Chapter XXVIII: Introduction (2)

II. To render our ideas as distinct as possible, we must keep them simple. Let us now suppose that the metals are perfectly well proportioned in the coin, but that the coin is worn by use.

If this be the case, we must either suppose it to be all equally worn, or unequally worn.

If all be equally worn, I think it needs no demonstration to prove, that the money-unit which was attached to the coin, when weighty, (drawing its value from the metals contained in it) must naturally diminish in its value in proportion as the metals are rubbed away.

If the coin be unequally worn, the money-unit will be variously realized, or represented; that is to say, it will be of different values, according to the weight of the pieces.

The consequence of this is the same as in the disorder of the proportion of the metals: debtors will choose to pay in the light pieces, and the heavy will be melted down. In proportion, therefore, to this disorder, will the value of the unit gradually descend. This was the great disorder in England in 1695; while the standard of the pound sterling was affixed to the silver only, the gold being left to seek its own value.

[Sidenote: Variations to which the money-unit is exposed, from the
inaccuracy in the fabrication of the money.]

III. Since the invention of the money wheel, the inaccuracy in the fabrication is greatly prevented. Formerly, when money was coined with the hammer, the mint-masters weighed the coin delivered by the workmen, _in cumulo_, by the pound troy weight, without attending very exactly to the proportion of the pieces. At present exactness is more necessary, and every piece must be weighed by itself.

It is of very great consequence that all the pieces and denominations of coin be in exact proportion to that of their current value, which is always relative to the money-unit of accompt. When any inequality happens there, it is easy to perceive how all the pieces which are above the proportion of their just weight, will be immediately picked up, and melted down, and none but the light ones will remain in circulation.

This, from the principles already laid down, must proportionally diminish the value of the money-unit.

From what has been observed concerning the deviations in the coin from the proportion in the market price of the metals, and from the legal weight, we may lay down this undoubted principle, _That the value of the money-unit of accompt is not to be sought for in the statutes and regulations of the mint, but in the actual intrinsic value of that currency in which all obligations are acquitted, and all accompts are kept_.

[Sidenote: Variations to which the money-unit is exposed, from the
imposition of coinage.]

IV. As I have at present principally in view to lay down certain principles with regard to money, which I intend afterwards to apply to the state of the British coin; and as these principles are here restricted to the effects which every variation in the coin has upon the value of the unit of money in accompt, I shall in this place only observe, as to the imposition of coinage,

That coin being necessary in every country where the money-unit is attached to the metals, it must be procured by those who are obliged to acquit their obligations in material money.

If, therefore, the state shall oblige every one who carries the metals to the mint to pay the coinage, the coin they receive must be valued, not only at the price the metals bear in the market, when they are sold as bullion, (or mere metal, of no farther value than as a physical substance) but also at the additional value these metals receive in being rendred useful for purchasing commodities, and acquitting obligations. This additional value is the price of coinage.

[Sidenote: When coinage is imposed, bullion must be cheaper than
coin.]

If, therefore, in a country where coinage is free, as in England, this coinage shall come to be imposed, the money-unit continuing to be affixed as before to the same quantity of the metals, ought to rise in its value; that is, ought to become equal to a greater quantity of every sort of merchandize than before; consequently, as the rough metals of which the coin is made are merchandize, like every other thing, the same number of money-units realized, or represented in the coin, ought to purchase more of the metals than before: That is to say, _that in every country where coinage is imposed, bullion must be cheaper than coin_.

This proposition would be liable to no exception; were it true that no debt could be exacted but in the nation’s coin; because in that case, the creditor would be constantly obliged to receive it at its full value.

[Sidenote: Exception from this rule.]

But when nations owe to one another, the party debtor must pay the party creditor in _his_ coin: the debtor, therefore, is obliged to sell his own coin for what he can get for it, and with that he must buy of the coin of his creditor’s country, and with this he must pay him.

Let us, to avoid abstract reasoning, take an example: and we cannot choose a better than that of England and France. In England, coinage is free, in France it costs 82⁄10 _per cent._ as shall be made out in its proper place.

France owes England 1000_l._ sterling. In paying the bullion contained in this sum, either in gold or silver, in the market of London, the debt is paid; because the coining of it costs nothing. Here France acquits her debt cheaper than by sending her own coin as bullion; because the bullion she sends is not worth an equal weight of her coin.

England owes France 20,000 livres. In paying the bullion contained in this sum, England is not quit; she must also pay France 82⁄10 _per cent._ in order to put it into coin.

I reserve the farther examination of all the intricate consequences of this principle, until I come to the application of it, in the Second part.

[Sidenote: Variation to which the money-unit is exposed, by the
arbitrary operations of Princes in raising and debasing the
coin.]

V. The operation of raising and debasing the coin is performed in three ways.

_1mo_, By augmenting or diminishing the weight of the coin.

_2do_, By augmenting or diminishing the proportion of alloy in the coin.

_3tio_, By augmenting or diminishing the proportion between the money (coin) and the money of accompt, as if every sixpence were called a shilling, and every twenty sixpences a pound sterling.

