Book III, Chapter I

ON THE DIFFERENT PROGRESS OF OPULENCE IN DIFFERENT NATIONS

ON THE NATURAL PROGRESS OF OPULENCE

The chief commerce of every civilized society takes place between the inhabitants of town and country. It consists of exchanging raw for manufactured produce, whether directly or through money or some paper representing money. The country supplies the town with subsistence and materials for manufacture. The town repays that supply by sending back some of its manufactured produce to the country’s inhabitants. The town, where nothing of substance is or can be reproduced, may rightly be said to draw all its wealth and subsistence from the country. We must not suppose, however, that the town’s gain is therefore the country’s loss. Their gains are mutual and reciprocal; the division of labor, here as everywhere, benefits all those employed in the various occupations into which it is divided. With the produce of much less of their own labor than they would need to make such things themselves, country people buy a greater quantity of manufactured goods from the town. The town offers a market for the country’s surplus produce, beyond what sustains its cultivators; there the country’s inhabitants exchange that surplus for things they want. The more numerous and prosperous the town’s inhabitants, the larger the market they offer the country; and a larger market is always more beneficial to a great many people. Corn grown a mile from town sells there at the same price as corn brought from twenty miles away. Yet the price of the latter must ordinarily cover not only the expense of raising and transporting it but also the farmer’s ordinary agricultural profit. Thus the owners and cultivators of land near town receive, beyond their ordinary agricultural profit, the entire value of transporting comparable produce from farther away in the price of what they sell; and they also save the whole cost of that transport in the price of what they buy. Compare cultivation around any considerable town with cultivation farther away, and you will readily see how greatly the country benefits from commerce with the town. Among all the absurd speculations circulated about the balance of trade, nobody has ever claimed that the country loses by trading with the town, or the town by trading with the country that sustains it.

As subsistence by nature precedes convenience and luxury, so the industry that provides subsistence must precede the industry that supplies the others. The cultivation and improvement of the country, which provides subsistence, must therefore precede the growth of the town, which supplies only convenience and luxury. Only the country’s surplus produce, what remains after its cultivators are sustained, feeds the town; the town can therefore grow only as that surplus grows. A town may, indeed, obtain its subsistence not from its neighboring countryside, or even from its own territory, but from very distant countries. Though no exception to the general rule, this has brought about considerable differences in the progress of opulence across ages and nations.

The order generally imposed by necessity, though not in every particular country, is favored in every particular country by people’s natural inclinations. Had human institutions never thwarted those inclinations, towns could nowhere have grown beyond what the cultivation and improvement of their own territory could support, at least until that territory had been completely cultivated and improved. Given equal or nearly equal profits, most people choose to employ their capital in cultivating and improving land rather than in manufacturing or foreign trade. A man who puts capital into land can better observe and control it, and his fortune is far less exposed to chance than the trader’s, who must often entrust it not only to winds and waves but to the still less predictable forces of human folly and injustice, extending large amounts of credit in distant countries to men whose character and circumstances he can seldom know thoroughly. By contrast, a landlord’s capital, fixed in improvements to his land, seems as secure as human affairs permit. Moreover, the beauty of the countryside, the pleasures of country life, the peace of mind it promises, and the independence it truly affords wherever unjust human laws do not interfere, have charms that attract everyone to some degree. Cultivating the earth was humanity’s original calling, and at every stage of life people seem to retain a preference for this ancient occupation.

Without the help of artisans, admittedly, land cannot be cultivated without great inconvenience and constant interruption. Farmers often need the services of smiths, carpenters, makers of wheels and plows, masons, bricklayers, tanners, shoemakers, and tailors. These artisans also need one another’s help from time to time. Since, unlike farmers, they need not live on one particular spot, they naturally settle near one another and form a small town or village. The butcher, brewer, and baker soon join them, along with many other artisans and retailers needed or useful to meet their occasional wants, enlarging the town still further. Town and country inhabitants thus serve one another. The town is a permanent fair or market where country inhabitants exchange raw for manufactured produce. This commerce gives town inhabitants both the materials of their work and their subsistence. The quantity of finished work they sell to the country necessarily determines how much material and food they can buy. Their employment and subsistence can therefore grow only in proportion to the country’s demand for finished goods, and that demand can grow only as cultivation and improvement spread. Had human institutions never disrupted the natural course of things, the growing wealth and size of towns in every political society would thus have followed, and kept pace with, the cultivation and improvement of the surrounding country.

