OF MONEY AND COIN.
PART I.
THE PRINCIPLES OF MONEY DEDUCED, AND
APPLIED TO THE COIN OF GREAT BRITAIN.
[Illustration]
ADVERTISEMENT.
This book, which treats of money, contains such variety of matter, that
I have found an advantage in dividing it into two parts. In the first,
the principles are deduced and applied principally to the domestic
circumstances of Great Britain in the year 1760, when this book was
written. In the second, the interests of foreign trade, and state of
coin in the two great commercial nations with whom we are in
correspondence are taken in.
Instead of a chapter of recapitulation at the end of the book, I found
here that a full table of contents would give the reader a general view
of the subject, and serve the purpose of recollection better.
------------------------------------------------------------------------
AN
INQUIRY
INTO THE
PRINCIPLES OF POLITICAL OECONOMY.
------------------------------------------------------------------------
BOOK III.
OF MONEY AND COIN.
PART I.
THE PRINCIPLES OF MONEY DEDUCED AND APPLIED TO THE COIN OF GREAT
BRITAIN.
------------------------------------------------------------------------
INTRODUCTION.
In an inquiry like this, where, at almost every step, we find it
branching out into new relations, which lead to different chains of
consequences, it is of use to have recourse to every expedient for
connecting the whole together.
For this purpose, an introductory chapter at the beginning of a new
subject seems necessary.
The reader will have observed that the last chapters of the preceding
book (those I mean which treat of the vibration of the balance of wealth
and of circulation) have been writ with a view to introduce the subject
of money.
I thought it better to anticipate some principles by connecting them
directly with those of trade, than to introduce this part of my subject
as a new treatise.
The assistance our memory receives from such a distribution must
compensate the inconvenience of a few repetitions.
I have, in the last chapters of the second book here referred to, had
occasion to mention, and slightly to point out some essential
differences between coin and paper money. I have shewn the great
usefulness of the latter in supporting circulation.
Although, in giving the definition of paper money in the twenty-sixth
chapter of the second book, I mentioned credit as being a term
synonimous with it; yet this was done only for the sake of simplifying
our ideas: one of the best expedients for casting light upon an
intricate subject. It is now requisite to point out the difference
between them.
Symbolical or paper money is but a species of credit: it is no more than
the measure by which credit is reckoned. Credit is the basis of all
contracts between men: few can be so simultaneous as not to leave some
performance, or prestation, as the civilians call it, on one side or
other, at least for a short time, in suspence. He therefore who fulfils
his part, gives credit to the party who only promises to fulfil, and
according to the variety of contracts, the nature of the prestations, or
performances, therein stipulated, and the security given for fulfilling
what is not performed, credit assumes different forms, and communicates
to us different ideas. Paper credit or symbolical money, on the other
hand, is more simple. It is an obligation to pay the intrinsic value of
certain denominations of money contained in the paper. Here then lies
the difference between a payment made in intrinsic value, and another
made in paper. He who pays in intrinsic value, puts the person to whom
he pays in the real possession of what he owed; and this done, there is
no more place for credit. He who pays in paper puts his creditor only in
possession of another person’s obligation to make that value good to
him: here credit is necessary even after the payment is made.
Some intrinsic value or other, therefore, must be found out to form the
basis of paper money: for without that it is impossible to fix any
determinate standard-worth for the denominations contained in the paper.
I have found no branch of my subject so difficult to reduce to
principles, as the doctrine of money: this difficulty, however, has not
deterred me from undertaking it. It is of great consequence to a
statesman to understand it thoroughly; and it is of the last importance
to trade and credit, that the money of a nation be kept stable and
invariable.
To circumscribe combinations as much as the nature of this subject will
admit, I have in the first part adhered to a deduction of general
principles, taking by way of illustration, as I go along, the present
state of the British currency.
In the second part, I shall examine the effects of turning coin into a
manufacture, by superadding the price of fabrication to its value; and
point out the consequences of this additional combination upon exchange,
and the interest of trading nations.
CHAP. I.
_Of Money of Accompt._
[Sidenote: What money is.]
I. The metals have so long performed the use of money, that money and
coin are become almost synonimous, although in their principles they be
quite different.
The first thing therefore to be done in treating of money, is, to
separate two ideas, which, by being blended together, have very greatly
contributed to throw a cloud upon the whole subject.
[Sidenote: Definitions.]
Money, which I call of account, is no more than _an arbitrary scale of
equal parts, invented for measuring the respective value of things
vendible_.
_Money_ of _account_, therefore, is quite a different thing from
_money-coin_, which is _price_, and might exist, although there was no
such thing in the world as any substance which could become an adequate
and proportional equivalent, for every commodity.
The subject therefore of the first chapter shall be, 1. To point out the
principles which determine the value of things; 2. The use of an
invariable scale to measure their value; 3. How the invention of money
of account is exactly adapted for measuring the value on the one hand,
and measuring the price on the other; and 4. How it preserves itself
invariable amidst all the fluctuations, not only of the value of things
themselves, but of the metals which are commonly considered as the
measures of their value.
[Sidenote: Money, a scale for measuring value.]
_1mo._ Money of account, which I shall here call _money_, performs the
same office with regard to the value of things, that degrees, minutes,
seconds, &c. do with regard to angles, or as scales do to geographical
maps, or to plans of any kind.
In all these inventions, there is constantly some denomination taken for
the unit.
In angles, it is the degree; in geography, it is the mile, or league; in
plans, the foot, yard, or toise; in money, it is the _pound_, _livre_,
_florin_, &c.
The degree has no determinate length, so neither has that part of the
scale upon plans which marks the unit: the usefulness of all those
inventions being solely confined to the marking of proportion.
Just so the unit in money can have no invariable determinate proportion
to any part of value, that is to say, it cannot be fixed to any
particular quantity of gold, silver, or any other commodity whatsoever.
The unit once fixed, we can by multiplying it, ascend to the greatest
value; and when we descend below the subaltern divisions of this unit,
we have the assistance of measures and weights, which render the
operation easy. Thus in England, where a farthing is the lowest
denomination of money, the grains of wheat are bought by measure, and
cherries by the pound.
[Sidenote: Principles which determine the value of things.]
II. The value of things depend upon the general combination of many
circumstances, which however may be reduced to four principal heads:
_1mo._ The abundance of the things to be valued.
_2do._ The demand which mankind make for them.
_3tio._ The competition between the demanders; and
_4to._ The extent of the faculties of the demanders. The function
therefore of money is to publish and make known the value of things, as
it is regulated by the combination of all these circumstances.
[Sidenote: Prices not regulated by the quantity of money,]
This proposition I think is self-evident, and it is susceptible of a
thousand proofs; I shall only mention one.
Were there a determinate proportion between certain quantities of gold
and silver, and certain quantities of other things vendible, I do not
see how prices could vary while the proportion of quantity to quantity
between metals and things remained the same.
But if the desires of men to possess any particular commodity and the
competition between them to acquire it be capable to raise a thing,
formerly of the lowest value, to any height, and if the absence of these
circumstances can debase a thing formerly of great value, to the lowest
rate, is it not evident, that the _price_, that is, the gold and silver
people possess (even allowing that it may upon many occasions promote a
competition among them) can never be the measure of their fancies or
caprices, which are what constitutes the value of things.
Substances are valued either according to their weight, their
superficial measure, the measure of their bulk, or by the piece. These
may be considered as the four classes of vendible corporeal commodities.
All the species of each class according to their different qualities of
goodness, may be reduced to a proportion of value. A pound of gold, of
lead, of different grains, of different butters, or of what you will,
valued by the pound, may at any precise time, be reduced to a scale of
proportional values, which the wants, demands, competition and faculties
of buyers and sellers, keep in a perpetual fluctuation.
As far therefore, as an increase of the metals and coin shall produce an
increase of demand, and a greater competition than before, so far will
that circumstance influence the rise of prices, and no farther.
[Sidenote: But by the relative proportion between commodities and
the wants of mankind.]