The French call this increasing or diminishing the _numerary value_: and as I think it is a better term than that of raising or sinking the denomination, I shall take the liberty now and then to employ it.

These three operations may be reduced to one, and expressed by one term: they all imply the augmenting or diminishing the weight of the pure metals in the money-unit of accompt.

It would require a separate treatise, to investigate all the artifices which have been contrived, to make mankind lose sight of the principles of money, in order to palliate and make this power in the sovereign of changing the value of the coin, appear reasonable. But these artifices seem to be at an end, and Princes now perceive that the only scheme to get money when occasion requires, is to preserve their credit, and to allow the coin, by which that credit is reckoned to remain in a stable condition. There are still, however, examples of such operations to be met with; for which reason I shall subjoin, towards the end of this book, a particular inquiry into the interest of Princes with regard to the altering the value of their coin, which is a synonimous term with that of altering the value of the unit of money.

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CHAP. VI.
_How the Variations in the intrinsic value of the unit of Money must
affect all the domestic Interests of a Nation._

[Sidenote: How this variation affects the interests of debtors and
creditors.]

I. We have briefly pointed out the effects of the imperfections of the metals in producing a variation in the value of the unit of accompt, we must now point out the consequences of this variation.

If the changing the content of the bushel by which grain is measured, would affect the interest of those who are obliged to pay, or who are intitled to receive, a certain number of bushels of grain for the rent of lands; in the same manner must every variation in the value of the unit of accompt affect all persons who, in permanent contracts, are obliged to make payments, or who are intitled to receive sums of money stipulated in multiples or in fractions of that money-unit.

Every variation, therefore, upon the intrinsic value of the money-unit, has the effect of benefiting the class of creditors, at the expence of debtors, or _vice versa_.

This consequence is deduced from an obvious principle. Money is more or less valuable in proportion as it can purchase more or less of every kind of merchandize. Now without entring a-new into the causes of the rise and fall of prices, it is agreed upon all hands, I suppose, that whether an augmentation of the general mass of money in circulation has the effect of raising prices in general, or not, any augmentation of the quantity of the metals appointed to be put into the money-unit, must at least augment the value of that money-unit, and make it purchase more of any commodity than before; that is to say, if 113 grains of fine gold, the present weight of a pound sterling in gold, can buy 113 pounds of flour; were the pound sterling raised to 114 grains of the same metal, it would buy 114 pounds of flour; consequently, were the pound sterling augmented by one grain of gold, every miller who paid a rent of ten pounds a year, would be obliged to sell 1140 pounds of his flour, in order to procure 10 pounds to pay his rent, in place of 1130 pounds of flour which he sold formerly to procure the same sum; consequently by this innovation, the miller must lose yearly ten pounds of flour, which his master consequently must gain. From this example, I think it is plain, that every augmentation of metals put into the pound sterling, either of silver or gold, must imply an advantage to the whole class of creditors who are paid in pounds sterling, and consequently, must be a proportional loss to all debtors who must pay by the same denomination.

[Sidenote: A mistake of Mr. Locke.]

I should not have been so particular in giving a proof of so plain a proposition, had it not escaped the penetration of the great Mr. Locke.

In 1695 there was a proposal made to the government of England, to diminish the value of the pound sterling by 20 _per cent._ by making a new coinage of all the silver, and by making every shilling ⅕ lighter than before. The author of this project (Mr. Lowndes) having given his scheme to the public, was answered by Mr. Locke, That this debasing the value of the money-unit was effectually defrauding all the landed interest of 20 _per cent._ of their rents. Lowndes replied, that silver was augmented 20 _per cent._ in its value, and that therefore the pound sterling, though reduced 20 _per cent._ in its weight of pure silver, was still as valuable as before. This proposition Mr. Locke exploded with the most solid reasoning, and indeed nothing could be more absurd, than to affirm, that silver had risen in value with respect to itself. But though Mr. Locke _felt_ that all the landed interest, and all those who were creditors in permanent contracts, must lose 20 _per cent._ by Mr. Lowndes’s scheme, yet he did not _perceive_ (which is very wonderful) that the debtors in these contracts must gain. This led him to advance a very extraordinary proposition, which abundantly proves that the interests of debtors and creditors, which are now become of the utmost consequence to be considered attentively by modern statesmen, were then but little attended to, and still less understood.

We find in the 46th page of Mr. Locke’s _Farther Considerations concerning the raising the value of Money_, that Mr. Lowndes had affirmed in support of his scheme, that this new money would pay as much debt, and buy as many commodities as the then money which was one fifth heavier. Then adds Mr. Locke, “What he says of debts is true; but yet I would have it well considered by our English gentlemen, that though creditors will lose ⅕ of their principal and use, and landlords will lose ⅕ of their income, _yet the debtors and tenants will not get it_. It may be asked, who will get it? Those, I say, and those only, who have great sums of weighty money (whereof one sees not a piece now in payments) hoarded up by them, will get it. To these, by the proposed change of our money, will be an increase of ⅕ added to their riches, paid out of the pockets of the rest of the nation.”

