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    Book IV: Chapter 6

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    Chapter 29
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    When a nation binds itself by treaty, either to permit the entry
    of certain goods from one foreign country which it prohibits from
    all others, or to exempt the goods of one country from duties to
    which it subjects those of all others, the country, or at least
    the merchants and manufacturers of the country, whose commerce is
    so favoured, must necessarily derive great advantage from the
    treaty. Those merchants and manufacturers enjoy a sort of
    monopoly in the country which is so indulgent to them. That
    country becomes a market, both more extensive and more
    advantageous for their goods: more extensive, because the goods
    of other nations being either excluded or subjected to heavier
    duties, it takes off a greater quantity of theirs; more
    advantageous, because the merchants of the favoured country,
    enjoying a sort of monopoly there, will often sell their goods
    for a better price than if exposed to the free competition of all
    other nations.

    Such treaties, however, though they may be advantageous to the
    merchants and manufacturers of the favoured, are necessarily
    disadvantageous to those of the favouring country. A monopoly is
    thus granted against them to a foreign nation; and they must
    frequently buy the foreign goods they have occasion for, dearer
    than if the free competition of other nations was admitted. That
    part of its own produce with which such a nation purchases
    foreign goods, must consequently be sold cheaper; because, when
    two things are exchanged for one another, the cheapness of the
    one is a necessary consequence, or rather is the same thing, with
    the dearness of the other. The exchangeable value of its annual
    produce, therefore. is likely to be diminished by every such
    treaty. This diminution, however, can scarce amount to any
    positive loss, but only to a lessening of the gain which it might
    otherwise make. Though it sells its goods cheaper than it
    otherwise might do, it will not probably sell them for less than
    they cost; nor, as in the case of bounties, for a price which
    will not replace the capital employed in bringing them to market,
    together with the ordinary profits of stock. The trade could not
    go on long if it did. Even the favouring country, therefore, may
    still gain by the trade, though less than if there was a free

    Some treaties of commerce, however, have been supposed
    advantageous, upon principles very different from these; and a
    commercial country has sometimes granted a monopoly of this kind,
    against itself, to certain goods of a foreign nation, because it
    expected, that in the whole commerce between them, it would
    annually sell more than it would buy, and that a balance in gold
    and silver would be annually returned to it. It is upon this
    principle that the treaty of commerce between England and
    Portugal, concluded in 1703 by Mr Methuen, has been so much
    commended. The following is a literal translation of that treaty,
    which consists of three articles only.

    ART. I.

    His sacred royal majesty of Portugal promises, both in his own
    name and that of his successors, to admit for ever hereafter,
    into Portugal, the woollen cloths, and the rest of the woollen
    manufactures of the British, as was accustomed, till they were
    prohibited by the law ; nevertheless upon this condition :

    ART. II.

    That is to say, that her sacred royal majesty of Great Britain
    shall, in her own name, and that of her successors, be obliged,
    for ever hereafter, to admit the wines of the growth of Portugal
    into Britain; so that at no time, whether there shall be peace or
    war between the kingdoms of Britain and France, any thing more
    shall be demanded for these wines by the name of custom or duty,
    or by whatsoever other title, directly or indirectly, whether
    they shall be imported into Great Britain in pipes or hogsheads,
    or other casks, than what shall be demanded for the like quantity
    or measure of French wine, deducting or abating a third part of
    the custom or duty. But if, at any time, this deduction or
    abatement of customs, which is to be made as aforesaid, shall in
    any manner be attempted and prejudiced, it shall be just and
    lawful for his sacred royal majesty of Portugal, again to
    prohibit the woollen cloths, and the rest of the British woollen

    ART. III.

    The most excellent lords the plenipotentiaries promise and take
    upon themselves, that their above named masters shall ratify this
    treaty; and within the space of two months the ratification shall
    be exchanged.

