MONEY
AND
TRADE
CONSIDERED:
WITH A PROPOSAL FOR SUPPLYING
THE NATION WITH MONEY.
FIRST PUBLISHED AT EDINBURGH MDCCV.
BY THE CELEBRATED
JOHN LAW, ESQ;
AFTERWARD
DIRECTOR TO THE MISSISIPI COMPANY.
GLASGOW,
PRINTED AND SOLD BY R. & A. FOULIS
MDCCL.
MONEY AND TRADE CONSIDERED.
There are several proposals offer’d to remedy the difficulties the
nation is under from the great scarcity of money.
That a right judgment may be made, which will be most safe,
advantageous and practicable; it seems necessary, 1. that the nature
of money be inquired into, and why silver was used as money preferable
to other goods. 2. that trade be considered, and how far money
affects trade. 3. that the measures have been used for preserving and
increasing money, and these now proposed, be examined.
CHAP. I.
_How goods are valued. of barter. of silver; its value as a metal;
its qualities fitting it for money; and of the additional value it
received from being used as money._
Goods have a value from the uses they are applyed to; and their value
is greater or lesser, not so much from their more or less valuable,
or necessary uses, as from the greater or lesser quantity of them in
proportion to the demand for them. example; water is of great use, yet
of little value; because the quantity of water is much greater than the
demand for it. diamonds are of little use, yet of great value, because
the demand for diamonds is much greater, than the quantity of them.
Goods of the same kind differ in value, from any difference in their
quality, one horse is better than another horse. barley of one country
is better than barley of another country.
Goods change their value, from any change in their quantity, or in the
demand for them. if oats be in greater quantity than last year, and the
demand the same, or lesser, oats will be less valuable.
Mr. Locke says, the value of goods is according to their quantity in
proportion to their vent. the vent of goods cannot be greater than
the quantity, but the demand may be greater: if the quantity of wine
brought from France be a 100 ton, and the demand be for 500 ton, the
demand is greater than the vent; and the 100 ton will sell at a higher
price, than if the demand were only equal to the vent. so the prices of
goods are not according to the quantity in proportion to the vent, but
in proportion to the demand.
Before the use of money was known, goods were exchanged by barter, or
contract; and contracts were made payable in goods.
This state of barter was inconvenient, and disadvantageous. 1. he who
desired to barter would not always find people who wanted the goods he
had, and had such goods as he desired in exchange.
2. Contracts taken payable in goods were uncertain, for goods of the
same kind differed in value.
3. There was no measure by which the proportion of value goods had to
one another could be known.
In this state of barter there was little trade, and few arts-men. the
people depended on the landed-men. the landed-men laboured only so much
of the land as served the occasions of their families, to barter for
such necessaries as their land did not produce; and to lay up for seed
and bad years. what remained was unlaboured; or gifted on condition of
vassalage, and other services.
The losses and difficulties that attended barter, would force the
landed-men to a greater consumption of the goods of their own product,
and a lesser consumption of other goods; or to supply themselves,
they would turn the land to the product of the several goods they had
occasion for; tho’ only proper to produce of one kind. so, much of the
land was unlaboured, what was laboured was not employ’d to that by
which it would have turned to most advantage, nor the people to the
labour they were most fit for.
Silver as a metal had a value in barter, as other goods; from the uses
it was then apply’d to.
As goods of the same kind differ’d in value, so silver differ’d from
silver, as it was more or less fine.
Silver was lyable to a change in its value, as other goods, from any
change in its quantity, or in the demand for it.
Silver had qualities which fitted it for the use of money.
1. It could be brought to a standard in fineness, so was certain as to
its quality.
2. It was easie of delivery.
3. It was of the same value in one place that it was in another; or
differed little, being easie of carriage.
4. It could be kept without loss or expence; taking up little room, and
being durable.
5. It could be divided without loss, an ounce in four pieces, being
equal in value to an ounce in one piece.
Silver having these qualities, ’tis reasonable to think it was used as
money, before it was coined. what is meant by being used as money, is,
that silver in bullion was the measure by which goods were valued: the
value by which goods were exchanged: and in which contracts were made
payable.
He who had more goods than he had use for, would choose to barter
them for silver, tho’ he had no use for it; because, silver was
certain in it’s quality: it was easie of delivery: it could be kept
without loss or expence: and with it he could purchase other goods as
he had occasion, in whole or in part, at home or abroad, silver being
divisible without loss, and of the same value in different places. If
A. B. had 100 sheep, and desired to exchange them for horses; C. D.
had 10 horses, which were equal to, or worth the 100 sheep, and was
willing to exchange: but as A. B. had not present occasion for the
horses, rather than be at the expence of keeping them, he would barter
his sheep with E. F. who had the value to give in silver, with which he
could purchase the horses at the time he had occasion.
Or if E. F. had not silver, but was satisfied to give his bond for the
silver, or the horses, payable at the time A. B. wanted them; A. B.
would choose to take the bond payable in silver, rather than in horses:
because silver was certain in quality, and horses differed much. so
silver was used as the value in which contracts were made payable.
