Thomas Sowell Interview (Part 6)

Thomas Sowell Interview (Part 5)

Thomas Sowell Interview (Part 4)

Thomas Sowell Interview (Part 3)

Thomas Sowell Interview (part 2)

Thomas Sowell Interview 1 of 6

Preferencial Policies

Ayn Rand on Capitalism

The recognition of individual rights entails the banishment of physical force from human relationships: basically, rights can be violated only by means of force. In a capitalist society, no man or group may initiate the use of physical force against others. The only function of the government, in such a society, is the task of protecting man’s rights, i.e., the task of protecting him from physical force; the government acts as the agent of man’s right of self-defense, and may use force only in retaliation and only against those who initiate its use; thus the government is the means of placing the retaliatory use of force under objective control.” “The moral justification of capitalism does not lie in the altruist claim that it represents the best way to achieve “the common good.” It is true that capitalism does—if that catch-phrase has any meaning—but this is merely a secondary consequence. The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.

Adam Smith on the Revenue of the Sovereign or Commonwealth

This is the Conclusion to Book V in, The Wealth of Nations.

The expence of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities.

The expence of the administration of justice, too, may, no doubt, be considered as laid out for the benefit of the whole society. There is no impropriety, therefore, in its being defrayed by the general contribution of the whole society. The persons, however, who gave occasion to this expence are those who, by their injustice in one way or another, make it necessary to seek redress or protection from the courts of justice. The persons again most immediately benefited by this expence are those whom the courts of justice either restore to their rights or maintain in their rights. The expence of the administration of justice, therefore, may very properly be defrayed by the particular contribution of one or other, or both, of those two different sets of persons, according as different occasions may require, that is, by the fees of court. It cannot be necessary to have recourse to the general contribution of the whole society, except for the conviction of those criminals who have not themselves any estate or fund sufficient for paying those fees.

Those local or provincial expences of which the benefit is local or provincial (what is laid out, for example, upon the police of a particular town or district) ought to be defrayed by a local or provincial revenue, and ought to be no burden upon the general revenue of the society. It is unjust that the whole society should contribute towards an expence of which the benefit is confined to a part of the society.

The expence of maintaining good roads and communications is, no doubt, beneficial to the whole society, and may, therefore, without any injustice. be defrayed by the general contribution of the whole society. This expence, however, is most immediately and directly beneficial to those who travel or carry goods from one place to another, and to those who consume such goods. The turnpike tolls in England, and the duties called peages in other countries, lay it altogether upon those two different sets of people, and thereby discharge the general revenue of the society from a very considerable burden.

The expence of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expence, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

When the institutions or public works which are beneficial to the whole society either cannot be maintained altogether, or are not maintained altogether by the contribution of such particular members of the society as are most immediately benefited by them, the deficiency must in most cases be made up by the general contribution of the whole society. The general revenue of the society, over and above defraying the expence of defending the society, and of supporting the dignity of the chief magistrate, must make up for the deficiency of many particular branches of revenue. The sources of this general or public revenue I shall endeavour to explain in the following chapter.

Thomas Sowell and Dennis Prager Interview: 2008

This is an interview from January 29th, 2008, between Dennis Prager and Thomas Sowell. I will bring more as I can.

Dennis Prager: The next charge that is made: We have greater income inequality, the gap between the rich and the poor, than ever before in America.

Thomas Sowell: That is the number one big lie of our time. And it’s based on abstract statistical categories rather than flesh and blood human beings. Right after my book went to press some data came out which reinforces what I said even more so. If you follow specific individuals over time you discover, for example, that the bottom 20% of tax payers in 1996 had their income increase by 91% by 2005. Meanwhile, the top 1% of taxpayers had their income decline by 26% over that same time period. Now, it’s true that the top bracket has a higher percentage of the income than the bottom bracket by a greater percentage at the end than the beginning (of that time period).  But they are wholly different people in these brackets.

Prager: There are wholly different people in these brackets, meaning?

Sowell: Over half of the people who were in the bottom 20% in 1995 were not there in 2005.

Prager: Oh I see, I see. That’s right.

Sowell: If you get it into the top one hundredth of one percent of income earners, which presumably are the rich everyone talking about, the turnover is 75%. Three-quarters of the people who were in that bracket in 1996, were no longer in that bracket in 2005.

Prager: So you and I have a chance to enter that bracket Tom?

Sowell: I wouldn’t be surprised if we haven’t at one point or another. (Both chuckle) Its usually people who have a spike in income one year, that puts them in that bracket. You know you sell your house in California, well good heavens you’re way up there that one year. Now, unless you have a second house that sells a second year, that’s a one year wonder.

Prager: So your answer to the Democrats refrain, that the inequality is greater than ever, is that those groups fluctuate; and that in fact since ’96, in any event, the income of the bottom fifth has risen far more and the top one percent has declined?

Sowell: Absolutely!

Russian Approval Polls

I recently read an article about Russia in The Economist. In the article it gives the results of a poll conducted by Pew Global in the spring of 2011.
I don't know what is more disturbing to me personally, whether they would rather have a dictator or the state controlling things. If this is how they want to live that is fine with me; however, I don't ever want to live under that kind of a system. I have a friend who lived in the Ukraine for a while and he said people didn't like to work, they liked to sit back and have things given to them. That's why the USSR went broke, nobody would work and everybody wanted to be hand fed. The laziness is bred into them and the majority do not have another way of looking at things. Communism, which fell 20 years ago to the month, has instilled in these people this type of attitude, and current propaganda from Putin and his government keep it there. I don't blame the people I blame the officials and bureaucrats who have indoctrinated the people with these principles.

	Yes	No
Are you satisfied with the way things are going in Russia?	32	60
Would you describe the current economic situation as good?	29	64
Is it a great misfortune that the Soviet Union no longer Exists?	50	35
Have the changes since 1991 helped ordinary people?	25	69
Have they improved the standard of living?	28	61
Have they enhanced pride in our country?	19	67
Have they had a good influence on public morality?	24	55
What should we rely on to solve Russia's problem?
Democratic Government: 32%  A strong Leader: 57%
What is more important to society?
Freedom from state interference: 25% State ensuring no one is in need: 68%

Adam Smith Quotes

Defense is superior to opulence.

Happiness never lays its finger on its pulse.

I have never known much good done by those who affected to trafe for the public good.

It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.

The real tragedy of the poor is the poverty of their aspirations.

