Of Taxes, and of the proper application of their amount.
INTRODUCTION, 482
CHAP. I. Of the different kinds of taxes, 484
CHAP. II. Of proportional taxes, and their proper object, 486
CHAP. III. How proportional taxes are drawn back by the 490
industrious; and how that drawing back is the only reason
why taxes raise the prices of commodities,
CHAP. IV. Of cumulative taxes, 495
CHAP. V. Of the inconveniences which proceed from 500
proportional taxes, and of the methods of removing them,
CHAP. VI. Cumulative and proportional taxes compared with 517
one another, and farther examined,
CHAP. VII. Consequences of taxes, when the amount of them 523
is properly applied,
CHAP. VIII. Of the extent of taxation, 527
CHAP. IX. The consequences of an abolition of taxes, 542
CHAP. X. Are taxes a spur to industry, as some pretend? 556
CHAP. XI. Considerations upon land taxes, with some 561
observations upon those of England and France,
CHAP. XII. Miscellaneous questions upon taxes, 577
CHAP. XIII. Recapitulation of the fourth book, 593
CHAP. XIV. Recapitulation of the fifth book, 637
------------------------------------------------------------------------
AN
INQUIRY
INTO THE
PRINCIPLES OF POLITICAL OECONOMY.
------------------------------------------------------------------------
BOOK III.
OF MONEY AND COIN.
PART II.
THE PRINCIPLES OF MONEY APPLIED TO TRADE.
------------------------------------------------------------------------
CHAP. I.
_Consequences of imposing the Price of Coinage, and the Duty of
Seignorage upon the Coin of a Nation, so far as they affect the Price of
Bullion, and that of all other Commodities._
The political oeconomy of modern states is so involved with the
interests of commerce, that it is necessary at every step we make, to
keep in our eye the combinations which arise from that quarter.
Whatever tends to simplify an intricate theory, greatly assists the
mind: dividing this book into two parts, seems, as it were, dividing the
burden it has to carry: the principles already deduced may there ripen
by a short pause, and the analogy of the matter which is to follow in
the second part, where new combinations are taken in, will recall them
to the mind and fix them in the memory.
[Sidenote: Intricacy of this subject.]
I am now to examine one of the nicest principles in the whole doctrine
of money, to wit, the effects of imposing the price of coinage, and the
duty of seignorage upon coin.
When this question is considered in relation to all the combinations
which arise, 1. from the nature of coin considered as a metal, and at
the same time as a money of accompt; 2. from the influence this duty has
upon the price of commodities; and 3. from the imposition as affecting,
_directly_, the nation which lays it on, and all other nations trading
with it _occasionally_: when all these combinations are taken together,
I say nothing will be found more difficult than to reduce this question
to a distinct theory.
What I have to say upon it has found a place in this inquiry, rather
with a view to suggest ideas to men of a better capacity, than from the
hopes of satisfying my readers in every particular.
[Sidenote: Recapitulation of some principles.]
I have said, that gold and silver are commodities merely like every
other thing. I have shewn the utter impossibility of their being a
scale, or an invariable measure of value. I have observed that their
being made into coin (_among trading nations_) has not the effect of
rendring them less a commodity than they were before, except so far, as
by that operation every piece, instead of being valued by its own
weight, comes to be in the mean proportion of all the pieces which
compose the currency: and I have shewn how the operations of trade are
capable to sift out and establish this mean proportion, in spite of very
great irregularities. These are the principles laid down in the first
part, which we must keep in our eye while we examine the question.
Since gold and silver, then, are commodities like every other thing, the
invariable scale of value must measure _them_ as well as every other
commodity, and money of accompt must be considered in no other light,
than as a scale for expressing the proportional value of grains of
metals, yards of stuffs, pounds of wares, bushels of grain, or gallons
of liquors. In this view, when we mention a hundred pounds, it is just
as proper to consider this value relatively to the measure of any
merchandize, as to the metalic measure of the coin. Every merchandize,
when considered by itself, should be measured by its own measure, gold
by grains, liquors by gallons, wheat by bushels, &c. The denominations
of pounds, shillings, and pence, are only necessary for reducing all
other sorts of weights and measures to an equation of value. This is
what is understood by the universal scale of proportional value. I think
this idea is sufficiently clear.
[Sidenote: The first introduction of coinage must make prices fall.]
Let us now suppose a country where the invention of coin is not known,
and where a yard of cloth of a certain quality, is commonly sold for 100
grains of either silver or gold, no matter which. The state falls upon
the invention of coining, the conveniency of which every body
understands. This coinage, I suppose, costs 2 _per cent._ Coin is
introduced, and commodities are ordered to be bought with it. I ask,
what effect ought this revolution to produce upon the price of the
cloth, according to strict theory, and without taking in any other
combination of circumstances? I answer, that the cloth ought in reason
to fall 2 _per cent._ that is, that the price of a yard ought to be a
coin of 98 grains. Here is the reason: He who formerly had the 100
grains, had the value of the yard of cloth, and could change the one for
the other when he would. Now he has the 100 grains, but he must give two
grains to have it coined, before he can buy; because after this
invention people will not trust to the weighing of private people, nor
to the purity of the metals; but they will believe, upon the authority
of the stamp, that in every piece a certain number of grains of the fine
metal is contained. He, therefore, who has a coin of 98 grains, comes to
the merchant, and offers him his coin for his yard of cloth; the
merchant demands a coin of 100 grains, says the other, these 98 grains
which I give you in coin, cost me two grains to have their weight and
fineness ascertained; and if you refuse to repay me for what I have paid
for this manufacture which I offer you for your cloth, I may with equal
reason refuse to pay you for what you paid for weaving your wool into
cloth. Now since I, in buying your cloth, must pay the weaver, so you,
in buying my piece, must pay the mint. The merchant, convinced by this
reasoning, takes the piece, and as it circulates from hand to hand,
every commodity given in exchange for it, must fall 2 _per cent._
relatively to the grains of metal it was worth before.
[Sidenote: Consequences of the exclusive privilege of coinage.]
Farther, if by the laws and customs of a country, coin is absolutely
necessary for buying and selling, this coin must be had; and if there be
but one person who can make it, the price he thinks fit to demand for it
is the only measure of the value of fabrication. The grains of the
metals, therefore, in the coin, must rise in their proportional value to
yards of cloth, and to gallons of liquor, in proportion to the cost of
coinage, as the pounds of wool and silk must rise in their value in
proportion to their manufacture.
From this it follows, that since the value of coin must rise in
proportion to every commodity, it must also rise with respect to the
metals it is made of, just as wool manufactured rises with respect to
wool which is not manufactured.
Now let us suppose that a Prince finding that he has the exclusive
privilege of making coin, shall raise his price of coinage to 8 _per
cent._ what will the consequence be?
The first consequence of this will be to destroy, or at least to perplex
the ideas of his subjects with regard to coin, and to make them believe,
that it is the stamp, and not the metal which constitutes the value of
it.
The next consequence will be, to reduce the price of the yard of cloth,
which was worth 100 grains of metal before the invention of coinage,
from 98, where it stood, to 92. Now let us suppose that this country,
which we shall call (F), is in the neighbourhood of another which we
shall call (E), where there is both cloth of the same quality, and coin
of the same weight and fineness, which costs nothing for the coinage. In
the country (E), _cæteris paribus_, the yard of cloth must be sold for
100 grains, as it sold formerly in the country (F) before the coinage
was imposed. If the country (F) wants the cloth of the country (E), the
cloth they demand must cost (F) 100 grains the yard. If the country (E)
wants the cloth of the country (F), this cloth will also cost 100
grains; because to procure a coin of 92 grains of the country (F), (E)
must pay 8 grains for the coinage, which raises the price of the cloth
to 100 grains.
[Sidenote: A wrong balance of trade raises the price of bullion to the
value of coin,]
Let us now suppose, that for a certain time the country (F) has absolute
occasion for the cloth of the country (E). The merchants of (F) who
carry on this trade, must send bullion to (E) to pay for this cloth. But
the merchants of the country (F) who deal in bullion, perceiving the
usefulness of it for this trade, will then raise the price of the 100
grains of it above the 92 grains in coin (the common market price of
bullion before this trade was known) and according to the demand made
for the foreign cloth, the bullion will rise in the country (F), until
100 grains of it become exactly worth 100 grains in coin. The bullion
can never rise higher; because at that period, the coin itself will be
exported for bullion; and the country of (E) will accept of 100 grains
in their coin as willingly as in any other form. Nor will it ever fall
lower than 92 grains; because the mint in the country (F) is always
ready to give that price for all the bullion which is brought to be
coined.
Here then is a case, where the coin is made to lose all its advanced
price as a manufacture, and this is owing entirely to its being a metal
as well as a money of accompt.
Now as the coin has lost this additional value, by a circumstance purely
relative to itself as a metal, there is no reason why other merchandize
should sink in value along with it.
[Sidenote: and ought to raise proportionally the price of commodities.]
The consequence, therefore, of this revolution ought to be, that as the
merchandize, _bullion_, has got up 8 _per cent._ with regard to the
coin, and as the price of all merchandize ought to be in proportion to
the grains of bullion to which that price amounts, the revolution having
annihilated the 8 _per cent._ advance upon the coin, ought to have the
same effect with respect to prices as if coinage were given gratis, as
in the country of (E); that is, the yard of cloth ought at this time to
cost, in the country of (F), 100 grains, either of coin or bullion,
since they are of the same value.
Farther, in proportion as this demand for bullion comes to diminish,
that is to say, in proportion as the balance of trade becomes less
unfavourable to the country of (F), in the same proportion will coin
rise in its price, when compared with bullion; and when the country of
(E), in its turn, comes to have occasion for the country of (F), then
(E) must pay as formerly for a yard of cloth 92 grains in bullion, and
the remaining 8 grains to have it coined; in which case, the yard of
cloth will fall to the old price of 92 grains in coin, and will stand at
100 grains in bullion as before.
Did the price of a manufacture rise and fall as has been here
represented, it is plain that these variations would be constantly
determined by the proportion of the grains of the metals it costs to
acquire the coin which is the price of the manufacture.
We have seen that upon the institution of coinage and seigniorage, the
yard of cloth fell to 92 grains; because then it was impossible to
procure coin at a less price than 8 _per cent._ but when the balance of
trade had sunk the coin to the value of bullion, then the 92 grains of
the _coin_ being to be purchased with 92 grains of _bullion_, it was
reasonable that the cloth should rise to its former price; because then
no body could say that the coin of 92 grains had cost 100 to procure it.
But this theory does not hold in practice, nor can it possibly hold, as
long as the greatest part of a people are ignorant of, and even do not
feel the revolutions we have been here describing.
[Sidenote: How traders obstruct the operation of these principles, while
the balance of trade continues fluctuating,]
The price of bullion is entirely regulated by merchants, who have the
whole correspondence in their hands. It rises and falls in countries
where coinage is imposed, in proportion to the state of the balance of
trade at the time. The smallest rise or fall in the demand for bullion
in the market, is immediately marked by the price of it, and that ought
(by the principles we have been laying down) to regulate the rise and
fall of every commodity. But this is by no means the case. Commodities
rise and fall only after a certain time; and of this interval merchants
will constantly profit. Does the price of bullion rise, they immediately
sell to strangers as if all prices were immediately risen; but with
regard to manufacturers, they hide the revolution with great care, and
preserve prices from rising, until the competition among themselves
discovers the secret. Does the price of bullion fall, they do all they
can to keep up the prices of every commodity which they sell to
strangers, until the competition among themselves obliges them to bring
them down; and with regard to manufactures, they are all in one interest
to reduce the prices in proportion to the fall of the bullion, which
works its effects by slow degrees.
