CHAPTER 1 Reflections on the Formation and Distribution of Wealth

The impossibility of Commerce upon the supposition of an equal division of lands, where every man would possess only what is necessary for his own support.

If the land was divided among all the inhabitants of a country in such a way that each of them possessed precisely the quantity necessary for his support, and nothing more, it is evident that all being equal, no one would be willing to work for others. Neither would any of them possess the wherewithal to pay for the labor of others, for each person having only so much land as was necessary to produce a subsistence, would consume all he had gathered, and would have nothing which he could exchange for the labor of others.

2.The above hypothesis has never existed and could not have continued. The diversity of soils and the multiplicity of wants lead to an exchange of the products of the land for other products.

This hypothesis could never have existed, because the earth was cultivated before it was divided; cultivation itself having been the only reason for a division, and for that law which secures to every one his property. The first people who engaged in cultivation probably cultivated as much land as their resources permitted, and consequently, more than was necessary for their support.

Even if this state of affairs could have existed, it could not possibly have endured; each man obtaining from his field only his subsistence, and not having the means wherewith to pay others for their labor, could only provide for his other wants of shelter, clothing etc. by his own labor, and this would be virtually impossible, every type of soil by no means producing everything.

The man whose land was fit only for grain, and would produce neither cotton nor hemp, would lack cloth to clothe himself. Another would have a piece of land suitable for cotton, which would not produce grain. A third would be without wood to keep himself warm, while a fourth would lack grain to feed himself. Experience would soon teach every one the kinds of products for which his land was most suitable and he would confine himself to the cultivation of that particular crop in order to obtain those things he required by means of exchange with his neighbors; who, having in turn reached the same conclusion, would have cultivated the crop best suited to their land, and given up the cultivation of all others.

3.The products of the earth require long and difficult preparations in order to make them suitable for the wants of man.

The crops which the earth yield to satisfy the different wants of man, cannot usually serve that purpose in the state in which nature gives them; they must undergo various changes and be prepared by art. Wheat must be converted into flour, then into bread; hides must be tanned or dressed; wool and cotton must be spun; silk must be drawn from the cocoon; hemp and flax must be soaked, peeled, spun, and next, different fabrics must be woven from them, and then they must be cut and sewn into garments, footwear, etc. If the same man who, on his own land, cultivates these different articles, and uses them to supply his own wants, was also forced to perform all the intermediate operations himself, it is certain that he would succeed very badly. The greater part of these preparations require care, attention and a long experience, such as are only to be acquired by working continuously and on a great quantity of materials. Take, for example, the preparation of hides: what laborer could attend to all the details necessary in this operation, which continues for several months, sometimes for several years? If he could, would he be able to, for a single hide? What a loss of time, space, materials which might have served either at the same time or successively, to tan a large quantity of hides! And even if he did succeed in tanning a single hide, he only needs one pair of shoes; what will he do with the rest? Shall he kill an ox to make this pair of shoes? Shall he cut down a tree to make a pair of wooden shoes? The same thing may be said concerning all the other wants of man, who, if he were reduced to his own field and his own labor, would waste much time and trouble in order to be very badly equipped in every respect, and would also cultivate his land very badly.

4.The necessity of these preparations brings about the exchange of products for labor.

The same motive which has established the exchange of various crops between the cultivators of different types of soil, must also have brought about the exchange of crops for labor, between the cultivators and another part of society which came to prefer the occupation of preparing and working up the produce of the land to that of growing it. Every one profited by this arrangement, for each, by devoting himself to a single kind of labor, succeeded much better in it. The husbandman obtained from his field the greatest possible quantity of produce and procured for himself by means of exchange all his other wants with much greater facility than he could have done by his own labor. The shoemaker, by making shoes for the husbandman, secured for himself a portion of the latter’s harvest. Each workman labored to satisfy the wants of all other types of workmen, who in turn all worked for him.

5.Pre-eminence of the husbandman who produces, over the artisan who works up materials. The husbandman is the prime mover in the circulation of labor; it is he who causes the soil to produce the wages of every artisan.

It must, however, be observed that the husbandman, who furnishes everyone with the most important and the most considerable objects of their consumption (I mean their food, and moreover the materials of almost every manufacture) has the advantage of a greater degree of independence. His labor, among the various kinds of labor which are divided between the different members of society, retains the same primacy and pre-eminence, as the procuring of food did among the different works he was obliged, when in a solitary state, to employ himself in, in order to supply himself with his wants of all kinds. This is not a pre-eminence of honor or of dignity, but of physical necessity. The husbandman, generally, speaking, can get on without the labor of other workmen; but no workman can labor, if the husbandman does not provide his food. In this circulation, which, by a reciprocal exchange of wants, renders men necessary to one another, and constitutes the bond of society, it is therefore the labor of the husbandman which is the prime mover. What his labor causes the land to produce beyond his personal wants, is the sole fund for the payment of wages which the other members of society receive in exchange for their labor. The latter, by availing themselves of the price of this exchange to purchase in their turn the commodities of the husbandman, only return to him precisely what they have received. There is here a very basic difference between these two kinds of labor, which it is necessary to emphasise in order to be convinced of the evidence on which it rests, before dealing with the innumerable consequences which flow from it.

6.The wages of the workman are limited to his subsistence by the competition among the workmen. He gets only his livelihood.

The mere workman who depends only on his arms and his industry, has nothing except in so far as he succeeds in selling his labor to others. He sells it at a lower or higher price; but his low or high price does not depend on himself alone; it results from the agreement he makes with the buyer of his labor. The latter pays him as little as he can; because he has the choice among a great number of workmen, he prefers the one who works cheapest. The workmen are therefore compelled to lower their price in competition with one another. In every kind of work it must, and, in effect, it does happen, that the wages of the workman are limited to what is necessary to procure him a subsistence.

7.The husbandman is the only one whose industry produces more than the wages of his labor. He, therefore is the unique source of all wealth.

The position of the husbandman is materially different. The soil, independent of any other man, or of any agreement, pays him directly the price of his toil. Nature does not bargain with him to compel him to content himself with what is absolutely necessary. What she grants is neither related to his wants, nor a contractual valuation of the price of his days of work. It is the physical result of the fertility of the soil, and of the wisdom, far more than the laboriousness, of the means which he has employed to render it fruitful. As soon as the labor of the husbandman produces more than his wants, he can, with the surplus which nature accords him as a pure gift above the wages of his toil, purchase the labor of other members of society. The latter, in selling to him, only obtain a livelihood; but the husbandman, besides his subsistence, collects an independent and disposable wealth, which he has not purchased and which he sells. He is, therefore, the unique source of the wealth which, by its circulation, animates all the industry of society, because he is the only one whose labor produces more than the wages of his labor.

8.Primary division of society into two classes, the one productive or the cultivators, the other stipendiary, or the artisans.

Here then is the whole society divided, by a necessity founded on the nature of things, into two classes, both industrious, one of which, by its labor, produces or rather, draws from the soil, wealth which is continually regenerated, and which supplies the whole society with subsistence and with materials for all its needs; while the other is employed in giving to the said materials such preparations and forms as render them suitable for the use of man, and sells its labor to the first class, and receives its subsistence in exchange. The first may be called the productive, the latter the stipendiary class.

9.In Ancient times, the proprietor could not have been distinguished from the cultivator.

Hitherto no distinction has been made between the husbandman and the proprietor of the land, and in early times they were not in fact so distinguished. It is by the labor of those who were the first to cultivate the fields, and enclosed them to secure their harvest, that all the lands ceased to be common, and that landed proprieties were established. Until societies were consolidated and until public power, or the law, becoming predominant over individual power was able to guarantee to each man the tranquil possession of his property against all invasion from without, a man could retain the ownership of a field only in the way he had acquired it, and by continuing to cultivate it. It would not have been safe to get his field cultivated by another who, having taken all the trouble would not easily have understood that the whole harvest did not belong to him. Moreover, in this early time, as every industrious man would find as much land as he wished, he could not be tempted to till the soil for another. Every proprietor had to cultivate his fields himself or abandon them completely.

10.Progress of society; all lands have an owner.

But the land filled up and was cultivated to a greater extent. With the passage of time, the best lands all came to be occupied; there remained for those who came last nothing but the barren land, rejected by the first. But finally all land found an owner, and those who could not have properties had at first no other resources than that of exchanging the labor of their arms, in the occupations of the stipendiary class, for the surplus produce of the cultivating proprietor.

11.It begins to be possible for the proprietors to transfer the labor of cultivation to hired cultivators.

However, since the land returned to the owner who cultivated it not only his subsistence, not only that wherewith to procure himself, by way of exchange, the other things he needed, but also a considerable surplus, he could with this surplus pay other men to cultivate his land, and for men who live on wages it was as good to earn them in this occupation as in any other. Thus ownership could be separated from the labor of cultivation, and it soon was.

12.Inequality in the division of land: causes which make this inevitable.

The original proprietors at first occupied, as has already been said, as much land as their resources permitted them to cultivate with their families. A man of greater strength, more industrious, more concerned about the future, occupied more than a man of contrary character. He whose family was more numerous, as he had more needs and more hands at his disposal, extended his possessions further: here was already a first inequality. All pieces of ground are not equally fertile; two men with the same area of land and the same amount of labor, may reap a very different harvest: (this is a) second source of inequality. Property, in descending from fathers to their children, divided into greater or smaller portions, according to whether the descendants were more or less numerous; as one generation succeeds another, the inheritances are sometimes still further subdivided; sometimes they are reunited again by the extinction of some of the branches: (this is a) third source of inequality. The contrast between the intelligence, the activity, and above all, the thrift of some and the indolence, inaction, and dissipation of others, was a fourth principle of inequality, and the most powerful of all. The negligent and improvident proprietor, who cultivates badly, who in years of abundance consumes in frivolous things the whole of his surplus, finds himself reduced on the slightest accident to request assistance from his more provident neighbor, and to live by borrowing. If by a further accident, or by a continuation of his negligence, he finds himself not in a condition to repay his debt, if he is obliged to have recourse to new loans, he will at last have no other means at his disposal but to abandon part, or even the whole of his property to his creditor, who will take it as an equivalent, or assign it to another, in exchange for other assets with which he will discharge his obligation to his creditor.

13.Consequence of this inequality: the cultivator distinguished from the proprietor.

Thus is landed property made subject to purchase and sale. The portion of the dissipating or unfortunate proprietor serves to increase that of the proprietor who has been more fortunate or prudent, and in this infinitely varied inequality of possessions, it is inevitable that many proprietors must possess more than they can cultivate. Besides, it is very natural for a rich man to wish for a tranquil enjoyment of his wealth, and instead of employing his whole time in toilsome labor, to prefer to give part of his surplus to people who work for him.

14.Division of the produce between the cultivator and the proprietor. Net product, or revenue.

By this new arrangement, the product of the land is divided into two parts: the one includes the subsistence and the profits of the husbandman, which are the rewards for his labor, and the condition on which he agrees to cultivate the field of the proprietor; the other, which remains, is that independent and disposable part which the soil produces as a pure gift to him who cultivates it, over and above his advances and the wages of his trouble, and this is the portion of the proprietor or the revenue, with which the latter can live without labor, and which he takes wherever he wishes.

15.A new division of society into three classes: the cultivators, the artisans and the proprietors, or the productive, stipendiary and disposable classes.

We now behold society divided into three classes: the class of Husbandmen, for whom the name of productive class may be reserved; the class of artisans and others receiving stipends from the produce of the land; and the class of proprietors, the only one which, not being confined by the need of subsistence to a particular species of labor, may be employed for the general needs of the society, such as war, and the administration of justice, either by a personal service, or by the payment of a part of their revenue, with which the State, or society, may hire men to discharge these functions. The name which, for this reason, suits it best, is that of disposable class.

16.Resemblance between the two working, or non-disposable classes.

