<50/ .Jr UC-NRLF ?0 JPi TH A* /! AN INQUIRY INTO THE NATURE OF VALUE AND OF CAPITAL, AND INTO THE OPERATION OF GOVERNMENT LOANS, BANKING INSTITUTIONS, AND PRIVATE CREDIT. BT ALEXANDER B. JOHNSON. NEW-YORK. PUBLISHED FOR THE AUTHOR. John Forbes, Printer. 1813. CONTENTS. Page Preliminary Essay, - 1 A Public Loan increases the national capital to the amount of the Loan, 16 Government Loans are, in fact, Loans from Government to the nation, - - 17 What Capital is, ... ib. Banks increase the National Capital, ib. An article of capital must be an object of Man's desire, 18 Government Securities are desired for the Specie they produce, 19 B^nk-notes are desired for the specie which they represent, 2O The amount in circulation may, many times, exceed the whole amount of gold and silver in the nation, ib. Notes of individuals are objects of desire, and possess the nature of capital, 21 They increase the capital of a nation, ib. The notes of individuals may exceed in amount not only the Specie of a Nation, but also the bank-notes of the nation, - - ib. Bank-notes might continue objects of desire, even though specie should be refused for them at the banks, 22 The extent to which our present banking system (of giving specie for their notes) can be extended, will have some reference to the amount of specie in the nation, 24 An article may lose its character as capital, 25? Skill and Labour, create capital, - ib. Capital is perishable. - 26 An increase of capital is desirable, ib. The business of life is to procure the objects of desire, ib. We distinguish nations by the quantity of capital they pos- sess, - 27 A great portion of this capital is created by skill and labour, ib. Man's gratification will be restricted only by his means, ib. His desires increase with his means. 28 His pleasure depends upon the number of desires he can gratify, - ib. CONTENTS. Page His desires do not so readily decrease with the decre- ment of his means, - - 29 He will be unhappy in proportion to the number of desires which he cannot gratify, - ib. Possessing capital enables us to increase our possessions, 30 A man seldom gets rich by his individual labour, - ib. Our desires cause the production of capital, 31 Specie the most used in exchanges, ib. Of Value, ib. The quantity of every article possessed by man, depends upon the difficulty or facility of its procurement, 32 The exchangeable value of articles is ultimately governed by the relative difficulty of their procurement, - 33 The facility with which an article is procurable, dictates its use, 34 A surplus can never long exist, 35 An article is scarce or plenty in proportion as the quantity in market either exceeds or falls short of the usual sup- ply, ib. An insufficiency of quantity in any article, cannot long exist, 37 Dear and Cheap, 38 The quantity of capital in a nation is distinct from the amount of it, 40 Commerce regulates the rates of Exchanges, 41 The easy procurement of an article in any one nation, benefits every other country, ib. An individual may increase his wealth without increasing his possessions, 43 An increased facility in the procurement of any article, benefits the consumers, - ib. A depreciation in price, not arising from an increased facil- ity of production, must be but temporary, 44 The depreciation of an article below its true relative value, is generally followed by its appreciation above its true relative value, 4& An increased difficulty in the procurement of an article, injures the consumers, without benefitting the producers, ib. An event that should increase the facility of procuring all the objects of desire, would be a universal benefit ; one that should increase the difficulty of their procurement, would be a universal injury, - 46 An increased facility in the production of any article, not only makes it procurable for less capital, but also makes it exist in greater plenty, 47 It would be injurious to men of stationary fortunes, - 48 CONTENTS. Page An increased difficulty in the procurement of any article, not only makes it exchangeable for more capital, but also makes it exist in greater scarcity, ib. General Conclusions, - - - 43 Capital, real and artificial, v - - ib. The quantity of Real Capital produced in a nation, will bear some proportion to the number of its inhabitants, 50 Artificial Capital, - ibi Gold and silver are no greater representatives of other ar- ticles, than other articles are representatives of them, 51 Machinery, ib. Machinery increases the productions of a nation, - 52 The suspension of any accustumtd use, would produce a surplus of labour in this country, the same as in every other country, - - ib. War increases the price of labour, - 54 A rise in the price of labour, produced by an insufficiency of quantity to supply the habitual uses, must also cause a rise in price of each of those articles that the labour was used in producing, 55 Governments can seldom abstract, without compulsion, the quantity of labour they desire, ib. A rise in the price of Labour, causes an advance in the price of every article produced by labour, - 56 War produces a rise in the value of all articles, except spe- cie, - - - - 57 Were it not for the representative government could not abstract much specie from market, 59 Any new uses for specie, that could not be answered by its representative, would increase its value in market, 60 A law to prevent the farther production of these representa- tives, would cause specie to appreciate, on any increase in the demand for it, ib. The price at which government is enabled to obtain specie, (where a representative, to answer the purpose, can be produced) is regulated by the price paid to the banks for its production, 61 Government Loans cause the creation of specie, - 62 If the specie, which a loan causes the production of, be- come surplus, it will soon cease from existing, ib. The quantity of specie which a new loan will cause the pro- duction of, depends upon the existence or non-existence of a surplus at the time the loan is contracted for, - 63- Government Securities increase in value after their crea- tion, - ib. CONTENTS. Page Representative specie cannot exist in a surplus for any great length of time, 65 War prevents the production of capital, - 66 Soldiers and Sailors are consumers of capital, ib. The disadvantages arising from this prevention of gain, and this actual loss, are made up to the nation, if the ex- penses of the war are borne by the creation of govern- ment securities, 67 The Labour abstracted by government, is not always unpro- ductive 68 An increase of capital by government securities, differs from an increase by gold and silver,. on account of the taxes the securities give birth to, 69 National securities are in their operation like bank-notes, 7O No increase of capital can be caused in a nation, without each individual contributing towards its production, 72 The borrowers from banks, ought not to be the only persons who contribute to the support of the specie borrowed, be- cause others are equally benefitted, - 73 Profit and loss account, on one thousand dollars, borrowed from the Merchants' bank, April 16, and refunded the following 16th June, 75 The quantity of capital in a nation, concerns each one of the inhabitants, - - - 77 When the proceeds of taxes are employed within the na- tion where they are collected, the national capital is nei- ther increased nor diminished by their operation, - 78 Taxes affect individual possessions, - 79 Government Securities are of small advantage to any but the possessors, if they are not used as a trading capital, 80 Nations are not impoverished by war, when they defray the expenses by creating public securities, 82 The war would injure each individual to the amount of his tax, - - ib. However much I am benefitted by the capital which the government securities create, I should be more benefit- ted, were it not for the tax they require me to pay, 83 A gratuitous issue of government securities would be ben- eficial, if individuals were taxed for their support only in proportion to the benefit they receive from them, 84 A National Debt is paid off, not by the introduction of any new capital, but by an extinction of capital, equal to the sum paid off, - 87 The possessions of each individual will be diminished to an amount equal to his tax, - ib. CONTENTS. Page The holders of government securities are not benefited by this liquidation, - 88 To liquidate the National Debt, is to diminish the Nation- al capital equal to the amount liquidated, - 89 A sinking fund liquidates the national debt, without increas- ing the tax of individuals, 91 Taxes paid for the support of Securities, in the coffers of a sinking fund, are paid without the possibility of receiving any equivalent from their employ, ib. If a depreciation in the exchangeable value of specie, produce a depreciation in the rate of interest, the holders of specie will suffer a double loss ; first, in the diminu- tion of the quantity of their interest, and secondly, in the depreciation of the value of the article which composes that quantity, 93 If an appreciation in the exchangeable value of specie, pro- duce a rise in the rate of interest, the holders of specie will receive a double benefit ; first, in the increase of the quantity of their interest money, and secondly, in the appreciation of the specie which composes that quan- tity, 94 The rate of interest is governed by the profit that can be made in the employ of capital, 95 Interest is not a premium paid exclusively for specie, but for capital generally, be it specie or any other article, ib* If the rate of interest were not regulated by law, it would be regulated, first, by the productiveness of capital ; se- condly, by the price of individual exertions, <9JT The rate