Chapter XXVII: Introduction (1)

In an inquiry like this, where, at almost every step, we find it branching out into new relations, which lead to different chains of consequences, it is of use to have recourse to every expedient for connecting the whole together.

For this purpose, an introductory chapter at the beginning of a new subject seems necessary.

The reader will have observed that the last chapters of the preceding book (those I mean which treat of the vibration of the balance of wealth and of circulation) have been writ with a view to introduce the subject of money.

I thought it better to anticipate some principles by connecting them directly with those of trade, than to introduce this part of my subject as a new treatise.

The assistance our memory receives from such a distribution must compensate the inconvenience of a few repetitions.

I have, in the last chapters of the second book here referred to, had occasion to mention, and slightly to point out some essential differences between coin and paper money. I have shewn the great usefulness of the latter in supporting circulation.

Although, in giving the definition of paper money in the twenty-sixth chapter of the second book, I mentioned credit as being a term synonimous with it; yet this was done only for the sake of simplifying our ideas: one of the best expedients for casting light upon an intricate subject. It is now requisite to point out the difference between them.

Symbolical or paper money is but a species of credit: it is no more than the measure by which credit is reckoned. Credit is the basis of all contracts between men: few can be so simultaneous as not to leave some performance, or prestation, as the civilians call it, on one side or other, at least for a short time, in suspence. He therefore who fulfils his part, gives credit to the party who only promises to fulfil, and according to the variety of contracts, the nature of the prestations, or performances, therein stipulated, and the security given for fulfilling what is not performed, credit assumes different forms, and communicates to us different ideas. Paper credit or symbolical money, on the other hand, is more simple. It is an obligation to pay the intrinsic value of certain denominations of money contained in the paper. Here then lies the difference between a payment made in intrinsic value, and another made in paper. He who pays in intrinsic value, puts the person to whom he pays in the real possession of what he owed; and this done, there is no more place for credit. He who pays in paper puts his creditor only in possession of another person’s obligation to make that value good to him: here credit is necessary even after the payment is made.

Some intrinsic value or other, therefore, must be found out to form the basis of paper money: for without that it is impossible to fix any determinate standard-worth for the denominations contained in the paper.

I have found no branch of my subject so difficult to reduce to principles, as the doctrine of money: this difficulty, however, has not deterred me from undertaking it. It is of great consequence to a statesman to understand it thoroughly; and it is of the last importance to trade and credit, that the money of a nation be kept stable and invariable.

To circumscribe combinations as much as the nature of this subject will admit, I have in the first part adhered to a deduction of general principles, taking by way of illustration, as I go along, the present state of the British currency.

In the second part, I shall examine the effects of turning coin into a manufacture, by superadding the price of fabrication to its value; and point out the consequences of this additional combination upon exchange, and the interest of trading nations.

CHAP. I.
_Of Money of Accompt._

[Sidenote: What money is.]

I. The metals have so long performed the use of money, that money and coin are become almost synonimous, although in their principles they be quite different.

The first thing therefore to be done in treating of money, is, to separate two ideas, which, by being blended together, have very greatly contributed to throw a cloud upon the whole subject.

[Sidenote: Definitions.]

Money, which I call of account, is no more than _an arbitrary scale of equal parts, invented for measuring the respective value of things vendible_.

_Money_ of _account_, therefore, is quite a different thing from _money-coin_, which is _price_, and might exist, although there was no such thing in the world as any substance which could become an adequate and proportional equivalent, for every commodity.

The subject therefore of the first chapter shall be, 1. To point out the principles which determine the value of things; 2. The use of an invariable scale to measure their value; 3. How the invention of money of account is exactly adapted for measuring the value on the one hand, and measuring the price on the other; and 4. How it preserves itself invariable amidst all the fluctuations, not only of the value of things themselves, but of the metals which are commonly considered as the measures of their value.

[Sidenote: Money, a scale for measuring value.]

_1mo._ Money of account, which I shall here call _money_, performs the same office with regard to the value of things, that degrees, minutes, seconds, &c. do with regard to angles, or as scales do to geographical maps, or to plans of any kind.

In all these inventions, there is constantly some denomination taken for the unit.

In angles, it is the degree; in geography, it is the mile, or league; in plans, the foot, yard, or toise; in money, it is the _pound_, _livre_, _florin_, &c.

The degree has no determinate length, so neither has that part of the scale upon plans which marks the unit: the usefulness of all those inventions being solely confined to the marking of proportion.

Just so the unit in money can have no invariable determinate proportion to any part of value, that is to say, it cannot be fixed to any particular quantity of gold, silver, or any other commodity whatsoever.

The unit once fixed, we can by multiplying it, ascend to the greatest value; and when we descend below the subaltern divisions of this unit, we have the assistance of measures and weights, which render the operation easy. Thus in England, where a farthing is the lowest denomination of money, the grains of wheat are bought by measure, and cherries by the pound.