[Sidenote: and how an overturned balance of trade attaches prices to the
denominations of coin.]
These are the operations of traders, in times when there is a
_fluctuation_ in the balance of the trade of a country; that is to say,
in times when the balance is sometimes favourable and sometimes not.
At such times the true influence which trade ought to have upon prices
is never exactly known, but to the merchants, who seldom fail to profit
of their knowledge, in place of communicating it for the benefit of the
society. But that is not the case when the balance of trade is quite
_overturned_, that is, when it remains for a long time against a nation,
without any favourable vibration; as we shall presently explain.
We have seen how, by the changes in the balance of trade, the price of
bullion is made susceptible of a variation in its value, equal to the
price of coinage; and we have pointed out the principle which confines
the variation within certain limits; to wit, the value of the coin as a
metal, which prevents bullion from rising higher; and the mint price,
which preserves it from falling lower.
We have observed how merchants may profit of such variations, and how
they obstruct the operation of principles upon the rise and fall of
prices. We now proceed to another chain of causes, which tend greatly to
destroy the due proportion of value between coin and merchandize. This
with justice may be put also to the account of the imperfection of the
metals in performing the functions of money of accompt.
Universal experience shews that the prices of merchandize are so
attached to the denominations of coin, that they do not fluctuate as
principles point out, any more than projectiles describe parabolas, or
that machines operate the effects, which by calculation they ought to
do. The resistance of the air in one case, the friction of the parts in
the other, tend to render theory incorrect. Just so here, our theory
represents prices as rising and sinking in the most harmonious
proportion together with the metals; but in practice it is not so. They
have their frictions and political resistances, which only render the
theory delusive when every circumstance is not combined. A good gunner
must calculate the resistance of the air upon his bomb, or he never will
hit the mark.
We have already shewn how the interests of mercantile people tend to
obstruct the due fluctuation of prices; we must now take in other
combinations.
Although this be not a proper place to resume a discussion of the
particular theory of the rise and fall of prices, yet still something
must be said upon that subject, in order to bring the question we are
upon to some sort of solution.
[Sidenote: How profits consolidate into prime cost,]
First then, it will be agreed that it is far easier to make a price
rise, than to make it fall. I believe I might take this for granted,
without giving the reason for it. At all times, a price which has long
stood low, may be made to rise; but it is next to impossible to make a
price which has long stood high, to fall in the same manner. Here is the
reason: Let me suppose the yard of an extensive manufacture which
occupies a number of hands, to be worth 100 grains. The workmen here
live nearly at the same expence, and I suppose them to live upon the
profits of their work, when they sell at 100 grains a yard. The price
rises to 120; here is an additional profit of 20 grains. If a sudden
turn should diminish the demand which raised the price of the
merchandize, it will fall to the old rate without much difficulty; the
workmen will consider the 20 grains addition as a precarious profit upon
which they cannot reckon: but let the price of 120 grains remain
uniformly for some years, the 20 grains will cease to be precarious
profits; they will consolidate, as we have called it, into the value of
the merchandize; because the workmen, by having long enjoyed them, will
have bettered their way of living; and as they are many, and live
uniformly, any thing which obliges them to retrench a part of their
habitual expence, is supposed to deprive them of necessaries.
[Sidenote: and are preserved upon articles of home consumption,]
This is sufficient, as a hint, upon a subject which branches out into an
infinity of different relations, not at all to the present purpose. But
it is very much to the purpose to shew how the imposition of coinage
must, on many occasions, have the effect of attaching the price of
commodities to the denominations of the coin, instead of preserving them
attached to the grains of the metals which compose them, as in theory
they ought to be.
When wars, _e. g._ occasion a wrong balance to continue for many years
against a nation, this keeps coin at par with bullion for a long time.
Is it not very natural, that during that time manufacturers should
estimate their work according to the coin, and not as formerly,
according to the bullion? The consequence of this is, that when peace
returns, and when coin begins to rise above the price of bullion, the
manufacturers stick to the denominations of the coin, instead of
descending in value (as they ought to do by theory) along with the
bullion. What is the consequence of this? It is that the prices of
manufactures _for home consumption_, and of _commodities peculiar to the
country_, stand their ground; that is, prices do not descend, and cannot
be brought down by merchants.
[Sidenote: but are torn away by foreign competition for articles of
exportation.]
But as to manufactures for exportation, which are not peculiar, but
which are produced by different countries, their prices are violently
pulled down by foreign competition; and the workmen are forced to
diminish them. This hurts them effectually, not because of the
diminution of the prices; because, properly speaking, this diminution is
only relative to the denominations of the coin; their gains will
purchase as many grains of bullion in the market as before, but not so
much coin, and consequently not so much of any commodity which, by the
principles just laid down, have attached themselves to the denominations
of the coin, and have risen in their price along with it.
From this short exposition of a very intricate matter, we may conclude,
that the imposition of coinage does not raise the price of such
merchandize as is in common to several nations, and which trade demands
from each, without any competition with the natives; that is to say, the
prices of them stand as formerly with respect to strangers; because
although the prices be made to sink at home, with respect to the
denominations of the coin, yet strangers, being obliged to pay for them
in those denominations, are also obliged to pay an advanced price for
the coin, in order to procure them. This is the price of coinage. This,
I confess, is a little subtil, but I believe the reasoning will be found
just.
On the other hand, when trade extends itself to other commodities, to
those, I mean, which it buys in competition with the natives (and which
are made to rise and fall from the vicissitudes of inland demand) or to
such commodities as are peculiar to the country; in these cases, I have
little doubt but the prices, once raised and continued high for some
time, attach themselves to the denominations of the coin, and rise along
with it; that is to say, coinage is included over and above the price
which the merchandize would have born had no coinage been imposed.
[Sidenote: How this hurts the industrious, and how the state may
indemnify them.]
The conclusion I draw from this reasoning, is, that the imposition of
coinage has not, in fact, the effect of reducing the prices of
commodities to fewer grains of bullion than before, excepting those of
such commodities as are sold in competition with other nations; and even
then it may be said, that it is not the imposition of the coinage, but
the competition with strangers, which reduces them to the minimum of
their value, as well as the profits of those who work in them, to the
minimum of a physical necessary. This last circumstance shews why those
who work for foreign exportation, are the poorest class of all the
industrious of a state, but the most useful to it, at the same time. I
believe experience supports the truth of these conclusions. I shall here
by the bye observe, that as the state is made to profit by the
diminution of the profits of this most useful class; as she receives the
coinage which strangers pay, and which is really deducted from the
manufacturers who support exportation, she ought to indemnify this class
(as may be done in a thousand ways, by premiums, for example, upon
exportation) out of the profits arising upon coinage, instead of making
coinage free, to the evident loss of the nation, and benefit to
strangers, as we shall now endeavour to prove.
------------------------------------------------------------------------
CHAP. II.
_Concerning the Influence which the imposing the Price of Coinage, and
the Duty of Seigniorage in the English Mint, will have upon the Course
of Exchange, and Trade of Great Britain._
[Sidenote: Theory of prices upon articles of exportation.]
In the preceding chapter we have examined a very nice theory, into which
such a number of circumstances have been combined, depending upon facts,
that little stress is to be laid upon several conclusions which have
been drawn from it, unless they be approved by experience.
Let the best workman in London make a watch, he cannot depend upon its
being a good one, until it be tried; and when that is done, the
application of his theory will enable him to discover all the defects
and irregularities in the movement. It is just so in political matters.
The force of theory is not sufficient to form a good plan; but it is
useful for discovering many faults which would not have been foreseen
without it. The more extensive, therefore, any theory is made, the more
it is useful for these purposes. It is proper only to observe that the
more complicated any principle of it is, the less dependance can be had
upon its operation when applied to practice.
It is impossible to lay down a distinct theory for the rise and fall of
the prices of all sorts of commodities in a nation such as Great
Britain. All that can be said with certainty, is, that competition on
the part of the consumers will make them rise, and that competition on
the part of the furnishers will make them fall. Now the competition
among the furnishers may be reduced to theory; because it is fixed
within determinate limits, which it cannot exceed, and is influenced by
this principle, viz. that when profits are reduced to the minimum (that
is to the exact physical-necessary of the workman) all competition among
furnishers must cease.
But the competition among consumers is fixed within no determinate
limits: some demand to satisfy physical wants; others those of vanity
and caprice. Most inland demand for consumption is of this kind, and
consequently it is impossible to foresee what effect the imposition of
coinage will have upon the prices of many commodities. Perhaps they will
fluctuate with bullion; perhaps they will adhere to the denominations of
the coin: experience alone can bring this matter to light.
But with regard to such commodities as are the object of foreign trade,
prices are influenced by certain principles on both sides. Merchants,
not the consumers themselves, are the demanders here. Neither vanity or
caprice, but profit, regulates the price they offer. Thus it is, that as
all competition among furnishers must cease upon the reduction of
profits to the minimum, so all demand from merchants (who in this case
represent the consumers) must cease, so soon as prices rise above what
they can afford to give, consistent with their minimum of profit upon
the sale of what they buy.
The degree, therefore, of foreign competition will alone regulate the
prices of several exportable commodities, and of consequence the profits
of such as are employed in them, as has been said. This premised, we
come to examine the influence which the imposition of coinage would have
upon the course of exchange and trade of a nation.
[Sidenote: How the course of exchange is regulated.]
In speaking of exchange, so far as it influences the decision of this
question, we must throw out all extraneous circumstances, and endeavour
to reduce it to the plainest theory.
When one nation pays to another the price of what they buy, the
interposition of bullion is unavoidable; and the whole operation
consists in comparing the value of coin with the value of bullion in the
one and in the other.
[Sidenote: Price of exchange what?]
Suppose France to owe to England 1000 pound sterling; what regulates
exchange here, is the price of bullion in Paris and in London. The
French merchant inquires first, what is the quantity of bullion in
London, which at that time is equal to the sum he wants to pay? And
next, what that quantity of bullion costs to procure in the Paris
market? Upon this the par of exchange ought to be regulated. Whatever is
given more than this quantity is the price of transportation, when the
balance of trade is against France. Whatever is given less, may be
considered as the price of transportation which the English would be
obliged to pay were the balance against England, if the French merchant,
by sending his paper to London, did not save them the trouble, by
diminishing so far the balance against them; and of this he profits,
until the balance turns to the other side. Now let us leave the price of
transportation out of the question, and consider only how the imposition
of coinage, by affecting the price of bullion, may influence the course
of exchange.
[Sidenote: Where coinage is free the price of bullion ought to be
invariable,]
We have seen how the imposition of coinage renders the price of bullion
susceptible of a variation in its price, equal to the amount of the
imposition. Wherever, therefore, coinage costs nothing, there bullion
and coin must always be of the same value. This would be the case in
England, without doubt, were the metals in the coin exactly
proportioned, were all the coin of a legal weight, and were neither
melting down, or exporting made penal.
