Chapter I: Part 1

MONEY

AND

TRADE

CONSIDERED:

WITH A PROPOSAL FOR SUPPLYING
THE NATION WITH MONEY.

FIRST PUBLISHED AT EDINBURGH MDCCV.

BY THE CELEBRATED

JOHN LAW, ESQ;

AFTERWARD

DIRECTOR TO THE MISSISIPI COMPANY.

GLASGOW,

PRINTED AND SOLD BY R. & A. FOULIS

MDCCL.

MONEY AND TRADE CONSIDERED.

There are several proposals offer’d to remedy the difficulties the nation is under from the great scarcity of money.

That a right judgment may be made, which will be most safe, advantageous and practicable; it seems necessary, 1. that the nature of money be inquired into, and why silver was used as money preferable to other goods. 2. that trade be considered, and how far money affects trade. 3. that the measures have been used for preserving and increasing money, and these now proposed, be examined.

CHAP. I.

_How goods are valued. of barter. of silver; its value as a metal; its qualities fitting it for money; and of the additional value it received from being used as money._

Goods have a value from the uses they are applyed to; and their value is greater or lesser, not so much from their more or less valuable, or necessary uses, as from the greater or lesser quantity of them in proportion to the demand for them. example; water is of great use, yet of little value; because the quantity of water is much greater than the demand for it. diamonds are of little use, yet of great value, because the demand for diamonds is much greater, than the quantity of them.

Goods of the same kind differ in value, from any difference in their quality, one horse is better than another horse. barley of one country is better than barley of another country.

Goods change their value, from any change in their quantity, or in the demand for them. if oats be in greater quantity than last year, and the demand the same, or lesser, oats will be less valuable.

Mr. Locke says, the value of goods is according to their quantity in proportion to their vent. the vent of goods cannot be greater than the quantity, but the demand may be greater: if the quantity of wine brought from France be a 100 ton, and the demand be for 500 ton, the demand is greater than the vent; and the 100 ton will sell at a higher price, than if the demand were only equal to the vent. so the prices of goods are not according to the quantity in proportion to the vent, but in proportion to the demand.

Before the use of money was known, goods were exchanged by barter, or contract; and contracts were made payable in goods.

This state of barter was inconvenient, and disadvantageous. 1. he who desired to barter would not always find people who wanted the goods he had, and had such goods as he desired in exchange.

2. Contracts taken payable in goods were uncertain, for goods of the same kind differed in value.

3. There was no measure by which the proportion of value goods had to one another could be known.

In this state of barter there was little trade, and few arts-men. the people depended on the landed-men. the landed-men laboured only so much of the land as served the occasions of their families, to barter for such necessaries as their land did not produce; and to lay up for seed and bad years. what remained was unlaboured; or gifted on condition of vassalage, and other services.

The losses and difficulties that attended barter, would force the landed-men to a greater consumption of the goods of their own product, and a lesser consumption of other goods; or to supply themselves, they would turn the land to the product of the several goods they had occasion for; tho’ only proper to produce of one kind. so, much of the land was unlaboured, what was laboured was not employ’d to that by which it would have turned to most advantage, nor the people to the labour they were most fit for.

Silver as a metal had a value in barter, as other goods; from the uses it was then apply’d to.

As goods of the same kind differ’d in value, so silver differ’d from silver, as it was more or less fine.

Silver was lyable to a change in its value, as other goods, from any change in its quantity, or in the demand for it.

Silver had qualities which fitted it for the use of money.

1. It could be brought to a standard in fineness, so was certain as to its quality.

2. It was easie of delivery.

3. It was of the same value in one place that it was in another; or differed little, being easie of carriage.

4. It could be kept without loss or expence; taking up little room, and being durable.

5. It could be divided without loss, an ounce in four pieces, being equal in value to an ounce in one piece.

Silver having these qualities, ’tis reasonable to think it was used as money, before it was coined. what is meant by being used as money, is, that silver in bullion was the measure by which goods were valued: the value by which goods were exchanged: and in which contracts were made payable.

He who had more goods than he had use for, would choose to barter them for silver, tho’ he had no use for it; because, silver was certain in it’s quality: it was easie of delivery: it could be kept without loss or expence: and with it he could purchase other goods as he had occasion, in whole or in part, at home or abroad, silver being divisible without loss, and of the same value in different places. If A. B. had 100 sheep, and desired to exchange them for horses; C. D. had 10 horses, which were equal to, or worth the 100 sheep, and was willing to exchange: but as A. B. had not present occasion for the horses, rather than be at the expence of keeping them, he would barter his sheep with E. F. who had the value to give in silver, with which he could purchase the horses at the time he had occasion.

Or if E. F. had not silver, but was satisfied to give his bond for the silver, or the horses, payable at the time A. B. wanted them; A. B. would choose to take the bond payable in silver, rather than in horses: because silver was certain in quality, and horses differed much. so silver was used as the value in which contracts were made payable.