    By this treaty, the crown of Portugal becomes bound to admit the
    English woollens upon the same footing as before the prohibition;
    that is, not to raise the duties which had been paid before that
    time. But it does not become bound to admit them upon any better
    terms than those of any other nation, of France or Holland, for
    example. The crown of Great Britain, on the contrary, becomes
    bound to admit the wines of Portugal, upon paying only two-thirds
    of the duty which is paid for those of France, the wines most
    likely to come into competition with them. So far this treaty,
    therefore, is evidently advantageous to Portugal, and
    disadvantageous to Great Britain.

    It has been celebrated, however, as a masterpiece of the
    commercial policy of England. Portugal receives annually from the
    Brazils a greater quantity of gold than can be employed in its
    domestic commerce, whether in the shape of coin or of plate. The
    surplus is too valuable to be allowed to lie idle and locked up
    in coffers; and as it can find no advantageous market at home, it
    must, notwithstanding; any prohibition, be sent abroad, and
    exchanged for something for which there is a more advantageous
    market at home. A large share of it comes annually to England, in
    return either for English goods, or for those of other European
    nations that receive their returns through England. Mr Barretti
    was informed, that the weekly packet-boat from Lisbon brings, one
    week with another, more than £50,000 in gold to England. The sum
    had probably been exaggerated. It would amount to more than
    £2,600,000 a. year, which is more than the Brazils are supposed
    to afford.

    Our merchants were, some years ago, out of humour with the crown
    of Portugal. Some privileges which had been granted them, not by
    treaty, but by the free grace of that crown, at the solicitation,
    indeed, it is probable, and in return for much greater favours,
    defence and protection from the crown of Great Britain, had been
    either infringed or revoked. The people, therefore, usually most
    interested in celebrating the Portugal trade, were then rather
    disposed to represent it as less advantageous than it had
    commonly been imagined. The far greater part, almost the whole,
    they pretended, of this annual importation of gold, was not on
    account of Great Britain, but of other European nations; the
    fruits and wines of Portugal annually imported into Great Britain
    nearly compensating the value of the British goods sent thither.

    Let us suppose, however, that the whole was on account of Great
    Britain, and that it amounted to a still greater sum than Mr
    Barretti seems to imagine ; this trade would not, upon that
    account, be more advantageous than any other, in which, for the
    same value sent out, we received an equal value of consumable
    goods in return.

    It is but a very small part of this importation which, it can be
    supposed, is employed as an annual addition, either to the plate
    or to the coin of the kingdom. The rest must all be sent abroad,
    and exchanged for consumable goods of some kind or other. But if
    those consumable goods were purchased directly with the produce
    of English industry, it would be more for the advantage of
    England, than first to purchase with that produce the gold of
    Portugal, and afterwards to purchase with that gold those
    consumable goods. A direct foreign trade of consumption is always
    more advantageous than a round-about one; and to bring the same
    value of foreign goods to the home market requires a much smaller
    capital in the one way than in the ether. If a smaller share of
    its industry, therefore, had been enmloyed in producing goods fit
    for the Portugal market, and a greater in producing those lit for
    the other markets, where those consumable goods for which there
    is a demand in Great Britain are to be had, it would have been
    more for the advantage of England. To procure both the gold which
    it wants for its own use, and the consumable goods, would, in
    this way, employ a much smaller capital than at present. There
    would be a spare capital, therefore, to be employed for other
    purposes, in exciting an additional quantity of industry, and in
    raising a greater annual produce.

    Though Britain were entirely excluded from the Portugal trade, it
    could find very little difficulty in procuring all the annual
    supplies of gold which it wants, either for the purposes of
    plate, or of coin, or of foreign trade. Gold, like every other
    commodity, is always somewhere or another to be got for its value
    by those who have that value to give for it. The annual surplus
    of gold in Portugal, besides, would still be sent abroad, and
    though not carried away by Great Britain, would be carried away
    by some other nation, which would be glad to sell it again for
    its price, in the same manner as Great Britain does at present.
    In buying gold of Portugal, indeed, we buy it at the first hand ;
    whereas, in buying it of any other nation, except Spain, we
    should buy it at the second, and might pay somewhat dearer. This
    difference, however, would surely be too insignificant to deserve
    the public attention.

