Superphysics Superphysics
Chapter 12

The Opinion that No Expense at Home Can be Hurtful

by Adam Smith Icon
4 minutes  • 739 words
Table of contents

The absurd notion that national opulence consists in money has another bad effect – it makes people think that whatever people spend locally cannot reduce public opulence.

Dr. Mandeville created a system that private vices are public benefits. It believes that what we spend at home is all spent among ourselves and that none of it goes out of the country.

But if everyone wears, tears, and spends his stock, without doing any industry, then the nation is made so much the poorer at the end of the year.

If he spends only the interest of the money, he does no harm since the capital still remains and is employed in promoting industry. But if he spends the capital, the whole is gone.

Let us supposed that I inherit 1,000 pounds worth of necessaries and conveniences instead of 1,000 pounds in cash. I then eat, drink, and use them up until nothing remains. I thus reduce myself to poverty, but also rob 1,000 pounds of the public stock which I had just consumed – the public could have used that stock to produce more.

Let us suppose that the Mongols, who have no idea of industry, invaded Britain. They would find here all commodities for the taking. They would put on fine clothes, eat, drink, tear, and wear everything they could get. The whole country would be reduced to the lowest misery and return to its ancient state. The 30 million pounds of money would probably remain for some time. But all the necessaries of life would be consumed.

This shows the absurdity of the opinion that home consumption cannot hurt the country’s opulence. That principle is why:

  • a war in Germany is thought to be a dreadful calamity as it drains the country of money, and
  • a foreign land war is always thought more prejudicial than a sea war.

But in reality, both are the same thing to the nation depending on how or where its stock is spent.

If I buy 1,000 pounds worth of French wines and drink them all, the country is 2,000 pounds poorer because the French wines and the money to buy them are gone. If I buy 1,000 pounds worth of local goods all for my consumption, my country is only deprived of 1,000 pounds in goods as the 1,000 pounds in money still remains.

But in maintaining an army in a distant war, it does not matter whether we pay them in goods or money because the army’s consumption is the same at any rate. Perhaps it is better to pay them in money, as our goods are better used at home. For the same reason, there is no difference between land and sea wars.

Thus:

  • Britain should be made a free port so that there would be no interruptions on foreign trade.
  • All duties, customs, and excise should be abolished if it were possible to defray government expenses by any other method
  • Free commerce and liberty of exchange should be allowed with all nations, and for all things.

Public Debt

The same absurd principles that national opulence consists in money even affects public debt. They say that the over 100 million that we owe is owed to ourselves, or at least very little of it to foreigners. It is just the right hand owing the left and so it can be a little disadvantage.

But the interest of this 100 million is paid by industrious people and given to the idle people employed in gathering it. Thus, industry is taxed to support idleness.

Without the debt, the nation would have been much richer by prudence and economy. The nation’s industry would not be hurt by the oppression of those idle people who live off of it. Instead of the brewer paying taxes which are often improper, the stock might have been lent out to industrious people who would:

  • have made 6 or 7% by it, and
  • have given better interest than the government does.

This stock would then have been employed for the country’s welfare.

When there are such heavy taxes to pay, every merchant must carry on less trade. He must pay his taxes before selling his commodities. This narrows his stock and hinders his trade from being so extensive as it otherwise would be.

To stop this clamour, Sir Robert Walpole tried to show that the public debt was no inconvenience even if he saw the contrary himself.

Any Comments? Post them below!