Race, Culture, and Equality. By Thomas Sowell

RACE, CULTURE, AND EQUALITY¹
by Thomas Sowell

During the 15 years that I spent researching and writing my recently completed trilogy on racial and cultural issues,² I was struck again and again with how common huge disparities in income and wealth have been for centuries, in countries around the world-- and yet how each country regards its own particular disparities as unusual, if not unique. Some of these disparities have been among racial or ethnic groups, some among nations, and some among regions, continents, or whole civilizations.
In the nineteenth century, real per capita income in the Balkans was about one-third that in Britain. That dwarfs intergroup disparities that many in the United States today regard as not merely strange but sinister. Singapore has a median per capita income that is literally hundreds of times greater than that in Burma.
During the rioting in Indonesia last year, much of it directed against the ethnic Chinese in that country, some commentators found it strange that the Chinese minority, which is just 5 percent of the Indonesian population, owned an estimated four-fifths of the capital in the country. But it is not strange. Such disparities have long been common in other countries in Southeast Asia, where Chinese immigrants typically entered poor and then prospered, creating whole industries in the process. People from India did the same in much of East Africa and in Fiji.
Occupations have been similarly unequal.
In the early 1920s, Jews were just 6 percent of the population of Hungary and 11 percent of the population of Poland, but they were more than half of all the physicians in both countries, as well as being vastly over-represented in commerce and other fields.³ In the early twentieth century, all of the firms in all of the industries producing the following products in Brazil's state of Rio Grande do Sul were owned by people of German ancestry: trunks, stoves, paper, hats, neckties, leather, soap, glass, watches, beer, confections and carriages.⁴
In the middle of the nineteenth century, just three countries produced most of the manufactured goods in the world-- Britain, Germany, and the United States. By the late twentieth century, it was estimated that 17 percent of the people in the world produce four-fifths of the total output on the planet.
Such examples could be multiplied longer than you would have the patience to listen.⁵
Why are there such disparities? In some cases, we can trace the reasons, but in other cases we cannot. A more fundamental question, however, is: Why should anyone have ever expected equality in the first place?
Let us assume, for the sake of argument, that not only every racial or ethnic group, but even every single individual in the entire world, has identical genetic potential. If it is possible to be even more extreme, let us assume that we all behave like saints toward one another. Would that produce equality of results?
Of course not. Real income consists of output and output depends on inputs. These inputs are almost never equal-- or even close to being equal.
During the decade of the 1960s, for example, the Chinese minority in Malaysia earned more than a hundred times as many engineering degrees as the Malay majority. Halfway around the world at the same time, the majority of the population of Nigeria, living in its northern provinces, were just 9 percent of the students attending that country's University of Ibadan and just 2 percent of the much larger number of Nigerian students studying abroad in foreign institutions of higher learning. In the Austrian Empire in 1900, the illiteracy rate among Polish adults was 40 percent and among Serbo-Croatians 75 percent-- but only 6 percent among the Germans.
Given similar educational disparities among other groups in other countries-- disparities in both the quantity and quality of education, as well as in fields of specialization-- why should anyone expect equal outcomes in incomes or occupations?
Educational differences are just one source of economic disparities. Even at the level of craft skills, groups have differed enormously, as they have in urbanization. During the Middle Ages, and in some places long beyond, most of the population of the cities in Slavic Eastern Europe were not Slavs. Germans, Jews, and other non-Slavic peoples were the majority populations in these cities for centuries, while the Slavs were predominantly peasants in the surrounding countrysides. Prior to the year 1312, the official records of the city of Cracow were kept in German-- and the transition that year was to Latin. Only decades later did Poles become a majority of the population of Cracow. Only over a period of centuries did the other cities of Slavic Eastern Europe acquire predominantly Slavic populations. As late as 1918, 97 percent of the people living in the cities of Byelorussia were not Byelorussians.
Until this long transition to urban living took place among the Slavs, how could the wide range of skills typically found in cities be expected to exist in populations that lived overwhelmingly in the countryside? Not only did they not have such skills in Eastern Europe, they did not have them when they immigrated to the United States, to Australia, or to other countries, where they typically worked in low-level occupations and earned correspondingly low incomes. In the early years of the twentieth century, for example, immigrants to the United States from Eastern and Southern Europe earned just 15 percent of the income of immigrants from Norway, Holland, Sweden, and Britain.
Groups also differ demographically. It is not uncommon to find some groups with median ages a decade younger than the median ages of other groups, and differences of two decades are not unknown. During the era of the Soviet Union, for example, Central Asians had far more children than Russians or the peoples of the Baltic republics, and so had much younger median ages. At one time, the median age of Jews in the United States was 20 years older than the median age of Puerto Ricans. If Jews and Puerto Ricans had been absolutely identical in every other respect, including their cultures and histories, they would still not have been equally represented in jobs requiring long years of experience, or in retirement homes, or in activities associated with youth, such as sports or crime.
Nothing so intractably conflicts with our desires for equality as geography. The physical settings in which races, nations, and civilizations have evolved have had major impacts on the cultures developed within those settings. Those settings vary enormously-- as do their cultural consequences. How could Scandinavians or Polynesians know as much about camels as the Bedouins of the Sahara? And how could the Bedouins know as much about fishing as the Scandinavians or Polynesians? The peoples of the Himalayas have certainly not had an equal opportunity to acquire seafaring skills. Nor have Eskimos had an equal opportunity to acquire knowledge and experience in growing pineapples or other tropical crops. Ability in the abstract is one thing, but specific capabilities of doing specific things is what matters economically.
Too often the influence of geography on wealth is thought of narrowly, in terms of natural resources that directly translate into wealth, such as oil in the Middle East or gold in South Africa. But, important as such differences in natural wealth are, geography influences even more profound cultural differences among the people themselves.
Where geography isolates people, whether in mountain valleys or on small islands scattered across a vast sea, there the cultural exposures of those people to the outside world are very limited and so, typically, is their technological advancement. While the rest of the world exchanges goods, knowledge, and innovations from a vast cultural universe, isolated peoples have been largely limited to what they alone have been able to develop.
Few, if any, of the great advances in human civilization have come from isolated peoples. As the eminent French historian Fernand Braudel put it, the mountains almost always lag behind the plains-- even if the races in the two places are the same. Potatoes and the English language both reached the Scottish lowlands before they reached the highlands. Islam reached North Africa's Rif mountains long after the people in the plains had become Moslems.
When the Spaniards invaded the Canary Islands in the fifteenth century, they found people of a Caucasian race living at a stone-age level. So were the Australian aborigines when the British discovered them in the eighteenth century. Geographically imposed cultural isolation takes many forms and exists in many degrees. Cities have long been in the vanguard of human progress, all over the world, but cities do not arise randomly in all geographic settings. Most of the great cities of the world have developed on navigable waterways-- rivers or harbors-- but such waterways are by no means equally or randomly distributed around the world. They are very common in Western Europe and very rare in sub-Saharan Africa. Urbanization has long been correspondingly common in Western Europe and correspondingly rare in sub-Saharan Africa. One-third of the land mass of Europe consists of islands and peninsulas but only one percent of the land mass of South America consists of islands and peninsulas.
Navigable waterways have been economically crucial, especially during thousands of years of human history before the development of railroads, trucks, and airplanes. Before the transcontinental railroad was built, it was both faster and cheaper to reach San Francisco from a port in China than from Saint Louis. People in the city of Tbilisi bought their kerosene from Texas-- 8,000 miles away across water -- rather than from the Baku oil fields, less than 400 miles away across land.
Such vast differences in costs between water transport and land transport affect what can be transported and how far. Gold or diamonds can repay the costs of transport across thousands of miles of land, but grain or coal cannot. More important, the size of a people's cultural universe depends on how far they can reach out to other peoples and other cultures. No great civilization has developed in isolation. Geography in general and navigable waterways in particular set the limits of a people's cultural universe, broadly or narrowly. But these limits are by no means set equally for all peoples or all civilization.
For example, when the British first crossed the Atlantic and confronted the Iroquois on the eastern seaboard of what is today the United States, they were able to steer across the ocean in the first place because they used rudders invented in China, they could navigate on the open seas with the help of trigonometry invented in Egypt, their calculations were done with numbers invented in India, and their general knowledge was preserved in letters invented by the Romans. But the Iroquois could not draw upon the knowledge of the Aztecs or the Incas, whose very existence they had no way of knowing. The clash was not between the culture created by the British versus the culture created by the Iroquois. It was a clash between cultural developments drawn from vast regions of the world versus cultural developments from a much more circumscribed area. The cultural opportunities were unequal and the outcomes were unequal. Geography has never been egalitarian.
A network of rivers in Western Europe flow gently through vast plains, connecting wide areas economically and culturally. The rivers of tropical Africa plunge a thousand feet or more on their way to the sea, with cascades and waterfalls making them navigable only for stretches between these natural barriers-- and the coastal plain in Africa averages just 20 miles. Regular rainfall and melting snows keep the rivers of Western Europe flowing throughout the year but African rivers have neither-- and so rise and fall dramatically with the seasons, further limiting their usefulness. The two continents are at least as dramatically different when it comes to natural harbors. Although Africa is more than twice the size of Europe, it has a shorter coastline. That is because the European coastline continually twists and turns, creating innumerable harbors, while the African coastline is smooth, with few harbors. How surprising is it that international commerce has played a much smaller role in the economic history of Africa than in that of Europe in general and Western Europe in particular?
These particular geographic disparities are by no means exhaustive. But they are suggestive of some of the many ways in which physical settings have expanded or constricted the size of the cultural universe available to different peoples. One revealing indication of cultural fragmentation is that African peoples are 10 percent of the world's population but have one-third of the world's languages.