[Sidenote: Principles which determine the value of things.]

II. The value of things depend upon the general combination of many circumstances, which however may be reduced to four principal heads:

_1mo._ The abundance of the things to be valued.

_2do._ The demand which mankind make for them.

_3tio._ The competition between the demanders; and

_4to._ The extent of the faculties of the demanders. The function therefore of money is to publish and make known the value of things, as it is regulated by the combination of all these circumstances.

[Sidenote: Prices not regulated by the quantity of money,]

This proposition I think is self-evident, and it is susceptible of a thousand proofs; I shall only mention one.

Were there a determinate proportion between certain quantities of gold and silver, and certain quantities of other things vendible, I do not see how prices could vary while the proportion of quantity to quantity between metals and things remained the same.

But if the desires of men to possess any particular commodity and the competition between them to acquire it be capable to raise a thing, formerly of the lowest value, to any height, and if the absence of these circumstances can debase a thing formerly of great value, to the lowest rate, is it not evident, that the _price_, that is, the gold and silver people possess (even allowing that it may upon many occasions promote a competition among them) can never be the measure of their fancies or caprices, which are what constitutes the value of things.

Substances are valued either according to their weight, their superficial measure, the measure of their bulk, or by the piece. These may be considered as the four classes of vendible corporeal commodities.

All the species of each class according to their different qualities of goodness, may be reduced to a proportion of value. A pound of gold, of lead, of different grains, of different butters, or of what you will, valued by the pound, may at any precise time, be reduced to a scale of proportional values, which the wants, demands, competition and faculties of buyers and sellers, keep in a perpetual fluctuation.

As far therefore, as an increase of the metals and coin shall produce an increase of demand, and a greater competition than before, so far will that circumstance influence the rise of prices, and no farther.

[Sidenote: But by the relative proportion between commodities and
the wants of mankind.]

The value of commodities therefore, depending upon a general combination of circumstances relative to themselves and to the fancies of men, their value ought to be considered as changing only with respect to one another; consequently, any thing which troubles or perplexes the ascertaining those changes of proportion by the means of a general, determinate and invariable scale, must be hurtful to trade and a clog upon alienation. This trouble and perplexity is the infallible consequence of every vice in the policy of money or of coin.

[Sidenote: Necessity of distinguishing between money and price.]

III. It may here be demanded what necessity there is to have recourse to such a metaphysical deduction upon so familiar a subject. Do we not see every where, that things are valued by silver and gold coin, and that there is no occasion to reject them at this time, in order to introduce an imaginary scale.

I answer, that nothing but necessity obliges me to introduce this imaginary scale, and that not with any intention to reject the service of the metals in performing the office of a measure, but as an assistance to our understanding for comprehending the doctrine of money, and for rightly distinguishing the ideas which are daily proposed to us by those who write and speak concerning its theory.

Could gold and silver coin exactly perform the office of money, it would be absurd to introduce any other measure of value; but there are moral and physical incapacities in the metals, which prevent their performing the function of a scale: and the common opinion being, that there are no such incapacities, makes it necessary to expose them in the clearest light, by shewing the exact difference between _price_ (that is coin) considered as a measure, and _price_ considered as an equivalent for value.

The inconsistencies which follow, when we depend blindly upon the infallibility of the metal’s discharging this double office, tend to confound the whole system of our ideas concerning those matters.

The moral as well as physical incapacities inherent in the metals, which prevent their performing exactly the office of money, shall be afterwards pointed out. I must at present explain a little farther the nature of this ideal money.

[Sidenote: Money of account what and how contrived.]

IV. Money, strictly and philosophically speaking, is, as has been said, an ideal scale of equal parts. If it be demanded what ought to be the standard value of one part? I answer, by putting another question; What is the standard length of a degree, a minute, a second?

It has none, and there is no necessity of its having any other than what by convention mankind think fit to give it. But so soon as one part becomes determined, by the nature of a scale, all the rest must follow in proportion.

The first step being perfectly optional, people may adjust one or more of those parts to a precise quantity of the precious metals; and so soon as this is done, and that money becomes realized, as it were, in gold and silver, then it acquires a new definition; it then becomes the _price, as well as the measure of value_.

It does not follow from this adjusting the metals to the scale of value, that they themselves should therefore become the scale, as any one must readily perceive.

But in former times, before the introduction of commerce, when mankind had less occasion to measure value with a scrupulous exactness, the permanent nature of the metals rendred them sufficiently correct, both to serve as the scale, and as the price in every alienation. Since the introduction of commerce, nations have learned the importance of reducing their respective interests and debts, to the nicest equations of value; and this has pointed out the inconvenience of admitting the metals, as formerly, to serve both as the measure and the price in such operations.

Just so geographers and astronomers were long of opinion, that a degree of the equator was a determinate length to measure every degree of latitude upon the globe.