The value of commodities therefore, depending upon a general combination
of circumstances relative to themselves and to the fancies of men, their
value ought to be considered as changing only with respect to one
another; consequently, any thing which troubles or perplexes the
ascertaining those changes of proportion by the means of a general,
determinate and invariable scale, must be hurtful to trade and a clog
upon alienation. This trouble and perplexity is the infallible
consequence of every vice in the policy of money or of coin.
[Sidenote: Necessity of distinguishing between money and price.]
III. It may here be demanded what necessity there is to have recourse to
such a metaphysical deduction upon so familiar a subject. Do we not see
every where, that things are valued by silver and gold coin, and that
there is no occasion to reject them at this time, in order to introduce
an imaginary scale.
I answer, that nothing but necessity obliges me to introduce this
imaginary scale, and that not with any intention to reject the service
of the metals in performing the office of a measure, but as an
assistance to our understanding for comprehending the doctrine of money,
and for rightly distinguishing the ideas which are daily proposed to us
by those who write and speak concerning its theory.
Could gold and silver coin exactly perform the office of money, it would
be absurd to introduce any other measure of value; but there are moral
and physical incapacities in the metals, which prevent their performing
the function of a scale: and the common opinion being, that there are no
such incapacities, makes it necessary to expose them in the clearest
light, by shewing the exact difference between _price_ (that is coin)
considered as a measure, and _price_ considered as an equivalent for
value.
The inconsistencies which follow, when we depend blindly upon the
infallibility of the metal’s discharging this double office, tend to
confound the whole system of our ideas concerning those matters.
The moral as well as physical incapacities inherent in the metals, which
prevent their performing exactly the office of money, shall be
afterwards pointed out. I must at present explain a little farther the
nature of this ideal money.
[Sidenote: Money of account what and how contrived.]
IV. Money, strictly and philosophically speaking, is, as has been said,
an ideal scale of equal parts. If it be demanded what ought to be the
standard value of one part? I answer, by putting another question; What
is the standard length of a degree, a minute, a second?
It has none, and there is no necessity of its having any other than what
by convention mankind think fit to give it. But so soon as one part
becomes determined, by the nature of a scale, all the rest must follow
in proportion.
The first step being perfectly optional, people may adjust one or more
of those parts to a precise quantity of the precious metals; and so soon
as this is done, and that money becomes realized, as it were, in gold
and silver, then it acquires a new definition; it then becomes the
_price, as well as the measure of value_.
It does not follow from this adjusting the metals to the scale of value,
that they themselves should therefore become the scale, as any one must
readily perceive.
But in former times, before the introduction of commerce, when mankind
had less occasion to measure value with a scrupulous exactness, the
permanent nature of the metals rendred them sufficiently correct, both
to serve as the scale, and as the price in every alienation. Since the
introduction of commerce, nations have learned the importance of
reducing their respective interests and debts, to the nicest equations
of value; and this has pointed out the inconvenience of admitting the
metals, as formerly, to serve both as the measure and the price in such
operations.
Just so geographers and astronomers were long of opinion, that a degree
of the equator was a determinate length to measure every degree of
latitude upon the globe.
They then considered the earth as a sphere, and no great inconveniency
was found to result from this supposition. But as accuracy made a
progress, that measure was found to be incorrect. Degrees of latitude
are now found to be of different lengths in different climates; and
perhaps in time, it will be found that no two degrees of any great
circle described upon the globe, are in a geometrical equality.
That money, therefore, which constantly preserves an equal value, which
poises itself, as it were, in a just equilibrium between the fluctuating
proportion of the value of things, is the only permanent and equal
scale, by which value can be measured.
[Sidenote: Examples of it.]
Of this kind of money, and of the possibility of establishing it, we
have two examples: the first, among one of the most knowing; the second,
among one of the most ignorant nations of the world. The bank of
Amsterdam presents us with the one, the coast of Angola with the other.
A florin banco has a more determinate value than a pound of fine gold,
or silver; it is an unit which the invention of men, instructed in the
arts of commerce, have found out.
[Sidenote: Bank money.]
This bank money stands invariable like a rock in the sea. According to
this ideal standard are the prices of all things regulated; and very few
people can tell exactly what it depends upon. The precious metals, with
their intrinsic value, vary with regard to this common measure, like
every other thing. A pound of gold, a pound of silver, a thousand
guineas, a thousand crowns, a thousand piastres, or a thousand ducats,
are sometimes worth more, sometimes worth less of this invariable
standard; according as the proportion of the metals of which they are
made vary between themselves.
No adulterations in the weight, fineness, or denominations of coin have
any effect upon bank money. These currencies which the bank looks upon
as merchandize, like every other thing, are either worth more or less
bank money, according to the actual value of the metals they are made
of. All is merchandize with respect to this standard; consequently, it
stands unrivalled in the exercise of its function of a common measure.
[Sidenote: Angola money.]
The second example is found among the savages upon the African coast of
Angola, where there is no real money known. The inhabitants there reckon
by _macoutes_; and in some places this denomination is subdivided into
decimals, called pieces. One _macoute_ is equal to ten pieces. This is
just a scale of equal parts for estimating the trucks they make. If a
sheep, e. g. be worth 10, an ox may be worth 40, and a handful of gold
dust 1000.
Money of account, therefore, cannot be fixed to any material substance,
the value of which may vary with respect to other things. The operations
of trade, and the effects of an universal circulation of value, over the
commercial world, can alone adjust the fluctuating value of all kinds of
merchandize, to this invariable standard. This is a representation of
the bank money of Amsterdam, which may at all times be most accurately
specified in a determinate weight of silver and gold; but which can
never be tied down to that precise weight for twenty-four hours, any
more than to a barrel of herrings.
------------------------------------------------------------------------
CHAP. II
_Of Artificial or Material money._
[Sidenote: Usefulness of the precious metals for making of money.]
I. From infancy of the world, at least as far back as our accounts of
the transactions of mankind reach, we find they had adopted the precious
metals, that is silver and gold, as the common measure of value, and as
the adequate equivalent for every thing alienable.
The metals are admirably adapted for this purpose; they are perfectly
homogeneous: When pure, their masses, or bulks, are exactly in
proportion to their weights: No physical difference can be found between
two pounds of gold, or silver, let them be the production of the mines
of Europe, Asia, Africa, or America: They are perfectly malleable,
fusible, and suffer the most exact division which human art is capable
to give them: They are capable of being mixed with one another, as well
as with metals of a baser, that is, of a less homogeneous nature, such
as copper. By this mixture they spread themselves uniformly through the
whole mass of the composed lump, so that every atom of it becomes
proportionally possessed of a share of this noble mixture; by which
means the subdivision of the precious metals is rendred very extensive.
Their physical qualities are invariable; they lose nothing by keeping;
they are solid and durable; and though their parts are separated by
friction, like every other thing, yet still they are of the number of
those which suffer least by it.
If money, therefore, can be made of any thing, that is, if the
proportional value of things vendible can be measured by any thing
material, it may be measured by the metals.
[Sidenote: Adjusting a standard, what?]
II. The two metals being pitched upon as the most proper substances for
realizing the ideal scale of money, those who undertake the operation of
adjusting a standard must constantly keep in their eye the nature and
qualities of a scale, as well as the principles upon which it is formed.
The unit of the scale must constantly be the same, although realized in
the metals, or the whole operation fails in the most essential part.
This realizing the unit is like adjusting a pair of compasses to a
geometrical scale, where the smallest deviation from the exact opening
once given must occasion an incorrect measure. The metals, therefore,
are to money what a pair of compasses is to a geometrical scale.
This operation of adjusting the metals to the money of account, implies
an exact and determinate proportion of both metals to the money-unit,
realized in all the species and denominations of coin, adjusted to that
standard.
The smallest particle of either metal added to, or taken away from any
coin, which represents certain determinate parts of the scale, overturns
the whole system of material money. And if, notwithstanding such
variation, these coins continue to bear the same denominations as
before, this will as effectually destroy their usefulness in measuring
the value of things, as it would overturn the usefulness of a pair of
compasses, to suffer the opening to vary, after it is adjusted to the
scale representing feet, toises, miles, or leagues, by which the
distances upon the plan are to be measured.