of interest may fall, from the habits of a people becoming less industrious, and it may also rise from their habits becoming more industrious, 98 The quantity of capital in market, to be loaned, will affect the rate of interest, - ib. The tendency of banks is to reduce the rate of interest to the amount charged by them, and no augmentation of banking institutions can reduce it lower, without they commence the reduction, - 99 Although the quantity of bank-notes is limited, which can be put into circulation at any present period, yet the amount which may be put into circulation, at any future period, is perhaps beyond the power of reasonable con- jecture, 101 Before there can exist a surplus quantity of bank capital, the profits of every known use to which it can be applied, must be reduced to a standard, governed by the rate of discount, and by the amount, considered by individuals, CONTENTS. Page a recompense for their personal agency in applying the capital, 103 A Reduction in the rate of discount^ will increase the bank- notes that can be supported in circulation, and also in- crease the industry of a nation, - 104 A reduction of interest injures those only, who employ no capital but their own, - 106 A reduction of bank dividends, occasioned by a diminu- tion of the rate of interest, would not lower the price of stock in market, 106 Before there can exist a surplus quantity of bank capital, the profits of banking, (like that of every other pursuit) must be reduced to a standard, governed by the rate of dis- count, and by the amount considered by individuals a re- compense for being bankers, - 107 A reduction of dividend may be effected by a depreciation of the rate of discount, or by an insufficiency of borrow- ers ; but no reduction of dividend, occasioned by a de- preciation of the rate of discount will reduce the price of stock, and therefore arrest the increase of banking. This can alone be effected by a reduction of the dividend, when produced by an insufficiency of borrowers, 109 Banks, to be trust-worthy, must possess a capital of their own, - 111 So long as the losses of a bank do not exceed the amount of its capital, the public creditors are secure, 112 Bank-notes are insecure, in proportion as the emission ex- ceeds the capital * 115 PRELIMINARY ESSAY. S 1 many important inquiries have been instituted into the nature of value that the subject would not have been adverted to in this production if it could have been separated with pro- priety from an investigation of capital. If our theory agrees with any other, it is with that of Professor Smith. He makes the quantity of labour expended in the production of any ar- ticle the standard of its value, and the regulator of the quanti- ty that must be given in its exchanges. We have made the value of all articles to depend on the facility or difficulty of their production, and the rate of exchanges between any two of them to be ultimately governed by the relative difficulty of their production. This is perhaps merely stating the same prin- ciple, but in different terms. The difficulty or facility of pro- duction'has certainly reference to a greater or less quantity of labour. The Earl of Lauderdale, who wrote after Mr. Smith, makes the value of all desired articles to depend on their existing in a state of scarcity. If what we have written on this subject* be correct, it will appear, that to say an article exists in great scarcity is merely to say that it is procurable with great difficulty, and therefore a theory which founds the nature of value on the scarcity in which mankind possess different articles, founds it on the effect produced by the difficulty experienced in their production. To say that one article is more valuable than another because it is more scarce, may be, no doubt, very correct, and will be consonant to the theory of the Earl of Lauderdale ; to say that it is more valuable than this other, because it requires more la- bour to produce it, may be no doubt also correct, and will be consonant to the theory of Mr. Smith. There will be no impor- tant difference in these conclusions if an article that exists in scarcity is always procurable with more labour than another * The quantity of every article possessed by man depends upon, the difficul- ty OP facility of its production. which exists in a greater quantity ^ and if an article that is pro- curable with much labour is always possessed by us in greater scarcity than another which is procurable with less labour. A combination similar to this which we have now supposed, will also be found the true operation of practice, because the quanti- ty which we possess of every article is governed by the diffi- culty or facility of its production. In his criticism on Mr. Smith, the Earl of Lauderdale does not appear to have considered this fact; he treats of the scar- city of an article as if it was a property which had no re- ference to our powers of production, and as if it operated to pro- duce value by debarring us from enjoying the full quantity we desire to enjoy. We have on the contrary, endeavoured to show that the quantity of any article we are really solicitous to enjoy, is that quantity which we have been in the habit of enjoy- ing, and therefore that its value cannot be caused by our being debarred, through its scarceness, from enjoying more of it. That we do not possess more of any article, is owing to the dif- ficulty experienced in its production : that we desire what we do possess is owing to our being habituated to its enjoyment ; that we purchase it at the market price is owing to our being unable to purchase it on lower terms, and the reason why we are enabled to purchase it on lower terms is the difficulty expe- rienced in its production. This difficulty of production regulates, therefore, not only the price of all articles, but also the quantities in which we possess them. The most peculiar feature in our inquiry is the view we have taken of government loans and bank- ing institutions. In various theories that have been invented on the subject of capital, many of them invaluable for the suggestions they contain, certain articles, such as specie and bank notes are spo- ken of as if they were desired only on account of the uses they perform in commercial operations. The tenour of these writings do not seem to admit that any articles are desired for their own qualities, excepting those we use as sustenance, as clothing, as shelter, and as necessary conveniencies. The discovery of a rich diamond mine would not be con- sidered by them advantageous, excepting it were for the more substantial articles these diamonds would be exchanged for in some foreign nation. The gratification afforded by the wearing of diamonds by the finders would not be admitted as a reasona- ble argument in favour of their discovery, especially if their extraction from the mine consumed labour that had previously b^ -*i 'employed in the production of houses, of wheat, and of other articles of sustenance and convenience. The same unim- portance appears by these writings attached to gold, to silver, and to bank notes. No benefit is spoken of as emanating from them, but the benefit is spoken of as emanating froimthe commercial effects they produce from the articles of sustenance, of cloth- ing, and of palpable convenience that they are the means of producing. In various other theories, however, of earlier date, gold and silver, or as they are there called the precious metals, are held in greater estimation, and indeed all other articles appear to be de-hirab^e only because they will produce these metals in exchange. There is still another division of capital both in an- cient and modern theories, into those articles which are consid- ered necessary to the common conveniences of life, and into those which are not considered necessary. Of the kind first mentioned, are wheat and leather, and of the kind last men- tioned are costly lace and diamonds. The question is, whether that trade is not disadvantageous which exports these more necessary articles for the purpose of receiving in exchange these less necessary ones. And also, whether it is not better that the industry of a nation should be employed about the production of the first, in preference to the production of the latter, when the production of either should depend upon the balance of advantages. There is then another question existing, (and we shall advert to no more) it is, whether a parsimony in the consumption of the articles of our desire is not more beneficial than a more liberal enjoyment of them. It happens frequently with theorists, that they do not des- cribe any actual operation, but merely state that which they think ought to be practised. Such a theory is then barely the opinion of an individual that certain effects may be produced by certain causes, and that these effects will tend to our greater advantage than the accustomed and well known practises of the nation. It may also be true, but if we anticipate the future from the experience of the past, we shall find sufficient reason to question the ability of the most knowing, in his forebodings of what consequences will follow from any untried event. There is no connexion visible to man, between any cause and its effect, and if we state any untried measure, and detail the operations we expect it to perform, it is because we think there is a re- semblance between this measure and some other that we have seen in:practice, and therefore judge from this similarity of causes that the resembling measure must produce a resembling effect- But to deal candidly, perhaps every man would acknowledge that no expected result ever followed exactly as he had anticipa- ted even in his familiar transactions. If so, how much less are 6 