[Sidenote: and fluctuating where coinage is imposed.]
The bullion, therefore, in France may vary 8 _per cent._ in its price,
according to the balance of trade; the bullion in England must be
supposed invariable, let the balance stand as it will.
[Sidenote: Bullion in England dearer than in France,]
According to this representation of the matter, may we not say, that
bullion in England is always at the highest price it ever can be in
France, since it is at the price of the coin? Is not this the condition
of France, when the balance of her trade is the most unfavourable it
possibly can be?
[Sidenote: because the price of it is kept up by the mint,]
If therefore England, _herself_, contributes to keep the price of her
bullion higher than it is in France, is not this an advantage to France,
since France can buy the bullion with which she pays her English debts
cheap in her own market, and can sell it dear in that of her creditor?
Is there not a profit in buying an ox cheap in the country, and selling
him dear in Smithfield market?
[Sidenote: and is allowed to fall in France 8 per cent. below the coin.]
Now why is bullion sometimes cheaper in France than in England? I
answer, that in France it is allowed to fall 8 _per cent._ below the
coin, and the King only takes it at times when no body can get a better
price for it: and that in England the King gives always coin for
bullion, and by that keeps the price of it from ever falling lower. Let
the English mint pay the pound troy standard silver at the rate of
thirteen ounces of coin, the price of bullion in England will always be
1⁄13 dearer than the coin.
When bullion in France falls to 8 _per cent._ below the coin, it is
carried to the mint: when it is worth more no body carries any to be
coined.
[Sidenote: The wise regulation.]
No body in France (except upon a general coinage) is forced to sell
their bullion at this price. Is it not, therefore, a very wise
regulation, to permit the operations of trade to reduce, as low as
possible, the value of that commodity with which all they owe is paid,
and this more especially, as the fall of its price is a proof of the
prosperity of their trade.
If, therefore, it be supposed, that the effect of having a material
money for a scale of value, is, that the denominations in the coin, and
not the grains of the bullion, must measure the value of commodities
_for home consumption_; then it follows, that the variations in the
price of bullion, should not affect the price of commodities.
This is a question, however, which I do not pretend to determine, and I
apprehend that nothing but experience can resolve it.
[Sidenote: England loses by this sometimes 8 per cent. upon her trade
with France.]
Now let me consider the difference there is between the trade of France
and that of England as matters now stand; and what would be the case,
were the regulations of the mint the same in both countries.
I shall suppose that England buys of French goods as much as may be paid
with one thousand pounds troy weight of English guineas. I ask for what
weight of French louis d’ors must France buy of English goods to make
the balance even? Will it not be answered (according to the ordinary
method of calculating the true par of exchange) that if France buys for
one thousand pounds troy of her louis d’ors (supposing the guineas and
the louis d’ors of the same fineness) that the balance is even?
Is it not true, that England must send this thousand pounds weight
either in gold bullion or in guineas, and is it not the same thing to
the English merchant to send the one or the other, providing the guineas
be full weight?
But when France comes to send the thousand pounds weight of her louis
d’ors, she finds at market a thousand pounds weight of gold bullion 8
_per cent._ cheaper, and this bullion is as good to the Englishman as if
he had got the louis d’ors.
Let me state the case otherwise. Suppose France buys in England for 1000
pounds weight of her guineas in Virginia tobacco; and that England buys
in France for 1000 pounds weight of her louis d’ors of Bourdeaux claret.
Is not this called par? Will not France pay her debt to England with
1000 pound of gold bullion? Whereas England must pay 1080 pounds to
France; because 1000 pounds weight of her louis d’ors, is worth in
France 1080 pounds of any bullion of the same standard. The 1000 pounds
then compensates the 1000 pounds; the 80 pounds over must be sent to
France, and the carriage of this quantity only, must be paid for
according to the principles of exchange.
Here is evidently a balance of trade against England of 8 _per cent._
above the real par of the metals. Will any body say that the 8 _per
cent._ is paid for the transportation of 80 pounds of bullion due?
Certainly not.
Now if the English should declare that they, for the future, would coin
neither gold or silver bullion for any person, but at the rate of 8 _per
cent._ below the value of the coin; and if it be true, that this
regulation would have the effect of linking the price of bullion, on
many occasions, to 8 _per cent._ below the coin; in that case, would not
the English and the French acquit their debts of the 1000 pounds weight
of their respective coin upon the same conditions? In this case, would
not the price of exchange vanish, since there would be no bullion to be
sent by either party? But in the first case, would not England be
obliged to send 8 _per cent._ above the quantity of gold bullion she
received from France, and would not the transportation of this cost
money, and would not this transportation be marked by a certain price of
exchange, and consequently, would not the price of exchange rise against
England?
But to this it is objected, that by the former example, the exchange
marked 8 _per cent._ against England with great reason; because it is
plain, that there is a balance of 8 _per cent._ against England, since
she has sent that proportion over to France in bullion. Very true. But
had England, instead of taking to the value of 1000 pounds weight of
louis d’ors in claret, taken only for 100 pounds weight, the exchange
would have still marked 8 _per cent._ loss; because the 100 pounds of
louis d’ors must be paid with the 108 pounds of bullion, although
England by this trade has evidently gained 892 pounds of bullion, which
France must send her as a balance.
As matters of fact, when they can be procured, tend greatly to confirm
theory, by forming a solid basis whereupon to reason, I shall here
profit of one which has fallen into my hands, and by applying it to the
present question, endeavour to give some additional force to this
reasoning.
[Sidenote: and at a medium 4 per cent. as is proved by a matter of
fact.]
Mr. Cantillon, in his _Analysis of Trade_, which I suppose he understood
by practice as well as by theory, has the following passage in his 99th
page.
“The course of exchange between Paris and London since the year 1726,
has been at a medium price of 32 pence sterling for the crown of three
livres; that is to say, we pay for this French crown of three livres, 32
pence sterling, _when calculated on gold_, when in fact it is worth but
thirty pence and three farthings, which is giving four pounds in the
hundred for this French money; and consequently, upon gold, the balance
of trade is 4 _per cent._ against England in favour of France.”
In this place, Mr. Cantillon calculates the par of exchange according to
the common rule, to wit, gold bullion against gold bullion in the coins
of both nations, where both are of legal weight; and he finds that there
has been, these thirty four years past, a balance of 4 _per cent._
against England.
Now according to my theory, this is exactly what the coinage in France
ought to produce, supposing on an average that the trade had been at
par. Here is the reason.
The coinage in France costs 8 _per cent._
When the balance of trade is favourable for France, coin is worth 8 _per
cent._ above bullion.
The proof is plain. Were it not 8 _per cent._ above bullion, no man
would ever carry bullion to the mint; because the mint price is 8 _per
cent._ below that of the coin.
When the balance of trade is against France, coin must fall nearly to
the price of bullion.
Supposing then that the balance of the trade of France (at a medium of
thirty four years) is found to have been at par, will it not follow,
that at a medium also of these thirty four years, French coin must have
been at 4 _per cent._ (the half of the coinage) above bullion?
Consequently England having taken merchandize from France, and France
having merchandize from England, for the same weight and fineness in
their respective coins, must not England have been obliged to send to
France 4 _per cent._ more bullion in order to pay the coinage? This
reasoning appears conclusive to me, who am no merchant, and who do by no
means pretend to a perfect understanding of those affairs; but I think
this circumstance is at least of sufficient importance to make the
matter be inquired into. For this purpose, I shall suggest a method of
making the discovery.
[Sidenote: Easy to be verified at all times by the price of bullion and
course of exchange in the Paris market.]
If it shall be found, that English draughts on Paris, or French
remittances to England, shall at any time occasion bullion to rise in
the market of Paris above the mint price, will it not be allowed that
such a circumstance demonstrates that the balance of trade is then in
favour of England? If at that same time it shall be found, that exchange
(when reckoned upon the gold as Cantillon has done) is against England,
will it not be a demonstration of the truth of what I have here
suggested as a question worthy of examination?
[Sidenote: When bullion is exported to England, exchange is against
France.]
For if the balance of trade be against France, so as to make her buy
bullion to send to England, this is a proof that she owes England a
balance; and if at the same time the English are paying above the
intrinsic value of the metals (in their respective coins) in what they
owe to France, that additional value cannot be paid by England as the
price of exchange, or to pay for the transportation of their bullion,
but to pay the French creditors the additional value of their coin above
the price of bullion.
[Sidenote: Course of exchange no rule of judging of the balance of
trade, but only of the value of coin.]
May we not also conclude, that in a kingdom such as England, where
coinage is free, the course of exchange is no certain rule for judging
of the balance of trade with France; but only of the value of French
coin above French bullion. All authors who have written upon exchange,
represent the advanced price given upon bills above the intrinsic value
of the coins, to be the price of carriage and insurance, &c. in which
case exchange, no doubt, _may_ mark the balance of trade; but if an
advanced price must be given in order to put bullion into coin, or in
other words, if the metals in the coin are worth 8 _per cent._ more than
any bullion of the same fineness, is it not evident that a nation may be
drawing a great balance of bullion from another, although she be, at the
same time, paying 8 _per cent._ above the rate of bullion in the sums
she repays to the nation which is her debtor upon the whole; that is to
say, although she be paying above the real par of exchange, _as it is
commonly calculated_.
If it be here objected that this cannot be the case, because when the
balance of trade is against the nation which imposes coinage, their coin
falls to the price of bullion: I answer, that a balance may be against
such a nation, without producing so great a fall in the coin. Coin is
reduced to the par of bullion only when the balance is at the height
against a nation, and when it has remained so for a long time. Who would
give coin at a discount of 8 _per cent._ if there was a prospect that in
a few days, weeks, or even months, it was to rise to its former value?
These are the reasons which engaged me, in a former chapter, to lay it
down as a rule, that trading states should endeavour, as nearly as
possible, to observe the same regulations with their neighbours, in
every thing relating to their coin. It is also in order to facilitate
such a regulation, that I shall insert, at the end of this book, a very
particular state of the French coinage, and of what I can gather with
regard to that of Holland.
[Sidenote: The real par not to be calculated by the intrinsic value of
the coin, unless bills were drawn in weight of fine bullion.]
From what has been said, it appears that the common method of
calculating the real par of exchange is not correct, since it is
calculated by comparing the quantity of fine bullion in different coins,
and attributing the difference between the bullion paid for the paper,
and the bullion received in payment of it, as the price of
transportation. This, I say, is by no means correct; nor is it possible
it should be so, unless bills of exchange were specified in the weight
of fine bullion, instead of being specified in the denominations of the
coin: an example will make this plain.
Were a merchant in London to ask of another who has a correspondence in
Paris, to give him an order for a hundred yards of Abbeville cloth, and
to offer him, in exchange, the same quantity of cloth of a worse
quality, would not the merchant to whom the proposal is made,
immediately calculate the value of both commodities, and demand the
difference of the value between what he was to give, and what he was to
receive? Could ever this difference be considered as any thing else than
the difference between the real worth of the commodities? But were they
to exchange at London an hundred pounds of fine silver bullion, for the
same weight at Paris; then if the merchant demanded one grain more than
he was to give, it must be upon the account of transportation; because,
weight for weight, there is not the smallest difference between equal
weights of the fine metals.