In controversies over "nature versus nurture" as causes of economic and other disparities among peoples and civilizations, nature is often narrowly conceived as genetic differences. Yet geography is also nature-- and its patterns are far more consistent with history than are genetic theories. China, for example, was for many centuries the leading nation in the world-- technologically, organizationally, and in many other ways. Yet, in more recent centuries, China has been overtaken and far surpassed by Europe. Yet neither region of the world has changed genetically to any extent that would account for this dramatic change in their relative positions. This historic turnaround also shows that geographic limitations do not mean geographic determinism, for the geography of the two regions likewise underwent no such changes as could account for the reversal of their respective positions in the world.
Back in the fifteenth century, China sent ships on a voyage of exploration longer than that of Columbus, more than half a century before Columbus, and in ships more advanced than those in Europe at the time. Yet the Chinese rulers made a decision to discontinue such voyages and in fact to reduce China's contacts with the outside world. European rulers made the opposite decision and established world-wide empires, ultimately to the detriment of China. In short, geography sets limits but people determine what they will do within those limits. In some parts of the world, geographic limits have been set so narrowly that the peoples of these regions have never had the options available to either the Europeans or the Chinese. Isolation has left such regions not only lagging economically but fragmented culturally and politically, making them prey to larger, more prosperous, and more powerful nations.
We have seen how cultural handicaps have followed Eastern Europeans as they immigrated overseas, leading to lower levels of income than among immigrants from Western Europe who settled in the same places, whether North America or Australia. If Africans had immigrated voluntarily to the Western Hemisphere, instead of in bondage, is there any reason to believe that their earnings would have achieved an equality that the Slavic immigrants failed to achieve?
There is no question that Africans and their descendants faced the additional barrier of color prejudice, but can we measure its effects by assuming that black people would have had the same income and wealth as white people in the absence of this factor-- especially in view of the large disparities among different groups of white immigrants, not to mention the rise of some non-white groups such as Chinese Americans and Japanese Americans to incomes above the national average?
Put differently, geography has not only cheated many peoples of equal cultural opportunities, it has also cheated all of us today of a simple criterion for measuring the economic and social effects of other variables, such as prejudice and discrimination.
Nothing has been more common in human history than discrimination against different groups, whether different by race, religion, caste or in innumerable other ways. Moreover, this discrimination has itself been unequal-- more fierce against some groups than others and more pervasive at some periods of history than in others. If there were not so many other powerful factors creating disparities in income and wealth, it might be possible to measure the degree of discrimination by the degree of differences in economic outcomes. Even so, the temptation to do so is seductive, especially as a means of reducing the complexities of life to the simplicities of politics. But the facts will not fit that vision.
Anyone familiar with the history of race relations in the Western Hemisphere would find it virtually impossible to deny that blacks in the United States have faced more hostility and discrimination than blacks in Latin America. As just one example, 161 blacks were lynched in one year in the United States, but racial lynching was unknown south of the Rio Grande. Perhaps the strongest case against the predominance of discrimination as an explanation of economic disparities would be a comparison of blacks in Haiti with blacks in the United States. Since Haiti became independent two centuries ago, Haitian blacks should be the most prosperous blacks in the hemisphere and American blacks the poorest, if discrimination is the overwhelming factor, but in fact the direct opposite is the case. It is Haitians who are the poorest and American blacks who are the most prosperous in the hemisphere-- and in the world.
None of this should be surprising. The fact that discrimination deserves moral condemnation does not automatically make it causally crucial. Whether it is or is not in a given time and place is an empirical question, not a foregone conclusion. A confusion of morality with causation may be politically convenient but that does not make the two things one.
We rightly condemn a history of gross racial discrimination in American education, for example, but when we make that the causal explanation of educational differences, we go beyond what the facts will support. Everyone is aware of times and places when the amount of money spent educating a black child was a fraction of what was spent educating a white child, when the two groups were educated in separate systems, hermetically sealed off from one another, and when worn-out textbooks from the white schools were then sent over to the black schools to be used, while new and more up-to-date textbooks were bought for the white children. The number of days in a school year sometimes differed so much that a black child with 9 years of schooling would have been in class the same number of days as a white child with only 6 years of schooling. It seems so obvious that such things would account for disparities in test scores, for example.
But is it true?
There are other groups to whom none of these factors apply-- and who still have had test score differences as great as those between black and white children in the Jim Crow South. Japanese and Mexican immigrants began arriving in California at about the same time and initially worked in very similar occupations as agricultural laborers. Yet a study of a school district in which their children attended the same schools and sat side-by-side in the same classrooms found IQ differences as great as those between blacks and whites attending schools on opposite sides of town in the Jim Crow South. International studies have found different groups of illiterates-- people with no educational differences because they had no education-- with mental test differences larger than those between blacks and whites in the United States.
What is "the" reason? There may not be any such thing as "the" reason. There are so many cultural, social, economic, and other factors interacting that there was never any reason to expect equal results in the first place. That is why plausible simplicities must be subjected to factual scrutiny.
Back in 1899, when the schools of Washington, D.C. were racially segregated and discrimination was rampant, there were four academic high schools in the city-- three white and one black. When standardized tests were given that year, the black academic high school scored higher than two of the three white academic high schools.⁶ Today, exactly a century later, even setting such a goal would be considered hopelessly utopian. Nor was this a fluke. That same high school was scoring at or above the national average on IQ tests during the 1930s and 1940s.⁷ Yet its physical plant was inadequate and its average class size was higher than that in the city's white high schools.
Today, that same school has a much better physical plant and per-pupil expenditures in the District of Columbia are among the highest in the nation. But the students' test scores are among the lowest. Nor was this school unique in having had higher academic achievements during a period when it seemingly lacked the prerequisites of achievement and yet fell far behind in a later period when these supposed prerequisites were more plentiful.
This is obviously not an argument for segregation and discrimination, nor does it deny that counter-examples might be found of schools that languished in the first period and did better in the second. The point here is much more specific-- that resources have had little or nothing to do with educational quality. Numerous studies of schools in general have shown that, both within the United States and in international comparisons. It should be no surprise that the same applies to black schools.
Politically, however, the disbursement of resources is by no means inconsequential. The ability to dispense largess from the public treasury has for centuries been one of the signs and prerogatives of power in countries around the world. In electoral politics, it is vital as an element in re-election. But the ultimate question is: Does it in fact make people better off? How that question is answered is much less important than that it be asked-- that we not succumb to social dogmas, even when they are intellectually fashionable and politically convenient.
It is also important that economic and other disparities be confronted, not evaded. Best-selling author Shelby Steele says that whites in America today are fearful of being considered racists, while blacks are fearful of being considered inferior. Social dogmas may be accepted because they relieve both groups of their fears, even if these dogmas neither explain the past nor prepare for the future.
It should be axiomatic that there is not unlimited time, unlimited resources, or unlimited good will among peoples-- anywhere in the world. If we are serious about wanting to enlarge opportunities and advance those who are less fortunate, then we cannot fritter away the limited means at our disposal in quixotic quests. We must decide whether our top priority is to smite the wicked or to advance the less fortunate, whether we are looking for visions and rhetoric that make us feel good for the moment or whether we are seeking methods with a proven track record of success in advancing whole peoples from poverty to prosperity.
In an era when esoteric theories can be readily turned into hard cash from the public treasury, our criteria must be higher than what can get government grants for middle-class professionals. It must instead be what will rescue that youngster imprisoned, not only in poverty, but also in a social and cultural isolation that has doomed whole peoples for centuries in countries around the world. When we promote cultural provincialism under glittering labels, we must confront the hard question whether we are throwing him a lifeline or an anchor.
History, geography, and cultures are influences but they are not predestination. Not only individuals but whole peoples have moved from the backwaters of the world to the forefront of civilization. The late Italian author Luigi Barzini asked of Britain: "How, in the first place, did a peripheral island rise from primitive squalor to world domination?" The story of Japan's rise from a backward country in the mid-nineteenth century to one of today's leading economic powers has been at least equally as dramatic. Scotland was for centuries known for its illiteracy, poverty, and lack of elementary cleanliness. Yet, from the mid-eighteenth to the mid-nineteenth century, most of the leading intellectual pioneers of Britain were Scots, and Scots also become prominent in business, banking, medicine, and engineering-- not only in Britain but around the world.
These and other dramatic and heartening rises of whole peoples came from doing things that were often directly the opposite of what is being urged upon less fortunate groups in the United States today. Far from painting themselves into their own little cultural corner and celebrating their "identity," these peoples sought the knowledge and insights of other peoples more advanced than themselves in particular skills, technologies, or organizational experience. It took centuries for the English to absorb the cultural advances brought by such conquerors as the Romans and the Normans and by such immigrants as the Huguenots, Germans, Jews, and others who played a major role in developing the British economy. Their early dependence on outsiders was painfully demonstrated when the Romans pulled out of Britain in the fifth century, in order to go defend their threatened empire on the continent, and the British economy and political structure both collapsed. Yet ultimately-- more than a thousand years later-- the British rose to lead the world into the industrial revolution and controlled an empire containing one-fourth of the land area of the earth and one-fourth of the human race.
Japan's economic rise began from a stage of technological backwardness that was demonstrated when Commodore Perry presented them with a gift of a train. Here was their reaction:

At first the Japanese watched the train fearfully from a safe distance, and when the engine began to move they uttered cries of astonishment and drew in their breath. Before long they were inspecting it closely, stroking it, and riding on it, and they kept this up throughout the day.⁸

A century later, the Japanese "bullet train" would be one of the technological wonders of the world, surpassing anything available in the United States. But, before this happened, a major cultural transformation had to take place among the Japanese people. A painful awareness of their own backwardness spread through Japan. Western nations in general and the United States in particular were held up as models to their children. Japanese textbooks urged imitation of Abraham Lincoln and Benjamin Franklin, even more so than Japanese heroes. Many laments about their own shortcomings by the Japanese of that era would today be called "self-hate." But there were no cultural relativists then to tell them that what they had achieved was just as good, in its own way, as what others had. Instead, the Japanese overcame their backwardness, through generations of dedicated work and study, rather than redefining it out of existence.
Both the British and the Japanese became renowned for their ability to absorb the ideas and the technology of others and to carry them forward to higher levels. So did the Scots. At one time, it was common for Scots to blindly imitate the English, even using an English plow that proved to be unsuitable for the soil of Scotland. Yet, once they had absorbed what the English had to offer, the Scots then surpassed the English in some fields, notably medicine and engineering.
History does not offer blueprints for the present but it does offer examples and insights. If nothing else, it can warn us against becoming mesmerized by the heady visions and soaring rhetoric of the moment.
One of the most seductive visions of our time is the vision of "fairness" in a sense that the word never had before. At one time we all understood what was meant by a "fair fight." It meant that both fighters fought by the same Marquis of Queensbury rules. It did not mean that both fighters had equal strength, skill, experience or other factors that would make them equally likely to win.
In today's conception of fairness, only when all have the same prospects of winning is the fight fair. It was not in The Nation or some other left-wing magazine, but in the neoconservative quarterly The Public Interest that we find opportunity equated with "the same chance to succeed" or "an equal shot at a good outcome"-- regardless of the influence of social, cultural, or family background.
This confusion between the fairness of rules and the equality of prospects is spreading across the political spectrum. Regardless of which of these two things might be considered preferable, we must first be very clear in our own minds that they are completely different, and often mutually incompatible, if we are to have any hope of a rational discussion of policy issues ranging from anti-trust to affirmative action.
To add to the confusion, when prospects are not the same for all, this is then blamed on "the system" or "the rules of the game," as Brookings Senior Fellow Isabel V. Sawhill does in the Spring issue of The Public Interest. Rules and standards are the creation of particular human beings but circumstances need not be. Ms. Sawhill herself includes "good genes" among the circumstances which affect economic inequalities, and we might add all sorts of other geographic, demographic, cultural and historical factors that were not created by today's "rules of the game" or by "the system" or by anyone currently on the scene.
It makes sense to blame human beings for biased rules and standards. But who is to be blamed for circumstances that are the results of a confluence of all sorts of conditions of the past and present, interacting in ways that are hard to specify and virtually impossible to disentangle? Unless we wish to start a class action suit against geography or against the cosmos or the Almighty, we need to stop the pretense that somebody is guilty whenever the world does not present a tableau that suits our desires or fits our theories.
This new kind of "fairness" has never existed anywhere at any time. The real world has always been astronomically remote from any such condition. Nor are the costs and risks of trying to achieve this cosmic fairness small.
Crime rates soared when our courts began to concern themselves with such things as the unhappy childhoods of violent criminals or the "root causes" of crime in general. Those who paid the highest price for these excursions into cosmic justice were not the judges or the theorists whose notions the judges reflected, but the victims of rape, murder and terrorization by hoodlums.
The same preoccupation with "fairness" in some cosmic sense has often turned our anti-trust laws into ways of penalizing those whose lower costs enable them to sell profitably to the public at lower prices than those of their competitors who are struggling to survive. Here again there is often a pretense of villainy enshrined in rhetoric about "predatory" pricing or "domination" or "control" of the market. And here again there are third parties who lose-- the consumers.
Equating an absence of cosmic justice with villainy has become common in employment law as well. Companies whose employees do not statistically mirror the ethnic composition of the local labor force can be found guilty of "discrimination," even if no one can find a single employee or job applicant who has been treated unfairly by having different rules or standards applied to his or her work or qualifications.
Do we as individuals and as a nation wish that others less fortunate had our blessings? We should and we do. But our blessings as a nation did not consist of having other nations give us foreign aid. The blessings of individuals who have achieved in life have seldom taken the form of having others accept mediocre performances from them or make excuses for their counterproductive behavior.
Almost as mushy as the quest for cosmic justice is the notion that the alternative is to "do nothing" about the gross disparities in prospects that are common around the world. There has never been a moment in the entire history of the United States when we have done nothing. There are innumerable things that still need to be done, but spreading confusion is not one of them.

N O T E S

1. © Thomas Sowell.
2. back
   
3. Race and Culture (1994); Migrations and Culture (1996); Conquests and Cultures (1998).
4. back
   
5. Thomas Sowell, Migrations and Cultures, p. 265.
6. back
   
7. Jean Roche, La Colonisation Allemande et le Rio Grande do Sul (Paris: Institut des Études de L'Amérique Latine, 1959), pp. 388-389.
8. back
   
9. Numerous, documented examples can be found in just two recent books of mine: Conquests and Cultures (Basic Books, 1998), pp. 43, 124, 125, 168, 221-222; Migrations and Cultures (Basic Books, 1996), pp. 4, 17, 30, 31, 567, 118, 121, 122-123, 126, 130, 135, 152, 154, 157, 158, 162, 164, 167, 176, 177, 179, 182, 193, 196, 201, 211, 212, 213, 215, 224, 226, 251, 258, 264, 265, 275, 277, 278, 289, 290, 297, 298, 300, 305, 306, 310, 313, 314, 318, 320, 323-324, 337, 342, 345, 353-354, 354-355, 355, 356, 358, 363, 366, 372-373. Extending the search for intergroup statistical disparities to the writings of others would of course increase the number of examples exponentially, even when leaving out those cases where discrimination might be a plausible cause of the disparities.
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11. Henry S. Robinson, "The M Street School," Records of the Columbia Historical Society of Washington, D.C., Vol.LI (1984), p. 122; Constance Green, The Secret City: A History of Race Relations in the Nation's Capital (Princeton: Princeton University Press, 1967), p. 137. Constance Green said that the M Street School had "a higher proportion of highly trained talent than the white high schools could claim," (Ibid), presumably because of limited career opportunities for well-educated blacks at that time. The identity of the respective high schools was established from Report of the Board of Trustees of Public Schools of the District of Columbia to the Commissioners of the District of Columbia: 1898-1899 (Washington: Government Printing Office, 1900), pp. 7, 11.
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13. Thomas Sowell, "Black Excellence: The Case of Dunbar High School," The Public Interest, Spring 1974, p. 8. See also Mary Gibson Hundley, The Dunbar Story: 1870-1955 (New York: Vantage Press, 1965), p. 25.
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15. Irokawa Daikichi, The Culture of the Meiji Period (Princeton: Princeton University Press, 1985), p. 7.
16. back

The Robin Hood Myth

Health Care in a Free Market, Milton Freidman

Responsibility to the Poor

Milton Freidman, No Free Lunch Idea

The Most Persistent Economic Fallacy of All Time!

How Unions Cause Unemployment

Hayek on the Rule of Law or Emergence by Anarchy?

Hayek on Special Interests

The Poverty Empire, Thomas Sowell

Thomas Sowell, Brilliant

Thomas Sowell and How Welfare Promotes Failure

Thomas Sowell & Milton Friedman vs. A Welfare Administrator

Milton Friedman vs. an Academic Socialist

Milton Freidman against socialism

Milton Friedman vs Socialism

Of the Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money

Taken from "The Wealth of Nations," by Adam Smith, pp. 43-66

I.5.1

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life.*1 But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.