his conclusions to be relied on when he derives them from mea sures yet unknown to practice. The various gpinions we have spoken of as existing on the different articles which compose capital, have all been given at different periods for the government of man's conduct towards them. It appeared ridiculous to several of these authors that man should employ himself about the production of articles which in the eye of phi.osophy were below his regard; of articles which were necessary neither to his support, to his shelter, nor to his palpable convenience. In pi^ctioe, however, the- true test of all theories, we find that it is more easy to point out objects that are desired, than it is to account for the cause of their being thus desired. To say that a human being should consid- er a diamond necessary to his happiness, and to account for his desire by saying that such stones shine very brilliantly, appears to an abstracted reasoner as stamping the person having such desires, with a character of frivolity beyond what he can think mankind capable of. The fact, nevertheless, is certain that diamonds are an object of our desire, and though the cause of this desire may be attributed to various properties which they possess, they are all very immaterial to the effect produ- ced, and of which we speak. We have attempted to show, though very briefly, in the fol- lowing work, that our great source of pleasure is the enjoy- ment of those objects we desire. Whether it is more consis- tent with wisdom to desire certain articles, such as wheat and woollens to gold and laces, has not been agitated. We have contented ourselves with stating what is the practice, and not what ought to be. In practice it certainly is the concernment of each individual to employ his industry in procuring those articles for which he has a desire, whether it be for lace or leather, for wheat or gold nor can it well be conceived why my desires for one arti- cle should not be gratified as well as those of my neighbour for any other. We have said that it has been agitated whether parsimony in the consumption of the articles of our desire is not more beneficial than a more liberal enjoyment of them. Thus, whe- ther an illumination of a city which should consume oil, candles, and other articles to the amount we will say of five thousand dol- lars would not be a loss to the nation equal to the capital thus consumed. By a careful review of the operations of man in society, we shall perceive a constant exertion to counteract the evil tenden- cy which any measure produces, and it is therefore probable that an increased consumption gives rise to an increased pro- duction sufficient not only to compensate for the consumption, but also for to outweigh it. The quantity of capital produced by a single individual in one period of the world differs most widely from the quan- tity produced at another period. It is also impossible to fore- see or even conjecture the increased production that the ingenui- ty of man may in time cause individuals to produce. This ingenuity must however be stimulated, and it may readily be conceived that if man had been formed without the power of consuming capital, and in every other respect just as he now is, that the quantity of capital he would have possessed at this day (even admitting that all he produced should have been imperish- able) would be a less quantity than that which we now find in his possession. If this be so, or even if the consumption of capital is at all a stimulus to its production, we may con- clude that consumption does not necessarily tend to impoverish a nation, but on the contrary, to enrich it with additional produc- tions. In Russia, the late destruction of Moscow must have con- sumed an almost incalculable quantity of capital, yet from what we know man can perform when greatly induced, we may conclude that even this unparalleled waste of desired articles may give rise to sur.h increased exertions as to make it a means of increasing eventually the wealth of that empire. Sumptuary laws have been adopted in many countries, and may, it is true, prevent the consumption of capital, but they also prevent its production by removing that stimulus to man's ex- ertions which may be said to regulate the extent of his perform- ances. To inquire whether that is a profitable branch of national trade that exports the articles of sustenance for to receive in exchange silks and laces, is perhaps an inquiry arising from a wrong view of the nature of capital. The great employment of man is to procure such objects as he desires. In a state of un- cultivated society the whole exertions of the tribe or nation do no more than produce some few articles of absolute necessi- ty ; in a state of refinement and civilization the exertion of but a very few are sufficient to supply the whole with these same articles, and in a greater quantity. It may be now inqui- red why this change ? The individuals at this day possess no j greater natural powers than at the former period then why is I the result of their efforts so widely different ? The answer is because of their superior exertions. A motive will then be 'j wanting for their superior exertions, and it may be found in jj their solicitude now to obtain various articles which at the period "first spoken of were entirely unknown to them. The exertions 8 of man will always be governed by the end to be attained. When he knew no greater enjoyment than that derived from a scanty sustenance, he proportioned his efforts to its attain- ment, and they were accordingly as feeble as the object was small. In the progress of this work we have shown that man is never without desires, and that as soon as he is enabled to obtain che ob- ject of his present solicitude, some desire beyond his means of gratification will immediately supply its place. This might be urged to show that he could never want a stimulus to his exer- tions. In all probability he never did want one, and hence the universal tendency of all nations to a state of greater refinement. The progress of improvement is, however, slow, where ex- ample does not point out the way. In a nation where desires are known far beyond those crea- ted by the necessities of nature, the ungratified desires of most individuals tend more to give a stimulus to those exertions which produce capital than the desires of those individuals do who live in a rude state of nature. In the refined nations, each individual beholds others possessing many objects of desire beyond his capacity of obtainment ; and his ungratified desires (that is, those which serve as a stimulus to his exertions) go generally to the obtainment of some objects similar to them which he observes in the possession of his neighbours. In the rude state we before adverted to, each individual will also have his ungratified desires to serve as a stimulus to his ac- tions, but they will not always be for the possession of capital, they will be for distinction in battle, in the chase, or some other object distinct from the accumulation of capital. The reason then, why man produces more capital in a nation which we call refined, than he does in another which we call uncivilized, is because he makes greater exertions of his labour and ingenui- ty, and the reason why he makes greater exertions is, because he knows more wants in the refined state of society than he previously did in that which we call leas refined. We will suppose that a nation shall have arrived to a state of great refinement, and that its Legislator shall observe with re- gret the small number of inhabitants who employ themselves in the production of those articles which he shall think of real utility, compared with the number of those who employ them- selves in the production of less important articles ; and that with this impression he shall prohibit such less important arti- cles from being produced, and also prohibit any exchanges with foreign nations of the articles of real utility for any others not equally necessary to the support or palpable conveniences of life. He shall a,dopt this policy from an impression that the exertions of the nation will not be diminished by its operation, and that therefore the production of necessary articles will be so multiplied as to place them within the reach of his meanest subject : The result will however, deceive his expectations. The whole object of the nation will ROW be to acquire so much of the articles they are permitted to enjoy, as will satisfy their desires for them. Their exertions will therefore be proportion- ed to this end. We have said that the quantity of these articles they have been in the habit of enjoying, was furnished by the exertion of but a small portion of the inhabitants. The nation will have no known and desired uses for any quantity over what they have been accustomed to possess, and therefore, their solicitude will be directed to the attainment of this quantity, and to no more. The various other productions will cease from being produced, and no equivalent will be given to the nation by any increase in the quantity of those articles, for the increase of which the new policy was introduced. The question, therefore, for a legislator to decide, is not whether the labour employed in the production of silks, laces, and lawns shall be employed in that way, or in the production of wheat, leather, and blankets ; but whether these silks, laces, and lawns, shall cease from being produced, without any increase being made in consequence thereof, in the production of those other articles. It is an error that supposes the production of one article ne- cessarily diminishes the production of another whose uses it does not go to supply. A nation in the first century of its existence employs its in- dustry