If the authority of any man could prevail, where reason is dark, it would be that of Mr. Locke; and had any other person than Mr. Locke advanced such a doctrine, I should have taken no notice of it.

Here that great man, through inadvertency, at once gives up the argument in favour of his antagonist, after he had refuted him in the most solid manner: for if a man, who at that time had hoarded heavy money, was to gain ⅕ upon its being coined into pieces ⅕ lighter, Mr. Locke must agree with Mr. Lowndes, that a light piece was as much worth as a heavy one.

Those who had heavy money at that time locked up in their coffers, would gain no doubt, _provided they were debtors_; because having, I shall suppose, borrowed 4000_l._ sterling in heavy money, and having it augmented to 5000_l._ by Mr. Lowndes’s plan, they might pay their debt of 4000_l._ and retain one thousand clear profit for themselves. But supposing them to have no debts, which way could they possibly gain by having heavy money, since the 5000_l._ after the coinage, would have bought no more land, nor more of any commodities, than 4000_l._ would have done before the coinage.

[Sidenote: When the value of the unit is diminished, creditors
lose; when it is augmented, debtors lose.]

We may therefore safely conclude, that every _diminution_ of the metals contained in the money-unit, must imply a loss to all creditors; and that in proportion to that loss, those who are debtors must gain.

That on the contrary, whatever _augmentation_ is made of the money-unit, such augmentation must be hurtful to debtors, and proportionally advantageous to creditors.

In the preceding chapters, I have laid down, with as much distinctness as I am capable of, the most general principles which influence the doctrine of money, and to those I think every other may be applied.

The combination, however, of these principles with one another, occasions a surprizing variety of problems, relating to money, coin, and bullion, which are difficult to resolve, only by the difficulty there is found in applying them to the rule.

In order therefore to render this inquiry more useful, I shall now apply the principles I have laid down, to the state of the British coin, and to the resolution of every question which shall occur during the examination of the disorder into which it has fallen. A deviation from the standard weight of the coin, and proportion of the metals (small if compared with what was common in former ages) has introduced very great obstructions in the circulation of the two species, and presents very great inconveniencies when there is any question of removing them by a new regulation of the mint.

The most distinct method of treating such matters, is, to consider all coin as reduced to the weight of the pure metals; and to avoid the perplexity of different denominations of weights, I shall examine all by the troy grain.

The interests I intend to combine in this matter not being confined to those of England alone, I have entred into the most accurate calculation possible, with regard to the coin of those nations which I shall have occasion to mention, and to compare with that of England. These I have reduced to a general table which is inserted at the end of this volume. The reader may have recourse to it upon every occasion where mention is made of the conversion of money into grains of silver and gold, and thereby form to himself a far better idea of many things than I could otherwise have given him.

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CHAP. VII.
_Of the disorder in the British Coin, so far as it occasions the melting
down or the exporting of the Specie._

[Sidenote: Defects in the British coin.]

The defects in the British coin are three.

_1mo._ The proportion between the gold and silver in it is found to be as 1 to 152⁄10, whereas the market price may be supposed to be nearly as 1 to 14½.

_2do._ Great part of the current money is worn and light.

_3tio._ From the second defect proceeds the third, to wit, that there are several currencies in circulation which pass for the same value, without being of the same weight.

_4to._ From all these defects results the last and greatest inconvenience, to wit, that some innovation must be made, in order to set matters on a right footing.

I shall take no notice of the inaccuracies of fabrication, because these are inseparable from the imperfections of human art, and as long as they are not very considerable, no profit can be made in discovering them, and therefore no bad consequence can result from them.

[Sidenote: Of the standard of the English coin and money-unit.]

The English, besides the unit of their money which they call the pound sterling, have also the unit of their weight for weighing the precious metals.

This is called the pound troy, and consists of 12 ounces, every ounce of 20 penny weight, and every penny weight of 24 grains. The pound troy, therefore, consists of 240 penny weight, and 5760 grains.

The fineness of the silver is reckoned by the number of ounces and penny weights of the pure metals in the pound troy of the composed mass; or in other words, the pound troy, which contains 5760 grains of standard silver, contains 5328 grains of fine silver, and 432 grains of copper, called alloy.

Thus standard silver is 11 ounces 2 penny weights of fine silver in the pound troy, to 18 penny weights copper, or 111 parts fine silver to 9 parts alloy.

Standard gold is 11 ounces fine to one ounce silver or copper employed for alloy, which together make the pound troy; consequently, the pound troy of standard gold, contains 5280 grains fine, and 480 grains alloy, which alloy is reckoned of no value.

[Sidenote: A pound sterling by statute contains 1718.7 grains
troy, fine silver.]

This pound of standard silver is ordered, by statute of the 43d of Elizabeth, to be coined into 62 shillings, 20 of which make the pound sterling; consequently the 20 shillings contain 1718.7 grains of fine silver, and 1858.06 standard silver.

[Sidenote: The guinea 118.644 grains of fine gold.]