They then considered the earth as a sphere, and no great inconveniency was found to result from this supposition. But as accuracy made a progress, that measure was found to be incorrect. Degrees of latitude are now found to be of different lengths in different climates; and perhaps in time, it will be found that no two degrees of any great circle described upon the globe, are in a geometrical equality.

That money, therefore, which constantly preserves an equal value, which poises itself, as it were, in a just equilibrium between the fluctuating proportion of the value of things, is the only permanent and equal scale, by which value can be measured.

[Sidenote: Examples of it.]

Of this kind of money, and of the possibility of establishing it, we have two examples: the first, among one of the most knowing; the second, among one of the most ignorant nations of the world. The bank of Amsterdam presents us with the one, the coast of Angola with the other.

A florin banco has a more determinate value than a pound of fine gold, or silver; it is an unit which the invention of men, instructed in the arts of commerce, have found out.

[Sidenote: Bank money.]

This bank money stands invariable like a rock in the sea. According to this ideal standard are the prices of all things regulated; and very few people can tell exactly what it depends upon. The precious metals, with their intrinsic value, vary with regard to this common measure, like every other thing. A pound of gold, a pound of silver, a thousand guineas, a thousand crowns, a thousand piastres, or a thousand ducats, are sometimes worth more, sometimes worth less of this invariable standard; according as the proportion of the metals of which they are made vary between themselves.

No adulterations in the weight, fineness, or denominations of coin have any effect upon bank money. These currencies which the bank looks upon as merchandize, like every other thing, are either worth more or less bank money, according to the actual value of the metals they are made of. All is merchandize with respect to this standard; consequently, it stands unrivalled in the exercise of its function of a common measure.

[Sidenote: Angola money.]

The second example is found among the savages upon the African coast of Angola, where there is no real money known. The inhabitants there reckon by _macoutes_; and in some places this denomination is subdivided into decimals, called pieces. One _macoute_ is equal to ten pieces. This is just a scale of equal parts for estimating the trucks they make. If a sheep, e. g. be worth 10, an ox may be worth 40, and a handful of gold dust 1000.

Money of account, therefore, cannot be fixed to any material substance, the value of which may vary with respect to other things. The operations of trade, and the effects of an universal circulation of value, over the commercial world, can alone adjust the fluctuating value of all kinds of merchandize, to this invariable standard. This is a representation of the bank money of Amsterdam, which may at all times be most accurately specified in a determinate weight of silver and gold; but which can never be tied down to that precise weight for twenty-four hours, any more than to a barrel of herrings.

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CHAP. II
_Of Artificial or Material money._

[Sidenote: Usefulness of the precious metals for making of money.]

I. From infancy of the world, at least as far back as our accounts of the transactions of mankind reach, we find they had adopted the precious metals, that is silver and gold, as the common measure of value, and as the adequate equivalent for every thing alienable.

The metals are admirably adapted for this purpose; they are perfectly homogeneous: When pure, their masses, or bulks, are exactly in proportion to their weights: No physical difference can be found between two pounds of gold, or silver, let them be the production of the mines of Europe, Asia, Africa, or America: They are perfectly malleable, fusible, and suffer the most exact division which human art is capable to give them: They are capable of being mixed with one another, as well as with metals of a baser, that is, of a less homogeneous nature, such as copper. By this mixture they spread themselves uniformly through the whole mass of the composed lump, so that every atom of it becomes proportionally possessed of a share of this noble mixture; by which means the subdivision of the precious metals is rendred very extensive.

Their physical qualities are invariable; they lose nothing by keeping; they are solid and durable; and though their parts are separated by friction, like every other thing, yet still they are of the number of those which suffer least by it.

If money, therefore, can be made of any thing, that is, if the proportional value of things vendible can be measured by any thing material, it may be measured by the metals.

[Sidenote: Adjusting a standard, what?]

II. The two metals being pitched upon as the most proper substances for realizing the ideal scale of money, those who undertake the operation of adjusting a standard must constantly keep in their eye the nature and qualities of a scale, as well as the principles upon which it is formed.

The unit of the scale must constantly be the same, although realized in the metals, or the whole operation fails in the most essential part. This realizing the unit is like adjusting a pair of compasses to a geometrical scale, where the smallest deviation from the exact opening once given must occasion an incorrect measure. The metals, therefore, are to money what a pair of compasses is to a geometrical scale.

This operation of adjusting the metals to the money of account, implies an exact and determinate proportion of both metals to the money-unit, realized in all the species and denominations of coin, adjusted to that standard.

The smallest particle of either metal added to, or taken away from any coin, which represents certain determinate parts of the scale, overturns the whole system of material money. And if, notwithstanding such variation, these coins continue to bear the same denominations as before, this will as effectually destroy their usefulness in measuring the value of things, as it would overturn the usefulness of a pair of compasses, to suffer the opening to vary, after it is adjusted to the scale representing feet, toises, miles, or leagues, by which the distances upon the plan are to be measured.

