The Nature and Uses of Money Icon

September 30, 2015

Section I. General Remarks

In a society ever so little advanced in civilization, no single individual produces all that is necessary to satisfy his own wants; and it is rarely that an individual, by his single exertion, creates even any single product; but even if he does, his wants are not limited to that single article; they are numerous and various, and he must, therefore, procure all other objects of his personal consumption, by exchanging the overplus of the single product he himself creates beyond his own wants, for such other products as he stands in need of. And, by the way, it is observable, that, since individual producers, in ev- ery line, keep for their own use but a very small part of their own products; the gardener, of the vegetables he raises, the bake; of the bread he bakes, the shoemaker, of the shoes he makes, and so of all others; the great bulk, nay, almost the whole of the products of every community, arrive at consump- tion by the medium of exchange.

Now, money is precisely that commodity.

The two qualities, that give a general preference of value, in the shape of the current money of the country, to the same amount of value in any other shape, are= —

  1. The aptitude, in the character of an intermedial object of exchange, to help all who have any exchange or any purchase to make, that is to say, every member of the community, towards the specific object of desire. The general confidence, that money is a commodity acceptable to every body, inspires the assurance of being able, by one act of exchange only, to procure the immediate object of desire, whatever it may be; whereas, the possessor of any other commodity can never be sure that it will be acceptable to the possessor of that particular object of desire. This is the reason, why it has been erroneously concluded, that exchange and transfer are the basis and origin of the production of wealth, and of commerce in particular; whereas they are only secondary and accessory circumstances; inasmuch as, were each family to raise the whole of the objects of its own consumption, as we see practised in some instances in the back settlements of the United States, society might

  2. The capability of subdivision and precise apportionment to the amount of the intended purchase; which capability is a recommendation to all who have purchases to make; in other words, to every member of the community. Every one is, there- fore, anxious to barter for money the product whereof he holds a superfluity, and which is commonly that he himself pro- duces; because, in addition to the other quality above stated, he feels sure of being able to buy with its value in that shape as small or as large a portion of corresponding value, as he may require; and because he may buy, whenever, and wher- ever he pleases, such objects as he may desire to have in lieu of the product he has sold originally.

The sole reason why a man elects to receive the coin in pref- erence to every other article, is, because he has learnt from experience, that it is preferred by those whose products he has occasion to purchase. Crown pieces derive their circula- tion as money from no other authority than this spontaneous preference= and if there were the least ground for supposing, that any other commodity, as wheat, for instance, would pass more currently in exchange for what they calculate upon want- ing themselves, people would not give their goods for crown pieces, but would demand wheat, which would then be in- vested with all the properties of money. And this has occurred occasionally in practice, where the authorized or government money has consisted of paper destitute of credit or public confidence.

In a very advanced stage of civilization, when individual wants have become various and numerous, and productive opera- tions very much subdivided, exchanges become a matter of more urgent necessity, as well as much more frequent and more complicated; and personal consumption and barter in kind becomes less practicable. or instance, if a man makes not the whole knife, but the handle of it only, as in fact is the case in towns where cutlery is conducted on a large scale, he does not produce any thing that he can turn to account; for what could he do with the handle without the blade? He can not himself consume the smallest part of his own product, but must unavoidably exchange the whole of it for the necessaries or conveniences of life, for bread, meat, linen, &c. But nei- ther baker, butcher, nor weaver, can ever stand in need of an article, that is fit for nobody but the finishing cutler, who can not himself give either bread or meat in exchange; because he produces neither; and who must, therefore, give some one commodity, that, by the custom of the country, may be ex- pected to pass currently in exchange for most others. Custom, therefore, and not the mandate of authority, desig- nates the specific product that shall pass exclusively as money, whether crown pieces or any other commodity whatever. 236 The more frequent recurrence of the exchange of every indi- vidual product for the commodity, money, than for any other product, has attached particular names to this transaction; thus, to receive money in exchange is called, selling, and to give it, buying.

In this way originated the use of money. These positions are by no means purely speculative; for on them must all argu- ments, and laws, and regulations, on the subject of money, be grounded. A system built upon any other foundation can pos- sess neither beauty nor solidity, and must fail to fulfil the object of its construction. With the view of throwing the utmost possible light upon the essential properties of money, and the principal contingen- cies it is subject to, I shall treat of these particulars in sepa- rate sections, and endeavour to enable such as may give me their attention, to follow with ease the chain of connexion, notwithstanding that classification; and themselves to arrange in one comprehensive view the whole play of the mechanism, and the causes of that derangement, which human folly or misfortune may occasionally effect.

Thus, money is the more requisite, the more civilized a na- tion is, and the further it has carried the division of labour. 234 Yet history contains precedents of considerable states, in which the use of any specific article, as money, was utterly unknown; as we are told it was among the Mexicans at the time of the discovery. We are informed, that, just about the period of their conquest by the Spanish adventurers, they were begin- ning to employ grains of cacao as money, in the smaller trans- actions of commerce. 235

I have referred to custom, and not to the authority of government, the choice of the particular article that is to act as money in preference to every other= for though a government may coin what it pleases to call crowns, it does not oblige the subject to give his goods in exchange for these crowns, at least not where property is at all respected. Nor is it the mere impression, that makes people consent to take this coin in exchange for other products. Money passes current like any other commodity; and people may at liberty barter one ar- ticle for another in kind, or for gold in bars, or silver bullion.