Silver was likewise used as the measure by which goods were valued,
because certain in quality. if A. B. had a 100 weight of lead, and
desired to exchange it for barley, the way to know what quantity of
barley was equal in value to the lead, was by the silver. if the 100
weight of lead was equal to five ounces of fine silver, and 5 ounces of
fine silver equal to 20 bolls of barley, then 20 bolls was the quantity
of barley to be given in exchange for the lead.
Silver being easie of carriage, so equal in one place to what it was
in another; was used as the measure by which goods to be delivered in
different places were valued. If a piece of wine was to be delivered
at Glasgow by A. B. merchant there, to the order of C. D. merchant in
Aberdeen: and the value to be delivered in oats at Aberdeen by C. D. to
the order of A. B. the wine could not be valued by the quantity of oats
it was worth at Glasgow, nor the oats by the quantity of wine they were
worth at Aberdeen. wine or oats might differ in quality, or be more
or less valuable at the one place than at the other. the way to have
known what quantity of oats was equal to the wine, was by the quantity
of silver each was worth at the places they were to be delivered. if
the piece of wine was worth at Glasgow 20 ounces of fine silver, and 20
ounces of fine silver worth 50 bolls of oats at Aberdeen; then 50 bolls
was the quantity of oats to be given there in return for the wine.
Silver being capable of a stamp, princes, for the greater convenience
of the people, set up mints to bring it to a standard, and stamp it;
whereby its weight and fineness was known, without the trouble of
weighing or fyning; but the stamp added nothing to the value.
For these reasons silver was used as money; its being coined was only a
consequence of its being applied to that use in bullion, tho’ not with
the same convenience.
Mr. Locke and others who have wrote on this subject, say, the general
consent of men placed an imaginary value upon silver, because of its
qualities fitting it for money.[1]
[1] Locke p. 31. upon interest, and p. 1. upon money.
I cannot conceive how different nations could agree to put an
imaginary value upon any thing, especially upon silver, by which all
other goods are valued; or that any one country would receive that as
a value, which was not valuable equal to what it was given for; or
how that imaginary value could have been kept up. but, suppose France
receiving silver at an imaginary value, other nations received it at
that value, because received so in France: then for the same reason a
crown passing in France for 76 Sols, should pass in Scotland for 76
pence, and in Holland for 76 Stivers. but on the contrair, even in
France where the crown is raised, ’tis worth no more than before when
at 60 Sols.
It is reasonable to think silver was barter’d as it was valued for
its uses as a mettal, and was given as money according to its value
in barter. the additional use of money silver was applied to would
add to its value, because as money it remedied the disadvantages and
inconveniencies of barter, and consequently the demand for silver
increasing, it received an additional value equal to the greater demand
its use as money occasioned.
And this additional value is no more imaginary, than the value silver
had in barter as a metal, for such value was because it served such
uses, and was greater or lesser according to the demand for silver as
a mettal, proportioned to its quantity. the additional value silver
received from being used as money, was because of its qualities which
fitted it for that use; and that value was according to the additional
demand its use as money occasioned.
If either of these values are imaginary, then all value is so, for
no goods have any value, but from the uses they are apply’d to, and
according to the demand for them, in proportion to their quantity.
Thus silver having a value, and qualities fitting it for money, which
other goods had not, was made money, and for the greater convenience of
the people was coined.
The names of the different pieces might have been number 1. number 2.
and so on; number 60 would have been the same as a crown; for the name
and stamp was only to certify, that the piece had such a quantity of
silver in it, of such a fineness.
Goods of any other kind that have the same qualities might then, and
may now be made money equal to their value. gold and copper may be made
money, but neither with so much convenience as silver. payments in
copper being inconvenient by reason of its bulk; and gold not being in
so great quantity as to serve the use of money. in countries where gold
is in great quantity, it is used as money; and where gold and silver
are scarce, copper is used.
Gold is coined for the more easie exchange of that metal, and copper to
serve in small payments; but silver is the measure by which goods are
valued, the value by which goods are exchanged, and in which contracts
are made payable.
As money encreased, the disadvantages and inconveniences of barter
were removed; the poor and idle were employed, more of the land was
laboured, the product encreased, manufactures and trade improved, the
landed-men lived better, and the people with less dependance on them.
CHAP. II.
_Of Trade, and how far it depends on money. that the increase of the
people depends on Trade. of exchange._
Trade is domestick, or foreign. domestick trade is the imployment of
the people, and the exchange of goods within the country.
Foreign trade has several branches.
1. The product and manufacture being more than the consumption, a part
is exported, and in return foreign goods are brought home.
2. Selling the goods exported at one port, and loading there to sell
another; whereby a greater return is made, than if the goods exported
had been carry’d directly there.
3. Bringing home the product and manufacture of other countries, from
whence, and when they are cheap; to supply countries where, and when
they are dear.
4. Bringing home the product of other countries, and exporting it in
manufacture.
5. Freighting, or hireing out ships.
Domestick and foreign trade may be carried on by barter; but not for so
great a value as by money, nor with so much convenience.
