The Benefits from the Quick Circulation of Money and Commodities

Jobbing in merchandise necessarily causes a loss, either to the jobber, if the price be not raised by the transaction, or to the consumer, if it be raised. 142

It is common to hear people descant upon the benefits of an active circulation; that is to say, of numerous and rapid sales. It is material to appreciate them correctly.

The activity of circulation is at the utmost pitch to which it can be carried with advantage, when the product passes into the hands of a new productive agent the instant it is fit to receive a new modification, and is ultimately handed over to the consumer, the instant it has received the last finish.

All kind of activity and bustle not tending to this end, far from giving additional activity to circulation, is an impediment to the course of production — an obstacle to circulation by all means to be avoided.

The values engaged in actual production cannot be realized and employed in production again, until arrived at the last stage of completion, and sold to the consumer. The sooner a product is finished and sold, the sooner also can the portion of capital vested in it be applied to the business of fresh production.

The capital being engaged a shorter time, there is less interest payable to the capitalist; there is a saving in the charges of production; it is, therefore, an advantage, that the successive operations performed in the course of production should be rapidly executed.

With respect to the rapidity of production arising from the more skilful direction of industry, it is an increase of rapidity not in circulation, but in productive energy. The advantage is analogous; it abridges the amount of capital employed.

By way of illustrating the effects of this activity of circula- tion, let us trace them in the instance of a piece of printed calico. 141

Chapter 17: The Effect of Government Regulations Intended to Influence Production.

There is no distinction between the circulation of goods and of money.

A money that lies idle in a merchant’s coffers is an inactive portion of his capital, precisely of the same nature as that part of his capital which is lying in his warehouse as goods ready for sale.

Strictly speaking, there is no act of government but what has some influence upon production. I shall confine myself in this chapter to such as are avowedly aimed at the exertion of such influence; reserving the effects of the monetary system, of loans, and of taxes, to be treated of in distinct chapters.

The object of governments, in their attempts to influence production, is, either to prescribe the raising of particular kinds of produce which they judge more advantageous than others, or to prescribe methods of production, which they imagine preferable to other methods. The effects of this two-fold attempt upon national wealth will be investigated in the two first sections of this chapter; in the remaining two, I shall apply the same principles to the particular cases of privileged companies, and of the corn-trade, both on account of their vast importance, and for the purpose of further explaining and illustrating the principles.

What reasons and circumstances will require or justify a deviation from general principles?

The grand mischiefs of authoritative interference proceed not from occasional exceptions to established maxims, but from false ideas of the nature of things, and the false maxims built upon them. It is then that mischief is done by wholesale, and evil pursued upon system; for it is well to beware, that no set of men are more bigoted to system, than those who boast that they go upon none. 143

The best stimulus of useful circulation is, the natural wish of all classes, especially the producers themselves, to incur the least possible amount of interest upon the capital embarked in their respective undertakings. Circulation is much more apt to be interrupted by the obstacles thrown in its way, than by the want of proper encouragement. Its greatest obstruc- tions are, wars, embargoes, oppressive duties, the dangers and difficulties of transportation. It flags in times of alarm and uncertainty, when social order is threatened, and all undertakings are hazardous. It flags, too, under the general dread of arbitrary exactions, when every one tries to conceal the extent of his ability. Finally, it flags in times of jobbing and speculation, when the sudden fluctuations caused by gambling in produce, make people look for a profit from every variation of mere relative price= goods are then held back in expectation of a rise, and money in the prospect of a fall; and, in the interim, both these capitals remain inactive and useless to production.

Under such circumstances, there is no circulation, but of such products as cannot be kept without danger of deterioration; as fruits, vegetables, grain, and all articles that spoil in the keeping. With regard to them, it is thought wiser to incur the loss of present sale, whatever it be, than to risk considerable or total loss.

If the national money be deteriorated, it becomes an object to get rid of it in any way, and exchange it for commodities.

This was one of the causes of the prodigious circulation that took place during the progres- sive depreciation of the French assignats. Everybody was anxious to find some employment for a paper currency, whose value was hourly depreciating; it was only taken to be re- invested immediately, and one might have supposed it burnt the fingers it passed through. On that occasion, men plunged into business, of which they were utterly ignorant; manufac- tures were established, houses repaired and furnished, no expense was spared even in pleasure; until at length all the value each individual possessed in assignats was finally con- sumed, invested or lost altogether.