Silver was likewise used as the measure by which goods were valued, because certain in quality. if A. B. had a 100 weight of lead, and desired to exchange it for barley, the way to know what quantity of barley was equal in value to the lead, was by the silver. if the 100 weight of lead was equal to five ounces of fine silver, and 5 ounces of fine silver equal to 20 bolls of barley, then 20 bolls was the quantity of barley to be given in exchange for the lead.

Silver being easie of carriage, so equal in one place to what it was in another; was used as the measure by which goods to be delivered in different places were valued. If a piece of wine was to be delivered at Glasgow by A. B. merchant there, to the order of C. D. merchant in Aberdeen: and the value to be delivered in oats at Aberdeen by C. D. to the order of A. B. the wine could not be valued by the quantity of oats it was worth at Glasgow, nor the oats by the quantity of wine they were worth at Aberdeen. wine or oats might differ in quality, or be more or less valuable at the one place than at the other. the way to have known what quantity of oats was equal to the wine, was by the quantity of silver each was worth at the places they were to be delivered. if the piece of wine was worth at Glasgow 20 ounces of fine silver, and 20 ounces of fine silver worth 50 bolls of oats at Aberdeen; then 50 bolls was the quantity of oats to be given there in return for the wine.

Silver being capable of a stamp, princes, for the greater convenience of the people, set up mints to bring it to a standard, and stamp it; whereby its weight and fineness was known, without the trouble of weighing or fyning; but the stamp added nothing to the value.

For these reasons silver was used as money; its being coined was only a consequence of its being applied to that use in bullion, tho’ not with the same convenience.

Mr. Locke and others who have wrote on this subject, say, the general consent of men placed an imaginary value upon silver, because of its qualities fitting it for money.[1]

[1] Locke p. 31. upon interest, and p. 1. upon money.

I cannot conceive how different nations could agree to put an imaginary value upon any thing, especially upon silver, by which all other goods are valued; or that any one country would receive that as a value, which was not valuable equal to what it was given for; or how that imaginary value could have been kept up. but, suppose France receiving silver at an imaginary value, other nations received it at that value, because received so in France: then for the same reason a crown passing in France for 76 Sols, should pass in Scotland for 76 pence, and in Holland for 76 Stivers. but on the contrair, even in France where the crown is raised, ’tis worth no more than before when at 60 Sols.

It is reasonable to think silver was barter’d as it was valued for its uses as a mettal, and was given as money according to its value in barter. the additional use of money silver was applied to would add to its value, because as money it remedied the disadvantages and inconveniencies of barter, and consequently the demand for silver increasing, it received an additional value equal to the greater demand its use as money occasioned.

And this additional value is no more imaginary, than the value silver had in barter as a metal, for such value was because it served such uses, and was greater or lesser according to the demand for silver as a mettal, proportioned to its quantity. the additional value silver received from being used as money, was because of its qualities which fitted it for that use; and that value was according to the additional demand its use as money occasioned.

If either of these values are imaginary, then all value is so, for no goods have any value, but from the uses they are apply’d to, and according to the demand for them, in proportion to their quantity.

Thus silver having a value, and qualities fitting it for money, which other goods had not, was made money, and for the greater convenience of the people was coined.

The names of the different pieces might have been number 1. number 2. and so on; number 60 would have been the same as a crown; for the name and stamp was only to certify, that the piece had such a quantity of silver in it, of such a fineness.

Goods of any other kind that have the same qualities might then, and may now be made money equal to their value. gold and copper may be made money, but neither with so much convenience as silver. payments in copper being inconvenient by reason of its bulk; and gold not being in so great quantity as to serve the use of money. in countries where gold is in great quantity, it is used as money; and where gold and silver are scarce, copper is used.

Gold is coined for the more easie exchange of that metal, and copper to serve in small payments; but silver is the measure by which goods are valued, the value by which goods are exchanged, and in which contracts are made payable.

As money encreased, the disadvantages and inconveniences of barter were removed; the poor and idle were employed, more of the land was laboured, the product encreased, manufactures and trade improved, the landed-men lived better, and the people with less dependance on them.

CHAP. II.

_Of Trade, and how far it depends on money. that the increase of the people depends on Trade. of exchange._

Trade is domestick, or foreign. domestick trade is the imployment of the people, and the exchange of goods within the country.

Foreign trade has several branches.

1. The product and manufacture being more than the consumption, a part is exported, and in return foreign goods are brought home.

2. Selling the goods exported at one port, and loading there to sell another; whereby a greater return is made, than if the goods exported had been carry’d directly there.

3. Bringing home the product and manufacture of other countries, from whence, and when they are cheap; to supply countries where, and when they are dear.

4. Bringing home the product of other countries, and exporting it in manufacture.

5. Freighting, or hireing out ships.

Domestick and foreign trade may be carried on by barter; but not for so great a value as by money, nor with so much convenience.