I.5.2

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour,*2 as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.

I.5.3

Wealth, as Mr. Hobbes says, is power.*3 But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military. His fortune may, perhaps, afford him the means of acquiring both, but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him, is the power of purchasing; a certain command over all the labour, or over all the produce of labour which is then in the market. His fortune is greater or less, precisely in proportion to the extent of this power; or to the quantity either of other men's labour, or, what is the same thing, of the produce of other men's labour, which it enables him to purchase or command. The exchangeable value of every thing must always be precisely equal to the extent of this power which it conveys to its owner.*4

I.5.4

But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labour. The time spent in two different sorts of work will not always alone determine this proportion. The different degrees of hardship endured, and of ingenuity exercised, must likewise be taken into account. There may be more labour in an hour's hard work than in two hours easy business; or in an hour's application to a trade which it cost ten years labour to learn, than in a month's industry at an ordinary and obvious employment. But it is not easy to find any accurate measure either of hardship or ingenuity. In exchanging indeed the different productions of different sorts of labour for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.*5

I.5.5

Every commodity besides, is more frequently exchanged for, and thereby compared with, other commodities than with labour. It is more natural therefore, to estimate its exchangeable value by the quantity of some other commodity than by that of the labour which it can purchase. The greater part of people too understand better what is meant by a quantity of a particular commodity, than by a quantity of labour. The one is a plain palpable object; the other an abstract notion, which, though it can be made sufficiently intelligible, is not altogether so natural and obvious.

I.5.6

But when barter ceases, and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. The butcher seldom carries his beef or his mutton to the baker, or the brewer, in order to exchange them for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread and for beer. The quantity of money which he gets for them regulates too the quantity of bread and beer which he can afterwards purchase. It is more natural and obvious to him, therefore, to estimate their value by the quantity of money, the commodity for which he immediately exchanges them, than by that of bread and beer, the commodities for which he can exchange them only by the intervention of another commodity; and rather to say that his butcher's meat is worth threepence or fourpence a pound, than that it is worth three or four pounds of bread, or three or four quarts of small beer. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity either of labour or of any other commodity which can be had in exchange for it.

I.5.7

Gold and silver, however, like every other commodity, vary in their value, are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. The quantity of labour which any particular quantity of them can purchase or command, or the quantity of other goods which it will exchange for, depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made. The discovery of the abundant mines of America reduced, in the sixteenth century, the value of gold and silver in Europe to about a third of what it had been before.*6 As it cost less labour to bring those metals from the mine to the market, so when they were brought thither*7 they could purchase or command less labour; and this revolution in their value, though perhaps the greatest, is by no means the only one of which history gives some account. But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself continually varying in its own value, can never be an accurate measure of the value of other commodities. Equal quantities of labour, at all times and places, may be said to be*8 of equal value to the labourer. In his ordinary state of health, strength and spirits; in the ordinary degree of his skill and dexterity,*9 he must always lay down the same portion of his ease, his liberty, and his happiness. The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it. Of these, indeed, it may sometimes purchase a greater and sometimes a smaller quantity; but it is their value which varies, not that of the labour which purchases them. At all times and places that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

I.5.8

But though equal quantities of labour are always of equal value to the labourer, yet to the person who employs him they appear sometimes to be of greater and sometimes of smaller value. He purchases them sometimes with a greater and sometimes with a smaller quantity of goods, and to him the price of labour seems to vary like that of all other things. It appears to him dear in the one case, and cheap in the other. In reality, however, it is the goods which are cheap in the one case, and dear in the other.

I.5.9

In this popular sense, therefore, labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniencies of life which are given for it; its nominal price, in the quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not to the nominal price of his labour.

I.5.10

The distinction between the real and the nominal price of commodities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice. The same real price is always of the same value; but on account of the variations in the value of gold and silver, the same nominal price is sometimes of very different values. When a landed estate, therefore, is sold with a reservation of a perpetual rent, if it is intended that this rent should always be of the same value, it is of importance to the family in whose favour it is reserved, that it should not consist in a particular sum of money.*10 Its value would in this case be liable to variations of two different kinds; first, to those which arise from the different quantities of gold and silver which are contained at different times in coin of the same denomination; and, secondly, to those which arise from the different values of equal quantities of gold and silver at different times.

I.5.11

Princes and sovereign states have frequently fancied that they had a temporary interest to diminish the quantity of pure metal contained in their coins; but they seldom have fancied that they had any to augment it. The quantity of metal contained in the coins, I believe of all nations, has, accordingly, been almost continually diminishing, and hardly ever augmenting.*11 Such variations therefore tend almost always to diminish the value of a money rent.

I.5.12

The discovery of the mines of America diminished the value of gold and silver in Europe. This diminution, it is commonly supposed, though I apprehend without any certain proof, is still going on gradually,*12 and is likely to continue to do so for a long time. Upon this supposition, therefore, such variations are more likely to diminish, than to augment the value of a money rent, even though it should be stipulated to be paid, not in such a quantity of coined money of such a denomination (in so many pounds sterling, for example), but in so many ounces either of pure silver, or of silver of a certain standard.

I.5.13

The rents which have been reserved in corn have preserved their value much better than those which have been reserved in money, even where the denomination of the coin has not been altered. By the 18th of Elizabeth*13 it was enacted, That a third of the rent of all college leases should be reserved in corn, to be paid, either in kind, or according to the current prices at the nearest public market. The money arising from this corn rent, though originally but a third of the whole, is in the present times, according to Doctor Blackstone, commonly near double of what arises from the other two-thirds.*14 The old money rents of colleges must, according to this account, have sunk almost to a fourth part of their ancient value; or are worth little more than a fourth part of the corn which they were formerly worth. But since the reign of Philip and Mary the denomination of the English coin has undergone little or no alteration, and the same number of pounds, shillings and pence have contained very nearly the same quantity of pure silver. This degradation, therefore, in the value of the money rents of colleges, has arisen altogether from the degradation in the value of silver.

I.5.14

When the degradation in the value of silver is combined with the diminution of the quantity of it contained in the coin of the same denomination, the loss is frequently still greater. In Scotland, where the denomination of the coin has undergone much greater alterations than it ever did in England, and in France, where it has undergone still greater than it ever did in Scotland,*15 some antient rents, originally of considerable value, have in this manner been reduced almost to nothing.

I.5.15

Equal quantities of labour will at distant times be purchased more nearly with equal quantities of corn, the subsistence of the labourer, than with equal quantities of gold and silver, or perhaps of any other commodity. Equal quantities of corn, therefore, will, at distant times, be more nearly of the same real value, or enable the possessor to purchase or command more nearly the same quantity of the labour of other people. They will do this, I say, more nearly than equal quantities of almost any other commodity; for even equal quantities of corn will not do it exactly. The subsistence of the labourer, or the real price of labour, as I shall endeavour to show hereafter,*16 is very different upon different occasions; more liberal in a society advancing to opulence, than in one that is standing still; and in one that is standing still, than in one that is going backwards. Every other commodity, however, will at any particular time purchase a greater or smaller quantity of labour in proportion to the quantity of subsistence which it can purchase at that time. A rent therefore reserved in corn is liable only to the variations in the quantity of labour which a certain quantity of corn can purchase. But a rent reserved in any other commodity is liable, not only to the variations in the quantity of labour which any particular quantity of corn can purchase, but to the variations in the quantity of corn which can be purchased by any particular quantity of that commodity.

I.5.16

Though the real value of a corn rent, it is to be observed however, varies much less from century to century than that of a money rent, it varies much more from year to year. The money price of labour, as I shall endeavour to show hereafter,*17 does not fluctuate from year to year with the money price of corn, but seems to be every where accommodated, not to the temporary or occasional, but to the average or ordinary price of that necessary of life. The average or ordinary price of corn again is regulated, as I shall likewise endeavour to show hereafter,*18 by the value of silver, by the richness or barrenness of the mines which supply the market with that metal, or by the quantity of labour which must be employed, and consequently of corn which must be consumed, in order to bring any particular quantity of silver*19 from the mine to the market. But the value of silver, though it sometimes varies greatly from century to century, seldom varies much from year to year, but frequently continues the same, or very nearly the same, for half a century or a century together. The ordinary or average money price of corn, therefore, may, during so long a period, continue the same or very nearly the same too, and along with it the money price of labour, provided, at least, the society continues, in other respects, in the same or nearly in the same condition. In the mean time the temporary and occasional price of corn may frequently be double, one year, of what it had been the year before, or fluctuate, for example, from five and twenty to fifty shillings the quarter.*20 But when corn is at the latter price, not only the nominal, but the real value of a corn rent will be double of what it is when at the former, or will command double the quantity either of labour or of the greater part of other commodities; the money price of labour, and along with it that of most other things, continuing the same during all these fluctuations.