[Sidenote: Debasing and raising a standard, what.]
III. Debasing the standard is a good term; because it conveys a clear
and distinct idea. It is diminishing the weight of the pure metal
contained in that denomination by which a nation reckons, and which we
have called the money-unit. Raising the standard requires no farther
definition, being the direct contrary.
[Sidenote: The alteration of a standard, how to be discovered.]
IV. Altering the standard (that is raising or debasing the value of the
money-unit) is like altering the national measures or weights. This is
best discovered by comparing the thing altered with things of the same
nature which have suffered no alteration. Thus if the foot of measure
was altered at once over all England, by adding to it, or taking from
it, any proportional part of its standard length, the alteration would
be best discovered, by comparing the new foot with that of Paris, or of
any other country, which had suffered no alteration. Just so, if the
pound sterling, which is the English unit, shall be found any how
changed, and if the variation it has met with be difficult to ascertain,
because of a complication of circumstances, the best way to discover it
will be to compare the former and the present value of it with the money
of other nations which has suffered no variation. This the course of
exchange will perform with the greatest exactness.
[Sidenote: Of alloy.]
V. Artists pretend, that the precious metals, when absolutely pure from
any mixture, are not of sufficient hardness to constitute a solid and
lasting coin. They are found also in the mines mixed with other metals
of a baser nature, and the bringing them to a state of perfect purity
occasions an unnecessary expence. To avoid, therefore, the inconvenience
of employing them in all their purity, people have adopted the expedient
of mixing them with a _determinate proportion_ of other metals, which
hurts neither their fusibility, malleability, beauty, or lustre. This
metal is called _alloy_, and being considered only as a support to the
principal metal, is accounted of no value in itself. So that eleven
ounces of gold, when mixed with one ounce of silver, acquires, by that
addition, no augmentation of value whatever.
This being the case, we shall, as much as possible, overlook the
existence of alloy, in speaking of money, in order to render language
less subject to ambiguity. I must except such cases, where the
considering the mass of the compound metal, according to its weight, can
be accompanied with no inconvenience.
------------------------------------------------------------------------
CHAP. III.
_Incapacities of the Metals to perform the office of an invariable
measure of value._
[Sidenote: They vary in their relative value to one another.]
I. Were there but one species of such a substance as we have represented
gold and silver to be: were there but one metal possessing the qualities
of purity, divisibility, and durability; the inconveniences in the use
of it for money would be fewer by far than they are found to be as
matters stand.
Such a metal might then, by an unlimited division into parts exactly
equal, be made to serve as a tolerable steady and universal measure. But
the rivalship between the metals, and the perfect equality which is
found between all their physical qualities, so far as regards purity,
and divisibility, render them so equally well adapted to serve as the
common measure of value, that they are universally admitted to pass
current as money.
[Sidenote: All measures ought to be invariable.]
What is the consequence of this? That the one measures the value of the
other, as well as that of every other thing. Now the moment any measure
begins to be measured by another, whose proportion to it is not
physically, perpetually, and invariably the same, all the usefulness of
such a measure is lost. An example will make this plain.
A foot of measure is a determinate length. An English foot may be
compared with the Paris foot, or with that of the Rhine; that is to say,
it may be measured by them; and the proportion between their lengths may
be expressed in numbers; which proportion will be the same perpetually.
The measuring the one by the other will occasion no uncertainty; and we
may speak of lengths by Paris feet, and be perfectly well understood by
others who are used to measure by the English foot, or by the foot of
the Rhine.
[Sidenote: Consequences when they vary.]
But suppose that a youth of twelve years old takes it into his head to
measure from time to time, as he advances in age, by the length of his
own foot, and that he divides this growing foot into inches and
decimals: what can be learned from his account of measures? As he
increases in years, his foot, inches, and subdivisions, will be
gradually lengthening; and were every man to follow his example, and
measure by his own foot, then the foot of a measure now established
would totally cease to be of any utility.
This is just the case with the two metals. There is no determinate
invariable proportion between their value; and the consequence of this
is, that when they are both taken for measuring the value of other
things, the things to be measured, like the lengths to be measured by
the young man’s foot, without changing their relative proportion between
themselves, change however with respect to the denominations of both
their measures. An example will make this plain.
Let us suppose an ox to be worth three thousand pounds weight of wheat,
and the one and the other to be worth an ounce of gold, and the ounce of
gold to be worth exactly fifteen ounces of silver: If the case should
happen, that the proportional value between gold and silver should come
to be as 14 is to 1, would not the ox, and consequently the wheat, be
estimated at less in silver, and more in gold, than formerly? I ask
farther, if it would be in the power of any state to prevent this
variation in the measure of the value of oxen and wheat, without putting
into the unit of their money less silver and more gold than formerly.
[Sidenote: Defects of a silver standard.]
If therefore any particular state should fix the standard of the unit of
their money to one species of the metals, while in fact both the one and
the other are actually employed in measuring value; does not such a
state resemble the young man, who measures all by his growing foot. For,
if silver, for example, be retained as the standard, while it is gaining
upon gold one fifteenth additional value; and if gold continues all the
while to determine the value of things as well as silver, it is plain
that, to all intents and purposes, this silver measure is lengthening
daily, like the young man’s foot, since the same weight of it must
become every day equivalent to more and more of the same commodity;
notwithstanding that we suppose the same proportion to subsist, without
the least variation, between that commodity and every other species of
things alienable.
[Sidenote: Arguments in favours of it.]
After having exposed the matter in this light, I think it can hardly,
with reason, be urged, that notwithstanding it be admitted that gold and
silver may change their proportion of value with regard to one another,
yet still this does not prevent silver from remaining the standard,
without any inconvenience; for the following reasons.
_1mo._ Because, when it is considered as a standard, it never ought to
be looked upon as changing its value with regard to gold; but that gold
ought to be considered as changing its value with regard to silver.
_2do._ Because being the measure itself, it is absurd to consider it as
the thing measured; that therefore it retains all the requisites of an
invariable scale; since it measures all things according to the
proportion they bear to itself, which physically never can vary. And,
_3tio._ That a person who has borrowed a certain weight of silver from
another, is obliged to repay the same weight of silver he had borrowed;
although at that time silver should be of greater value than when he
borrowed it.
[Sidenote: Answers to these arguments.]
I answer to the first argument: That if in fact silver becomes of more
or less value with respect to merchandize, with respect to gold, and
with respect to bank money, by there being a greater or less demand for
it than there was before; I cannot see how calling it a standard, can
remove this inconvenience, which is inseparable from the nature of the
thing; nor how we can change a _matter of fact_, by changing our
_language_, and by saying, that merchandize, gold, and bank money,
become of more value, or of less value, with respect to silver, in
proportion as the demand for them is greater or less. This language we
must use, although we know for certain that these things remain in the
exact relative proportion of quantity and demand as before: And although
it should evidently appear, that a demand for silver has raised the
price of it, with respect to every thing it measured the day before.
If the yard in a mercer’s shop should be subject to such revolutions, in
consequence of the wood it was made of; and if in measuring a piece of
stuff to a customer, which the mercer had bought by this yard the day
before for 50 yards, he should find the piece measure but 40, it would
not be easy to persuade him, I believe, that his piece was become
shorter; but suppose he should have the curiosity to measure over again
all the pieces in his shop, and that he should find exactly one fifth
diminution upon the length of every one, would he not very rationally
conclude that his yard was grown longer, and would he not run
immediately to his neighbour’s shop and compare it?
As to the second argument, I agree that silver may at all times very
exactly measure the value of things with respect to itself; but this
gives us no idea of an universal measure.
I can measure the proportion of the length of things, with any rod or
with any line, the length of which I know nothing about; but no body
calls this measuring, because I cannot compare the things measured, with
any other thing which I have not measured with the same rod or line, as
I might easily do, had I measured with a foot, yard, or toise;
consequently the intention of measuring in such a case is almost
entirely lost.