The pound troy of standard gold, 11⁄12 fine, is ordered by an act of King Charles II. to be cut into 44½ guineas; that is to say, every guinea contains 129.43 grains of standard gold, and 118.644 of fine gold, and the pound sterling, which is 20⁄21 of the guinea, contains 112.994, which we may state at 113 grains of fine gold, as has been said.

[Sidenote: Coinage in England free.]

The coinage in England is entirely defrayed at the expence of the state. The mint price for the metals is the very same with the price of the coin. Whoever carries to the mint an ounce of standard silver, receives for it in silver coin 5_s._ 2_d._ or 62_d._ whoever carries an ounce of standard gold receives in gold coin 3_l._ 17_s._ 10_d_½. the one and the other making exactly an ounce of the same fineness with the bullion. Coin, therefore, can have no value in the market above bullion; consequently, no loss can be incurred by those who melt it down.

When the guinea was first struck, the government (not inclining to fix the pound sterling to the gold coin of the nation) fixed the guinea at 20 shillings, (which was then below its proportion to the silver) leaving it to seek its own price above that value, according to the course of the market.

By this regulation no harm was done to the English silver standard; because the guinea, or 118.644 grains fine gold being worth more, at that time, than 20 shillings, or 1718.7 grains fine silver, no debtor would pay with gold at its standard value, and whatever it was received for above that price was purely conventional.

[Sidenote: The standard not attached to the gold coin, till the
year 1728.]

Accordingly guineas sought their own price until the year 1728, that they were fixed a-new, not below their value as at first, but at what was then reckoned their exact value, according to the proportion of the metals, to wit, at 21 shillings, and at this they were ordered to pass current in all payments.

[Sidenote: Consequence of this regulation to debase the standard.]

This operation had the effect of making the gold a standard as well as the silver. Debtors then paid indifferently in gold as well as in silver, because both were supposed to be of the same intrinsic as well as current value; in which case no inconvenience could follow upon this regulation. But, in time, silver came to be more demanded; the making of plate began to prevail more than formerly, and the exportation of silver to the East Indies increasing yearly, made the demand for it greater; or perhaps brought its quantity to be proportionally less than before. This changed the proportion of the metals, and by slow degrees they have come from that of 1 to 15.2 (the proportion they were supposed to have when the guineas were fixed and made a lawful money at 21 shillings) to that of 14.5 the present _supposed_ proportion.

The consequence of this has been, that the same guinea which was worth 1804.6 grains fine silver, at the time it was fixed at 21 shillings, is now worth no more than 1719.9 grains of fine silver according to the proportion of 14½ to 1.

[Sidenote: That debtors will not pay in silver but in gold.]

Consequently, debtors, who have always the option of the legal species in paying their debts, will pay pounds sterling no more in silver but in gold; and as the gold pounds they pay in, are not intrinsically worth the silver pounds they paid in formerly, according to the statute of Elizabeth, it follows that the pound sterling in silver is really no more the standard, since no body will pay at that rate, and since no body can be compelled to do it.

Besides this want of proportion between the metals, the silver coined before the reign of George I. is now become light by circulation; and the guineas coined by all the Princes since Charles II. pass by tale, though many of them are considerably diminished in their weight.

Let us now examine what profit the want of proportion, and the want of weight in the coin can afford to the money jobbers, in melting it down or exporting it.

Did every body consider coin only as the measure for reckoning value, without attending to its value as a metal, the deviations of gold and silver coin from perfect exactness either as to proportion or weight, would occasion little inconvenience.

[Sidenote: That some people consider coin a money of accompt,]

Great numbers indeed, in every modern society, consider coin in no other light, than that of money of accompt, and have great difficulty to comprehend what difference any one can find between a light shilling and a heavy one; or what inconvenience there can possibly result from a guinea’s being some grains of fine gold too light to be worth 21 shillings standard weight. And did every one think in the same way, there would be no occasion for coin of the precious metals at all; leather, copper, iron, or paper, would keep the reckoning as well as gold and silver.

[Sidenote: others consider it as a metal.]

But although there be many who look no farther than at the stamp on the coin, there are others whose sole business it is to examine its intrinsic worth as a commodity, and to profit of every irregularity in the weight and proportion of metals.

By the very institution of coinage, it is implied, that every piece of the same metal, and same denomination with regard to the money-unit, shall pass current for the same value.

It is, therefore, the employment of those money jobbers, as I shall call them, to examine, with a scrupulous exactness, the precise weight of every piece of coin which comes into their hands.

[Sidenote: Operations of money jobbers when the coin deviates from
the market proportion of the metals, or from the legal
weight.]

The first object of their attention, is, the price of the metals in the market: a jobber finds, at present, that with 14.5 pounds of fine silver bullion, he can buy one pound of fine gold bullion.

[Sidenote: They melt down when the metals in it are wrong
proportioned.]

He therefore buys up with gold coin, all the new silver as fast as it is coined, of which he can get at the rate of 15.2 pounds for one in gold; these 15.2 pounds silver coin he melts down into bullion, and converts that back into gold bullion, giving at the rate of only 14.5. pounds for one.