Bills of exchange, then, being all conceived in denominations of money
of accompt, realized in coin; and coin changing in its value with regard
to bullion; it is evident that the real par cannot be computed upon the
bullion alone contained in the coin.
[Sidenote: Obj. Exchange regulates the price of bullion.]
If it is objected, that since it is the course of exchange which
regulates the price of bullion, all variations between bullion and coin
ought to be ascribed to that cause.
[Sidenote: Answ. Denied: exchange only raises its price; the mint price
pulls it down.]
I answer, that it is not the course of exchange which regulates the
price of bullion; but exchange makes it ascend from the price to which
it is regulated.
[Sidenote: Balance upon the real par, no mark of a balance upon trade;
proved by examples.]
The mint price regulates the price of bullion; and there it will nearly
stand, while the balance of trade is either at par, or favourable to a
country. Exchange therefore, or a wrong balance, can only make it rise;
and it returns to where it was, by the force of another principle.
In the next place, were I to allow that the balance of trade regulates
the price of bullion, it would not follow that what is called the _real
par_ of exchange is a rule to judge of the _balance of trade_ of a
nation. Is it not plain, that if France, for example, being at present
obliged to send great sums into Germany, upon account of the war (_anno_
1760,) has reduced the price of her coin to a par with bullion, that all
nations will profit of it as much in their trade with France, as if the
balance was become favourable to them; since the course of exchange will
then answer according to the conversion of bullion for bullion in all
remittances to France.
But were France at present to remit money to any other country, which
has the balance favourable, and where coinage is paid, suppose to Spain,
while the balance between France and Spain is supposed to be exactly
even; would not the real par between the money of Spain and of France
mark an exchange against France, for the value of the coinage imposed by
Spain? This is the reason why, in time of war, exchange between France
and England appears more favourable to England than in time of peace.
But does this anywise prove that the balance of trade is then more in
favour of England? by no means: for let me suppose the balance of their
trade to remain the same after the peace as at present; is it not
evident, that in proportion as the coin of France shall rise above the
bullion, that the _balance of trade_ will become, in appearance, against
England?
[Sidenote: Balance of trade, what?]
By the _balance of trade_, I here constantly understand a certain
quantity of bullion sent by one nation to another, to pay what they have
not been able to compensate by an exchange of their commodities,
remittances, &c. and not that which they compute in their bills as the
difference between the respective values of coin and bullion in both
countries.
How, then, is the real par of exchange to be regulated, so as to
determine which nation pays a balance upon the exchange of their
commodities?
[Sidenote: The real par of exchange to be fixed by the fluctuating value
of the coin, not by the permanent quantity of the bullion it
contains.]
I answer, To determine that question, let bullion over all the
commercial world be stated at 100, and let coin in every country be
compared with it, according to the current price. In England, for
example, (were all disorders of the coin removed) coin must always be as
100. In France, when the balance is favourable, at 108.27. In Germany
(were the Emperor’s late regulation with Bavaria to be made general) at
101. And so forth, according to the price of coinage imposed every
where. These advanced values above the 100, never can rise higher; and
the more the balance of their respective trade is unfavourable, the
nearer they will severally come to 100; below which they never can fall.
These fluctuations will constantly be marked in exchange; because all
circumstances are exactly combined by merchants; but the _balance of the
trade_ will only be marked _by what exchange is made to vary from these
proportions_.
[Sidenote: Proof of this proposition.]
Let me suppose the trade of France favourable upon the whole, by great
commissions from Cadiz, and bullion at the same time to be carried to
the mint at 8 _per cent._ below the price of coin.
Let me suppose, that upon all the trade of England with France, there
shall be, at that time, a balance of 2 _per cent._ sent from France to
England in bullion; and upon the trade with Germany a balance of 1 _per
cent._
I say, that the _par of exchange_ between England and France is 8 _per
cent._ against England; and that the _par of exchange_ between Germany
and France is 7 _per cent._ I state it at this rate; because the balance
being supposed favourable for the three nations, the value of their coin
with respect to their bullion ought to be in proportion to the mint
price.
The _course of exchange_, therefore, if it be a rule to judge by, ought
to mark 6 _per cent._ against England; which I say is 2 _per cent._ in
her favour: and the exchange with Germany ought to mark 6 _per cent._
against Germany; which I call 1 _per cent._ in her favour.
An example will make this plain.
Suppose English guineas, German carolins, and French Louis, to be all of
the same weight and fineness; I say, the _real par_ in the example we
have stated is, between Paris and London, 100 Louis are equal to 108
guineas; because the 100 Louis are worth 100 guineas in London, and 108
guineas are worth no more than 100 Louis in Paris. Again, between Paris
and Francfort, 100 Louis are equal to 107 carolins; because 108 carolins
are worth at Paris 100 Louis; and 101 Louis at Francfort are worth 100
carolins; consequently, the difference between 7 and 8 is the _real
par_, to wit, 100 Louis for 101 carolins. Next, as to the par between
London and Francfort, here 100 carolins equal 101 guineas; because 100
carolins in London are worth 100 guineas; and 101 guineas at Francfort
are worth no more than 100 carolins.
Now in the ordinary way of reckoning the _real par_, the 100 Louis, 100
carolins, and 100 guineas, are all supposed to be of the same value, in
the three markets; and the difference between this supposed value, and
what is paid for it, is supposed to be a loss upon trade. In this light,
the nation’s loss resembles the loss incurred by him, who, when he goes
to the bank, and pays ten pounds sterling in coin, for a bank-note,
says, that he has given ten pounds for a bit of paper, not worth one
farthing; reckoning the value of the note, at the real par of the paper
it is writ upon.
The general rule, therefore, as I apprehend, is, to settle the real par
of different coins, not according to the _bullion_ they contain, but
according to the bullion they can buy with them in their own market at
the time.
If 1000 pounds weight of guineas can purchase at London 1000 pounds
weight of standard bullion; and that 1000 pounds of the same weight of
Louis can buy at Paris 1080 pounds weight of the same standard bullion;
then the 1000 pounds weight of guineas is at the real par with 9256⁄1000
pounds weight of the Louis, and not worth 1000, as is commonly supposed.
If the doctrine laid down in this chapter be found solid; if no
essential circumstance has been overlooked, which ought to have entred
into our combinations, (points left to the reader to determine) then we
may conclude,
_1mo_, That the course of exchange, in the way people take to calculate
the real par, is no rule for judging of the balance of trade.
_2do_, That the great duty laid upon the fabrication of the French coin,
either deceives the English nation, and makes them conclude, from the
course of exchange, that their commerce with France is extremely
disadvantageous: or, if it be really disadvantageous, that it is the
imposition of a duty on coinage in the French mint which occasions it.
It is a question belonging to the theory of commerce, and not to that
which we are now upon, to examine the nature of a disadvantageous trade,
and to investigate the principles pointing out the commodities which
every country ought to encourage for exportation, and those which are
the most profitable to take in return.
[Sidenote: Application of these principles to the English trade with
France.]
Upon these principles the trade of England with France must be examined,
and upon examination it will be found whether that trade be advantageous
or hurtful. Here the question is reduced to this; Whether from the
course of exchange it may be concluded that the balance of trade is
against England, because the French crown is commonly paid with
thirty-two pence sterling? We have decided that it cannot. If there be
no other objections against the trade of France but this loss upon
exchange; and if it be true that this is no proof of trade being against
England, but only the consequence of her free coinage; then it will
follow, that England may lay as many restrictions, duties, and clogs,
upon the French trade, as she pleases, and may even reduce it to
nothing, without ever removing the cause of complaint; while at the same
time she may be ruining a trade, which pays her upon the whole a great
balance, and upon which trade she has it in her power, by following a
different system in her mint, to render her exchange as favourable as
with any other nation in Europe.
This point seems to be a matter of no small importance to England; since
(from a mistake in point of fact, into which she is led from a delusive
appearance) a very lucrative trade, when considered by the balance it
produces, may, upon false principles, be proscribed as disadvantageous.
These questions, however, are not as yet considered as entirely
discussed, and they shall be a little farther examined in the following
chapter.
------------------------------------------------------------------------
CHAP. III.
_Is the loss which the course of exchange marks upon the trade of Great
Britain with France real or apparent?_
[Sidenote: Reason for proposing this question.]
Questions are here proposed, which I do not pretend to resolve; all I
aim at is to discover how they may be resolved.
If this inquiry shall prove an incitement to men of better capacity to
review the same subjects, who have more extensive combinations, more
experience, and better information as to facts, in that respect it has
some degree of merit.
[Sidenote: Suppositions.]
I answer to the question proposed, that if the imposition of a duty on
coinage in England would have the effect of rendring her trade with
France more lucrative, then the loss marked by the course of exchange is
real, at least in part; if otherwise, it is only apparent.
[Sidenote: Principles.]
What makes the commerce with any country lucrative, is the balance paid
upon the exchange of their commodities.
What regulates the quantity of commodities taken from any country, in
the way of trade, is the wants of the country demanding; and what sets
the balance even, is the reciprocal wants of the other country. Nations
do not give up correspondence with their neighbours, because these do
not accept of merchandize in exchange for merchandize, but because they
find their advantage in supplying their wants upon easier terms
elsewhere.
Every merchant seeks to sell dear; and the dearer he can sell, the
greater is his profit: that merchant, therefore, must thrive most, who
sells dearest, and who at the same time _can afford_ to sell cheapest.
If an imposition on coinage shall enable England to sell dearer, without
depriving her of the advantage of being able to sell as cheap as at
present, then it will follow, that an imposition on coinage will be
advantageous. If it shall lay her under a necessity of selling dearer,
and deprive her of the possibility of selling so cheap as formerly, then
the imposition of coinage will be hurtful.
[Sidenote: How the paying for coinage affects the profits on goods
exported.]
These principles premised, as a foundation for our reasoning, let us
first consider the influence of coinage upon the profits on
_exportation_; and then proceed to inquire into the influence it has
upon articles of _importation_.
As to the first, I must observe, that England, as well as every other
country, has several articles of exportation which are peculiar to
herself, and others which she must sell in competition with other
nations.
The price of what is peculiar is determined by the competition of those
who furnish at home, and the lowest price is regulated by their minimum
of profit. The price of what is common is regulated by the competition
of those who furnish from different countries.
If the prices of what is peculiar shall remain, as before, attached to
the denominations of the coin, after the imposition of a duty on
coinage, the competition of those who furnish will remain the same as
before; because prices will not vary; but the stranger, who buys, must
nevertheless pay an advanced price for such merchandize, because the
nation’s coin, with which they are purchased, will be raised in its
value with respect to bullion, the only price he can pay with. This is
the price of coinage: and this imposition has the good effect of
obliging strangers to pay dearer than before, in favour of a benefit
resulting therefrom to the state.
Now, if it be observed that the demand made by the English for goods
peculiar to France, (while these remain in France at the same price as
formerly) does not diminish in proportion as the loss upon exchange
happens to rise; why should we suppose that the demand for goods
peculiar to England should diminish, for a similar reason?
If the rise, however, in the price of exchange should diminish the
foreign demand for such English goods, by raising the price of them in
the foreign market, this, at least, will prove that coinage does not
make prices fall proportionally at home; because, if they should fall,
strangers would buy as cheap as formerly: the prime cost (as it would
appear upon the accounts of their English correspondents) would diminish
in proportion to the loss upon exchange in remitting to England, and
would just compensate it: so upon the whole, the price of the
merchandize would be the same in the foreign market as before.