Domestick trade depends on the money. a greater quantity employs more
people than a lesser quantity. a limited sum can only set a number of
people to work proportioned to it, and ’tis with little success laws
are made, for imploying the poor or idle in countries where money is
scarce; good laws may bring the money to the full circulation ’tis
capable of, and force it to those employments that are most profitable
to the country: but no laws can make it go further, nor can more people
be set to work, without more money to circulate so, as to pay the wages
of a greater number. they may be brought to work on credit, and that is
not practicable, unless the credit have a circulation, so as to supply
the workman with necessaries; if that’s supposed, then that credit is
money, and will have the same effects, on home, and foreign trade.
An addition to the money adds to the value of the country. so long
as money gives interest, it is imployed; and money imployed brings
profit, tho’ the imployer loses. if 50 men are set to work, to whom 25
shillings is payed per day, and the improvement made by their labour be
only equal to, or worth 15 s. yet by so much the value of the country
is increased. but as it is reasonable to suppose their labour equal
to 40. s. so much is added to the value of the country, of which the
imployer gains 15 s. 15 may be supposed to equal the consumption of the
labourers, who before lived on charity, and 10 s. remains to them over
their consumption.
If a stone of wooll is worth 10 s. and made into cloth worth 2 pound;
the product is improved to four times the value it had in wooll:
the workmen may be supposed to consume more than when they were not
imployed; allow one 4th, the nation is gainer double the value of the
product. so an addition to the money, whether the imployer gains or
not, adds to the national wealth, eases the country of a number of poor
or idle, proportioned to the money added, enables them to live better,
and to bear a share in the publick with the other people.
The first branch of foreign trade, which is the export and import of
goods, depends on the money. if one half of the people are imployed,
and the whole product and manufacture consumed; more money, by
imploying more people, will make an overplus to export: if then the
goods imported ballance the goods exported, a greater addition to the
money will imploy yet more people, or the same people before employed
to more advantage; which by making a greater, or more valuable export,
will make a ballance due. so if the money lessens, a part of the people
then imployed are set idle, or imployed to less advantage; the product
and manufacture is less, or less valuable, the export of consequence
less, and a ballance due to foreigners.
The 2d and 3d branches of foreign trade, called the trades of carriage;
are monopolized out of Europe, by these countries who have colonies;
and in Europe, by these who sell cheapest.
Scotland has advantages for trade by which the merchants might
undersell merchants in Holland, as cheapness of living, paying less to
the publick, having workmen, seamen, and provisions for victualling
cheaper: but if the Dutch merchant’s stock is 10000 lib. and his yearly
expence 500; he can trade at 10 per cent profit, and add yearly 500
lib. to his stock. whereas a Scots merchant, whose stock is 500 lib.
and his yearly expence 50; cannot trade so cheap.
If ’tis ask’t how a Dutch merchant trades who has only 500 lib. stock?
he restricts his expence so as he can afford to trade at 10 per cent
profit: or money being in greater quantity in Holland, whereby it is
easier borrowed, and at less use; he gets credit for more at 3 or 4 per
cent, by which he gains 6 or 7. and unless money be in greater quantity
in Scotland, or expence retrench’d, we cannot trade so cheap as the
Dutch; tho’ we have advantages for trade that they have not, and tho’
they be under disadvantages we are not lyable to. by a greater quantity
of money and oeconomy, the Dutch monopolize the trades of carriage even
from the English.
The 4th branch of foreign trade, bringing home the product of other
countries, and exporting it in manufacture, depends on the quantity of
money. we are so far from competing with the Dutch in this trade, that
our wooll was sent to Holland, and imported from thence in manufacture;
under the difficulty of a prohibition on the export of the wooll,
and on the import of the manufacture. yet besides the advantages
already named, which we have for trade over the Dutch, the material
is the product of our country, and greater privileges are granted to
manufacturers here, than in Holland.
’Tis alledged, if the prohibition had continued, manufactures might
have come to perfection.
The advantage some men made by manufacture, may have occasion’d the
setting up of more, while the money has been diminishing; but that
money so imployed, has been taken from some other use it was before
imploy’d in: for money cannot serve in two places at one time.
’Tis alledged, that the allowing the wooll to be exported, occasioned
the exportation of the money. that at one time 5000 lib. was sent to
England to buy wooll. ’tis askt what became of that wooll? they answer,
it was sent to France for wine. then, as 5000 lib. of English wooll may
be worth 8 or 10 thousand pound in France; so the 5000 lib. sent to
England, saved the sending out of 8 or 10000 lib. to France.
To those who don’t throughly examine the state of this country, it may
seem odd that wooll should be allowed by law to be exported: but if the
product of Scotland cannot be manufactur’d with less than 50000 people,
and the money that can be spar’d to manufacture, be only capable to
employ 25000, one half of the product will be lost if it is not allowed
to be exported.
The 5th branch, the freighting or hireing out ships, depends on the
money, and the other branches of trade. where ships are in use to be
freighted by strangers, and supported by a great demand for their own
trade; there all sorts of ships are to be hired cheaper than in other
places; and merchants are sure of such ships as are proper for the
goods they load with, and the countries they trade to.