The two classes of cultivators and artisans resemble each other in many respects, and particularly in this, that those who compose them do not possess any revenue, and both equally live on the wages which are paid them out of the product of the soil. Both have also this in common, that they gain only the price of their labor and their advances, and that this price is nearly the same in the two classes. The proprietor bargains with those who cultivate in his land to pay them as small a part as possible of its product, in the same manner as he bargains with the shoemaker to buy his shoes as cheaply as possible. In short, neither the cultivator nor the artisan receives more than a bare recompense for his labor.

17.Essential differences between the two working classes.

But there is this difference between the two kinds of labor, that the work of the cultivator produces not only his own wages, but also that revenue which serves to pay the whole class of artisans and other stipendiaries, whereas the artisans receive simply their wages, that is, their share of the produce of the land in exchange for their labor, and do not produce any revenue. The proprietor has nothing but by the labor of the cultivator. He receives from him his subsistence, and the wherewithal to pay for the labor of the other stipendiaries. He has need of the cultivator because of a necessity arising from the physical order of things by virtue of which the soil produces nothing without labor; but the cultivator needs the proprietor only by virtue of human conventions, and of those civil laws which guaranteed, to the first cultivators and to their heirs, the ownership of the land they occupied, even when they ceased to cultivate it. But these laws can secure the man who does not work only that part of the produce which the land gives over and above the return due to the cultivators. The proprietor is obliged to give up the latter on pain of losing the whole. The cultivator, confined though he is to the recompense for his labor, thus preserves that natural and physical primacy which renders him the prime mover in the whole machinery of society, and which causes his own subsistence, as well as the wealth of the proprietor and the wages of all the other labors, to depend on his labor alone. The artisan, on the contrary, receives his wages either from the proprietor or from the cultivator, and gives them by the exchange of his labor, only the equivalent of these wages, and nothing more.

Thus, although neither the cultivator nor the artisan gains more than the recompense of his labor, the cultivator causes, over and above that recompense, the generation of the revenue of the proprietor; while the artisan generates no revenue, either for himself or for others.

18.This difference justifies their being distinguished as the productive class and barren class respectively.

We may then distinguish the two non-disposable classes as the productive class, which is that of the cultivators, and the sterile class, which includes all the other stipendiary members of society.

19.How the proprietors can draw the revenue from their lands.

The proprietors who do not till their lands themselves, may adopt different methods of having them cultivated, or make different arrangements with those who cultivate them.

20.First method: cultivation by wage laborers.

They may, in the first place, pay men, by the day or by the year, to till their fields, and reserve to themselves the whole of the produce, a method which assumes that the proprietor advances both the seed and the wages of the workmen until after the harvest. But this method has the drawback of requiring much labor and diligence on the part of the proprietor, who alone can direct the workmen in their labor, watch over the employment of their time and on their trustworthiness in not diverting any of the produce to their own use. It is true that he may also hire a man of more intelligence, whom he knows to be trustworthy, to direct the workmen and keep an account of the produce, as overseer or manager; but he will always be subject to fraud. Besides, this method is extremely expensive, unless a large population, and want of employment in other kinds of work, forces the workmen to be content with very low wages.

21.Second method: cultivation by slaves.

In times not very distant from the origin of society, it was almost impossible to find men willing to cultivate the land which belonged to others, because, all the land not as yet having been occupied, those who were willing to labor preferred the clearing of new lands, and cultivating them on their own account; this is more or less the case in all new Colonies.

Violent men have therefore conceived the idea of obliging other men by force to labor for them. They owned slaves. These latter had no justice to look for from the hands of people who could not have reduced them to slavery without violating all the rights of humanity. Yet, the physical law of nature still assures them their part of the products which they raised, for the master must necessarily feed them in order to profit by their labor. But wages of this kind are limited to the barest necessities and to their subsistence.

This abominable custom of slavery has formerly been universal, and is still spread over the greater part of the earth. The principal object of the wars carried on by the people of antiquity was to carry off slaves, whom the conquerors either compelled to labor for themselves, or sold to others. This brigandage and this trade still continue in all their horror on the coast of Guinea, where the Europeans encourage it by going thither to purchase Negroes for the cultivation of the American Colonies.

The excessive labor to which avaricious masters force their slaves, causes many of them to perish; and it becomes necessary, in order always to maintain the number requisite for cultivation, that this trade should annually supply a very large number of them. And as war is always the principal source which supplies this commerce, it is evident that it can exist only as long as men are divided into very small nations who are incessantly plundering each other, and as long as every district makes war upon its neighbors. Let England, France and Spain carry on the most cruel hostilities, only the frontiers of each State will be affected, and that in a few places only. All the rest of the country will be peaceful, and the small number of prisoners they could make on either side would be an inadequate resource for the agriculture of each of the three nations.

22.Cultivation by slaves cannot continue to exist in large societies.

Thus when men gather together into large societies, slave recruits are no longer numerous enough to take the place of those used up by agriculture. And although the labor of men is supplemented by that of beasts, there comes a time when the lands can no longer be worked by slaves. The employment of them is then retained only for domestic service, and in the end dies out; because as nations become more civilised, they enter into agreements for the exchange of prisoners of war. These conventions are the more readily made, as every individual is very much concerned to be free from the danger of falling into a state of slavery.

23.Bondage to the soil succeeds slavery proper.

The descendants of the first slaves, originally attached to the cultivation of the lands, experience a change in their condition. As internal peace within the several nations no longer leaves commerce the wherewithal to satisfy the excessive consumption of slaves, the masters are obliged to handle them with more consideration. Those who were born in the house, accustomed from infancy to their condition, are less revolted by it, and their masters have less need to employ severity in controlling them. By degrees the land they cultivate becomes their country; they have no language other than that of their masters; they become part of the same nation; good relations develop, followed by trust and humanity on the part of their masters.

24.Vassalage succeeds bondage to the soil, and the slave becomes proprietor. Third method: alienation of an estate in return for a fixed due.

The administration of an estate cultivated by slaves is an onerous task and a constraint on one’s place of residence. The master secures for himself a freer, easier and safer enjoyment of his property by interesting his slaves in the cultivation of it, and by yielding to each of them a certain portion of the ground, on condition of their paying him a share of the produce. Some have made a temporary agreement, and have left their serfs, or slaves, only a precarious and revocable possession. Others have given up the estate in perpetuity, retaining an annual rent payable either in kind or in money, and exacting from the possessors certain duties. Those who received these lands, under the condition prescribed, became proprietors and freemen, under the name of tenants or vassals; and the former proprietors, under the title of lords, reserved only the right of exacting the payment of rent, and other stipulated dues. Thus things have come to pass in the greater part of Europe.

25.Fourth method: share cropping.

These estates, rendered free on the condition of payment of rent, may again change their proprietors, be divided and reunited in consequence of successions and sales, and such a vassal may in his turn have more land than he can cultivate himself. As a rule the rent to which those lands are subject is not so large but that, with good cultivation, there can still be procured, over and above the advances, the expenses and the subsistence of the cultivator, a surplus of produce which forms a revenue. Henceforth the vassal proprietor is also likely to desire to enjoy this revenue without labor, and to have his estate cultivated by others. Moreover, most of the lords alienated only those parts of their possessions, which are the least within their reach, and retain those which they can have cultivated with least expense. Cultivation by slaves being no longer practicable, the first method which offered itself, and the simplest to induce free men to cultivate estates which did not belong to them, was to give up to them a part of the produce; a plan which would induce them to cultivate the land better than laborers on fixed wages would be likely to do. The most common division has been that into two equal parts, one of which belonged to the cultivator and the other to the proprietor. This has given rise to the name of métayer (medietarius), or share cropping. In arrangements of this kind, which occur in the greater part of France, the proprietor pays all the advances of the cultivation, that is to say, he provides at his own expense the working cattle, the ploughs and other instruments of husbandry, seed, and the support of the cultivator and his family, from the time the latter enters into the métairie until the first harvest.

26.Fifth method: renting, or the letting-out of land.

Intelligent and rich cultivators, who suspected to what extent an active and well directed cultivation, for which neither labor nor expense was spared, would raise the fertility of the soil, rightly judged that they would gain more, if the proprietor should consent to give up to them, for a certain number of years, the whole of every harvest, on condition of paying him annually a fixed revenue, and making all the advances of cultivation. Thereby they would be assured that the increase in product obtained by their expenses and labor, would belong entirely to themselves. The proprietor, on the other hand, gained thereby a more tranquil enjoyment of his revenue, being freed from the care of making the advances and keeping an account of the product; a more steady enjoyment, since he received every year the same price of his lease; and a more certain enjoyment, because he never ran the risk of losing his advances, and the cattle and other effects with which the tenants had stocked his farm became a security for his payment. Besides, the lease being only for a small number of years, if his tenant had given him too low a price for his land, he could raise it at the end of the lease.

27.The last method is the most advantageous of all, but it assumes an already wealthy country.

This method of putting out lands to lease is the most advantageous of all both to the proprietors and to the cultivators. It is established everywhere where there are wealthy cultivators, capable of making the advances of cultivation; and as wealthy cultivators are able to bestow much more labor and manure upon the land, there results from it a prodigious increase in the productions and the revenue from estates.

In Picardy, Normandy, the neighborhood of Paris, and in most of the Provinces in the north of France, the lands are cultivated by tenant farmers; in the provinces of the South, by share-croppers. Likewise the Northern provinces are incomparably richer and better cultivated than the Southern provinces.

28.Recapitulation of the several methods of making estates productive.

I have just enumerated five different methods by which the proprietors have been able to remove themselves of the labor of cultivation, and make their land productive by the hands of others.

Firstly, by workmen paid fixed wages.

Secondly, by slaves.

Thirdly, by giving up the estate in return for the payment of a rent.

Fourthly, by granting to the cultivator a fixed portion of the produce, usually half, the proprietor undertaking to make the advances of cultivation.

Fifthly, by letting their lands to farmers, who undertake to make all the advances of cultivation, and who engage to pay the proprietor a fixed revenue during the number of years agreed upon.

Of these five methods, the first is too expensive, and very seldom practised; the second can take place only in countries still ignorant and barbarous; the third is not so much a method of getting what one can out of a property as a surrender of the property in consideration of a lien upon the estate, so that the former proprietor is, properly speaking, no more than a creditor of the new proprietor.

The last two methods of cultivation are the most common, to wit: the cultivation by Share-croppers in the poor countries, and cultivation by farmers in the richer countries.

29.Of capitals in general, and of the revenue of money.

There is another way of being rich, without laboring and without possessing lands, of which I have not yet spoken. It is necessary to explain its origin and its connection with the rest of the system of the distribution of wealth in the society which I have just outlined. This way consists in living by what is called the revenue of one’s money, or on the interest drawn from money placed on loan.

30.Of the use of gold and silver in commerce.

Silver and gold are two articles of commerce like any other, and less precious than many others, because they are of no use for the real needs of life. To explain how these metals have become the representative pledges of every kind of wealth, what influence they exercise in the progress of commerce, and how they enter into the composition of fortunes, it is necessary to go back a little and to retrace our steps.

31.Rise of commerce. Principle of valuation of exchangeable objects.

Reciprocal wants led to the introduction of exchange of what people owned for what they did not own. Commodities began to be exchanged for one another, and for labor. In exchanging, it is necessary that each party should agree to the quantity and quality of each of the things exchanged. In this agreement it is natural that each should desire to receive as much, and to give as little, as he can, both being equally masters of what they have to give in exchange, each has to balance the attachment he has for the commodity he gives, against the desire he has for the commodity he wishes to receive, and to fix accordingly the quantity of each of the things exchanged. If the two persons do not agree, they will have to approach one another by yielding a little on both sides, offering more and contenting themselves with less. I will assume that one needs corn and the other wine, and that they agree to exchange one bushel of corn for six pints of wine. It is evident that by both of them one bushel of corn and six pints of wine are looked upon as exactly equivalent, and that in this particular exchange, the price of a bushel of corn is six pints of wine, and the price of six pints of wine is one bushel of corn. But in another exchange between other men, this price will be different, according as one of them shall have a more or less urgent need for the commodity belonging to the other; and a bushel of corn may be exchanged against eight pints of wine, while another bushel shall be exchanged for four pints only. Now it is evident that not one of these three prices can be looked on as the true price of a bushel of corn, rather than the other; for, to each of the dealers, the wine he has received was equivalent to the corn he had given. In short, so long as we consider each exchange as isolated and standing by itself, the value of the thing exchanged has no other measure than the needs or desires of one party weighed with those of the other, and is fixed only by their agreement.