If the imposition of coinage, therefore, be said to raise the price of
English merchandize in foreign markets, it must be allowed that it will
not raise the value of the pound sterling at home, by sinking the value
of commodities: that is to say, the prices of commodities will adhere to
the denominations of the coin; and the coin bearing an advanced value,
above what it bore formerly, strangers must pay it.
But will not this diminish the demand for English goods? Not if they be
peculiar to England, as we here suppose. But allowing it should, will
not this diminution of demand sink the value of the English coin, by
influencing the balance of trade? If so, it will render remittances to
England more advantageous: consequently, it will recall the demand. The
disease, therefore, in this case, seems to draw the remedy along with
it.
Now what appears here to be a remedy against a disease, is at present,
as we may call it, the ordinary English diet, since it is sinking the
coin to the price of bullion. If, therefore, the having coin always as
cheap as bullion, can be any advantage to trade, the nation is sure of
having it, whenever the balance is unfavourable, notwithstanding the
imposition of a duty on coinage.
[Sidenote: When the balance is favourable.]
Trade has its vicissitudes, and all nations find, at times, that their
neighbours must depend upon them. On such occasions, the balance of
their commerce is greatly in their favour.
Is it not, therefore, an advantage to have a principle at home, which,
upon such occasions, is capable of diminishing with us the value of that
merchandize (bullion) which strangers must give as the price of all they
buy?
[Sidenote: And how, when unfavourable.]
On the other hand, the same principle seems to fly to the assistance of
trade, when the balance becomes unfavourable, as it virtually diminishes
to strangers the price of all our commodities, by raising in our market
the value of that commodity, (bullion) which they must give as the price
of what they buy.
This may suffice, in general, upon exportation. It is a hint from a
person not versed in commerce; and as such it is humbly submitted.
[Sidenote: How the paying for coinage affects the profits on goods
imported.]
I now pass to the second part of this operation, to wit, the influence
which the imposition of coinage has upon the interests of trade, when
the question is to purchase the commodities of other countries. These
operations are quite different, and in examining this theory they must
be carefully distinguished.
[Sidenote: When the balance is favourable.]
We have seen how the imposition of coinage, during the favourable
balance of trade, procures to the nation an advanced price upon the sale
of her exports. As long as it remains favourable, it must produce the
same good effect with regard to her importations, by sinking at home the
price of the bullion with which she must pay for them. Bullion must
become cheap in the English market, in proportion as the balance of her
trade is favourable, and in proportion as it is cheaper there than in
other nations (with respect to their respective coins) in the same
proportion, the nation has an advantage in paying what she buys, or in
employing her bullion for extending the fund of her own commerce.
[Sidenote: And how, when unfavourable.]
Upon the other hand, should the balance of her trade turn against her,
her bullion rises. This renders the price of all foreign merchandize
dearer to the importers than otherwise they would be; because they must
pay them in bullion. But this loss is at present constantly incurred;
and when incurred, is not _national_, the national loss is upon the
balance of the trade; but whether this balance be paid in bullion at the
mint price, or in bullion at the price of coin, the balance of the trade
is just the same. Now, if this wrong balance (which I here suppose to
proceed only from the imports exceeding the exports upon trade in
general) renders the purchase of foreign commodities dearer to the
merchants, without costing more to the nation; is not this so far
advantageous, that it discourages importations, just at the time they
ought to be discouraged, and thereby may _tend_ to set the balance even
again?
Thus I have endeavoured to analize the influence of this principle in
the four cases; to wit, upon exportation and importation, under a
favourable and unfavourable balance of trade. These different
combinations must always be examined separately, or else obscurity and
confusion will ensue.
We must also observe, that there are still other combinations to be
attended to, although it be superfluous to apply the principles to them;
because the variations proceeding from them are self-evident. I mean,
that this question may be considered as relative to a nation which has
coinage free, with respect to another nation where that duty is imposed.
In this case we may decide, that as far as the situation of the latter
is advantageous, so far must that of the former be disadvantageous, and
_vice versa_.
The question may also be considered in relation to countries who have
either the duty on coinage the same, or different. When they have the
same, there can be no advantage on either side; excepting in this
respect, that the nation which has, upon an average, the balance of
trade in her favour, will thereby render her trade still more favourable
than it would be, were the coinage free on both sides.
[Sidenote: The more trade is favourable, the more adviseable it is to
impose a duty upon coinage.]
From which we may conclude, that the more a nation has the advantage in
point of trade, the more it is her interest to impose the duty of
coinage. When the imposition is unequal in the two countries, I
apprehend that the country which lays the smallest duty upon her
coinage, may be considered as having it altogether free, and that the
other may be considered as imposing no more than the difference.
Upon these principles must the question here proposed be resolved. They
never can decide as to the matter of fact, to wit, whether the French
trade is hurtful or lucrative: all we are warranted to conclude from
them is, that the trade of Great Britain would be more advantageous with
France than it is, were a duty on coinage to be laid in England as high
as there. In that sense, we may say, that the apparent loss by exchange
is a proof that coin is commonly dearer in France than in England; from
which a loss may be implied; but the loss upon exchange no way denotes
the degree of loss upon the trade, and much less does it certify that
the balance upon the whole is against Great Britain.
------------------------------------------------------------------------
CHAP. IV.
_Of the different methods of imposing coinage; and of the influence they
respectively have upon the value of the money-unit, and upon the
domestic interests of the nation._
[Sidenote: Two ways of imposing coinage.]
There are two ways of imposing coinage; one by positive law, and by the
force of that authority which is every where lodged in the legislature;
the other, which is more gentle, renders the imposition almost
insensible, and is effectuated by the influence of the principles of
commerce.
By the one and the other the same end may be obtained; with this
difference, that all circumstances must yield to the force of authority:
and when this is employed, coinage is imposed as a tax upon coin, in
spight of all resistance; whereas, in the other case, the effect takes
place by degrees: it is no tax upon coin; but it is liable to
interruptions; and therefore, upon a general recoinage of all the specie
of a nation, it is not so effectual as the first; although it may answer
perfectly well for supporting a fund of good specie, and for replacing
all the diminutions it may suffer from melting down or exportation.
[Sidenote: Plan laid down in this chapter.]
I shall now give examples of the one and the other method: I shall point
out some of the consequences which attend both: I shall chalk out a
rough draught of the principles, which may be applied in forming a plan
for laying on that imposition in the English mint: and last of all, I
shall shew how the experiment may be made.
[Sidenote: How coinage is imposed by authority.]
Were the government of England to call in, at present, all the coin in
the nation, in order to be recoined, and to fix the mint price of it, as
gold and silver standard bullion, at —— _per cent._ below the value of
the new coin; this would be imposing coinage by positive law; and being
an arbitrary operation upon the coin of the nation, could not fail of
influencing the value of the money-unit.
[Sidenote: How by consent.]
Were the government, on the other hand, to give orders to the mint, to
pay gold and silver bullion for the future, no dearer than —— _per
cent._ below the coin, this would be no arbitrary operation on the coin
of the nation, and would not (as I imagine) influence the value of the
money-unit, although it might sink the price of bullion, by the
influence of the principles of commerce.
The different consequences of these two methods of imposing coinage are
now to be explained.
[Sidenote: When by authority, what is the consequence?]
Were England, during a war, or at any time when the balance of her trade
is unfavourable, to impose coinage by law, in the manner proposed, the
consequence would be, that all the specie in Great Britain, or at least
a considerable part of it, might possibly be melted down, and sold in
the market for bills of exchange. [Sidenote: The metals are exported.]In
a nation of trade, where credit is so extensively and solidly
established, there would, in such a case, be no difficulty to find an
outlet abroad for all the metals in the kingdom; because then every
thing would be considered as profit, which was less than the —— _per
cent._ loss in carrying the coin to the mint.
If it is objected, that this plan has been many times executed in
France, particularly in 1709, and 1726, without any such inconveniences;
I answer, as I have done upon other occasions, circumstances are to be
examined.
[Sidenote: How, in France, this is prevented in some measure.]
Upon such occasions, in France, the coin is ordered to the mint, upon
penalties against those who shall not obey; melting down is strictly
inquired into, and severely punished; all the roads which lead to
foreign countries are beset with guards, and no coin is suffered to be
exported; all debts may be demanded in coin; and all internal commerce
is carried on with specie.
This is a violent method of imposing a tax upon all the coin in the
nation; and the general coinage is made with no other intention. In the
coinage 1709, this tax amounted to 231⁄13 _per cent._ (Dutot, Vol. I. p.
104.)
[Sidenote: French politics, as to coin, not generally understood.]
Under these circumstances, it is very evident, that those who have coin
or bullion must either carry it to the mint, or bury it: there is no
middle course to be followed.
Let me here observe by the bye, how frequent it is to see people blame
the greatest ministers rashly, and impute to them the most absurd
opinions concerning the most simple matters. How much have the ministers
of France been laugh’d at, for pretending to forbid the exportation of
coin, to pay the balance of their trade? They did not forbid the
exportation of the coin for paying of their debts: On the contrary, the
King has sometimes had his bankers, whose business it was to send coin
to Holland for that purpose, as we shall explain in another place. This,
I think, is common sense.
If the ridicule is turned against those states, who forbid the melting
down and exportation of coin, where coinage is free, I must also make
answer, that _there_ the prohibition is laid on, to save to government
the expence of perpetually recoining what is melted down, or of coining
the foreign specie, imported in return for that of the nation which has
been exported without necessity.
Let us next examine the consequence of imposing coinage by law, when the
plan is so laid down (no matter how) as not to be frustrated by the
total desertion of the mint.
[Sidenote: How coinage influences the price of inland commodities.]
Is it not evident, from the principles laid down in the first chapter,
that, in this case, the value of the coin must rise, not only with
respect to bullion, but with respect to every commodity: or in other
words, that the prices of commodities must fall universally with respect
to the denominations of the coin. For who will pay the same price for a
commodity, after he has been obliged to pay —— _per cent._ to purchase
the price with which he must buy? But the moment the great operation of
the general coinage is over, and that trade begins to work its former
effects, while the balance of it is supposed to remain unfavourable, all
prices will return to their former rate, with regard to the
denominations of the coin, by the operation of another principle. The
new coin procured at so much cost will then fall to the price of
bullion; that is to say, all the price paid for coinage will be lost,
and consequently money will return to its former value; or in other
words, prices will be made to rise to their former height; because then
no body will be obliged to pay — _per cent._ to procure the price.
[Sidenote: A case not to be resolved by this theory, but left to be
verified by experiment.]
Now, it is the effect operated upon prices by the _return_ of a
favourable balance, when coin _regains_ an advanced price above bullion
by the influence of commerce, which my theory does not reach to. I
cannot discover a principle, which can force the prices _of articles of
inland consumption_ to fall and fluctuate with the prices of bullion;
because I find them too closely attached to the denominations of the
coin; and that foreign commerce has not sufficient influence upon them.
As that combination is beyond my reach to extricate, I leave it to the
decision of experiment.
[Sidenote: An objection answered.]