in producing articles of sustenance. In the second cen- tury it adds, we will say, to its productions, the arti. les of cloth- ing. In the third century, fixed habitations. In the fourth, ornaments and domesticated animals, and in this progres- sion, continues to advance until we behold all those wonders of art and ingenuity which man at length gives to society. These progressive improvements are not made at the expense of each other, but by making industry more productive through the means of an increased exertion of labour and ingenuity. A new production that does not go to supplant any other, (by filling the office this other had been desired for) does not neces- sarily cause a diminution in the production of any article, but on the contrary, may be considered as a new acquisition of so much additional capital. If the producers of it are taken from a class who formerly furnished any desired articles, their place will be soon sup- plied by the increased exertions of the remainder. The causes which produce these changes in our exertions are not con- 10 certed amongst individuals, but operate by their own tendency. An insufficient supply of any article occasioned by many indi- viduals deserting its production, causes an insufficiency in the market for the ordinary demand, and a consequent advance in price. This advance is an inducement for an increased exer- tion by them who still remain its producers, and it also occasions many others to become producers oi' it M ho were not so previous- ly. The required quantity is at length obtained, and the deser- tion of its former producers does not eventually diminish it. In what we said of the legislator, whom we made to restrict the production of capital to such articles as he thought necessa- ry, we attempted to show that the production of those articles would not be thereby increased, and that the only effect of the measure would be to prevent the production of the articles he restricted, without increasing the production of the articles he permitted. It must be, however, admitted, that it is impossible to foresee what the natural love of man for pre-eminence would prompt him to effect even under such circumstances. It is possible, that if a nation accustomed to great exertions were suddenly restricted to the production of wheat, oxen, and leather, that their exertions would not expire, but would be employed in the accumulation of vast quantities of these articles, beyond any present known enjoyment of them. The desire which men have for many articles met with in im- proved society, does not, perhaps, arise from any actual plea- sure derived through the medium of their senses, but rather from a pleasure of the imagination. Our desires for the vari- ous articles of food, for fire, for down beds, for soft carpets, for warm clothing, for horses and carriages, may all be tra- ced to some pleasurable sensation these articles are the means of producing, and perhaps would all be used, if attainable, by an individual situated in some part of the globe, remote from the possible view of any human observer ; but our desires for dia- monds, for laces, for gold utensils in preference to silver, to be drawn by four horses in preference to two, by six in preference to four, can hardly be traced to any pleasurable sensaiion they are the means of producing, and probably they would all exist unused, however easily attainable, by an individual situated the same as we have supposed the former individual. If then socie- ty is necessary to make 'these latter objects yield us pleas- ure, it must be to some other source that \ve must search for the cause of this pleasure, and not to their operation on our senses. For whatever wise purpose, (immaterial however, to the ef- fect of which we speak) every man appears to be possessed of a strong natural ambition, and frequently of a restless desire to be superior to those who compose the circle in which he moves in society. The contention of Kings, down to the depravity of 11 ' felons, (to speak of two extremes) may perhaps spring from this principle ; for there is no action, however noble, or how- ever base, but a superior facility in the exercise of it will of- ten be courted, when the attainment shall exalt the possessor in the opinion of his associates- It is perhaps this, which makes a person so generally conform his conduct to the habits of his companions, and therefore makes the choice of society a matter of such great importance.- With the generality of mankind, .however, their ambition finds employment in the accumulation of capital. The greater that portion of the inhabitants is of any nation, who make such accumulations the sole end of their ambition, the greater will be the respect paid to wealth. In France, it is less the object of primary ambition than it is in England, and per- haps in the United States it is more frequently the object of primary ambition than it is in England. In the first nation, therefore, there is less respe : v paid to wealth than in the second, and in the United States, perhaps, still more respect paid to it than in either. It is a saying frequently heard, that there is no disgrace in being poor. This may no doubt be true of many persons thus situated, but where the accumulation of capital is very generally the primary object of ambition, poverty will be more or less con- sidered as evincing a want of capacity, or some other natural inferiority in the poorer man compared to that possessed by the one more wealthy, especially when the persons compared were once on an equality. Men engaged in the pursuit of wealth may be considered like rival authors or painters, the event is that by which we judge of their relative skill, and they are prized accordingly. This principle is also very perceptible ia many situations of life. A village trader may not feel it as any detraction from his own merits when he is informed that a person in the city engaged in the same pursuit, has made a large fortune in the time he has been making but a bare subsistence. He will spare himself any unpleasant feelings, from the contrast, by supposing that it should be justly attributed to the circumstance of superior advan- tages of place, and not of talents. But if this superior success has befallen to a person in his own village, he will not have the same excuse for not being equally prosperous, and will in all probability feel sensations of uneasiness whenever the topic is adverted to, from a consciousness that inferences to his disadvantage will be drawn in the minds of others when he is thus compared with the person that he was formerly on a level with. Here is a person, therefore, who feels his po- verty as a disgrace. He at least fears that others will so think 12 it, and whenever the subject is introduced, will endeavour to obviate unfavourable impressions by accounting for the event in some way that may show it has been voluntary on his part, by his disdaining to employ those means which the other person resorted to. Such may also be frequently the truth, but there would be no necessity of his so pertinaciously relating it, if he did not feel that it was necessary to his own character. There is perhaps more justness in the favourable impression entertain- ed for the rich, than at the first view we are willing to allow. It is a common observation, that the bare knowledge of any stranger possessing wealth is a great recommendation to him, even with those who know nothing farther concerning him, and who cannot possibly expect to be 'in any shape benefitted by his possessions. In a nation where the accumulation of wealth is the primary object of general ambition, it will follow that those means must be approved of, which are generally pursued in its accumulation, and that those must be held in disesteem which have a contrary tendency. We accordingly find that economy in expenses ; application in business ; punctuality in engagements, and the peculiar species of knowledge necessary in commercial pursuits, are all admired qualities, and insure to the possessor a degree of general respect. A contrary conduct does in like manner create an unfavour- able impression against him who practices it. His actions are not those which others admire, and therefore his conduct meets with a degree of general disapprobation. It is from this source that the knowledge of a stranger possessing wealth operates as a recommendation to him. The possession of the object sought is considered as a pretty fair evidence of his also possessing those esteemed qualities necessary to its attainment, and when no circumstances are known to the contrary, he frequently re- ceives all the respect and attention which the actual knowledge of his possessing them would ensure him. The knowledge of a stranger possessing no wealth does on the contrary operate to his disadvantage. If we know nothing of him but his poverty, and judge him by the same criterion that we did the rich man, we shall suppose it probable that he is not in the practice of those actions which we so much approve of, and that on the con- trary he is given to those opposite practices of which we so much disapprove, and we shall accordingly, frequently view him with the disapprobation that the actual possession of those bad qualities would ensure him. We have said that there is a natural desire in each indi- vidual to become superior to those with whom he is at pre- 13 sent on an equality. This desire is that impulse to which vie have given the name of ambition. We have also said, that in a commercial nation this ambition will most generally be exerted in the accumulation of capital. Wealth may therefore be considered as the prize for which many men are contending, and the amount acquired by each, as the criterion by which their relative