Section I. Effect of Regulations prescribing the Nature of Products.

The natural wants of society, and its circumstances for the time being, occasion a more or less lively demand for particular kinds of products.

Consequently, in these branches of production, productive services are somewhat better paid than in the rest; that is to say, the profits upon land, capital and labour, devoted to those branches of production, are somewhat larger.

This additional profit naturally attracts producers, and thus the nature of the products is always regulated by the wants of society. We have seen in a preceding chapter (XV) that these wants are more ample in proportion to the sum of gross production, and that society in the aggregate is a larger purchaser, in proportion to its means of purchasing. When authority throws itself in the way of this natural course of things, and says, the product you are about to create, that which vields the greatest profit, and is consequently the most in request, is 4y no means the most suitable to your circum-

ing the products of the torrid, under the sun of the temperate latitudes. The saccharine and colouring juices, raised on the European soils, with all the forcing in the world, are very inferior in quantity and quality to those that grow in profu- sion in other climates; 146 while, on the other hand, those soils yield abundance of grain and fruits too bulky and heavy to be imported from a distance. In condemning our lands to the growth of products ill suited to them, instead of those they are better calculated for, and, consequently, buying very. dear what we might have cheap enough, if we would consent to receive them from places where they are produced with ad- vantage, we are ourselves the victims of our own absurdity. It is the very acme of skill, to turn the powers of nature to best account, and the height of madness to contend against them; which is in fact wasting part of our strength, in destroying those powers she designed for our aid. stances, you must undertake some other, it evidently directs a portion of the productive energies of the nation towards an object of less desire, at the expense of another of more urgent desire.

In France, about the year 1794, some persons were even brought to the scaffold for converting cornland into pasture. Such people found it more profitable to feed cattle than to grow wheat.

one might have been sure that society stood more in need of cattle than of corn, and that greater value could be produced in one way than in the other.

But, said the public authorities, the value produced is of less importance than the nature of the product, and we would rather have you raise $10 worth of grain than $20 worth of meat.

In this they betrayed their ignorance of this simple truth, that the greatest product is always the best; and that an estate, which should produce in butcher’s meat wherewith to purchase twice as much wheat as could have been raised upon it, produces, in reality, twice as much.wheat as if it had been sowed with grain; since wheat to twice the amount is to be got for its product.

This way of getting wheat, they will tell you, does not increase its total quantity. True, unless it be introduced from abroad; but nevertheless, this article must at the time be relatively more plentiful than butcher’s meat, because the product of two acres of wheat is given for that of one acre of pasture. 144 And, if wheat be suf- ficiently scarce, and in sufficient request to make tillage more profitable than grazing, legislative interference is superflu- ous altogether; for self-interest will make the producer turn his attention to the former.

As a maxim, it is better to buy products dear, when the price remains in the country, than to get them cheap from foreign growers.

This is because products are obtained with some sacrifice, — without the con- sumption of commodities and productive services in some ratio or other, the value of which is in this way as completely lost to the community, as if it were to be exported. 147

I can hardly suppose any government will be bold enough to object, that it is indifferent about the profit, which might be derived from a more advantageous production, because it would fall to the lot of individuals.

The worst governments, those which set up their own interest in the most direct opposition to that of their subjects, have by this time learnt, that the revenues of individuals are the regenerating source of public revenue; and that, even under despotic and military sway, where taxation is mere organized spoliation, the subjects can pay only what they have themselves acquired. The only question then is, which is the most likely to know what kind of cultivation yields the largest returns, the cultivator or the government; and we may fairly take it for granted, that the cultivator, residing on the spot, making it the object of constant study and inquiry, and more interested in success than anybody, is better informed in this respect than the government.

The maxims we have been applying to agriculture are equally applicable to manufacture. Sometimes a government entertains a notion, that the manufacture of a native raw material is better for the national industry, than the manufacture of a foreign raw material.