Here a plain objection occurs against what has been said in the twelfth
chapter of the first part, viz. That the wearing of the English coin has
the effect of raising the price of corn in the market, which would be
made to fall upon a restitution of the coin to legal weight. But the
answer is plain. In the former case, the diminution of the value of the
coin was supposed real and permanent; in which case, with time, it works
its effects of raising prices without doubt: but here the augmentation
is not real, and the fluctuations of the value of the coin with respect
to bullion, are both imperceptible to any but merchants, and at the same
time so uncertain, that they have not time to work their effects upon
the price of other commodities.
Were a balance of trade to continue long favourable, and were coin to
preserve, during all that time, the same advanced value with regard to
_bullion_, in that case I have little doubt but the value of that
universal commodity (bullion) in conjunction with the operations and
influence of foreign commerce, might reach inland markets, and reduce
the price of commodities. But this is seldom the case (as I am apt to
believe,) and in proportion as it is so, more or less, will a duty on
coinage influence the price of commodities.
[Sidenote: Coinage affects the price of bullion immediately; and that of
commodities indirectly.]
Coinage therefore ought, upon many occasions, to be considered as
affecting _immediately_ the price of bullion only, and that of
commodities _indirectly_: whereas the diminution of the intrinsic value
of the coin, by immediately affecting _price_, must consequently affect
the rate of every thing which is given for it.
Let us next examine the consequence of imposing coinage by the influence
of the principles of commerce.
[Sidenote: Consequence of the price of coinage imposed with consent.]
The method here is to leave every one free to do with their coin, or
with their bullion, what they please. Do they incline to melt down or
export the coin, they may have entire liberty to do it: no penalty ought
to be imposed, other than that which will necessarily follow, viz. the
expence of procuring new coin.
In order to make our reasoning here more distinct, let us form a
supposition with regard to a new regulation of the British coin.
The present confusion has convinced every man, that a reformation of the
coin is necessary; and the opinions of those who have writ best upon
that subject seem to be divided upon one main article. The metals are
disproportioned in the coin, the gold being there to the silver, as 1 to
15.21, instead of being as 1 to 14.5. By law, 113 grains of gold are
made equal to 1718.7 grains of silver. One party would have the silver
adjusted to the gold; the other would have the gold adjusted to the
silver. This is the question, in a few words. Now, suppose a middle
course were taken, and that the standard were to be fixed at the mean
proportion of these two values; that is, at the value of the half of
1718.7 grains fine silver, added to the half of 113 grains fine gold;
which, in the first part of this book, we have shewn, by many arguments,
to be the only method of preserving an equality in the money-unit; this
will make the new pound consist of 1678.6 grains of fine silver, and
115.77 grains fine gold: and this is also a sort of medium between the
two opinions.
At that rate, the pound troy standard silver must be coined into 63
shillings and 6 pence, and the pound troy standard gold into 46 guineas,
or pound-pieces, each worth 20 shillings.
Now, if upon both species 8 _per cent._ coinage were imposed, (for as
all this is a pure supposition, it is no matter at what rate the coinage
be stated) then the mint price of the pound troy fine silver must be
fixed at 63_s._ 1¾_d._ and the mint price of a pound troy of fine gold
at 45_l._ 5_s._ ¾_d._ sterling.
[Sidenote: That bullion is brought to the mint when trade is
favourable.]
Suppose then (as an example) that the mint price of fine bullion should
be fixed at 8 _per cent._ below the coin in England; What principle
could oblige people to carry bullion to be coined?
I answer, When the balance of trade is favourable for England, that
balance must sooner or later be paid in bullion. If trade still
continues favourable, after the first balance is paid, what use can
those who have the bullion make of it, if there be no demand for it to
work it into plate? To export it, by employing it in trade, does not
remove the difficulty; because, while the balance stands favourable,
export as much as you will, more bullion must enter than it is possible
to export, in the way of trade; for we do not suppose that in exporting
it, it is to be given away gratis. The bullion, therefore, not being
demanded for exportation; not being permitted to pass current for money;
and not being demanded for making into plate; must be employed so as to
be profitable to the owner one way or other. For this purpose it must be
lent, or employed within the country for purchasing some sort of effects
which produce an income. For this purpose the bullion must be coined, in
order to render it capable of circulation, and of becoming price.
At all times, therefore, when in a country there is bullion, not
demanded as such, the proprietor carries it to the mint, he sells it at
the mint price; and as this mint price is stated at 8 _per cent._ below
the price of coin, he gives it for the price he can get for it: this he
does without regret, because, if next day he should want to change his
coin into bullion again, he will find it in the market at the same
value.
If it be farther objected, that rather than carry it to the mint at 8
_per cent._ discount, people will lend it to foreigners: I answer, that
if it be lent to foreigners, this lending will turn what we call the
balance of trade against England, and then certainly no body will carry
bullion to be coined; for in which ever way it happens that more bullion
is exported than is imported, in every case the price of exchange and of
bullion must rise; and this is constantly constructed, though very
improperly, as a balance of trade against England; which, to mention it
by the bye, is another reason to prove how ill people judge of the
prosperity of trade by the course of exchange, since the lending of
money, as well as the paying of debts, equally turns exchange against
the country.
Bullion, therefore, never will be carried to the mint, when it can be
disposed of above the mint price; and both theory and experience, over
all Europe, where, England excepted, coinage is imposed, proves, that
bullion is carried to the mint, and sold below the price of coin, weight
for weight of equal fineness.
[Sidenote: How the mint price of the metals may be allowed to vary.]
By fixing the mint price at 8 _per cent._ below the value of the coin,
it is not necessary that this price be made invariable: a power may be
lodged somewhere, by the state, to make deviations from the standard
price. A war breaks out; large quantities of coin are exported; specie
becomes scarce: May not the state, at such a time, deliver coin at the
mint at the current price of the bullion? Let matters come to the worst,
the price can never possibly rise above the present value, to wit, that
of the coin, when it is preserved at its true weight. If peace returns,
and trade becomes favourable, the mint may then be ordered to sink its
price, in proportion to circumstances. In short, the mint may receive
bullion at different prices, at different times, without occasioning the
smallest confusion by such variations in the intrinsic value of the
current specie, which must constantly be the same. It is of no
consequence to any person who receives it, whether the coinage costs
nothing, or whether it costs 8 _per cent._
[Sidenote: Influence of this method of imposing coinage on the price of
commodities, and value of the pound sterling.]
By this method of imposing coinage, all the advantages reaped by France
may be reaped by England. The bullion will be allowed to fall as low as
with them, when trade is favourable. If it rises, upon a wrong balance,
the mint need not be stopped, in case coin be found wanting for the uses
of the state; and when that necessary demand is satisfied, the mint
price may be reduced again.
I do not see how the value of the pound sterling can be anywise
influenced by this plan of imposing coinage: because the imposition is
not arbitrary; nor can it either add to or take from the mass of the
metals appointed by statute to enter into the coin.
The only possible influence coinage can have upon the value of the pound
sterling, is by lowering the price of commodities. If it has this
effect, I still agree that it is the same thing as if an addition were
made to the metals in the coin. Experience alone will resolve the
question: and if by this it is found that prices are not affected by it,
then we may safely declare, that no variation has been occasioned in the
value of the money-unit, and consequently no injury done to any interest
within the state.
This proposition, however, requires some limitations. The prices of
commodities, certainly, will not be affected _immediately_ by the
imposition of coinage, in the way it has been proposed to lay it on; but
I do not say that, upon some occasions, they may not be affected by slow
degrees.
When the balance of trade at any time has stood long favourable for
England; when the coin has remained long considerably above the price of
bullion; and when, consequently, the mint has been well employed; then
the value of commodities, as has been said, may become influenced by the
operations of foreign commerce, and be sunk in their price. Yet even
here this consequence is by no means certain; for this reason, that what
turns the balance of trade in favour of a nation is the demand which
foreign markets make for her commodities: now this demand, as it raises
the value of her coin above her bullion, so it raises the price of her
commodities, by increasing foreign competition to acquire them.
These combinations are very intricate, and more properly belong to the
doctrine of commerce than to that which we are now upon. I have thrown
them in here, for the sake of extending the present theory a little
farther, and for enabling us to account for appearances which may happen
upon the imposition of coinage, supposing it should be thought proper to
make the experiment.
------------------------------------------------------------------------
CHAP. V.
_How an Experiment may be made to discover with Certainty the real
Effects of the Imposition of Coinage._
We have dwelt very long upon this part of our subject, and after all our
endeavours to elucidate the principles which ought to decide whether or
not the imposition of coinage will raise the value of the pound
sterling, in a kingdom which, like Great Britain, is in a mercantile
correspondence with nations where that duty is introduced, we have still
been obliged to leave the final decision of the question to an
experiment.
By that alone it will be clearly discovered, whether coinage will have
the effect, _1mo_, of sinking the prices of commodities, to the
prejudice of manufacturers; _2do_, of raising the price of the pound
sterling, to the prejudice of all the classes of debtors within the
nation; and _3tio_, of hurting trade, by putting England under the
necessity of selling dearer, without being able to sell as cheap as
before: or whether commodities will remain at their former prices; the
pound sterling at the same value; and England be enabled to sell dearer
to foreigners, when her commerce is favourable, without being obliged
upon other occasions to sell one bit dearer than at present.
I shall now give a hint concerning a proper method of making the
experiment.
[Sidenote: The plan of an experiment proposed.]
Suppose peace[1] restored, and a balance of trade favourable to England;
that government shall take the resolution to set about the reformation
of the coin; that they shall publish the plan of reformation three years
before it is intended to commence, according to what was proposed in the
14th chapter of the first part; that they shall make a change in the
mean time upon the regulation of the mint, by ordering all silver coin,
and all guineas, except those of George II. to pass by weight; that
shillings shall be ordered to be coined at 65 in the pound troy; the
mint price, when at par with the coin, remaining as at present with
regard to the gold, and raised to 65 new pence _per_ ounce with regard
to the silver. This, I imagine, will furnish specie sufficient to the
nation, and will make no change upon the value of the pound sterling at
present.
Footnote 1:
Written in the year 1761.
[Sidenote: The consequence of this will be to recall the old guineas
from abroad.]
So soon as there shall be a few millions of silver coined free, let the
mint price both of gold and silver be diminished, suppose 4 _per cent._
This, I imagine, will in a short time give an advanced price to coin,
and sink the price of bullion; which will have the effect of recalling
all the guineas of the late King from Holland and Flanders; because coin
being then dearer than bullion in England, people will choose to send
over current guineas to pay their English debts, rather than to remit
bills of exchange. This circumstance will naturally stop the coining of
gold for some time; but if the balance of trade shall continue
favourable, the mint must, in time, be set a-going.
[Sidenote: During this experiment, a close attention must be had to the
rate of prices.]
During this period, a strict attention must be had to the state of
prices. It is plain, that stopping the coining of gold ought not to make
them sink; since the daily augmentation upon the quantity of the gold
coin from abroad (which will not cost any coinage) will, I imagine, be
sufficient to compensate it. If, therefore, prices shall be found to
sink notwithstanding, this effect must proceed from a combination among
the merchants. An intelligent statesman will quickly discover the true
state of the case.
[Sidenote: And if they vary, how to discover the true cause of it.]
If the sinking of the price is a necessary consequence of the imposition
of coinage, it will perhaps manifest itself by the following symptoms:
_1mo_, The profit of the English merchants upon goods exported will be
the same as before. _2do_, The price of the goods exported will be the
same as before in foreign markets. And _3tio_, Exchange will mark as
many _per cent._ favourable for England as goods will have fallen in
their price at home.
