Under this head, we shall have to examine the laws of currency and
exchange; of which I will note here the first principles.
Money has been inaccurately spoken of as merely a means of
circulation. It is, on the contrary, an expression of right. It is not
wealth, being the sign[69] of the relative quantities of it, to which,
at a given time, persons or societies are entitled.
[69] Always, and necessarily, an imperfect sign; but capable
of approximate accuracy if rightly ordered.
If all the money in the world, notes and gold, were destroyed in an
instant, it would leave the world neither richer nor poorer than it
was. But it would leave the individual inhabitants of it in different
relations.
Money is, therefore, correspondent in its nature to the title-deed of
an estate. Though the deed be burned, the estate still exists, but the
right to it has become disputable.
The worth of money remains unchanged, as long as the proportion of the
quantity of existing money to the quantity of existing wealth, or
available labour which it professes to represent, remains unchanged.
If the wealth increases, but not the money, the worth of the money
increases; if the money increases, but not the wealth, the worth of
the money diminishes.
Money, therefore, cannot be arbitrarily multiplied, any more than
title-deeds can. So long as the existing wealth or available labour is
not fully represented by the currency, the currency may be increased
without diminution of the assigned worth of its pieces. But when the
existing wealth, or available labour, is once fully represented, every
piece of money thrown into circulation diminishes the worth of every
other existing piece, in the proportion it bears to the number of
them, provided the new piece be received with equal credit; if not,
the depreciation of worth takes place exclusively in the new piece,
according to the inferiority of its credit.
When, however, new money, composed of some substance of supposed
intrinsic value (as of gold), is brought into the market, or when new
notes are issued which are supposed to be deserving of credit, the
desire to obtain money will, under certain circumstances, stimulate
industry; an additional quantity of wealth is immediately produced,
and if this be in proportion to the new claims advanced, the value of
the existing currency is undepreciated. If the stimulus given be so
great as to produce more goods than are proportioned to the additional
coinage, the worth of the existing currency will be raised.
Arbitrary control and issues of currency affect the production of
wealth, by acting on the hopes and fears of men; and are, under
certain circumstances, wise. But the issue of additional currency to
meet the exigencies of immediate expense, is merely one of the
disguised forms of borrowing or taxing.
It is, however, in the present low state of economical knowledge,
often possible for Governments to venture on an issue of currency,
when they could not venture on an additional loan or tax, because the
real operation of such issue is not understood by the people, and the
pressure of it is irregularly distributed, and with an unperceived
gradation. Finally, the use of substances of intrinsic value as the
materials of a currency, is a barbarism;--a remnant of the conditions
of barter, which alone can render commerce possible among savage
nations. It is, however, still necessary, partly as a mechanical check
on arbitrary issues; partly as a means of exchanges with foreign
nations. In proportion to the extension of civilization, and increase
of trustworthiness in Governments, it will cease. So long as it
exists, the phenomena of the cost and price of the articles used for
currency, are mingled with those of currency itself, in an almost
inextricable manner; and the worth of money in the market is affected
by multitudinous accidental circumstances, which have been traced,
with more or less success, by writers on commercial operations; but
with these variations the true political economist has no more to do
than an engineer fortifying a harbour of refuge against Atlantic tide,
has to concern himself with the cries or quarrels of children who dig
pools with their fingers for its ebbing currents among the sand.