32.How current value is established in the exchange of commodities.

However, it happens that several Individuals have wine to offer to the man who has corn. If one is not willing to give more than four pints for one bushel, the owner of the corn will not give him his corn, when he comes to learn that someone else will give six or eight pints for the same bushel. If the former wishes to have corn, he will be obliged to raise his price equal to what is offered by others. The sellers of wine profit on their side by the competition among the sellers of corn. No one resolves to part with his commodity until he has compared the different offers that are made to him of the commodity he needs and he gives preference to the highest offer. The value of the corn and wine is no longer debated between two isolated individuals in relation to their respective wants and resources, but is fixed with those of all the sellers of wine. For he who would willingly give eight pints of wine for one bushel of corn, will give but four when he learns that an owner of corn is willing to give two bushels for eight pints. The price will become the current price to which all the buyers and sellers will conform in their exchanges; and it will be true to say that six pints of wine will be to everyone the equivalent of one bushel of corn, if that is the mean price, until a diminution of offer on the one side, or of demand, on the other, causes this valuation to change.

33.Commerce gives to all commodities a current value with respect to every other commodity; from which it follows that every commodity is the equivalent of a certain quantity of every other commodity, and may be looked on as a pledge which represents it.

Corn is not only exchanged for wine, but also for all other commodities which the owners of corn may need, such as wood, leather, wool, cotton, etc.; it is the same with wine and every other particular commodity. If one bushel of corn is equivalent to six pints of wine, and one sheep is equivalent to three bushels of corn, this same sheep will be equivalent to eighteen pints of wine. He, who, having corn, wants wine, may, without inconvenience, exchange his corn for a sheep, in order afterward to exchange the sheep for the wine which he needs.

34.Each commodity may serve as a scale or common measure, by which to compare the value of all others.

It follows from this, that in a country where commerce is brisk, where there is much production and much consumption, where there are many offers and demands for all sorts of commodities, each kind will have a current price relative to every other kind; that is a certain quantity of one will be of equal value with a certain quantity of each of the others. Thus the same quantity of corn which is worth eighteen pints of wine, will also be worth one sheep, a piece of dressed leather, or a certain quantity of iron, and all these things will have an equal value in commerce. To express or make known the value of any particular thing, it is evident that it is sufficient to state the quantity of any other known commodity which will be looked on as if equivalent. Thus, to make known what a piece of leather of a certain size is worth, we may say indifferently that it is worth three bushels of corn, or eighteen pints of wine. We may similarly express the value of a certain quantity of wine by the number of sheep, or bushels of corn which it is worth in commerce.

From this it can be seen that all the kinds of commodities which are exchangeable objects, measure one another, so to speak, and that each may serve as a common measure, or scale of comparison to which to refer the value of all the others; and in like manner each commodity becomes in the hands of its owner, a means to obtain all the others, a sort of universal pledge.

35.Every commodity does not present an equally convenient scale of values. The preference, therefore, has in practice necessarily been given to those which, not being susceptible to any great difference in quality, have a value principally related to the number and the quantity.

But although all commodities have essentially this property of representing all others, being able to serve as a common measure to express their value, and as a universal pledge to procure all of them by way of an exchange, all cannot be used with the same degree of facility for these two purposes. The more susceptible any commodity is to changing its value on account of its quality, the more difficult it is to use it as a scale to which to relate the value of other commodities. For example, if eighteen pints of wine of Anjou are the equivalent of one sheep, eighteen pints of Cape wine may be the equivalent of eighteen sheep. Thus the person who, to express the value of a sheep, would say that it is worth eighteen pints of wine, would be using ambiguous speech which would not communicate any precise idea, at least until he added a good many explanations, which would be very inconvenient. Men, therefore, have been obliged to prefer for their scale of comparison such commodities, which being more commonly in use and consequently of a better known value, were more like each other, and of which, consequently, the value had more relation to the number of the quantity than to the quality.

36.The want of an exact correspondence between the value and the number or quantity is supplied by average valuation, which becomes an ideal money.

In a country where there is only one race of sheep, the value of a fleece or of a sheep may easily be taken for the common measure of values, and it may be said that a barrel of wine, or a piece of stuff, is worth a certain number of fleeces or sheep. There is in reality some inequality among sheep, but when it is a question of selling sheep, care is taken to estimate that inequality, and to reckon, for example, two lambs as one sheep. When it is a question of valuing any other commodity, the common value of a sheep of medium age and condition is taken as the unit. In this way, the expression of values in terms of sheep becomes an agreed form of expression, and this word one sheep, in the language of commerce, simply signifies a certain value which, in the minds of those who hear it, carries not merely the idea of one sheep, but of a certain quantity of the more common types of commodities which are regarded as the equivalent of this value, and this expression will end by being so entirely applied to a fictitious and abstract value, rather than to a real sheep, and that [if by chance a pestilence occurs among the sheep, and in order]¹ to purchase one of them, it becomes necessary to give double the quantity of corn or wine that was formerly given, people will rather say that one sheep is worth two sheep than change the expression they have been accustomed to for all the other values.

37.Examples of those mean valuations which become an ideal expression of value.

In the commerce of all nations, several examples are known of these fictitious valuations in terms of commodities which are, so to speak, only an agreed form of expression of their value. Thus the cooks of Paris, and the fishmongers who provide great houses, generally sell by the piece. A fat pullet is reckoned as one piece, a chicken as half a piece, more or less, according to the season, and so on. In the slave trade to the American Colonies, a cargo of Negroes is sold at the rate of so much per Negro head, a piece of India. The women and children are valued in such a way that, for example, three children, or one woman and one child, are reckoned as one head of Negro. The valuation is increased or diminished on account of the strength or other qualities of the slaves, so that certain slaves are reckoned as two head of Negro.

The Mandingo Negros, who carry on the gold dust trade with the Arabian merchants, relate all their commodities to a fictitious scale whose parts are called macutes, so that they tell the merchants that they will give so many macutes in gold. They value likewise in macutes the commodities they receive, and bargain with the merchants on this valuation.

In the same way in Holland people reckon by bank florins, which are only fictitious money, and which in commerce, have sometimes a higher, sometimes a lower value than the coins called florins.

38.Every commodity is a pledge representing all other commodities, but it is more or less convenient in practice according to the ease with which it can be transported and stored without deterioration.

The variation in the quality of commodities, and in their prices in accordance with that quality, which renders them more or less suitable than others to serve as a common measure, is also more or less an impediment to their being a representative pledge of every other commodity of a like value. But with respect to this last property there is also a very great difference between the different types of commodities. For example, it is evident that a man who owns a piece of cloth, is far more certain of obtaining a certain quantity of corn for it, when he wants it, than if he had a barrel of wine of the same value, the wine being subject to an infinity of accidents which in an instant may cause it to lose its entire value.

39.Every commodity has the two essential properties of money, of measuring and representing all value; and in this sense all merchandise is money.

The two properties of serving as a common measure of all values, and of being a representative pledge of all other commodities of a like value, include everything that constitutes the essence and use of what is called money; and it follows from the details which I have just given, that all merchandise is, in some respect, money, and shares more or less, according to the nature of each, in these two essential properties. All are more or less suitable to serve as a common measure in proportion as they are in more general use, of more similar quality, and easier to divide into parts of equal value. All are more or less suitable to be a universal pledge of exchanges in proportion as they are less susceptible to deterioration or alteration in quantity or quality.

40.Reciprocally, all money is essentially merchandise.

We can take only what itself has a value as a common measure of value, that which is received in commerce in exchange for other values; and there is no universal, representative pledge of value, except something of equal value. Purely conventional money is therefore an impossibility.

41.Different substances have been able to serve, and have served, as ordinary money.

Many nations have adopted in their language and in their trade, as a common measure of value, different substances, more or less precious; there are even at this day some barbaric peoples who make use of a species of little shells called Cowries. I remember having seen, when at College, apricot stones exchanged and passed as a type of money among the Scholars, who used them to play certain games. I have already spoken of the reckoning by head of cattle; traces of this can be found in the Laws of the ancient Germanic nations who broke up the Roman Empire. The early Romans, or at least the Latins, their ancestors, made use of it also. It is claimed that the first coins they struck in copper, represented the value of a sheep, and bore the image of that animal, and that the name of pecunia, has come from pecus. This conjecture has a great deal of probability.

42.Metals, and particularly gold and silver, are the most suitable for this purpose: and why.

We have now come to the introduction of the precious metals into commerce. All the metals, as they have been discovered, have been admitted into exchange, on account of their real usefulness: their splendor has caused them to be sought after, to serve as ornaments; their malleability and their solidity have rendered them suitable for making utensils, more durable and lighter than those of clay. But these substances could not be brought into commerce without almost immediately becoming a universal Money. A piece of any metal, of whatever sort, has the same qualities as another piece of the same metal, provided they are both equally pure. Now, the ease with which we can separate, by different chemical operations, a metal from other metals with which it is incorporated, enables us always to bring it to the degree of purity, or, as it is called, the standard, which is desired, and the value of metal can only vary then according to its weight. In expressing, therefore, the value of all commodities by the weight of metal which may be had in exchange, we shall have the clearest, the most convenient, and the most precise expression of value; and hence it is impossible that it should not, in practice, be preferred to every other. Nor are the metals less suitable than other commodities for becoming the universal pledge of all the values that they can measure; as they are susceptible for all imaginable divisions, there is no commodity whose value, great or small, cannot be exactly paid for by a certain quantity of metal. To this advantage of lending themselves to every kind of division, they join that of being unalterable, and those which are scarce, like gold and silver, have a very great value in a very inconsiderable weight and bulk.

These two metals then, are, of all commodities, the most easy to verify as to their quality, to divide as to their quantity, to keep for a long time without deterioration, and to convey to all places at the least expense. Every one who has a surplus commodity and who does not need, at the time, any other commodity for use, will hasten to exchange it for money, with which he is more certain than with anything else, to procure himself the commodity he wants at the moment he needs it.

43.By the nature of things, gold and silver are constituted money and universal money, independently of any convention and of any law.

Here then are gold and silver constituted money, and universal money, and that without any arbitrary agreement among men, without the intervention of any law, but only by the nature of things. They are not, as people imagine, signs of value; they have a value themselves. If they are capable of being the measure and pledge of other values, they have this property in common with all other commodities which have a value in commerce. They differ from them only because, being at the same time more divisible, more unchangeable, and of more easy conveyance than other commodities, it is more convenient to use them to measure and represent value.

44.The employment of other metals for these purposes is only subsidiary.

All metals would be capable of being used as money. But those which are very common have too little value in too large a bulk to be used in the everyday exchanges in trade. Copper, silver, and gold are the only ones which have been brought into constant use. And even copper, except among some peoples to whom neither mines nor commerce have supplied a sufficient quantity of gold or silver, has never been used except in exchanges of the smallest values.

45.The use of gold and silver as money has augmented their value as substances.

It is impossible but that the eagerness with which every one has sought to exchange his superfluous commodities for gold and silver, rather than for any other commodity, must have greatly augmented the value of these two materials in commerce. They are thereby rendered more suitable for their employment as pledge, or common measure.

46.Variations in the value of gold and of silver, compared with the other commodities, and with one another.

This value is susceptible to change, and in fact does continually change so that the same quantity of metal which answered to a certain quantity of such or such a commodity, ceases to correspond to it, and more or less money is required to represent the same commodity. When it requires more, the commodity is said to be dearer; when it requires less, it is said to be cheaper; but it might just as well be said that it is the money which is cheaper in the first case, and dearer in the latter. Silver and gold vary in price not only as compared with all other commodities, but they also vary in price among themselves, according as they are more or less abundant. It is well known that in Europe at the present time from fourteen to fifteen ounces of silver are given for one ounce of gold, and that in former times only ten to eleven ounces of silver were given for one ounce of gold. In China, even at present only about twelve ounces of silver are given to get one ounce of gold, so that there is a very great advantage in carrying silver to China, to exchange for gold to bring back to Europe. It is evident that, in the long run, this commerce will make gold more common in Europe and less common in China, and that the value of these two metals must finally come to the same proportion everywhere.