[Sidenote: Debasing and raising a standard, what.]

III. Debasing the standard is a good term; because it conveys a clear and distinct idea. It is diminishing the weight of the pure metal contained in that denomination by which a nation reckons, and which we have called the money-unit. Raising the standard requires no farther definition, being the direct contrary.

[Sidenote: The alteration of a standard, how to be discovered.]

IV. Altering the standard (that is raising or debasing the value of the money-unit) is like altering the national measures or weights. This is best discovered by comparing the thing altered with things of the same nature which have suffered no alteration. Thus if the foot of measure was altered at once over all England, by adding to it, or taking from it, any proportional part of its standard length, the alteration would be best discovered, by comparing the new foot with that of Paris, or of any other country, which had suffered no alteration. Just so, if the pound sterling, which is the English unit, shall be found any how changed, and if the variation it has met with be difficult to ascertain, because of a complication of circumstances, the best way to discover it will be to compare the former and the present value of it with the money of other nations which has suffered no variation. This the course of exchange will perform with the greatest exactness.

[Sidenote: Of alloy.]

V. Artists pretend, that the precious metals, when absolutely pure from any mixture, are not of sufficient hardness to constitute a solid and lasting coin. They are found also in the mines mixed with other metals of a baser nature, and the bringing them to a state of perfect purity occasions an unnecessary expence. To avoid, therefore, the inconvenience of employing them in all their purity, people have adopted the expedient of mixing them with a _determinate proportion_ of other metals, which hurts neither their fusibility, malleability, beauty, or lustre. This metal is called _alloy_, and being considered only as a support to the principal metal, is accounted of no value in itself. So that eleven ounces of gold, when mixed with one ounce of silver, acquires, by that addition, no augmentation of value whatever.

This being the case, we shall, as much as possible, overlook the existence of alloy, in speaking of money, in order to render language less subject to ambiguity. I must except such cases, where the considering the mass of the compound metal, according to its weight, can be accompanied with no inconvenience.

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CHAP. III.
_Incapacities of the Metals to perform the office of an invariable
measure of value._

[Sidenote: They vary in their relative value to one another.]

I. Were there but one species of such a substance as we have represented gold and silver to be: were there but one metal possessing the qualities of purity, divisibility, and durability; the inconveniences in the use of it for money would be fewer by far than they are found to be as matters stand.

Such a metal might then, by an unlimited division into parts exactly equal, be made to serve as a tolerable steady and universal measure. But the rivalship between the metals, and the perfect equality which is found between all their physical qualities, so far as regards purity, and divisibility, render them so equally well adapted to serve as the common measure of value, that they are universally admitted to pass current as money.

[Sidenote: All measures ought to be invariable.]

What is the consequence of this? That the one measures the value of the other, as well as that of every other thing. Now the moment any measure begins to be measured by another, whose proportion to it is not physically, perpetually, and invariably the same, all the usefulness of such a measure is lost. An example will make this plain.

A foot of measure is a determinate length. An English foot may be compared with the Paris foot, or with that of the Rhine; that is to say, it may be measured by them; and the proportion between their lengths may be expressed in numbers; which proportion will be the same perpetually. The measuring the one by the other will occasion no uncertainty; and we may speak of lengths by Paris feet, and be perfectly well understood by others who are used to measure by the English foot, or by the foot of the Rhine.

[Sidenote: Consequences when they vary.]

But suppose that a youth of twelve years old takes it into his head to measure from time to time, as he advances in age, by the length of his own foot, and that he divides this growing foot into inches and decimals: what can be learned from his account of measures? As he increases in years, his foot, inches, and subdivisions, will be gradually lengthening; and were every man to follow his example, and measure by his own foot, then the foot of a measure now established would totally cease to be of any utility.

This is just the case with the two metals. There is no determinate invariable proportion between their value; and the consequence of this is, that when they are both taken for measuring the value of other things, the things to be measured, like the lengths to be measured by the young man’s foot, without changing their relative proportion between themselves, change however with respect to the denominations of both their measures. An example will make this plain.

Let us suppose an ox to be worth three thousand pounds weight of wheat, and the one and the other to be worth an ounce of gold, and the ounce of gold to be worth exactly fifteen ounces of silver: If the case should happen, that the proportional value between gold and silver should come to be as 14 is to 1, would not the ox, and consequently the wheat, be estimated at less in silver, and more in gold, than formerly? I ask farther, if it would be in the power of any state to prevent this variation in the measure of the value of oxen and wheat, without putting into the unit of their money less silver and more gold than formerly.

[Sidenote: Defects of a silver standard.]

If therefore any particular state should fix the standard of the unit of their money to one species of the metals, while in fact both the one and the other are actually employed in measuring value; does not such a state resemble the young man, who measures all by his growing foot. For, if silver, for example, be retained as the standard, while it is gaining upon gold one fifteenth additional value; and if gold continues all the while to determine the value of things as well as silver, it is plain that, to all intents and purposes, this silver measure is lengthening daily, like the young man’s foot, since the same weight of it must become every day equivalent to more and more of the same commodity; notwithstanding that we suppose the same proportion to subsist, without the least variation, between that commodity and every other species of things alienable.