To the third argument, I answer, that I subscribe very willingly to the
truth of that proposition; providing that by silver is understood the
bare metal, without attending to its additional quality of the universal
standard measure of value. But if I borrow the silver not as bullion,
but as coin (the common measure of value) then I say, that I overpay in
giving back the same weight I had received. Is there any thing more
familiar than such examples? I borrow 100_l._ from my neighbour, he
proposes to give so much of the value in grain; I accept. The price of
grain rises about the term of payment; can I be obliged to repay an
equal quantity of grain in payment of a proportional part of what I owe?
By no means; because I did not receive the grain as any thing but as a
species of money. But if I borrow some quarters of grain to be repaid in
harvest, then I am obliged to restore grain for grain, because in that
case I did not receive the grain as money, but as a commodity.
[Sidenote: Usefulness of an universal measure.]
Buying and selling are purely conventional, and no man is obliged to
give his merchandize at what may be supposed to be the proportion of its
worth. The use, therefore, of an universal measure, is, to mark, not
only the relative value of the things to which it is applied as a
measure, but to discover in an instant the proportion between the value
of those, and of every other commodity valued by a determinate measure
in all the countries of the world.
Were pounds sterling, livres, florins, piastres, &c. which are all money
of account, invariable in their values, what a facility would it produce
in all conversions, what an assistance to trade! But as they are all
limited or fixed to coins, and consequently vary from time to time, this
example shews the utility of the invariable measure which we have
described.
[Sidenote: They have two values, one as coin, and one as metals.]
There is another circumstance which incapacitates the metals from
performing the office of money; the substance of which the coin is made,
is a commodity, which rises and sinks in its value with respect to other
commodities, according to the wants, competition, and caprices of
mankind. The advantage, therefore, found in putting an intrinsic value
into that substance which performs the function of money of account, is
compensated by the instability of that intrinsic value; and the
advantage obtained by the stability of paper, or symbolical money, is
compensated by the defect it commonly has of not being at all times
susceptible of realization into solid property, or intrinsic value.
In order, therefore, to render material money more perfect, this quality
of metal, that is of a commodity, should be taken from it; and in order
to render paper money more perfect, it ought to be made to circulate
upon metallic or land security. The expedient with regard to the metals
shall find a place in this inquiry (in the chapter of miscellaneous
questions at the end of this book, article 4th). What regards the paper
is foreign to our purpose, and belongs to the doctrine of credit.
[Sidenote: Smaller inconveniences attending material money.]
II. There are several smaller inconveniences accompanying the use of the
metals, which we shall here shortly enumerate, reserving the discussion
of all the consequences they draw along with them, until we come to
consider the operations of trade and money, upon the complicated
interests of mankind.
[Sidenote: It wears in circulation.]
_1mo._ No money made of gold or silver can circulate long, without
losing of its weight, although it all along preserves the same
denomination. This represents the contracting a pair of compasses which
had been rightly adjusted to the scale. Such a defect must appear
striking, when we reflect upon the principles (already laid down) which
necessarily influence the fixing of a standard.
[Sidenote: It is inaccurately coined.]
_2do._ Another inconvenience proceeds from the fabrication of money.
Supposing the faith of Princes who coin money to be inviolable, and the
probity, as well as capacity, of those to whom they commit the
inspection of the fineness of the metals to be sufficient, it is hardly
possible for workmen to render every piece exactly of a proper weight,
or to preserve the due proportion between pieces of different
denominations; that is to say, to make every ten sixpences exactly of
the same weight with every crown piece and every five shillings struck
in a coinage. In proportion to such inaccuracies, the parts of the scale
become unequal.
[Sidenote: The coinage adds to its value without adding to its
weight.]
_3tio._ Another inconvenience, and far from being inconsiderable, flows
from the expence requisite for the coining of money. This expence adds
to its value as a manufacture, without adding any thing to its weight. I
shall take notice, in the proper place, of the consequences which attend
this inconvenience, even to nations where coinage is free.
[Sidenote: The value of it may be arbitrarily changed.]
_4to._ The last inconvenience I shall mention, is, that by fixing the
money of account entirely to the coin, without having any independent
common measure (to mark and control these deviations from mathematical
exactness, which are either inseparable from the metals themselves, or
from the fabrication of them) the whole measure of value, and all the
relative interests of debtors and creditors, become at the disposal not
only of workmen in the mint, of Jews who deal in money, of clippers and
washers of coin, but they are also entirely at the mercy of Princes, who
have the right of coinage, and who have frequently also the right of
raising or debasing the standard of the coin, according as they find it
most for their present and temporary interest.
[Sidenote: Trade profits of the smallest defects in the coin.]
Several of the inconveniences we have here enumerated, may appear
trifling, and so they are found to be in countries where commerce is
little known; but the operations of trade surpass in nicety the
conceptions of any man but a merchant; and as a proof of this, it may be
affirmed with truth, that one shilling can hardly lose a grain of its
weight, either by fraud or circulation, without contributing by that
circumstance, towards the diminution of the standard value of the
money-unit, or pound sterling, over all England, as I hope to be able to
shew both by reason and facts.
All and every one of these inconveniences to which coin is exposed,
disappear in countries where the use of pure ideal money of account is
properly established.
------------------------------------------------------------------------
CHAP. IV.
_Methods which may be proposed for lessening the several inconveniences
to which material Money is liable._
I. In this chapter, I shall point out the methods which may be proposed
for lessening the inconveniences to which all coin is liable, in order
thereby to make it resemble as much as possible the invariable scale of
ideal money of accompt.
[Sidenote: Use of theory in political matters.]
To propose the throwing out of coin altogether, because it is liable to
inconveniences, and the reducing all to an ideal standard, is acting
like the tyrant who adjusted every man’s length to that of his own bed,
cutting from the length of those who were taller than himself, and
racking and stretching the limbs of such as he found to be of a lower
stature. The use of theory in political matters is not only to discover
the methods of removing all abuses, it must also lend its aid towards
palliating inconveniences which are not easily cured.
[Sidenote: Five remedies against the effects of the variation
between the value of the metals.]
The inconveniences from the variation in the relative value of the
metals to one another, may in some measure be obviated by the following
expedients.
_1mo._ By considering one only as the standard, and leaving the other to
seek its own value, like any other commodity.
_2do._ By considering one only as the standard, and fixing the value of
the other from time to time by authority, according as the market price
of the metals shall vary.
_3tio._ By fixing the standard of the unit according to the mean
proportion of the metals, attaching it to neither; regulating the coin
accordingly; and upon every considerable variation in the proportion
between them, either to make a new coinage, or to raise the denomination
of one of the species, and lower it in the other, in order to preserve
the unit exactly in the mean proportion between the gold and silver.
This idea is dark, but it shall afterwards be sufficiently explained.
_4to._ To have two units, and two standards, one of gold, and one of
silver, and to allow every body to stipulate in either.
_5to._ Or last of all, to oblige all debtors to pay one half in gold and
one half in the silver standard.
I have here proposed the attaching the standard to one of the species,
as a remedy against the effects of variation between the metals, because
when that is done, the consequences are not so hurtful as when the unit
is affixed to both, as I shall prove in its proper place.
The regulating the proportion of that metal which is considered as
merchandize, to the other which is considered as the standard, upon
every variation in the market price of bullion, as well as the other
expedient of striking the unit according to the mean proportion, is an
endless labour, and implies a necessity either of perpetually recoining,
or of introducing fractions of value into the current coin, which cannot
fail to embarrass circulation.
The establishing two units, the one of gold, and the other of silver,
does not render the unit of money any more invariable than before; all
that can be said for this expedient, is, that money becomes thereby more
determinate, and that people who enter into permanent contracts are, at
least, apprised of the consequences of the varying of the proportion of
the metals, and may regulate their interests accordingly.
The last expedient of making debtors pay half in gold and half in
silver, would answer every inconvenience, providing all creditors were
supposed to melt the money down upon receiving it, in order to sell it
for bullion; but as that is not the case, it would be proper, together
with this expedient, to be also very exact in observing the market
proportion of the metals in the coin; because it cannot be supposed,
that every small payment can be made in both species, and wherever this
is omitted, every former inconvenience may take place.