I.5.17

Labour, therefore, it appears evidently, is the only universal, as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century by the quantities of silver which were given for them. We cannot estimate it from year to year by the quantities of corn. By the quantities of labour we can, with the greatest accuracy, estimate it both from century to century and from year to year. From century to century, corn is a better measure than silver, because, from century to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.*21

I.5.18

But though in establishing perpetual rents, or even in letting very long leases, it may be of use to distinguish between real and nominal price; it is of none in buying and selling, the more common and ordinary transactions of human life.

I.5.19

At the same time and place the real and the nominal price of all commodities are exactly in proportion to one another. The more or less money you get for any commodity, in the London market, for example, the more or less labour it will at that time and place enable you to purchase or command. At the same time and place, therefore, money is the exact measure of the real exchangeable value of all commodities. It is so, however, at the same time and place only.

I.5.20

Though at distant places, there is no regular proportion between the real and the money price of commodities, yet the merchant who carries goods from the one to the other has nothing to consider but their money price, or the difference between the quantity of silver for which he buys them, and that for which he is likely to sell them. Half an ounce of silver at Canton in China may command a greater quantity both of labour and of the necessaries and conveniencies of life, than an ounce at London. A commodity, therefore, which sells for half an ounce of silver at Canton may there be really dearer, of more real importance to the man who possesses it there, than a commodity which sells for an ounce at London is to*22 the man who possesses it at London. If a London merchant, however, can buy at Canton for half an ounce of silver, a commodity which he can afterwards sell at London for an ounce, he gains a hundred per cent. by the bargain, just as much as if an ounce of silver was at London exactly of the same value as at Canton. It is of no importance to him that half an ounce of silver at Canton would have given him the command of more labour and of a greater quantity of the necessaries and conveniencies of life than an ounce can do at London. An ounce at London will always give him the command of double the quantity of all these, which half an ounce could have done there, and this is precisely what he wants.

I.5.21

As it is the nominal or money price of goods, therefore, which finally determines the prudence or imprudence of all purchases and sales, and thereby regulates almost the whole business of common life in which price is concerned, we cannot wonder that it should have been so much more attended to than the real price.

I.5.22

In such a work as this, however, it may sometimes be of use to compare the different real values of a particular commodity at different times and places, or the different degrees of power over the labour of other people which it may, upon different occasions, have given to those who possessed it. We must in this case compare, not so much the different quantities of silver for which it was commonly sold, as the different quantities of labour which those different quantities of silver could have purchased. But the current prices of labour at distant times and places can scarce ever be known with any degree of exactness. Those of corn, though they have in few places been regularly recorded, are in general better known and have been more frequently taken notice of by historians and other writers. We must generally, therefore, content ourselves with them, not as being always exactly in the same proportion as the current prices of labour, but as being the nearest approximation which can commonly be had to that proportion. I shall hereafter have occasion to make several comparisons of this kind.*23

I.5.23

In the progress of industry, commercial nations have found it convenient to coin several different metals into money; gold for larger payments, silver for purchases of moderate value, and copper, or some other coarse metal, for those of still smaller consideration. They have always, however, considered one of those metals as more peculiarly the measure of value than any of the other two; and this preference seems generally to have been given to the metal which they happened first to make use of as the instrument of commerce. Having once begun to use it as their standard, which they must have done when they had no other money, they have generally continued to do so even when the necessity was not the same.

I.5.24

The Romans are said to have had nothing but copper money till within five years before the first Punic war,*24 when they first began to coin silver. Copper, therefore, appears to have continued always the measure of value in that republic. At Rome all accounts appear to have been kept, and the value of all estates to have been computed, either in Asses or in Sestertii. The As was always the denomination of a copper coin. The word Sestertius signifies two Asses and a half. Though the Sestertius, therefore, was originally*25 a silver coin, its value was estimated in copper. At Rome, one who owed a great deal of money, was said to have a great deal of other people's copper.*26

I.5.25

The northern nations who established themselves upon the ruins of the Roman Empire, seem to have had silver money from the first beginning of their settlements, and not to have known either gold or copper coins for several ages thereafter. There were silver coins in England in the time of the Saxons; but there was little gold coined till the time of Edward III. nor any copper till that of James I. of Great Britain. In England, therefore, and for the same reason, I believe, in all other modern nations of Europe, all accounts are kept, and the value of all goods and of all estates is generally computed in silver: and when we mean to express the amount of a person's fortune, we seldom mention the number of guineas, but the number of pounds sterling*27 which we suppose would be given for it.

I.5.26

Originally, in all countries, I believe a legal tender of payment could*28 be made only in the coin of that metal,*29 which was peculiarly considered as the standard or measure of value. In England, gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or proclamation; but was left to be settled by the market. If a debtor offered payment in gold, the creditor might either reject such payment altogether, or accept of it at such a valuation of the gold as he and his debtor could agree upon. Copper is not at present a legal tender, except in the change of the smaller silver coins. In this state of things the distinction between the metal which was the standard, and that which was not the standard, was something more than a nominal distinction.

I.5.27

In process of time, and as people became gradually more familiar with the use of the different metals in coin, and consequently better acquainted with the proportion between their respective values, it has in most countries, I believe, been found convenient to ascertain this proportion, and to declare by a public law*30 that a guinea, for example, of such a weight and fineness, should exchange for one-and-twenty shillings, or be a legal tender for a debt of that amount.*31 In this state of things, and during the continuance of any one regulated proportion of this kind, the distinction between the metal which is the standard, and that which is not the standard, becomes little more than a nominal distinction.*32

I.5.28

In consequence of any change, however, in this regulated proportion, this distinction becomes, or at least seems to become, something more than nominal again. If the regulated value of a guinea, for example, was either reduced to twenty, or raised to two-and-twenty shillings, all accounts being kept and almost all obligations for debt being expressed in silver money, the greater part of payments could in either case be made with the same quantity of silver money as before; but would require very different quantities of gold money; a greater in the one case, and a smaller in the other. Silver would appear to be more invariable in its value than gold. Silver would appear to measure the value of gold, and gold would not appear to measure the value of silver. The value of gold would seem to depend upon the quantity of silver which it would exchange for; and the value of silver would not seem to depend upon the quantity of gold which it would exchange for. This difference, however, would be altogether owing to the custom of keeping accounts, and of expressing the amount of all great and small sums rather in silver than in gold money. One of Mr. Drummond's notes for five-and-twenty or fifty guineas would, after an alteration of this kind, be still payable with five-and-twenty or fifty guineas in the same manner as before. It would, after such an alteration, be payable with the same quantity of gold as before, but with very different quantities of silver. In the payment of such a note, gold would appear to be more invariable in its value than silver. Gold would appear to measure the value of silver, and silver would not appear to measure the value of gold. If the custom of keeping accounts, and of expressing promissory notes and other obligations for money in this manner, should ever become general, gold, and not silver, would be considered as the metal which was peculiarly the standard or measure of value.

I.5.29

In reality, during the continuance of any one regulated proportion between the respective values of the different metals in coin, the value of the most precious metal regulates the value of the whole coin.*33 Twelve copper pence contain half a pound, avoirdupois, of copper, of not the best quality, which, before it is coined, is seldom worth sevenpence in silver. But as by the regulation twelve such pence are ordered to exchange for a shilling, they are in the market considered as worth a shilling, and a shilling can at any time be had for them. Even before the late reformation of the gold coin of Great Britain,*34 the gold, that part of it at least which circulated in London and its neighbourhood, was in general less degraded below its standard weight than the greater part of the silver. One-and-twenty worn and defaced shillings, however, were considered as equivalent to a guinea, which perhaps, indeed, was worn and defaced too, but seldom so much so. The late regulations*35 have brought the gold coin as near perhaps to its standard weight as it is possible to bring the current coin of any nation; and the order, to receive no gold at the public offices but by weight, is likely to preserve it so, as long as that order is enforced. The silver coin still continues in the same worn and degraded state as before the reformation of the gold coin. In the market, however, one-and-twenty shillings of this degraded silver coin are still considered as worth a guinea of this excellent gold coin.