A thousand different causes compete to determine at any moment the value of commodities when compared either with each other, or with silver, and cause them to change incessantly. The same causes determine the value (of money), and cause it to vary, when compared either with the value of each particular commodity, or with all the other values which are in commerce at the time. It is not possible to disentangle these different causes, and to unfold their effects, without entering into very extensive and very difficult details, and I shall abstain from entering upon this discussion.

47.The practice of making payment in money has given rise to the distinction between seller and buyer.

In proportion as people have become accustomed to the practice of valuing everything in money, of exchanging all their superfluous commodities for money, and of not parting with that money but for the things which are useful or agreeable to them at the moment, they have become accustomed to consider the exchanges of commerce from a new point of view. They have distinguished two persons, the seller and the buyer: the seller was the one who gave commodities for money, and the buyer was the one who gave money for commodities.

48.The use of money has greatly facilitated the separation of the different labors among the different members of society.

The more money came to stand for everything else, the more did it become possible for everyone, by devoting himself entirely to the kind of cultivation and industry he had chosen, to relieve himself completely of all care of supplying his other wants, and to think only of obtaining as much money as possible, by the sale of his fruits or his labor, very sure that by means of this money he could get all the rest: in this way the use of money has prodigiously hastened the progress of society.

49.Of the reserve of annual produce, accumulated to form capitals.

As soon as men were found whose property in land assured them an annual revenue more than sufficient to satisfy all their requirements, there were sure to be found men who, anxious about the future, or merely prudent, put aside part of what they gathered every year, either to meet contingencies, or to increase their comforts. When the produce they gathered was difficult to preserve, they must have sought to obtain, by exchange, articles of a more durable nature, whose value would not be destroyed by time, or which could be employed in such a manner, as to procure profits which would more than make up for their deterioration.

50.Moveable wealth;² accumulation of money.

Possessions of this kind, resulting from the accumulation of annual produce not consumed, are known by the name of moveable wealth. Furniture, houses, plate, commodities in warehouses, the tools of each trade, and cattle, belong to this kind of wealth. It is evident that men toiled hard to procure themselves as much as they could of this kind of wealth, before they became acquainted with money; but it is no less clear that, as soon as it was known, as soon as it was proved to be the most changeable of all commodities, and the easiest to keep without trouble, it could not fail to be sought after by whoever wished to accumulate. It was not only the proprietors of landed estates who thus accumulated their surplus produce. Although the profits of industry are not, like the revenue of the soil, a gift of nature, and the working man draws from his labor only the price which is given him by the persons who pay him his wages; although the latter economises as much as possible in the payment of these wages, and competition obliges the working man to content himself with a price less than he would like, it is nevertheless certain that this competition has never been numerous or keen enough in any kind of labor, to prevent, at any time, a man who is more expert, more active, and above all, more thrifty than others in his personal consumption, from earning a little more than was necessary for the subsistence of himself and his family, and from setting aside this surplus to create therewith a little store.

51.Moveable wealth is an indispensable prerequisite for all lucrative work.

It is also necessary that in every trade the workmen or the entrepreneur who set them to work have a certain fund of moveable wealth, accumulated beforehand. Here we are again obliged to retrace our steps and to recall several matters which at first were only hinted at in passing, when the division of the several professions was discussed, and the different methods by which proprietors could make their estates productive; because this could not be explained at that time without breaking the line of argument.

52.Necessity of advances in agriculture.

Every type of labor, in agriculture, in industry or in commerce, requires advances. Even if the soil were cultivated by hand, it would be necessary to sow before reaping; it would be necessary to live until after the harvest. The more agriculture is brought to perfection, and the more energetic it becomes, the more considerable these advances are. There is need of cattle, implements of husbandry, buildings to house the cattle and store the produce; it is necessary to pay a number of people proportioned to the extent of the enterprise, and to enable them to subsist until the harvest. It is only by means of considerable advances that a large return is obtained, and that the lands yield a large revenue. In any craft whatsoever, it is necessary that the workman has tools in advance, that he has a sufficient quantity of materials on which to work; and he has to subsist while waiting for the sale of his finished goods.

53.First advances furnished by the land while still uncultivated.

It is the land which is always the first and unique source of all wealth; it is the land which by cultivation produces all the revenue; it is the land also which provided the first fund of advances, prior to cultivation. The first cultivator took the seed which he sowed from the plants which the earth had of itself produced; while waiting for the harvest, he lived by hunting, by fishing, and upon wild fruits; his tools have been the branches of trees, torn down in the forest, and shaped with stones sharpened against other stones; the animals wandering in the woods he took himself in the chase, or caught in his traps; he brought them into subjection and tamed them; he used them at first for food, afterward to help him in his labor. The first fund grew gradually; cattle were in early times the most sought after of all moveable wealth, and also the easiest to accumulate; they die, but they reproduce themselves, and the wealth of which they consist is in a way indestructible: this fund itself grows by the mere process of generation, and gives an annual product, either in dairy produce, or in wool, in hides or other materials, which, with the wood obtained in the forest, was the first fund for the works of industry.

54.Cattle, moveable wealth even before the cultivation of the soil.

In times when there was still a large quantity of uncultivated land which did not belong to anyone, cattle could be maintained without there being a proprietor of land. It is even probable that mankind has almost everywhere begun to collect herds and to live on their produce before devoting themselves to the more toilsome labor of cultivation. It seems that the nations which cultivated the earth in the earliest times, were those which found in their country types of animals more susceptible of being tamed, and which were led in this way from the wandering and restless life of hunters and fishermen to the more tranquil enjoyment of pastoral pursuits. Pastoral life requires a longer residence in the same place, affords more leisure, more opportunities to study the difference between lands, to observe the way of nature in the production of plants which serve for the support of cattle. Perhaps it is for this reason, that the Asiatic nations were the first to cultivate the earth, and that the peoples of America have remained so long in a Savage State.

55.Another kind of moveable wealth, and of advances of agriculture: slaves.

Slaves were another kind of moveable wealth, procured at first by violence, and afterward by way of commerce and exchange. Those who had many slaves employed them not only in the cultivation of the land, but also in different works of industry. The ease with which these two kinds of wealth could be accumulated almost without limit, and used independently from the land, made it possible to value the lands themselves, and to compare their value to that of moveable wealth.

56.Moveable wealth has an exchangeable value relative to the land itself.

A man who happened to have a good many pieces of land, but no cattle or slaves, would certainly make an advantageous bargain by surrendering a part of his land to a person who gave him in exchange cattle and slaves to cultivate the rest. It is principally in this way that landed estates themselves entered into commerce, and had a value comparable with that of all other commodities. If four bushels of corn, the net product of an acre of land, were worth six sheep, the acre itself which produced them, could be transferred for a certain value, larger of course, but always easily determined in the same manner as the price of other commodities; i.e., first by the chaffering between the dealers, and afterward by the current price established by the competition of those who wish to exchange land for cattle, and those who wish to give up cattle for land. It is in accordance with this current price that lands are valued when a debtor is sued by his creditor, and is compelled to surrender his estate to him.

57.Valuation of lands in accordance with the proportion of the revenue to the amount of moveable wealth, or the value for which they are exchanged: this proportion is what is called the penny of the price of land.³

It is evident that if a piece of land which produces a revenue equivalent to six sheep, can be sold for a certain value which may always be expressed by a number of sheep equivalent to that value, this number will bear a definite proportion with that of six, and will contain it a certain number of times. Thus the price of an estate will be simply so many times its revenue; twenty times if the price is one hundred and twenty sheep; thirty times, if it is one hundred and eighty sheep. And so the current price of land regulates itself in accordance with the relation between the value of the estate and the value of the revenue; and the number of times that the price of the estate contains the revenue is called so many years purchase of land. It is sold at the price of twenty, thirty, or forty years purchase, when twenty, thirty, or forty times the revenue is paid to obtain it. It is also no less evident that this price or this rate must vary according to the number of purchasers or sellers of land, in the same manner as the price of all other commodities varies in accordance with the varying proportion between the offer and the demand.

58.Every money capital, or every sum of value, whatever it may be, is the equivalent of a piece of land producing a revenue equal to some definite fraction of this sum. First employment of capitals. Purchase of a landed estate.

Let us now go back to the time after the introduction of money. The ease with which it can be accumulated made it the most sought after form of moveable wealth, and furnished the means of accumulation unceasingly by the simple means of thrift. Whoever, either from the revenue of his land, or from the wages of his labor or industry, receives each year more value than he needs to spend, may set aside this surplus and accumulate it: these accumulated values are what is called a capital. The timid miser who accumulates money with the objective of preventing worries about lacking the necessaries of life in an uncertain future, keeps his money in a hoard. If the dangers which he foresaw should eventuate, and he in his poverty should be reduced to live each year upon his treasure, or if a prodigal heir should spend it by degrees, this treasure would soon be exhausted, and the capital entirely lost to the owner. The latter can draw a far greater advantage from it. Since a landed estate of a certain revenue is only the equivalent of a sum of value equal to this revenue multiplied a certain number of times, it follows that any sum whatsoever of value is equivalent to a landed estate producing a revenue equal to a definite fraction of this sum: it is perfectly the same whether this sum of value, or this capital consists of a mass of metal, or of any other matter, since money represents every kind of value, just as every kind of value represents money. In the first place, therefore, the owner of a capital can use it to purchase lands, but he has other possibilities as well.

59.Another employment of money in advances for enterprises of manufacture or industry.

I have already observed that all labors, whether of cultivation or industry, require advances, and I have shown how the earth, by the fruits and herbs which it produces of itself for the nourishment of man and beast, and by the trees of which men have formed their first tools, had furnished the first advances of cultivation, and even of the first handmade articles that each man might fashion for his own use. For instance, it is the earth that provided the first stone, clay and wood of which the first houses were built; and, before the separation of occupations when the same man that cultivated the earth provided also for his other wants by his own labor, there was no need of other advances: but when a large part of society had only their arms to maintain themselves, it was necessary that those who thus lived on wages, should have something in advance to begin with, either to procure the materials upon which they worked, or to maintain them while waiting for their wages.

60.Further explanations of the use of the advance of capitals in enterprises of industry, on their return and on the profits which they ought to yield.

In early times, he who set men to work, supplied the materials himself, and paid the wages of the workmen from day to day. It was the cultivator or the proprietor himself that gave the Spinner the hemp he had gathered, and he maintained her during the time of her working; then he passed the yarn to a Weaver, to whom he gave, every day, the wage agreed upon; but those slight daily advances could be sufficient only for works of the simplest and roughest kind. A vast number of crafts, and even of those crafts engaged in by the poorest members of society, require that the same materials should pass through a multitude of different hands, and undergo, for a very long time exceedingly difficult and varied operations. I have already mentioned the preparation of leather, of which shoes are made: whoever has seen the workshop of a tanner, cannot help feeling the absolute impossibility of one, or even several poor persons providing themselves with hides, lime, tan, utensils, etc., and causing the buildings necessary for establishing a tannery to be erected, and of their living for several months until their leather was sold. In this craft, and in many others, must not those that work at it have learnt the trade before they venture to touch the materials, lest they should spoil them in their first attempts? Here then is another indispensable advance. Who then will collect the materials for the work, the ingredients, the tools necessary for the process? Who is to construct canals, markets, and buildings of every kind? Who will enable that great number of workmen to live until their leather is sold, of whom none individually would be able to prepare a single hide, considering moreover that the profits of the sale of a single tanned hide could not furnish subsistence for any one of them? Who will defray the expenses for the instruction of pupils and apprentices? Who will maintain them until they are sufficiently instructed, guiding them gradually from an easy labor proportionate to their age, to works that demand the utmost strength and ability? It will be one of those owners of capitals, or moveable accumulated values, who will employ them partly in advance for the construction of the establishment and the purchase of materials, partly for the daily wages of the workmen who labor in the preparation of them. It is he who will wait for the sale of the leather to return him not only all his advances, but also a profit sufficient to compensate him for what his money would have been worth to him, had he turned it to the acquisition of an estate, and moreover, the wages due to his labor and care, to his risk, and even to his skill; for surely, if the profits were the same, he would have preferred living without any exertion on the revenue of the land which he could have purchased with the same capital. As fast as this capital returns to him by the sale of his products, he uses it for new purchases to furnish and maintain his manufactory by this continual circulation; he lives on his profits, and lays aside what he can spare to increase his capital, and to direct it to his business, thereby increasing the amount of his advances, in order to increase his profits even more.