By this operation he remains with the value of 7⁄10 of one pound weight of silver bullion clear profit upon the 15½ pounds he bought; which 7⁄10 is really lost by the man who inadvertently coined silver at the mint, and gave it to the money jobber for his gold. Thus the state loses the expence of the coinage, and the public the convenience of change for their guineas.

[Sidenote: And when the coin is of unequal weight.]

But here it may be asked, Why should the money jobber melt down the silver coin, can he not buy gold with it as well without melting it down? I answer, he cannot; because when it is in coin, he cannot avail himself of its being new and weighty. Coin goes by tale, not by weight; therefore, were he to come to market with his new silver coin, gold bullion being sold at the mint price I shall suppose, viz. at 3_l._ 17_s._ 10½_d._ sterling money _per_ ounce, he would be obliged to pay the price of what he bought with heavy money, which he can equally do with light.

He therefore melts down the new silver coin, and sells it for bullion, at so many pence an ounce, the price of which bullion is, in the English market, always above the price of silver at the mint, for the reasons now to be given.

[Sidenote: Why silver bullion is dearer than coin.]

When you sell standard silver bullion at the mint, you are paid in weighty money; that is, you receive for your bullion the very same weight in standard coin; the coinage costs nothing; but when you sell bullion in the market, you are paid in worn out silver, in gold, in bank notes, in short, in every species of lawful current money. Now all these payments have some defect: the silver you are paid with is worn and light; the gold you are paid with is over-rated, and perhaps also light; and the bank notes must have the same value with the specie with which the bank pays them, that is, with light silver or over-rated gold.

It is for these reasons, that silver bullion, which is bought by the mint at 5_s._ 2_d._ _per_ ounce of heavy silver money, may be bought at market at 65 pence[Q] the ounce in light silver, over-rated gold, or bank notes, which is the same thing.

Footnote Q:

The price of silver is constantly varying in the London market; I
therefore take 65 pence _per_ ounce as a mean price, the less to
perplex calculations, which here are all hypothetical.

[Sidenote: Because that species has risen in the market price as
bullion, and not as coin.]

Farther, we have seen how the imposition of coinage has the effect of raising coin above the value of bullion, by adding a value to it which it had not as a metal.

Just so when the unit is once affixed to certain determined quantities of both metals, if one of the metals should afterwards rise in value in the market, the coin made of that metal must lose a part of its value as coin, although it retains it as a metal. Consequently, as in the first case, it acquired an additional value by being coined, it must now acquire an additional value by being melted down. From this we may conclude, that when the standard is affixed to both the metals in the coin, and when the proportion of that value is not made to follow the price of the market, that species which rises in the market is melted down, and the bullion is sold for a price as much exceeding the mint price, as the metal has risen in its value.

If, therefore, in England the price of silver bullion is found to be at 65 pence the ounce, while at the mint it is rated at 62; this proves that silver has risen 3⁄65 above the proportion observed in the coin, and that all coin of standard weight may consequently be melted down with a profit of 3⁄65. But as there are several other circumstances to be attended to, which regulate and influence the price of bullion, we shall here pass them in review the better to discover the nature of this disorder in the English coin, and the advantages which money jobbers may draw from it.

[Sidenote: What regulates the price of bullion.]

The price of bullion, like that of every other merchandize, is regulated by the value of the money it is paid with.

If bullion, therefore, sells in England for 65 pence an ounce, paid in silver coin, it must sell for 65 shillings the pound troy; that is to say, the shillings it is commonly paid with, do not exceed the weight of 2⁄65 of a pound troy: for if the 65 shillings with which the pound of bullion is paid weighed more than a pound troy, it would be a shorter and better way for him who wants bullion, to melt down the shillings and make use of the metal, than to go to market with them in order to get less.

We may, therefore, be very certain, that no man will buy silver bullion at 65 pence an ounce, with any shilling which weighs above 1⁄65 of a pound troy.

We have gone upon the supposition that the ordinary price of bullion in the English market is 65 pence _per_ ounce. This has been done upon the authority of some late writers on this subject[R]: it is now proper to point out the causes which may make it deviate from that value.

Footnote R:

This was writ in Germany, _anno_ 1759, when I was not well informed of
certain facts, and it is not worth while to make any alterations, as
it is only a supposition.

[Sidenote: The intrinsic value of the currency.]

I. It may vary and certainly will vary in the price according as the currency is better or worse. When the expences of a war, or a wrong balance of trade, have carried off a great many heavy guineas, it is natural that bullion should rise; because then it will be paid for more commonly in light gold and silver; that is to say, with pounds sterling, below the value of 113 grains fine gold, the worth of the pound sterling in new guineas.

[Sidenote: A demand for exporting bullion.]

II. This wrong balance of trade, or a demand for bullion abroad, becoming very great, may occasion a scarcity of the metals in the market, as well as a scarcity of the coin; consequently, an advanced price must be given for it in proportion to the greatness and height of the demand. In this case, both the specie and the bullion must be bought with paper. But I must observe, that the rise in the price of bullion proceeds from the demand for the metals, and the competition between merchants to procure them, and not because the paper given as the price is at all of inferior value to the specie. The least discredit of this kind would not tend to diminish the value of the paper; it would annihilate it at once. Therefore, since the metals must be had, and that the paper cannot supply the want of them when they are to be exported, the price rises in proportion to the difficulties in finding metals elsewhere than in the English market.