Section 2= The Material of Money.

If, as it would appear by the reasoning in the preceding sec- tion, money be employed as a mere intermedial object of ex- change between an object in possession and the object of desire, the choice of its material is of no great importance. Money is not desired as an object of food, of household use, or of personal covering, but for the purpose of re-sale, as it were, and re-exchange for some object of utility, after having most universally received in like manner by other people in their turn.

been originally received in exchange for one such already. Money is, therefore, not an object of consumption; it passes through the hands without sensible diminution or injury; and may perform its office equally well, whether its material be gold or silver, leather or paper. We need not, then, be surprised, that almost all the commer- cial nations of the world should have selected metal to per- form the office of money; when once the more industrious and commercial communities had declared their choice, all the rest had an evident inducement to follow their example. Yet, to enable it to execute its functions, it must of necessity be possessed of inherent and positive value; for no man will be content to resign an object possessed of value, in exchange for another of less value, or of none at all. At times, when the metals now most abundantly produced were yet rare, people were content to make use of them for the purpose. The legal currency of Lacedmemon was of iron; that of the early Romans, of copper. In proportion as those metals were extracted from the earth in greater quantity, they became liable to the objection above stated in respect to all products of too little comparative 238 value; and it is long since the precious metals, that is to say, gold and silver, have been almost universally adopted. To this use they are particularly applicable:

There are some other less essential requisites, which add to its efficiency. A material, wherein these are not combined, is unfit for the purpose, and cannot hope to engross its func- tions either generally or permanently. We are told by Homer, that the armour of Diomede had cost nine oxen. A warrior, that wished to arm himself at half the price, must have been puzzled to pay four oxen and a half. Wherefore, the article employed as money must be capable of being readily and without injury apportioned to the differ- ent objects of desire, and subdivided in such manner, as to admit of exchanges of the exact amount required.

  1. As being divisible into extremely minute portions, and capable of re-union, without any sensible loss of weight or value; so that the quantity may be easily apportioned to the value of the article of purchase.

Again, we read, that in Abyssinia, they make use of salt for money. If the same custom prevailed in France, a man must take a mountain of salt to market to pay for his weekly provisions. Wherefore, the commodity employed as money must not be so abundant, as to make it necessary to transfer a large quantity, on each recurring act of exchange.

  1. The precious metals have a sameness of quality all over the world. One grain of pure gold is exactly similar to an- other, whether it came from the mines of Europe or America, or from the sands of Africa. Time, weather, and damp, have no power to alter the quality= the relative weight of any specific portion, therefore, determines at once its relative qual- ity and value to every other portion= two grains of gold are worth exactly twice as much as one.

At Newfoundland, it is said, that dried cod performs the office of money, and Smith makes mention of a village in Scot- land, where nails are made use of for that purpose. 237

Besides many other inconveniences, that substances of this nature are subject to, there is this grand objection, that the quantity may be enlarged almost at pleasure, and in a very short space of time, and thereby a vast fluctuation effected in their relative value. But who would readily accept in exchange an article, that might, perhaps, in a few moments, lose half or 3/4 of its value?

Wherefore, the commodity employed as money must be of such difficult acquisition, as to ensure those who take it, from the danger of sudden depreciation.

  1. Gold and silver, especially with the mixture of alloy, that they admit of, are hard enough to resist very considerable friction, and are therefore fitted for rapid circulation, though, indeed, in this respect, they are inferior to many kinds of pre- cious stones.

  2. Their rarity and consequent dearness are not so great that the quantity of gold or of silver, equivalent to the generality of goods, is too minute for ordinary perception; nor, on the other hand, are they so abundant and cheap, as to make a large value amount to a great weight. It is possible, that in progress of time, they may become liable to objection on this score; especially if new and rich veins of ore should be dis- covered= and then mankind must have recourse to platina, or some other yet unknown metal, for the purpose of currency.

In the Maldives and in some parts of India and Africa, shells, called cowries, are employed as money, although they have no intrinsic value, except that they serve for ornament to some rude tribes. This kind of money would never do for nations that carry on trade with many parts of the globe; a medium of exchange of such very limited circulation would offer insuperable objections. It is natural for people to receive most willingly in exchange that article, which is the Lastly, gold and silver are capable of receiving a stamp or impression, certifying the weight of the piece, and the degree of its purity.