Domestick trade depends on the money. a greater quantity employs more people than a lesser quantity. a limited sum can only set a number of people to work proportioned to it, and ’tis with little success laws are made, for imploying the poor or idle in countries where money is scarce; good laws may bring the money to the full circulation ’tis capable of, and force it to those employments that are most profitable to the country: but no laws can make it go further, nor can more people be set to work, without more money to circulate so, as to pay the wages of a greater number. they may be brought to work on credit, and that is not practicable, unless the credit have a circulation, so as to supply the workman with necessaries; if that’s supposed, then that credit is money, and will have the same effects, on home, and foreign trade.

An addition to the money adds to the value of the country. so long as money gives interest, it is imployed; and money imployed brings profit, tho’ the imployer loses. if 50 men are set to work, to whom 25 shillings is payed per day, and the improvement made by their labour be only equal to, or worth 15 s. yet by so much the value of the country is increased. but as it is reasonable to suppose their labour equal to 40. s. so much is added to the value of the country, of which the imployer gains 15 s. 15 may be supposed to equal the consumption of the labourers, who before lived on charity, and 10 s. remains to them over their consumption.

If a stone of wooll is worth 10 s. and made into cloth worth 2 pound; the product is improved to four times the value it had in wooll: the workmen may be supposed to consume more than when they were not imployed; allow one 4th, the nation is gainer double the value of the product. so an addition to the money, whether the imployer gains or not, adds to the national wealth, eases the country of a number of poor or idle, proportioned to the money added, enables them to live better, and to bear a share in the publick with the other people.

The first branch of foreign trade, which is the export and import of goods, depends on the money. if one half of the people are imployed, and the whole product and manufacture consumed; more money, by imploying more people, will make an overplus to export: if then the goods imported ballance the goods exported, a greater addition to the money will imploy yet more people, or the same people before employed to more advantage; which by making a greater, or more valuable export, will make a ballance due. so if the money lessens, a part of the people then imployed are set idle, or imployed to less advantage; the product and manufacture is less, or less valuable, the export of consequence less, and a ballance due to foreigners.

The 2d and 3d branches of foreign trade, called the trades of carriage; are monopolized out of Europe, by these countries who have colonies; and in Europe, by these who sell cheapest.

Scotland has advantages for trade by which the merchants might undersell merchants in Holland, as cheapness of living, paying less to the publick, having workmen, seamen, and provisions for victualling cheaper: but if the Dutch merchant’s stock is 10000 lib. and his yearly expence 500; he can trade at 10 per cent profit, and add yearly 500 lib. to his stock. whereas a Scots merchant, whose stock is 500 lib. and his yearly expence 50; cannot trade so cheap.

If ’tis ask’t how a Dutch merchant trades who has only 500 lib. stock? he restricts his expence so as he can afford to trade at 10 per cent profit: or money being in greater quantity in Holland, whereby it is easier borrowed, and at less use; he gets credit for more at 3 or 4 per cent, by which he gains 6 or 7. and unless money be in greater quantity in Scotland, or expence retrench’d, we cannot trade so cheap as the Dutch; tho’ we have advantages for trade that they have not, and tho’ they be under disadvantages we are not lyable to. by a greater quantity of money and oeconomy, the Dutch monopolize the trades of carriage even from the English.

The 4th branch of foreign trade, bringing home the product of other countries, and exporting it in manufacture, depends on the quantity of money. we are so far from competing with the Dutch in this trade, that our wooll was sent to Holland, and imported from thence in manufacture; under the difficulty of a prohibition on the export of the wooll, and on the import of the manufacture. yet besides the advantages already named, which we have for trade over the Dutch, the material is the product of our country, and greater privileges are granted to manufacturers here, than in Holland.

’Tis alledged, if the prohibition had continued, manufactures might have come to perfection.

The advantage some men made by manufacture, may have occasion’d the setting up of more, while the money has been diminishing; but that money so imployed, has been taken from some other use it was before imploy’d in: for money cannot serve in two places at one time.

’Tis alledged, that the allowing the wooll to be exported, occasioned the exportation of the money. that at one time 5000 lib. was sent to England to buy wooll. ’tis askt what became of that wooll? they answer, it was sent to France for wine. then, as 5000 lib. of English wooll may be worth 8 or 10 thousand pound in France; so the 5000 lib. sent to England, saved the sending out of 8 or 10000 lib. to France.

To those who don’t throughly examine the state of this country, it may seem odd that wooll should be allowed by law to be exported: but if the product of Scotland cannot be manufactur’d with less than 50000 people, and the money that can be spar’d to manufacture, be only capable to employ 25000, one half of the product will be lost if it is not allowed to be exported.

The 5th branch, the freighting or hireing out ships, depends on the money, and the other branches of trade. where ships are in use to be freighted by strangers, and supported by a great demand for their own trade; there all sorts of ships are to be hired cheaper than in other places; and merchants are sure of such ships as are proper for the goods they load with, and the countries they trade to.