This trade of freighting brings the goods of other countries to
Holland, tho’ design’d for sale elsewhere. if woollen manufacture from
England to Portugal yields 25 per cent profit, and to Holland 15; the
English merchant will choose to fend such goods to Holland for 15 per
cent, rather than to Portugal for 25; and the Dutch merchant who is
able to trade cheaper, from the cheapness of freight, etc. is satisfied
for the other 10 to carry to Portugal.
Most authors who have wrote on trade divide it into national and
private. they say, a merchant may gain where the nation loses. if a
1000 lib. is exported to the Indies in money or bullion, and a 1000
lib. in goods or provisions; the return worth 8000 lib. the merchant
gains 6000; but as these goods are all consumed in the country, the
nation loses the 1000 lib. money or bullion exported.
They don’t consider whether the 8000 lib. of goods imported (all
supposed to be consum’d in the country) does not lessen the consumption
of the product or manufacture of the country, so as to occasion an
addition to the export, at least equal to the 1000 lib. money or
bullion exported. but allowing they do not lessen the consumption of
the goods of the country, and the use of them be not at all necessary;
yet these goods being worth 8000 lib. at home or abroad, the nation
gains 6000. if the people consume them, and in extravagant uses, that’s
not the fault of the trade, nor for that reason should that trade be
call’d disadvantageous; it is the fault of the government, who ought to
hinder the too great consumption of foreign goods; especially, such as
might be wanted without causing a greater consumption of the goods of
the country, that care being taken, by making the vent less profitable
at home, than abroad; merchants would export them, or for the future
lessen the import.
If East-India goods that sell for a 1000 lib. in England, are only
worth abroad 800 lib, the duty payed at their entry being return’d, and
more given as a draw-back to encourage the export, their vent abroad
will be more profitable than in England.
A people may consume more of their own or foreign goods, than the
value of the product, manufacture, and profits by trade; but their
trade is not disadvantageous, it is their too great consumption:
and the too great consumption of the product and manufacture of the
country, may be as hurtful as that of foreign goods; for, if so much
is consumed, that the remainder exported won’t pay the consumption of
foreign goods, a ballance will be due, and that ballance will be sent
out in money or bullion.
A nation may gain where the merchant loses, but wherever the merchant
gains, the nation gains equal, and so much more, as the maintenance and
wages of the people employ’d and the duty on the goods amounts to. if a
ship insur’d is lost, the nation loses, and the merchant loses nothing;
but in that case the insurer is the merchant, and loses equal to the
nation.
As trade depends on money, so the encrease or decrease of the people
depends on trade. if they have employment at home, they are kept at
home: and if the trade is greater than serves to employ the people, it
brings more from places where they are not employ’d. Sir William Petty
values a man at 20 years purchase, by that computation a seaman whose
wages is forty shil. a month, is valued 480 lib.
Scotland has a very inconsiderable trade, because she has but a very
small part of the money. there is a little home trade, but the country
is not improv’d, nor the product manufactur’d. there is a little of
the first branch of foreign trade, and that is carried on with great
disadvantage to the people, who pay dearer for most foreign goods, and
are worse serv’d, than other nations: if they have any cheaper, ’tis
from the lower duty on the import. in Scotland low prices are given
for goods bought up to be exported, the merchants profit being great:
if a 100 stone of wooll is worth in Holland ten piece of linen cloth,
these ten pieces are sold in Scotland for the value of a 180 or 200
stone of such wooll. such goods as do not yield that great profit, are
not exported; and these that do, are not exported in any quantity,
the merchant’s stock being small. Scotland has no part of the other
branches of foreign trade, not being able to trade so cheap as other
nations.
Some think if interest were lower’d by law, trade would increase,
merchants being able to employ more money and trade cheaper. such a
law would have many inconveniencies, and it is much to be doubted,
whether it would have any good effect; indeed, if lowness of interest
were the consequence of a greater quantity of money, the stock apply’d
to trade would be greater, and merchants would trade cheaper, from the
easiness of borrowing and the lower interest of money, without any
inconveniencies attending it.
Tho’ interest were at 3 per cent in Holland, and continued at 6 in
Scotland; if money were to be had equal to the demands at 6, the
advantages we have for trade, which the Dutch have not, would enable us
to extend trade to its other branches, notwithstanding the difference
of interest.
If money in Scotland were equal to the demands at 6 per cent, the
Dutch could not trade so cheap in herring; the hinderances of that
trade being the consequences of the scarcity of money. the materials
for carrying on the fishing are cheaper in Holland, but the cheapness
of victualling alone would ballance that. and the dearth of these
materials, as of other foreign goods, coming from the scarcity of
money; that being remeded, these materials, and other foreign goods
that are not the product of Holland, would be sold as cheap in Scotland.
Exchange, is when a merchant exports to a greater value than he
imports, and has money due abroad; another importing to a greater value
than he exported, has occasion for money abroad: this last by paying in
money to the other, of the weight and fineness with that is due him, or
to that value, saves the trouble, hazard, and expence, to himself of
sending money out, to the other of bringing money home, and to both the
expence of re-coyning.