[Sidenote: Remedies against the other inconveniences.]
II. The other imperfections of coin have been already enumerated. They
relate either to its wear, the want of exactness in the fabrication, the
price of coinage, or the opportunity thereby afforded to Princes to
adulterate and change the standard.
[Sidenote: Against the wearing of the coin.]
_1mo._ As to the first the best expedients are, 1. To strike the
greatest part of the coin in large solid pieces, having as little
surface as possible, consistently with beauty and ease of fabrication.
2. To order large sums (of silver at least) to circulate in bags of
determinate sums, and determinate weights, all in pieces of the larger
denominations.
3. To make all light coin whatsoever go by weight, upon the requisition
of the person who is to receive it.
[Sidenote: Against inaccuracy of coinage.]
_2do._ As to the inaccuracy of the fabrication, there is no other remedy
than a strict attention in government to a matter of so great
consequence.
[Sidenote: Against the expence of coinage.]
_3tio._ The price of coinage principally affects the interest of nations
with regard to foreign trade; consequently, trading states should
endeavour, as nearly as possible, to observe the same regulations with
their neighbours, in every thing which regards the coin. The consequence
of this inconvenience to those within the society is unavoidable, and
therefore no remedy can be proposed.
[Sidenote: Against arbitrary changes on the value of coin.]
_4to._ The establishment of public credit is the best security against
all adulterations of the standard. No fundamental law can bind up a
Prince’s hands so effectually as his own interest. While a Prince lives
within his income, he will have no occasion to adulterate the coin; when
he exceeds it, he will (in a trading nation) have recourse to credit,
and if once he establishes that, he must give over meddling with the
standard of his coin, or he will get no body to lend him any more. The
only Prince who can gain by adulterating of the standard, is he who
seeks for extraordinary supplies out of a treasure already formed.
These are, briefly, the expedients to be put in practice by those
governments which have the prosperity of their subjects at heart. The
infinite variety of circumstances relating to every state can alone
decide as to those which are respectively proper to be adopted by each.
Our business at present is to point out the variations to which the
value of the money-unit is exposed, from every disorder in the coin; and
to shew that as far as the value of the unit shall appear affected by
them, so far must material money in such a case be defective.
------------------------------------------------------------------------
CHAP. V.
_Variations to which the Value of the Money-unit is exposed from every
disorder in the Coin._
I. Let suppose, at present, the only disorder to consist in a want of
the due proportion between the gold and silver in the coin.
[Sidenote: How the market price of the metals is made to vary.]
This proportion can only be established by the market price of the
metals; because an augmentation and rise in the demand for gold or
silver has the effect of augmenting the value of the metal demanded. Let
us suppose that to-day one pound of gold may buy fifteen pounds of
silver; if to-morrow there be a high demand for silver, a competition
among merchants, to have silver for gold, will ensue, they will contend
who shall get the silver at the rate of fifteen pounds for one of gold:
this will raise the price of it, and in proportion to their views of
profit, some will accept of less than the fifteen pounds.
[Sidenote: The variation ought to be referred to the rising metal,
and never to the sinking.] This is plainly a rise in the silver, more
properly than a fall in the gold; because it is the competition for the
silver which has occasioned the variation in the former proportion
between the metals. Had the competition for gold carried the proportion
above 1 to 15, I should then have said that the gold had risen.
As it is, therefore, the _active demand_ for either gold or silver which
makes the price of the metals to vary, I think language would be more
correct (in speaking concerning the metals only) never to mention the
_sinking_ of the price of either gold or silver. As to every other
merchandize, the expression is very proper; because the diminishing of
the price of one commodity, does not so essentially imply the rise of
any other, as the sinking of one of the metals must imply the rising of
the other, since they are the only measures of one another’s worth. I
would not be here understood to mean that the term _sinking_ of the
price of gold or silver is improper; all I say is, that the other being
equally proper, and conveying with it the cause of the variation (to
wit, the competition to acquire one metal preferably to the other) may
be preferred, and this the rather, that from using these terms
promiscuously (gold has _fallen_, in place of silver has _risen_) we are
apt to believe, that the falling of the price of the metal, must proceed
from some augmentation of the quantity of it; whereas it commonly
proceeds from no other cause than a higher demand than formerly for the
other.
Let us now suppose that a state having, with great exactness, examined
the proportion of the metals in the market, and having determined the
precise quantity of each for realizing or representing the money-unit,
shall execute a most exact coinage of gold and silver coin. As long as
that proportion continues unvaried in the market, no inconvenience can
result from that quarter, in making use of the metals for money of
account.
[Sidenote: How the money-unit of account is made to vary in its
value from the variation of the metals.]
[Sidenote: Consequences of this.]
But let us suppose the proportion to change; that the silver, for
example, shall rise in its value with regard to gold; will it not
follow, from that moment, that the unit realized in the silver, will
become of more value than the unit realized in the gold coin?
But as the law has ordered them to pass as equivalents for one another,
and as debtors have always the option of paying in what legal coin they
think fit, will they not all choose to pay in gold, and will not then
the silver coin be melted down or exported, in order to be sold as
bullion, above the value it bears when it circulates in coin? Will not
this paying in gold also really diminish the value of the money-unit,
since upon this variation every thing must sell for more gold than
before, as we have already observed?
[Sidenote: The true unit is the mean proportional between the
value of the metals.]
Consequently, merchandize which have not varied in their relative value
to any other thing but to gold and silver, must be measured by the mean
proportion of the metals, and the application of any other measure to
them is altering the standard. If they are measured by the gold, the
standard is debased; if by silver, it is raised, as shall presently be
proved.
If to prevent the inconvenience of melting down the silver, the state
shall give up affixing the value of their unit to both species at once,
and shall fix it to one, leaving the other to seek its price as any
other commodity, in that case no doubt the melting down of the coin will
be prevented; but will ever this restore the value of the money-unit to
its former standard? Would it, for example, in the foregoing
supposition, raise the debased value of the money-unit in the gold coin,
if that species were declared to be the standard? It would indeed render
silver coin purely a merchandize, and by allowing it to seek its value,
would certainly prevent it from being melted down as before; because the
pieces would rise conventionally in their denomination; or an agio, as
it is called, would be taken in payments made in silver; but the gold
would not, on that account, rise in its value, or begin to purchase any
more merchandize than before. Were therefore the standard fixed to the
gold, would not this be an arbitrary and a violent revolution in the
value of the money-unit, and a debasement of the standard?
If, on the other hand, the state should fix the standard to the silver,
which we suppose to have risen in its value, would that ever sink the
advanced value which the silver coin had gained above the worth of the
former standard unit, and would not this be a violent and an arbitrary
revolution in the value of the money-unit, and a raising of the
standard?
The only expedient, therefore, as has been said, is in such a case to
fix the numerary unit to neither of the metals, but to contrive a way to
make it fluctuate in a mean proportion between them; which is in effect
the introduction of a pure ideal money of account. This shall be farther
explained as we go along.
[Sidenote: The unit to be attached to the mean proportion, upon a
new coinage, not after the metals have varied.]
I have only one observation to make in this place, to wit, that the
regulation of fixing the unit by the mean proportion, ought to take
place at the instant the standard unit is affixed with exactness both to
the gold and silver. If it be introduced long after the market
proportion between the metals has deviated from the proportion
established in the coin, and if the new regulation is made to have a
retrospect, with regard to the acquitting of permanent contracts entred
into, while the value of the money-unit had attached itself to the
lowest currency, in consequence of the principle above laid down, then
the restoring the money-unit to that standard where it ought to have
remained (to wit, to the mean proportion) is an injury to all debtors
who have contracted since the time that the proportion of the metals
began to vary.
This is clear from the former reasoning. The moment the market price of
the metals differs from that in the coin, every one who has payments to
make pays in that species which is the highest rated in the coin;
consequently, he who lends, lends in that species. If after the
contract, therefore, the unit is carried up to the mean proportion, this
must be a loss to him who had borrowed.