This trade of freighting brings the goods of other countries to Holland, tho’ design’d for sale elsewhere. if woollen manufacture from England to Portugal yields 25 per cent profit, and to Holland 15; the English merchant will choose to fend such goods to Holland for 15 per cent, rather than to Portugal for 25; and the Dutch merchant who is able to trade cheaper, from the cheapness of freight, etc. is satisfied for the other 10 to carry to Portugal.

Most authors who have wrote on trade divide it into national and private. they say, a merchant may gain where the nation loses. if a 1000 lib. is exported to the Indies in money or bullion, and a 1000 lib. in goods or provisions; the return worth 8000 lib. the merchant gains 6000; but as these goods are all consumed in the country, the nation loses the 1000 lib. money or bullion exported.

They don’t consider whether the 8000 lib. of goods imported (all supposed to be consum’d in the country) does not lessen the consumption of the product or manufacture of the country, so as to occasion an addition to the export, at least equal to the 1000 lib. money or bullion exported. but allowing they do not lessen the consumption of the goods of the country, and the use of them be not at all necessary; yet these goods being worth 8000 lib. at home or abroad, the nation gains 6000. if the people consume them, and in extravagant uses, that’s not the fault of the trade, nor for that reason should that trade be call’d disadvantageous; it is the fault of the government, who ought to hinder the too great consumption of foreign goods; especially, such as might be wanted without causing a greater consumption of the goods of the country, that care being taken, by making the vent less profitable at home, than abroad; merchants would export them, or for the future lessen the import.

If East-India goods that sell for a 1000 lib. in England, are only worth abroad 800 lib, the duty payed at their entry being return’d, and more given as a draw-back to encourage the export, their vent abroad will be more profitable than in England.

A people may consume more of their own or foreign goods, than the value of the product, manufacture, and profits by trade; but their trade is not disadvantageous, it is their too great consumption: and the too great consumption of the product and manufacture of the country, may be as hurtful as that of foreign goods; for, if so much is consumed, that the remainder exported won’t pay the consumption of foreign goods, a ballance will be due, and that ballance will be sent out in money or bullion.

A nation may gain where the merchant loses, but wherever the merchant gains, the nation gains equal, and so much more, as the maintenance and wages of the people employ’d and the duty on the goods amounts to. if a ship insur’d is lost, the nation loses, and the merchant loses nothing; but in that case the insurer is the merchant, and loses equal to the nation.

As trade depends on money, so the encrease or decrease of the people depends on trade. if they have employment at home, they are kept at home: and if the trade is greater than serves to employ the people, it brings more from places where they are not employ’d. Sir William Petty values a man at 20 years purchase, by that computation a seaman whose wages is forty shil. a month, is valued 480 lib.

Scotland has a very inconsiderable trade, because she has but a very small part of the money. there is a little home trade, but the country is not improv’d, nor the product manufactur’d. there is a little of the first branch of foreign trade, and that is carried on with great disadvantage to the people, who pay dearer for most foreign goods, and are worse serv’d, than other nations: if they have any cheaper, ’tis from the lower duty on the import. in Scotland low prices are given for goods bought up to be exported, the merchants profit being great: if a 100 stone of wooll is worth in Holland ten piece of linen cloth, these ten pieces are sold in Scotland for the value of a 180 or 200 stone of such wooll. such goods as do not yield that great profit, are not exported; and these that do, are not exported in any quantity, the merchant’s stock being small. Scotland has no part of the other branches of foreign trade, not being able to trade so cheap as other nations.

Some think if interest were lower’d by law, trade would increase, merchants being able to employ more money and trade cheaper. such a law would have many inconveniencies, and it is much to be doubted, whether it would have any good effect; indeed, if lowness of interest were the consequence of a greater quantity of money, the stock apply’d to trade would be greater, and merchants would trade cheaper, from the easiness of borrowing and the lower interest of money, without any inconveniencies attending it.

Tho’ interest were at 3 per cent in Holland, and continued at 6 in Scotland; if money were to be had equal to the demands at 6, the advantages we have for trade, which the Dutch have not, would enable us to extend trade to its other branches, notwithstanding the difference of interest.

If money in Scotland were equal to the demands at 6 per cent, the Dutch could not trade so cheap in herring; the hinderances of that trade being the consequences of the scarcity of money. the materials for carrying on the fishing are cheaper in Holland, but the cheapness of victualling alone would ballance that. and the dearth of these materials, as of other foreign goods, coming from the scarcity of money; that being remeded, these materials, and other foreign goods that are not the product of Holland, would be sold as cheap in Scotland.

Exchange, is when a merchant exports to a greater value than he imports, and has money due abroad; another importing to a greater value than he exported, has occasion for money abroad: this last by paying in money to the other, of the weight and fineness with that is due him, or to that value, saves the trouble, hazard, and expence, to himself of sending money out, to the other of bringing money home, and to both the expence of re-coyning.