So long as foreign trade, and expence kept equal, exchange was at
the par: but when a people imported for a greater value, or had other
occasions abroad, more than their export, and the expence of foreigners
among them would ballance; there was a necessity of sending out the
ballance in money or bullion, and the merchant or gentleman who owed,
or had occasion for money abroad, to save the trouble, expence and
hazard of sending it out, gave so much per cent to another, as the
trouble, expence and hazard was valued at. thus exchange rose above the
par, and became a trade.
Mr. Mun on trade, page 100, says, the exchange being against a nation,
is of advantage to that nation. and supposes, if a 100 lib. at London
is worth no more than 90 lib. of the same money at Amsterdam, the
Dutch to send 500000 lib. of goods to England, and the English 400000
lib. of goods to Holland; it follows, that the money due the English
at Amsterdam, will ballance 440000 lib. due to the Dutch at London:
so 60000 lib. pays the ballance. Mr. Mun does not consider, that the
Dutch goods worth 500000 lib. when exchange was at the par, are worth
at London 555555 l. when 90 lib. at Amsterdam is worth a 100 lib. at
London. and the 400000 lib. of English goods in Holland, are only worth
360000 lib. that sum being equal by exchange to 400000 lib. in England.
so in place of England’s having an advantage of 40000 lib. as he
alledges by the exchange being against her: she pays 95555 lib. more,
than if exchange had been at the par.
When exchange is above the par, it is not only payed for the sums due
of ballance, but affects the whole exchange to the place where the
ballance is due. if the ballance is 20000 lib. and the sums exchanged
by merchants who have money abroad, with others who are owing, or have
occasion for money there, be 60000 lib. the bills for the 60000 lib.
are sold at or near the same price, with the 20000 lib. of ballance.
It likewise affects the exchange to countries where no ballance is due.
if the exchange betwixt Scotland and Holland is 3 per cent. above the
par against Scotland, betwixt England and Holland at the par, tho’ no
ballance is due by Scotland to England, yet the exchange with England
will rise; for, a 100 lib. in England remitted to Scotland by Holland,
will yield 103 lib. so betwixt Scotland and England it may be supposed
to be had at 2 per cent, being less trouble than to remit by Holland.
Goods are sold to foreigners, according to the first cost. if goods
worth a 100 lib. in Scotland, are worth 130 lib. in England, these
goods will be exported, 30 per cent being supposed enough for the
charges and profit. if the price of these goods lower in Scotland from
a 100 lib. to 80, the price in England will not continue at a 130; it
will lower proportionably, for either Scots merchants will undersell
one another, or English merchants will export these goods themselves.
so if they rise in Scotland from a 100 lib. to 120; they will rise
proportionably in England, unless the English can be served with these
goods cheaper from other places, or can supply the use of them with
goods of another kind. this being supposed, it follows that,
By so much as exchange is above the par, so much all goods exported
are sold cheaper, and all goods imported are sold dearer than before.
if a merchant send goods yearly to England first cost, charges and
profit 6000 lib. money in England of the same standard with money in
Scotland, and no ballance due; but a ballance due to Holland, raising
the exchange 3 per cent above the par to Holland, and affecting the
exchange to England 2 per cent, 5882 lib. 7 sh. in England pays the
goods, that sum by exchange being equal to 6000 lib. in Scotland.
so that a ballance due to Holland, by raising the exchange to other
countries, occasions a loss to Scotland of 117 lib. 13 sh. on the value
of 6000 lib. of goods sent to England.
English goods are sold so much dearer. if an English merchant sends
goods yearly to Scotland, first cost, charges and profit 6000 lib. 6120
lib. must be payed for these goods in Scotland, being only equal to
6000 lib. in England. if the exchange had been at the par, the Scots
goods sent to England would have sold 117 lib. 14 sh. more, and the
English goods sent to Scotland 120 lib. less.
Thus to all places with whom exchange is above the par, goods sent out
are sold so much less, and goods brought from thence are sold so much
dearer, as the exchange is above the par; whether sent out, or brought
in, by Scots or foreign merchants.
The merchant who deals in English goods gains no more than when
exchange was at the par, tho’ he sells dearer; nor the merchant who
deals in Scots goods less, tho’ he sells cheaper; they have both the
same profit as when exchange was at the par. Scotland pays 2 per cent
more for English goods, and England 2 per cent less for Scots goods:
all, or a great part of the loss falls at last on the landed man in
Scotland, and it is the landed man in England has all, or a great part
of the benefit.
Nations finding the export of money or bullion to pay the ballance
due by trade, a loss of so much riches, and very hurtful to trade,
might have discharged the import of such goods as the people could
best want; or laid a duty on them, such as might have lessen’d their
consumption: they might have given encouragement to industry, whereby
the product would have been encreas’d and improv’d, or discouraged
extravagant consumption, whereby the overplus to export would have
been greater; any one of these methods would have brought trade and
exchange equal, and have made a ballance due them: but in place of
these measures, they prohibit bullion and money to be exported, which
could not well have any other effect, than to raise the exchange equal
to the hazard, such laws added to the export of money or bullion, which
may be supposed 3 per cent more: and as these laws by such effect were
hurtful, making all goods exported sell yet 3 per cent cheaper, and all
goods imported 3 per cent dearer; the stricter they were execute, the
higher the exchange rose, and the more they did hurt. the ballance was
still sent out in money or bullion, by the merchant who owed it, by the
banker who gave the bills, or by the foreigner to whom it was due.