61.Subdivision of the industrial stipendiary class into capitalist entrepreneurs and simple workmen.

Thus the whole class employed in supplying the different wants of society with an immense variety of industrial products is, so to speak, subdivided into two orders: that of the entrepreneurs, manufacturers and mastercraftsmen, all owners of large capitals, which they invest profitably as advances for setting men at work; the second order, composed of simple artisans, who have no other property than their arms, who advance only their daily labor, and receive no profit but their wages.

62.Another employment of capitals, in advances for agricultural enterprises. Explanations as to the use, the return and indispensable profits of capitals in agricultural enterprises.

In speaking first of the employment of capitals in manufacturing enterprises, I had in view to present a more striking example of the necessity and effect of large advances, and of the course of their circulation; but I have slightly reversed the natural order, which would have required that I should rather begin to speak of enterprises of agriculture, which also can neither be performed, nor extended, nor afford any profit, but by means of considerable advances. It is the owners of large capitals who, in order to make them productive in agricultural enterprises, take leases of land, and pay the proprietors large rents, taking on themselves the whole burden of advances. Their position is essentially the same as that of entrepreneurs of manufacturing industry: Like them, they are obliged to make the first advances of the enterprise, to provide themselves with cattle, horses, tools of husbandry, to purchase the first seeds; like them, they must maintain and nourish their carters, reapers, threshers, servants and laborers of every kind, who have nothing but their arms, who advance only their labor, and earn only their wages; like them, they have to obtain from the harvest, apart from the return of their capital, i.e., their original and annual advances, firstly, a profit equal to the revenue they would be able to acquire with their capital without any labor; secondly, the wages and the price of their labor, of their risk and their industry; thirdly, the wherewithal to replace annually the wear and tear of their property, the cattle that die and the tools that wear out, etc. All this must be first deducted from the price of the produce of the earth; the surplus serves the cultivator to pay the proprietor for the permission he has given to use his field for establishing his enterprise. This is the price of the lease, the revenue of the proprietor, the net product, for all that the earth produces up to the amount of the advances, and the profits of every kind due to him who made these advances, cannot be regarded as a revenue, but only as the return of the expenses of cultivation, considering that if the cultivator did not get them back, he would be loath to risk his wealth and trouble in cultivating the field of another.

63.The competition between the capitalist entrepreneurs establishes the current price of lands and farming on a large scale.

The competition between rich entrepreneurs in agriculture fixes the current price of leases, in proportion to the fertility of the soil, and the price at which its produce is sold, always according to the calculations which the farmers make both of their expenditures, and of the profits they ought to draw from their advances. They cannot give the proprietors more than the surplus. But when the competition among them is very keen, they give him the whole of this surplus, the proprietor only leasing his land to him who offers the highest rent.

64.The lack of capitalist entrepreneurs in agriculture restricts cultivation to small scale farming.

When, on the contrary, there are no rich men who have large capitals to put into agricultural enterprises, when, through the low price of the products of the land, or for any other reason, the crops are not sufficient to assure the entrepreneurs, besides the return of their funds, profits at least equal to those they would derive from their money by employing it in some other way, then farmers cannot be found who are willing to lease lands. The proprietors are forced to hire colons or métayers, who are unable to make any advances, or to cultivate properly. The proprietor himself makes some small advances, which produce him a very small revenue: if the land happens to belong to a proprietor who is poor, in debt, or neglectful, to a widow, or a Minor, it stays out of cultivation. Such is the true origin of the difference, I have already noticed, between Provinces where the lands are cultivated by wealthy farmers, as in Normandy and the Ile de France, and those where they are cultivated only by poor métayers, as in Limousin, Angoumois, Bourbonnais and many others.

65.Subdivision of the class of cultivators into entrepreneurs or farmers, and mere wage farmers, whether servants or day laborers.

Hence it follows, that the class of cultivators, like that of the manufacturers, may be divided into two orders of men, that of the entrepreneurs or capitalists, who make all the advances, and that of the mere wage earning workmen. It is also evident, that capitals alone can form and support great enterprises of agriculture which give the estates an invariable rental value, so to speak, and which assure the proprietor a revenue which is always constant and as large as possible.

66.Fourth employment of capitals, in advances for commercial enterprises. Necessity of the interposition of merchants, properly so called, between the producers of the commodity and the consumers.

The entrepreneurs, either in agriculture or in manufacturing, draw their advances and their profits only from the sale of the fruits of the earth, or of the manufactured commodities. It is always the wants and the means of the consumer that sets the price of the sale; but the consumer does not always need the good at the moment of harvest or at the completion of manufacture. Yet the entrepreneurs require that their funds should return to them immediately and regularly, in order that they may put them back into their enterprises. The harvest must be followed without interruption by the ploughings and the sowing of the seed. The workmen of a manufactory must be kept at work continuously, a fresh set of articles must be begun as soon as the first are finished, materials must be replaced as they are being consumed. It would not be safe to interrupt the workings of a going enterprise, and they could not be taken up again just when desired. The entrepreneur, therefore, has the greatest possible interest in having his funds returned promptly by the sale of his crops or commodities. On the other hand, it is in the consumer’s interest to find the things he needs when and where he wants them; it would be extremely inconvenient for him to be obliged to purchase, at the time of the harvest, his provisions for a whole year. Among the articles that are commonly consumed there are many that require long and expensive labors, labors that cannot be undertaken with profit except on a large quantity of materials, so large that the consumption of a small number of men, or of a limited district, cannot suffice as a market for the products of a single manufactory even. Enterprises of this kind must then necessarily be few in number, at a considerable distance from each other, and consequently very far from the homes of the great majority of consumers. There is no man above extreme poverty who is not in a position to consume several things, which are neither gathered nor fabricated, except in places considerably distant from his home, and no less distant from each other. A man who could only obtain the objects of his consumption by buying them directly from the hand of the person who gathers or manufactures them, would either go without a good many things, or spend his life in travel.

This double interest on the part of both the producer and the consumer, of the first to find an opportunity to sell, of the other, to find an opportunity to buy, and yet not to lose precious time in waiting for the purchaser, or in seeking the seller, must have suggested to a third party to act as intermediaries between the two. This is the purpose of the profession of merchants, who purchase goods from the hands of the producer, to store them in warehouses, wither the consumer goes to get what he needs. In this way, the entrepreneur, assured of the sale and the return of his funds, devotes himself undisturbedly and continuously to further production, and the consumer finds within his reach, and at any moment the things which he needs.

67.Different orders of merchants. They all have this in common, that they purchase to sell again; and that their business depends upon advances which must return with profit in order to be once more put into the enterprise.

From the Huckster who displays her herbs on the market place, to the shipowner of Nantes or Cadiz who carries on his sales and purchases even to India and America, the profession of a merchant, or, more correctly, of commerce, is divided into an infinity of branches, and, as it were, levels. One trader confines himself to stocking up several types of commodities which he sells in his shop to all those who present themselves; another goes with certain commodities to a place where they are in demand, to bring from thence in exchange such things as are produced there, and are wanting in the place from whence he departed; one makes his exchanges in his own neighborhood, and by himself, another by means of correspondents, and with the services of carriers whom he pays, and whom he sends and brings from one Province to another, from one kingdom to another, from Europe to Asia, and from Asia to Europe. One sells his merchandise in small quantities to the several individuals who consume them; another sells only in large quantities at the time to other merchants who retail them to the consumers; but all have this in common that they buy to sell again, and that their first purchases are an advance which returns to them only in course of time. It must return to them, like those of the cultivators and manufacturers, not only within a certain period, to be employed again in new purchases, but also firstly, with a profit equal to the revenue they would be able to acquire with their capital without any labor; secondly, with the wages and the price of their labor, their risk, and their industry. Without the assurance of this return, and of these indispensable profits, no merchant would engage in commerce, nor could anyone possibly continue therein: it is from this point of view that he guides himself in his purchases, when he calculates the quantity and the price of the things which he can hope to sell in a certain period. The retailer learns by experience, and by the outcome of limited trials made cautiously, what are the approximate wants of the consumers whom he is in a position to supply. The trader learns from his correspondents about the abundance or scarcity, and the price of merchandise in those different countries to which his commerce extends; he directs his speculations accordingly, he sends his goods from the country where they bear a low price to those where they are sold for a higher price, it being understood that the expenses of carriage enter into the calculation of the advances that have to return to him.

Since commerce is necessary, and it is impossible to undertake any commerce without advances proportionate to its extent, we see here another method of employing moveable wealth, a new use to which the owner of a mass of values saved and accumulated, of a sum of money, of a capital, in short, can put it to obtain his subsistence, and to increase, if he can, his wealth.

68.The true idea of the circulation of money.

From what has just been said it can be seen that the cultivation of estates, manufactures of all kinds, and all the branches of trade, depend upon the mass of capitals, or of moveable, accumulated wealth, which, having been first advanced by the entrepreneurs in each of these different classes of work, must return to them again every year with a steady profit; that is, the capital to be again invested and advanced in the continuation of the same enterprises, and the profits for the more or less comfortable living of the entrepreneurs. It is this advance and this continual return which constitutes what ought to be called the circulation of money; this useful and fruitful circulation, which gives life to all the labor of society, which maintains all the movement and life of the body politic, and which is correctly compared to the circulation of the blood in the animal body. For if, by any disorder whatsoever in the sequence of expenditure of the different classes of society, the entrepreneurs cease to get back their advances with such profit as they have a right to expect, it is evident that they will be obliged to reduce their enterprises; that the amount of labor, of the consumption of the fruits of the earth, of the production and of the revenue would be equally diminished; that poverty will take the place of wealth, and that the common workman, ceasing to find employment, will fall into the deepest misery.

69.All enterprises, especially those of manufactures and of commerce, could not fail to have been very limited before the introduction of gold and silver in trade.

It is hardly necessary to remark that enterprises of all kinds, but especially those of manufactures and still more those of commerce, must have been very limited before the introduction of gold and silver in trade; since it was almost impossible to accumulate large capitals, and even more difficult to multiply and divide payments as much as is necessary to facilitate and increase the exchanges to the extent which a spirited commerce and circulation require. The cultivation of the land alone may support itself to a certain degree, because cattle are the principal object of the advances required therein; moreover, it is probable that there was no other entrepreneur in agriculture than the proprietor. As to crafts of all kinds, they must necessarily have languished greatly before the introduction of money; they were limited to the rudest types of occupation, for which the proprietors furnished the advances by feeding the workmen and by providing them with materials, or which they caused to be carried on at home by their Domestics.

70.Capitals being as necessary to all enterprises as labor and industry, the industrious man shares voluntarily the profit of his enterprise with the capitalist who furnishes him with the funds he needs.

Since capitals are the indispensable foundation of all lucrative enterprises; since with money we can furnish means for cultivation, establish manufactures, and set up trade, the profits of which accumulated and frugally saved, will become a new capital; since in short, money is the principal means of begetting money, those who, with their industry and love of labor, have no capitals, or do not have sufficient for the enterprise they wish to embark on, have no difficulty in deciding to give up to the owners of such capital or money who are willing to trust it to them, a portion of the profits they expect to receive over and above the return of their advances.

71.Fifth employment of capitals, lending at interest. Nature of the loan.