[Sidenote: Or for making of plate.]

III. A sudden call for bullion, for the making of plate. A gold-smith can well afford to give 67 pence for an ounce of silver, that is to say, he can afford to give one pound of gold for 14 pounds of silver, and perhaps for less, notwithstanding that what he gives be more than the ordinary proportion between the metals, because he indemnifies himself amply by the price of his workmanship: just as a tavern-keeper will pay any price for a fine fish, because, like the goldsmith, he buys for other people.

[Sidenote: Exchange raises, and the mint price brings down
bullion.]

IV. The mint price has as great an effect in bringing down the price of bullion, as exchange has in raising it. In countries where the metals in the coin are justly proportioned, where all the currencies are of legal weight, and where coinage is imposed, the operations of trade make the price of bullion constantly to fluctuate between the value of the coin and the mint price of the metals. This shall afterwards be sufficiently explained, in the second part.

[Sidenote: Continuation of the operations of money-jobbers]

Now let us suppose that the current price of silver bullion in the market is 65 pence the ounce, paid in lawful money, no matter of what weight, or of what metal. [Sidenote: Their rule for melting the coin.] Upon this the money-jobber falls to work. All shillings which are above 1⁄65 of a pound troy, he throws into his melting pot, and sells them as bullion, for 65_d._ _per_ ounce; all those which are below that weight he carries to market, and buys bullion with them, at 65 pence _per_ ounce.

What is the consequence of this?

That those who sell the bullion, finding the shillings which the money-jobber pays with perhaps not above 1⁄66 of a pound troy, they on their side raise the price of their bullion to 66 pence the ounce.

This makes new work for the money-jobber; for he must always gain. He now weighs all shillings as they come to hand; and as formerly he threw into his melting-pot those only which were worth more than 1⁄65 of a pound troy, he now throws in all that are in value above 1⁄66. He then sells the melted shillings at 66 pence the ounce, and buys bullion with the light ones, at the same price.

This is the consequence of ever permitting any species of coin to pass by the authority of the stamp, without controlling it at the same time by the weight: and this is the manner in which money-jobbers gain by the currency of light money.

[Sidenote: The pence in guineas equal to the pence of shillings of
65 in the pound troy.]

It is no argument against this exposition of the matter to say, that silver bullion is seldom bought with silver coin; because the pence in new guineas are worth no more than the pence of shillings of 65 in the pound troy: that is to say, that 240 pence contained in 20⁄21 of a new guinea, and 240 pence contained in 20 shillings of 65 to the pound troy, differ no more in the intrinsic value than 0.88 of a grain of fine silver upon the whole, which is a mere trifle[S].

Footnote S:

See table, English coins, N^o. 6, & 7.

[Sidenote: When guineas may be melted down with profit.]

Whenever, therefore, shillings come below the weight of 1⁄65 of a pound troy, then there is an advantage in changing them for new guineas; and when that is the case, the new guineas will be melted down, and profit will be found in selling them for bullion, upon the principles we have just been explaining.

It would be very tedious to enumerate all the fraudulent operations which are occasioned by this defect of proportion between the metals in the coin, and by the unequal weight of coins carrying the same denomination.

[Sidenote: Silver is exported preferably to gold.]

We have already given a specimen of the domestic operations of the money-jobbers; but these are not the most prejudicial to national concerns. The jobbers may be supposed to be Englishmen; and in that case the profit they make remains at home; but whenever there is a call for bullion to pay the balance of trade, it is evident that this will be paid in silver coin, never in gold, if heavy silver can be got; and this again carries away the silver coin, and renders it at home so rare, that great inconveniencies are found for want of the lesser denominations of it. The loss, however, here is confined to an inconvenience; because the balance of trade being a debt which must be paid, I don’t consider the exportation of the silver for that purpose as any consequence of the disorder of the coin. But besides this exportation which is necessary, there are others which are arbitrary, and which are made only with a view to profit of the wrong proportion.

When the money-jobbers find difficulty in carrying on the traffic we have described, in the English market, because of the competition among themselves, they carry the silver coin out of the country, and sell it abroad for gold, upon the same principles that the East India company send silver to China, in order to purchase gold.

[Sidenote: This hurtful, when done by foreigners.]

It may be demanded, what hurt this trade can do to England, since those who export silver bring back the same value in gold? I answer, that were this trade carried on by natives, there would be no loss; because they would bring home gold for the whole intrinsic value of the silver. But if we suppose foreigners sending over gold to be coined at the English mint, and changing that gold into English silver coin, and then carrying off this coin, I think it is plain that they must gain the difference, as well as the money-jobbers. But it may be answered, that having given gold for silver at the rate of the mint, they have given value for what they have received. Very right; but so did Sir Hans Sloane, when he paid five guineas for an overgrown toad: he got value for his money; but it was value only to himself. Just so, whenever the English government shall be obliged to restore the proportion of the metals, (as they must do) this operation will annihilate that imaginary value which they have hitherto set upon gold; which imagination is the only thing which renders the exchange of their silver against the foreign gold equal.