Suppose the money of Scotland, England, and Holland of the same weight
and fineness. Scotland to trade with no other places. the exchange
at the par. the yearly export from Scotland, first cost 300000 lib.
charges and profit 30 per cent. goods imported 280000 lib. charges and
profit 30 per cent. one half of the trade to be carried on by Scots
merchants, the other half by English and Dutch.
Due to Scotland for one half }
of the export carried out by } 195000
their own merchants ---- }
Due for the other half carried } }
out by English and Dutch. } 150000 } 345000
Due by Scotland to England }
and Holland for goods imported } 182000
by English and Dutch.-- }
Due for goods imported by } }
Scots merchants ---- ---- } 140000 } 322000
The expense of Scots-men abroad, more than of foreigners in Scotland,
40000 lib. if this is supposed the yearly state of the trade and
expense of Scotland, there will be a ballance due of 17000 lib. and
unless the Scots retrench the consumption of foreign goods, so as to
import less; or retrench the consumption of their own goods, so as to
export more; or increase, or improve their product, so as the export
be greater or more valuable; or retrench in their expence abroad.
since that ballance must be paid it will go out in money or bullion:
and occasions the exchange to rise 3 per cent, the prohibition on
the export of money 3 more, if Scots-men export it, the Nation saves
the 1020 l. exchange on the 170000 of ballance due, which is lost if
English merchants export it; but the loss such a rise in exchange
occasions on the goods, is more considerable. the 195000 lib. due
abroad for goods sent out of Scotland by Scots merchants, will be
payed with 183962 lib. English or Dutch money, that sum being equal by
exchange at 6 per cent to 195000 lib. in Scotland. the 150000 lib. due
for first cost of goods carried out by English or Dutch merchants, will
be payed with 141510 lib. English or Dutch money, that sum being equal
to 150000 lib. in Scotland. the 182000 lib. due by Scotland for goods
imported by English and Dutch merchants, will come to 192920 lib. in
Scotland. and the 140000 lib. first cost of goods brought home by Scots
merchants, will come to 148400 lib. in Scotland. so the accompt will
run thus.
Due to Scotland for goods exported 183962
Brought from abroad first cost 140000
Ballance of expence abroad 40000
------
Due to Scotland abroad 3962
------
Due by Scotland for goods imported }
by English and Dutch } 192920
English and Dutch take back in goods 150000
------
Due to English and Dutch in Scotland 42920
------
3962 lib. due abroad to Scotland in }
Scots money } 4199
Remains due by Scotland. 38721
So the rise in the exchange of 3 per cent by the ballance due of 17000
lib. and 3 more by the prohibition on the export of money, occasions a
loss to Scotland of 21721 l. and makes the next year’s ballance 38721
lib. tho’ the trade be the same as before. of which 21721 lib. lost by
exchange, one half would be saved if money were allowed to be exported.
Since the exchange being 6 per cent above the par, occasions the loss
of 21721 lib. then raising the money 8 and a one third per cent, having
raised the exchange with England to 14 per cent, and with Holland to
30, makes the loss proportionably greater: Scots goods being supposed
to continue at the same prices they were sold for, before the money was
raised, or not to rise in the same proportion with the money. for when
exchange was at the par, a 100 lib. of Scots goods were sold abroad for
a 130 lib. English money; but 114 lib. English money, being now equal
by exchange to a 130 lib. in Scotland, the Scots merchant can afford to
sell the same quantity of goods for a 114 lib. that he sold before at
a 130, and have the same profit. so foreign goods worth abroad a 100
lib. and sold in Scotland for a 130 lib. when exchange was at the par;
cannot be sold now for less than a 150 lib. in Scotland, that sum being
only equal to a 130 lib. English money; and the merchant’s profit is no
greater, than when he sold the same quantity of goods for a 130 lib.
It may not be improper to consider what consequences would attend
the lowering the money to the English standard, and allowing it to be
exported.
The former state of trade I have supposed to be carried on, one half by
Scots merchants, the other half by English and Dutch; but as most of
the trade is carried on by Scots merchants, I shall suppose this state
of trade accordingly. the one or the other will clear the matter in
question.
The state of trade now, and exchange supposed at 15 per cent to
England, and 30 to Holland. the whole export of Scotland to be 300000
lib. of which 250000 lib. carried out by Scots merchants, sold at 30
per cent profit and charges 325000 lib.
In English money 282608
Exported by foreigners for 50000l. }
in English money } 43478
------
The whole export 326086
Goods imported 306086
Spent abroad. 40000
------
Due of ballance by Scotland. 20000
Money being lowered to the English standard, and allow’d by law to be
exported; will bring the exchange with England to 2 or 3 per cent, and
with Holland to 17 or 18, notwithstanding of the ballance due. for, as
a 100 lib. in Edinburgh, would then be equal to 100 lib. at London,
and being allowed to be exported; none would give above 102, or 3 here
for a 100 lib. at London: because the trouble and charge of sending it
to London, would be valued no higher. the export, import, and expence
abroad supposed to continue the same; a ballance would then be due to
Scotland.
