:-NRLF LIBRARY OF THE UNIVERSITY OF CALIFORNIA. Accession 993.5.1 Class .. PRINCIPLES OF BANKS AND BANKING OF MONEY, AS Coin anb WITH THE CONSEQUENCES OF ANY EXCESSIVE ISSUE ON mr NATIONAL CURRENCY, COURSE OF EXCHANGE, PRICE OF PROVISIONS, COMMODITIES, I I\ED INCOMES. /\ FOUR #00 AY BY SIR JAMES STEWART, BART. SECOND EDITION, LONDON : PRINTED FOR SHERWOOD, NEELY, AND JONES, PATERNOSTER ROW, 1812. 3ENERAI PRINCIPLES OF MONEY. ' BOOK THE FIRST. CHAPTER J. Of Money of Account. HE metals have so long performed the use of money, that money and coin are become almost synouimous, although in their principles they be quite different. The first thing therefore to be done in treating of money, is, to separate two ideas, which, by be- ing blended .together, have very greatly contributed to throw a cloud upon the whole subject. Money, which I call of account, is no more than an arbitrary scale of equal parts, invented for mea- suring the respective value of things vendible. Money of account therefore, is qtiite a different thing from money-coin, and might exist, although there was iio such thing iu the world as any sub- B 2 x PRINCIPLES OF MONEY. stance, which could become an adequate and pro- portional equivalent for every commodity. The subject therefore of the first chapter shall be, 1 . To point out the principles which determine the value of things ; 2. The use of an invariable scale to measure their value ; 3. How the invention of money of account is exactly adapted for measuring the value on the one hand, and measuring the price on the other; and 4. How it preserves itself inva- riable amidst all the fluctuations, not only of the value of things themselves, but of the metals which are commonly considered as the measures of their value. First, Money of account, which I shall here call money, performs the same office with regard to the value of things, that degrees, minutes, seconds, &c. do with regard to angles, or as scales do to geogra- phical maps, or to plans of any kind. In all these inventions, there is constantly some denomination taken for the unit. In angles, it is the degree; in geography, it is the mile, or league; in plans, the foot, yard, or toise; in money, it is the pound, livre, florin, &c. The degree has no determinate length, so neither has that part of the scale upon plans which marks the unit; the usefulness of all those inventions be- ing solely confined to the marking of proportion. Just so the unit in money can have no invariable determinate proportion to any part of value ; that is to say, it cannot be fixed to perpetuity to any PRINCIPLES OF MONEY. 3 particular quantity of gold, silver, or any other commodity whatsoever. But it may be ascertained for a time, and then we can, by multiplying it, ascend to the greatest value; and when \ve descend below the subaltern divisions of this unit, we have the as>istance of measures and weights, which render the operation easy. Thus in England, where a farthing is the lowest denomi- nation of money, the grains of wheat are bought by measure, and cherries by the pound. Substances are valued either according to their weight, their superficial measure, the measure of their bulk, or by the piece. These may be consi- dered as the four classes of vendible corporeal com- modities. All the species of each class according to their different qualities of goodness, may ta reduced to a proportion of value. A pound of gold, of lead, of different grains, of different butters, or of what you will, valued by the pound, may at any precise time, bt reduced to a scale of proportional values, which the wants, demands, competition and faculties of buyers and sellers, keep in a perpetual fluctuation. The value of commodities therefore, depending upon circumstances relative to themselves, their va- lue ought to be considered as changing with respect to one another only : consequently, any thing which troubles or perplexes the ascertaining these changes of proportion by the means of a general, determi- nate and invariable scale, must be hurtful to trade, B2 4 PRINCIPLES OF MONEY. and a clog upon alienation. This trouble and per- plexity is the infallible consequence of every vice in the policy of money or of coin. Money, strictly and philosophically speaking, is, as has been said, an ideal scale of equal parts. If it be demanded what ought to be the standard value of one part ? I answer by putting another question ; What is the standard length of a degree, a minute, a second ? It has none, and there is no necessity of its having any other than what by convention man- kind think fit to give it. But so soon as one part becomes determined, by the nature of a scale, all the rest must follow in proportion. The first step being perfectly arbitrary, people may adjust one or more of those parts to a precise quantity of the precious metals ; and so soon as this is done, and that money becomes realized, as it were, in gold and silver, then it acquires a new definition ; it then becomes the pricey as well a$ the measure of value. It does not follow from this adjusting of the metals to the scale of value, that they themselves should therefore become the scale, as any one must readily perceive. But in former times, before the introduction of commerce, when mankind had less occasion to measure value with a scrupulous exactness, the per- manent nature of the metals rendered them suf- ficiently correct, both to serve as the scale, and as PRINCPLES OF MONEY. 5 the price in every alienation. Since the introduc- tion of commerce, nations have learned the im- portance of reducing their respective interests and debts, to the nicest equations of value ; and this has pointed out the inconvenience of admitting the metals, as formerly, to serve both as the measure and the price in such operations. Just so geographers and astronomers were long of opinion, that a degree of the equator was a de- terminate length to measure every degree of lati- tude upon the glohe. They then considered the earth as a sphere, and no s^reat inconveniency w;is found to result from this supposition. But as accuracy in ado a progro-, this measure was found to he incorrect. Degrees of latitude are now found to he of different lengths in different climates ; and perhaps in time it will be found that no two degrees of any great circle described upon the globe, are in a geometrical equality. That money, therefore, which constantly pre- serves an equal value, which poises itself, as it were, in a just equilibrium between the fluctuating proportion of the value of things, is the only per- manent and equal scale, by which value can be measured. Of this kind of money, and of the possibility of establishing it, we have two examples : the first, among one of the most knowing ; the second, among the most ignorant nations of the world. 6 PRINCIPLES OF MONEY. The Bank of Amsterdam presents us with the one, the coast of Angola with the other. A florin banco has a more determinate value than a pond of fine gold, or silver ; it is a unit which the invention of men, instructed in the arts of commerce, have found out. This bank money stands invariable like a rock in the sea. According to this ideal standard are the prices of all things regulated ; and very few people can tell exactly what it depends upon. The pre- cious metals, with their intrinsic value, vary with regard to this common measure, like every other thing. A pound of gold, a pound of silver, a thousand guineas, a thousand crowns, a thousand piastres, or a thousand ducats, are sometimes worth more, sometimes worth less of this invariable stand- ard ; according as the proportion of the metals of which they are made vary between themselves. No adulterations in the weight, fineness, or de- nominations of coin, have any effect upon bank money. These currencies, which the bank looks upon as merchandize, like every other thing, are ei- ther worth more or less bank money, according to the actual value of the metals they are made of. All is merchandize with respect to this standard; consequently, it stands unrivalled in the exercise of its function of common measure. The second example is found among the savages upon the African coast of Angola, where there is no real monev known. The inhabitants there reckon PRINCIPLES OF MONEY. ^ by macoutes; and in some places this denomination is subdivided into decimals, called pieces. One ma- coute is equal to ten pieces. This is just a scale of equal parts, for estimating the trucks they make If a sheep, e. g. be worth 10 macoutes, an ox may be worth 40, and a handful of gold dust 1000. Money of account, therefore, cannot be fixed to any material substance, the value of which may va- ry with respect to other things. The operations of trade, and the effects of an universal circulation of value, over the commercial world, can alone ad- just the fluctuating value of all kinds of merchan- dize, to this invariable standard. This is a repre sentation of the bank money of Amsterdam, which may at all times be most accurately specified in a determinate weight of silver and gold; but which can never be tied down to that precise weight for twenty-four hours, any more than to a barrel of her- rings. PHINCIPLES OF MONEY. CHAPTER II. Of artificial and material Money. ROM the infancy of the world, at least as fat back as our accounts of the transactions of mankind reach, we find they had adopted the precious metals that is, silver and gold, as the common measure of value, and as the adequate equivalent for every thing alienable. The metals are admirably adapted for, this pur- pose ; they -are perfectly homogeneous : When pure, their masses, or bulks, are exactly in propor- tion to their weights : No physical difference can. be found between two pounds of gold, or silver, let them be the production of the mines of Europe, Asia, Africa, or America : they -are perfectly malleable, fusible, and suffer the most exact division which human art is capable to give them. They are capable of being mixed with one another, as well as with metals of a baser, that is, of a less homo- geneous nature, such as copper. By this mixture they spread themselves uniformly through the whole of the compound mass, so that every atom of it be- comes proportionally possessed of a share of this PRINCIPLES OF MONEY. 9 noble mixture; by which means the subdivision of the precious metals is rendered very extensive. Their physical qualities are invariable ; they lose nothing by keeping; they are solid and durable; and though their parts are separated by friction, like every other thing, yet still they are of the number of those which suffer lean by it. If money, therefore, can be made of any thing, lint is, if the proportional value of things ven- dible can be measured by any thing material, it may be measured by the metals. The tuo mi ing pitched upon as the most proper substances for realizing the ideal scale of money, those who undertake the operation of ad- justing a standard must constantly keep in their eye the nature and qualities of a scale, as well as the principles upon which it is formed. The unit of the scale must constantly be the same, although realized in the metals, or the whole opera- tion fails in the most essential part. This realizing the unit is like adjusting a pair of compasses to a geometrical scale, where the smallest deviation from the exact opening once given must occasion an iiv- . correct measure. The metals, therefore, are to , money what a pair of compasses is to a geometrical scale. This operation of adjusting the metals to the money of account, , implies an exact and determi- nate proportion of both metals to the money-unit, C 10 PRINCIPLES OF MONEY. realized in all the species and denominations of coin, adjusted to this standard. The smallest particle of either metal added to, or taken away from any coin, which represents certain determinate parts of the scale, overturns the whole system of material money. And if, not- withstanding such variation, these coins continue to bear the same denominations as before, thjs will as effectually destroy their usefulness in measuring the value of things, as it would overturn th( usefulness of a pair of compasses, to suffer the opening to vary after it is adjusted to the scale representing feet, toises, miles, or leagues, by which the distances upon the plan are to be measured. Debasing the standard is a good term ; because it conveys a clear and distinct idea. It is dimi- nishing the weight of the pure metal contained in that denomination by which a nation reckons, and which we have called the money-unit. Raising the standard requires no farther definition, being the direct contrary. Altering the standard (that is, raising or debasing the value of the money-unit) is like altering the national measures or weights. This is best dis- covered by comparing the thing altered with things of the same nature which have suffered no alteration. Thus if the foot of measure was altered at once over all England, by adding to it, or taking from it, any proportional part of its standard length, the altera- tion would be best discovered, by comparing the PRINCIPLES OF MONEY. 