I.5.30

The reformation of the gold coin has evidently raised the value of the silver coin which can be exchanged for it.

I.5.31

In the English mint a pound weight of gold is coined into forty-four guineas and a half, which, at one-and-twenty shillings the guinea, is equal to forty-six pounds fourteen shillings and six-pence. An ounce of such gold coin, therefore, is worth 3l. 17s. 10 ½d.in silver. In England no duty or seignorage is paid upon the coinage, and he who carries a pound weight or an ounce weight of standard gold bullion to the mint, gets back a pound weight or an ounce weight of gold in coin, without any deduction. Three pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is said to be the mint price of gold in England, or the quantity of gold coin which the mint gives in return for standard gold bullion.

I.5.32

Before the reformation of the gold coin, the price of standard gold bullion in the market had for many years been upwards of 3l. 18s. sometimes 3l. 19s. and very frequently 4l. an ounce; that sum, it is probable, in the worn and degraded gold coin, seldom containing more than an ounce of standard gold. Since the reformation of the gold coin, the market price of standard gold bullion seldom exceeds 3l. 17s.7d. an ounce. Before the reformation of the gold coin, the market price was always more or less above the mint price. Since that reformation, the market price has been constantly below the mint price. But that market price is the same whether it is paid in gold or in silver coin. The late reformation of the gold coin, therefore, has raised not only the value of the gold coin, but likewise that of the silver coin in proportion to gold bullion, and probably too in proportion to all other commodities; though the price of the greater part of other commodities being influenced by so many other causes, the rise in the value either of gold or silver coin in proportion to them, may not be so distinct and sensible.

I.5.33

In the English mint a pound weight of standard silver bullion is coined into sixty-two shillings, containing, in the same manner, a pound weight of standard silver. Five shillings and two-pence an ounce, therefore, is said to be the mint price of silver in England, or the quantity of silver coin which the mint gives in return for standard silver bullion. Before the reformation of the gold coin, the market price of standard silver bullion was, upon different occasions, five shillings and four-pence, five shillings and five-pence, five shillings and six-pence, five shillings and seven-pence, and very often five shillings and eight-pence an ounce. Five shillings and seven-pence, however, seems to have been the most common price. Since the reformation of the gold coin, the market price of standard silver bullion has fallen occasionally to five shillings and three-pence, five shillings and four-pence, and five shillings and five-pence an ounce, which last price it has scarce ever exceeded. Though the market price of silver bullion has fallen considerably since the reformation of the gold coin, it has not fallen so low as the mint price.

I.5.34

In the proportion between the different metals in the English coin, as copper is rated very much above its real value, so silver is rated somewhat below it. In the market of Europe, in the French coin and in the Dutch coin, an ounce of fine gold exchanges for about fourteen ounces of fine silver. In the English coin, it exchanges for about fifteen ounces, that is, for more silver than it is worth according to the common estimation of Europe.*36 But as the price of copper in bars is not, even in England, raised by the high price of copper in English coin, so the price of silver in bullion is not sunk by the low rate of silver in English coin. Silver in bullion still preserves its proper proportion to gold; for the same reason that copper in bars preserves its proper proportion to silver.*37

I.5.35

Upon the reformation of the silver coin in the reign of William III. the price of silver bullion still continued to be somewhat above the mint price. Mr. Locke imputed this high price to the permission of exporting silver bullion, and to the prohibition of exporting silver coin.*38 This permission of exporting, he said, rendered the demand for silver bullion greater than the demand for silver coin. But the number of people who want silver coin for the common uses of buying and selling at home, is surely much greater than that of those who want silver bullion either for the use of exportation or for any other use. There subsists at present a like permission of exporting gold bullion, and a like prohibition of exporting gold coin; and yet the price of gold bullion has fallen below the mint price. But in the English coin silver was then, in the same manner as now, under-rated in proportion to gold; and the gold coin (which at that time too was not supposed to require any reformation) regulated then, as well as now, the real value of the whole coin. As the reformation of the silver coin did not then reduce the price of silver bullion to the mint price, it is not very probable that a like reformation will do so now.

I.5.36

Were the silver coin brought back as near to its standard weight as the gold, a guinea, it is probable, would, according to the present proportion, exchange for more silver in coin than it would purchase in bullion. The silver coin containing its full standard weight, there would in this case be a profit in melting it down, in order, first, to sell the bullion for gold coin, and afterwards to exchange this gold coin for silver coin to be melted down in the same manner. Some alteration in the present proportion seems to be the only method of preventing this inconveniency.

I.5.37

The inconveniency perhaps would be less if silver was rated in the coin as much above its proper proportion to gold as it is at present rated below it; provided it was at the same time enacted that silver should not be a legal tender for more than the change of a guinea; in the same manner as copper is not a legal tender for more than the change of a shilling. No creditor could in this case be cheated in consequence of the high valuation of silver in coin; as no creditor can at present be cheated in consequence of the high valuation of copper. The bankers only would suffer by this regulation. When a run comes upon them they sometimes endeavour to gain time by paying in six-pences, and they would be precluded by this regulation from this discreditable method of evading immediate payment. They would be obliged in consequence to keep at all times in their coffers a greater quantity of cash than at present; and though this might no doubt be a considerable inconveniency to them, it would at the same time be a considerable security to their creditors.*39

I.5.38

Three pounds seventeen shillings and ten-pence halfpenny (the mint price of gold) certainly does not contain, even in our present excellent gold coin, more than an ounce of standard gold, and it may be thought, therefore, should not purchase more standard bullion. But gold in coin is more convenient than gold in bullion, and though, in England, the coinage is free, yet the gold which is carried in bullion to the mint, can seldom be returned in coin to the owner till after a delay of several weeks. In the present hurry of the mint, it could not be returned till after a delay of several months. This delay is equivalent to a small duty, and renders gold in coin somewhat more valuable than an equal quantity of gold in bullion.*40 If in the English coin silver was rated according to its proper proportion to gold, the price of silver bullion would probably fall below the mint price even without any reformation of the silver coin; the value even of the present worn and defaced silver coin being regulated by the value of the excellent gold coin for which it can be changed.

I.5.39

A small seignorage or duty upon the coinage of both gold and silver would probably increase still more the superiority of those metals in coin above an equal quantity of either of them in bullion. The coinage would in this case increase the value of the metal coined in proportion to the extent of this small duty; for the same reason that the fashion increases the value of plate in proportion to the price of that fashion. The superiority of coin above bullion would prevent the melting down of the coin, and would discourage its exportation. If upon any public exigency it should become necessary to export the coin, the greater part of it would soon return again of its own accord. Abroad it could sell only for its weight in bullion. At home it would buy more than that weight. There would be a profit, therefore, in bringing it home again. In France a seignorage of about eight per cent. is imposed upon the coinage,*41 and the French coin, when exported, is said to return home again of its own accord.*42

I.5.40

The occasional fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. The frequent loss of those metals from various accidents by sea and by land, the continual waste of them in gilding and plating, in lace and embroidery, in the wear and tear of coin, and in that of plate;*43 require, in all countries which possess no mines of their own, a continual importation, in order to repair this loss and this waste. The merchant importers, like all other merchants, we may believe, endeavour, as well as they can, to suit their occasional importations to what, they judge, is likely to be the immediate demand. With all their attention, however, they sometimes over-do the business, and sometimes under-do it. When they import more bullion than is wanted, rather than incur the risk and trouble of exporting it again, they are sometimes willing to sell a part of it for something less than the ordinary or average price. When, on the other hand, they import less than is wanted, they get something more than this price. But when, under all those occasional fluctuations, the market price either of gold or silver bullion continues for several years together steadily and constantly, either more or less above, or more or less below the mint price: we may be assured that this steady and constant, either superiority or inferiority of price, is the effect of something in the state of the coin, which, at that time, renders a certain quantity of coin either of more value or of less value than the precise quantity of bullion which it ought to contain. The constancy and steadiness of the effect, supposes a proportionable constancy and steadiness in the cause.