    Almost all our gold, it is said, comes from Portugal. With other
    nations, the balance of trade is either against as, or not much
    in our favour. But we should remember, that the more gold we
    import from one country, the less we must necessarily import from
    all others. The effectual demand for gold, like that for every
    other commodity, is in every country limited to a certain
    quantity. If nine-tenths of this quantity are imported from one
    country, there remains a tenth only to be imported from all
    others. The more gold, besides, that is annually imported from
    some particular countries, over and above what is requisite for
    plate and for coin, the more must necessarily be exported to some
    others: and the more that most insignificant object of modern
    policy, the balance of trade, appears to be in our favour with
    some particular countries, the more it must necessarily appear to
    be against us with many others.

    It was upon this silly notion, however, that England could not
    subsist without the Portugal trade, that, towards the end of the
    late war, France and Spain, without pretending either offence or
    provocation, required the king of Portugal to exclude all British
    ships from his ports, and, for the security of this exclusion, to
    receive into them French or Spanish garrisons. Had the king of
    Portugal submitted to those ignominious terms which his
    brother-in-law the king of Spain proposed to him, Britain would
    have been freed from a much greater inconveniency than the loss
    of the Portugal trade, the burden of supporting a very weak ally,
    so unprovided of every thing for his own defence, that the whole
    power of England, had it been directed to that single purpose,
    could scarce, perhaps, have defended him for another campaign.
    The loss of the Portugal trade would, no doubt, have occasioned a
    considerable embarrassment to the merchants at that time engaged
    in it, who might not, perhaps, have found out, for a year or two,
    any other equally advantageous method of employing their
    capitals; and in this would probably have consisted all the
    inconveniency which England could have suffered from this notable
    piece of commercial policy.

    The great annual importation of gold and silver is neither for
    the purpose of plate nor of coin, but of foreign trade. A
    round-about foreign trade of consumption can be carried on more
    advantageously by means of these metals than of almost any other
    goods. As they are the universal instruments of commerce, they
    are more readily received in return for all commodities than any
    other goods ; and, on account of their small bulk and great
    value, it costs less to transport them backward and forward from
    one place to another than almost any other sort of merchandize,
    and they lose less of their value by being so transported. Of all
    the commodities, therefore, which are bought in one foreign
    country, for no other purpose but to be sold or exchanged again
    for some other goods in another, there are none so convenient as
    gold and silver. In facilitating all the different round-about
    foreign trades of consumption which are carried on in Great
    Britain, consists the principal advantage of the Portugal trade;
    and though it is not a capital advantage, it is, no doubt, a
    considerable one.

    That any annual addition which, it can reasonably be supposed, is
    made either to the plate or to the coin of the kingdom, could
    require but a very small annual importation of gold and silver,
    seems evident enough; and though we had no direct trade with
    Portugal, this small quantity could always, somewhere or another,
    be very easily got.

    Though the goldsmiths trade be very considerable in Great
    Britain, the far greater part of the new plate which they
    annually sell, is made from other old plate melted down ; so that
    the addition annually made to the whole plate of the kingdom
    cannot be very great, and could require but a very small annual