skill is determined. In the progress of the following work it will be shown, that the articles of capital are valued in proportion to the difficulty of their production, and accordingly, if I possess an article of too difficult a production for others, my self-love will feel a gra- tification from this result of my endeavours, indicating some superiority in me over them that have been engaged in a similar pursuit. It is perhaps from this cause that many articles of capi- tal are desired, and not from any quality they possess of grati- fying our senses. They are desired for the pleasure they cause us through the medium of our imagination, or in other words, for the pleasant reflections they give rise to. It is hardly probable that a person would wear diamonds if he were so situated as to be entirely secluded from the pos- sibility of any human observer. If, however, he did, it would be because the wearing of them would give rise to some pleas- ant reflections caused by their having been worn in times past, and by their now exciting a reproduction of the agreeable thoughts which they then gave birth to. They would not be worn in such a situation from any pleasure they would cause the senses to produce. The pleasure they are the means of caus- ing to us in society is probably derived from the desire of supe- riority which we have just spoken of. Knowing the pursuit of wealth to be an object of such gene- ral ambition, we conclude that every person who observes in our possession an article beyond his means of attainment, must view us in a point of view highly flattering to our self-love. Any way, this is certain, that our reflecting on something which we suppose is passing in the minds of beholders, is all the pleas- ure which we receive from these decorations, and from various other articles which we seek with avidity, and indeed employ a great portion of our lives in procuring. The subject which gave occasion for this digression on the nature of our desire for these articles, was our speculating on the result of a policy which should restrain the use and produc- tion of any article that did not administer to the necessities of our nature, or to our palpable convenience, such as wheat, lea- ther, and blankets. We endeavoured to show that the exertions of the nation would be lessened by thi* lessening of the objects for which 14 we now exert ourselves, or that in case these exertions should not be lessened, that then they would (for the purpose of grati- fying our desires for personal superiority) be employed in col- lecting these necessary articles in such quantities as to make the exertions which produce them equally misemployed as if they were spent in the production of diamonds, laces, or any other articles which may, in one sense, be termed useless. Because, if it be useless to employ time in the production of diamonds, it will be equally useless to employ it in the pruduction of blank- ets, after a sufficient quantity should exist to answer the pur- poses of defence against the inclemency of cold ; and yet it is easily conceivable, that if we exert ourselves in the production of diamonds and various other articles for the mere purpose of attaining a personal superiority, that we should for the same purpose (when restrained from any other pursuit) accumulate vast quantities of blankets, or any other article we might be per- mitted to exert our industry upon, and endeavour to attain to a personal superiority by maintaining in our possession a lar- ger quantity of blankets than others of less ability or perse- verance could acquire. It is not intended that this would be the operation of such a restraint as we have described, it is only meant that such might be the operation. Any speculation that cannot be elucidated by former experi- ence, will in all probability differ very widely from what would actually result from the assumed premises, and therefore we shall not presume to say what would be the effects produced by any restraint on our exertions. But to speak of the propensities of man, is. to treat of a sub- ject with which our experience has brought us acquainted, and we may therefore assert, that whatever forced regulations man may be made to conform to, yet so long as he retains that prin- ciple which he at present possesses, and which we have named ambition, so long will he endeavour to rise superior to his present equals. If he is restrained fro 1 doing it with arti- cles of capital, he will do it with courag in war, with expert- ness in the chase, or with some other nu^ns that the new or- der of things might give rise to. To determine v/hat pursuit would be really best for this passion to expend itself upon, is perhaps a question of difficult and even impossible solution. To judge by our own habits, we should say the v; cumulation of capital. A military nation might say renown in battle, and perhaps feel an emotion of scorn for the man who should be content to pass his time in peaceful occu} uions. 15 Something similar to this spirit is now observable in France, where the English nation, from being less military is called, in contempt, a nation of shop-keepers. The wealthy merchant of a highly commercial nation will scarcely suffer the company of a military man, whilst in a milita- ry nation a man of that profession will scarcely brook the socie- ty of a merchant. In a nation where the pursuit of capital forms the primary object of general ambition, it is improper to endeavour to ac- count for our desire of any article by the particular use it can perform, and to suppose that none is beneficial but those to which we can appropriate some such use. On this principle we might discard the greater part of the articles we possess. They would not be desired by an individual who should be placed remote from any human society, and are by us desired only as the acquisition of them is,' a means of affording us pleasure through the medium of the imagination, by the process which we have already described. 16 A PUBLIC LOAN INCREASES THE NATIONAL CAPITAL TO THE AMOUNT OF THE LOAN. JLF the general government commence some expensive inter- nal undertaking, and defray the expenses by creating a public debt, the loans must be taken up in this country, or in a fo- reign nation. We will suppose, first, that ihey shall borrow from some foreign nation, five millions of dollars ', bring them to the United States, and distribute them amongst the citi- zens for various services. The United States will, by this dis- tribution obtain an increase of capital equal to the amount dis- tributed, say five millions of dollars. That is, their capital, which we will suppose, was before the distribution, twenty mil- lions of dollars, will be now five and twenty millions, and what- ever further sum may be borrowed, imported and distributed, will operate in a like manner. We will now suppose that the government shall adopt the other mode of borrowing, and receive from their own citizens this loan of five millions. It will be evident that the money must be taken from the capital of twenty millions that we be- fore allowed the United States to possess, and that there would then remain only fifteen millions were it not that the five mil- lions borrowed are replaced by that amount of government se- curities. If the five millions borrowed by government, and in their treasury, be kept unexpended, the national capital will not amount to more than it previously did, neither will it to less ; because the government securities supply the place, and fully represent the five millions borrowed, answering every purpose in a foreign or domestic market, that the amount of specie would have answered which was given for tnt-m. . In the other case, if the government do not lock up these five millions, but expend them within the country, it will appear that the original twenty millions is again restored to circu- lation, and also an additional capital of five millions of govern- ment securities. If, after these first five millions are thus ex- pended, government again borrow another sum, and in the like manner expend it, the national capital will be farther increased to the amount of this second sum borrowed, and so of every .sum they may borrow and expend. IT Loans are^ in fact, Loans from Government to the Nation. Government borrow from individuals five millions of dol- lars. They do not require this sum for the purpose of accumu- lating, but for the purpose of expending. The borrowed money js, therefore, immediately returned;to the people, who not only have it thus returned to them, bat they also retain the govern- ment securities, which were given to represent it. The national capital is therefore increased to the amount of the government securities, which increased capital the nation may continue, to use as a borrowed capital, by paying the stipulated interest for it. That is, the people must permit the government to col- lect from them the amount of interest pledged .o be paid on these securities. What Capital is. If an explanation be required of the term capital, it may be given by stating that when used here, it means every article that bears a value in market. Any article may be classed with capital if the possessor can exchange it for some other article that he desires to purchase. Accordingly, if the possessor of government securities, can obtain in exchange for them some article he desires to purchase, he will know that they pos- sess the nature of capital, and so of all other articles that he may possess, which will produce the same effect. National capital, is a collective name for all the capital in a nation, and when we speak of a measure as increasing the national capital, it will mean that this measure produces some increase of those articles which have the