The state of trade, exchange at 3 percent to England, and
proportionably to other places.
Due in English money, for 325000l. }
first cost, charges and profit of goods sent } 315534
out by Scots merchants. }
Due in English money, for 50000l. }
of goods exported by foreigners. } 48544
------
The whole export 364078
------
Of this deduce the value of goods imported. } 306086
And the expence abroad. } 40000
------
There will be a ballance due to Scotland, }
of } 17992
As this ballance due to Scotland, would bring exchange to the par,
and 3 per cent on the Scots side; 3 more, because money in England is
prohibited to be exported; 100 lib. in Scotland, would be worth 106
lib. in England, and proportionably in other places. so the state of
trade would then be thus.
Due in English money for 325000l. }
first cost, charges and profit of Scots } 397500
goods sent out by Scots merchants, and }
50000l. exported by foreigners. }
Of this spent abroad. } 40000
Imported from abroad. } 306086
------
Ballance then due to Scotland. 51414
If the yearly export be as great as I suppose it, and the ballance only
20000 pounds; then lowering the money to the English standard, will
make a ballance due of 51414 lib. tho’ the money is not allowed to be
exported.
It may be objected, that such an alteration in the exchange, lowering
the value of foreign money; might hinder the sale of our goods abroad.
for, linen-cloth bought in Scotland for a 100 lib. and sold at London
for a 115 lib. yields by exchange 31 per cent profit. but if exchange
were 6 per cent on the Scots side, the profit is only 9 per cent.
It is answered. if an English merchant takes bills on Scotland for a
1000 lib. to lay out on linen-cloth, the exchange then at the par: the
linen-cloth is sold in England according to the first cost, charges and
usual profit. next year the exchange is on the English side, the linen
is sold in England cheaper than before. the third year exchange returns
to the par, the linen is then sold in England as the first year. if the
first cost of linen is dearer, the consumer pays the more for it, the
merchant’s profit is the same.
All nations endeavour to get the exchange as much as they can on their
side. the exchange from Holland to England is 12 or 15 per cent, to
Scotland 30 per cent, to France 40 or 50, sometimes more; yet Dutch
goods sell in these countries, the merchant has his profit the same as
when exchange was lower, the consumer pays more for them. English cloth
is sold at Paris from 18 to 20 livres the French ell. when the lued’ore
is at 12 livres, from 20 to 23, when the lued’ore is at 14 livres:
because the exchange to England is dearer, in proportion as the French
money is rais’d.
Most goods sent from Scotland are such as foreigners won’t want,
tho’ they payed 10 or 20 per cent more for them. we have an example
of this in the wooll. during the prohibition, wooll sold in Holland
and France for double the first cost, now it has fallen to 30 or 40
per cent profit. prices are given for goods, according to their first
cost, charges, and usual profit; where prohibitions are, the hazard
of exporting contrair to law is valued. wooll is of less value now
in Holland than in time of peace, because the vent of their woollen
manufacture is less; but tho’ wooll were as valuable in Holland as
before, and tho’ a Dutch manufacturer would give 200 lib. for wooll
that cost only a 100 lib. in Scotland, rather than want it: yet as
he knows the prohibition is taken off, and that the Scots merchants
can afford to sell cheaper; he won’t buy unless he can have it at a
reasonable profit. so either the Scots merchants bring down the price,
by under-selling one another; or the Dutch merchant commissions it
himself. if a duty were put on such goods whose value abroad would bear
it, the merchant would gain the same, ’tis the foreigner pays the duty.
Besides, lowering the money may not lower the prices abroad. for,
as when money was raised, goods may have rose in proportion, or have
been made worse; so as a 100 lib. after the money is lower’d will have
33 crowns and 1/8 more silver in it, than a 100 lib. had before; so a
greater quantity of goods may be bought with a 100 lib. than before,
or the goods may be made better: especially the linen-cloth, since
the material would be imported for less. but, allowing that upon the
lowering the money, goods sold in Scotland as before, and were made
no better; and allowing that one third or more of the goods exported,
could not be raised in their prices abroad; because foreigners might be
served cheaper with the same kind of goods from other places, or might
supply the use of them with goods of another kind; or might consume
less of them; yet, that ought not to hinder such a regulation of the
money and exchange; for a draw-back might be given upon the export
of such goods, whose prices abroad were not great enough to yield a
reasonable profit.
But lest such an alteration in the exchange, or undervaluing foreign
money, should lessen the export of goods: it may not be adviseable,
unless a fund were given, out of which draw-backs might be payed to
encourage export, and an addition be made to the money, whereby the
people may be set to work. for without some addition to the money, ’tis
not to be supposed next year’s export can be equal to the last: it
will lessen as money has lessened; a part of the people then imployed
being now idle; not for want of inclination to work, or for want of
imployers, but for want of money to imploy them with.
CHAP. III.
_Of the different measures which have been used to preserve and
increase money. and of banks._
The measures have been used to preserve and increase money, have in
some countries been opposite to what has been used in others: and
opposite measures have been used in the same countries, without any
differing circumstances to occasion them.