The owners of money balance the risk their capital may run, if the enterprise does not succeed, with the advantage of enjoying a definite profit without labor, and regulate themselves thereby to require more or less profit or interest for their money, or to consent to lend it for such interest as the borrower offers. Here another opportunity is open to the owner of money; lending at interest, or the trade in money. Let no one mistake me here, lending at interest is nothing but a commercial transaction, in which the Lender is the man who sells the use of his money, and the borrower is a man who buys; precisely as the proprietor of an estate and a farmer sell and buy, respectively the use of a piece of land which is let out. The Latin term for a loan of money at interest expresses it exactly, usura pecuniae, a word which, translated into French has become hateful by consequence of false ideas being formed as to the interest of money.

72.False ideas about the lending at interest.

The price of the loan is by no means founded, as might be imagined, on the profit the borrower hopes to make with the capital of which he purchases the use. This price, like the price of every commodity, is determined by the chaffering of seller and buyer; by the balance between the offer and the demand. People borrow for all kinds of purposes, and with all sorts of motives. One borrows to undertake an enterprise which will make his fortune, another to buy an estate, another to pay a gaming debt, another to make up for the loss of his revenue, of which some accident has deprived him, another to keep himself alive, while waiting for what he can get by his labor; but all these motives which influence the borrower are quite immaterial to the lender. The latter is only concerned with two things: the interest he is to receive, and the safety of his capital. He does not trouble himself about the use the borrower will make of it, any more than the merchant concerns himself with the use the buyer makes of the commodity he sells him.

73.Errors of the schoolmen refuted.

It is for want of having examined the lending at interest in its true light, that moralists, more dogmatic than enlightened, have endeavored to have it looked upon as a crime. The scholastic theologians have concluded from the fact that money does not produce anything by itself that it was unjust to exact interest from money placed on loan. Full of their prejudices, they have believed their doctrine was sanctioned by this passage from the Gospel, mutuum date nihil inde sperantes⁴ Those theologians who have adopted more reasonable principles on the subject of interest, have endured the harshest reproaches from Writers of the opposite party.

Nevertheless, it needs but a little reflection to realise the lack of depth in the pretexts which have been used to condemn the taking of interest. A loan is a reciprocal contract, free between the two parties, which they make only because it is advantageous to them. It is evident that, if the lender finds it to his advantage to receive something as the hire for his money, the borrower is no less interested in finding the money he needs, since he decides to borrow and to pay the hire of this money. Now on what principle can a crime be discovered in a contract advantageous to two parties, with which both parties are satisfied, and which certainly does no injury to anyone else? To say that the lender takes advantage of the borrower’s need of money to demand interest, is as absurd an argument as saying that a baker who demands money for the bread he sells, takes advantage of the buyer’s need for bread. If in this latter case, the money is an equivalent for the bread the buyer receives, the money which the borrower receives today is equally an equivalent of the capital and interest he promises to return at the end of a certain time; for, in short, it is an advantage for the borrower to have, during the interval, the use of the money he needs, and it is a disadvantage to the lender to be deprived of it. This disadvantage is capable of being estimated, and is estimated: the interest is the price of it. This price ought to be higher if the lender runs the risk of losing his capital by the insolvency of the borrower. The bargain therefore is perfectly equal on both sides, and consequently just and honest. Money considered as a physical substance, as a mass of metal, does not produce anything; but money employed in advances in enterprises of agriculture, manufactures, commerce, procures a definite profit; with money an estate can be purchased, and a revenue procured thereby; the person, therefore, who lends his money, does not only give up the barren possession of such money, but deprives himself of the profit or the revenue he would have been able to procure by it, and the interest which indemnifies him for this loss cannot be looked upon as unjust. The schoolmen, compelled to acknowledge the justice of these considerations, have allowed that interest may be taken, provided the capital is alienated, that is, provided the lender renounced his right to demand the repayment of his money in a certain time, and leave the borrower free to keep it as long as he wished while paying only interest. The reason for this toleration was that then it is no longer a loan, for which an interest is taken, but a rent which is purchased with a sum of money, just as an estate is purchased. This was a petty subterfuge to which they had recourse in order to concede the absolute necessity of loans in the course of transactions of society, without clearly acknowledging the falsity of the principles upon which they had condemned it. But this condition of the alienation of capital is not an advantage to the borrower, who remains no less burdened with the debt until he has repaid this capital, and whose property is always destined as security for this capital. It is even a disadvantage, as he finds it more difficult to borrow money when he needs it; for persons who would willingly consent to lend for a year or two a sum of money which they had destined for the purchase of an estate, would not lend it for an indefinite period. Moreover, if it is permissible to sell money for a perpetual rent, why would it not be permissible to let it for some years in return for a rent which only continues for that number of years? If a rent of a thousand francs per year is equivalent to the sum of twenty thousand francs in the case of a man who keeps this sum in perpetuity, a thousand francs will be the amount for the possession of that sum for one year.

74.True foundation of the interest of money.

A man then may let out his money as lawfully as he may sell it; and the owner of money may do either one or the other, not only because money is equivalent to a revenue, and a means of procuring a revenue, not only because the lender loses, during the time of the loan, the revenue he might have procured by it, not only because he risks his capital, not only because the borrower can employ it in advantageous acquisition, or in enterprises from which he may draw large profits; the owner of money may lawfully draw the interest of it by a more general and decisive principle. Even if all the foregoing were not the case, he would none the less have the right to require an interest for his loan simply because the money is his property. Since it is his property he is free to keep it, nothing obliges him to lend; if then he does lend, he may attach conditions to the loan as he sees fit. In this he does no injury to the borrower, since the latter agrees to the conditions, and has no right of any kind over the sum lent. The profit that may be procured by the use of money is doubtlessly one of the commonest motives influencing the borrower to borrow on interest; it is one of the means which facilitates his payment of the interest, but this is by no means what gives the lender the right to require it; it is enough for him that his money is his own, and this right is inseparable from property. He who buys bread does it for his support, but the right the baker has to ask a price is quite independent of the use of the bread; it is the same right he would have to sell him stones, a right founded on this principle alone, that the bread is his own, and no one has any right to force him to give it for nothing.

75.Reply to an objection.

This reflection makes us realise how false and how distant from the meaning of the Gospel, is the application which the dogmatists made of the passage mutuum date nihil inde sperantes (lend without expecting gain). The passage is clear, as interpreted by moderate and reasonable theologians, as a precept of charity. All mankind are bound to assist one another; a rich man who would see his fellow creature in distress, and who instead of providing for his wants, would sell him what he needed would be equally deficient in the duties of Christianity and those of humanity. In such circumstances, charity does not only require us to lend without interest, she orders us to lend, and even to give if necessary. To convert the precept of charity into a precept of rigorous justice, is equally repugnant to reason, and to the sense of the text. Those whom I attack here do not claim that it is a duty of (Christian) justice to lend their money; they must then agree that the first words of the passage, mutuum date, contain only a precept of charity; now I ask why they seek to extend the close of the passage into an obligation of (Christian) justice.⁵ What, shall the lending itself not be a strict precept, and shall only its accessory, the condition of the loan, be made one! This is in effect what men would have been told: “You are free to lend or not to lend, but if you do lend, take care you do not require any interest for your money, and even when a merchant shall require a loan of you for an enterprise from which he hopes to make large profits, it will be a crime for you to accept the interest he offers you; you must absolutely either lend him gratuitously, or not lend to him at all. You have indeed one method of making interest lawful, that is to lend your capital for an indefinite term, and to give up the right of demanding its repayment allowing your debtor to do so when he pleases or when he can. If you find any inconvenience on the score of security, or if you foresee you will need your money in a certain number of years, you have no other course to take but not to lend: it will be better to cause this merchant to miss a precious opportunity, than to commit a sin in helping him to take advantage of it.” This is what has been seen in these five words; mutuum date nihil inde sperantes, when they have been read with the prejudices created by a false metaphysics. Everyone who reads this text without prejudice, will soon find its real meaning; that is, “as men, as Christians, you are all brothers, all friends: act toward each other as brethren and friends; help each other in your necessities; let your purses be open to one another, and do not sell the assistance which you owe each other by requiring interest on a loan which charity commands you to make.” This is the true sense of the passage in question. The obligation to lend without interest, and that to lend, are evidently connected together; they are of the same order, and both inculcate a duty of charity, and not a precept of rigorous justice, applicable to all cases of lending.

76.The rate of interest ought to be determined just like that of all commodities, by nothing but the course of trade.

I have already said that the price of money is regulated like that of all other commodities, by the balance of offer and demand: thus, when there are many borrowers who need money, the interest of money becomes higher; when there are many owners who are ready to lend, it falls. It is therefore a further mistake to believe that the interest of money in trade ought to be fixed by the laws of princes. It is a current price, determined like that of all other commodities. This price varies a little according to the greater or less security which the lender has of not losing his capital; but on equal security, it ought to rise and fall in proportion to the abundance and the need, and the law no more ought to fix the rate of interest than it ought to regulate the price of any other commodity which circulates in commerce.

77.Money has two different valuations in commerce. One expresses the quantity of money we give to procure different sorts of commodities; the other expresses the relation a sum of money has to the interest it will procure in accordance with the course of trade.

It appears from this explanation of the manner in which money is either sold or let out for an annual interest, that there are two ways of valuing money in commerce. In buying and selling, a certain weight of silver represents a certain quantity of value, or of commodities of every kind; for example, one ounce of silver is the equivalent of a certain quantity of corn, or of a certain number of days’ labor. In lending, and in the trade in money, a capital is the equivalent of a rent equal to a fixed portion of that capital; and conversely, an annual rent represents a capital equal to the amount of that rent repeated a certain number of times, according as the interest is at a higher or lower rate.⁶

78.These two valuations are independent of each other, and are governed by quite different principles.

These two different evaluations have much less connection, and depend much less on each other than one would be tempted to believe at first sight. Money may be very common in ordinary commerce, may have a very low value, answer to a very small quantity of commodities, and the interest of money may at the same time be very high.

Assume that there are one million ounces of silver in currency circulating in commerce, and that an ounce of silver is given in the market for a bushel of corn; suppose that there is brought into the State, in some manner or other, a second million ounces of silver, and that this increase is distributed to every purse in the same proportion as the first million, so that he who had two ounces before, now has four. The silver considered as a quantity of metal will certainly diminish in price, or, which is the same thing, commodities will be paid for more dearly, and it becomes necessary, in order to procure the same measure of corn which was obtained with one ounce of silver, to give a good deal more silver, and perhaps two ounces instead of one. But it does not by any means follow from this that the interest of money falls, if all this money is carried to the market and employed in the current expenses of those who possess it, as by supposition the first million ounces were; for the interest of money falls only when there is more money to be lent, in proportion to the wants of the borrowers, than there was before. Now the money which is carried to market is not for lending; it is the money which is placed in reserve, the accumulated capitals, that are lent, and so far from the increase of the money in the market, or the diminution of its price in relation to commodities in the ordinary course of trade infallibly, and as an immediate consequence, bringing about a decrease in the interest of money, it may, on the contrary, happen that the very cause which increases the money in the market, and which increases the price of other commodities by lowering the price of money, is precisely that which increases the hire of money, or the rate of interest.

Indeed, suppose for a moment that all the wealthy people in a nation, instead of saving from their revenues or from their annual profits, spend the whole of it; suppose that, not satisfied with spending their revenue, they spend their capital; suppose that a man who has a hundred thousand francs in money, instead of employing them in a profitable manner, or lending them, consumes them piecemeal in foolish expenses; it is evident that on the one hand there will be more money employed in current purchases, in satisfying the wants and humors of every individual, and that consequently its price will fall; on the other hand there will certainly be much less money to lend, and, as many people will ruin themselves, there will probably also be more borrowers. The interest of money will consequently increase, while money itself will become common in circulation, and fall in price, and precisely for the same reason.

We shall cease to be surprised at this apparently peculiar result, if we consider that the money brought into the market for the purchase of corn, is that which is daily spent to satisfy one’s needs, and that which is offered on loan, is precisely that which is saved from one’s daily expenditure to be laid by and formed into capitals.