    It is the same case with the coin. Nobody imagines, I beileve,
    that even the greater part of the annual coinage, amounting, for
    ten years together, before the late reformation of the gold coin,
    to upwards of £800,000 a-year in gold, was an annual addition to
    the money before current in the kingdom. In a country where the
    expense of the coinage is defrayed by the government, the value
    of the coin, even when it contains its full standard weight of
    gold and silver, can never be much greater than that of an equal
    quantity of those metals uncoined, because it requires only the
    trouble of going to the mint, and the delay, perhaps, of a few
    weeks, to procure for any quantity of uncoined gold and silver an
    equal quantity of those metals in coin; but in every country the
    greater part of the current coin is almost always more or less
    worn, or otherwise degenerated from its standard. In Great
    Britain it was, before the late reformation, a good deal so, the
    gold being more than two per cent., and the silver more than
    eight per cent. below its standard weight. But if forty-four
    guineas and a-half, containing their full standard weight, a
    pound weight of gold, could purchase very little more than a
    pound weight of uncoined gold; forty-four guineas and a-half,
    wanting a part of their weight, could not purchase a pound
    weight, and something was to be added, in order to make up the
    deficiency. The current price of gold bullion at market,
    therefore, instead of being the same with the mint price, or
    £46:14:6, was then about £47:14s., and sometimes about £48. When
    the greater part of the coin, however, was in this degenerate
    condition, forty four guineas and a-half, fresh from the mint,
    would purchase no more goods in the market than any other
    ordinary guineas; because, when they came into the coffers of the
    merchant, being confounded with other money, they could not
    afterwards be distinguished without more trouble than the
    difference was worth. Like other guineas, they were worth no more
    than £46:14:6. If thrown into the melting pot, however, they
    produced, without any sensible loss, a pound weight of standard
    gold, which could be sold at any time for between £47:14s. and
    £48, either in gold or silver, as fit for all the purposes of
    coin as that which had been melted down. There was an evident
    profit, therefore, in melting down new-coined money; and it was
    done so instantaneously, that no precaution of government could
    prevent it. The operations of the mint were, upon this account,
    somewhat like the web of Penelope; the work that was done in the
    day was undone in the night. The mint was employed, not so much
    in making daily additions to the coin, as in replacing the very
    best part of it, which was daily melted down.

    Were the private people who carry their gold and silver to the
    mint to pay themselves for the coinage, it would add to the value
    of those metals, in the same manner as the fashion does to that
    of plate. Coined gold and silver would be more valuable than
    uncoined. The seignorage, if it was not exorbitant, would add to
    the bullion the whole value of the duty; because, the government
    having everywhere the exclusive privilege of coining, no coin can
    come to market cheaper than they think proper to afford it. If
    the duty was exorbitant, indeed, that is, if it was very much
    above the real value of the labour and expense requisite for
    coinage, false coiners, both at home and abroad, might be
    encouraged, by the great difference between the value of bullion
    and that of coin, to pour in so great a quantity of counterfeit
    money as might reduce the value of the government money. In
    France, however, though the seignorage is eight per cent., no
    sensible inconveniency of this kind is found to arise from it.
    The dangers to which a false coiner is everywhere exposed, if he
    lives in the country of which he counterfeits the coin, and to
    which his agents or correspondents are exposed, if he lives in a
    foreign country, are by far too great to be incurred for the sake
    of a profit of six or seven per cent.

    The seignorage in France raises the value of the coin higher than
    in proportion to the quantity of pure gold which it contains.
    Thus, by the edict of January 1726, the mint price of fine gold
    of twenty-four carats was fixed at seven hundred and forty livres
    nine sous and one denier one-eleventh the mark of eight Paris
    ounces. {See Dictionnaire des Monnoies, tom. ii. article
    Seigneurage, p. 439, par 81. Abbot de Bazinghen,
    Conseiller-Commissaire en la Cour des Monnoies à Paris.} The gold
    coin of France, making an allowance for the remedy of the mint,
    contains twenty-one carats and three-fourths of fine gold, and
    two carats one-fourth of alloy. The mark of standard gold,
    therefore, is worth no more than about six hundred and
    seventy-one livres ten deniers. But in France this mark of
    standard gold is coined into thirty louis d'ors of twenty-four
    livres each, or into seven hundred and twenty livres. The coin.
    age, therefore, increases the value of a mark of standard gold
    bullion, by the difference between six hundred and seventy-one
    livres ten deniers and seven hundred and twenty livres, or by
    forty-eight livres nineteen sous and two deniers.