1 1 new foot with that of Paris, or of any other coun- try, which had suffered no alteration. Just so, if the pound sterling, which is the English unit, shall be found any how changed, and if the variation it has met with he difficult to ascertain, hecause of a complication of circumstances, the best way to dis- cover it will be to compare the former and the pre- sent value of it with the money of other nations which has suffered no variation. This the course of exchange will perform with the greatest exact- ness. Artists pretend, that the precious metals, when absolutely pure from any mixture, are not of suf- ficient hardness to constitute a solid and lasting coin. They are found also in the mines mixed with other metals of a baser nature, and the bring- ing them to a state of perfect purity occasions an unnecessary expence. To avoid, therefore, the in- convenience of employing them in all their purity, people have adopted the expedient of mixing them with a determinate proportion of other metals, which hurts neither their fusibility, malleability, beauty, or lustre. This metal is called alloy ', and being considered merely as a support to the principal metal, is accounted of no value in itself. So that eleven ounces of gold, when mixed with one ounce of silver, acquires, by that addition, no augmenta- tion of value whatever. This being the case, we shall, in speaking of money, overlook, as much as possible, the existence 12 PRINCIPLES OF MONEY. of alloy, in order to render language less subject to ambiguity. I must except such cases, where the considering the mass of the compound metal, ac- cording to its weight, can be accompanied with no inconvenience. CHAPTER III. Incapacities of Metals to perform the Office of an invariable Measure of Value. V v ERE there but one species of such a sub- stance as we have represented gold and silver to be, were there but one metal possessing the qualities of purity, divisibility, and durability ; the inconve- niences in the use of it for money would be fewer by far than they are found to be as matters stand. Such a metal might then, by an unlimited divi- sion into parts exactly equal, be made to serve as a tolerably steady and universal measure. But the rivalship between the metals, and the perfect equa- lity which is found between all their physical quali- ties, so far as regards purity, and divisibility, ren- der them so equally well adapted to serve as the common measure of value, that they are universally admitted to pass current as money. What is the consequence of this ? That the PRINCIPLES OF MONEY. 13 one measures the value of the other, as well as that of every other thing. Now the moment any mea- sure begins to be meiiMired hy another, the propor- tion of which to it is not physically, perpetually, and invariably the same, all the usefulness of such a measure is lost. An example will make this plain. A foot of measure is a determinate length. An English foot may he compared with the Paris foot, or with that of the Rhine ; that is to say, it may be measured hy them ; and the proportion between their lengths may be expressed in numbers ; which proportion will be the same perpetually. The mea- snrinji' the one by the other will occasion no uncer- tainty ; and we mav peak of length* hy Paris feet, and be perfectly well understood by others who are used to measure by the English foot, or by the foot of the Rhine. But suppose that a youth of twelve years old should take it into his head to measure from time to time, as he advance* in age, by the length of his own foot, and that he should divide this growing foot into inches and decimals : what could be learn- ed from his account of measures ? As he increases in years, his foot, its inches, and subdivisions, will lengthen gradually ; and were every man to follow his example, and measure by his own foot, then the foot of measure now established would totally cease to be of any utility. This is just the case with the two metals. Tbere is no determinate invariable proportion between their value; and the consequence of this is, that 14 PRINCIPLES OF MONEY. when they are both taken for measuring the value of other things, the things to be measured, like the lengths to be measured by the young man's foot, without changing their relative proportion between themselves, change however with respect to the de- nominations of both their measures. An example will make this plain. Let us suppose an ox to be worth three thousand pounds weight of wheat, and the one and the other to be worth an ounce of gold, and the ounce of gold to be worth exactly fifteen ounces of silver: If the case should happen, that the proportional value between gold and silver should come to be as 14 is to 1, would not the ox, and consequently the wheat, be estimated at less in silver, and more in gold, than formerly ? I ask farther, if it would be in the power of any state to prevent this varia- tion in the measure of the value of oxen and wheat, without putting into the unit of their money less silver and more gold than formerly ? If therefore any particular state should fix the standard of the unit of their money to one species of the metals, while in fact both the one and the other are actually employed in measuring value ; would not such a state resemble the young man, who measures all by his growing foot? For, if silver, for example, be retained as the standard, while it is gaining upon gold one fifteenth addi- tional value ; and if gold continue all the while to determine the value of things as well as silver, it is plain that, to all intents and purposes, this silver PRINCIPLES OF MONEY. 15 measure is lengthening daily, like the young man's foot, since the same weight of it must become every day equivalent to more and more of the sauie commodity; notwithstanding we suppose the same proportion to suhsist, without the least variation, between this commodity and every other species of things alienahle. After having exposed the matter in this light, I think it can hardly, with reason, be urged, that notwithstanding it he admitted that gold and silver may change their proportion of value with regard to one another, yet still this docs not prevent silver from remaining the standard, without any incon- venience; for the following reasons: First, Because, when it is considered as a stand- ard, it never ought to he looked upon as changing its value with regard to gold ; but that gold ought to be considered as changing its value with regard to silver. Secondly, Because being the measure itself, it is absurd to consider it as the thing measured: that therefore it retains all the requisites of an invariable scale ; since it measures all things according to the proportion they bear to itself, which physically never can vary. And, Thirdly, That a person who has borrowed a cer- tain weight of silver from another, is obliged to re- pay the same weight of silver he had borrowed ; although at that time silver should be of greater value than when he borrowed it. 16 PRINCIPLES OF MONEY. I answer to the first argument : That if in fact silver should become of more or less value with respect to merchandize, with respect to gold, and with respect to bank money, by their being a greater or less demand for it than there was before ; I cannot see how calling it a standard, can remove this inconvenience, which is inseparable from the nature of the thing; nor how we can change a matter of fact) by changing our language, and by saying, that merchandize, gold, and bank money, become of more value, or of less value, with re- spect to silver, in proportion as the demand for them is greater or less. This language we must use, although we know for certain that these things re- main in the exact relative proportion of quantity and demand as before; and although it should evidently appear, that a demand for silver has raised the price of it, with respect to every thing it mea- sured the day before. If the yard in a mercer's shop should be subject to such revolutions, in consequence of the wood it was made of; and if in measuring a piece of stuff to a customer, which the mercer had bought by this yard the day before for 50 yards, he should find the piece measure but 40, it would not be easy to persuade him, I believe, that his piece was be- come shorter ; but suppose he should have the cu- riosity to measure over again all the pieces in his shop, and that he should find exactly one fifth di- minution upon the length of every one, would he PRINCIPLES OF MONEY 17 not very rationally conclude that his yard was grown longer, and would he not run immediately to his neighbour's shop and compare it? As to the second argument, I agree that silver may at all times very exactly measure the value of things with respect to itself; hut this gives us no idea of an universal measure. I can measure the proportion of the length of thjngs, with any rod, or with any line, the length of which I know nothing about; but no body calls this measuring, because I cannot compare the things measured, with any other thing which I have not measured with the sune rod or line, as I might easily do, had I measured with a foot, yard, or toise; consequently the intention of measuring in such a case is almost entirely lost. To the third argument, I answer, that I subscribe very willingly to the truth of that proposition; provided that by silver is understood the bare me- tal, without attending to its additional quality of the universal standard measure of value. But if I borrow the silver not as bullion, but as coin, (the common measure of value), then I say, that I over- pay in giving back the same weight I had received. Is there any thing moreTamiliar than such examples ? I borrow ^lOO from my neighbour, he proposes to give so much of the value in grain; I accept. The price of grain rises about the term of payment; can I be obliged to repay an equal quantity of grain in payment of a proportional part of what I owe ? By D 18 PRINCIPLES OF MONEY. no means; because I did not receive the grain as any thing but as a species of money. But if I bor- row some quarters of grain to be repaid in harvest, then I am obliged to restore grain for grain, because in this case I did not receive the grain as money, but as a commodity. Buying and selling are purely conventional, and no man is obliged to give his merchandize at what may be supposed to be the proportion of its worth. The use therefore of an universal measure, is to mark, not only the relative value of the things to which it is applied as a measure, but to discover in an instant the proportion between the value of these, and of every other commodity valued by a deter- minate measure in all the countries of the world. Were pounds sterling, livres, florins, piastres^ &c. which are all money of account, invariable in their values, what a facility would it produce in all conversions, what an assistance to trade ! But as they are all limited or fixed to coins, and conse- quently vary from time to time, this example shews the utility of the invariable measure which we hav$ described. There is another circumstance which incapaci- tates the metals from performing the office of mo- ney ; the substance of which the coin is made, is a commodity, which rises and sinks in its value with respect to other commodities, according to the wants, competition, and caprices of mankind. The ad- vantage, therefore, found in putting an intrinsic PRINCIPLES OF MONEY. 19 value into that 'substance which performs the func- tion of money of account, is compensated by the instability of that intrinsic value; and the advan- tage obtained by the stability of paper, or symbo- lical money, is compensated by the defect it com- monly has of not being at all times susceptible of realization into solid property, or intrinsic value. In order, therefore, to render material mone^ more perfect, this quality of metal, that is of a commodity, should be taken from it; and in order to render paper money more perfect, it ought to be made to circulate upon metallic or land security. The expedient with regard to the metals shall find a place in this inquiry fin the chapter of miscella- neous questions at the end of this book, article 4th). What regards the paper is foreign to our purpose, and belongs to the doctrine of credit. There are several smaller inconveniences accom- panying the use of the metals, which we shall here shortly enumerate, reserving the discussion of all the consequences they draw along with them, until we come to consider the operations of trade and money, upon the complicated interests of man- kind. First, No money made of gold or silver can cir- culate long, without losing of its weight, although it all along preserves the same denomination. This represents the contracting a pair of compasses which had been rightly adjusted to the scale. Such a de- fect must appear striking, wlien we reflect upon the 2O PRINCIPLES OF MONEY. principles (already laid down) which necessarily in- fluence the fixing of a standard. Secondly, Another inconvenience proceeds from the fabrication of money. Supposing the faith of princes who coin money to be inviolable, and the probity, as well as capacity, of those to whom they commit the inspection of the fineness of the metals to be sufficient, it is hardly possible for workmen to render every piece exactly of a proper weight, or to preserve the due proportion between pieces of diffe- rent denominations ; that is to say, to make every ten sixpences exactly of the same weight with every crown piece, and with every five shillings struck in a coinage. Jn proportion to such inaccuracies, the parts of the scale become unequal. Thirdly, Another inconvenience, and far from being inconsiderable, flows from the expence requi- site for the coining of money. This expence adds to its value as a manufacture, without adding any thing to its weight. I shall take notice in the pro- per place, of the consequences which attend this in~ convenience, even to nations where coinage is free. Fourthly, The last inconvenience I shall mention is, that by fixing the money of account entirely to the coin, without having any independent common measure (to mark and control these deviations from mathematical exactness, which are either insepara- ble from the metals themselves, or from the fabri- cation of them) the whole measure of value, and all the relative interests of debtors and creditors, be- PRINCIPLES OF MONEY. 