In our North American colonies, where uncultivated land can still be obtained on easy terms, none of their towns has yet established manufactures for distant sale. Once an artisan has acquired a little more stock than he needs to carry on his own business supplying the neighboring countryside, in North America he does not invest it in manufacturing for distant markets. He buys and improves uncultivated land instead. The artisan becomes a planter; neither the high wages nor the easy subsistence available to artisans there can persuade him to work for others rather than himself. He feels that an artisan serves his customers, on whom his livelihood depends, whereas a planter who cultivates his own land and obtains his necessities from his family’s labor is truly his own master, independent of everyone.

By contrast, in countries with no uncultivated land, or none available on easy terms, every artisan who has acquired more stock than he can employ on occasional local jobs tries to produce goods for more distant sale. The smith sets up some sort of iron manufactory, the weaver one for linen or wool. In time these various manufactures are gradually subdivided and thereby improved and refined in many ways that are easy to imagine and need no further explanation.

When seeking employment for capital, people naturally prefer manufactures to foreign commerce at equal or nearly equal profits, for the same reason that they prefer agriculture to manufactures. Just as a landlord’s or farmer’s capital is safer than a manufacturer’s, so a manufacturer’s capital, always more under his own eye and control, is safer than a foreign merchant’s. At every stage of every society, of course, surplus raw and manufactured produce for which there is no domestic demand must be sent abroad and exchanged for something wanted at home. But whether the capital carrying that surplus abroad is domestic or foreign matters very little. If a society has not enough capital both to cultivate all its land and to manufacture all its raw produce as fully as possible, it is positively advantageous to have foreigners export the raw produce, so that the society’s entire stock can be put to more useful purposes. The wealth of ancient Egypt, China, and Indostan shows clearly that a nation can attain great opulence even though foreigners conduct most of its export trade. Our North American and West Indian colonies would have advanced far less rapidly if only their own capital had been employed in exporting their surplus produce.

In the natural course of things, then, most of the capital of every growing society goes first to agriculture, then to manufactures, and last to foreign commerce. This order is so natural that I believe it has always been followed to some extent in every society possessing territory. Some land had to be cultivated before any substantial towns could arise, and some coarse manufacturing had to be carried on in those towns before their people could seriously turn to foreign commerce.

Yet although this natural order must have prevailed to some extent in every such society, it has in many respects been entirely reversed in all the modern states of Europe. Foreign commerce in some of their cities brought in all their finer manufactures, those suited to distant sale; then manufacturing and foreign commerce together gave rise to the principal improvements in agriculture. The manners and customs introduced by their original form of government, persisting long after that government had greatly changed, necessarily drove them into this unnatural, backward order.

How Wealth Grows Differently in Different Nations

How Wealth Naturally Grows

In every civilized society, the main trade is between people in towns and people in the countryside. They exchange raw produce for manufactured goods, either directly or using money or some form of paper that stands for money. The countryside supplies towns with food and materials for making things. Towns repay it with some of the goods they make. Towns cannot produce food or raw materials themselves, so they can rightly be said to get all their wealth and food from the countryside. But that does not mean the town gains at the countryside's expense. Both benefit. Here, as elsewhere, the division of labor benefits everyone doing the different jobs into which work is divided. Country people can buy more manufactured goods from towns with the produce of a much smaller amount of their own work than they could make by doing that work themselves. Towns provide a market for what the countryside produces beyond what its farmers need to live on. Country people exchange that surplus there for things they want. The more people in a town, and the higher their revenue, the bigger its market for country people. The bigger the market, the more people benefit. Grain grown a mile from town sells there at the same price as grain brought from twenty miles away. But the price of the distant grain must generally cover not only growing and transporting it, but also the farmer's ordinary agricultural profit. So landowners and farmers near town receive, on top of ordinary agricultural profits, the entire transport cost of similar produce brought from farther away as part of the price they get. They also save that entire transport cost on the things they buy. Compare the cultivation of land near a large town with that of land farther away. You will see how much the town's trade helps the countryside. People have advanced many absurd theories about the balance of trade. But none has claimed that the countryside loses by trading with a town, or that a town loses by trading with the countryside that feeds it.

Food and other necessities naturally come before comforts and luxuries. So work that supplies necessities must come before work that supplies comforts and luxuries. Cultivating and improving the countryside, which supplies food, must therefore come before the growth of towns, which supply only comforts and luxuries. Only what the countryside produces beyond what farmers need to live on can feed towns. Towns can therefore grow only as that surplus grows. A town may, of course, get its food not from the nearby countryside, or even its own territory, but from very distant countries. This does not break the general rule, but it has caused major differences in the way wealth has grown across times and nations.