    A seignorage will, in many cases, take away altogether, and will
    in all cases diminish, the profit of melting down the new coin.
    This profit always arises from the difference between the
    quantity of bullion which the common currency ought to contain
    and that which it actually does contain. If this difference is
    less than the seignorage, there will be loss instead of profit.
    If it is equal to the seignorage, there will be neither profit
    nor loss. If it is greater than the seignorage, there will,
    indeed, be some profit, but less than if there was no seignorage.
    If, before the late reformation of the gold coin, for example,
    there had been a seignorage of five per cent. upon the coinage,
    there would have been a loss of three per cent. upon the melting
    down of the gold coin. If the seignorage had been two per cent.,
    there would have been neither profit nor loss. If the seignorage
    had been one per cent., there would have been a profit but of one
    per cent. only, instead of two per cent. Wherever money is
    received by tale, therefore, and not by weight, a seignorage is
    the most effectual preventive of the melting down of the coin,
    and, for the same reason, of its exportaticn. It is the best and
    heaviest pieces that are commonly either melted down or exported,
    because it is upon such that the largest profits are made.

    The law for the encouragement of the coinage, by rendering it
    duty-free, was first enacted during the reign of Charles II. for
    a limited time, and afterwards continued, by different
    prolongations, till 1769, when it was rendered perpetual. The
    bank of England, in order to replenish their coffers with money,
    are frequently obliged to carry bullion to the mint ; and it was
    more for their interest, they probably imagined, that the coinage
    should be at the expense of the government than at their own. It
    was probably out of complaisance to this great company, that the
    government agreed to render this law perpetual. Should the custom
    of weighing gold, however, come to be disused, as it is very
    likely to be on account of its inconveniency ; should the gold
    coin of England come to be received by tale, as it was before the
    late recoinage this great company may, perhaps, find that they
    have, upon this, as upon some other occasions, mistaken their own
    interest not a little.

    Before the late recoinage, when the gold currency of England was
    two per cent. below its standard weight, as there was no
    seignorage, it was two per cent. below the value of that quantity
    of standard gold bullion which it ought to have contained. When
    this great company, therefore, bought gold bullion in order to
    have it coined, they were obliged to pay for it two per cent.
    more than it was worth after the coinage. But if there had been a
    seignorage of two per cent. upon the coinage, the common gold
    currency, though two per cent. below its standard weight, would,
    notwithstanding, have been equal in value to the quantity of
    standard gold which it ought to have contained ; the value of the
    fashion compensating in this case the diminution of the weight.
    They would, indeed, have had the seignorage to pay, which being
    two per cent., their loss upon the whole transaction would have
    been two per cent., exactly the same, but no greater than it
    actually was.

    If the seignorage had been five per cent. and the gold currency
    only two per cent. below its standard weight, the bank would, in
    this case, have gained three per cent. upon the price of the
    bullion ; but as they would have had a seignorage of five per
    cent. to pay upon the coinage, their loss upon the whole
    transaction would, in the same manner, have been exactly two per

    If the seignorage had been only one per cent., and the gold
    currency two per cent. below its standard weight, the bank would,
    in this case, have lost only one per cent. upon the price of the
    bullion; but as they would likewise have had a seignorage of one
    per cent. to pay, their loss upon the whole transaction would
    have been exactly two per cent., in the same manner as in all
    other cases.

    If there was a reasonable seignorage, while at the same time the
    coin contained its full standard weight, as it has done very
    nearly since the late recoinage, whatever the bank might lose by
    the seignorage, they would gain upon the price of the bullion;
    and whatever they might gain upon the price of the bullion, they
    would lose by the seignorage. They would neither lose nor gain,
    therefore, upon the whole transaction, and they would in this, as
    in all the foregoing cases, be exactly in the same situation as
    if there was no seignorage.

