Book 32018-10-23T05:48:50+00:00

THE WEALTH OF NATIONS : BOOK 3

CHAPTER 1: THE NATURAL PROGRESS OF OPULENCE

Commerce, in any civilized society, consists of the exchange of crude produce for manufactured goods. The countryside supplies the town with crude materials for manufacture; in turn, inhabitants of the countryside purchase manufactured goods from the town.

The capital of every growing society is primarily employed in agriculture, then in manufacturing businesses, and lastly in foreign trade. Men choose to invest their capital in the cultivation of land rather than manufacturing or foreign trade. Investments in land offer more security than investments in trade.

Cultivating land requires skilled tradesmen. Town and country inhabitants are mutually beneficial to each other, with the town providing a market for the country folk to sell their produce in exchange for the town’s manufactured goods. The quantity of manufactured goods a town sells to the country regulates the quantity of raw materials they buy.

CHAPTER 2: THE DISCOURAGEMENT OF AGRICULTURE IN THE ANCIENT STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE

When the German nations overran the western provinces of the Roman Empire, turmoil reigned for several centuries, with towns largely deserted and the countryside left uncultivated. During this time, the chiefs and leaders of those nations acquired or usurped to themselves the greater part of this mostly uncultivated land. The result was that all of this land ended up being by various proprietors.

Land represented not only a means of subsistence, but was a sign of power and protection. As such, it was felt that it was preferable not to divide land up, but rather to keep it within a family. This resulted in the introduction of the law of primogeniture, under which land passed to the eldest son of a family—the origin of the right of succession.

Entails were the natural consequences of the law of primogeniture. Introduced to limit the inheritance of property to certain heirs over a number of generations, they prevented land being passed outside the family by gift or folly, or by the misfortune of any of its successive owners. In the case of, for example, a principality, entails are indeed useful as they could well ensure the welfare of perhaps thousands of people against the caprice or extravagance of one man. But in Europe, nothing could be more absurd. Entails are used as a means of maintaining the exclusive privileges of nobility; in Scotland, more than a third of the land is under strict entail. Great landlords, however, are rarely great improvers of the land, preferring to invest their annual savings in new purchases rather than in the improvement of their old estate.

Man generally prefers to hire serfs rather than skilled laborers. Although sugar and tobacco plantations provide sufficient profit to pay for the upkeep of slaves, corn plantations do not. In the English colonies, of which the principal produce is corn, work is carried out by laborers. The resolution of the Quakers in Pennsylvania to free all their Negro slaves suggests that slaves were not widely used on the land there. The work on our sugar colonies is carried out entirely by slaves, and on our tobacco plantations a large part of it. Profits from sugar plantations are greater than for any other cultivation in Europe or America. Profits from tobacco plantations are superior to those of corn. This explains the fact that there are more Negro slaves than whites working in our sugar plantations than tobacco plantations.

CHAPTER 3: THE RISE AND PROGRESS OF CITIES AND TOWNS, AFTER THE FALL OF THE ROMAN EMPIRE

After the fall of the Roman Empire, landowners lived in fortified castles on their own estates; towns were chiefly inhabited by tradesmen and mechanics, in more or less the same servile conditions as the peasants.

But despite these conditions, the inhabitants of towns had more freedom than their country-dwelling counterparts. The kings of a particular country derived revenue from poll taxes charged for land rented out as farmland (sub-contracted) for a fee; the townspeople, or burghers, frequently got to farm the revenues which arose out of their own town. At first, the farmland was rented out to the burghers for a specific number of years; over time, however, it became standard practice to rent it to them in perpetuity. This was the origin of a free burgh, free burghers or free traders, when the burghers established corporations, with their own laws, town councils and government, and built walls for their security, which they defended against attack.

In those days, no sovereign was able to protect his weaker subjects from the oppression of the great lords. The lords despised the burghers due to their wealth, and plunders were frequent. The burghers hated and feared the lords, as did the king. This resulted in the burghers and king mutually supporting each other against the lords. It was in the king’s interest to ensure the burghers were as secure and independent of the lords as possible. He therefore granted the burghers their own magistrates, and the privilege of making bylaws for their own government, as well as the right to build walls for their defense. He also introduced a form of military discipline for them. As such, he gave them all the means of security and independence it was in his power to bestow.