If the fall of the prices be forced, by a combination among the
merchants, their profits will be greater; and very probably no variation
will appear upon the exchange in favour of England.
Let, therefore, the course of exchange be attended to, and by this the
minister will be able to judge, when silver and gold are to be brought
to the mint. The moment exchange, and the price of bullion in the London
market, shall shew that coin is near the full price of coinage above the
price of bullion, then the time approaches when the mint is to be set
a-going.
[Sidenote: Farther consequences of this experiment.]
It is to no purpose to pretend to prognosticate the effect of this
change in the policy of the English mint. Effects it will certainly
produce, which every one will interpret according as their interest may
dictate to them. But the principles of trade are now too well known.
English ministers are too well instructed in the theory of it, and too
sharp-sighted to be deceived by appearances. A trial of a few years will
render the consequences of this innovation perfectly clear; and before
the great reform takes place, the principles will be so well confirmed,
as not to leave a shadow of doubt concerning the course which is best to
be followed.
The silver coined in the interval, at 65 shillings in the pound troy,
may then be rated at its just value, in proportion to the new pound
sterling, and may form a denomination by itself, easily to be
distinguished by the stamp. If it should happen to fall into
inconvenient fractions, let it be called in, and received at the mint
above the rate of other bullion: the loss will not be considerable; and
it cannot be expected that any plan can be proposed which is liable to
none.
Another method is, to coin, during the interval of the three years,
shillings of the weight adapted to the new regulation, and to give them
a value proportioned to the present currency, in the mean time.
In whatever way the experiment be made, by the imposition of the price
of coinage, a great expence will be saved to the state, the expence of
the mint. The national coin will be kept at home, and when exported,
will be preserved from the melting pot. This is the case with the French
coin. Why are louis d’ors worth as much as guineas in many foreign
countries? It is evident that they are not intrinsically worth so much
by 4½ _per cent._ but they are virtually so in the eyes of
money-jobbers; because, being exported from France while coin is fallen
low by a wrong balance of their trade, they still retain an advanced
value, for this reason, that when sent back, upon a revolution in trade,
they are better than bullion, by all the advanced price of the French
coin, at a time when their balance becomes favourable; and for this
reason they are sought for, and are paid for in proportion: whereas any
bullion, or any coin whatsoever, is as good to send to England as her
own proper specie; which occasions the guineas to be melted down without
the smallest regret.
[Sidenote: Can we estimate the wealth of a nation by the quantity of its
coin?]
It would be a curious inquiry to examine the proportion of money coined
in England and in France, and to compare the quantities coined with the
quantities in existence. People commonly estimate the wealth of a nation
by the quantity of its coined money. Some go farther, and imagine that
the quantity of the coined money is the representation and even the
measure of its wealth. I cannot be of this opinion, for reasons which I
have given in another place; but I shall only observe here, that coin,
like every other thing, is made in proportion to the occasions people
have for it.
The more equality there is between industry and consumption in any
nation, the less coin they have occasion for, in proportion to the
alienations they make; the more a nation is given to penury and
hoarding, their occasions for coin are proportionally greater.
An example will make this plain. Suppose two markets in a country, where
paper does not circulate; that 1000 people come to the one to sell, in
order to buy; that 500 resort to the other, with an intention only to
sell, and 500 others only to buy. In the last example, it is evident,
that there must be brought to market, in specie, the price of all the
goods offered to sale, or else a part must remain unsold: but in the
first case, a much smaller proportion will suffice; because no sooner
has any one sold the goods he has, than he buys from another what he has
occasion for; and so the same money circulates from hand to hand, so
much, that if we suppose every one of the thousand persons to sell for
the precise value of what he buys, every man will carry home the same
sum of money he had in his pocket on coming to market. Those who begin
by selling, will carry home their own coin; those who begin with buying,
will replace what they had with the coin of other people.
In proportion, therefore, to the trucks of commodities for commodities,
money is the less necessary; and in proportion as people sell, in order
to realize, coin is the more necessary. When hoarding was in fashion,
and when lending upon interest was little known, had alienation been as
frequent as at present, the total of coin must have been much greater.
At present no body hoards, where lending at interest is lawful, except
in nations where credit is precarious. This was the case in England
about 1695, and is perhaps the case at present in France[2]. Hoarding
from this motive is more hurtful than from any other: because, at the
same time that it deprives the public of a circulating value, by
preventing the lending of the coin of the nation, it also prevents
bullion from being lent by neighbouring states, and from being carried
to the mint by those who have it at home. Whereas hoarding from avarice
has none of these inconveniences; and when credit is good, there will
always be found coin sufficient; because a demand for it will always
procure it.
[Sidenote: Just as we can estimate a man’s estate by the weight of his
purse.]
Why is there so little coin in England, in proportion to what there is
in France? Does any man imagine that this is a mark of poverty? By no
means. Let the state proscribe the currency of paper money, the coin
will quickly return; because then it will be demanded. But at present
the paper supplies its place, and so it goes abroad in order to gain
more; whereas in France it remains at home, and produces nothing. The
wealth of a nation can no more be estimated by the quantity of its coin,
than the wealth of private people by the weight of their purse. Were a
person, from that circumstance, to calculate the wealth of the British
courtiers, assembled at the Groom Porter’s, he would find himself
grossly deceived in his conclusions.
Footnote 2:
In 1760.
------------------------------------------------------------------------
CHAP. VI.
_Miscellaneous Questions and Observations concerning the Doctrine of
Money and Coin._
In deducing the principles of every branch of politics, it is of great
importance, at setting out, to treat every one separately; to avoid
intricate combinations of circumstances; and to learn how to distinguish
between the operations of the general principle in question, and the
influence of an accidental circumstance, which may throw the decision of
a particular case upon a principle different from that upon which our
attention is fixed at the time. Let the combination and complication of
circumstances be ever so great, all and every one of them constantly
remain under the influence of one principle or other.
The great art, therefore, is to have the whole plan of the science so
ready at command, as to be able to combine and apply every principle of
it to the case proposed.
From this we discover of what importance it is to be exactly informed as
to facts, and how utterly insufficient the best theory is in the hands
of any person, who is not at the same time a thorough practitioner in
the political science.
In treating of the application of principles to particular cases, we
must constantly go upon this hypothesis, that in the case proposed there
are no unknown circumstances, which may be repugnant to the exact
combination of those which have entred into our supposition.
[Sidenote: The use of a miscellaneous chapter at the end of a subject.]
The use, therefore, of a miscellaneous chapter, after the deduction of
the general principles is over, is to serve as an exercise upon them.
This is done by introducing questions which may tend to illustrate or
explain the matters already treated of, and which have not been
introduced in the body of the work, for fear of rendering combinations
too complicated, and of drawing the attention from the main object of
inquiry. When a particular appearance, also, seems to contradict a known
principle, that appearance may here be analized, and the particularity
of the case pointed out, and ranged under the principle which influences
it. Numbers of objections also occur to readers of such inquiries, and
which even naturally occur to the author himself, although he be obliged
to take no notice of them at the time, for fear of interrupting his
subject; these may properly find a place in a subsidiary chapter. It is,
however, to no purpose to attempt to exhaust any political subject. The
combinations of circumstances are infinite; and therefore people must
content themselves with deducing all the principles by which they may be
resolved, leaving the rest to the reader’s ingenuity.
[Sidenote: Quest. 1. Why does the doctrine of money appear so
intricate?]
QUEST. I. The first question I shall propose for illustrating this
subject shall be, Whence it comes to pass that the doctrine of money is
so extremely difficult and involved?
[Sidenote: Answ. Because it is perplexed with jargon.]
ANSW. This I ascribe chiefly to the introduction of a money-jargon,
employed by people who have had the management of mints, or who have
been practical merchants, without knowing any thing of the theory of
their business.
[Sidenote: The denominations of coin are confounded with the intrinsic
value of it.]
As long as money went by weight, and was considered as gold and silver
bullion, the whole doctrine of it remained clear and intelligible: but
the introduction of a numerary value, or denominations of money of
accompt, sometimes attached to one quantity of the metals, sometimes to
another; and the interest of Princes, which made them endeavour to
persuade their subjects that the stamp of the coin was sufficient to
give a value to it; has both introduced an unintelligible language, and
has really involved the subject with so many extraneous circumstances,
that when we consider every thing, the perplexity is not much to be
wondered at.
I shall now endeavour to reduce all these perplexities under some
general heads.
[Sidenote: The terms metal, money, coin, bullion, and price, are all
considered as synonimous.]
_1mo_, The first is, confounding ideas quite different in themselves.
The terms _gold_ and _silver_, _money of accompt_, _coin_, _bullion_,
and _price_, are often understood and made use of as synonimous,
although no things can be more different.
[Sidenote: What is meant by _metal_?]
The terms _gold_ and _silver_ should convey to us no other idea than
that of pure physical substances.
[Sidenote: What by _money_?]
That of _money of accompt_ represents an invariable scale for measuring
value.
[Sidenote: What by _coin_?]
_Coin_ conveys the idea of the public authority ascertaining the exact
proportion of fine and alloy in a mixed metal, and the realizing, in a
determinate weight of it, the invariable scale of money, sometimes
correctly, sometimes incorrectly.
[Sidenote: What by _bullion_?]
_Bullion_ carries the idea of certain determinate mixtures of the
metals, commonly ascertained by some public stamp or other, and drawing
their value exactly from the proportion of the fine metals they contain,
the workmanship being considered as of no value.
[Sidenote: What by _price_?]
_Price_, again, when considered as consisting in coin, is a more complex
idea still. In it are comprehended the value of the metals; the
authority of the stamp for the currency; the actual value of the coin as
a manufacture, above the value of it as a metal; the common and
universal equivalent of all things alienable; and the mean value of the
currency of which _price_ is supposed to contain exact aliquot parts,
when perhaps it does not.
The ideas, therefore, of _gold_ and _silver_, of _money_, of _coin_, of
_bullion_, and of _price_, are all different; they are commonly
confounded, both in speaking and in writing: from this arises the first
cause of perplexity.
[Sidenote: The abuse of the terms _rising_ and _sinking_, and inaccuracy
of speech.]
_2do_, The second is owing to the common method of estimating the value,
and the proportions between _gold_ and _silver_; _coin_ and _bullion_;
_money_ and _merchandize_. The terms usually employed to express such
combinations are, _rising_ and _sinking_, or the like: people employ
these terms, without previously agreeing upon the thing which they are
to consider as fixed. The value of one of the precious metals is
constantly relative to that of the other; and yet, without attending to
this, we sometimes consider the gold, and sometimes the silver, as the
common measure; and while one is talking of gold as a common measure,
the person he talks to is considering it perhaps as the thing measured.
This inaccuracy, in supposing sometimes the one as fixed, and sometimes
the other, involves us in great obscurities; especially when we speak
upon such matters with those who have not distinct combinations of
ideas: and if three or four people are engaged in a conversation upon
money, every one using the same term in a different acceptation, the
confusion which it causes is inextricable.
In like manner, when we speak of coin and bullion, that of the two ought
to be considered as fixed which changes its proportion of value the
least with respect to all commodities.
[Sidenote: Prices attached to denominations of coin.]