    When the tax upon a commodity is so moderate as not to encourage
    smuggling, the merchant who deals in it, though he advances, does
    not properly pay the tax, as he gets it back in the price of the
    commodity. The tax is finally paid by the last purchaser or
    consumer. But money is a commodity, with regard to which every
    man is a merchant. Nobody buys it but in order to sell it again;
    and with regard to it there is, in ordinary cases, no last
    purchaser or consumer. When the tax upon coinage, therefore, is
    so moderate as not to encourage false coining, though every body
    advances the tax, nobody finally pays it; because every body gets
    it back in the advanced value of the coin.

    A moderate seignorage, therefore, would not, in any case, augment
    the expense of the bank, or of any other private persons who
    carry their bullion to the mint in order to be coined; and the
    want of a moderate seignonage does not in any case diminish it.
    Whether there is or is not a seignorage, if the currency contains
    its full standard weight, the coinage costs nothing to anybody ;
    and if it is short of that weight, the coinage must always cost
    the difference between the quantity of bullion which ought to be
    contained in it, and that which actually is contained in it.

    The government, therefore, when it defrays the expense of
    coinage, not only incurs some small expense, but loses some small
    revenue which it might get by a proper duty; and neither the
    bank, nor any other private persons, are in the smallest degree
    benefited by this useless piece of public generosity.

    The directors of the bank, however, would probably be unwilling
    to agree to the impositon of a seignorage upon the authority of a
    speculation which promises them no gain, but only pretends to
    insure them from any loss. In the present state of the gold coin,
    and as long as it continues to be received by weight, they
    certainly would gain nothing by such a change. But if the custom
    of weighing the gold coin should ever go into disuse, as it is
    very likely to do, and if the gold coin should ever fall into the
    same state of degradation in which it was before the late
    recoinage, the gain, or more properly the savings, of the bank,
    inconsequence of the imposition of a seignorage, would probably
    be very considerable. The bank of England is the only company
    which sends any considerable quantity of bullion to the mint, and
    the burden of the annual coinage falls entirely, or almost
    entirely, upon it. If this annual coinage had nothing to do but
    to repair the unavoidable losses and necessary wear and tear of
    the coin, it could seldom exceed fifty thousand, or at most a
    hundred thousand pounds. But when the coin is degraded below its
    standard weight, the annual coinage must, besides this, fill up
    the large vacuities which exportation and the melting pot are
    continually making in the current coin. It was upon this account,
    that during the ten or twelve years immediately preceding the
    late reformation of the gold coin, the annual coinage amounted,
    at an average, to more than £850,000. But if there had been a
    seignorage of four or five per cent. upon the gold coin, it would
    probably, even in the state in which things then were, have put
    an effectual stop to the business both of exportation and of the
    melting pot. The bank, instead of losing every year about two and
    a half per cent. upon the bullion which was to be coined into
    more than eight hundred and fifty thousand pounds, or incurring
    an annual loss of more than £21,250 pounds, would not probably
    have incurred the tenth part of that loss.

    The revenue allotted by parliament for defraying the expense of
    the coinage is but fourteen thousand pounds a-year; and the real
    expense which it costs the government, or the fees of the
    officers of the mint, do not, upon ordinary occasions, I am
    assured, exceed the half of that sum. The saving of so very small
    a sum, or even the gaining of another, which could not well be
    much larger, are objects too inconsiderable, it may be thought,
    to deserve the serious attention of government. But the saving of
    eighteen or twenty thousand pounds a-year, in case of an event
    which is not improbable, which has frequently happened before,
    and which is very likely to happen again, is surely an object
    which well deserves the serious attention, even of so great a
    company as the bank of England.

    Some of the foregoing reasonings and observations might, perhaps,
    have been more properly placed in those chapters of the first
    book which treat of the origin and use of money, and of the
    difference between the real and the nominal price of commodities.
    But as the law for the encouragement of coinage derives its
    origin from those vulgar prejudices which have been introduced by
    the mercantile system, I judged it more proper to reserve them
    for this chapter. Nothing could be more agreeable to the spirit
    of that system than a sort of bounty upon the production of
    money, the very thing which, it supposes, constitutes the wealth
    of every nation. It is one of its many admirable expedients for
    enriching the country.
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