In Britain, the cities became so strong that the sovereign could not impose a tax on them (besides the abovementioned farm rent) without their consent. They were often asked to send deputies to the kingdom’s general assembly, where they sometimes joined with clergy and barons to grant extraordinary aid to the king. Being more favorable to his power, these deputies seem to have been employed by the king as a counterbalance at these assemblies, against the authority of the great lords.

As a result, order and good government was established in the cities, together with liberty and security for the inhabitants—while in the country, people were exposed to violence and chaos.

CHAPTER 4: HOW THE COMMERCE OF TOWNS CONTRIBUTED TO THE IMPROVEMENT OF THE COUNTRY

The growth and increasing wealth of commercial and manufacturing towns contributed to the improvement and cultivation of the countries to which they belonged in three different ways:

  • Firstly, by providing a large market for the country’s crude produce, they encouraged its further cultivation and improvement.
  • Secondly, the wealth acquired by the city inhabitants was frequently used to purchase land. Merchants, keen to become country gentlemen, were more likely to improve the land they purchased. Such merchants saw a return on their investment and were not afraid to invest capital in improving their land, as they realized it would increase its value.
  • Thirdly, commerce and manufacturing gradually introduced order and good government amongst a country’s inhabitants, in contrast to their previous existence, which involved ongoing wars with their neighbors and servile dependency upon their superiors. This is viewed as being the most important change brought about by towns’ growth. Merchants, however, were unaware of the revolution their industry was gradually bringing about, acting merely in their own interests in pursuit of making money wherever they could. Throughout most of Europe, commerce and manufacturing in cities led to improvements in the countryside.

Growth rates in European countries, whose wealth depends on commerce, is slow compared to that in the North American colonies, whose wealth depends on agriculture. In terms of population growth, population doubles in Europe only every five hundred years or so, whereas in North America it doubles every twenty years.

The law of primogeniture in Europe prevents the division of great estates, thus hindering the multiplication of small landlords. The same regulations keep so much land out of the market that land which is sold is at a monopoly price. The result is that very little capital is invested in cultivation and improvement of land.

In North America, on the contrary, fifty to sixty pounds will generally buy enough stock to begin a plantation. The purchase and improvement of uncultivated land there is the most profitable investment for both small and large amounts of capital, and the fastest road to wealth. Such land is very cheap in North America, going for prices way below the value of the natural produce—which is not the case in Europe, or indeed in any country where the land is all privately owned.

If estates were divided equally among all of the children upon the death of a proprietor with a numerous family, the estate would generally be sold, with the result that so much land would come to market that it could no longer sell at a monopoly price. As such, a small amount of capital invested in purchasing land would be as attractive an investment opportunity as any.

The people occupying land were dependent on both the great landlord and his servants. The rent paid by both tenants renting under the feudal system and tenants at will was nowhere near equivalent to the subsistence the land provided them. A crown, half a crown, a sheep or a lamb was a common means of rent some years ago in the Highlands of Scotland for lands which maintained a family. This is still the case in some places today. In a country where the surplus produce of a large estate must be consumed upon the estate itself, it is often more convenient for the landlord if part of it is consumed at a distance from his house, provided those consuming it are dependent upon him. He is thereby saved from the embarrassment of either too large a company or too large a family. A tenant at will who has sufficient land to maintain his family for little more than a quit-rent is as dependent upon the landlord as any servant. Such a landlord provides food for his servants at his own home, and feeds his tenants at their houses. Their subsistence is therefore derived from his bounty, and depends upon his goodwill.

Wealth resided in the great landlords, and with it, power over their tenants and servants. They became both judges and leaders for those living on their estates. They maintained order and enforced laws within their respective estates by mobilizing the inhabitants against injustices committed by an individual. No other person, including the king, had sufficient authority to do this; in these ancient times, the king was little more than the greatest landlord of his dominions, and was respected by the great landlords mainly in terms of ensuring mutual defense against common enemies. For the king to have enforced payment of a small debt within the lands of a great landlord, in which all the inhabitants were armed and stood by one another, would have been akin to him ending a civil war. The king therefore left the administration of justice throughout most of the country to those capable of administering it, and left the command of the militia to those whom that militia would obey.