Although the precious metals used for money have generally some mixture of baser metal, generally of copper, by way of alloy, the value of the baser metal, thus incorporated, is reck- oned for nothing. Not that the alloy is itself destitute of value; but because the operation of disuniting it from the purer metal would cost more than it would be worth, after it was extracted. For this reason a piece of coined gold or silver, mixed with alloy, is estimated by the quantity of precious metal only con- tained in it. 239

perhaps three-fourths of the whole stock of it on hand, in this new way cannot fail to render the whole more scarce and dear. 241

Were the actually existing stock of silver and gold applied to no other use than the fabrication of plate or ornament, the quantity would be abundant and much cheaper than it is at present; that is to say, whenever they were exchanged for other commodities, more of them would be given or received in proportion to the value obtained in exchange. But a large portion of these metals being destined to act as money, and exclusively occupied in that way, there is less remaining to be manufactured into jewellery and plate, and the scarcity of course adds to the value. On the other hand, if they were never used in plate or jewellery, there would be more of them ap- plicable to the purpose of money, and money would grow cheaper, that is to say, more of it would be necessary to pur- chase an equal quantity of goods. The employment of the precious metals in manufacture makes them scarcer and dearer as money; in like manner as their employment as money makes them scarcer and dearer in manufacture. 242

Section 3= The Accession of Value a Commodity receives by being Vested with the Character of Money

From the foregoing sections it will appear, that money is in- debted for its currency, not to the authority of the govern- ment, but to its being a commodity bearing a peculiar and intrinsic value. But its preference, as an object of exchange, to all other commodities of equivalent value, is owing to its characteristic properties as money; and to the peculiar ad- vantage it derives from its employment in that character; namely, the advantage of being in universal use and request. The whole population, from the lowest degree of poverty to the highest of wealth, must effect exchanges, must buy the objects of want; must be consumers of money; or, in other words, must obtain possession of the commodity, that acts as the medium of exchange, the commodity generally admitted to be best suited, and most frequently employed for that pur- pose. A man that has any other commodity, jewels, for in- stance, to offer in exchange for the necessaries or luxuries he may have occasion for, cannot get those necessaries or luxu- ries by the process of exchange, until he has found a con- sumer for his jewels; nor can he even then be sure, that such a consumer will be able to give him, in return, the very iden- tical article he may want= whereas, a man, with money in his pocket, is quite certain, that it will be acceptable to the per- son, of whom he would buy any thing; because that person will, in turn, be himself obliged to become a purchaser in like manner. 240 With the commodity, money, he can obtain all he wants by a single act of exchange only, called a purchase; whereas, with all others two acts at least are necessary; a sale and a purchase. This is the sum total of its advantages in the character of money= but it must be obvious to every body, that the preference, thus shown it as money, is a consequence of its actual use as such.

Hence it naturally follows, that these metals being, by reason of their employment as money, raised to such a price, as pre- cludes their so general use in the form of plate and jewellery, it is in consequence found less convenient to use them in that form. The luxury costs more than it is worth. Thus, massive gold plate has gone completely out of fashion, particularly in those countries, where the activity of commerce, and the rapid progress of wealth, make gold in great demand for the pur- poses of money. The richest individuals content themselves with gilt plate, that is to say, plate covered with a very thin coat of gold; solid gold is used only in smaller articles of manufacture, and those in which the value of the workman- ship exceeds that of the metal. In England, plate is made very light, and people of affluence often content themselves with silver-plated goods. The ostentation of displaying a large ser- vice of that metal costs the interest of a considerable capital. The increase of the value of metals is, generally speaking, attended with some disadvantages; inasmuch as it places many articles of comfort and convenience, silver dishes, spoons, &c., beyond the reach of most private families; but there is no disadvantage in such increased value of the metal in its character of money; on the contrary, there is a greater conve- nience in the transfer of a less bulky commodity, on every change of residence, and every act of exchange.

The selection of any commodity, to act as money in but one part of the world, increases its value everywhere else. There is no doubt, that, if silver should cease to be current as money in Asia, the value of that metal in Europe would be affected, and more of it would be given in exchange for all other com- I must here observe, that the adoption of any specific com- modity to serve as money, considerably augments its intrin- sic value, or value as an article of commerce. A new use be- ing discovered for the commodity, it unavoidably becomes more in request; the employment of a great part, the half or

1,200,000,000 lbs. weight of sugar. Why? Because the busi- ness of circulating all the values of England required no larger value. No government has the power of increasing the total national money otherwise than nominally. The increased quan- tity of the whole reduces the value of every part; and vice versa. 245 modities; for one use of silver in Europe is, the possibility of exporting it to Asia. The employment of the precious metals as money by no means renders their value stationary; they remain subject to local as well as temporary fluctuations of value, like every other ob- ject of commerce. In China, half an ounce of silver will pur- chase as many objects of use or pleasure as an ounce in France; and an ounce of silver in France will generally go much far- ther in the purchase of commodities, than it will in America. Silver is more valuable in China than in France, and in France than in America.

