Simplified Wealth of Nations by Adam Smith, Book 4, Chap 1a: The Commercial System


1 Political economy, as a science of a legislator, proposes:

  1. To provide a plentiful revenue or subsistence for the people by enabling them to provide it for themselves
  2. To supply the state with a revenue for the public services
2 The progress of opulence in different nations has created two systems of political economy:
  1. The system of commerce
  2. The system of agriculture

I shall explain both, beginning with the system of commerce.

Chapter 1: The Principle of the Commercial or Mercantile System

1 The popular notion that wealth consists in metal money or in gold and silver naturally arises from the double function of money as:

  2 A rich country, like a rich man, is supposed to be abounding in money;
Giovanni da Pian del Carpine
John Locke
John Locke
3 Mr. Locke distinguished money from other movable goods.   4 Others admit that if a nation could be entirely isolated, it would not matter how much money circulated in it.   5 Because of these popular notions, all European nations studied every means of accumulating gold and silver, to little purpose.   6 When those countries became commercial, the merchants found this prohibition extremely inconvenient. 9 Those arguments were partly solid and partly sophistical.
  1. That gold and silver exportation might frequently be advantageous to the country.
  2. That no ban could prevent their exportation when private people found any advantage in exporting them.
  1. That preserving or increasing the amount of those metals required more government attention than preserving or increasing the quantity other useful commodities.
    1. Free trade always supplies those commodities in the proper quantity without any such attention.
  2. That the high price of exchange increased the unfavourable balance of trade
  3. That high prices led to the exportation of more gold and silver.
That high price was extremely disadvantageous to the merchants who paid money to foreign countries. 10 However, those arguments convinced the parliaments, councils of princes, nobles, and country gentlemen.

In France and England, the ban in exporting gold and silver was confined to their own coins.

Thomas Mun's book
Thomas Mun's book
11 A country that has no mines of its own must draw its gold and silver from overseas, in the same way as one that has no vineyards must draw its wines from others.
Words: 2,015
Next: Chapter 1b: Effectual demand and demand motive