[Sidenote: Arguments in favours of it.]

After having exposed the matter in this light, I think it can hardly, with reason, be urged, that notwithstanding it be admitted that gold and silver may change their proportion of value with regard to one another, yet still this does not prevent silver from remaining the standard, without any inconvenience; for the following reasons.

_1mo._ Because, when it is considered as a standard, it never ought to be looked upon as changing its value with regard to gold; but that gold ought to be considered as changing its value with regard to silver.

_2do._ Because being the measure itself, it is absurd to consider it as the thing measured; that therefore it retains all the requisites of an invariable scale; since it measures all things according to the proportion they bear to itself, which physically never can vary. And,

_3tio._ That a person who has borrowed a certain weight of silver from another, is obliged to repay the same weight of silver he had borrowed; although at that time silver should be of greater value than when he borrowed it.

[Sidenote: Answers to these arguments.]

I answer to the first argument: That if in fact silver becomes of more or less value with respect to merchandize, with respect to gold, and with respect to bank money, by there being a greater or less demand for it than there was before; I cannot see how calling it a standard, can remove this inconvenience, which is inseparable from the nature of the thing; nor how we can change a _matter of fact_, by changing our _language_, and by saying, that merchandize, gold, and bank money, become of more value, or of less value, with respect to silver, in proportion as the demand for them is greater or less. This language we must use, although we know for certain that these things remain in the exact relative proportion of quantity and demand as before: And although it should evidently appear, that a demand for silver has raised the price of it, with respect to every thing it measured the day before.

If the yard in a mercer’s shop should be subject to such revolutions, in consequence of the wood it was made of; and if in measuring a piece of stuff to a customer, which the mercer had bought by this yard the day before for 50 yards, he should find the piece measure but 40, it would not be easy to persuade him, I believe, that his piece was become shorter; but suppose he should have the curiosity to measure over again all the pieces in his shop, and that he should find exactly one fifth diminution upon the length of every one, would he not very rationally conclude that his yard was grown longer, and would he not run immediately to his neighbour’s shop and compare it?

As to the second argument, I agree that silver may at all times very exactly measure the value of things with respect to itself; but this gives us no idea of an universal measure.

I can measure the proportion of the length of things, with any rod or with any line, the length of which I know nothing about; but no body calls this measuring, because I cannot compare the things measured, with any other thing which I have not measured with the same rod or line, as I might easily do, had I measured with a foot, yard, or toise; consequently the intention of measuring in such a case is almost entirely lost.

To the third argument, I answer, that I subscribe very willingly to the truth of that proposition; providing that by silver is understood the bare metal, without attending to its additional quality of the universal standard measure of value. But if I borrow the silver not as bullion, but as coin (the common measure of value) then I say, that I overpay in giving back the same weight I had received. Is there any thing more familiar than such examples? I borrow 100_l._ from my neighbour, he proposes to give so much of the value in grain; I accept. The price of grain rises about the term of payment; can I be obliged to repay an equal quantity of grain in payment of a proportional part of what I owe? By no means; because I did not receive the grain as any thing but as a species of money. But if I borrow some quarters of grain to be repaid in harvest, then I am obliged to restore grain for grain, because in that case I did not receive the grain as money, but as a commodity.

[Sidenote: Usefulness of an universal measure.]

Buying and selling are purely conventional, and no man is obliged to give his merchandize at what may be supposed to be the proportion of its worth. The use, therefore, of an universal measure, is, to mark, not only the relative value of the things to which it is applied as a measure, but to discover in an instant the proportion between the value of those, and of every other commodity valued by a determinate measure in all the countries of the world.

Were pounds sterling, livres, florins, piastres, &c. which are all money of account, invariable in their values, what a facility would it produce in all conversions, what an assistance to trade! But as they are all limited or fixed to coins, and consequently vary from time to time, this example shews the utility of the invariable measure which we have described.

[Sidenote: They have two values, one as coin, and one as metals.]

There is another circumstance which incapacitates the metals from performing the office of money; the substance of which the coin is made, is a commodity, which rises and sinks in its value with respect to other commodities, according to the wants, competition, and caprices of mankind. The advantage, therefore, found in putting an intrinsic value into that substance which performs the function of money of account, is compensated by the instability of that intrinsic value; and the advantage obtained by the stability of paper, or symbolical money, is compensated by the defect it commonly has of not being at all times susceptible of realization into solid property, or intrinsic value.

In order, therefore, to render material money more perfect, this quality of metal, that is of a commodity, should be taken from it; and in order to render paper money more perfect, it ought to be made to circulate upon metallic or land security. The expedient with regard to the metals shall find a place in this inquiry (in the chapter of miscellaneous questions at the end of this book, article 4th). What regards the paper is foreign to our purpose, and belongs to the doctrine of credit.