[Sidenote: It is better to affix the unit to one than to both
metals.]
From this we may perceive why, in the first article of the preceding
chapter, it was said, that there was less inconvenience from the varying
of the proportion of the metals, where the standard is fixed to one of
them, than when it is fixed to both. In the first case, it is at least
uncertain whether the _standard_ or the _merchandize-species_ is to
rise; consequently it is uncertain whether the debtors or the creditors
are to gain by a variation. If the _standard_ species should rise, the
creditors will gain; if the _merchandize-species_ rises, the debtors
will gain; but when the unit is attached to both species, then the
creditors never can gain, let the metals vary as they will: if silver
rises, then debtors will pay in gold; if gold rises, debtors will pay in
silver. But whether the unit be attached to one or to both species, the
infallible consequence of a variation is, that one half of the
difference is either gained or lost by debtors and creditors. The
invariable unit is constantly the mean proportional between the two
measures.
I intended to have postponed the entring upon what concerns the
interests of debtors and creditors in all variations of the coin, until
I came to treat particularly of that matter; but as it is a thing of the
greatest consequence to be attended to, in every proposal for altering
or regulating the coin of a nation, it will, perhaps, upon that account,
bear a repetition.
[Sidenote: Variation to which the money-unit is exposed, from the
wearing of the coin.]
II. To render our ideas as distinct as possible, we must keep them
simple. Let us now suppose that the metals are perfectly well
proportioned in the coin, but that the coin is worn by use.
If this be the case, we must either suppose it to be all equally worn,
or unequally worn.
If all be equally worn, I think it needs no demonstration to prove, that
the money-unit which was attached to the coin, when weighty, (drawing
its value from the metals contained in it) must naturally diminish in
its value in proportion as the metals are rubbed away.
If the coin be unequally worn, the money-unit will be variously
realized, or represented; that is to say, it will be of different
values, according to the weight of the pieces.
The consequence of this is the same as in the disorder of the proportion
of the metals: debtors will choose to pay in the light pieces, and the
heavy will be melted down. In proportion, therefore, to this disorder,
will the value of the unit gradually descend. This was the great
disorder in England in 1695; while the standard of the pound sterling
was affixed to the silver only, the gold being left to seek its own
value.
[Sidenote: Variations to which the money-unit is exposed, from the
inaccuracy in the fabrication of the money.]
III. Since the invention of the money wheel, the inaccuracy in the
fabrication is greatly prevented. Formerly, when money was coined with
the hammer, the mint-masters weighed the coin delivered by the workmen,
_in cumulo_, by the pound troy weight, without attending very exactly to
the proportion of the pieces. At present exactness is more necessary,
and every piece must be weighed by itself.
It is of very great consequence that all the pieces and denominations of
coin be in exact proportion to that of their current value, which is
always relative to the money-unit of accompt. When any inequality
happens there, it is easy to perceive how all the pieces which are above
the proportion of their just weight, will be immediately picked up, and
melted down, and none but the light ones will remain in circulation.
This, from the principles already laid down, must proportionally
diminish the value of the money-unit.
From what has been observed concerning the deviations in the coin from
the proportion in the market price of the metals, and from the legal
weight, we may lay down this undoubted principle, _That the value of the
money-unit of accompt is not to be sought for in the statutes and
regulations of the mint, but in the actual intrinsic value of that
currency in which all obligations are acquitted, and all accompts are
kept_.
[Sidenote: Variations to which the money-unit is exposed, from the
imposition of coinage.]
IV. As I have at present principally in view to lay down certain
principles with regard to money, which I intend afterwards to apply to
the state of the British coin; and as these principles are here
restricted to the effects which every variation in the coin has upon the
value of the unit of money in accompt, I shall in this place only
observe, as to the imposition of coinage,
That coin being necessary in every country where the money-unit is
attached to the metals, it must be procured by those who are obliged to
acquit their obligations in material money.
If, therefore, the state shall oblige every one who carries the metals
to the mint to pay the coinage, the coin they receive must be valued,
not only at the price the metals bear in the market, when they are sold
as bullion, (or mere metal, of no farther value than as a physical
substance) but also at the additional value these metals receive in
being rendred useful for purchasing commodities, and acquitting
obligations. This additional value is the price of coinage.
[Sidenote: When coinage is imposed, bullion must be cheaper than
coin.]
If, therefore, in a country where coinage is free, as in England, this
coinage shall come to be imposed, the money-unit continuing to be
affixed as before to the same quantity of the metals, ought to rise in
its value; that is, ought to become equal to a greater quantity of every
sort of merchandize than before; consequently, as the rough metals of
which the coin is made are merchandize, like every other thing, the same
number of money-units realized, or represented in the coin, ought to
purchase more of the metals than before: That is to say, _that in every
country where coinage is imposed, bullion must be cheaper than coin_.
This proposition would be liable to no exception; were it true that no
debt could be exacted but in the nation’s coin; because in that case,
the creditor would be constantly obliged to receive it at its full
value.
[Sidenote: Exception from this rule.]
But when nations owe to one another, the party debtor must pay the party
creditor in _his_ coin: the debtor, therefore, is obliged to sell his
own coin for what he can get for it, and with that he must buy of the
coin of his creditor’s country, and with this he must pay him.
Let us, to avoid abstract reasoning, take an example: and we cannot
choose a better than that of England and France. In England, coinage is
free, in France it costs 82⁄10 _per cent._ as shall be made out in its
proper place.
France owes England 1000_l._ sterling. In paying the bullion contained
in this sum, either in gold or silver, in the market of London, the debt
is paid; because the coining of it costs nothing. Here France acquits
her debt cheaper than by sending her own coin as bullion; because the
bullion she sends is not worth an equal weight of her coin.
England owes France 20,000 livres. In paying the bullion contained in
this sum, England is not quit; she must also pay France 82⁄10 _per
cent._ in order to put it into coin.
I reserve the farther examination of all the intricate consequences of
this principle, until I come to the application of it, in the Second
part.
[Sidenote: Variation to which the money-unit is exposed, by the
arbitrary operations of Princes in raising and debasing the
coin.]
V. The operation of raising and debasing the coin is performed in three
ways.
_1mo_, By augmenting or diminishing the weight of the coin.
_2do_, By augmenting or diminishing the proportion of alloy in the coin.
_3tio_, By augmenting or diminishing the proportion between the money
(coin) and the money of accompt, as if every sixpence were called a
shilling, and every twenty sixpences a pound sterling.
The French call this increasing or diminishing the _numerary value_: and
as I think it is a better term than that of raising or sinking the
denomination, I shall take the liberty now and then to employ it.
These three operations may be reduced to one, and expressed by one term:
they all imply the augmenting or diminishing the weight of the pure
metals in the money-unit of accompt.
It would require a separate treatise, to investigate all the artifices
which have been contrived, to make mankind lose sight of the principles
of money, in order to palliate and make this power in the sovereign of
changing the value of the coin, appear reasonable. But these artifices
seem to be at an end, and Princes now perceive that the only scheme to
get money when occasion requires, is to preserve their credit, and to
allow the coin, by which that credit is reckoned to remain in a stable
condition. There are still, however, examples of such operations to be
met with; for which reason I shall subjoin, towards the end of this
book, a particular inquiry into the interest of Princes with regard to
the altering the value of their coin, which is a synonimous term with
that of altering the value of the unit of money.
------------------------------------------------------------------------
CHAP. VI.
_How the Variations in the intrinsic value of the unit of Money must
affect all the domestic Interests of a Nation._
[Sidenote: How this variation affects the interests of debtors and
creditors.]
I. We have briefly pointed out the effects of the imperfections of the
metals in producing a variation in the value of the unit of accompt, we
must now point out the consequences of this variation.
If the changing the content of the bushel by which grain is measured,
would affect the interest of those who are obliged to pay, or who are
intitled to receive, a certain number of bushels of grain for the rent
of lands; in the same manner must every variation in the value of the
unit of accompt affect all persons who, in permanent contracts, are
obliged to make payments, or who are intitled to receive sums of money
stipulated in multiples or in fractions of that money-unit.
