A Treatise on Political Economy

There can be no production of new value, consequently no increase of wealth, where the product of a productive concern does not exceed the cost of production.
*1 Thus, whether government or individuals be the adventurers in the losing concern, it is equally ruinous to the nation, and there is so much less value in the country.

It is of no avail to pretend, that, although the government be a loser, its agents, the industrious people, or the workmen it employs, have made a profit. If the concern cannot support itself and pay its own way, the receipt must fall short of the outlay, and the difference fall upon those, who supply the expenditure of the state; that is to say, the tax-payers.
*2

The manufacture of Gobelin tapestry, carried on by the government of France, consumes a large quantity of wool, silk, and dyeing-drugs; furthermore, it consumes the rent of the ground and buildings, as well as the wages of workmen employed; all which should be reimbursed by the product, which they are very far from being. This establishment, instead of a source of wealth to the nation at large, for the government is fully aware of the loss to itself, is, on the contrary, a source of perpetual impoverishment. The annual loss to the nation is the whole excess of the annual consumption of the concern, including wages, which are one item of consumption, above the annual product. The same may be said of the manufacture of porcelain at Sevres, and I fear of all manufacturing concerns carried on upon account of governments.

We are told, that this is a necessary sacrifice; that otherwise the sovereign would be unprovided with objects of royal bounty and of royal splendour. This is no place to inquire how far the munificence of the monarch and the splendour of his palaces contribute to the good government of the people. I take for granted that these things are necessary; yet, admitting them to be so, there is no reason why the national sacrifices, requisite to support this magnificence and liberality, should be aggravated by the losses incurred by a misdirection of the public means. A nation had much better buy outright what it thinks proper to bestow; it would probably obtain for less money an object full as precious; for individuals can always undersell the government.
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There is a further evil attending the productive efforts of the government; they counteract the individual industry, not of those it deals with, for they take good care to be no losers, but of its competitors in production. The state is too formidable a rival in agriculture, manufacture, and commerce; it has too much wealth and power at command, and too little care of its own interest. It can submit to the loss of selling below prime cost; it can consume, produce, or monopolize in very little time so large a quantity of products, as violently to derange the relative prices of commodities: and every violent fluctuation of price is calamitous. The producer calculates upon the probable value of his product when ready for market; nothing discourages him so much, as a fluctuation that defies all calculation. The loss he suffers is equally unmerited, as the accidental gains that may be thrown into his hands. His unmerited gains, if any there be, are so much extra charge upon the consumer.

There are some concerns, I know, which the government must of necessity keep in its own hands. The building of ships of war cannot safely be left to individuals; nor, perhaps, the manufacture of gunpowder. However, in France, cannon, muskets, caissons, and tumbrils are bought of private makers, and seemingly with benefit. Perhaps the same system might be further extended. A government must act by deputy, by the intermediate agency of a set of people, whose interest is in direct opposition to its own; and they will of course attend to their own in preference. If it be so circumstanced as to be invariably cheated in its bargains, there is no need to multiply the opportunities of fraud, by engaging itself in production and adventure; that is to say, embarking in concerns, that must infinitely multiply the occasions of bargaining with individuals.

But, although the public can scarcely be itself a successful producer; it can at any rate give a powerful stimulus to individual productive energy, by well-planned, well-conducted, and well-supported public works, particularly roads, canals, and harbours.

Facility of communication assists production, exactly in the same way as the machinery, that multiplies manufactured products, and abridges the labour of production. It is a means of furnishing the same product at less expense, which has exactly the same effect, as raising a greater product with the same expense. If we take into account the immense quantity of goods conveyed upon the roads of a rich and populous empire, from the commonest vegetables brought daily to market, up to the rarest imported luxuries poured into its harbours from every part of the globe, and thence diffused, by means of land-carriage, over the whole face of the territory, we shall readily perceive the inestimable economy of good roads in the charges of production. The saving in carriage amounts to the whole value the article has derived gratuitously from nature, if, without good roads, it could not be had at all. Were it possible to transplant from the mountain to the plain the beautiful forests that flourish and rot neglected upon the inaccessible sides of the Alps and Pyrenees, the value of these forests would be an entirely new creation of value to mankind, a clear gain of revenue both to the landholder and the consumer also.

Academies, libraries, public schools, and museums, founded by enlightened governments, contribute to the creation of wealth, by the further discovery of truth, and the diffusion of what was known before; thus empowering the superior agents and directors of production, to extend the application of human science to the supply of human wants.
*4 So likewise of travels, or voyages of discovery, undertaken at the public charge; the consequences of which have of late years been rendered particularly brilliant, by the extraordinary merit of those who have devoted themselves to such pursuits.

It is observable, too, that the sacrifices made for the enlargement of human knowledge, or merely for its conservation, should not be reprobated, though directed to objects of no immediate or apparent utility. The sciences have an universal chain of connexion. One which seems purely speculative must advance a step, before another of great and obvious practical utility can be promoted. Besides, it is impossible to say what useful properties may lie dormant in an object of mere curiosity. When the Dutchman, Otto Guericke, struck out the first sparks of electricity, who would have supposed they would have enabled Franklin to direct the lightning, and divert it from our edifices; an exploit apparently so far beyond the powers of man?

But of all the means, by which a government can stimulate production, there is none so powerful as the perfect security of person and property, especially from the aggressions of arbitrary power.
*5 This security is of itself a source of public prosperity, that more than counteracts all the restrictions hitherto invented for checking its progress. Restrictions compress the elasticity of production; but want of security destroys it altogether.
*6 To convince ourselves of this fact, it is sufficient to compare the nations of western Europe with those subject to the Ottoman power. Look at most parts of Africa, Arabia, Persia, and Asia Minor, once so thickly strown with flourishing cities, whereof, as Montesquieu remarks, no trace now remains but in the pages of Strabo. The inhabitants are pillaged alike by bandits and pachas; wealth and population have vanished; and the thinly scattered remnant are miserable objects of want and wretchedness. Survey Europe on the other hand; and, though she is still far short of the prosperity she might attain, most of her kingdoms are in a thriving condition, in spite of taxes and restrictions innumerable; for the simple reason, that persons and property are there pretty generally safe from violence and arbitrary exaction.

There is one expedient by which a government may give its subjects a momentary accession of wealth, that I have hitherto omitted to mention. I mean the robbery from another nation of all its moveable property, and bringing home the spoil, or the imposition of enormous tributes upon its growing produce. This was the mode practised by the Romans in the latter periods of the republic, and under the earliest emperors. This is an expedient of the same nature, as the acquirement of wealth by individual acts of illegal violence or fraud. There is no actual production, but a mere appropriation of the products of others. I mention this method of acquiring wealth, once for all, without meaning to recommend it as either safe or honourable. Had the Romans followed the contrary system with equal perseverance, had they studied to spread civilization among their savage neighbours, and to establish a friendly intercourse that might have engendered reciprocal wants, the Roman power would probably have existed to this day.