[Sidenote: Smaller inconveniences attending material money.]

II. There are several smaller inconveniences accompanying the use of the metals, which we shall here shortly enumerate, reserving the discussion of all the consequences they draw along with them, until we come to consider the operations of trade and money, upon the complicated interests of mankind.

[Sidenote: It wears in circulation.]

_1mo._ No money made of gold or silver can circulate long, without losing of its weight, although it all along preserves the same denomination. This represents the contracting a pair of compasses which had been rightly adjusted to the scale. Such a defect must appear striking, when we reflect upon the principles (already laid down) which necessarily influence the fixing of a standard.

[Sidenote: It is inaccurately coined.]

_2do._ Another inconvenience proceeds from the fabrication of money. Supposing the faith of Princes who coin money to be inviolable, and the probity, as well as capacity, of those to whom they commit the inspection of the fineness of the metals to be sufficient, it is hardly possible for workmen to render every piece exactly of a proper weight, or to preserve the due proportion between pieces of different denominations; that is to say, to make every ten sixpences exactly of the same weight with every crown piece and every five shillings struck in a coinage. In proportion to such inaccuracies, the parts of the scale become unequal.

[Sidenote: The coinage adds to its value without adding to its
weight.]

_3tio._ Another inconvenience, and far from being inconsiderable, flows from the expence requisite for the coining of money. This expence adds to its value as a manufacture, without adding any thing to its weight. I shall take notice, in the proper place, of the consequences which attend this inconvenience, even to nations where coinage is free.

[Sidenote: The value of it may be arbitrarily changed.]

_4to._ The last inconvenience I shall mention, is, that by fixing the money of account entirely to the coin, without having any independent common measure (to mark and control these deviations from mathematical exactness, which are either inseparable from the metals themselves, or from the fabrication of them) the whole measure of value, and all the relative interests of debtors and creditors, become at the disposal not only of workmen in the mint, of Jews who deal in money, of clippers and washers of coin, but they are also entirely at the mercy of Princes, who have the right of coinage, and who have frequently also the right of raising or debasing the standard of the coin, according as they find it most for their present and temporary interest.

[Sidenote: Trade profits of the smallest defects in the coin.]

Several of the inconveniences we have here enumerated, may appear trifling, and so they are found to be in countries where commerce is little known; but the operations of trade surpass in nicety the conceptions of any man but a merchant; and as a proof of this, it may be affirmed with truth, that one shilling can hardly lose a grain of its weight, either by fraud or circulation, without contributing by that circumstance, towards the diminution of the standard value of the money-unit, or pound sterling, over all England, as I hope to be able to shew both by reason and facts.

All and every one of these inconveniences to which coin is exposed, disappear in countries where the use of pure ideal money of account is properly established.

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CHAP. IV.
_Methods which may be proposed for lessening the several inconveniences
to which material Money is liable._

I. In this chapter, I shall point out the methods which may be proposed for lessening the inconveniences to which all coin is liable, in order thereby to make it resemble as much as possible the invariable scale of ideal money of accompt.

[Sidenote: Use of theory in political matters.]

To propose the throwing out of coin altogether, because it is liable to inconveniences, and the reducing all to an ideal standard, is acting like the tyrant who adjusted every man’s length to that of his own bed, cutting from the length of those who were taller than himself, and racking and stretching the limbs of such as he found to be of a lower stature. The use of theory in political matters is not only to discover the methods of removing all abuses, it must also lend its aid towards palliating inconveniences which are not easily cured.

[Sidenote: Five remedies against the effects of the variation
between the value of the metals.]

The inconveniences from the variation in the relative value of the metals to one another, may in some measure be obviated by the following expedients.

_1mo._ By considering one only as the standard, and leaving the other to seek its own value, like any other commodity.

_2do._ By considering one only as the standard, and fixing the value of the other from time to time by authority, according as the market price of the metals shall vary.

_3tio._ By fixing the standard of the unit according to the mean proportion of the metals, attaching it to neither; regulating the coin accordingly; and upon every considerable variation in the proportion between them, either to make a new coinage, or to raise the denomination of one of the species, and lower it in the other, in order to preserve the unit exactly in the mean proportion between the gold and silver. This idea is dark, but it shall afterwards be sufficiently explained.

_4to._ To have two units, and two standards, one of gold, and one of silver, and to allow every body to stipulate in either.

_5to._ Or last of all, to oblige all debtors to pay one half in gold and one half in the silver standard.

I have here proposed the attaching the standard to one of the species, as a remedy against the effects of variation between the metals, because when that is done, the consequences are not so hurtful as when the unit is affixed to both, as I shall prove in its proper place.