Every variation, therefore, upon the intrinsic value of the money-unit,
has the effect of benefiting the class of creditors, at the expence of
debtors, or _vice versa_.
This consequence is deduced from an obvious principle. Money is more or
less valuable in proportion as it can purchase more or less of every
kind of merchandize. Now without entring a-new into the causes of the
rise and fall of prices, it is agreed upon all hands, I suppose, that
whether an augmentation of the general mass of money in circulation has
the effect of raising prices in general, or not, any augmentation of the
quantity of the metals appointed to be put into the money-unit, must at
least augment the value of that money-unit, and make it purchase more of
any commodity than before; that is to say, if 113 grains of fine gold,
the present weight of a pound sterling in gold, can buy 113 pounds of
flour; were the pound sterling raised to 114 grains of the same metal,
it would buy 114 pounds of flour; consequently, were the pound sterling
augmented by one grain of gold, every miller who paid a rent of ten
pounds a year, would be obliged to sell 1140 pounds of his flour, in
order to procure 10 pounds to pay his rent, in place of 1130 pounds of
flour which he sold formerly to procure the same sum; consequently by
this innovation, the miller must lose yearly ten pounds of flour, which
his master consequently must gain. From this example, I think it is
plain, that every augmentation of metals put into the pound sterling,
either of silver or gold, must imply an advantage to the whole class of
creditors who are paid in pounds sterling, and consequently, must be a
proportional loss to all debtors who must pay by the same denomination.
[Sidenote: A mistake of Mr. Locke.]
I should not have been so particular in giving a proof of so plain a
proposition, had it not escaped the penetration of the great Mr. Locke.
In 1695 there was a proposal made to the government of England, to
diminish the value of the pound sterling by 20 _per cent._ by making a
new coinage of all the silver, and by making every shilling ⅕ lighter
than before. The author of this project (Mr. Lowndes) having given his
scheme to the public, was answered by Mr. Locke, That this debasing the
value of the money-unit was effectually defrauding all the landed
interest of 20 _per cent._ of their rents. Lowndes replied, that silver
was augmented 20 _per cent._ in its value, and that therefore the pound
sterling, though reduced 20 _per cent._ in its weight of pure silver,
was still as valuable as before. This proposition Mr. Locke exploded
with the most solid reasoning, and indeed nothing could be more absurd,
than to affirm, that silver had risen in value with respect to itself.
But though Mr. Locke _felt_ that all the landed interest, and all those
who were creditors in permanent contracts, must lose 20 _per cent._ by
Mr. Lowndes’s scheme, yet he did not _perceive_ (which is very
wonderful) that the debtors in these contracts must gain. This led him
to advance a very extraordinary proposition, which abundantly proves
that the interests of debtors and creditors, which are now become of the
utmost consequence to be considered attentively by modern statesmen,
were then but little attended to, and still less understood.
We find in the 46th page of Mr. Locke’s _Farther Considerations
concerning the raising the value of Money_, that Mr. Lowndes had
affirmed in support of his scheme, that this new money would pay as much
debt, and buy as many commodities as the then money which was one fifth
heavier. Then adds Mr. Locke, “What he says of debts is true; but yet I
would have it well considered by our English gentlemen, that though
creditors will lose ⅕ of their principal and use, and landlords will
lose ⅕ of their income, _yet the debtors and tenants will not get it_.
It may be asked, who will get it? Those, I say, and those only, who have
great sums of weighty money (whereof one sees not a piece now in
payments) hoarded up by them, will get it. To these, by the proposed
change of our money, will be an increase of ⅕ added to their riches,
paid out of the pockets of the rest of the nation.”
If the authority of any man could prevail, where reason is dark, it
would be that of Mr. Locke; and had any other person than Mr. Locke
advanced such a doctrine, I should have taken no notice of it.
Here that great man, through inadvertency, at once gives up the argument
in favour of his antagonist, after he had refuted him in the most solid
manner: for if a man, who at that time had hoarded heavy money, was to
gain ⅕ upon its being coined into pieces ⅕ lighter, Mr. Locke must agree
with Mr. Lowndes, that a light piece was as much worth as a heavy one.
Those who had heavy money at that time locked up in their coffers, would
gain no doubt, _provided they were debtors_; because having, I shall
suppose, borrowed 4000_l._ sterling in heavy money, and having it
augmented to 5000_l._ by Mr. Lowndes’s plan, they might pay their debt
of 4000_l._ and retain one thousand clear profit for themselves. But
supposing them to have no debts, which way could they possibly gain by
having heavy money, since the 5000_l._ after the coinage, would have
bought no more land, nor more of any commodities, than 4000_l._ would
have done before the coinage.
[Sidenote: When the value of the unit is diminished, creditors
lose; when it is augmented, debtors lose.]
We may therefore safely conclude, that every _diminution_ of the metals
contained in the money-unit, must imply a loss to all creditors; and
that in proportion to that loss, those who are debtors must gain.
That on the contrary, whatever _augmentation_ is made of the money-unit,
such augmentation must be hurtful to debtors, and proportionally
advantageous to creditors.
In the preceding chapters, I have laid down, with as much distinctness
as I am capable of, the most general principles which influence the
doctrine of money, and to those I think every other may be applied.
The combination, however, of these principles with one another,
occasions a surprizing variety of problems, relating to money, coin, and
bullion, which are difficult to resolve, only by the difficulty there is
found in applying them to the rule.
In order therefore to render this inquiry more useful, I shall now apply
the principles I have laid down, to the state of the British coin, and
to the resolution of every question which shall occur during the
examination of the disorder into which it has fallen. A deviation from
the standard weight of the coin, and proportion of the metals (small if
compared with what was common in former ages) has introduced very great
obstructions in the circulation of the two species, and presents very
great inconveniencies when there is any question of removing them by a
new regulation of the mint.
The most distinct method of treating such matters, is, to consider all
coin as reduced to the weight of the pure metals; and to avoid the
perplexity of different denominations of weights, I shall examine all by
the troy grain.
The interests I intend to combine in this matter not being confined to
those of England alone, I have entred into the most accurate calculation
possible, with regard to the coin of those nations which I shall have
occasion to mention, and to compare with that of England. These I have
reduced to a general table which is inserted at the end of this volume.
The reader may have recourse to it upon every occasion where mention is
made of the conversion of money into grains of silver and gold, and
thereby form to himself a far better idea of many things than I could
otherwise have given him.
------------------------------------------------------------------------
CHAP. VII.
_Of the disorder in the British Coin, so far as it occasions the melting
down or the exporting of the Specie._
[Sidenote: Defects in the British coin.]
The defects in the British coin are three.
_1mo._ The proportion between the gold and silver in it is found to be
as 1 to 152⁄10, whereas the market price may be supposed to be nearly as
1 to 14½.
_2do._ Great part of the current money is worn and light.
_3tio._ From the second defect proceeds the third, to wit, that there
are several currencies in circulation which pass for the same value,
without being of the same weight.
_4to._ From all these defects results the last and greatest
inconvenience, to wit, that some innovation must be made, in order to
set matters on a right footing.
I shall take no notice of the inaccuracies of fabrication, because these
are inseparable from the imperfections of human art, and as long as they
are not very considerable, no profit can be made in discovering them,
and therefore no bad consequence can result from them.
[Sidenote: Of the standard of the English coin and money-unit.]
The English, besides the unit of their money which they call the pound
sterling, have also the unit of their weight for weighing the precious
metals.
This is called the pound troy, and consists of 12 ounces, every ounce of
20 penny weight, and every penny weight of 24 grains. The pound troy,
therefore, consists of 240 penny weight, and 5760 grains.
The fineness of the silver is reckoned by the number of ounces and penny
weights of the pure metals in the pound troy of the composed mass; or in
other words, the pound troy, which contains 5760 grains of standard
silver, contains 5328 grains of fine silver, and 432 grains of copper,
called alloy.
Thus standard silver is 11 ounces 2 penny weights of fine silver in the
pound troy, to 18 penny weights copper, or 111 parts fine silver to 9
parts alloy.