Necessity generally imposes this order of growth, though not in every country. In every country, people's natural preferences also favor it. If human institutions had never interfered with those preferences, towns could not have grown beyond what farming and improving their own territory could support, at least until that whole territory had been fully cultivated and improved. If profits are equal or nearly equal, most people prefer to put their capital into improving and farming land rather than manufacturing or foreign trade. Someone who invests in land can keep a closer eye on and control over it. Their fortune is also much less exposed to accidents than a trader's. The trader often has to entrust it not only to wind and waves, but to the still less predictable folly and injustice of people, by extending large amounts of credit in distant countries to people whose circumstances and character the trader can seldom know well. By contrast, a landowner's capital invested in improving land seems as safe as anything human affairs can make it. People also find the countryside beautiful and country life enjoyable. It promises peace of mind and, where unjust laws do not interfere, real independence. These things appeal to everyone to some degree. Since working the land was humanity's original occupation, people seem to retain a preference for that earliest kind of work at every stage of life.

Farming land is hard to carry on without repeated interruptions unless artisans help. Farmers often need blacksmiths, carpenters, makers of wheels and plows, masons, bricklayers, tanners, shoemakers, and tailors. These artisans also sometimes need one another's help. Unlike farmers, they do not have to live on one particular piece of land. So they tend to settle near one another and form a small town or village. Butchers, brewers, and bakers soon join them, along with many other artisans and retailers who supply what they sometimes need. The town grows further. Town and country people serve one another. The town is a permanent market where country people exchange raw produce for manufactured goods. This trade gives town people both the materials they work with and the food they live on. The amount of finished work they sell to country people determines how much material and food they buy. Their employment and food supply can therefore grow only in proportion to the countryside's demand for finished work. That demand can grow only as farming spreads and improves. So if human institutions had never disrupted the natural course of events, towns in every society would have grown richer and larger as a result of, and in proportion to, the farming and improvement of their surrounding territory.

In our North American colonies, uncultivated land is still available cheaply. No town there has yet established a manufacturing business producing goods for distant markets. When an artisan has acquired more stock than needed to run a business serving the nearby countryside, they do not use it to start manufacturing for distant buyers. Instead they buy and improve uncultivated land. The artisan becomes a planter. Neither the high wages nor the easy living offered to artisans there can persuade that person to work for others instead of themselves. An artisan depends on customers for a living and serves them. A planter farming their own land and getting necessities through their family's work is truly their own master, independent of everyone else.

By contrast, in countries with no uncultivated land, or none available cheaply, any artisan with more stock than can be used for occasional local jobs tries to make goods for distant buyers. The blacksmith sets up some kind of ironworks, the weaver some kind of linen or wool manufacturing business. Over time these different kinds of manufacturing are gradually divided into specialized jobs. That improves and refines them in many ways that are easy to imagine and need no further explanation.

When deciding where to invest capital, people naturally prefer manufacturing to foreign trade if profits are equal or nearly equal, for the same reason they prefer farming to manufacturing. The capital of a landowner or farmer is more secure than a manufacturer's. In turn, a manufacturer can keep capital in sight and under control more easily than a foreign merchant, so it is more secure. Of course, in every society at every time, any raw or manufactured produce for which there is no demand at home must be sent abroad and exchanged for something people at home do want. But it matters very little whether the capital used to export this surplus belongs to someone at home or abroad. If a society does not have enough capital both to farm all its land and to manufacture all its raw produce as fully as possible, there is a real advantage in having foreign capital export its raw produce. The society can then use all its own stock for more useful purposes. Ancient Egypt, China, and Indostan show clearly that a nation can become very wealthy even when foreigners conduct most of its export trade. Our North American and West Indian colonies would have grown much more slowly if they had relied solely on their own capital to export their surplus produce.

In the natural course of events, then, most capital in a growing society goes first to farming, then to manufacturing, and finally to foreign trade. This sequence is so natural that I believe every society with any territory has followed it to some extent. Some land must have been farmed before sizable towns could develop. Those towns must have carried on some basic manufacturing before they could properly turn to foreign trade.

Yet in all the modern states of Europe, this natural order has in many ways been completely reversed. Foreign trade brought some cities their finer manufactured goods, suited to sale far away. Then manufacturing and foreign trade together brought about the main improvements in farming. The practices and customs established by their original form of government remained even after that government changed greatly. They necessarily forced these states into this unnatural, backward order.