qualities above des- scribed of passing in market, and of enabling the possessor to obtain with them some articles that he may desire to pur- chase. Banks increase the National Capital. Several persons deposit in a general concern, we will say, a million of dollars, for the purpose of loaning it to indi- viduals who may desire a credit capital. The borrowers de- posit their individual notes for the amount of this million, and draw it from the bank. So far, no capital is added to the nation, because the money drawn from the bank, and put into circulation, was originally abstracted from the na- tional capital by the institutors of the bank ; and therefore, it is now n more than returned. If the bankers also turned 3 18 into circulation the promissory notes received from these indi- viduals, in exchange for the money lent them, it might then be said that the national capital had been increased, since not only the money was returned to the nation, but an equal amount of the notes of individuals were added to the national capi- tal which had not previously existed. Such is, however, not the operation. The bankers do not put into circulation the notes of individuals which they receive in exchange for their specie : neither do they put into circulation the specie which was originalh taken from circulation to be placed in their vaults ; at least we will say that they do not. In lieu of these, they issue promissory noies of their own creation sufficient to represent the specie in their vaults, and provided they did not issue more promissory notes than just to represent the amount of specie in their vaults, it is evident the national capital would not be augmented. They would then turn into circulation no more capital than what was debarred circula- tion, by being confined in their vaults. Experience, however, shows us, that they do not restrict their emission of bank notes to the amount of specie drawn from circulation and confined in their vaults. They emit a much larger amount. We will say they shall issue notes to the* amount of two millions, being one million more than the amount of specie confined in their vaults, it will then be ob- vious that they will increase the national capital one million of dollars, which will continue in existence as long as they con- tinue their operations. By this process, our banking insti- tutions have vastly increased the capital of the nation. Of the amount of increase, some judgment may be formed from the number of banking establishments, and from the knowledge shat each does thus increase the national capital in a proportion to their specie, even much greater than that which we have assumed. An article of Capital must be an object of Man's desire. We have said that capital may be known by its effects. That is, an article may be known as capital when it can be ex- changed for some object that we desire to purchase. The question may now be asked, what are the properties neces- sary to make an article produce this effect ? The answer is, that every thing an individual possesses will produce it, when the possession of it is an object of desire to other individu- als. Thus, if I possess a horse, a government security, or any other article of capital, and desire to exchange it for silver, the price I shall demand will be some quantity of silver that I de- 19 sire more than I do the horse, the government security, or the other article of capital. If I obtain my price, it will be be- cause the purchaser desires the horse, or whatever it may be, more than he desires the silver. The reason why the desires of one individual differ from those of another, and even the reason why various articles of capital are objects of desire at all, may arise from various causes which, although curious and interesting, are quite unim- portant to the present inquiry. Certain, however, it is, that without these desires, there would be nothing like what we now call capital, and without this variance in our desires there would be no article of capital of which we could either effect a sale, or make a purchase. Government Securities are desired for the specie which they produce. They are objects of desire, and may be taken ;nto market the same as any other article of capital, and may be exchan- ged for such objects as the possessor ef them may desire to purchase. If it be inquired why they are desired, it may be answered by saying, that they produce periodically to the pos- sessor certain quantities of specie, which specie is an object of desire to those who take them. If it be inquired farther, why specie is an object of desire ? it may be answered that the fact must be perfectly familiar to the daily experience of every individual, and indeed to the in- quirer's own feelings. The cause of this desire (as was said before) is unimportant in an inquiry like this, into its effects. It may, however, be observed, that the usual way of account- ing for this desire in man for gold and silver, is by stating that they pass in market, and that they are desired for the sake of the objects they may be there exchanged for. Yet this can- not be the true reason. There must have been a desire to pos- sess them in the individual who first gave any thing in exchange for them. Therefore the desire must have existed before they were received in exchanges; and when they were first received it must have been on account of a desire felt for them. Like every other article of capital then, the cause of specie pas- sing in market, is the desire felt for it : that it does pass, is the effect of this desire. An individual may say, that he would not exchange his horse for ever so large a quantity of gold and silver, if he could not dispose of them for certain articles that he might desire. And this may be true ; because, if they should cease from be- ing objects of desire to other men, the same cause would, in a}) ^probability, operate on him, and make him also cease from de- siring them. Bank Notes are desired for the specie which they represent. They are objects of our desire we may know from expe- rience ; and that they are so, is (in this country) owing to the specie which they represent, and to the assurances they give that we may have it delivered to us whenever we demand it, The amount in circulation mc*y, many times, exceed the whole amount of gold and silver in the nation. This is, without doubt, the present case of the United States, and yet the desire for them remains undiminished. It pro- ceeds from the desire for them being the desire of individuals. Each one will continue to desire them so long as he believes that those in his possession may be exchanged for the specie they represent whenever he shall demand it. It is a matter of no concernment to him whether the banks would, or would not be able to pay on de.nand, and at the same moment the specie for all the notes they have issued. His concernment lies in their capacity to pay to him individually, the amount of notes which he may possess, and if he be assured of thi fact, (which the experience of himself and of others, continually may teach him) he then receives the notes, and entertains as great a desire for them as for the specie which they represent. It is this consciousness of individuals in the ability of banks to satisfy their individual claims, that makes them indifferent about demanding them, and enables banks to issue notes to an amount far exceeding the quantity of specie defined in their vaultc, and of which these notes purport to be the represen- tatives. The concernment of bankers does not lie in being at all times prepared to liquidate the whole quantity of notes they hav/ in circulation ; but it lies in being at all times prepared to liquidate that portion of them which may be actually brought for li- quidation. It is only through this system that they are enabled to in- crease the capital of a nation, for it would not be increased were thev forced to keep abstracted from circulation, the same amount of gold and silver as is represented by their notes. So much, therefore, as the amount of bank-notes which they emit, ex- cteds die amount of specie which they abstract from circula- (.ion, so much the national capital will be increased by their operations. Notes of Individuals are objects of desire ^ and possess the nature of capital. If it be inquired why they are objects of desire ? It may be answered that they represent specie, which is a desired object ; and that we expect to receive for them the amount they repre- sent at some certain future period. They increase the Capital of a Nation. It is the same with notes of individuals as with those of banks, that if they abstracted from circulation the amount of specie which they represent, the national capital would not be increased by their creation. But we know from experi- ence, that individuals who issue them, do not abstract from circulation the amount thus represented. That is, they do not keep by them, in reserve, a sum of money sufficient to redeem all their outstanding notes. Their only concernment lies in pos- sessing at any one time, such an amount as they know will li- quidate the demands which they at that time are pledged to liquidate, without any reference to those which need not be liquidated until a future day. The notes of individuals may exceed in amount not only the specie of a nation, but also the bank-notes of the nation. It has been said that the bank-notes in circulation may many times exceed the whole quantity of specie. The same may be said of the notes of individuals, and with this addition, that they may not only exceed the specie of a nation, but the bank-notes of the nation superadded. This excess does, also, no doubt, exist at the present moment, in actual practice. The amount however, which is payable at any