21 come at the disposal not only of workmen in the mint, of Jews who deal in money, of clippers and washers of coin, but they are also entirely at the mercy of princes, who have the right of coinage, and who have frequently also the right of raising or debasing the standard of the coin, according as they find it most for their present and temporary interest. Several of the inconveniences we have here enu- merated, may appear trifling, and so they are found to be in countries where commerce is little known; but the operations of trade surpass in nicety the con- ceptions of any man but a merchant; and as a proof of this, it may be affirmed with truth, that one shil- ling can hardly lose a grain of its weight, either by fraud or circulation, without contributing, by that circumstance, towards the diminution of the stand- ard value of the money-unit, or pound sterling, over all England, as I hope to be able to shew both by reason and facts. All and every one of these inconveniences to which coin is exposed, disappear in countries where the use of pure ideal money of account is properly established. PRINCIPLES OF MONET. CHAPTER IV. Methods which may be proposed for lessening the several inconveniences to which material Money is liable. JL.N this chapter I shall point out the methods which may be proposed for lessening the inconveni- ences to which all coin is liable, in order thereby to rnake it resemble as much as possible the invariable scale of ideal money of account. The inconveniences from the variation in the re- lative value of the metals to .one another, may in some measure be obviated by the following expe- dients: First, By considering one only as the standard, and leaving the other to seek its own value, like any other commodity. Secondly, By considering one only as the stand- ard, and fixing the value of the other from time to time by authority, according as the market price of the metals shall vary. Thirdly, By fixing the standard of the unit ac- cording to the mean proportion of the metals, at- taching it to neither; regulating the coin accord- PRINCIPLES OF MONEY. 23 ingly; and upon every considerable variation in the proportion between them, cither to make a new coinage, or to raise the denomination of one of the gpecies, and lower it in the other, in order to pre- serve the unit exactly in the mean proportion be- tween the gold and silver. Jn order to explain this thought, let me observe, that the consequence of every variation in the pro- portion between the value of gold and silver, has this effect; namely, that the same weight of silver acquires upon every change a different value in gold, from what it had before; and the &ame weight of gold acquires, upon the change, a dif- ferent value in silver from what it had before. Let me illustrate this by an example. Suppose, then, the value of gold to be to the value of silver, as 1 to 14. Then 100 grains of gold will be worth 1400 grains of silver. Suppose, that next year, the proportion shall change, and that it shall come to be as 1 to 15; then 10O grains of gold will be worth 1500 grains of silver. Here then, are two different values in silver for the same quantity of gold, namely, at one time 10G grains gold =1400 grains silver; at another time 1OO ditto = 1500 ditto. Add these two quantities of silver together, they make 2900 grains. Take one half of the sum, or 145O. This I call the mean proportion of the silver. On the other hand, as to the gold; 24 PRINCIPLES OF MONEY. Grt. of Gold. 140O grs. silver at one time are worth 10O 1400 grs. ditto at another time are worthy . Together 193^ one half of which is 96^ grs. or the mean pro- portion of the gold. Supposing, therefore, the unit to have been de- termined at 100 grs. of gold, and at 1400 grains of silver, as soon as the proportion comes to 15 it must be changed to 93^ grs. of gold, and to 145O grs. of silver. This shall be fully explained, and the usefulness of it pointed out, in the sequel. Fourthly, To have two units, and two standards, one of gold, and one of silver, and to allow every body to stipulate in either. Fifthly, Or last of all, to oblige all debtors to pay, when required, one half in gold and one half in the silver standard. I have 'here proposed the attaching the standard to one of the species, as a remedy against the ef- fects of variation between the metals, because when this is done, the consequences are not so hurtful as when the unit is affixed to both, as I shall prove in its proper place. PRINCIPLES OF MONEY. 25 The regulating the proportion of that metalj which is considered as merchandize, to the other which is considered as the standard, upon every variation in the market price of bullion, as well as the other expedient, of establishing two units, the one of gold, and the other of silver, does not render the unit of money any more invariable than before; all that can be said for this expedient, is, that mo- ney becomes thereby more determinate, and that people who enter into permanent contracts, are at least apprised of the consequences of the varying of the proportion of the metals, and may regulate their interests accordingly* Fixing the standard to the mean proportion of the metaN, N a certain method of preserving the value of the unit invariably in time to come; but, upon subsequent variations in the proportion, it implies either the necessity of a recoinage, or of changing the denominations of the coin, by which fractions of farthings, deniers, and other such small denominations will be incurred, unless such a duty upon coinage be imposed, as may raise the value of the coins above that of common bullion, be- yond the value of such fractions of farthings, &c. which then may be thrown out. Example upon changing the denomination of a shilling; supposing the exact proportion of its new denomination should be 12. 28d. the legal denomination may be made 12id. which is 12. 25d. and the three additional hundredth parts of a penny may be E 26 PRINCIPLES OF MONEY. neglected; because the duty tin coinage will give an advanced value to the shilling price, beyond the three hundredth part of one penny; which, as a metal, it will have more than in proportion to its denomination. The last expedient of making debtors pay half in gold and half in silver, would remove every incon- venience, provided that a similar regulation were made at the mint and at the Bank of England, ap- pointing all bullion to be delivered in both species at the Mint; and all payments to be made in both species at the bank: and also provided that the same regulation should be observed in all bargains of sale as often only as required. This would so blend the value of the two metals together, as to make them virtually but one. The other imperfections of coin relate either to its wear, to the want of exactness in the fabrica- tion, to the price of coinage, or to the adulteration and change of the standard. First, As to the first, the best expedients are, to strike the greatest part of the coin in large solid pieces, having as little surface as possible, con- sistently with beauty and ease of fabrication. And to make all light coin whatsoever go by weight. Secondly, As to the inaccuracy of the fabrica- tion, there is no other remedy than a strict atten- tion in government to a matter of so great conse- quence. PRINCIPLES OF MONEY. 2/ Thirdly, The price of coinage principally affects the interest of nations with regard to foreign trade; consequently, trading states should endeavour, as nearly as possible, to observe the same regulations with their neighbours, in every tiling which regards the coin. The consequence of this inconvenience to those within the society is unavoidable, and therefore no remedy can be proposed. Fourthly, The establishment of public credit is the best security against all adulterations of the standard. No fundamental law can bind up a state so effectually as its own interest. CHAPTER V. Variations to which the value of the Money-unit is exposed from every Disorder in the Coin. JL/ET us suppose, at present, the only disorder to consist in a want of the due proportion between the gold and silver in the coin. This proportion can be established by the mar- ket price of the metals only; because an augmen- tation and rise in the demand for gold or silver has the effect of augmenting the value of the metal de- manded. Let us suppose that to-day one pound of 28 PRINCIPLES OF MONEY. gold may buy fifteen pounds of silver; if to-morrow there be a high demand for silver, a competition among merchants, to have silver for gold, will ensue, they will contend who shall get the silver at the rate of fifteen pounds for one of gold: this will raise the price of it, and in proportion to their views of profit, some will accept of less than the fifteen pounds. This is plainly a rise in the silver, more properly than a fall in the gold; because it is the competition for the silver which has occasioned the variation in the former proportion between the metals. Let us now suppose that a state having, with great exactness, examined the proportion of the metals in the market, and having determined the precise quantity of each for realising or represent- ing the money-unit, should execute a most exact coinage of gold and silver coin ; as long as this proportion continues unvaried in the market, no inconvenience can result from that quarter, in making use of the metals for money of account. But let us suppose the proportion to change; that the silver, for example, should rise in its value with regard to gold; will it not follow, from that mo- ment, that the unit realized in the silver, will be- come of more value than the unit realized in the gold coin? But as the law has ordered them to pass as equi- valents for one another, and as debtors have always the option of paying in what legal coin they think PRINCIPLES OF MONEY. 2Q fit, will they not all choose to pay in gold; and will not then the silver coin be melted down or export- ed, in order to be sold as bullion, above the value it bears when it circulates in coin? Will not this paying in gold also really diminish the value of the money-unit, since upon this variation every thing must sell for more gold than before, as we have al- ready observed? Consequently, merchandize which has not varied in its relative value to any other thing but to gold and silver, must be measured by the mean propor- tion of the metals, and the application of any other measure to it is altering /the standard. If it is measured by the gold, the standard is debased; if by silver, it is raised, as >hull presently be proved. If, to prevent the inconvenience of melting down the silver, the state shall give up affixing the value of their unit to both species at once, and should fix it to one, leaving the other to seek its price as any other commodity, in this case no doubt the melting down of the coin will be prevented ; but will this ever restore the value of the money-unit to its for- mer standard ? Would it, for example, in the foregoing supposition, raise the debased value of the money-unit in the gold coin, if this species were declared to be the standard? It would in- deed render silver coin purely a merchandize, and by allowing it to seek its value, would certainly prevent it from being melted down as before; be- cause the pieces would rise conventionally in their 30 PRINCIPLES OF MONEY. denomination; or an agio, as it is called;, would be taken in payments made in silver; but the gold would not, on that account, rise in its value, or be- gin to purchase any more merchandize than before. Were therefore the standard fixed to the gold, would not this be an arbitrary and a violent change in the value of the money-unit, and a debasement of the standard? If, on the other hand, the state should fix the standard to the silver, which we suppose to have risen in its value, would this ever sink the advanced value which the silver coin had gained above the worth of the former standard unit, and would not this be a violent and an arbitrary change in the value of the money-unit, and a raising of the standard? The only expedient, therefore, as has been said, is in such a case to fix the numerary unit to neither of the metals, but to contrive a way to make it fluctuate in a mean proportion between them ; which is in effect the- introduction of a pure ideal money of account. This shall be further explained as we go along. I have one observation only to make in this place, to wit, that the regulation of fixing the unit by the mean proportion, ought to take place at the instant the standard unit is affixed with exactness both to the gold and silver. If it be introduced long after the market proportion between the me- tals has deviated from the proportion established in PRINCIPLES OF MOXE\ . 