It is in conformity to this notion, that we have seen instances of preference given to the woollen and linen above the cotton manufacture. By this conduct we contrive, as far as in us lies, to limit the bounty of nature, which pours forth in different climates a variety of materials adapted to our innumerable wants. Whenever human efforts succeed in attaching to these gifts of nature a value, that is to say, a degree of utility, whether by their inmport, or by any modification we may subject them to, a useful act is performed, and an item added to national wealth.

The sacrifice we make to foreigners in procuring the raw material is not a Should it be insisted upon in argument, that the cultivator knows only the price-current of the day, and does not, like the government, provide for the future wants of the people, it may be answered, that one of the talents of a producer, and a talent his own interest obliges him assiduously to cultivate, is not the mere knowledge, but the foreknowledge, of human wants. 145

An evil of the same description was occasioned, when, at another period, the proprietors were compelled to cultivate beet-root, or woad in lieu of grain= indeed, we may observe, en passant, that it is always a bad speculation to attempt rais- 61Jean-Baptise Say, A Treatise on Political Economy mously, ended in these terms= “To conclude, it is enough for the eternal prohibition of the use of printed calicoes, that the whole kingdom is chilled with horror at the news of their proposed toleration. Vox populi vox dei.”

whit more to be regretted, than the sacrifice of advances and consumption, that must be made in every branch of produc- tion, before we can get a new product. Personal interest is, in all cases, the best judge of the extent of the sacrifice, and of the indemnity we may expect for it; and, although this guide may sometimes mislead us, it is the safest in the long-run, as well as the least costly. 148

Roland de la Platiere was the inspector-general of manufactures. He says= “Is there a single individual at the present moment, who is mad enough to deny, that the fabric of printed calicoes employs an immense number of hands, what with the dressing of cotton, the spinning, weav- ing, bleaching, and printing? This article has improved the art of dyeing in a few years, more than all the other manufac- tures together have done in a century.”

But personal interest is no longer a safe criterion, if individual interests are not left to counteract and control each other. If one individual, or one class, can call in the aid of authority to ward off’ the effects of competition, it acquires a privilege to the prejudice and at the cost of the whole community; it can then make sure of profits not altogether due to the productive services rendered, but composed in part of an actual tax upon consumers for its private profit; which tax it commonly shares with the authority that thus unjustly lends its support.

The legislative body has great difficulty in resisting the importunate demands for this kind of privileges; the applicants are the producers that are to benefit thereby, who can represent, with much plausibility, that their own gains are a gain to the industrious classes, and to the nation at large, their workmen and themselves being members of the industrious classes, and of the nation. 149

Though governments have too often presumed upon their power to.benefit the general wealth, by prescribing to agri- culture and manufacture the raising of particular products, they have interfered much more particularly in the concerns of commerce, especially of external commerce. These bad consequences have resulted from a general system, distin- guished by the name of the exclusive or mercantile system, which attributes the profits of a nation to what is technically called a favourable balance of trade. Before we enter upon the investigation of the real effect of regulations, intended to secure to a nation this balance in its favour, it may be as well to form some notion of what it really is, and what is its pro- fessed object; which I shall attempt in the following

When the cotton manufacture was first introduced in France, all the merchants of Amiens, Rheims, Beauvais, &c. joined in loud remonstrances, and represented, that the industry of these towns was annihilated. Yet they do not appear less in- dustrious or rich than they were fifty years ago; while the opulence of Rouen and all Normandy has been wonderfully increased by the new fabric.

The outcry was infinitely greater, when printed calicoes first came into fashion; all the chambers of commerce were up in arms; meetings, discussions everywhere took place; memorials and deputations poured in from every quarter, and great sums were spent in the opposition. Rouen now stood forward to represent the misery about to assail her, and painted, in moving colours, “old men, women, and children, rendered destitute; the best cultivated lands in the kingdom lying waste, and the whole of a rich and beautiful province depopulated.”

The city of Tours urged the lamentations of the deputies of the whole kingdom, and foretold “a commotion that would shake the frame of social order itself.” Lyons could not view in silence a project “which filled all her manufactories with alarm.” Never on so important an occasion had Paris presented itself at the foot of a throne, “watered with the tears of commerce.” Amiens viewed the introduction of printed calicoes as the gulf that must inevitably swallow up all the manufactures of the kingdom.

The memorial of that city, drawn up at a joint meeting of the three eorporations, and signed unani-