one time can- not exceed the amount of the whole specie and bank-note ca- pital of the nation ; For did notes of individuals for sixty mil- lions of dollars become payable to-morrow, it would be im- possible to liquidate them in a nation where all the specie and bank-notes did not amount to more than twenty millions of dollars. Because, as sixty millions were required at one time, they could not be furnished where only twejity millions existed. But if the amount of notes remain at sixty millions, and we vary the time of payment, there will be no difficulty in the liquidation. Thus, we '"will say one individual (for it has the same operation) shall commence business, and every day give his note for one million of dollars, payable at the end of sixty days from each period. It will appear, after he shall have continued these operations for sixty successive days, that he will be indebted sixty millions. They will become due one million each day. We will say that he shall determine on al- ways being in debt sixty millions, and accordingly, as soon as he has discharged the note first due, he shall immediately make a fresh purchase, and give a new note for a million, payable at the end of 60 days. By this course he will never be indebted over 60 millions, but he will always 1 be indebted to that amount. It will be his concernment to provide daily, one million of dollars, and if he can effect this, it will be immate- rial how much his debts exceed the specie and bank-note capi- tal of the nation. This statement shows that his individual notes may tre- ble in amount the specie and bank notes, and yet if he can pro- vide daily only- one-twentieth part of them, it will be all that is required of him. To aid him in this provision, he will have continually on hand 60 millions in the merchandize or other property for which he give his notes, as he daily contracts anew debt to the amount of that which he liquidates. Sank Notes might continue objects of desire even though specie should be refused for them at the Banks. In saying bank-notes are objects of desire on account of the specie which they represent, and on account of the conscious- ness we possess, that they may be exchanged at will, for the arti- cle represented, we speak of the present operation of these arti- cles of capital. In England, the public bank of that nation has long since refused to redeem their notes with specie, and yet they still continue to be objects of general desire. It must be remembered, that whenever bankers emit their notes, they al- ways receive in exchange an equal amount in the private notes of individuals. This exchange is desired by an individual on ac- count of the superior and more widely diffused confidence that is placed in the bankers over what is placed in him individually. In fact, the discount which he pays to the bankers is not for the use of any actual specie, (for they loan him none) but it is for the use of their name and credit. It is a fact of which there can be no doubt, that no bankers would be able to redeem with specie all their notes, which they have emitted, if they should, at the same moment, be presented to them for redemption The bank-note capital of the United States does, unquestion- ably, many times exceed in amount the whole specie capital of the nation. We will suppose that the bankers should find it im- possible to meet the demand that might be made on them for specie, and should, accordingly refuse to give it in exchange. The desire for bank notes would, in all probability (judging from the experience of England) be very little impaired. There would still be a profitable use in the nation for all the notes in circulation, because, we have already said, that the bankers pos- sess notes of individuals sufficient to represent all the bank-notes in circulation. It will therefore follow, that each of these indi- viduals so indebted, will be as anxious to obtain the bank-notes as they ever were, and indeed will receive them as gladly as so much actual specie, since they will answer the same purpose which that article would, in redeeming their individual obligations held by the bankers, and for which they would have to give specie if they could not obtain bank-notes. There will then continue to be a demand for the notes of every bank that shall possess indivi- dual notes sufficient to represent their own in circulation, and this will be the case with every bank who has not acted fraud- ulendy, or who has not been unfortunate or indiscreet in loaning to individuals who are incapable of refunding the amount borrow- ed. This calculation is also grounded on the supposition that each bank should continue to receive its own notes in payment from its debtors a contrary procedure could be dictated only by fraud, and of course not entitled to any consideration in a calcu- lation on general operations. If we suppose that this change in the custom of banks should not alter the credit of bank-notes with the different institutions, but that the debtors of any one bank might be allowed to redeem his obligation with the notes of any other bank (the same as is now practised), it is then extremely doubtful if this change of system would at all affect the currency of bank paper. There are so few persons in society who are not either themselves in- debted to some bank, or who do not pay their money to those that are indebted, that we might pretty confidently look forward to no al- teration in our desire for those articles, if every bank-note might be employed in the way we have imagined, and which undoubt- edly would be the actual operation, since it would be dictated to those institutions by their general interest. At this distance from England, it is imagined that nothing enforces the circulation there of the national bank paper but a law which prevents its being refused by individuals. Such a law might, it is true, prevent a person from refusing it when offered, but it could not give to it a value or uphold its credit. The only operation of such a law is to prevent litigious and vexatious suits, by persons, who, however much the value of any article would refuse to receive it, or perhaps any other that they could refuse, for the purpose of perplexing their debt- or if they bear him ill will, or of injuring him by the cost of a suit at law. It is from this consideration that some article in every country is provided as a lawful payment for debts, which law no more gives a value to bank-notes than it does to gold and silver, or any other article that it designates. To be convinced of this fact we need only suppose that the law should declare that water must be receivable in payment for all debts at the rate of a dollar for every pint. Transactions that had already been made could not of course be accommodated to this new state of things, and creditors would be injured to the amount of their debts at the time of this new regulation ; but thereafter, an entire new course would be pursued, and the price demanded for every article to be sold on credit, would be regulated by the article they knew they were liable to receive in payment. If this article was so extremely void of value as a pint of water, there would be no credit operations ; and if it were ten- dered in payment for present purchases, there would be no person willing to sell. It would cause a total suspension of all exchanges until purchasers should offer some article of actual va- lue. The effect of a similar operation was observable in the war of our revolution, and notwithstanding the law to enforce the re- ceipt of continental paper, it immediately vanished from circu- lation when it ceased from being thought valuable. That bank of England notes do therefore possess a consideration of value, is not owing to a law which enforces their acceptance, but to the uses possessed for them by individuals in liquidating tluir notes held by the bank, and in meeting the requirements of go- vernment, which can be answered with this paper equal to what they can be with actual specie. The extent to -which our present banking system ( of giving specie for their notes) can be extended, ~w:ll have some reference to the amount of specie in the nation. We have shewn that the present operation of banks is to li- quidate such of their notes*as may be brought for liquidation. The amount thus brought bears but a very small proportion to the quantity in existence, but yet it appears reasonable to suppose that it must bear some proportion. If twenty millions were in existence, there would be more brought for exchange, than if only one million existed ; and the like reasoning will apply to show that the larger the quantity in existence, the larger will be the quantity brought for exchange Not that it is supposed the pro- portion increases with the quantity,but on the contrary, it is suppo- sed to diminish ; so, that if one per cent, ot the capital was daily brought for exchange,when only one million was in circulation,not so much as a quarter of one per cent, will be brought when the capi- 25 tal is twenty millions, owing to the increased familiarity the people have with them, and to the superior confidence thereby excited. If, however, the quanti-y for which an exchange is required, does increase, by an increased emission, (however much the propor- tion may decrease) it will be evident that the quantity which may be emitted must have its limits, and that it can never be so ex- tended under the present operation as to make the amount brought daily for exchange, exceed the amount of specie in the nation, and of course exceed the amount possible for the banks to possess. It therefore appears, that the present banking sys- tem has its prescribed limits, and although bank-notes may, ma- ny times exceed the specie of the