So long as foreign trade, and expence kept equal, exchange was at the par: but when a people imported for a greater value, or had other occasions abroad, more than their export, and the expence of foreigners among them would ballance; there was a necessity of sending out the ballance in money or bullion, and the merchant or gentleman who owed, or had occasion for money abroad, to save the trouble, expence and hazard of sending it out, gave so much per cent to another, as the trouble, expence and hazard was valued at. thus exchange rose above the par, and became a trade.

Mr. Mun on trade, page 100, says, the exchange being against a nation, is of advantage to that nation. and supposes, if a 100 lib. at London is worth no more than 90 lib. of the same money at Amsterdam, the Dutch to send 500000 lib. of goods to England, and the English 400000 lib. of goods to Holland; it follows, that the money due the English at Amsterdam, will ballance 440000 lib. due to the Dutch at London: so 60000 lib. pays the ballance. Mr. Mun does not consider, that the Dutch goods worth 500000 lib. when exchange was at the par, are worth at London 555555 l. when 90 lib. at Amsterdam is worth a 100 lib. at London. and the 400000 lib. of English goods in Holland, are only worth 360000 lib. that sum being equal by exchange to 400000 lib. in England. so in place of England’s having an advantage of 40000 lib. as he alledges by the exchange being against her: she pays 95555 lib. more, than if exchange had been at the par.

When exchange is above the par, it is not only payed for the sums due of ballance, but affects the whole exchange to the place where the ballance is due. if the ballance is 20000 lib. and the sums exchanged by merchants who have money abroad, with others who are owing, or have occasion for money there, be 60000 lib. the bills for the 60000 lib. are sold at or near the same price, with the 20000 lib. of ballance.

It likewise affects the exchange to countries where no ballance is due. if the exchange betwixt Scotland and Holland is 3 per cent. above the par against Scotland, betwixt England and Holland at the par, tho’ no ballance is due by Scotland to England, yet the exchange with England will rise; for, a 100 lib. in England remitted to Scotland by Holland, will yield 103 lib. so betwixt Scotland and England it may be supposed to be had at 2 per cent, being less trouble than to remit by Holland.

Goods are sold to foreigners, according to the first cost. if goods worth a 100 lib. in Scotland, are worth 130 lib. in England, these goods will be exported, 30 per cent being supposed enough for the charges and profit. if the price of these goods lower in Scotland from a 100 lib. to 80, the price in England will not continue at a 130; it will lower proportionably, for either Scots merchants will undersell one another, or English merchants will export these goods themselves. so if they rise in Scotland from a 100 lib. to 120; they will rise proportionably in England, unless the English can be served with these goods cheaper from other places, or can supply the use of them with goods of another kind. this being supposed, it follows that,

By so much as exchange is above the par, so much all goods exported are sold cheaper, and all goods imported are sold dearer than before. if a merchant send goods yearly to England first cost, charges and profit 6000 lib. money in England of the same standard with money in Scotland, and no ballance due; but a ballance due to Holland, raising the exchange 3 per cent above the par to Holland, and affecting the exchange to England 2 per cent, 5882 lib. 7 sh. in England pays the goods, that sum by exchange being equal to 6000 lib. in Scotland. so that a ballance due to Holland, by raising the exchange to other countries, occasions a loss to Scotland of 117 lib. 13 sh. on the value of 6000 lib. of goods sent to England.

English goods are sold so much dearer. if an English merchant sends goods yearly to Scotland, first cost, charges and profit 6000 lib. 6120 lib. must be payed for these goods in Scotland, being only equal to 6000 lib. in England. if the exchange had been at the par, the Scots goods sent to England would have sold 117 lib. 14 sh. more, and the English goods sent to Scotland 120 lib. less.

Thus to all places with whom exchange is above the par, goods sent out are sold so much less, and goods brought from thence are sold so much dearer, as the exchange is above the par; whether sent out, or brought in, by Scots or foreign merchants.

The merchant who deals in English goods gains no more than when exchange was at the par, tho’ he sells dearer; nor the merchant who deals in Scots goods less, tho’ he sells cheaper; they have both the same profit as when exchange was at the par. Scotland pays 2 per cent more for English goods, and England 2 per cent less for Scots goods: all, or a great part of the loss falls at last on the landed man in Scotland, and it is the landed man in England has all, or a great part of the benefit.

Nations finding the export of money or bullion to pay the ballance due by trade, a loss of so much riches, and very hurtful to trade, might have discharged the import of such goods as the people could best want; or laid a duty on them, such as might have lessen’d their consumption: they might have given encouragement to industry, whereby the product would have been encreas’d and improv’d, or discouraged extravagant consumption, whereby the overplus to export would have been greater; any one of these methods would have brought trade and exchange equal, and have made a ballance due them: but in place of these measures, they prohibit bullion and money to be exported, which could not well have any other effect, than to raise the exchange equal to the hazard, such laws added to the export of money or bullion, which may be supposed 3 per cent more: and as these laws by such effect were hurtful, making all goods exported sell yet 3 per cent cheaper, and all goods imported 3 per cent dearer; the stricter they were execute, the higher the exchange rose, and the more they did hurt. the ballance was still sent out in money or bullion, by the merchant who owed it, by the banker who gave the bills, or by the foreigner to whom it was due.