3 1 the coin, and if the new regulation is made to have a retrospect, with regard to the acquitting of per- manent contracts entered into, while the value of the money unit had attached itself to the lower currency, in consequence of the principal above laid down, then the restoring the money-unit to that standard where it ought to have remained (to wit, to the mean proportion) is an injury to all debtors who have contracted since the time the pro- portion of the metals be^an to pn This is clear from the former reasoning. The moment the market price of the metals differs from that in the coin, every one who has payments to make, will pay in that species which is rated highest in the coin; consequently, he \\ho lends, lends in that species. If, after the contract, therefore, the unit be carried up to the mean proportion, this must be a loss to him who had borrowed. From this we may perceive why, in the first ar- ticle of the preceding chapter, it was said, that there was less inconvenience from the varying of the proportion of the metals, where the standard J- fixed to one of them, than when it is fixed to both. In the first case, it is at least uncertain whether the standard or the merchandize-species be to rise; consequently it is uncertain whether the debtors or the creditors be to gain by a variation. If the standard species should rise, the creditors will gain ; if the rnerchand'ize-species should rise, the debtors will gain; but when the unit is attached to both 3 PRINCIPLES OF MONEY. species, theft the creditors never can gain, let the metals vary as they will: if silver rise, then debtors will pay in gold; if gold rise, debtors will pay in silver. But whether the unit be attached to one or to both species, the infallible consequence of a vari- ation is, that one half of the difference is either gained or lost by debtors and creditors. The in- variable unit is constantly the mean proportional between the two measures. I intended to have postponed the entering upon what concerns the interests of debtors and creditors in all variations of the coin, until I came to treat particularly of that matter ; but as it is a thing of the greatest consequence to be attended to, in every proposal v for altering or regulating the coin of a nation, it will, perhaps, upon this account^ bear a repetition in another place. To render our ideas as distinct as possible, we must keep them simple. Let us now suppose that the metals are perfectly well proportioned in the coin, but that the coin is worn by use. If this be the case, we must either suppose it to be all equally worn, or unequally worn. If all be equally worn, I think it needs no de- monstration to prove, that the money-unit which was attached to the coin, when weighty, (drawing its value from the metals contained in it,) must na- turally diminish in its value in proportion as the metals are rubbed away. If the coin be unequally worn, the money-unit PRINCIPLES OF MONEY. 33 trill be variously realized, or represented; that is to sUy, it will be of different values, according to the weight of the pieces. The consequence of this is the same as in the disorder of the proportion of the metals: debtors will choose to pay in the light pieces, and the heavy will be melted down. In proportion, there- lore, to this disorder, will the value of the unit gradually descend. This was the great disorder in England in 1695 ; while the standard of the pound sterling was affixed to the silver only, the gold being left to seek its own value* Since the invention of the money wheel, the in- accuracy in the fabrication is greatly prevented. Formerly, when money was coined with the ham- 1 mer, the mint-masters weighed the coin delivered by the workmen, in cumulo, by the pound troy weight, without attending very exactly to the pro- portion of the pieces. At present exactness is more necessary, and every piece must be weighed by itself. It is of very great consequence that the weight and denominations of coin be in exact proportion to that of their current value, which is always re- lative to the money-unit of account. When any inequality happens there, it is easy to perceive how all the pieces which are above the proportion of their just weight, will be immediately picked up> and melted down, and none but the light ones will remain in circulation, F 34 PRINCIPLES OF MONEY. This, from the principles already laid down, must proportionally diminish the value of the money-unit. From what has been observed concerning the deviations in the coin from the proportion in the market price of the metals, and from the legal weight, we may lay down this undoubted principle, That the value of the money-unit of account is not to be sought for in the statutes and regulations of the mint, but in the actual intrinsic value of that cur- rency in which all obligations are acquitted, and all accompts are kept. As I have at present principally in view to lay down certain principles with regard to money, which I intend afterwards to apply to the state of the British coin; and as these principles are here restrained to the effects which every variation in the coin has upon the value of the unit of money in account, I shall in this place observe only, as to the imposition of coinage. That coin being necessary in every country where the money-unit is attached to the metals, it must be procured by those who are obliged to acquit their obligations in material money. If, therefore, the state shall oblige every one who carries the metals to the mint to pay the coin- age, the coin they receive must be valued not only at the price the metals bear in the market, when they are sold as bullion, (or mere metal, of no farther value than as a physical substance), but also PRINCIPLES OF MONEY. 3d at the additional Talue these metals receive in being rendered useful for purchasing commodities, and acquitting obligations. This additional value is the price of coinage. If, therefore, in a country where coinage is free, as in England, this coinage shall come to be im- posed, the money-unit continuing to be affixed as before to the same quantity of the metals, ought to rise in its value; that is, ought to become equal to a greater quantity of every sort of merchandize than before; consequently, as the rough metals of which the coin is made arc merchandize, like every other thing, the same number of money-units realized, or represented in the coin, ought to pur- chase more of the rough metals than before: that is to say, That in every country where coinage is imposed, bullion must be cheaper than coin. This proposition would be liable to no exception, were it true that no debt could be exacted but in the nation's coin ; because in this case, the creditor would be constantly obliged to receive it at its full value. But when nations owe to one another, the party debtor must pay the party creditor in his coin : the debtor, therefore, is obliged to sell his own coin for what he can get for it, and with this he must buy of the coin of his creditor's country, in order to pay him with it. JLet us, to avoid abstract reasoning, take an ex- ample: and we cannot choose a better than that of 36 PRINCIPLES OF MONEY. England and France. In England, coinage is fret, in France it costs 8iV per cent, as shall be made out in its proper place. France owes England 1000 sterling. In paying in the market of London the bullion contained in this sum, either in gold or silver, the debt is paid ; because the coining of it costs nothing. Here France acquits her debt cheaper than by sending her own coin as bullion; because the bullion she sends is not worth an equal weight of her coin. England owes France 20,000 livres. In paying the bullion contained in this sum, England is not quit ; she must also pay France SyV per cent, in or- der to put it into coin. The operation of raising and debasing the coin is performed in three ways. First, By augmenting or diminishing the weight of the coin. Secondly, By augmenting or diminishing the proportion of alloy in the coin. Thirdly, By augmenting or diminishing the pro- portion between the money (coin) and the money of account, as if every sixpence were called a shil- ling, and every twenty sixpences a pound sterling. The French call this increasing or diminishing the numerary value; and as I think it is a better term than that of raising or sinking the denomina- tion, I shall take the liberty now and then to em- ploy it. These three operations may be reduced to one, PRINCIPLES OF MONEY. 3? and expressed by one term : they all imply the aug- menting or diminishing of the weight of the pure metals in the money-unit of account. CHAPTER VI. How the variations in the intrinsic value of the unit of Money must affect all the domestic Interest of a Nation, v? E have briefly pointed out the effects of the imperfections of the metals in producing a variation in the vulue of the unit of account, we must now point out the consequences of this variation. If the changing the content of the bushel by which grain is measured, would affect the interest of those who are obliged to pay, or who are entitled to receive a certain number of bushels of grain for the rent of lands; in the same manner must every variation in the value of the unit of account affect all persons who, in permanent contracts, are obliged to make payments, or who are entitled to receive sums of money stipulated in multiples or in fractions of this money-unit, S3 PRINCIPLES OF MONEY. Every variation, therefore, upon the intrinsic value of the money-unit, has the effect of benefit- ing the class of creditors, at the expence of debt- ors, or vice versa. This consequence is deduced from an obvious principle. Money is more or less valuable in pro- portion as it can purchase more or less of every kind of merchandize. Now, without entering anew into the causes of the rise and fall of prices, it is agreed upon all hands, I suppose, that whether an augmentation of the general mass of money in circulation has the effect of raising prices in gene- ral, or not, any augmentation of the quantity of the metals appointed to be put into the money-unit, must at least augment the value of that money-unit, and make it purchase more of any commodity than before; that is to say, if 113 grains of fine gold, the present weight of a pound sterling in gold, can buy 113 pounds of flour; were the pound sterling raised to 114 grains of the same metal, it would buy 114 pounds of flour; consequently, were the pound sterling augmented by one grain of gold, every miller who paid a rent of ten pounds a-year would be obliged to sell 1140 pounds of his flour, in order to procure 10 pounds to pay his rent, in- stead of 1130 pounds of flour which he sold for- merly to procure the same sum; consequently by this innovation, the miller must lose yearly ten pounds of flour which his landlord consequently must gain. From this example I think it is plain, PRINCIPLES OF MONEV. 39 that every augmentation of the metals put into the pound sterling, either of silver or gold, must imply an advantage to the whole class of creditors, who by contract are paid in pounds sterling, and conse- quently, must be a proportional loss to all debtors in such contracts, who must pay by the same deno- mination. We may therefore safely conclude, that every diminution of the metals contained in the money- unit, must imply a loss to all creditors; and that iu proportion to this loss, those who are debtors must gain. That on the contrary, whatever augmentation is made of the money-unit, such augmentation must by hurtful to debtors, and proportionally advanta- geous to creditors. In order to render this inquiry more useful, I shall now apply the principles I have laid down, to the present state of the British coin, and to the re- solution of every question which shall occur during the examination of the disorder into which it has fallen. 40 PRINCIPLES OF MONEY. CHAPTER VII. Of the Disorder in the British Coin, so jar as it occasions the melting down, or exporting of the Specie. JL HE defects in the British coin are three : First, The proportion hetween the gold and silver in it is found to be as 1 to 15 T 2 ^> whereas the 1 market price, (1759) ma y De supposed to be near- ly as 1 to 14^. Secondly, Great part of the current money is worn and light. Thirdly, From the second defect proceeds the third, to wit, that there are several currencies in circulation which pass for the same value, without being of the same weight. Fourthly, From all these defects results the last and greatest inconvenience, to wit, that some in- novation must be made, in order to set matters on a right footing. The English, besides the unit of their money, which they call the pound sterling, have also the unit of their weight for weighing the precious me- tals. PRINCIPLES OF MONEY. 41 This is called the pound troy, and consists of 12 ounces, every ounce of 20 penny-weights, and every penny-weight of 24 grains. The pound troy, there- fore, consists of 2 JO penny-weights, and 576*0 grains. The fineness of the silver is reckoned by the num- her of ounces and penny-weights of the pure metals in the pound troy of the composed mass; or in other words, the pound troy, which contains 5760 grains of standard silver, contains 5328 grains of fine silver, and .\:i~2 grains of copper, called alloy. Thus the standard silver is 1 1 ounces 2 penny- weights of line silver in the pound troy, to 18 penny- weights copper, or 111 parts fine silver to nine parts alloy. Standard gold is 1 1 ounces line to one ounce sil- ver or copper employed for alloy, which together make the pound troy; consequently, the pound troy of standard gold, contains 5280 grains fine, and 480 grains alloy, which alloy is reckoned of no value. This pound of standard silver is ordered, by sta- tute 43 Elizabeth, to be coined into 62 shillings, 2O of which make the pound sterling; consequently the 20 shillings contain 1718.7 grains of fine silver, and 1858.06 standard silver. The pound troy of standard gold, TZ fine, is or- dered by an act of King Charles the Second to be cut into 441 guineas; that is to say. every guinea contains 129.43 grains of standard gold, and 118.644 G 42 PRINCIPLES OF MONEY. of fine gold; and the pound sterling, which is 14 of the guinea, contains 112.994 which we may state at 113 grains of fine gold, as has been said. The coinage in England is entirely defrayed at the expence of the state. The mint price for the nietals is the very same with the price of the coin. Whoever carries to the mint an ounce of standard silver, receives for it in silver coin 5s. 2d. or 6%d. Whoever carries an ounce of standard gold receives in gold coin 3 : 17 : 101; the one and the other making exactly an ounce of the same fineness with the bullion. Coin, therefore, can have no value in the market above bullion ; consequently, no loss can be incurred by those who melt it down. When the guinea was first struck, government (not inclining to fix the pound sterling to the gold coin of the nation) rated the guinea at 20 shillings, (which was then below its proportion to the silver), leaving it to seek its own price above this value, according to tlie course of the market. By this regulation no harm was done to the Eng- lish silver standard; because the guinea, or 1 18.644 grains fine gold being worth more, at that time, than 20 shillings, or 1718.7 grains fine silver, no debtor would pay with gold at its standard value, and whatever it was received for above that price was purely conventional. Accordingly guineas sought their own price un- til the year 1728, that they were fixed a-new, not below their value as at first, but at what was then PRINCIPLES OF MONEY. 