nation, they cannot, under the present regulations, be so extended, as to make the customary amount brought each day for liquidation, exceed the amount of the specie in the nation. An Article may lose its character as Capital. Any occurrence that should operate to destroy our desire for bank-notes, or any other article, would also destroy its character as capital. It is not intended, that all articles are equally secure against this change of character; experience gives continual evidence to the contrary fact. Thus, notes of individuals may be objects of desire one daj 7 , and the next, cease from being so. Bank-notes are less liable to this vicissitude than notes of indi- viduals ; and government securities are still less liable than either. An article ceasing from being an object of desire, as with the notes of a person become bankrupt, frequently creates much in- dividual distress to the persons who unfortunately possess them. The advantages however, derived to a nation by the facility pre- sented to individuals of increasing their capital by this means of credit, far outbalances its disadvantages. The same may be said of banks, excepting that by their more widely extended transac- tions, the advantages derived from their operations, and the dis- advantages resulting from their failure, are much more widely diffused. Government securities are so very seldom subject to this change of character that they present a stability to the pos- sessor, differing but little from houses and lands, for we find that they are seldom effected but by some violent commotion of the nation itself, which when it is sufficient to destroy them, sel- dom fails from destroying or wresting from the owners, all the other articles of capital in their possession. Skill and Labour create Capital. If all my possessions amount simply, to a log of wood, which 4 26 shall be an object of no man's desire ; and I can, by art uj: labour, shape it into any desired utensil, I may take it int3 market and exchange it for some article I wish to purchase. Again^ if I dig from the earth silver ore, and fabricate there- from a hundred dollars, I shall also have created a capital, but not more obviously than can be done by man, in the formation or production of any other object of desire. Capital is perishable. This is a proposition so familiar to our constant experience, that it need only be understood to find immediate assent. Our daily food is thus a capital, which had we not consumed, might have been exchanged for other objects we had sought to pur- chase. The destruction occasioned by fire, by shipwreck, by break- age, and by various other causes, known to the experience of each individual, will convince him of the quantity of capital which goes daily from existence, and which, were it not as rapidly reproduced, would soon deprive man of the objects of his desire, and eventually of life itself. Credit capital perishes more rapidly than any other, regularly expiring at short stated periods ; and were it not for its regu- lar and equally rapid reproduction, the whole would soon van- ish from existence. An Increase of Capital is desirable. We have already shown that the quality by which capital may be known, is, that it can be exchanged for some object that the possessor wishes to purchase ; and that the reason why it may be so exchanged, is, that it does itself constitute some object of man's desire. It follows, that an increase of capital is an in- crease of some objects desired by man. The business of life is to procure the objects of desire, If it be inquired whether an increase of the desired objects called capital, be beneficial to a nation, it may be best an- swered by examining the conduct and occupation of man. We shall then find that the great business of each through life, is the procurement of these objects. When he obtains them he receives pleasure, and when deprived of them, he suffers .pain. 27 We distinguish Nations by the quantity of Capital they possess* The great difference between one nation of people and ano- ther, consists in the quantity, and also variety of desired ob- jects the inhabitants of the one possess, compared with those which are possessed by the inhabitants of the other. Nations in which the objects of desire are few, and the va- riety small, are called rude and uncivilized. Those which pos<- sess more desired objects, and also a greater variety, are termed more civilized and refined, and that nation which possesses a greater number and variety of desired objects than any other, will be esteemed the most refined and polished, and will be considered as having attained to a higher state of civilization and improvement than any other. It may be said, that these possessions are effects resulting from civilization and refinement, and not the causes which produces the refinement. Be it so. This, however, is certain, that there never was a nation considered highly civilized and refined, which did not abound in articles of capital ; and there never was a nation abounding in capital, which was not considered both civilized and refined. A great portion of this Capita^ is created by skill and labour, Amongst which, are houses, furniture, clothing, and perhaps all the articles of convenience and elegance with which high- ly improved societies are furnished. The chief portion of their food may also be thus classed ; for the unaided and spontaneous efforts of nature form but a small part of the sustenance of man in improved society. It has been said, that the serious business of man's life (that is in practice) lies in procuring the objects of his desire. To procure them, he must either fabricate them himself, or purchase them of others. Our own experience will sufficiently teach us, how few can be produced by his own individual fabrication. His mode of procuring them then, must be by purchase. His gratification ivill be restricted only by his means. Finding himself destitute of every object of desire, his chief concernment will be to obtain that first, for which his desire is most urgent. This will probably, be food. He finds it in abun- dance, but no persons will part with it until he returns them an, equivalent in some object which they desire more than the quan- tity of food they are willing to give for it. If tlvy desire his labour more than the food he requires, they will accept of it in 28 exchange, and if he desires the food, they are willing to give more than the ease he must forsake in thus obtaining it, he will agree to the exchange and thereby obtain food. Labour will hence- forth constitute his capital, if it be the only desired object in his possession. His Desires increase with his Means. We have daily occasion to observe that no man is so humble, but, on acquiring the means of gratifying his present desires, he will immediately feel others that he was before a stranger to. He who formerly lived in a small hut, walked on foot, and wished for no greater enjoyment than coarse food, furniture and cloathings will, on acquiring these, also acquire new desires be- yond his means of gratification. He will wish a more spacious mansion, better furniture, food and cloathing, and if these were al- so obtained he would go still farther, and indeed would continue extending his desires beyond the reach of his ability, so as never to be without ungratified desires in every station, hpwever affluent. His Pleasure depends upon the number of Desires he can gratify. That man receives pleasure in gratifying his desires is a pro- position so very familiar to our experience, that it will be use- less to dwell on it. The inference, however, to be drawn from it is, that he who can gratify the greatest number of desires, must also be in the reception of the most pleasure. If this be so, (and the enjoyment of pleasure, an object worthy of our concernment) it appears that an individual will be benefitted by any measure that enables him to obtain the objects of his desire, although by thus obtaining them, he gives birth to new desires for objects beyond his attainment. For, we will suppose he shall be in the posses- sion of fifty objects of his desire, and that he shall also desire fifty other objects which he has not the means of obtaining. By what we formerly said, he never will be able to obtain all the objects of his desire : and were he to receive these fifty, he would imme- diately find that he desired a farther fifty that he had not before thought of. It may therefore be inquired, what would be his advantage in receiving them, seeing that he would still have an equal number ungratified ? The answer is, that it v/ould Increase the number of his gratifications, although it would not di- minish the number of his wants. Formerly he had only fifty objects of his desire, he has now one hundred ; he th refore has increased his enjoyment by the pleasure that the possession of the additional fifty desired objects bring with them. The number of the objects that he cannot obtain, are on "29 the contrary, not increased, they are still only fifty ; he is there- fore bent fitted without any increased disadvantages. His desires do not so readily decrease with the decrement of his means. We have stated, that he shall now enjoy one hundred desired objects, und shall not feel the want of more than fifty, which was the number he was originally solicitous to obtain. We will sup- pose, that after being in possession of the hundred for some length of time, the means by which he obtained the last fifty shall sM.l-.u-nii- and unexpectedly fail him. He will then be in the same situation as to enjoyment that we first found him ; that is, h. will still possess fifty desired objects. His situation as to the ol. ( .rts which he cannot obtain, will, however, be widely differ- ent. He then knew