Since the national money, whatever be its material, must have a peculiar and inherent value, originating in its employment in that character, it forms an item of national wealth, in the same manner as sugar, indigo, wheat, and all the other com- modities that the nation may happen to possess. 246 It fluctu- ates in value like other commodities; and like them, too, is consumed, though less rapidly than most of them. Where- fore, it would be wrong to subscribe to the opinion of Garnier, 247 who lays it down as a maxim, that, “so long as silver remains in the shape of money, it is not an item of ac- tual wealth in the strict sense of the word; for it does not directly and immediately satisfy a want or procure an enjoy- ment.” There are abundance of values incapable of satisfying a want, or procuring an enjoyment, in their present existing shape. A merchant may have his warehouse full of indigo, which is of no use in its actual state, either as food or as cloth- ing; yet it is nevertheless an item of wealth, and one that can be converted, at will, into another value fit for immediate use. Silver, in the shape of crown pieces, is, therefore, equally an article of wealth with indigo in chests. Besides, is not the utility of money an object of desire in civilized society? Thus money, or specie, as some people call it, is a commod- ity, whose value is determined by the same general laws, as that of all other commodities; that is to say, rises and falls in proportion to the relative demand and supply. And so intense is that demand, as to have sometimes been sufficient to make paper, employed as money, equal in value to gold of the same denomination; of which the money of Great Britain is a present example.

It must not be imagined, that the paper money of that country derives its value from the promise of payment in specie, which it purports to convey. That promise has been held out ever since the suspension of cash payments by the bank in 1797, without any attempt at performance, which many people con- sider impossible. 243 Gold is only procurable piecemeal, and by payment of an agio or percentage; in other words, by giv- ing a larger amount in paper for a smaller amount in gold. Yet the paper, though depreciated, is invested with value far ex- ceeding that of its flimsy material. Whence, then, is that value derived? From the urgent want, in a very advanced stage of society and of industry, of some agent oi medium of exchange. England, in its actual state, requires, for the effectuation of its sales and purchases, an agent or medium equal in value, say to 1,284,000 lbs. weight of gold; or, what is the same thing, to 1,200,000,000 lbs. weight of sugar; or, what is still the same thing, to £60,000,000 sterling of paper, taking the Bank of England paper at 30 millions, and the paper of the country banks at as much more. 244 This is the reason, why the 60 millions of paper, though destitute of intrinsic value, are, by the mere want of a medium of exchange, made equal in value to 1,284,000 lbs. weight of gold, or 1,200,000,000 lbs. weight of sugar.

Indeed, the same writer elsewhere admits that, “specie in the coffers of an individual is real wealth, an integral part of his substance, which he may immediately devote to his personal enjoyment; although, in the eye of political economy, this same coin is a mere instrument of exchange, essentially differing from the wealth it helps to circulate.” 248 I hope what I have said is quite sufficient to show the complete analogy of specie to all other items of wealth. Whatever is wealth to an indi- vidual, is wealth to the nation, which is but an aggregate of many individuals; and is wealth also in the eye of political economy, which must not be misled by the notion of imagi- nary value, or regard as value any thing, but what, all the members of the community, individually, as well as jointly, treat as value, not nominal, but actual. And this is one proof more, that there are not two kinds of truth in this, more than in any other science. What is true in relation to an individual, is true in relation to the government, and to the community. Truth is uniform; in the application only can there be any variety.

As a proof that this paper has a peculiar and inherent value, when its credit was the same as at present, and its volume or nominal amount was enlarged, its value fell in proportion to the enlargement, just like that of any other commodity. And, as all other commodities rose in price, in proportion to the depreciation of the paper, its total value never exceeded the same amount of 1,284,000 lbs. weight of gold, or,

Section 6= The Utility of Coinage, and of the Charge of its Execution.

change, and would, perhaps, lose more on the exchange, than it would cost to have the bullion converted into coin. But the additional value, thus communicated to the precious metals by the coinage, must not be confounded with that, which bullion, as an article of trade, receives from the cir- cumstance of its employment as money. The latter value at- taches to the whole stock of gold and silver in existence; a silver tankard is of greater value, because that metal is em- ployed as money, whereas, the additional value accruing from the coinage is peculiar to the specific portion coined, exactly as its fashion is peculiar to the goblet; and is wholly indepen- dent of the value, that the commodity, silver, derives from its various utility.

No mention has hitherto been made of the value that money derives from the impression and coinage. I have merely pointed out the various utility of gold and silver as articles of commerce, wherein originates their value; and considered their fitness to act as money, as part of that utility.

Wherever gold and silver act as money, they must of course be constantly passing from hand to hand. Most people buy or sell several times a day; judge, then, what inconvenience must ensue, were it necessary to be always provided with scales to weigh the money paid or received; and what infinite blunders and disputes must arise from awkwardness or defective implements. Nor is this all; gold and silver can be compounded with other metals without any visible alteration.

The degree of purity can not be exactly ascertained, without a delicate and complex chemical process. The transactions of exchange are wonderfully facilitated, when the weight and standard of each piece of money are denoted by an impression, that nobody can mistake.