These territorial jurisdictions did not, however, originate from the feudal system. Not only the highest jurisdictions, both civil and criminal, but the power of levying troops, of coinage, and even that of making bylaws for the government of their own people were all the absolute right of the great landlords several centuries before feudal law was first introduced in Europe. The authority and jurisdiction of the Saxon lords in Britain appear to have been just as strong before the Conquest as that of any of the Norman lords after it—yet the feudal system is believed to have become common law in Britain only after the Conquest. There is also substantial evidence that the lords in France held absolute ownership of estates long before the feudal law was introduced in that country. This authority and jurisdiction came from ownership of an estate. There is historical proof of this even later than the times of the French and English monarchies. Only thirty years ago, Mr. Cameron of Lochiel from Lochaber in Scotland, a landholder by feudal tenure under the Duke of Argyll, was neither a noble nor a tenant in chief, yet exercised the highest criminal jurisdictions over his own people, despite having no legal right to do so. He is said to have done so fairly, though without any of the formalities of justice. Probably the state of that part of the country at that time made it necessary for him to assume this authority in order to maintain public peace. In 1745, Mr. Cameron, whose rent never exceeded £500 a year, mobilized 800 of his own people into rebellion with him.

The introduction of the feudal system may be viewed as an attempt to moderate the authority of the great allodial lords. It established subordination, from the king down to the smallest landlord. Under this system, the rent and management of a landlord’s land was controlled by his immediate superior, and that of the great landlords was controlled by the king, who was charged with the maintenance and education of the pupil, and who, from his authority as guardian, had the right to arrange marriage, provided it was not deemed unsuitable to the pupil’s rank. This system strengthened the authority of the king and weakened that of the great landlords; however, it did not result in order and good government amongst country dwellers. Government authority remained weak at the top and strong amongst the lower ranks, and the feudal system did not enable the king to prevent violence amongst the great lords. They continued to fight amongst each other at will almost continually, as well as against the king, and the countryside remained a place of violence, rapine and disorder.

But it was not the violence that reigned under the feudal system that brought about the growth and progression of society; it was foreign trade and industry, which gradually provided the great landlords with something for which they could exchange the whole surplus produce of their lands and which they could consume themselves, without sharing it either with tenants or servants. Self-interest above the interests of others seems to have been the vile maxim of the masters of mankind, throughout the ages. The wealthy would sooner spend their money on themselves than invest it in renting land to others. They would happily purchase a pair of diamond buckles or some other frivolous and useless item for an amount that would have maintained 1000 men for a year. The thinking behind this was that the frivolous purchase was all their own, whereas by renting their land out, they would have been sharing with 1000 other people. This wealth eroded over time, however, as the great landowners could not maintain this extravagant lifestyle.

In a country where there is no foreign trade or major manufacturing businesses, a man earning £10,000 a year cannot employ his revenue in any other way than maintaining perhaps 1000 families, all of whom work for him. In the present state of Europe, a man earning £10,000 a year can spend his whole revenue—and generally does so—without directly maintaining as few as twenty people or employing just ten of even the most menial servants. Indirectly, however, he is probably maintaining as many or even more people than he could have done if renting out his land to these people because, although the quantity of precious items he purchases with his revenue is very small, the number of workmen employed in manufacturing them is great. The high price of the frivolous item reflects the wages of their labor and the profits of all their immediate employers. By paying this steep price, he is indirectly paying all these wages and profits, and thus indirectly contributing to the maintenance of all the workmen and their employers. In terms of their annual maintenance, however, he is contributing a very small portion. Though he contributes toward their maintenance, they are all more or less independent of him since they can generally all be maintained without him.

When great landlords spend their rents in maintaining their tenants and servants, each maintains his own tenants and servants. But when these landlords spend their rents maintaining tradesmen and skilled workers, they may in fact, as a whole, be maintaining as many or more people than before, on account of the waste incurred when providing hospitality. Each landlord individually, however, contributes only a very small share to the maintenance of each individual of this greater number. Each tradesman or skilled worker derives his subsistence from the employment not of one but of a hundred or a thousand different customers. Though in some measure obliged to them all, therefore, he is not absolutely dependent upon any individual one of them.

As a result, the great landlords’ personal expenses gradually increased and the number of servants they hired decreased, until they could no longer hire any at all. They also started to find themselves having to dismiss their tenants. Farms were enlarged and the number of tenants reduced to just the necessary amount needed to cultivate the land. By reducing these unnecessary mouths and by exploiting the farm to its full potential, the landlord obtained a greater surplus and hence profit, which he was able to spend on himself, purchasing from merchants and manufacturers, in the same way he done in the past. The landowner would often then be tempted to increase the rent for his land, usually above what it was actually worth. His tenants would agree to this, on the condition that they could rent the land for a specified number of years, thus guaranteeing them the income required to recover whatever they invested in the further improvement of the land. The landlords, keen to maintain their extravagant lifestyles, agreed to this—hence the origin of the long-term lease.