Were prices attached to grains of silver and gold, bullion ought in that
case to be considered as fixed; but as they are more attached to the
denominations of the coin, coin ought to be considered as fixed.
[Sidenote: _Coinage raises the value of coin_, is a more proper
expression than _Coinage sinks the price of commodities_.]
In the next place, in speaking of coin and commodities, we say, for
example, that the imposition of coinage makes the prices of commodities
sink. We do not, in this case, speak correctly; because if any thing
ought to be considered as fixed, it is the relative proportion of value
between the different sorts of commodities. In this case, therefore, I
think it would be more proper to say, that coinage raises the value of
coin, than that it sinks the value of commodities.
[Sidenote: How to avoid such ambiguities in speech.]
To prevent the ambiguity of such expressions from occasioning confusion,
and not to depart too far from common language, I have frequently spoken
of commodities as rising and sinking in their values with respect to
coin; but I have at the same time observed the influence which that
rising and sinking has upon the rising and sinking of the value of the
pound sterling realized in it.
[Sidenote: A case which cannot be resolved by this theory.]
I have not, however, concluded with equal certainty that the rising and
sinking in the value of bullion, _with respect to coin_, ought to imply
any change upon the value of the money-unit; because I have not been
able to determine whether prices ought to be considered as most attached
to the denominations of the coin, or to the grains of the metals: except
indeed in one case, to wit, when the quantity of the metals comes to be
augmented or diminished in the coin. In that case, I have not hesitated
to decide that, sooner or later, the influence of trade must operate a
rise or a fall in the current value of the specie, which will be marked
by an apparent rise or fall in the price of all commodities.
[Sidenote: In speaking, we do not distinguish between pure metal and
that which is mixed with alloy.]
_3tio_, Our comparing the value of silver sometimes with the pure metal,
sometimes with that compounded with alloy, involves us frequently in a
language which is hardly to be understood.
Says one, a pound of silver, troy, is worth 67 shillings. He means a
pound of fine silver. We in England, says another, coin our pound troy
of silver into 62 shillings. He means the pound of standard silver,
which contains 18 penny weights of copper. Says a third, our pound of
silver, which we coin into 62 shillings, is not worth 57_s._ 6_d._ He
understands the shillings of fine silver of the same weight with those
of standard silver. Another affirms, that an ounce of standard silver,
which, at the mint, and in the coin, is worth no more than 5_s._ 2_d._
is worth in the market 5_s._ 6_d._ He means, that one must pay at that
rate for silver bullion, when they purchase it with over-rated gold. At
last comes Mr. Cantillon, who, as a proof of the decline of the English
commerce, affirms to us, in his Analysis of trade, p. 133. that both
silver and gold bullion are dearer in the London market than in the
coin: at the same time, he might have discovered the cause of it, from
the lightness of the gold and silver currency at the time he wrote;
since the phænomenon could proceed from nothing else: the new guineas
must then have been sent abroad. Says a Frenchman, one of our crowns of
3 livres, which passes for 60 sols, is intrinsically worth no more than
56½ sols. He means, that the fine silver it contains is worth no more
than 56½ sols, according to the mint price of the fine metals.
[Sidenote: Of the abuse of terms relative to the denomination of coins.]
_4to_, Another cause of perplexity in the money-jargon, is the
prodigious abuse of the terms which express the denominations of the
coin, or the numerary unit.
French historians write familiarly of sums of money in livres and
crowns, through all the stages of the monarchy. English writers (for the
most part) do the same, in speaking of pounds sterling. Nothing however
is more different than the ideas expressed by the same term.
[Sidenote: This illustrated by an example.]
Were any person, talking of lengths and distances, to use the word
_foot_, sometimes to signify _yard_, sometimes _perch_; or to use the
word _mile_, to signify sometimes _league_, sometimes _inch_, and
sometimes _fathom_; who could comprehend one word of his discourse
concerning the matter? Would we not even laugh at such a person, for
pretending to inform us of any thing concerning lengths or distances.
If any change be made upon the value of the money-unit of a country,
which is called a pound; in propriety of language, it can no more be
called a pound, after the change, than it can be called a rhinoceros.
[Sidenote: Farther obscurities from the abuse of language.]
_5to_, Another reason for the obscurity of money-jargon, is the manner
in which writers express themselves, when they speak of variations in
the value of money. Upon this occasion, says one, the King raised the
money 5 _per cent._ What does this mean? No man living can understand
the expression; because it may signify, that he raised either the
denomination of the coin, or the value of the unit. If he raised the
coin, he debased the unit: if he sunk the coin, he raised the unit. A
crown of 6 livres is a coin: a livre is the unit. If it is said, the 6
livre piece is raised; that is as much as to say, it is made to be more
than 6 units; consequently, as the silver in the piece does not change
its weight, it follows, that the unit, or money of accompt, is
diminished. On the other hand, if it is said that the livre is raised,
it implies that the crown, which contained 6 livres, is made to contain
less than 6 units; therefore, the value of the unit is raised; that is,
it is made to contain more silver than before.
[Sidenote: How to avoid such abuse.]
Writers, therefore, to be distinct, ought never to mention these
matters, without removing the ambiguity, in favour of readers of all
denominations. As for example: The King raised his coin, and debased his
money of accompt. For this reason the French expression is good, and
easily understood; _augmenter la valeur numeraire des especes_, is
liable to no obscurity.
There are also two terms used by French writers, which appear
synonimous, and yet are directly opposite; AFFOIBLISSEMENT, _et_
DIMINUTION _de la monnoïe_. Such terms are perplexing, and ought either
to be avoided, or constantly explained. The first signifies the coining
the specie of the same denomination lighter in the metals than before:
the last signifies the lowering the denominations of the coin already
made. The first therefore diminishes, the second increases the value of
the unit, which is the livre.
[Sidenote: Quest 2d. What is the difference between raising the _value_
of coin, by imposing coinage, and raising the denomination of
it?]
QUEST. II. What is the difference between the effects produced by
raising the value of the coin by the imposition of coinage, and raising
the denomination of it? This question is proposed as a further means of
rendering the money-jargon intelligible.
ANSW. The imposition of coinage, when it gives an advanced value to coin
above the metals it contains, is very different from that advanced value
which the coin appears to receive when the Sovereign arbitrarily raises
the denomination of it; or as the French call it, when he augments its
numerary value.
[Sidenote: Answer. The first is real, and affects foreign nations; the
other does not.]
When the imposition of coinage gives an advanced value to the coin above
the bullion it contains, that value becomes real, and extends itself to
foreign nations; that is to say, the coin, so augmented as a
manufacture, must be bought with more foreign coin than formerly. But
when the denomination, or numerary value, is augmented, the same piece
(though augmented in denomination) is bought by strangers with the same
quantity of their coin as before. An example will make this plain.
[Sidenote: Proved by an example.]
Let us suppose the coin in France, in war time, reduced to the value of
bullion, and that the value of a crown of three livres, by the course of
exchange, should be then worth 29½ pence heavy silver sterling money; if
the balance of the French trade should become favourable in general, and
that coin should become 8 _per cent._ dearer than bullion in the Paris
market, then the price of the crown of three livres will rise 8 _per
cent._ upon the London exchange above 29½ pence heavy silver sterling
money, although there be respectively no balance to be paid in bullion
either by England or France. But let the King of France ordain, that the
crown of three livres shall be raised in its denomination to six livres,
and let the coin at that time be supposed to be at par with bullion in
the Paris market, the crown of three livres will then be paid as
formerly with 29½ pence. That is to say, the augmentation of the
denomination will have no effect upon the value of the coin in other
countries; whereas the augmentation affected by the operations of trade,
in consequence of the imposition of coinage, is a real augmentation,
since it extends to foreign nations.
[Sidenote: How the arbitrary method of raising the denomination of coin
affects prices at home.]
Now it is certain and evident, that the augmentation of the numerary
value has the undoubted effect of sinking the value of the numerary unit
realized in the coin, and that upon such occasions we ought to say, that
the King has diminished the value of the livre, and not that he has
raised the value of the coin. But the abuse of language has made people
consider the livre as the thing fixed, and therefore the coin is
considered as the thing which rises and sinks. The consequence of this
is, to introduce another abuse of language. People say, that the prices
of commodities rise: I ask, With respect to what? Not with respect to
the pieces of coin, but with respect to the denominations they carry:
that is to say, with respect to livres; although the livre be considered
as the thing fixed. There is, however, a reason why people express
themselves in this improper manner, which proceeds from the perplexity
and confusion of their ideas concerning money.
When the King of France arbitrarily changes the numerary value of his
coin, commodities are found, by universal experience, to stick so
closely to the denominations of it, that people are apt to think that it
is the King’s will and pleasure, and not the metal of which the coin is
made, which gives it a value. But commodities depart from these
denominations by degrees, and fix themselves a-new at a determinate
value of the fine metals, proportioned to what they bear in foreign
nations. This is brought about by the operations of commerce; and
consequently, the rise of prices not taking place till some time after
the numerary value of the coin has been augmented, people accustom
themselves to say, that the augmenting the denomination of the coin
raises prices, and that diminishing the denomination sinks them. But did
all prices strictly adhere to the grains of bullion contained in the
coin, and not to the denominations of the numerary value, then language
would change, and no body would speak about the rising and sinking of
prices, but of the rising and sinking of livres, sols, and deniers.
I hope, from what has been said, that the difference between raising the
value of the coin by imposing coinage, and the raising the nominal value
of it by augmenting the denomination or numerary value of it, is
perfectly understood. The first raises the value of the numerary unit,
by giving a real additional value to the coin as a manufacture: the last
raises, for a while, the value of the numerary unit; only because the
price of commodities, being attached to the denominations of money of
accompt, stick to them, until the operations of trade reduce them to
their true principle.
Whenever, therefore, the terms _rising_ and _sinking_ are applied to
value, the thing which is said to rise, is supposed to be the moveable;
and the thing it is compared with, or with respect to which it is said
to rise or sink, is supposed to be the term fixed. Every one, therefore,
who reads books upon this subject, ought, upon all occasions where there
is mention made of rising and sinking of the price of the gold, silver,
bullion, coin, exchange, or commodities, constantly to cast his eye upon
the thing which is supposed to be fixed, and retaining that in his mind,
he will preserve his ideas distinct.
[Sidenote: Quest. 2. How will the imposition of coinage affect the
creditors of Great Britain?]
QUEST. III. Let us suppose that the imposition of coinage, when properly
laid on, will not raise the value of the pound sterling; and
consequently that it will not affect the domestic interests of Great
Britain: it may be asked, What influence that imposition will have upon
the interest of her foreign creditors, since it must affect exchange?
[Sidenote: Answ. If they continue to be paid by denominations, they will
gain; if by weight of metal, they will not gain, nor will
they lose.]
ANSW. The foreign creditors of the nation will thereby be gainers,
provided their interest continues to be paid in denominations of pounds
sterling, and not in a determinate number of grains of the fine metals,
as was proposed to be done in the fourteenth chapter of the first part.
The reason is plain: upon all occasions, when coin carries an advanced
price above bullion, those who have funds in England will gain upon
exchange. This gain will nowise, I think, be at the expence of the
nation, but at the expence of those foreigners who have occasion for
paper draughts upon London.
[Sidenote: Proved by an example.]