In England, the whole. expense of coinage is defrayed by the government; the same weight of guineas’s delivered at the mint in return for a like weight of bullion of the legal standard. The nation, in quality of consumer of money, is gratuitously presented with the charges of coining, which are levied by taxation upon them in their other character of payers of taxes. Yet gold, in the shape of guineas, has an evident advantage over bullion; not that of being ready weighed, for people are often at the pains of re-weighing, but that of being ready assayed. Consequently, it has happened sometimes, that bullion has been carried to the mint, not to be converted into coin, but merely to have the standard ascertained, and certi- fied to the foreign or domestic purchaser. 249 For guineas are a better article of export than bullion, inasmuch as bullion, bear- ing the certificate of assay, is preferable to bullion without any such certificate. On the contrary, for the purposes of im- portation into England, gold bullion answers every purpose of guineas ready coined, and is of just the same value, weight and standard being alike; for the mint makes no charge for converting the bullion into coin. Foreigners have, in fact, an object in keeping back the guineas, which have already received the certificate of assay, and remitting bullion to England to obtain a like gratuitous certificate. This system, therefore, makes it an object to export the coined metal, but holds out no encouragement to its reimportation. 250

Metals are reduced to an established standard, and divided into pieces of an established weight, by the art of coining. The government of each state usually reserves to itself the exclusive exercise of this branch of manufacture; whether with a view of gaining somewhat more by the monopoly, than it could, if every body were at liberty to practise it, or to hold out to the subjects a more solid security, than any private manufacturer could offer, which is more frequently the mo- tive. In fact, though governments have too often broken faith in this particular, their guarantee is still preferred by the people to that of individuals, both for the sake of uniformity in the coin, and because there would probably be more difficulty in detecting the frauds of private issuers.

The coinage unquestionably adds a value to the metal coined; that is to say, a lump of silver, wrought into a dollar, is better than an equal weight of bullion of like standard; and for a very simple reason.

The fashion given to the metal saves the person, that takes it in course of exchange, all the charges of weighing and assaying, among which the loss of time and labour must be reckoned; just in the same manner as a coat ready made is worth more than the materials it is to be made of. Even if the business of coining were open to all the world, and government confined itself to fixing the standard, the weight, and the impression, that each piece should possess, still the holders of bullion would find it answer to pay a premium to the coiner, for coining their bullion into money; otherwise, they would have some difficulty in effecting an ex

The mischief is somewhat palliated by an accidental circumstance, which never entered into the calculation of the legislature. There is no other mint in England, but that of the metropolis, which is so completely overloaded with business, that it can not re-deliver the metal coined till many weeks, and often months, after it is brought for coinage. 251 The consequence is, that the owner, who leaves his bullion to be coined, loses the interest of its value during the whole time it remains in the mint. This operates as a small tax on coinage, and raises the value of the coin somewhat above that of bullion. For it is manifest, that the value would be exactly the same, if bullion and guineas were taken without distinction, weight for weight.

When the coinage of money is not executed gratuitously, and especially when it is paid for at a monopoly-price, it is a mat- ter of perfect indifference to the state, whether or not its coin be melted down or exported, for it can neither be melted down or exported, without having first paid the coinage in full, which is all that is lost by melting or exportation. 253 On the contrary, the export of such coin is quite as advantageous as that of any other manufactured commodity whatever. It is a branch of the bullion trade; and unquestionably, a coin, so well executed as to be difficult to counterfeit, accurate in the weight and assay, and charged with a moderate duty on the coinage, may acquire a currency in different parts of the world, and yield the government, that issues it, a profit of no contemptible amount.

So much for the effect of the English regulations on this head. All the other governments of Europe, if I mistake not, derive from the coinage a revenue more than equal to the charges of the process. 252 The exclusive privilege of issuing money which they have most properly engrossed, together with the severe penalties denounced against private coiners, would enable them to raise the profit of the business very high by the limi- tation of their issues; for the value of money, like that of ev- ery thing else, is always in the direct ratio to the demand, and in the inverse ratio to the supply. In fact when silver in the shape of coin is so rare and dear, that 18 dollars in coin will purchase the weight of 20 dollars of equal fineness in the shape of bullion, it is an indication that the public attaches the same value to 15 oz. 12 dwt. of coined, as to 17 oz. 6 dwt. 16 grs. of uncoined metal. Wherefore, the government can, by its coinage, in such case, give to 9 dollars, the value of 10 dollars, and make a profit of 10 per cent. But, if the coin become more abundant, and more of it be necessary in ex- change for bullion, it may perhaps be necessary to give 95 dollars in coin for the weight of 100 dollars in bullion= in which latter case, the government can make a profit of no more than 5 per cent upon the purchase and conversion of bullion into coin.

Witness the gold ducats of Holland, which are in request throughout all the north of Europe, at a higher rate than their intrinsic value as bullion; and the dollars of Spain, which are all coined at Lima and Mexico, and have been executed with so much regularity and integrity, as to pass current as money not only all over Spanish America, but likewise in the United States and in several parts of Europe, Africa, and Asia. 254 The Spanish dollar is a remarkable instance of the value at- tached to the metal by the process of coinage. When the Americans of the Union determined on a national coinage of dollars, they contented themselves with simply re-stamping those of the Spanish mint, without varying their weight or standard. But the piece thus restamped would not pass cur- rent with the Chinese, and other Asiatics, at the same, rate; 100 dollars of the United States would not purchase so much of other commodities as 100 dollars of Spain. The American Executive, nevertheless, continued to deteriorate the coin by giving it a handsome impression, apparently wishing to avail itself of this method of checking the export of specie to Asia. For this purpose it was directed, that all exports of specie should be made in dollars of its own coinage, hoping in this way to make the exporters give a preference to the domestic products of its own territory. Thus, after wantonly depreciat- ing the Spanish dollar, without prejudice, it is true, to the specie remaining current within the territory of the Union, it went on further to enjoin its use in the least profitable way, viz., in the commercial intercourse with those nations that set the least value on it. The natural course would have been, to suffer the value exported to go out of the country in the form that might offer the prospect of the largest returns. Self-inter- est might have been safely relied on in this particular. 255 If, in the latter case, the government, with a view to increase the ratio of its profit, instead of purchasing bullion itself, were simply to charge a seignorage, say of 10 per cent upon the bullion brought to the mint for coinage, none at all would be brought for that purpose by individuals, who would have to pay 10 per cent for an operation, which added 5 per cent only to the value of the metal. Thus the mint would have nothing to coin either on public or private account; and the govern- ment would find a high ratio of profit incompatible with an extended amount of coinage.