79.In the valuation of money with regard to commodities, it is the money considered as metal that is the subject of the estimate. In the evaluation of the penny of money, it is the use of the money for a definite time that is the subject of the estimate.

In the market a measure of corn is equivalent to a certain weight of silver; it is a quantity of silver that is purchased with the commodity; it is this quantity which is valued and compared with other different values. In a loan on interest, the object of the valuation is the use of a certain quantity of value during a certain time. It is no longer the comparison of a quantity of silver with a quantity of corn; it is now a quantity of values which is compared with a definite portion of itself, which becomes the price of the use of this quantity for a certain time. Let twenty thousand ounces of silver be equivalent in the market to twenty thousand measures of corn, or only to ten thousand, the use of those twenty thousand ounces of silver for a year will none the less be worth in the money market the twentieth part of the principal sum, or one thousand ounces of silver, if interest is at the twentieth penny.⁷

80.The price of interest depends directly on the relation between the demand of the borrowers and the offer of the lenders, and this relation depends chiefly on the quantity of moveable wealth accumulated by the saving of revenues and of annual products to form capitals, whether these capitals exist in money or in any other kind of effects having a value in commerce.

The price of silver in the market is relative only to the quantity of this metal used in current exchanges; but the rate of interest is relative to the quantity of values accumulated and laid by to form capitals. It does not matter whether these values are in metal or other effects, provided these effects are easily convertible into money. It is far from being the case, that the mass of metal existing in a State is as large as the amount of the values lent on interest in the course of a year; but all the capitals, in furniture, merchandise, tools and cattle, take the place of silver and represent it. A paper signed by a man who is known to be worth a hundred thousand francs, and who promises to pay a hundred thousand francs at a certain date, is worth a hundred thousand francs until that date: all the capitals of the man who has signed this note are answerable for the payment of it, whatever the nature of the effects he has in his possession, provided they have a value of a hundred thousand francs. It is not therefore the quantity of silver existing as metal which causes the rate of interest to rise or fall, or which brings more money into the market to be lent; it is simply the sum of capitals to be found in commerce, that is to say, the current sum of moveable values of every kind, accumulated, saved gradually out of the revenues and profits, to be employed by the owner to procure himself new profits and new revenues. It is these accumulated savings which are offered to the borrowers, and the more there are of them, the lower the interest of money will be, at least if the number of borrowers is not augmented in proportion.

81.The spirit of thrift in a nation continually increases the amount of capitals, luxury continually tends to destroy them.

The spirit of thrift in a nation continually tends to increase the amount of the capitals, to increase the number of lenders, and to diminish that of borrowers. The habit of luxury has precisely the opposite effect, and by what has already been remarked on the use of capitals in all enterprises, whether of agriculture, manufacture, or commerce, we may judge if luxury enriches a nation, or impoverishes it.

82.The fall in the rate of interest proves that thrift generally has prevailed over luxury in Europe.

Since the interest of money has been constantly diminishing in Europe for several centuries, we must conclude that the spirit of thrift has been more general than the spirit of luxury. It is only people already rich who give themselves up to luxury, and among the rich, those who are sensible confine their expenses to their revenues, and are very careful not to touch their capitals. Those who wish to become rich are far more numerous in a nation than those who are already so. Now, in the present state of things, as all land is occupied, there is but one way to become rich, it is either to possess, or to procure in some way, a revenue or an annual profit above what is absolutely necessary for subsistence, and to reserve this surplus every year so as to form a capital, by means of which a person may obtain an increase in revenue or annual profit, which may again be saved and converted into capital. There are consequently a great many people interested and occupied in accumulating capitals.

83.Recapitulation of the five different methods of employing capitals.

I have reckoned five different methods of employing capitals, or of profitably investing them.

The first is to buy a landed estate, which brings in a definite revenue.

The second is to invest money in agricultural enterprises by taking a lease of land, the produce of which ought to yield, over and above the price of the lease, the interest on the advances, and the price of the labor of the man who devotes both his wealth and his toil to its cultivation.

The third is to invest a capital in industrial and manufacturing enterprises.

The fourth is to invest it in commercial enterprises.

And the fifth method is to lend it to those who need it, in return for an annual interest.

84.The influence which the different methods of employing capitals have on each other.

It is evident that the annual product which can be drawn from capitals invested in these different employments, are influenced by each other, and are all related to the current rate of the interest of money.

85.Money invested in land is bound to bring the least.

The person who invests his money in the purchase of an estate, leased to a solvent Tenant, procures himself a revenue which entails very little trouble, and which he can spend in the most agreeable manner, by giving free play to all his tastes. There is the additional advantage in the purchase of this kind of property over that of any other, that the possession of it is more secure against all kinds of accidents. We must therefore purchase an equal revenue in land at a higher price, or content ourselves with a less revenue for an equal capital.

86.Money placed on loan ought to bring a little more than the revenue of landed estates acquired with an equal capital.

The person who lends money on interest, enjoys it even more peaceably and freely than the possessor of land, but the insolvency of his debtor may cause him to lose his capital. He will not therefore content himself with an interest equal to the revenue of the land which he might buy with the same capital. The investment of money lent must consequently be larger than the revenue of an estate purchased with the same capital; for if the lender found an estate for sale with a revenue equal to the interest, he would prefer this way of using it.

87.Money invested in agricultural, manufacturing or commercial enterprises, is bound to bring more than the interest of money on loan.

For a like reason, money employed in agriculture, in industry or in commerce, ought to produce a more considerable profit than the revenue of the same capital employed in the purchase of estates, or the interest of money placed on loan; for since these employments require, in addition to the capital advanced, much care and labor, if they were not more lucrative, it would be more advantageous to secure an equal revenue which might be enjoyed without having to do anything. It is necessary then, that, besides the interest of the capital, the entrepreneur should draw every year a profit to recompense him for his care, his labor, his talents and his risks, and to furnish him in addition that with which he may replace the annual wear and tear of his advances, which he is obliged from the very first to convert into effects which are liable to deterioration and which are, moreover, exposed to all kinds of accidents.

88.However, the products of these different employments are limited by each other, and notwithstanding their inequality, preserve a kind of equilibrium.

The different uses of the capitals produce, therefore, very unequal products; but this inequality does not prevent them from having a reciprocal influence on each other, nor from establishing a kind of equilibrium amongst themselves, like that between two liquids of unequal gravity, which come into contact with each other at the base of an inverted siphon, of which they fill the two branches; they will not be on a level, but the height of the one cannot increase without the other also rising in the opposite branch.

Suppose that suddenly, a very great number of proprietors of estates wish to sell them: it is obvious that the price of estates will fall, and that with a less sum a larger revenue may be acquired; this cannot happen without the interest of money rising, for the owners of money would choose rather to buy estates, than to lend at an interest which was no higher than the revenues of the lands they could purchase. If, then, the borrowers want to have money, they will be forced to pay a greater rate. If the interest of money becomes higher, people will prefer lending it to using it in a more toilsome and hazardous fashion in enterprises of agriculture, industry and commerce, and they will only enter those enterprises which will produce, besides the wages of their labor, a profit much greater than the rate of interest on money placed on loan. In short, as soon as the profits resulting from an employment of money, whatever it may be, increase or diminish, capitals turn in that direction or withdraw from other employments, or withdraw and turn toward other employments; and this necessarily alters in each of these employments, the relation between the capital and the annual product. Generally, money invested in landed property does not bring in as much as money placed on loan; and money placed on loan brings less than money employed in enterprises involving labor; but whatever be the way in which money is employed, its product cannot increase or decrease without all the other employments experiencing a proportionate increase or decrease.

89.The current interest of money is the thermometer by which the abundance or scarcity of capitals may be judged; it is the measure of the extent to which a nation can expand its enterprises of agriculture, manufacture and commerce.

Thus the current interest of money placed on loan may be considered as a kind of thermometer of the abundance or scarcity of capitals in a nation, and of the extent of the enterprises of every kind on which she may embark: it is evident that the lower the interest of money is, the higher is the value of landed estates. A man that has fifty thousand livres in rent, has a property worth only one million, if estates are sold at the twentieth penny; he has two million, if land is sold at the fortieth penny. If the interest is at 5 per cent all uncleared land whose produce would not yield 5 per cent over and above the replacement of the advances, and the recompense of the care of the cultivator, would remain uncultivated. No manufacture, no commerce will exist if they will not bring in 5 per cent over and above the wages of the entrepreneur’s exertions and risks. If there is a neighboring nation in which the interest stands only at 2 per cent, it will not only carry on all the branches of commerce, from which the nation where interest is at 5 per cent finds itself excluded, but moreover, as its manufacturers and merchants can content themselves with a lower profit, they will place their goods on all markets at a much lower price, and will draw to themselves the almost exclusive trade in all those commodities of which the trade is not retained (by exceptional circumstances or by the excessive cost of carriage), for the commerce of the nation where money is worth 5 per cent.

90.Influence of the rate of interest of money on all lucrative enterprises.

The price of interest may be looked upon as a kind of level, beneath which all labor, agriculture, industry and commerce come to an end. It is like a sea spread over a vast area; the summits of the mounts rise above the waters, and form fertile and cultivated islands. If this sea happens to flow back, in proportion as it descends, first the slopes, then the plains and valleys appear, and are covered with productions of every kind. It is enough that the water rises or falls a foot to inundate immense tracts, or throw them open to cultivation. It is the abundance of capitals which animates all enterprises, and the low interest of money is at the same time the effect and the index of the abundance of capitals.

91.The total wealth of a nation consists: firstly, in the net revenue of all landed estates, multiplied by the rate at which land is sold; secondly, in the sum of all moveable wealth existing in the nation.

Landed estates are equivalent to a capital equal to their revenue multiplied by the current penny at which lands are sold. Thus if we add the revenue of all lands, that is, the net revenue they render to the proprietors, and to all those that share in the property, such as the Lord that levies a rent, the curate that levies the tithe, the sovereign that levies the tax; if, I say, we should add all these sums, and multiply them by the rate at which lands are sold, we would have the sum of all the wealth of a nation in landed estates. To obtain the whole of a nation’s wealth, the moveable wealth ought to be added, which consist in the sum of capitals employed in enterprises of agriculture, industry, and commerce, which never come out of them (because) all advances, in any kind of enterprise, must continually return to the entrepreneurs, to be reinvested in the enterprises, which could not continue without them. It would be a very gross error to confound the immense mass of moveable wealth with the mass of money that exists in a State; the latter is but a very small thing in comparison. To be convinced of this, we need only remember the immense quantity of cattle, utensils and seed which constitute the advances of agriculture; of raw materials, tools, furniture and merchandise of every kind which fill the workhouses, shops, and warehouses of all manufacturers, merchants and traders, and it will be plain that in the totality of wealth, both landed or moveable, of a nation, the specie makes but a very small part. But all wealth and money are continually exchangeable, they all represent money, and money represents them all.

92.The sum of capitals on loan cannot be included in this without double counting.

The amount of capitals which are placed on loan must not be included in the calculation of the wealth of the nation; for these capitals can only have been lent either to proprietors of estates, or to entrepreneurs who invest them in their enterprises, since only these two kinds of people can answer for that capital, and pay the interest; a sum of money lent to people who have neither estate nor industry, would be a dead capital, and not an active one. If the proprietor of an estate of four hundred thousand francs borrows a hundred thousand, his land is charged with a rent that diminishes his revenue in a like proportion, and if he should sell his property, out of the four hundred thousand francs he would receive, a hundred thousand would belong to the creditor. The capital of the lender would, therefore, in the calculation of existing wealth, be a repetition of an equal part of the value of the land. The land is always worth four hundred thousand francs: when the proprietor borrows a hundred thousand francs, this does not make it five hundred thousand francs; it only brings about that out of the four hundred thousand francs, a hundred thousand belong to the lender and that there remains no more than three hundred thousand francs for the borrower.