But it is farther objected, that foreigners cannot carry off the heavy silver; because there is none to carry off. Very true; but then I say they have carried off a great quantity already: or if the English Jews have been too sharp to allow such a profit to fall to strangers, (which may or may not have been the case) then I say that this disorder is an effectual stop to any more coinage of silver for circulation.

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CHAP. VIII.
_Of the disorder in the British coin, so far as it affects the value of
the pound sterling currency._

[Sidenote: Two legal pounds sterling in England.]

From what has been said, it is evident, that there must be found in England two legal pounds sterling, of different values; the one worth 113 grains of fine gold, the other worth 1718.7 grains of fine silver. I call them different; because these two portions of the precious metals are of different values all over Europe.

[Sidenote: And several others, in consequence of the wearing of
the coin.]

But besides these two different pounds sterling, which the change in the proportion of the metals have created, the other defects of the circulating coin produce similar effects. The guineas coined by all the Princes since K. Charles II. have been of the same standard weight and fineness, 44½ in a pound troy of standard gold 11⁄12 fine: these have been constantly wearing ever since they have been coined; and in proportion to their wearing they are of less value.

If, therefore, the new guineas are below the value of a pound sterling in silver, standard weight, the old must be of less value still. Here then is another currency, that is, another pound sterling; or indeed more properly speaking, there are as many different pounds sterling as there are guineas of different weights. This is not all; the money-jobbers having carried off all the weighty silver, that which is worn with use, and reduced even below the standard of gold, forms one currency more, and totally destroys all determinate proportion between the money-unit and the currencies which are supposed to represent it.

[Sidenote: Why any silver coin remains in England.]

It may be asked, how, at this rate, any silver at all has remained in England? I answer, that the few weighty shillings which still remain in circulation, have marvellously escaped the hands of the money-jobbers; and as for the rest, the rubbing and wearing of these pieces has done what the slate might have done; that is to say, it has reduced them to their due proportion with the lightest gold.

The disorder, therefore, of the English coin has rendered the standard of a pound sterling quite uncertain. To say that it is 1718.7 grains of fine silver, is quite ideal. Who are paid in such pounds? To say that it is 113 grains of pure gold, may also not be true; because there are many currencies worse than the new guineas.

[Sidenote: Value of a pound sterling current.]

What then is the consequence of all this disorder? What effect has it upon the current value of a pound sterling? And which way can the value of that be determined?

[Sidenote: Determined by the operations of trade.]

The operations of trade bring value to an equation, notwithstanding the greatest irregularities possible, and so in fact a pound sterling has acquired a determinate value over all the world by the means of foreign exchange. This is a kind of ideal scale for measuring the British coin, although it has not all the properties of that described above.

[Sidenote: To the mean value of all the currencies.]

Exchange considers the pound sterling as a value determined according to the combination of the values of all the different currencies, in proportion as payments are made in the one or the other; and as debtors generally take care to pay in the worst species they can, it consequently follows, that the value of the pound sterling should fall to that of the lowest currency.

Were there a sufficient quantity of worn gold and silver to acquit all bills of exchange, the pound sterling would come down to the value of them; but if the new gold be also necessary for that purpose, the value of it must be proportionally greater.

All these combinations are liquidated and compensated with one another, by the operations of trade and exchange: and the pound sterling, which is so different in itself, becomes thereby, in the eyes of commerce, a determinate unit, subject however to variations, from which it never can be exempted.

Here is then the proof of what was said in the end of the first chapter, that the wearing of one shilling had the effect of contributing towards the diminution of the value of the pound sterling every where; a proportion which, at first sight, has the air of a paradox, though, when it is understood, nothing is more consistent with the ruling principles of commerce.

[Sidenote: Exchange a good measure for the value of a pound
sterling.]

Exchange, therefore, in my humble opinion, is one of the best measures for valuing a pound sterling, present currency. Here occurs a question.

Does the great quantity of paper money in England tend to diminish the value of the pound sterling?

[Sidenote: The use of paper money not hurtful in debasing the
standard.]

I answer (according to my weak conceptions) in the negative. _Paper money_ is just as good as gold or silver money, and no better. The variation of the standard, we have already said, and I think proved, must influence the interests of debtors and creditors proportionally every where. From this it follows, that all augmentation of the value of the money-unit in the specie must hurt the debtors in the paper money; and all diminutions on the other hand must hurt the creditors in the paper money, as well as every where else. The payments, therefore, made in paper money, never can contribute to the regulation of the standard of the pound sterling; it is the specie received in liquidation of that paper money which alone can contribute to mark the value of the British unit; because it is affixed to nothing else.

[Sidenote: The pound sterling not regulated by statute, but by the
mean value of the current money.]

From this we may draw a principle, _That in countries where the money-unit is entirely affixed to the coin, the actual value of it is not according to the legal standard of that coin, but according to the mean proportion of the actual worth of those currencies in which debts are paid_.