Whence it may be concluded, that the duty or seignorage upon coinage, which has been so frequently discussed, is an abso- lute nullity; for that governments can not fix their own ratio of profit upon the execution of the coinage, but that it must depend upon the state of the bullion market, which again is regulated by the relative supplies of coined and uncoined metal, and the demand for them at the time being. It is to be observed, that, to the public at large, in its capacity of consumer of coined bullion, it is a matter of perfect indif- ference, whether the coin be dear or cheap; for, so long as its value is not subject to sudden fluctuations, it will pass cur- rent for as much as it has been taken for. But what are we to think of the wisdom of the Spanish gov- ernment, which was enabled by the confidence in its good faith in the execution of its coinage, to export dollars with a profit, and sell them abroad at an advance upon their intrinsic value; and yet thought fit to prohibit so advantageous a traffic, which would have furnished a vent to a product of the national soil, worked up by domestic industry for an ample recompense?

Section 5= Alterations of the Standard Money.

The first thing to be observed under this head is, that the pub- lic authority has generally taken upon itself to fix arbitrarily the commodity, that shall serve as money. This assumption, on its part, has little inconvenience in itself; for the interests of the nation and of the ruling power happen to be exactly the same. Should a government attempt to force an ill-adapted medium into circulation, it would sustain a loss, itself on ev- ery bargain, and the people would, by degrees, adopt some other medium. Thus, the first issue of coined money among the Romans was by their King Numa, and his coinage was of copper, which at that time of day was the properest metal for the purpose; for, before the time of Numa, the Romans knew no other money but copper in bars. On the same principle, modern governments have made choice of gold and silver, which would undoubtedly have been selected by the general accord of individuals without the interference of their rulers. Though a government be the exclusive coiner of money, and is by no means bound to coin gratuitously, it can not with justice deduct the expense of coinage from its payments, in discharge of its own contracts. If it has engaged to pay a million, say for supplies advanced, it can not honestly say to the contractor: “We bargained to pay a million, but, we pay you in specie just coined; and therefore shall deduct 20,000 dollars, more or less, for the charges of coinage.” In fact, all pecuniary engagements, contracted by government or individuals, virtually imply a prom- ise to pay a given sum, not in bullion but in coin. The act of exchange, wherein the bargain originated, is effected with the implied condition, on behalf of one of the contracting parties, to give a commodity somewhat more valuable than silver bul- lion; namely, silver in crown pieces, or coin of some denomina- tion or other. The virtual contract of a government is to pay in coined money; and, in consequence of that implied condition, it obtains a greater quantity of goods, than it will, if the bargain be to pay in bullion. In this instance, it offers the charge of coinage into the bargain at the time of concluding the contract, and thereby obtains better terms, than if it is in the habit of paying in bullion.

But the sovereign power, being firmly persuaded that its man- date was necessary and competent to invest any commodity whatever with the currency of money, succeeded in impress- ing its subjects with the same notion during the darker ages, and that too at the very time that individuals, with a view to personal interest, were acting upon principles diametrically opposite; for, whoever was dissatisfied with the authorised money, either abstained from selling altogether, or disposed of his goods in some other way. The charges of coinage should be deducted from the metal brought to the mint to be coined, at the time of its re-delivery in a coined state.

This error led to another of much more serious mischief, that has overset all order whatever. These considerations lead us to the necessary conclusions, — that the manufacture of bullion into coin increases the value of the metal, in the ratio of the additional convenience resulting to the community, from the circumstance of coinage, and not an item further, whatever charges or duties the state may attempt to saddle it with; 256 that a government, by monopolising the business of coining, may make a profit to the whole extent of this accession of value; that it can not possibly advance this profit any further, in its discharge of engagements, fairly and freely entered into; and that it can not do so with regard to prior engagements, without committing an act of partial bankruptcy. The public authority persuaded itself, that it could raise or depress the value of money at pleasure; and that on every exchange of goods for money, the value of the goods adjusted itself to the imaginary value, which it pleased authority to affix to it, and not to the value naturally attached to the agent of exchange, money, by the conflicting influence of demand and supply.