The regulating the proportion of that metal which is considered as merchandize, to the other which is considered as the standard, upon every variation in the market price of bullion, as well as the other expedient of striking the unit according to the mean proportion, is an endless labour, and implies a necessity either of perpetually recoining, or of introducing fractions of value into the current coin, which cannot fail to embarrass circulation.

The establishing two units, the one of gold, and the other of silver, does not render the unit of money any more invariable than before; all that can be said for this expedient, is, that money becomes thereby more determinate, and that people who enter into permanent contracts are, at least, apprised of the consequences of the varying of the proportion of the metals, and may regulate their interests accordingly.

The last expedient of making debtors pay half in gold and half in silver, would answer every inconvenience, providing all creditors were supposed to melt the money down upon receiving it, in order to sell it for bullion; but as that is not the case, it would be proper, together with this expedient, to be also very exact in observing the market proportion of the metals in the coin; because it cannot be supposed, that every small payment can be made in both species, and wherever this is omitted, every former inconvenience may take place.

[Sidenote: Remedies against the other inconveniences.]

II. The other imperfections of coin have been already enumerated. They relate either to its wear, the want of exactness in the fabrication, the price of coinage, or the opportunity thereby afforded to Princes to adulterate and change the standard.

[Sidenote: Against the wearing of the coin.]

_1mo._ As to the first the best expedients are, 1. To strike the greatest part of the coin in large solid pieces, having as little surface as possible, consistently with beauty and ease of fabrication.

2. To order large sums (of silver at least) to circulate in bags of determinate sums, and determinate weights, all in pieces of the larger denominations.

3. To make all light coin whatsoever go by weight, upon the requisition of the person who is to receive it.

[Sidenote: Against inaccuracy of coinage.]

_2do._ As to the inaccuracy of the fabrication, there is no other remedy than a strict attention in government to a matter of so great consequence.

[Sidenote: Against the expence of coinage.]

_3tio._ The price of coinage principally affects the interest of nations with regard to foreign trade; consequently, trading states should endeavour, as nearly as possible, to observe the same regulations with their neighbours, in every thing which regards the coin. The consequence of this inconvenience to those within the society is unavoidable, and therefore no remedy can be proposed.

[Sidenote: Against arbitrary changes on the value of coin.]

_4to._ The establishment of public credit is the best security against all adulterations of the standard. No fundamental law can bind up a Prince’s hands so effectually as his own interest. While a Prince lives within his income, he will have no occasion to adulterate the coin; when he exceeds it, he will (in a trading nation) have recourse to credit, and if once he establishes that, he must give over meddling with the standard of his coin, or he will get no body to lend him any more. The only Prince who can gain by adulterating of the standard, is he who seeks for extraordinary supplies out of a treasure already formed.

These are, briefly, the expedients to be put in practice by those governments which have the prosperity of their subjects at heart. The infinite variety of circumstances relating to every state can alone decide as to those which are respectively proper to be adopted by each. Our business at present is to point out the variations to which the value of the money-unit is exposed, from every disorder in the coin; and to shew that as far as the value of the unit shall appear affected by them, so far must material money in such a case be defective.

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CHAP. V.
_Variations to which the Value of the Money-unit is exposed from every
disorder in the Coin._

I. Let suppose, at present, the only disorder to consist in a want of the due proportion between the gold and silver in the coin.

[Sidenote: How the market price of the metals is made to vary.]

This proportion can only be established by the market price of the metals; because an augmentation and rise in the demand for gold or silver has the effect of augmenting the value of the metal demanded. Let us suppose that to-day one pound of gold may buy fifteen pounds of silver; if to-morrow there be a high demand for silver, a competition among merchants, to have silver for gold, will ensue, they will contend who shall get the silver at the rate of fifteen pounds for one of gold: this will raise the price of it, and in proportion to their views of profit, some will accept of less than the fifteen pounds. [Sidenote: The variation ought to be referred to the rising metal, and never to the sinking.] This is plainly a rise in the silver, more properly than a fall in the gold; because it is the competition for the silver which has occasioned the variation in the former proportion between the metals. Had the competition for gold carried the proportion above 1 to 15, I should then have said that the gold had risen.

As it is, therefore, the _active demand_ for either gold or silver which makes the price of the metals to vary, I think language would be more correct (in speaking concerning the metals only) never to mention the _sinking_ of the price of either gold or silver. As to every other merchandize, the expression is very proper; because the diminishing of the price of one commodity, does not so essentially imply the rise of any other, as the sinking of one of the metals must imply the rising of the other, since they are the only measures of one another’s worth. I would not be here understood to mean that the term _sinking_ of the price of gold or silver is improper; all I say is, that the other being equally proper, and conveying with it the cause of the variation (to wit, the competition to acquire one metal preferably to the other) may be preferred, and this the rather, that from using these terms promiscuously (gold has _fallen_, in place of silver has _risen_) we are apt to believe, that the falling of the price of the metal, must proceed from some augmentation of the quantity of it; whereas it commonly proceeds from no other cause than a higher demand than formerly for the other.