[Sidenote: Why exchange appears so commonly against England.]

From this we see the reason why the exchange between England and all the trading towns in Europe has long appeared so unfavourable. People calculate the real par, upon the supposition that a pound sterling is worth 1718.7 grains troy of fine silver, when in fact the currency is not perhaps worth 1638, the value of a new guinea in silver, at the market proportion of 1. to 14.5; that is to say, the currency is but 95.3. _per cent._ of the silver standard of the 43d of Elizabeth. No wonder then if the exchange be thought unfavourable.

[Sidenote: How the market prices of bullion marks the value of the
pound sterling.]

From the principle we have just laid down, we may gather a confirmation of what we advanced concerning the cause of the advanced price of bullion in the English market.

When people buy bullion with current money at a determinate price, that operation, in conjunction with the course of exchange, ought naturally to mark the actual value of the pound sterling with great exactness.

[Sidenote: Shillings at present weigh no more than 1⁄65 of a pound
troy,]

If therefore the price of standard bullion in the English market, when no demand is found for the exportation of the metals, that is to say, when paper is found for paper upon exchange, and when merchants, versed in these matters, judge exchange (that is remittances) to be at par, if then, I say, silver bullion cannot be bought at a lower price than 65 pence the ounce, it is evident that this bullion might be bought with 65 pence in shillings, of which 65 might be coined out of the pound troy English standard silver; since 65 pence per ounce implies 65 shillings for the 12 ounces or pound troy.

This plainly shews how standard silver bullion should sell for 65 pence the ounce, in a country where the ounce of standard silver in the coin is worth no more than 62; and were the market price of bullion to stand uniformly at 65 _per_ ounce, that would shew the value of the pound sterling to be tolerably fixed. All the heavy silver coin is now carried off[T]; because it was intrinsically worth more than the gold it passed for in currency. The silver therefore which remains is worn down to the market proportion of the metals, as has been said, that is to say, 20 shillings in silver currency are worth 113 grains of fine gold, at the proportion of 1 to 14.5 between gold and silver. Now,

as 1 is to 14.5, so is 113 to 1638.

so the 20 shillings current weigh but 1638 grains fine silver, instead of 1718.7, which they ought to do according to the standard.

Footnote T:

This was writ during last war.

Now let us speak of standard silver, since we are examining how far the English coin must be worn by use.

[Sidenote: and are worn 4.29 troy grains light of their standard
weight.f]

The pound troy contains 5760 grains. This, according to the standard, is coined into 62 shillings; consequently, every shilling ought to weigh 92.9 grains. Of such shillings it is impossible that ever standard bullion should sell at above 62 pence _per_ ounce. If therefore such bullion sells for 65 _pence_, the shillings with which it is bought must weigh no more than 88.64 grains standard silver; that is, they must lose 4.29 grains, and are reduced to 1⁄65 of a pound troy.

But it is not necessary that bullion be bought with shillings; no stipulation of _price_ is ever made farther, than at so many pence sterling _per_ ounce. Does not this virtually determine the value of such currency with regard to all the currencies in Europe? Did a Spaniard, a Frenchman, or a Dutchman, know the exact quantity of silver bullion which can be bought in the London market for a pound sterling, would he inform himself any farther as to the intrinsic value of that money-unit; would he not understand the value of it far better from that circumstance than by the course of any exchange, since exchange does not mark the intrinsic value of money, but only the value of that money transported from one place to another.

The price of bullion, therefore, when it is not influenced by extraordinary demand (such as for the payment of a balance of trade, or for making an extraordinary provision of plate) but when it stands at what every body knows to be meant by the common market price, is a very tolerable measure of the value of the _actual_ money-standard in any country.

[Sidenote: A pound sterling worth at present no more than 1638
grains troy fine silver, according to the price of bullion;]

If it be therefore true, that a pound sterling cannot purchase above 1638 grains of fine silver bullion, it will require not a little logic to prove that it is really, or has been for these many years, worth any more; notwithstanding that the standard weight of it in England is regulated by the laws of the kingdom at 1718.7 grains of fine silver.

[Sidenote: and according to the course of exchange,]

If to this valuation of the pound sterling drawn from the price of bullion, we add the other drawn from the course of exchange; and if by this we find, that when paper is found for paper upon exchange, a pound sterling cannot purchase above 1638 grains of fine silver in any country in Europe, upon these two authorities, I think, we may very safely conclude (as to the matter of fact at least) that the pound sterling is not worth more, either in London or in any other trading city, and if this be the case, it is just worth 20 shillings of 65 to the pound troy.

[Sidenote: shillings coined at 65 in the pound troy, would be in
proportion with the gold,]

If therefore the mint were to coin shillings at that rate, and pay for silver bullion at the market price, that is, at the rate of 65 pence _per_ ounce in those new coined shillings, they would be in proportion to the gold: silver would be carried to the mint equally with gold, and would be as little subject to be exported or melted down.

It may be inquired in this place, how far the coining the pound troy into 65 shillings is contrary to the laws of England?