Thus, when Philip I. of France, adulterated the livre of Charlemagne, containing 12 oz. of fine silver, 257 and mixed with it a third part alloy, but still continued to call it a livre, though containing but 8 oz. of fine silver, he was neverthe- less fully persuaded, that his adulterated livre was worth quite as much as the livre of his predecessors. Yet it was really worth 1-3 less than the livre of Charlemagne. A livre in coin would purchase but 2-3 of what it had done before. However, the creditors of the monarch, and of individuals, got paid but 2-3 of their just claims; land-owners received from their ten- ants but 2-3 of their former revenue, till the renewal of leases placed matters on a more equitable footing. Abundance of Moreover, it is evident that, in all dealings between individuals, the public authority has still less power, by means of the im- pression of its die, to make the commodity, acting as money, pass for more than its intrinsic value, plus the value added by the fashion it receives. Vain will be any enactment, that the stamp impressed shall give to an ounce of silver a specific or determi- nate value; it will never buy more goods than an ounce of silver, bearing that impression, is worth at the time being.

injustice was committed and authorised= but after all it was impossible to make 8 oz. of fine silver equal to 12. 258 spend as much as before; for the nominal price of commodi- ties rose, in proportion to the diminution of metal in the coin. When what was before 3 fr. was declared by law to be 4 fr. the government was obliged to pay 4 fr. where it before paid but 3 fr.; so that it was necessary, either to increase the old, or to impose new taxes; in other words, the government, to ob- tain the same quantity of fine silver, was obliged to demand a greater number of livres from the subject. This course, how- ever, was always odious, even when it really made no differ- ence in the real pressure of taxation, and was often quite im- practicable. Recourse was, therefore, had to the restoration of the coin to the higher standard. The livre being made to contain a greater weight of silver, the nation really paid more silver in paying the same number of livres. 260 Thus we find, that the ameliorations of the coin commence nearly about the same period as the establishment of permanent taxation. Be- fore that innovation, the monarch had no personal motive for increasing the intrinsic value of the coin he issued. In the year 1113, the livre, as it was still called, contained no more than 6 oz. of fine silver. At the commencement of the reign of Louis VII it had been reduced to 4 oz. St. Louis gave the name of livre to a quantity of silver weighing but 2 oz. or 6 gros. 6 grains. 259 At the era of the French revolution, the money bearing that name weighed only the 1-6 of an oz.; so that it had been reduced to 1.72 of its original standard of weight or quality in the days of Charlemagne. I take no notice, at present, of the great fall experienced in the relative value of fine silver to commodities at large, which has been reduced so low as 1-4 of its former amount; but this is foreign to the subject of the present section, and I shall take occasion to speak of it hereafter. Thus the term, livre tournois, has at different times been ap- plied to very different quantities of fine silver. The alteration has been effected, sometimes by reducing the size and weight of the coin bearing that denomination, sometimes by deterio- rating the standard of quality, that is to say, mixing up a larger portion of alloy, and a smaller one of pure metal; and, some- times, by raising the denomination of a specific coin; mak- ing, for instance, what was before a 2 fr. piece pass under the name of one of 3 fr. As no account is ever taken of any thing but the pure silver, which is the only valuable substance in silver coin, all these expedients have had a similar effect; for this reason; that they all, in fact, reduced the quantity of sil- ver contained in what was called a livre tournois. And this is what all French writers, in compliment to the royal ordinances, have dignified by the term, raising the standard; on the ground, that the nominal value of the coin is raised by these opera- tions; which might, with much more propriety, be said to lower the standard, since the metal, which alone constitutes the money, is thereby reduced in quantity.

It would be a great mistake to suppose that the frequent varia- tions of standard alluded to, were effected in the same clear and intelligible manner which I have adopted to explain them. Sometimes the alteration, instead of being openly avowed, was kept secret as long as possible; 261 and this attempt at con- cealment gave occasion to the barbarous technical jargon used in this branch of manufacture. At other times, one denomina- tion of coin was altered, while the rest were left untouched; so that, at a given period, a livre, paid in one denomination, contained more silver than if paid in another. Finally, to throw the matter in still greater obscurity, the subject was commonly forced to reckon up his accounts, sometimes in livres and sous, sometimes in crowns, and to pay in coin representing neither livre, sol, nor crown, but either fractions or multiples of these several denominations. Princes, that resort to such pettifogging expedients, can be viewed in no other light, than as counterfeiters armed with public authority. The injurious effect of such measures upon credit, commer- cial integrity, industry, and all the sources of prosperity, may be easily conceived; indeed, it was so serious, that, at several periods of our history, the monetary operations of the state suspended all commerce whatever. Philip le Bel drove all foreigners out of the fairs of France, by compelling them to receive his discredited coin in payment, and prohibiting the making of bargains in a coin of better credit. 262 Philip de Valois did the same thing with respect to the gold coin, and with precisely the same result. A cotemporary chronicler 263 informs us, that almost all foreign merchants discontinued their deal- ings with France; that the French traders themselves, ruined by the frequent alterations of the coin, and the consequent uncertainty of values, withdrew to other countries; ana that the rest of the king’s subjects, both noble and bourgeois, were equally impoverished with the merchants; for which reason, Though the quantity of metal in the livre has been continu- ally decreasing from the days of Charlemagne till the present period, many of our monarchs have, at different times, adopted a contrary course, and advanced the weight and standard of quality, particularly since the reign of St. Louis. The motives for deterioration are evident enough= it is extremely conve- nient to pay one’s debts with less money than one borrowed. But kings are not only debtors; they are frequently creditors too. In the matter of taxation, they stand precisely in the same relative position to the subject, as landlords to their tenants. Now, if every body be enabled by law to pay their debts and discharge their contracts with a less amount of silver than bargained for, the subject, of course, can pay his taxes, and the tenant his rent, with a smaller quantity of that metal. And, although the king received less silver, yet he continued to 99Jean-Baptise Say, A Treatise on Political Economy the government loses its credit, its agents get all the profit; and the public authority is disgraced, for no other purpose, than to enrich its menials. the annalist adds simply enough, the king was not at all be- loved.