43 reckoned their exact value, according to the pro- portion of the metals, to wit, at 21 shillings; and at this they were ordered to pass current in all pay- ments. , This operation had the effect of making the gold a standard as well as the silver. Dehtors then paid indifferently in gold as well as in silver, because both \vere supposed to be of the same intrinsic as well as current value; in which case no inconve- nience could follow upon this regulation. But in tune, M!\> than before. This changed the proportion of the metals, and by slow degrees they have come from that of 1 to 15.2 (the proportion they were supposed to have when the guineas were fixed and made a lawful money at 21 shillings) to that of 14.5 the present supposed proportion in 17^9- The consequence of this has been, that the same guinea" which at. the proportion of 15.2 was worth 1804.6 grains fine silver, at the time it was fixed at 21 shillings, is now worth no more than 17 19-9 grains of fine silver, according to the proportion of 14 Z to 1. Consequently, debtors, who have always the option of the legal species in paying their debts, will no more pay pounds sterling in silver, but in 44 PRINCIPLES OF MONEY. gold ; and as the gold pounds they pay in, are not intrinsically worth the silver pounds they paid in formerly, according to the statute of Elizabeth, it follows that the pound sterling in silver is really no more the standard, since nobody will pay at that rate, and since nobody can be compelled to do it. Besides this want of proportion between the me- tals, the silver coined before the reign of George I. is now become light by circulation; and the gui- neas coined by all the princes since Charles II. pass by tale, though many of them are considerably di- minished in their weight*. Let us now examine what profit the want of pro- portion, and the want of weight in the coin can aiford to the money-jobbers, in melting it down or exporting it. Did every body consider coin merely as the mea- sure for reckoning value, without attending to its value as a metal, the deviations of gold and silver * These defects in the coin of Great Britain, occasioned at last so great ineonveniencies in circulation, that in 1773 government was obliged to attempt some redress by Parliament. Accordingly an act was passed, empowering every person, and particularly re- quiring the tellers of the exchequer, their deputies and clerks, to weigh all gold money tendered to them ; and to cut, break, or de- face all pieces thereof, which by the weight, or otherwise, shall appear to be counterfeit, or diminished otherwise than by reason- able wearing. PRINCIPLES OF MONEY. 45 coin from perfect exactness either as to proportion or weight, would occasion little inconvenience. Great numbers indeed, in every modern society, consider coin in no other light, than that of money of account, and have great difficulty to comprehend what difference any one can find between a light shilling and a heavy one; or what inconvenience there can possihly result from a guinea's being some grains of fine gold too light to be worth 21 shillings standard weight. And did every one think in the same way, there would be no occasion for coin made of the precious metals; leather, copper, iron, or paper, would keep the reckoning as well as gold and silver. But although there be many who look no farther than at the stamp on the coin, there are others whose sole business it is to examine its in- trinsic worth as a commodity, and to pro/it of every irregularity in the weight and proportion of the metals. By the very institution of coinage, it is implied, that every piece of the same metal, and same de- nomination with regard to the money-unit, shall pass current for the same value. It is therefore the employment of those money- jobbers, as I s hall-call them, to examine with a scru- pulous exactness, the precise weight of every piece of coin which comes into their hands. The first object of their attention, is, the price of the metals in the market, A jobber finds at present. 46 PRINCIPLES OF MONEY. that with 14.5 pounds of fine silver bullion, lie can buy one pound of fine gold bullion. He therefore buys up with gold coin, all the new silver as fast as it is coined, which he can get at the rate of 15f pounds for one in gold; these 15r pounds of silver coin he melts down into bullion, and con- verts it back into gold bullion, giving at the rate only of 14f pounds for one. By this operation he remains with the value of T& of one pound weight of silver bullion clear profit upon the 15} pounds he bought; which T V is really lost by the man who inadvertently coined silver at the mint, and gave it to the money jobber for his gold. Thus the state loses the expence of the coinage, and the public the convenience of change for their guineas. But here it may be asked, why should the mo- ney jobber melt down the silver coin ; can he not buy gold with it as well without melting it downr I answer he cannot; because when it is in coin, he cannot avail himself of its being new and weighty. Coin goes by tale, not by weight; there- fore, were he to come to market with his new sil- ver coin, gold bullion being sold at the mint price I shall suppose, viz. at 3 : 17 : 101 sterling money per ounce, he would be obliged to pay the price of what he bought with heavy money, which he can equally do with light. He therefore melts down the new silver coin, and sells it for bullion., at so many pence an ounce, the PRINCIPLES OF MONEY. 4j price ot which bullion is, in the English market, always above the price of silver at the mint, for the reasons now to be given. When you sell standard silver bullion at the mint, you are paid in weighty money; that is, you re- ceive for your bullion the very same weight in " standard coin; the coinage costs nothing; but when you sell bullion in the market, you are paid in worn-out silver, in gold, in bank notes, in short, in every species of lawful current money. Now all these payment >me defect : tiu k .silver you are paid with is worn and light; the gold you are paid with is over-rated, and perhaps also light; and the bank notes must have the ^ame value with the specie with which the bank pays them; that is with light silver or over-rated gold. It is for these reasons, that silver bullion, which is bought by the mint at 5.v. 2d. per ounce of heavy silver money, may be bought at market at 6'5 pence the ounce in light silver, over-rated gold, or bank notes, which is the same thing. When the unit is once affixed to certain determi- nate quantities of both metals, if one of the metals should afterwards rise in value in the market, the coin made of that metal will lose a part, and will be more valuable as metal thai) as coin. Consequently it will be melted down, and the bullion will be sold for a price as much exceeding the mint price, as the metal has risen in its value. If, therefore, in England the price of silver bul- 4& PRINCIPLES OF MONEY. lion in the market be found to be 65 pence the ounce, while at the mint it is rated at 62; this proves that silver has risen above the proportion observed in the coin, and that all silver coin of standard weight may consequently be melted down Tvith a profit of & There are several other circumstances to be at- tended to, which regulate and influence the price of bullion, we shall here pass them in review the better to discover the nature of this disorder in the English coin, and the advantages which money- jobbers may draw from it. The price of bullion, like that of every other merchandize, is ascertained by the value of the money it is paid with. If silver bullion, therefore, sell in England for 65 pence an ounce, paid in silver coin, it must sell for 65 shillings the pound troy; that is to say, the shil- lings it is commonly paid with, do not singly exceed the weight of ?Vof a pound troy: for if the 65 shil- lings with which the pound of bullion is paid weigh- ed more than a pound troy, it would be a shorter and better way for him who wants bullion, to melt down the shillings and make use of the metal, than to 2^0 to market with them in order to get less. We may, therefore, be very certain, that no man will buy silver bullion at 65 pence an ounce, with any shilling which weighs above a kind of ideal scale for measuring the British coin, although it has not all the properties of that described above. Exchange considers the pound sterling as a value determined according to the combination of the values of all the different currencies, in proportion as payment* are made in the one or the other; and as debtors generally take care to pay in the worst species they can, it consequently follows, that the value of the pound sterling should fall to that of the lowest currency. Were there a sufficient quantity of worn gold and silver to acquit all bills of exchange, the pound ster- ling would come down to the value of them; but if the new gold be also necessary for this purpose, the value of it must be proportionally greater. All these combinations are liquidated and com- pensated with one another, by the operations of trade and exchange; and the pound sterling, which is so different in itself, becomes thereby, in the eyes of commerce, a determinate unit, subject however to va- riations, from which it never can be exempted. 56 PRINCIPLES OF MONEY. Here is then the proof of what was said in the end of the first chapter, that the wearing of one shilling had the effect of contributing towards the diminution of the value of the pound sterling every where ; a proposition which, at first sight, has the air of a paradox, though, when it is understood, nothing is more consistent with the ruling princi- ples of commerce. Exchange, therefore, is one of the best measures for valuing a pound sterling, present currency. Here occurs a question. Does the great quantity of paper money in Eng- land tend to diminish the value of the pound ster- ling? I answer in the negative. Paper money is just as good as gold or silver money, and no better. The variation of the standard, we have already said, and I think proved, must influence the inte- rests of debtors and creditors proportionally every where. From this it follows, that all augmentation of the value of the money-unit in the specie must hurt the debtors in the paper money; and all dimi- nutions on the other hand must hurt the creditors in the paper money, as well as every where else. The payments, therefore, made in paper money, never can contribute to the regulation of the stand- ard of the pound sterling; it is the specie received in liquidation of that paper money which alone can contribute to mark the value of the British unit; because it is affixed to nothing else. PRINCIPLES OF MONEY. 57 From this we may draw a principle, That in countries where the money-unit is entirely vflijced to the coin, the actual value of it is not according to the legal standard of that coin, bul according to the wean proportion of the actual north of those currencies in which debts are paid. l-Yom this we see the reason why the exchange hctween England and all the trading towns in Eu- rope has long appeared so unfavourable. People calculate the real par, upon the supposition that a pound sterling i> worth 1 71^-7 grain* troy of fine silver, when in fact the currency i^ not perhaps worth 1(>3S, the value of a new guinea in silver, at the market proportion of 1 to 14.5; that is to s'iv, the currency is hut ,95.3 per ccnf. of the silver standard of the 43d of Elizabeth. No wonder then if the exchange he thought unfavourable ! From the principle we have just laid down, we may gather a confirmation of what we advanced concerning the cause of the advanced price of bul- lion in the English market. When people buy bullion with current money at a determinate price, this operation, in conjunction with the course of exchange, ought naturally to mark the actual value of the pound sterling with great exactness. If therefore the price of standard bullion in the English market, when no demand is found for the exportation of the metals, that is to say, when upon change paper is found for paper, and when mer- I 58 PRINCIPLES OF MONEY. chatits, versed in these matters, judsfe exchange (that is remittances) to be at par ; if then, I say, silver bullion cannot be bought at a lower price than 65 pence the ounce, it is evident that this bullion might be bought with 65 pence in shillings, of which 65 might be coined out of the pound troy English standard silver; since 65 pence per ounce implies 65 shillings for the 12 ounces or pound troy. This plainly shews how standard silver bullion should sell for 65 pence the ounce, in a country where the ounce of standard silver in the coin is worth no more than 62; and were the market price of bullion to stand uniformly at 65 per ounce, that would shew the value of the pound sterling to be tolerably fixed. All the heavy silver coin is now carried off* ; because it was intrinsically worth more than the gold it passed for in currency. The silver therefore which remains is worn down to the market proportion of the metals, as has been said, that is to say, 20 shillings in silver currency are worth 113 grains of fine gold, at the proportion of 1 to 14.4 between gold and silver. Now, as 1 is to 14.5, so is 113 to 1638; so the 20 shillings current weigh but 1638 grains fine silver, instead of 1718.7, which they ought to do according; to the standard. * This was written during last war. PRINCIPLES OF MONEY. 