An inquiry into the nature and causes of the wealth of

752

The Wealth of Nations

only their own capitals, but the capitals of all those who either

lend them money, or trust them with goods, pass as frequently, or

more frequently, than the revenue of a private man, who, without

trade or business, lives upon his income, passes through his hands.

The revenue of such a man can regularly pass through his hands

only once in a year. But the whole amount of the capital and

credit of a merchant, who deals in a trade of which the returns are

very quick, may sometimes pass through his hands two, three, or

four times in a year. A country abounding with merchants and

manufacturers, therefore, necessarily abounds with a set of people,

who have it at all times in their power to advance, if they chuse to

do so, a very large sum of money to government. Hence the abil-

ity in the subjects of a commercial state to lend.

Commerce and manufactures can seldom flourish long in any

state which does not enjoy a regular administration of justice; in

which the people do not feel themselves secure in the possession

of their property; in which the faith of contracts is not supported

by law; and in which the authority of the state is not supposed to

be regularly employed in enforcing the payment of debts from all

those who are able to pay. Commerce and manufactures, in short,

can seldom flourish in any state, in which there is not a certain

degree of confidence in the justice of government. The same con-

fidence which disposes great merchants and manufacturers upon

ordinary occasions, to trust their property to the protection of a

particular government, disposes them, upon extraordinary occa-

sions, to trust that government with the use of their property. By

lending money to government, they do not even for a moment

diminish their ability to carry on their trade and manufactures; on

the contrary, they commonly augment it. The necessities of the

state render government, upon most occasions willing to borrow

upon terms extremely advantageous to the lender. The security

which it grants to the original creditor, is made transferable to any

other creditor; and from the universal confidence in the justice of

the state, generally sells in the market for more than was originally

paid for it. The merchant or monied man makes money by lend-

ing money to government, and instead of diminishing. increases

his trading capital. He generally considers it as a favour, therefore,

when the administration admits him to a share in the first sub-

scription for a new loan. Hence the inclination or willingness in

the subjects of a commercial state to lend.

The government of such a state is very apt to repose itself upon

this ability and willingness of its subjects to lend it their money on

extraordinary occasions. It foresees the facility of borrowing, and

therefore dispenses itself from the duty of saving.

In a rude state of society, there are no great mercantile or manu-

facturing capitals. The individuals, who hoard whatever money

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753

Adam Smith

they can save, and who conceal their hoard, do so from a distrust

of the justice of government; from a fear, that if it was known that

they had a hoard, and where that hoard was to be found, they

would quickly be plundered. In such a state of things, few people

would be able, and nobody would be willing to lend their money

to government on extraordinary exigencies. The sovereign feels

that he must provide for such exigencies by saving, because he

foresees the absolute impossibility of borrowing. This foresight

increases still further his natural disposition to save.

The progress of the enormous debts which at present oppress,

and will in the long-run probably ruin, all the great nations of

Europe, has been pretty uniform. Nations, like private men, have

generally begun to borrow upon what may be called personal credit,

without assigning or mortgaging any particular fund for the pay-

ment of the debt; and when this resource has failed them, they

have gone on to borrow upon assignments or mortgages of par-

ticular funds.

What is called the unfunded debt of Great Britain, is contracted

in the former of those two ways. It consists partly in a debt which

bears, or is supposed to bear, no interest, and which resembles the

debts that a private man contracts upon account; and partly in a

debt which bears interest, and which resembles what a private man

contracts upon his bill or promissory-note. The debts which are

due, either for extraordinary services, or for services either not

provided for, or not paid at the time when they are performed;

part of the extraordinaries of the army, navy, and ordnance, the

arrears of subsidies to foreign princes, those of seamen’s wages,

etc. usually constitute a debt of the first kind. Navy and exchequer

bills, which are issued sometimes in payment of a part of such

debts, and sometimes for other purposes, constitute a debt of the

second kind; exchequer bills bearing interest from the day on which

they are issued, and navy bills six months after they are issued.

The bank of England, either by voluntarily discounting those bills

at their current value, or by agreeing with government for certain

considerations to circulate exchequer bills, that is, to receive them

at par, paying the interest which happens to be due upon them,

keeps up their value, and facilitates their circulation, and thereby

frequently enables government to contract a very large debt of this

kind. In France, where there is no bank, the state bills (billets

d’etat {See Examen des Reflections Politiques sur les Finances.})

have sometimes sold at sixty and seventy per cent. discount. Dur-

ing the great recoinage in king William’s time, when the bank of

England thought proper to put a stop to its usual transactions,

exchequer bills and tallies are said to have sold from twenty-five to

sixty per cent. discount; owing partly, no doubt, to the supposed

instability of the new government established by the Revolution,

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