Suppose the money of Scotland, England, and Holland of the same weight and fineness. Scotland to trade with no other places. the exchange at the par. the yearly export from Scotland, first cost 300000 lib. charges and profit 30 per cent. goods imported 280000 lib. charges and profit 30 per cent. one half of the trade to be carried on by Scots merchants, the other half by English and Dutch.

Due to Scotland for one half } of the export carried out by } 195000 their own merchants ---- }

Due for the other half carried } }
out by English and Dutch. } 150000 } 345000

Due by Scotland to England } and Holland for goods imported } 182000 by English and Dutch.-- }

Due for goods imported by } }
Scots merchants ---- ---- } 140000 } 322000

The expense of Scots-men abroad, more than of foreigners in Scotland, 40000 lib. if this is supposed the yearly state of the trade and expense of Scotland, there will be a ballance due of 17000 lib. and unless the Scots retrench the consumption of foreign goods, so as to import less; or retrench the consumption of their own goods, so as to export more; or increase, or improve their product, so as the export be greater or more valuable; or retrench in their expence abroad. since that ballance must be paid it will go out in money or bullion: and occasions the exchange to rise 3 per cent, the prohibition on the export of money 3 more, if Scots-men export it, the Nation saves the 1020 l. exchange on the 170000 of ballance due, which is lost if English merchants export it; but the loss such a rise in exchange occasions on the goods, is more considerable. the 195000 lib. due abroad for goods sent out of Scotland by Scots merchants, will be payed with 183962 lib. English or Dutch money, that sum being equal by exchange at 6 per cent to 195000 lib. in Scotland. the 150000 lib. due for first cost of goods carried out by English or Dutch merchants, will be payed with 141510 lib. English or Dutch money, that sum being equal to 150000 lib. in Scotland. the 182000 lib. due by Scotland for goods imported by English and Dutch merchants, will come to 192920 lib. in Scotland. and the 140000 lib. first cost of goods brought home by Scots merchants, will come to 148400 lib. in Scotland. so the accompt will run thus.

Due to Scotland for goods exported 183962
Brought from abroad first cost 140000
Ballance of expence abroad 40000
------
Due to Scotland abroad 3962
------

Due by Scotland for goods imported }
by English and Dutch } 192920

English and Dutch take back in goods 150000
------
Due to English and Dutch in Scotland 42920
------
3962 lib. due abroad to Scotland in }
Scots money } 4199

Remains due by Scotland. 38721

So the rise in the exchange of 3 per cent by the ballance due of 17000 lib. and 3 more by the prohibition on the export of money, occasions a loss to Scotland of 21721 l. and makes the next year’s ballance 38721 lib. tho’ the trade be the same as before. of which 21721 lib. lost by exchange, one half would be saved if money were allowed to be exported.

Since the exchange being 6 per cent above the par, occasions the loss of 21721 lib. then raising the money 8 and a one third per cent, having raised the exchange with England to 14 per cent, and with Holland to 30, makes the loss proportionably greater: Scots goods being supposed to continue at the same prices they were sold for, before the money was raised, or not to rise in the same proportion with the money. for when exchange was at the par, a 100 lib. of Scots goods were sold abroad for a 130 lib. English money; but 114 lib. English money, being now equal by exchange to a 130 lib. in Scotland, the Scots merchant can afford to sell the same quantity of goods for a 114 lib. that he sold before at a 130, and have the same profit. so foreign goods worth abroad a 100 lib. and sold in Scotland for a 130 lib. when exchange was at the par; cannot be sold now for less than a 150 lib. in Scotland, that sum being only equal to a 130 lib. English money; and the merchant’s profit is no greater, than when he sold the same quantity of goods for a 130 lib.

It may not be improper to consider what consequences would attend the lowering the money to the English standard, and allowing it to be exported.

The former state of trade I have supposed to be carried on, one half by Scots merchants, the other half by English and Dutch; but as most of the trade is carried on by Scots merchants, I shall suppose this state of trade accordingly. the one or the other will clear the matter in question.

The state of trade now, and exchange supposed at 15 per cent to England, and 30 to Holland. the whole export of Scotland to be 300000 lib. of which 250000 lib. carried out by Scots merchants, sold at 30 per cent profit and charges 325000 lib.

In English money 282608

Exported by foreigners for 50000l. }
in English money } 43478
------
The whole export 326086

Goods imported 306086
Spent abroad. 40000
------
Due of ballance by Scotland. 20000

Money being lowered to the English standard, and allow’d by law to be exported; will bring the exchange with England to 2 or 3 per cent, and with Holland to 17 or 18, notwithstanding of the ballance due. for, as a 100 lib. in Edinburgh, would then be equal to 100 lib. at London, and being allowed to be exported; none would give above 102, or 3 here for a 100 lib. at London: because the trouble and charge of sending it to London, would be valued no higher. the export, import, and expence abroad supposed to continue the same; a ballance would then be due to Scotland.