59 Now let us speak of standard silver, since we are examining how far the English coin must be worn by use. The pound troy contains 5760 grains. This, according to the standard, is coined into 62 shil- lings; consequently, every shilling ought to weigh 9^.9 grains. Of such shilling* it is impossible that ever standard bullion should sell at above 62 pence per ounce, MippoMTig the exportation of them to be free. If therefore such bullion sell for 6*5 pence, the shillings with which it is bought must weigh no more than 88.64 grains standard silver; that is, they must have lost 4.29 grains and are reduced to 3T of a pound troy. But it is not necessary that bullion be bought with shillings; no stipulation of price is ever made farther, than at so many pence sterling per ounce. Does not this virtually determine the value of such currency with regard to all the currencies in Eu- rope? Did a Spaniard, a Frenchman, or a Dutch- man, know the exact quantity of silver bullion which can be bought in the London market for a pound sterling, would he inform himself any farther as to the intrinsic value of that money-unit; would he not understand the value of it far better from that circumstance than by the course of any ex- change, since exchange does not mark the intrinsic value of any particular money, but merely the value of that money when transported from one place to another. 60 PRINCIPLES OF The price of bullion, therefore, when it is not influenced by extraordinary demand, (such as for the payment of a balance of trade, or for making an extraordinary provision of plate) but when it stands at what every body knows to be meant by the common market price, is a very tolerable mea- sure of the value of the actual money-standard in any country. If it be therefore true, that a pound sterling cannot purchase above l638 grains of fine silver bullion, it will require not a little logic to prove that it is really, or has been for these many years, worth any more; notwithstanding the standard weight of it in England is regulated by the laws of the kingdom at 1718.7 grains of fine silver. If to this valuation of the pound sterling drawn from the price of bullion, we add the other drawn from the course of exchange; and if by this we find, that when paper is found for paper upon the exchange of London, a pound sterling cannot pur- chase above l6'38 grains of fine silver in any coun- try in Europe, upon these two authorities, I think, we may very' safely conclude (as to the matter of fact at least) that the pound sterling is not worth more, either in London or in any other trading city; and if this be the case, it is just worth 20 shillings of 65 to the pound troy. If therefore the mint were to coin shillings at this rate, and pay for silver bullion at the market price, that is, at the rate of 65 pence per ounce in PRINCIPLES OF MONEY. 6l those new coined shillings, they would be in pro- portion to the gold; silver would he earned to the mint equally with gold, and would be as little sub- ject to be exported or melted down. CHAPTER IX. Historical Account of the Variations of the British Coin. JL HE whole purport of this part of my inquiry is, to examine and investigate the principles re- lating to money; to range them in order, and to render them easily applicable to any combination of circumstances which may occur. The present disorder has proceeded from neglect on the part of government; a neglect however which admits of an apology, for reasons afterwards to be assigned. When an abuse creeps in by de- grees, no particular person can be charged with it: when it is to be corrected, some person or other must undertake the work; and few are found who incline to be volunteers in the service of the public, upon an occasion where the interest of the nation is not clear and evident. 02 PRINCIPLES OF MONEY. The question to be determined, is, what the weight of the pound sterling now is, and what it ought to be. If it be made different from what it is at present, that operation must be conducted with justice and impartiality. If a new standard be pitched upon, the choice is quite arbitrary, as has been said; and were any weight to be preferred to another, the best of any, no doubt, would be the pound troy of standard silver. This was the pound sterling for many ages, and the most that can be said for Queen Elizabeth's act, is, that it is the last de- liberate adulteration by law of the English coin. The next question is, how to conduct this opera- tion so as to do justice to every man in the nation in contracts already entered into; how to do justice to the creditors of Great Britain; how to do justice to Great Britain with respect to her creditors ; how to do all this, I say, and at the same time to make an in- novation upon the present state of the coin. Debasing the standard is odious in the opinion of every mortal ; and it seems also to be the opinion of many, that every regulation which shall not carry the value of a pound sterling, to the value of the silver appointed to enter into it by the statute of Queen Elizabeth, is a debasing of it from what it is at present. . In order to cast more light upon the historical part of the English coinage, I shall here lay together some short observations upon the state PRINCIPLES OF MONEY. 63 of this question from the reformation to the pre- sent time. Hemy VIII. and Edward VI. during the violent convulsions of the reformation, M> sophisticated the fineness of the coin, and so curtailed the weight of it, that all proportion of value was lost. This run the whole nation into inextricable con- on, and forced the ministers of the young King Edward, in 1552, to restore the purity of the metals, and to raise the weight of the coin in the pound sterling, from 22O grains troy of fine silver, to which it was then debased, to 1884. Mary re- duced it to 188O grain-*, at which it stood during her reign. From this Elizabeth raised it in tbe second year of her reign to 1888 grains; and in the 43d she made the famous regulation of the mint, by which it was debased to 1718.7, the present legal silver standard. Daring the reign of James I. trade began to take root in England; and this pointed out the necessity of preserving invariable the standard of their money. The confusions occasioned by the former adulterations left a strong impression on the minds of the English nation in the succeeding reigns, a regulation which had been preserved with- out alteration for many years acquired in time great authority, and the standard continued con- stantly attached to the silver. Gold was occasion- ally coined; but circulated under a conventional value only, and was not made a legal money. The interests of trade at last required a more extensive 64 PRINCIPLES' OF MONEY. circulation, and Charles II. when he first coined guineas, determined a value 'for their currency, in order to compass this end : but very well observing, that without fixing the gold at a price below its true proportion to the silver, there was no possibility of preventing it from becoming also a standard for the pound sterling, and thereby introducing a confusion, the guinea was valued no higher than 20 shillings, and allowed to find its own value above that price.. The guinea accordingly fluctuated in its value; sometimes at 22 shillings, which marks the pro- portion of the metals at 1 to 15.84, sometimes at 2 1 s. 6d, which marks the proportion as 1 to 15. ft, at last at 21 shillings, which marks the proportion as 1 to 15.2, and now it is worth no more than its original statute value, to wit, 20 shillings, which marks the proportion as 1 to 14.5. These conver- sions are formed upon the supposition^ that during all the variations the shillings were of the statute weight,, and that the guinea circulated according to the market proportion of the metals; two circum- stances which are by no means to be depended on. About the time of the revolution, silver money had begun to be coined with the wheel, or fly- press (which prevented the frauds to which coin was formerly exposed from clipping and washing), and then the custom of weighing the current money went into disuse. But as at that time there were still great cpiantities of the hammered money re- maining, the clippers profited of the inattention of PRINCIPLES OF MOM:V. 65 the public, and fell to work with the hammered money. The consequence of this was, that those who were obliged to pay, paid in clipped money; the value of the pdund sterling fell to the rate of the then currency; all weighty coin was locked up or melted down; the guiiien- ro-e to 30 shillings, and jClQO sterling, which in silver ought to weigh up- wards of 32 pounds troy, did not commonly exceed one half. The kingdom at this time was involved in a war, vand was annually obliged to borrow large sums, paid in those pounds sterling currency, which were, worth no more than f of a guinea, or 14 shillings of such currency as the present of 65 to the pound troy. This is evident, since the guinea was then worth 3O shillings, or U pound sterling; and that at present it is worth 21 shillings of 65 to the pound troy. Lovvndes contended strongly for having the pound y sterling reduced 2O per cent. Locke insisted upon the old standard of Oueen Elizabeth: the latter carried his point. A new coinage was made in 1695, and government acquitted a great part of the debts they had contracted from the revolu- tion (which had been paid them at the value of be- tween ten and fourteen shillings present currency) at the rate of 20 .shillings of the standard of Queen Elizabeth. This is the matter of fact: whether this was doing justice to the nation, I leave every man to determine. It must not however be be- lt 66 PRINCIPLES OF MONEY. lieved that there was no reason for this extraordt* nary step. r By the raising of the standard, the state gained considerably upon the score of taxes, as well as the creditors upon their capitals and interest; and the nation, which was the principle loser, was pleased; because the standard was not debased: thus all the three parties were satisfied. Upon this coinage in 1695, the coin was once more set upon a solid footing: all money was of weight, and the pound was rightly attached to the silver standard. Upon this footing it remained, until the guinea was made a legal coin, and fixed at its then supposed intrinsic worth: here is the sera of the present confusion. From the beginning of this century, till the year 1756, silver has been rising in its price. In If09/ the French found it as 1 to 15, in the great coin- age, by edict of the month of May; and so early as 1726, they found the proportion to be nearly as 1 to 14{, and fixed their coinage accord- ingly, which till now remains the same. We may therefore conclude, that from 17^6, at least, if not several years before, a pound sterling ought to have been worth at least 1181 grains troy of fine gold, according to the proportion of the silver standard; and yet, from the inattention of government, it has constantly been suffered to be acquitted with 113. Has not this been a plain de- basement of the standard for near 40 years, which we can ascertain? If it be at this time re- PRINCIPLES OF MONEY. / stored to what it was, will not this be raising it from what it is at present? We have seen, from a deduction of the plainest principles, the utter impossibility of keeping a unit, which ought to be invariable, attached at once to the two metals, which are constantly varying be- tween themselves. To this the state has not attend- ed, nor has it probably been sufficiently informed of it, by those who were most capable, but least inte- rested to point out the consequences. The variations of the standard affect chiefly those who are engaged in permanent contracts, which is not the case of trading men: the obli- gations they contract are in a perpetual fluctuation, and by the assistance of their pen, they can avoid the inconveniences which other people, who do not calculate, are liable to. The rising of the value of silver has been all along advantageous to this class: and it would be still more advantageous to them were government to allow guineas at this time to seek their own value, as we shall observe in its proper place. Every thing which tends gradually and insensibly ~ J to debase the value of the money unit, and promote confusion, is Advantageous to merchants. When this debasement proceeds by slow degrees, it is not to be discovered but by foreign exchange; because ed that there is old worn silver enough there to pay all the notes in circulation. The bank must be in the same situation with every debtor, it must send silver to the mint; not as perhaps at present to be afterwards exported, or to furnish work for the mint and then to be melted down again, but to acquit the notes which it had issued in lieu of light silver, or guineas at 21 shillings. The creditor melts down his new silver again, sell.