Standard gold is 11 ounces fine to one ounce silver or copper employed
for alloy, which together make the pound troy; consequently, the pound
troy of standard gold, contains 5280 grains fine, and 480 grains alloy,
which alloy is reckoned of no value.
[Sidenote: A pound sterling by statute contains 1718.7 grains
troy, fine silver.]
This pound of standard silver is ordered, by statute of the 43d of
Elizabeth, to be coined into 62 shillings, 20 of which make the pound
sterling; consequently the 20 shillings contain 1718.7 grains of fine
silver, and 1858.06 standard silver.
[Sidenote: The guinea 118.644 grains of fine gold.]
The pound troy of standard gold, 11⁄12 fine, is ordered by an act of
King Charles II. to be cut into 44½ guineas; that is to say, every
guinea contains 129.43 grains of standard gold, and 118.644 of fine
gold, and the pound sterling, which is 20⁄21 of the guinea, contains
112.994, which we may state at 113 grains of fine gold, as has been
said.
[Sidenote: Coinage in England free.]
The coinage in England is entirely defrayed at the expence of the state.
The mint price for the metals is the very same with the price of the
coin. Whoever carries to the mint an ounce of standard silver, receives
for it in silver coin 5_s._ 2_d._ or 62_d._ whoever carries an ounce of
standard gold receives in gold coin 3_l._ 17_s._ 10_d_½. the one and the
other making exactly an ounce of the same fineness with the bullion.
Coin, therefore, can have no value in the market above bullion;
consequently, no loss can be incurred by those who melt it down.
When the guinea was first struck, the government (not inclining to fix
the pound sterling to the gold coin of the nation) fixed the guinea at
20 shillings, (which was then below its proportion to the silver)
leaving it to seek its own price above that value, according to the
course of the market.
By this regulation no harm was done to the English silver standard;
because the guinea, or 118.644 grains fine gold being worth more, at
that time, than 20 shillings, or 1718.7 grains fine silver, no debtor
would pay with gold at its standard value, and whatever it was received
for above that price was purely conventional.
[Sidenote: The standard not attached to the gold coin, till the
year 1728.]
Accordingly guineas sought their own price until the year 1728, that
they were fixed a-new, not below their value as at first, but at what
was then reckoned their exact value, according to the proportion of the
metals, to wit, at 21 shillings, and at this they were ordered to pass
current in all payments.
[Sidenote: Consequence of this regulation to debase the standard.]
This operation had the effect of making the gold a standard as well as
the silver. Debtors then paid indifferently in gold as well as in
silver, because both were supposed to be of the same intrinsic as well
as current value; in which case no inconvenience could follow upon this
regulation. But, in time, silver came to be more demanded; the making of
plate began to prevail more than formerly, and the exportation of silver
to the East Indies increasing yearly, made the demand for it greater; or
perhaps brought its quantity to be proportionally less than before. This
changed the proportion of the metals, and by slow degrees they have come
from that of 1 to 15.2 (the proportion they were supposed to have when
the guineas were fixed and made a lawful money at 21 shillings) to that
of 14.5 the present _supposed_ proportion.
The consequence of this has been, that the same guinea which was worth
1804.6 grains fine silver, at the time it was fixed at 21 shillings, is
now worth no more than 1719.9 grains of fine silver according to the
proportion of 14½ to 1.
[Sidenote: That debtors will not pay in silver but in gold.]
Consequently, debtors, who have always the option of the legal species
in paying their debts, will pay pounds sterling no more in silver but in
gold; and as the gold pounds they pay in, are not intrinsically worth
the silver pounds they paid in formerly, according to the statute of
Elizabeth, it follows that the pound sterling in silver is really no
more the standard, since no body will pay at that rate, and since no
body can be compelled to do it.
Besides this want of proportion between the metals, the silver coined
before the reign of George I. is now become light by circulation; and
the guineas coined by all the Princes since Charles II. pass by tale,
though many of them are considerably diminished in their weight.
Let us now examine what profit the want of proportion, and the want of
weight in the coin can afford to the money jobbers, in melting it down
or exporting it.
Did every body consider coin only as the measure for reckoning value,
without attending to its value as a metal, the deviations of gold and
silver coin from perfect exactness either as to proportion or weight,
would occasion little inconvenience.
[Sidenote: That some people consider coin a money of accompt,]
Great numbers indeed, in every modern society, consider coin in no other
light, than that of money of accompt, and have great difficulty to
comprehend what difference any one can find between a light shilling and
a heavy one; or what inconvenience there can possibly result from a
guinea’s being some grains of fine gold too light to be worth 21
shillings standard weight. And did every one think in the same way,
there would be no occasion for coin of the precious metals at all;
leather, copper, iron, or paper, would keep the reckoning as well as
gold and silver.
[Sidenote: others consider it as a metal.]
But although there be many who look no farther than at the stamp on the
coin, there are others whose sole business it is to examine its
intrinsic worth as a commodity, and to profit of every irregularity in
the weight and proportion of metals.
By the very institution of coinage, it is implied, that every piece of
the same metal, and same denomination with regard to the money-unit,
shall pass current for the same value.
It is, therefore, the employment of those money jobbers, as I shall call
them, to examine, with a scrupulous exactness, the precise weight of
every piece of coin which comes into their hands.
[Sidenote: Operations of money jobbers when the coin deviates from
the market proportion of the metals, or from the legal
weight.]
The first object of their attention, is, the price of the metals in the
market: a jobber finds, at present, that with 14.5 pounds of fine silver
bullion, he can buy one pound of fine gold bullion.
[Sidenote: They melt down when the metals in it are wrong
proportioned.]
He therefore buys up with gold coin, all the new silver as fast as it is
coined, of which he can get at the rate of 15.2 pounds for one in gold;
these 15.2 pounds silver coin he melts down into bullion, and converts
that back into gold bullion, giving at the rate of only 14.5. pounds for
one.
By this operation he remains with the value of 7⁄10 of one pound weight
of silver bullion clear profit upon the 15½ pounds he bought; which 7⁄10
is really lost by the man who inadvertently coined silver at the mint,
and gave it to the money jobber for his gold. Thus the state loses the
expence of the coinage, and the public the convenience of change for
their guineas.
[Sidenote: And when the coin is of unequal weight.]
But here it may be asked, Why should the money jobber melt down the
silver coin, can he not buy gold with it as well without melting it
down? I answer, he cannot; because when it is in coin, he cannot avail
himself of its being new and weighty. Coin goes by tale, not by weight;
therefore, were he to come to market with his new silver coin, gold
bullion being sold at the mint price I shall suppose, viz. at 3_l._
17_s._ 10½_d._ sterling money _per_ ounce, he would be obliged to pay
the price of what he bought with heavy money, which he can equally do
with light.
He therefore melts down the new silver coin, and sells it for bullion,
at so many pence an ounce, the price of which bullion is, in the English
market, always above the price of silver at the mint, for the reasons
now to be given.
[Sidenote: Why silver bullion is dearer than coin.]
When you sell standard silver bullion at the mint, you are paid in
weighty money; that is, you receive for your bullion the very same
weight in standard coin; the coinage costs nothing; but when you sell
bullion in the market, you are paid in worn out silver, in gold, in bank
notes, in short, in every species of lawful current money. Now all these
payments have some defect: the silver you are paid with is worn and
light; the gold you are paid with is over-rated, and perhaps also light;
and the bank notes must have the same value with the specie with which
the bank pays them, that is, with light silver or over-rated gold.
It is for these reasons, that silver bullion, which is bought by the
mint at 5_s._ 2_d._ _per_ ounce of heavy silver money, may be bought at
market at 65 pence[Q] the ounce in light silver, over-rated gold, or
bank notes, which is the same thing.
Footnote Q:
The price of silver is constantly varying in the London market; I
therefore take 65 pence _per_ ounce as a mean price, the less to
perplex calculations, which here are all hypothetical.
[Sidenote: Because that species has risen in the market price as
bullion, and not as coin.]