The state of trade, exchange at 3 percent to England, and proportionably to other places.

Due in English money, for 325000l. } first cost, charges and profit of goods sent } 315534 out by Scots merchants. }

Due in English money, for 50000l. }
of goods exported by foreigners. } 48544
------
The whole export 364078
------

Of this deduce the value of goods imported. } 306086
And the expence abroad. } 40000
------
There will be a ballance due to Scotland, }
of } 17992

As this ballance due to Scotland, would bring exchange to the par, and 3 per cent on the Scots side; 3 more, because money in England is prohibited to be exported; 100 lib. in Scotland, would be worth 106 lib. in England, and proportionably in other places. so the state of trade would then be thus.

Due in English money for 325000l. } first cost, charges and profit of Scots } 397500 goods sent out by Scots merchants, and } 50000l. exported by foreigners. }

Of this spent abroad. } 40000
Imported from abroad. } 306086
------
Ballance then due to Scotland. 51414

If the yearly export be as great as I suppose it, and the ballance only 20000 pounds; then lowering the money to the English standard, will make a ballance due of 51414 lib. tho’ the money is not allowed to be exported.

It may be objected, that such an alteration in the exchange, lowering the value of foreign money; might hinder the sale of our goods abroad. for, linen-cloth bought in Scotland for a 100 lib. and sold at London for a 115 lib. yields by exchange 31 per cent profit. but if exchange were 6 per cent on the Scots side, the profit is only 9 per cent.

It is answered. if an English merchant takes bills on Scotland for a 1000 lib. to lay out on linen-cloth, the exchange then at the par: the linen-cloth is sold in England according to the first cost, charges and usual profit. next year the exchange is on the English side, the linen is sold in England cheaper than before. the third year exchange returns to the par, the linen is then sold in England as the first year. if the first cost of linen is dearer, the consumer pays the more for it, the merchant’s profit is the same.

All nations endeavour to get the exchange as much as they can on their side. the exchange from Holland to England is 12 or 15 per cent, to Scotland 30 per cent, to France 40 or 50, sometimes more; yet Dutch goods sell in these countries, the merchant has his profit the same as when exchange was lower, the consumer pays more for them. English cloth is sold at Paris from 18 to 20 livres the French ell. when the lued’ore is at 12 livres, from 20 to 23, when the lued’ore is at 14 livres: because the exchange to England is dearer, in proportion as the French money is rais’d.

Most goods sent from Scotland are such as foreigners won’t want, tho’ they payed 10 or 20 per cent more for them. we have an example of this in the wooll. during the prohibition, wooll sold in Holland and France for double the first cost, now it has fallen to 30 or 40 per cent profit. prices are given for goods, according to their first cost, charges, and usual profit; where prohibitions are, the hazard of exporting contrair to law is valued. wooll is of less value now in Holland than in time of peace, because the vent of their woollen manufacture is less; but tho’ wooll were as valuable in Holland as before, and tho’ a Dutch manufacturer would give 200 lib. for wooll that cost only a 100 lib. in Scotland, rather than want it: yet as he knows the prohibition is taken off, and that the Scots merchants can afford to sell cheaper; he won’t buy unless he can have it at a reasonable profit. so either the Scots merchants bring down the price, by under-selling one another; or the Dutch merchant commissions it himself. if a duty were put on such goods whose value abroad would bear it, the merchant would gain the same, ’tis the foreigner pays the duty.

Besides, lowering the money may not lower the prices abroad. for, as when money was raised, goods may have rose in proportion, or have been made worse; so as a 100 lib. after the money is lower’d will have 33 crowns and 1/8 more silver in it, than a 100 lib. had before; so a greater quantity of goods may be bought with a 100 lib. than before, or the goods may be made better: especially the linen-cloth, since the material would be imported for less. but, allowing that upon the lowering the money, goods sold in Scotland as before, and were made no better; and allowing that one third or more of the goods exported, could not be raised in their prices abroad; because foreigners might be served cheaper with the same kind of goods from other places, or might supply the use of them with goods of another kind; or might consume less of them; yet, that ought not to hinder such a regulation of the money and exchange; for a draw-back might be given upon the export of such goods, whose prices abroad were not great enough to yield a reasonable profit.

But lest such an alteration in the exchange, or undervaluing foreign money, should lessen the export of goods: it may not be adviseable, unless a fund were given, out of which draw-backs might be payed to encourage export, and an addition be made to the money, whereby the people may be set to work. for without some addition to the money, ’tis not to be supposed next year’s export can be equal to the last: it will lessen as money has lessened; a part of the people then imployed being now idle; not for want of inclination to work, or for want of imployers, but for want of money to imploy them with.

CHAP. III.

_Of the different measures which have been used to preserve and increase money. and of banks._

The measures have been used to preserve and increase money, have in some countries been opposite to what has been used in others: and opposite measures have been used in the same countries, without any differing circumstances to occasion them.