Some countries have raised money in the denomination, when others
have lowered it; some have allay’d it, when others who had allay’d
it have rectified it; some have prohibited the export of money under
severest penalties, when others have by law allowed it to be exported;
some thinking to add to the money, have obliged traders to bring home
bullion, in proportion to the goods they imported. most countries have
tryed some or all of these measures, and others of the same nature,
and have tryed contrary measures at one time, from what they used
immediately before, from the opinion, that since the method used had
not the effect designed, a contrary would: yet it has not been found,
that any of them have preserved or increased money; but on the contrair.
The use of banks has been the best method yet practised for the
increase of money. banks have been long used in Italy, but as I am
informed, the invention of them was owing to Sweedland. their money
was copper, which was inconvenient, by reason of its weight and bulk;
to remedy this inconveniency, a bank was set up where the money might
be pledged, and credit given to the value, which past in payments, and
facilitate trade.
The Dutch for the same reason set up the bank of Amsterdam. their money
was silver, but their trade was so great as to find payments even in
silver inconvenient. this bank like that of Sweedland, is a secure
place, where merchants may give in money, and have credit to trade
with. besides the convenience of easier and quicker payments, these
banks save the expence of casheers, the expence of bags and carriage,
losses by bad money, and the money is safer than in the merchants
houses, for ’tis less lyable to fire or robbery, the necessary measures
being taken to prevent them.
Merchants who have money in the bank of Amsterdam, and people of other
countries who deal with them, are not lyable to the changes in the
money, by its being allay’d or altered in the denomination: for, the
bank receives no money but what’s of value, and is therefore called
bank-money; and tho’ raised in current payments, it goes for the value
it was pledged for in bank-payments. the AG O of the bank changes a
quarter or a half p. cent, as current money is more or less scarce.
Banks where the money is pledg’d equal to the credit given, are sure;
for, tho’ demands are made of the whole, the bank does not fail in
payment.
By the constitution of this bank, the whole sum for which credit is
given, ought to remain there, to be ready at demand; yet a sum is lent
by the managers for a stock to the lumbar, and ’tis thought they lend
great sums on other occasions. so far as they lend they add to the
money, which brings a profit to the country, by imploying more people,
and extending trade; they add to the money to be lent, whereby it is
easier borrowed, and at less use; and the bank has a benefit: but the
bank is less sure, and tho’ none suffer by it, or are apprehensive of
danger, its credit being good; yet if the whole demands were made,
or demands greater than the remaining money, they could not all be
satisfied, till the bank had called in what sums were lent.
The certain good it does, will more than ballance the hazard, tho’ once
in two or three years it failed in payment; providing the sums lent be
well secured: merchants who had money there, might be disappointed of
it at demand, but the security being good, and interest allowed; money
would be had on a small discount, perhaps at the par.
Last war, England set up a bank to have the conveniencies of that at
Amsterdam, and by their constitution to increase money. this bank was
made up of subscribers, who lent the King 1200000 lib. at 8 and a third
per cent, for 11 years, on a parliamentary fund; and were priviledged
bankers for that time. the sum due by the government was a security to
the people, to make good any losses the bank might suffer.
This bank was safer than the gold-smiths notes in use before. it made
a great addition to the money, having a much greater sum of notes out,
than money in bank. and the sum lent the King, which was the fund
belonged to the subscribers, was negotiated at profit, and had the same
effect in trade as money. I don’t know how their notes came to be at
discount, whether from the circumstances of the nation, or from ill
management.
The fund of the bank of Scotland was a 100000 l. of which a tenth was
payed in. this bank was safer than that of England, there being a
register whereby most sums lent were secured. its notes went for 4 or
5 times the value of the money in bank, and by so much as these notes
went for more than the money in bank; so much was added to the money of
the nation.
This bank was more useful than that of Amsterdam, or England; its notes
passing in most payments, and through the whole country: the bank of
Amsterdam being only for that town, and that of England of little use
but at London.
The stop of payments which happened to the bank of Scotland, was
foreseen, and might have been prevented. the consumption of foreign
goods, and expence in England, being more than the export of goods did
pay; the ballance sent out in money lessened the credit of the bank.
for as credit is voluntary, it depends on the quantity of money in
the country, and increases or decreases with it. coyning notes of one
pound supported the bank, by furnishing paper for small payments, and
thereby preventing a part of the demand for money: by these notes the
bank might have kept its credit, till other methods had been taken to
supply the country with money; had not a report of raising the money
occasioned an extraordinary demand, which in few days exhausted the
money in bank, and put a stop to payments.
It would not have been easie in that scarcity of money to have got
enough to support the bank, tho’ men of the best credit had undertaken
it; that report of raising the money having only occasioned a demand
from the people in Edinburgh. in a short time notes would have come in
so fast from the country, that what money could have been got, would
not have answered the demand.
If the privy council had lowered the money, the English crown to 5s.
and the other money in proportion, to take place 2 pence p. crown in
3 days, and the other 3 pence in a month; the occasion of the demand
being removed, in all appearance money would have been returned to the
bank.