
    • have more goods in his shop or warehouse at all times.
    • deal to a greater extent.

The British merchants who trade to Virginia and Maryland prefer receiving payment in tobacco than gold and silver because they expect to make a profit by selling the tobacco.

  • They could make no profit by selling gold and silver.

Gold and silver very seldom appear in the commerce between Great Britain and the tobacco colonies.

  • Maryland and Virginia have as little need for those metals in their foreign and domestic commerce.
  • Accordingly, they are said to have less gold and silver money than any other American colony, yet they are as thriving and rich as their neighbours.

84 In the northern colonies, the value of their own exports to Great Britain is more than the value of their imports.

A balance must be paid to Great Britain in gold and silver. They generally find this balance. The northern colonies are:

  • Pennsylvania
  • New York
  • New Jersey
  • the four governments of New England, etc.

85 The sugar colonies export more to Great Britain than they import British goods.

Great Britain would need to send a lot of money annually to the sugar colonies if their sugar and rum were all bought with money in those colonies.

  • This would cause politicians to see the West Indies trade as extremely disadvantageous.

But this does not happen because many of the large sugar plantation owners reside in Great Britain.

  • Their rents are remitted to them in sugar and rum produced in their estates.
  • The sugar and rum bought by the West India merchants in those colonies have a higher value than the British goods that they import.
  • The difference goes to the owners as gold and silver*.

*Superphysics Note: The money of Great Britain stays in Great Britain

Lack of Development Causing Balance of Payments Issues

86 The difficulty and irregularity of payment from the colonies to Great Britain have not been proportional to the balances due from them.

Generally, payments were more regular from the northern colonies than from the tobacco colonies.

  • The northern colonies have generally paid a pretty large balance in money.
  • The tobacco colonies have paid no balance or a much smaller one.

The difficulty of getting payment from our sugar colonies is due to=

  • the planters’ temptation in overtrading, or of settling and planting in more waste land than what their capitals can afford.

The big island of Jamaica still has much uncultivated land.

  • The smaller islands of Barbados, Antigua, and Saint Kitts have been completely cultivated.
  • In general, the returns from Jamaica have been more irregular and uncertain than those from those smaller islands.
    • Those small islands have afforded less field for the planter’s speculations.
  • The new acquisitions of Grenada, Tobago, St. Vincents, and Dominica have opened a new field for such speculations.
    • The returns from those islands have been recently as irregular and uncertain as those from Jamaica.

87 It is not the poverty of the colonies which creates the present scarcity of gold and silver money.

Their great demand for active and productive stock makes it convenient for them to have as little dead stock as possible. It disposes them to content themselves with a cheaper though less commodious instrument of commerce than gold and silver.

They are thereby enabled to convert the value of that gold and silver into=

  • the instruments of trade,
  • clothing materials,
  • household furniture,
  • ironworks for building and extending their settlements and plantations.

In businesses which can only be transacted with gold and silver money, they can always find the needed quantity of those metals. If they do not find it, their failure is generally the effect of their unnecessary and excessive enterprise, not of their necessary poverty.

It is not because they are poor that their payments are irregular and uncertain, but because they are too eager to become excessively rich.

If all the proceeds of the colony taxes, exceeding what was needed to pay their own civil and military establishments, were remitted to Great Britain in gold and silver, the colonies would have all the means to buy those needed metals.

In this case, they would be obliged to buy dead stock with their surplus produce instead of active and productive stock. In transacting their domestic business, they would be obliged to employ a costly instead of a cheap instrument of commerce. The expence of buying this costly instrument might somewhat dampen the vivacity and ardour of their excessive enterprise in land improvement.

It might be unnecessary to remit any part of the American revenue in gold and silver.

It might be remitted in bills drawn on and accepted by particular merchants or companies in Great Britain to whom some of America’s surplus produce was consigned.

Those merchants and companies would pay into the treasury the American revenue in money after receiving the value of those goods. The whole business might frequently be transacted without exporting a single ounce of gold or silver from America.

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