Some countries have raised money in the denomination, when others have lowered it; some have allay’d it, when others who had allay’d it have rectified it; some have prohibited the export of money under severest penalties, when others have by law allowed it to be exported; some thinking to add to the money, have obliged traders to bring home bullion, in proportion to the goods they imported. most countries have tryed some or all of these measures, and others of the same nature, and have tryed contrary measures at one time, from what they used immediately before, from the opinion, that since the method used had not the effect designed, a contrary would: yet it has not been found, that any of them have preserved or increased money; but on the contrair.

The use of banks has been the best method yet practised for the increase of money. banks have been long used in Italy, but as I am informed, the invention of them was owing to Sweedland. their money was copper, which was inconvenient, by reason of its weight and bulk; to remedy this inconveniency, a bank was set up where the money might be pledged, and credit given to the value, which past in payments, and facilitate trade.

The Dutch for the same reason set up the bank of Amsterdam. their money was silver, but their trade was so great as to find payments even in silver inconvenient. this bank like that of Sweedland, is a secure place, where merchants may give in money, and have credit to trade with. besides the convenience of easier and quicker payments, these banks save the expence of casheers, the expence of bags and carriage, losses by bad money, and the money is safer than in the merchants houses, for ’tis less lyable to fire or robbery, the necessary measures being taken to prevent them.

Merchants who have money in the bank of Amsterdam, and people of other countries who deal with them, are not lyable to the changes in the money, by its being allay’d or altered in the denomination: for, the bank receives no money but what’s of value, and is therefore called bank-money; and tho’ raised in current payments, it goes for the value it was pledged for in bank-payments. the AG O of the bank changes a quarter or a half p. cent, as current money is more or less scarce.

Banks where the money is pledg’d equal to the credit given, are sure; for, tho’ demands are made of the whole, the bank does not fail in payment.

By the constitution of this bank, the whole sum for which credit is given, ought to remain there, to be ready at demand; yet a sum is lent by the managers for a stock to the lumbar, and ’tis thought they lend great sums on other occasions. so far as they lend they add to the money, which brings a profit to the country, by imploying more people, and extending trade; they add to the money to be lent, whereby it is easier borrowed, and at less use; and the bank has a benefit: but the bank is less sure, and tho’ none suffer by it, or are apprehensive of danger, its credit being good; yet if the whole demands were made, or demands greater than the remaining money, they could not all be satisfied, till the bank had called in what sums were lent.

The certain good it does, will more than ballance the hazard, tho’ once in two or three years it failed in payment; providing the sums lent be well secured: merchants who had money there, might be disappointed of it at demand, but the security being good, and interest allowed; money would be had on a small discount, perhaps at the par.

Last war, England set up a bank to have the conveniencies of that at Amsterdam, and by their constitution to increase money. this bank was made up of subscribers, who lent the King 1200000 lib. at 8 and a third per cent, for 11 years, on a parliamentary fund; and were priviledged bankers for that time. the sum due by the government was a security to the people, to make good any losses the bank might suffer.

This bank was safer than the gold-smiths notes in use before. it made a great addition to the money, having a much greater sum of notes out, than money in bank. and the sum lent the King, which was the fund belonged to the subscribers, was negotiated at profit, and had the same effect in trade as money. I don’t know how their notes came to be at discount, whether from the circumstances of the nation, or from ill management.

The fund of the bank of Scotland was a 100000 l. of which a tenth was payed in. this bank was safer than that of England, there being a register whereby most sums lent were secured. its notes went for 4 or 5 times the value of the money in bank, and by so much as these notes went for more than the money in bank; so much was added to the money of the nation.

This bank was more useful than that of Amsterdam, or England; its notes passing in most payments, and through the whole country: the bank of Amsterdam being only for that town, and that of England of little use but at London.

The stop of payments which happened to the bank of Scotland, was foreseen, and might have been prevented. the consumption of foreign goods, and expence in England, being more than the export of goods did pay; the ballance sent out in money lessened the credit of the bank. for as credit is voluntary, it depends on the quantity of money in the country, and increases or decreases with it. coyning notes of one pound supported the bank, by furnishing paper for small payments, and thereby preventing a part of the demand for money: by these notes the bank might have kept its credit, till other methods had been taken to supply the country with money; had not a report of raising the money occasioned an extraordinary demand, which in few days exhausted the money in bank, and put a stop to payments.

It would not have been easie in that scarcity of money to have got enough to support the bank, tho’ men of the best credit had undertaken it; that report of raising the money having only occasioned a demand from the people in Edinburgh. in a short time notes would have come in so fast from the country, that what money could have been got, would not have answered the demand.

If the privy council had lowered the money, the English crown to 5s. and the other money in proportion, to take place 2 pence p. crown in 3 days, and the other 3 pence in a month; the occasion of the demand being removed, in all appearance money would have been returned to the bank.