I.5.41

The money of any particular country is, at any particular time and place, more or less an accurate measure of value according as the current coin is more or less exactly agreeable to its standard, or contains more or less exactly the precise quantity of pure gold or pure silver which it ought to contain. If in England, for example, forty-four guineas and a half contained exactly a pound weight of standard gold, or eleven ounces of fine gold and one ounce of alloy, the gold coin of England would be as accurate a measure of the actual value of goods at any particular time and place as the nature of the thing would admit. But if, by rubbing and wearing, forty-four guineas and a half generally contain less than a pound weight of standard gold; the diminution, however, being greater in some pieces than in others; the measure of value comes to be liable to the same sort of uncertainty to which all other weights and measures are commonly exposed. As it rarely happens that these are exactly agreeable to their standard, the merchant adjusts the price of his goods, as well as he can, not to what those weights and measures ought to be, but to what, upon an average, he finds by experience they actually are. In consequence of a like disorder in the coin, the price of goods comes, in the same manner, to be adjusted, not to the quantity of pure gold or silver which the coin ought to contain, but to that which, upon an average, it is found by experience it actually does contain.

I.5.42

By the money-price of goods, it is to be observed, I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin. Six shillings and eight-pence, for example, in the time of Edward I., I consider as the same money-price with a pound sterling in the present times; because it contained, as nearly as we can judge, the same quantity of pure silver.

---

Notes for this chapter

1.

['La richesse en elle-même n'est autre chose que la nourriture, les commodités et les agréments de la vie.'—Cantillon, Essai, pp. 1, 2.]

2.

['Everything in the world is purchased by labour.'—Hume, 'Of Commerce,' in Political Discourses, 1752, p. 12.]

3.

['Also riches joined with liberality is Power, because it procureth friends and servants: without liberality not so, because in this case they defend not but expose men to envy as a prey.'—Leviathan, I., x.]

4.

[This paragraph appears first in Additions and Corrections and ed. 3.]

5.

[The absence of any reference to the lengthy discussion of this subject in chap. x. is curious.]

6.

[Below, I.11.134-138.]

7.

[Ed. 1 reads 'there'.]

8.

[Ed. 1 reads 'Equal quantities of labour must at all times and places be'.]

9.

[The words from 'In his ordinary state of health' to 'dexterity' appear first in ed. 2.]

10.

['Be above all things careful how you make any composition or agreement for any long space of years to receive a certain price of money for the corn that is due to you, although for the present it may seem a tempting bargain.'—Fleetwood, Chronicon Preciosum, p. 174.]

11.

[Above, I.4.8-10.]

12.

[Below, I.11.188-190.]

13.

[C. 6, which applies to Oxford, Cambridge, Winchester and Eton, and provides that no college shall make any lease for lives or years of tithes, arable land or pasture without securing that at least one-third of 'tholde' (presumably the whole not the old) rent should be paid in coin. The Act was promoted by Sir Thomas Smith to the astonishment, it is said, of his fellow-members of Parliament, who could not see what difference it would make. 'But the knight took the advantage of the present cheapness; knowing hereafter grain would grow dearer, mankind daily multiplying, and licence being lately given for transportation. So that at this day much emolument redoundeth to the colleges in each university, by the passing of this Act; and though their rents stand still, their revenues do increase.'—Fuller, Hist. of the University of Cambridge, 1655, p. 144. quoted in Strype, Life of the learned Sir Thomas Smith, 1698, p. 192.]

14.

[Commentaries, 1765, vol. ii., p. 322.]

15.

[Above, I.4.10.]

16.

[Below, I.8.16-27.]

17.

[Below I.8.27-30,50-56.]

18.

[Below, chap. xi., see esp. I.11.134-137.]

19.

[Ed. 1 reads 'it.']

20.

[Ed. 1 places the 'for example' here.]

21.

['In England and this part of the world, wheat being the constant and most general food, not altering with the fashion, not growing by chance: but as the farmers sow more or less of it, which they endeavour to proportion, as near as can be guessed to the consumption, abstracting the overplus of the precedent year in their provision for the next; and vice versa, it must needs fall out that it keeps the nearest proportion to its consumption (which is more studied and designed in this than other commodities) of anything, if you take it for seven or twenty years together: though perhaps the scarcity of one year, caused by the accidents of the season, may very much vary it from the immediately precedent or following. Wheat, therefore, to this part of the world (and that grain which is the constant general food of any other country) is the fittest measure to judge of the altered value of things in any long tract of time: and therefore wheat here, rice in Turkey, etc., is the fittest thing to reserve a rent in, which is designed to be constantly the same for all future ages. But money is the best measure of the altered value of things in a few years: because its vent is the same and its quantity alters slowly. But wheat, or any other grain, cannot serve instead of money: because of its bulkiness and too quick change of its quantity.'—Locke, Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, ed. of 1696, pp. 74, 75.]

22.

[Ed. 1 reads 'than one which sells for an ounce at London to'.]

23.

[Below, chap. xi. passim.]

24.

Pliny, lib. xxxiii. c. 3. [This note is not in ed. 1.]

25.

[Eds. 1 and 2 read 'always'.]

26.

[Habere aes alienum.]

27.

[Ed. 1 does not contain 'sterling'.]

28.

[Ed. 1 places the 'originally' here.]

29.

[Ed. 1 places the 'only' here.]

30.

[The Act, I9 Hen. VII., c. 5, ordered that certain gold coins should pass for the sums for which they were coined, and 5 and 6 Ed. VI. prescribed penalties for giving or taking more than was warranted by proclamation. The value of the guinea was supposed to be fixed by the proclamation of 1717, for which see Economic Journal, March, 1898. Lead tokens were corned by individuals in the reign of Elizabeth. James I. coined copper farthing tokens, but abstained from proclaiming them as money of that value. In 1672 copper halfpennies were issued, and both halfpennies and farthings were ordered to pass as money of those values in all payments under sixpence.—Harris, Money and Coins, pt. i., § 39; Liverpool, Treatise on the Coins of the Realm, 1805, pp. I30, 131.]

31.

[Ed. 1 reads 'sum'.]

32.

[I.e., if 21 pounds may be paid with 420 silver shillings or with 20 gold guineas it does not matter whether a 'pound' properly signifies 20 silver shillings or 20/21 of a gold guinea.]

33.

[This happens to have been usually, though not always, true, but it is so simply because it has usually happened that the most precious metal in use as money has been made or become the standard. Gold was already the standard in England, though fact was not generally recognised; see Harris, Money and Coins, pt. ii., §§ 36, 37, below, vol. ii., IV.6.21-32.]

34.

[In I774.]

35.

[These regulations, issued in 1774, provided that guineas should not pass when they had lost a certain portion of their weight, varying with their age.—Liverpool, Coins Of the Realm, p. 216, note.]

36.

[Magens, Universal Merchant, ed. Horsley, 1753, pp. 53-55, gives the proportions thus: French coin, 1 to 14 5803/12279, Dutch, 1 to 14 82550/154425, English, 1 to 15 14295/68200.]

37.

[Full weight silver coins would not remain in circulation, as the bullion in them was worth more reckoned in guineas and in the ordinary old and worn silver coins than the nominal amount stamped on them.]

38.

[Locke, Further Considerations Concerning Raising the Value of Money, 2nd ed., 1695, pp. 58-60. The exportation of foreign coin (misprinted 'kind' in Pickering) or bullion of gold or silver was permitted by 15 Car. II, c. 7, on the ground that it was 'found by experience that' money and bullion were 'carried in greatest abundance (as to a common market) to such places as give free liberty for exporting the same' and in order 'the better to keep in and increase the current coins' of the kingdom.]

39.

[Harris, writing nearly twenty years earlier, had said, 'it would be a ridiculous and vain attempt to make a standard integer of gold whose parts should be silver, or to make a motley standard, part gold and part silver.'—Money and Coins, pt. i., § 36.]

40.

[I.e., an ounce of standard gold would not actually fetch £3 17s. 10 1/2d. if sold for cash down.]

41.

[This erroneous statement is repeated below, p. 501, and also vol. ii., p. 60, where the calculations on which it is based are given. See the note on that passage.]

42.

[The question of seignorage is further discussed at some length in the chapter on Commercial Treaties vol. ii., IV.6.15-32,.]

43.

[Ed. 1 reads 'in the tear and wear of coin, and in the tear and wear of plate'.]