* it a bullion for bank notes as before, and returns upon the bank with a new demand. It is the same thing a* to ibN last supposition, whether the guineas be left as merchandize to seek their value, or be fixed at 2O shillings; for no man upon earth will give a heavy guinea for 20 shillings present currency; and if debtors were obliged to pay at this rate, the hardship would be exactly the same as in the foregoing supposition; for the difference in paying with heavy silver or with good guineas at 20 shillings is no more than that of 1718.7 to 1719 V 9; a guinea which weighs 118i grains fine gold, being worth 1/1,9.9 grains of fine silver, according to the proportion of 1 to 14f and a pound sterling, according to statute, is worth no more than 1718.7 grains of the same metal, J PRINCIPLES OF MONEY. We may therefore, conclude, that the scheme of reducing guineas to 20 shillings must proceed upon the supposition of a new coinage of all the silver; without this, the same confusion as to the coin would remain as formerly; a new dispropor- tion of the metals would take place; nobody would pay in gold, as at present nobody will pay in silver. CHAPTER XI. Met hod for restoring the Money-unit to the Standard of Elizabeth, and the Consequences of this Change. COME now to the proposal of restoring the standard to that of the statute of Elizabeth, which is in other words the same with what has been pro- posed in bringing down the guineas to 20 shillings ; except that it implies a new coinage of all the silver specie and of all the old gold. Nothing is more easy than to execute this reformation. First, The first step is to order all coin, gold and silver, coined preceding a certain year, to pass by weight only. Secondly, To preserve the mint price of silver as PRINCIPLES OF MONEY. 77 formerly, at 5,y. 2(1. the ounce, and to fix that of gold at 3\ U : jj. Thirdly, To order the pound troy standard silxvr to be coined as formerly, into 6 1 ^ shillings; and the pound of gold into 44{ guineas. Fourthly, And last of all, to order these guineas to pass for 2O shillings. Thus the standard is restored to the value of the- silver hy the statute of Elizabeth, the metals are put at within a mere trifle of the proportion of 1 to \4\\ all the coin in the kingdom is brought to standard weight: no profit will be found in melting or exporting one specie* preferably to another: ex- change will answer, when at par, to the real par (when rightly calculated) of either silver or gold, with nations, such as France, who observe the same proportions: and the pound sterling will remain, attached to both the gold and silver, as before. The consequences of this reformation will be, that the pound sterling will be raised from 1638 grains fine silver (the value of the present worn sil- ver currency) to 1718.7; and from 113 grains fine gold (the present gold currency) to 118.644; that is to say, the value of the pound sterling will be raised upon both species 4.9 percent, above the value of ,the present. This all creditors will gain., and all debtors will lose. From the day of the regulation., the exchange upon all the places In Europe will rise 4.9 per cent, in favour of England, and every man who is abroad, and who draws for 78 PRINCIPLES OF MONEY. the rents of his estate, will yearly gain 4.9 per cent, upon his draughts or remittances made to him. Whether prices in England will fall in proportion I do not know; one thing is pretty certain, that every article bought for foreign exportation will fall; for this good reason, that merchants will not be the dupe of this innovation, nor will they buy with heavy money at the same rate they used to buy with light, Justice will be done to all gentle- men whose ancestors let their lands in the reign of Queen Elizabeth, or at any time since, when gold and silver were at the proportion of 1 to 24f, and when the silver coin was at its standard weight. All taxes imposed by pounds, shillings, and pence, will be raised; all those imposed at so much per cent, of the value will stand the same, but will appear to sink in the denomination ; that is, they will produce as much value, but fewer pounds, shillings, and pence, than before. The nation will lose 4.9 per cent, upon the whole capital and interest of the public debts: this the creditors will gain. The bank will gain in its quality of creditor upon the public, and will lose (together with all the bankers in England) 4.9 per cent, upon all their circulating paper. All annuitants, landlords, and creditors of every denomination, whose contracts are under 3O years standing, will gain. All debtors, mortgagers, tenants, whose contracts are of a fresher date, will lose. All merchandize whatsoever ought to fall 4.9 per cent, in its value; and every farthing PRINCIPLES OF MONEY. 7$ any thing falls le.-<< in its price is lost to the con- sumers. These are some of the most evident consequences which must result from this plan of reformation, and the nation is the best judge how far they will contribute to her advantage. CHAPTER XII. In what Sense the Standard may le sa'id to have been debased by Law, and in what sense it may be said to hacesujfered a gradual Debasement In/ the operation of political Causes. i N the course of this inquiry, the standard has been represented sometimes as having been de- based by law, above thirty years ago, to 113 grains fine gold, at which it remains at present, and sometimes as having gradually declined for these many years. These propositions are true, though they appear inconsistent, or at least inaccurate ; and they must now be set in a clear light. I have had no opportunity of tracing the progress 80 PRINCIPLES OF MONEV. of the variations as to the price of the metals fit the English market from the beginning of this century; and to supply the want of exact observa- tion, I have gone upon the following suppositions: 1. That while the guineas were left to find their own value (being regulated by the law below their worth; and not being considered as a lawful money) they naturally would fix themselves according to the market proportion of the metals. 2. That, at the time the standard was affixed to the guineas in conjunction with the silver, and both were made lawful money, the value of the guineas was exactly inquired into and regulated at their precise value. From these circumstances I conclude, that after this affixing of the standard to both species, the least variation in the proportion of the metals must have had the effect of throwing the standard (as I may call it) upon that metal which was the least valuable in the coin: and since it is certain, that for thirty years backward, at least, gold coin of equal denomination has been less valuable than silver, payments have been made, commonly, in gold, under the sanction of law, while the silver has been melted down or exported; for these reasons, I have frequently represented the standard as long ago debased by law to the value of 1 1 3 grains fine gold; and I believe I have advanced nothing but the truth. Here we may conclude, that it is impossible for PRINCIPLES OF MONEY. 81 any law to keep the standard attached both to the gold and the silver coin at once, without pre- serving constantly the market proportion of the me- tals at par, with the numerary value of the coins. The rise of silver for one week in the London mar- ket is a cause of the silver coin's being melted; and during that week, all payments will be made in gold. If the week following* gold should rise above the proportion fixed in the coin, gold coin would be melted, and payments would be made in silver. 1 do not, at present, consider the small circula- tion either among the nobility, or among the com- mons; but I attend to the great circulation among bankers, who have all the specie in the nation in their hands once in a year; and I say, that the payments they make must influence those of all others. Every gentleman pays with the money his banker gives him: did the bank of England find its interest in paying in silver, would it not soon become plentiful in circulation, and would not payments begin to be made in it preferably to gold? i The standard, therefore, has been debased by law by being affixed to the gold, of which metal the pound sterling has uniformly, for these thirty years past, been worth 113 grams, in new guineas. But I have also said, that the standard has been gradually diminishing; consequently it may be objected, that if a pound sterling had been, thirty M 82 PRINCIPLES OF MONEY. years ago, equal to 113 grains of gold, if it ha* been ever since at the same standard, and if it be to- day 113 grains of gold, it cannot be said to have been gradually diminishing. The answer is evident, when we reflect upon our principles. The standard affixed to the gold has been dimi- nishing, because these 113 grains of gold have been diminishing in their value with regard to the silver. When the guinea, in 17^8, was fixed at 21 shil- lings, the pound sterling was fixed thereby at 113 grains fine gold, as has been said; consequently, if this weight of gold was then worth 1718.7 fine silver, there was no debasement made by that sta- tute : but in consequence of that statute, the de- basement must have taken place the moment the silver rose in its value. I am not authorized, by any fact 3 to advance> that at the time the guineas were brought down from 21 shillings 6 pence to 21 shillings, the metals in the coin were not put at the exact proportion they then bore in the English market. The great Sir Isaac Newton was the person consulted in this matter, and to criticise his decision, without plain evidence, would be rash. All I shall say is, that in France the proportion then was 1 to 143, although according to the English statute it was regulated as 1 to 15.21. Let us therefore suppose, that in 17^8, the metals were at the proportion of 1 to 15.21 ; and that 113 PRINCIPLES OF MONEY. 83 grains of fine gold were really worth 1718.7 grains of fine silver. But the silver having risen, the standard, for this reason, has been thrown upon the gold, and has constantly remained at 113 grains (that is, in new guineas); and as the metals have varied from the proportion of 1 to 15.21, to that of 1 to 14.5, by the same steps has the value of the pound sterling, in silver, changed from 1718.7 to 1638.5; which 1638.5 is to 113 as 14.5 is to 1. And were the proportion between gold and silver to come by slow degrees to the Chinese proportion of 1 to 1O, the pound sterling would still remain at 113 grains of fine gold, as it has been since the year 1728; but the silver coin would cither he melted down, or so rubbed away, as to make a pound sterling of it weigh no more than 1130 grains of fine silver, so as to bring it to the proportion of 10 to 1, together with the metals. Does not this evidently shew the defect of fixing the standard either to one or both the species ? As a farther illustration of this matter, which, because of its importance, cannot, I think, be too often repeated, I shall shew, in a very few words, how far people are mistaken, when they imagine that by reducing the guineas to 20 shillings, and re- coining the silver according to the plan proposed, the standard of the pound sterling will be brought to that of Elizabeth. When Elizabeth fixed the standard of the pound 84 PRINCIPLES OF MONEY. sterling at 1718.7 grains of fine silver, the propor- tion of the metals, according to the table in the es- say of money and coins above cited, was as 10-905 to 1 ; consequently that pound paid in gold was, in 1601, equal to 157-6 grains fine gold. Had, therefore, by accident, the standard been then fixed to the gold, instead of the silver, and had the silver ever since been considered as a commodity, the pound sterling at present would be worth 157-6' grains of fine gold, and consequently worth 2285.3 grains fine silver, at the proportion of 14.5 to 1; whereas, having been fixed to the silver, it has been kept at the old standard of 1718.7, and consequently is worth no more than 118.5 grains fine gold. Now supposing that in the year l6oi, three dif- ferent payments of a pound sterling had been made, and locked up in a chest till this day, let us inquire what would be the value of each at present, were they to be melted down, and sold as bullion in the English market. The first payment I shall suppose to have been made in silver, to the value of 1718.7 grains fine silver, which make of standard silver 1858. 06 grains; this sold at the rate of 65 pence an ounce, the present supposed value of silver, at the rate of the gold, when full weight, makes \ : : 1 1 1. The second payment I shall suppose to have been made in gold, to the value of 157.6 grains of fine gold, which makes of standard gold 171-9 grains, this at the mint price of gold, that is, 3: 17 : 10f. the ounce, makes of present sterling, \ : 7 : lot. PRINCIPLES OF MONEY. 85 The third payment I suppose to have heen made, one half in gold, one half in silver, which makes 859.36 grains line silver, and 78.8 grains of fine gold, which, at the above conversions, makes for the silver ^O 10 5ii And for the gold O 13 1 \-h Together \ 4 5f Here we have three different pounds sterling, pro- duced purely by the variation in the proportion of the rnetals, although in 16*01, they must have been absolutely the same. Which of the three, therefore, is the standard of Elizabeth ? Is it not evident, that it can be no other than according to the value of that pound which was paid, half in gold, and half in silver? And is it not also plain, that this is the exact arithmetical mean proportional between the gold and the silver? Let the silver and the gold pounds be added together, they make ^2: 8 : lOi, the half of which is the value of that pound which was paid half in gold, and half in silver; to wit, ^\ : 4 : 5| of the present gold currency, reckoning standard silver at 65 pence per ounce, and gold at the mint price. To realize this value exactly in gold and silver, while the proportion remains as 1 to 14.5, it would be proper to put into the' pound sterling 2001.9 grains troy fine silver, and 138.04 grains of fine gold. These quantities of the metals 86 PRINCIPLES OF MONEY. would answer exactly to the value of l : 4 : 10|, the mean proportional above mentioned. Here then is the standard of Elizabeth : if it has any excellence in if above all others, it may be pre^ ferrecl. It must however be observed, that this will remain the standard as long only as the proportion of 1 to 14.5, upon which it has been established, shall re- main unvaried between the metals; and it will vary from where it might be at present settled, in the same manner as it has varied at all times from the year l6oi, to wit, according to the vicissitudes which shall happen in the proportion of the metals. But at every period of time, and in all different va- rieties of proportion between gold and silver, no pro- blem is more easily resolved than that of the mean proportional between the gold and silver, the mo- ment one knows the proportion of the metals at the time; as shall be demonstrated in a following chap- ter. During the whole seventeenth century, gold rose in its value ; or to express this as the French writers do, the proportion of the met ah was increasing, from that of 1 to 10.g05, to that of 1 to 15; and in Spain it got up to that of 1 to l6. The standard, therefore, being fixed to the silver by Elizabeth, was then attached to that metal which was least sought for ; and who knows whether the mercantile interest at that time and in the succeeding reigns, did not find it their interest to keep it attached to the silver^ PRINCIPLES OF MONEY. 