The examples I have cited are taken from the monetary sys- tem of France; but similar expedients have been practised in almost every nation, ancient or modern. Popular forms of gov- ernment have been equally culpable with those of a despotic character. The Romans, during the most glorious periods of the republic, effected a national bankruptcy more than once, by deteriorating the intrinsic value of their coin. In the course of the first Punic war, the as, which was originally 12 oz. of copper, was reduced to 2 oz.; and, in the second Punic war, was again lowered to 1 oz. 264

The real interest of a government is, to look not to fictitious, disgraceful, and destructive resources, but to such as are re- ally prolific and inexhaustible; and one can render it no bet- ter service, than to expose and render abortive those of the former kind, and point out to it those of the latter. The immediate consequence of a deterioration of the coin is, a proportionate reduction of all debts and obligations pay- able in money; of all perpetual or redeemable rent-charges, whether upon the state or upon individuals; of all salaries, pensions, and rack-rents; in short, of all values previously expressed in money; by which reduction, the debtor gains what the creditor loses. It is a legal authorization of a partial bankruptcy, or compromise, by every money-debtor with his creditor, for a sum less than his fair claim, in the ratio of the diminution of precious metal in the same denomination of coin.

In the year 1722, the State of Pennsylvania, which acted, in this particular, as an independent government, even before the American war, passed a law, enacting, that £1 sterling should pass for £1 5s. 265 and the United States, and France also, after declaring themselves republics, have both gone still further.

“It would require a separate treatise,” says Stewart, “to in- vestigate 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 to change the value of the coin appear reasonable.” 266 He might have added, that such a volume would be of little practical service, and by no means prevent the speedy adoption of some new device of the same kind. The only effectual preventive would be, the exposure of the corrupt system, that engenders such abuses; were that system rendered simple and intelligible, every abuse would be detected and extinguished in the outset. Thus, whatever government has recourse to this expedient, is not content with giving itself an illegitimate advantage, but urges all other debtors to do so likewise. The kings of France, however, have not always allowed their subjects to reap the same advantage in their private concerns, which the monarch proposed to himself by the operation of increasing or diminishing the quantity of metal contained in a particular denomination of coin. Their personal motive was, on all such occasions, to pay less, or receive more silver or gold themselves, than in honesty they ought; but they some- times compelled individuals, notwithstanding the alteration, to pay and receive in the old coin, or, if in the new, at the current rate of exchange between the two. 267 This was a close copy of a Roman precedent. When that republic, in the sec- ond Punic war, reduced the as of copper from two oz. to one, the republic paid its creditors 1 as instead of two, that is to say, 50 per cent on their claims. But private accounts were kept in denarii; and the denarius, which till then was worth 10 asses, was, by law, made to pass for 16 asses; so that indi- viduals paid 16 asses or oz. of copper only for every denarius, instead of paying 20 as they should have done to fulfil their engagements= that is to say, 10 asses of 2 oz. or 20 of 1 oz. each, for every denarius. Thus, the republic paid a dividend of 50 per cent. only, but compelled private persons to pay one of 80%.

And let no government imagine, that, to strip them of the power of defrauding their subjects, is to deprive them of a valuable privilege. A system of swindling can never be long- lived, and must infallibly in the end produce much more loss than profit. The feeling of personal interest is that which soon- est awakens the intellectual faculties of mankind, and sharp- ens the dullest apprehensions. Wherefore, in matters affect- ing personal interest, a government has the least chance of outwitting its subjects. Individuals are not easily duped by measures tending to procure supplies to the state in an under- hand manner= and although they cannot guard against direct outrage, or breach of public faith, yet it can never long es- cape their penetration, however artfully disguised and con- cealed. The government will acquire a character for cunning as well as faithlessness, and will lose entirely the powerful engine of credit, which will operate with infinitely more effi- cacy, than the mere trifle that fraud can procure. Yet, even that trifle will often be wholly engrossed by the agents of government, who are sure to turn every act of injustice to- wards the subject, to their own private advantage. Thus, while A bankruptcy, effected by deterioration of the coin, has been sometimes considered in the light of a plain and simple bank- ruptcy, or mere reduction of the public debt. It has been thought less injurious to the public creditor to pay him in


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