Let us now suppose that a state having, with great exactness, examined the proportion of the metals in the market, and having determined the precise quantity of each for realizing or representing the money-unit, shall execute a most exact coinage of gold and silver coin. As long as that proportion continues unvaried in the market, no inconvenience can result from that quarter, in making use of the metals for money of account.

[Sidenote: How the money-unit of account is made to vary in its
value from the variation of the metals.]

[Sidenote: Consequences of this.]

But let us suppose the proportion to change; that the silver, for example, shall rise in its value with regard to gold; will it not follow, from that moment, that the unit realized in the silver, will become of more value than the unit realized in the gold coin?

But as the law has ordered them to pass as equivalents for one another, and as debtors have always the option of paying in what legal coin they think fit, will they not all choose to pay in gold, and will not then the silver coin be melted down or exported, in order to be sold as bullion, above the value it bears when it circulates in coin? Will not this paying in gold also really diminish the value of the money-unit, since upon this variation every thing must sell for more gold than before, as we have already observed?

[Sidenote: The true unit is the mean proportional between the
value of the metals.]

Consequently, merchandize which have not varied in their relative value to any other thing but to gold and silver, must be measured by the mean proportion of the metals, and the application of any other measure to them is altering the standard. If they are measured by the gold, the standard is debased; if by silver, it is raised, as shall presently be proved.

If to prevent the inconvenience of melting down the silver, the state shall give up affixing the value of their unit to both species at once, and shall fix it to one, leaving the other to seek its price as any other commodity, in that case no doubt the melting down of the coin will be prevented; but will ever this restore the value of the money-unit to its former standard? Would it, for example, in the foregoing supposition, raise the debased value of the money-unit in the gold coin, if that species were declared to be the standard? It would indeed render silver coin purely a merchandize, and by allowing it to seek its value, would certainly prevent it from being melted down as before; because the pieces would rise conventionally in their denomination; or an agio, as it is called, would be taken in payments made in silver; but the gold would not, on that account, rise in its value, or begin to purchase any more merchandize than before. Were therefore the standard fixed to the gold, would not this be an arbitrary and a violent revolution in the value of the money-unit, and a debasement of the standard?

If, on the other hand, the state should fix the standard to the silver, which we suppose to have risen in its value, would that ever sink the advanced value which the silver coin had gained above the worth of the former standard unit, and would not this be a violent and an arbitrary revolution in the value of the money-unit, and a raising of the standard?

The only expedient, therefore, as has been said, is in such a case to fix the numerary unit to neither of the metals, but to contrive a way to make it fluctuate in a mean proportion between them; which is in effect the introduction of a pure ideal money of account. This shall be farther explained as we go along.

[Sidenote: The unit to be attached to the mean proportion, upon a
new coinage, not after the metals have varied.]

I have only one observation to make in this place, to wit, that the regulation of fixing the unit by the mean proportion, ought to take place at the instant the standard unit is affixed with exactness both to the gold and silver. If it be introduced long after the market proportion between the metals has deviated from the proportion established in the coin, and if the new regulation is made to have a retrospect, with regard to the acquitting of permanent contracts entred into, while the value of the money-unit had attached itself to the lowest currency, in consequence of the principle above laid down, then the restoring the money-unit to that standard where it ought to have remained (to wit, to the mean proportion) is an injury to all debtors who have contracted since the time that the proportion of the metals began to vary.

This is clear from the former reasoning. The moment the market price of the metals differs from that in the coin, every one who has payments to make pays in that species which is the highest rated in the coin; consequently, he who lends, lends in that species. If after the contract, therefore, the unit is carried up to the mean proportion, this must be a loss to him who had borrowed.

[Sidenote: It is better to affix the unit to one than to both
metals.]

From this we may perceive why, in the first article of the preceding chapter, it was said, that there was less inconvenience from the varying of the proportion of the metals, where the standard is fixed to one of them, than when it is fixed to both. In the first case, it is at least uncertain whether the _standard_ or the _merchandize-species_ is to rise; consequently it is uncertain whether the debtors or the creditors are to gain by a variation. If the _standard_ species should rise, the creditors will gain; if the _merchandize-species_ rises, the debtors will gain; but when the unit is attached to both species, then the creditors never can gain, let the metals vary as they will: if silver rises, then debtors will pay in gold; if gold rises, debtors will pay in silver. But whether the unit be attached to one or to both species, the infallible consequence of a variation is, that one half of the difference is either gained or lost by debtors and creditors. The invariable unit is constantly the mean proportional between the two measures.

I intended to have postponed the entring upon what concerns the interests of debtors and creditors in all variations of the coin, until I came to treat particularly of that matter; but as it is a thing of the greatest consequence to be attended to, in every proposal for altering or regulating the coin of a nation, it will, perhaps, upon that account, bear a repetition.

[Sidenote: Variation to which the money-unit is exposed, from the
wearing of the coin.]