The same double counting would take place if the total sum of capitals were to include the money lent to an entrepreneur to be employed in the advances of his enterprise; for this loan does not increase the total sum of advances necessary for that enterprise. It only brings about that that sum, and the part of the profits which represent its interest, belong to the lender. Whether a merchant employs ten thousand francs of his own property in his trade and takes the whole profit, or whether he has borrowed these ten thousand francs from another to whom he pays interest, contenting himself with the surplus of the profit, and the wages of his industry, there are never more than ten thousand francs.

But if we cannot include in the calculation of the wealth of a nation the capital which corresponds to the interest of money placed on loan without counting it twice over, we ought to include the other kinds of moveable property, which, though they were originally an object of expenditure, and do not bear any profit, become, however, by their durability, a true capital which is continually accumulated, and which, when required, may be exchanged for money, making, as it were, a reserve fund which may return into commerce and, when desired, make up for the loss of other capitals. This includes the furniture of every kind, jewels, plate, paintings, statues, ready money shut up in the chests of misers: all these things have a value, and the sum of all these values may reach a considerable amount in rich nations. Yet be it considerable or not, it is still true that it must be added to the sum of the prices of landed estates, and to that of the advances circulating in enterprises of every kind in order to make up the sum total of the wealth of a nation. Besides it is superfluous to say that, though it is easy to define, as has just been done, of what consists the sum of the wealth of a nation, it is probably impossible to discover to how much it amounts, unless some rule be found to determine the proportion of the total commerce of a nation, to the revenue of its land: a thing perhaps feasible, but which has not yet been executed in such a manner as to dispel all doubts.

93.In which of the three classes of society the capitalists who are lenders of money are to be included.

Let us now see how what we have just discussed about the different ways of employing capitals, agrees with what we have established before about the division of all the members of society into three classes, the productive class or that of cultivators, the industrial or commercial class, and the disposable class, or that of proprietors.

94.The capitalist lender of money belongs to the disposable class as far as his person is concerned.

We have seen that every rich man is necessarily owner either of a capital in moveable wealth, or of an estate in land equivalent to a capital. Every landed estate is the equivalent of a capital; consequently every proprietor is a capitalist, but not every capitalist is a proprietor of a landed estate; and the owner of a moveable capital may choose whether to use it in acquiring a landed estate, or to invest it in the enterprises of the agricultural class, or the industrial class. The capitalist who has become an entrepreneur in agriculture or industry, is no more of the disposable class either as regards himself or his profits, than the mere workmen in those two classes; they are both set aside for the carrying on of their enterprises. The capitalist who confines himself to lending money, lends it either to a proprietor, or to an entrepreneur. If he lends it to a proprietor, he seems to belong to the class of proprietors, and he becomes part-owner of the property; the revenue of the land is assigned to the payment of the interest of his loan, the value of the estate is pledged to provide security for his capital to its full amount. If the lender of money has lent to an entrepreneur, it is certain that his person belongs to the disposable class; but his capital is sunk in the advances of the enterprise, and cannot be withdrawn without injuring the enterprise, unless it is replaced by a capital of equal value.

95.The interest drawn by the lender of money is disposable so far as the use he can make of it is concerned.

Indeed, the interest he draws from that capital seems to be disposable, since the entrepreneur and the enterprise can do without it; and it seems also that we may conclude from this, that in the profits of the two working classes, there is a disposable portion, namely, that which corresponds to the interest of the advances, calculated at the current rate of interest of money placed on loan. It appears also that this conclusion is in conflict with what we have said before, that only the class of proprietors had a revenue properly so called, a disposable revenue, and every member of the two other classes had only wages and profits. This deserves some explanation. If we consider the thousand écus received annually by a man who has lent sixty thousand francs to a merchant, in relation to the use he may make of them, it cannot be doubted that they are absolutely disposable, since the enterprise can do without them.

96.The interest of the money is not disposable in this sense, that the State can, without harm, appropriate part of it for its wants.

But it does not follow that they are disposable in the sense that the State can, with impunity, appropriate part of them for the public wants. Those thousand écus are not a return which agriculture or commerce bestows gratuitously on the person who has made the advances, it is the price and the condition of these advances, without which the enterprise could not be carried on. If this return is diminished, the capitalist will withdraw his money, and the enterprise will come to an end. This return ought then to be inviolable, and enjoy an entire immunity, because it is the price of an advance made for an enterprise, without which the enterprise could not go on. To encroach upon it, would cause an augmentation in the price of advances in all enterprises, and consequently, diminish the enterprises themselves, that is, agriculture, industry and commerce.

This answer should lead us to conclude, that if we said that the capitalist who had lent money to a proprietor, appeared to belong to the class of proprietors, this appearance had something equivocal about it which needed to be unraveled. In fact, the strict truth is that the interest of his money is no more disposable, that is, is no more capable of being encroached upon, than the money lent to the entrepreneurs in agriculture, and commerce. This interest is equally the price of a free agreement, and cannot be encroached upon without altering or changing the price of the loan; now, it matters little to whom the loan has been made; if the price changes or increases for the proprietor of lands, it will also change or increase for the cultivator, the manufacturer, and the merchant. In short, the capitalist lender of money ought to be considered as a dealer in a commodity absolutely necessary for the production of wealth, which cannot be at too low a price. It is as unreasonable to burden this commerce with a tax as it would be to lay a tax on a dunghill which serves to manure the land. Let us conclude from this, that the person who lends money belongs properly to the disposable class as to his person, because he has nothing to do, but not as to the nature of his wealth, whether the interest of his money is paid by the proprietor of land, out of a portion of his revenue, or whether it is paid by an entrepreneur, out of the part of his profits designed to pay the interest of his advances.

97.Objection.

It will undoubtedly be replied, that the capitalist may indifferently either lend his money, or employ it in the purchase of an estate; that in either case he draws only an equal price for his money, and that, whichever way he has employed it, he ought none the less to contribute to the public charges.

98.Answer to the objection.

In the first place, I answer that in fact, when the capitalist has purchased an estate, the revenue is the equivalent to him of what he would have drawn from his money by lending it; but there is this essential difference with respect to the State, that the price which he gives for his land does not contribute in any respect to the revenue it produces. It would not have yielded a smaller revenue, if he had not purchased it. The revenue, as we have already explained, consists in what the land produces, beyond the wages of the cultivators, their profits, and the interest of their advances. It is not the same with the interest of a loan; it is the very condition of the loan, the price of the advance, without which neither the revenue nor the profits which serve to pay it, would exist.

I answer, in the second place, that if the lands alone were burdened with the contribution to the public charges, as soon as that contribution would be regulated, the capitalist who purchased these lands would not reckon in the interest of his money that part of the revenue which is set aside for this contribution; just as a man who now buys an estate, does not buy the tithe which the curate receives, but only the revenue which remains after the tithe is deducted.

99.There exists no truly disposable revenue in a state except the net product of land.

We see by what has been said, that the interest of money lent is taken from the revenue of lands, or from the profits of agricultural, industrial and commercial enterprises. But we have already shown that these profits themselves were only a part of the produce of lands; that the produce of land is divided into two portions; that the one was designed for the wages of the cultivator, for his profits, for the return and interest of his advances; and that the other was the share of the proprietor, or the revenue which the proprietor expended at his pleasure, and from which he contributed to the general expenses of the State. We have demonstrated, that what the other classes of society received, was merely the wages and profits paid either by the proprietor from his revenue, or by the agents of the productive class from the part destined for their needs, and which they are obliged to purchase from the industrial class. Whether these profits be distributed in wages to the workmen, in profits to entrepreneurs, or in interest on advances, they do not change in their nature, and do not increase the sum of the revenue produced by the productive class over and above the price of its labor, in which the industrial class shares only to the extent of the price of its labor.

It therefore remains true that there is no revenue save the net product of land, and that all other annual profit is paid, either by that revenue, or forms part of the expenditure that serves to produce the revenue.

100.The land has also furnished the whole amount of moveable wealth, or capitals in existence, which are formed only by part of its produce being saved every year.

Not only is it true that there does not exist, nor can exist, any other revenue than the net product of land, but it is also the earth that has furnished all capitals that form the total of all the advances of agriculture and commerce. It has produced, without cultivation, the first rude advances indispensable to the earliest labors; all the rest are the accumulated fruits of the thrift of successive ages since men began to cultivate the earth. This thrift undoubtedly takes place not only out of the revenues of proprietors, but also out of the profits of all the members of the working classes. It is even generally true, that, although the proprietors have a greater surplus, they save less; for, as they have more leisure, they have more wants, and more passions; they regard themselves as more assured of their fortune; and think more about enjoying it contentedly, than about increasing it: luxury is their lot. The wage-receivers, and especially the entrepreneurs of the other classes, receiving profits proportionate to their advances, talents and activity, have, though they do not possess a revenue properly so called, a surplus beyond their subsistence; and almost all of them, devoted as they are to their enterprises, and occupied with increasing their fortune, removed by their labor from amusements and expensive passions, save all their surplus, to invest it again in their enterprise, and to increase it. Most of the entrepreneurs in agriculture borrow little, and they almost all invest only their own funds. The entrepreneurs of other employments, who want to consolidate their fortunes, strive to attain the same position, and, unless they have great ability, those who carry on their enterprises on borrowed funds, run great risk of failing. But, although capitals are formed in part by saving from the profits of the working classes, yet, as those profits always come from the earth, since they are all paid, either from the revenue, or from the expenses that are used to produce the revenue, it is evident that the capitals are derived from the earth just like the revenue, or rather, that they are but an accumulation of a part of the values produced by the earth, which the proprietors of the revenue, or those who share it, are able to accumulate every year, without using it for the satisfaction of their wants.

101.Although money is the immediate object of saving, and is, so to speak, the first material of capitals when they are being formed, yet specie forms an almost inappreciable part of the sum total of capitals.

We have seen that money forms scarcely any part of the sum total of existing capitals, but plays a great part in the creation of capitals. In fact, almost all savings are made only in money; it is in money that the revenues return to the proprietors, that the advances and profits return to the entrepreneurs of every kind; it is therefore from money that they save, and the annual increase in capitals takes place in money; but all the entrepreneurs make no other use of it than to convert it immediately into the different kinds of effects on which their enterprises depend; thus, this money returns to the circulation, and the greater part of capitals exist only in effects of different kinds, as we have already explained above.

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Written 1766.

¹ Line missing in Groenewegen translation. Taken from Ashley, Reflections, 1989. [Ed. note.]

² The French, richesses mobilières, translated here as “moveable wealth,” has a wider connotation in that it is also the antonym of real property. In this sense, Turgot’s division of wealth into bien-fonds and richesses mobilières also implies the legal distinction between real and personal property.

³ This phrase, “the penny of the price of land” is synonymous with the English expression, “the number of years’ purchase of the annual rent.” The “penny” was also another expression for a rate per cent, the twentieth penny, for example, being 5 per cent.

⁴ I.e., Luke 6: 35, which in the American Standard Version reads as follows: “and lend, hoping for nothing again.”

⁵ Turgot here contrasts the loose interpretation of Christian charity of the first part of the Gospel quotation, with the strict prohibition of charging interest as an interpretation of the second part.

⁶ Turgot here seems to indicate the relationship between capital and income, capital value being income capitalized by the current rate of interest.

⁷ I.e., 5 per cent.

Letter to l’Abbé de Cicé, since then
Bishop of Auxerre, on the
Replacing of Money by Paper.

Also Known as the “Letter on Paper-Money”

Turgot responds to a defense of John Law’s system against the argument that it is all right for the state to go into debt, because merchants’ expenses very often exceed their capital, Turgot responds that merchants earn a profit on their expenses; from this profit, they are able to repay their debt. The state, by contrast, engages in no productive activities and its debt is a drain on the population. When the state goes into debt, it will often issue paper money. This serves no purpose. Any amount of gold or silver is adequate for all the transactions in the economy, because prices adjust in accord with the total amount of the monetary commodity. If the state tries to introduce paper money de novo to replace a commodity standard, it will be unsuccessful, because there will be no means for people to know how goods should be priced in the new money. Paper money can only be successful if it can be compared with existing commodity money.