A tenant at will who pays the full value of the land is not totally dependent upon the landlord. The financial benefits they receive from one another are mutual and equal, and the tenant is risking neither life nor fortune by working for the landlord. If, on the other hand, he has a long-term lease, he is totally independent; his landlord cannot expect any service of him beyond what is expressly stipulated in the lease or imposed upon him by the country’s laws.

With tenants now having become independent and the servants being dismissed, the great landlords no longer had any power to become involved in the country’s legal or peace-related matters. Having sold their birthright—not like Esau, for a mess of pottage at a time of hunger and necessity, but through extravagance, for trinkets and baubles—they became as insignificant as any common burgher or tradesman in a city. Regular governments were established in both the countryside and the cities, and no one had the power to disrupt their operation.

As an aside, I feel it is relevant to point out here that in commercial countries, there are very few old land-owning families; i.e., that have passed estates from father to son for many successive generations. In countries in which there is little commerce, however, such as Wales or the Highlands of Scotland, there are many such families. Arabian history books are full of genealogies, and the history book written by Tartar Khan, which has been translated into several European languages, contains proof that ancient families are very common among such nations. In countries where a wealthy man’s revenue is spent solely on maintaining as many people as possible, he is unlikely to live beyond his means. But where he can spend his revenue on himself, he tends to have no limitations to his expenditure, which is driven by self-interest. In commercial countries, therefore, riches, in spite of laws implemented with a view to preventing their dissipation, very seldom remain long in the same family. Among simple nations, on the contrary, they frequently do, without the existence of any such laws. Among nations of shepherds such as the Tartars and Arabs, for example, the consumable nature of their property renders all such regulations impossible.

Consequently, a major revolution in terms of public happiness was brought about by two different classes of people, neither of which had the public’s interests at heart. Great landlords were driven by self-interest and extravagance. Merchants and industrialists, much less frivolous, acted with a view to self-sustenance, striving to make money wherever possible. Neither had the knowledge or foresight of the great revolution which the folly of the one and the industry of the other were gradually bringing about.

Indeed, throughout the greater part of Europe, trade and industry in cities, rather than being the result of a country’s improvement and growth, have been the driving force behind it.

This situation, however, being contrary to the natural course of things, is both slow and uncertain. Compare the slow progress of the European countries, whose wealth depends on commerce and manufacturing, with the rapid progress of the North American colonies, whose wealth depends entirely on agriculture. Throughout most of Europe, population doubles only every five hundred years or so; in the North American colonies, it doubles about every twenty years.

The law of primogeniture in Europe prevents the division of great estates, thereby hindering the multiplication of small landlords. A small landlord, however, who knows every part of his little territory, will take a certain pride in it and will enjoy not only cultivating but embellishing it—with the result that he will be one of the best, most industrious, intelligent and successful landowners. Furthermore, these same regulations keep so much land out of the market that there is always more capital to buy than there is land to sell, so what is sold always sells at a monopoly price. Rent never pays the interest of the purchase fee, nor does it cover repairs and other occasional charges.

Throughout Europe, investing a small amount of capital in land is an unprofitable investment. A middle-class man may, upon retirement, decide to invest his small amount of capital in land, for the security this provides. A professional man may also secure his savings in the same way. But a young man who, instead of working as a tradesman or in some other profession, invests two or three thousand pounds in the purchase and cultivation of a small piece of land can live very happily and independently—although forgoing the fortune he may have made had he invested otherwise. The latter may well become a farmer, though the small quantity of land, coupled with the high price often means that there will not be a great amount to spare to invest in the land’s cultivation and improvement.

In North America, on the contrary, fifty to sixty pounds is generally sufficient to begin a plantation. The purchase and improvement of uncultivated land there is the most profitable investment for both small and large amounts of capital, and the fastest road to wealth. This land in North America goes for next to nothing, at prices way below the value of the natural produce—which is not the case in Europe, or indeed in any country where the land is all privately owned. If estates were divided equally among all of the children upon the death of a landlord with a numerous family, the estate would generally be sold, with the result that so much land would come to market that it could no longer sell at a monopoly price. As such, the free rent of the land would come closer to covering the interest of the purchase price, and a small amount of capital invested in purchasing land would be as profitable an investment as any other.