8? for the same reason they no\v wish to have it at- tached to the gold? Since the beginning of this century, the metals have taken a different tarn, and now the proportion is dimhiitihuig; that is to say, the value of silver losing ; the consequence of which is, that the mer- cantile interest would gladly have the standard fixed to the gold ; because in this case, (the proportion of the metals being upon the diminishing hand) the standard of the pound will gradually diminish, and trading men will thereby gain, according to the principles above laid down. Let me here recapitulate a few posititions, which we may now have occasion to apply. First, The standard is debased in consequence of its having been fixed by statute to 1 13 grains of fine gold, not by the act of fixing it, but by the rising of the silver since that time, which rising the statute could not prevent: and gold being now the metal the least sought for, is become the standard of the pound sterling, and regulates its value so, that no silver coin, which is above the proportion of the gold, can remain in currency. Secondly, That according as the proportion of the metals shall diminish from what it is at present, the standard will still fall lower with respect to sil- ver, but will remain fixed with respect to gold, at 113 grains. Thirdly, That the true value of the pound ster- l : 1 2 : 6, the half crowns <\ : l6 : 3, the gold shillings 14s 6d, and the half 7*- 3rf. This w r as anciently the practice in the Spanish mints. I have, in one place, mentioned the pound troy as the best weight of all for the pound sterling; and so it would be, were the pound sterling, by its nature susceptible of being fixed to any determinate N 9O PRINCIPLES OF MONEY, tity of the metals. But what I there suggested, was merely thrown out to shew, that the choice of any other value than the present, is a matter of no consequence, when all interests within doors are properly taken care of, and when confusion and per- plexity are avoided in making the alteration. The interests within the state can, I think, he no- wise perfectly protected hut hy permitting conver- sions of value from the old to the new standard, whatever it be, and by regulating the footing of such conversions by act of parliament, according to cir- cumstances. The intention of this chapter is to point out some circumstances to which it would be proper to attend; and to propose a scheme of esta- blishing a new standard, which might perhaps ren- der conversions and regulations less necessary. Schemes are here proposed, not to be adopted, but as the means of setting this important matter in different lights, and thereby, perhaps, of furnishing hints to some superior genius, who may form a plan liable to fewer inconveniences than any I can de- vise. For this purpose, I shall examine those interests which will chiefly merit the attention of go vernment, when a regulation is made for the future acquitting of permanent contracts already entered into. Such as may be contracted afterwards, will naturally fol- low the new standard. The landed interest is, no doubt, the most consi- derable in the nation. Let us therefore examine, in PRINCIPLES OF MONEY. 91 the first place, what regulations it may be proper to make, in order to do justice to this great class, with respect to the land-tax on one hand, and with res- pect to their lessees on the other. The regulation concerning the land-tax of Eng- land was made many years ago, and reasonably ought to be supported at the real value of the pound sterling at that time, according to the principles al- ready laid down. The land-tax, therefore, of the whole kingdom, may rise or fall according to the value of the new standard. This will be considered as an injustice; and no doubt it would be so, if, for the future, the land-tax be imposed as heretofore, without attending to thN circuoMtaaoBj but as this imposition is annual, as it is laid on by the landed interest itself, who compose the parliament, it is to be supposed that this great class will at least take care of its own interest. Were the pound rate to be stated according to the value of the pound sterling of 1718.7 grains of silver, which is commonly supposed to be the standard of Elizabeth, there would be no great in- jury done. This would raise the land-tax 5 per cent. only. There is no class of inhabitants in all England so much at their ease, and so free from taxes, as the class of farmers. By living in the country, and by- consuming the fruits of the earth without their suf- fering any alienation, they avoid the effect of many excises, which, by those who Jive in corporations. 92 PRINCIPLES OF MONEY. are felt upon many articles of their consumption, as well as on those which are immediately loaded with these impositions. For this reason it will not, per- haps, appear unreasonable, if the additional 5 per cent, on the land-tax were thrown upon this class, and not upon the landlords. With respect to leases, it may be observed, that we have gone upon the supposition that the pound sterling, in the year 1728, was worth 1718.7 grains of fine silver, and 113 grains of fine gold. There would, 1 think, be no injustice done to the lessees of all the lands in the kingdom, were their rents to be fixed at the mean proportion of these va- lues. We have observed how the pound sterling has been gradually diminishing in its worth from that time, by the gradual rise of the silver. This mean proportion, therefore, will nearly answer to what the value of the pound sterling was seventeen years ago; that is to say, in 1743; supposing the rise of the silver to have been uniform. And seven- teen years, I apprehend, is not much above the mean proportion of the time elapsed of all the leases en- tered into with the landed interest of England. It may be farther alleged in favour of the land- lords, that the gradual debasement of the standard has been more prejudicial to their interest in letting their lands, than to the farmers in disposing of the fruits of them. Proprietors cannot so easily raise their rents upon new leases, as farmers can raise the prices of their grain, according to the debase- PRINCIPLES OF MONEY. 93 ment of the value of the currency. We have shewn how the operations of trade communicate their influence to country markets; hut as the cause of the rise of prices is not rightly understood by country people, and as it is commonly ascrihed rather to accident than K) any thing permanent, it is easy to perceive how such a circumstance must be prejudicial to the landed interest. These circum- stances are too complicated to fall under any cal- culation, and nothing hut the wisdom and penetra- tion of the legislature is capable of estimating them at their just value. The pound sterling, thus regulated at the mean proportion of its worth, as it stands at present, and as it stood in 1/28, may be reali/ed in 1678.6 grains of fine silver, and 115.76 grains fine gold; which is 2.4 per corf, ahove the value of the pre- sent currency. No injury, therefore, would he done to' lessees, and no unreasonable gain would accrue to the landed interest, in appointing conversions of all land rents at 2i per cent, above the value of the present currency. Without a thorough knowledge of every circum- stance relating to Great Britain, it is impossible to lay down any plan. It is sufficient, here, briefly to point out the principles upon which it must be regulated. The next interest to be considered is that of the nation's creditors. In 1749, a new regulation was made with the JJ4 PRINCIPLES OF MONEY. , public creditors, when the interest of the whole redeemable national debt was reduced to 3 per cent. This circumstance infinitely facilitates the matter, with respect to this class, since, by this innovation of all former contracts, the whole national debt may be considered as contracted at, or posterior to the 25th of December 1749. I shall now give a sketch of a regulation which may be made, not only for the national creditors at present, but in all times to come, which, by setting money upon a solid footing, may be an advantage both to the nation, to the creditors, and to credit in general. Let the value of the pound sterling be inquired into during one year preceding, and one posterior to the transaction of the month of December 17^9. The great sums borrowed and paid back by the nation, during this period, will furnish data suf- ficient for that calculation. Let this value of the pound be specified in troy grains of fine silver and fine gold bullion, without mentioning any denomi- nation of money according to the exact proportion of the metals at that time. And let this pound be called the pound of national credit. This first operation being determined, let it be enacted, that the pound sterling, by which the state is to borrow for the future, and that in w r hich the creditors are to be paid, shall be the exact mean proportion between the quantities of gold and silver above specified, according to the actual proportion PRINCIPLES or MONEY. ga of the metals at the time such payments shall he made; or, that the sums shall he borrowed or ac- quitted according to the market-price of one half in gold and one half in silver, at the respective requi- sitions of the creditors or of the .state, when borroxv- ing. All debts contracted posterior to 1/49, way be made liable to conversion-. Hie consequence of this regulation will be, the insensible establishment of a bank money, the use- fulness of which lias been explained. The next interest we shall examine i^ that of trade: when men have attained the age of twenty- one, they have no more occasion for guardians. This may be applied to traders; they can parry with their pen every inconvenience which may re- sult to other people from the changes upon money, provided only the laws permit them to do themselves justice with respect to their engagements. The next interest is that of buyers and sellers: that is, of manufacturers, with regard to consumers; and of servants, with respect to those who hire their personal service. The interest of this class requires a most particu- lar attention. They must, literally speaking, be put to school, and taught the first principles of their trade, which is buying and selling. They must learn to judge of price by the grains of silver and gold they receive. They are children of a mercantile mother, however warlike the father's disposition may be. If it be the interest of the state 6 PRINCIPLES OF MONEY* that their bodies be rendered robust and active, it is no less the interest of the state that their minds be instructed in the first principle of the trade they exercise. For this purpsoe, tables of conversion from the old standard to the new must be made, and ordered to be put up in every market, in every shop. All duties, all excises, must be converted in the same manner. Uniformity must be made to appear every where. The smallest Deviation from this will be a stumbling block to the multitude. Not only the interest of the individuals of the class we are at present considering, demands the nation's care and attention in this particular; but the prosperity of trade, and the well-being of the nation, are also deeply interested in the execu- tion. The whole delicacy, or the intricate combinations of commerce, depends upon a just and equable vi- bration of prices, according as circumstances de- mand it. The more, therefore, the industrious classes are instructed in the principles which influ- ence prices, the more easily will the machine move. A workman then learns to sink his price without regret, and can raise it without avidity. When principles are not understood, prices cannot gently fall, they must be pulled down; and merchants dare not suffer them to rise, for fear of abuse, even al- though the perfection of an infant manufacture should require it. PRINCIPLES OF MONEY. 97 The last interest I shall examine is that of the bank of England, which naturally must regulate that of every other. Had this great company followed the example of other banks, and established a bank-money of an invariable standard, as the measure of all their debts and credits, they would not have been liable to any inconvenience upon a variation of the standard. The bank of England was projected about the year 1694, at a time when the current money of the nation was in the greatest disorder, and go- vernment in the greatest distress, both for money and for credit. Commerce was then at a very low ebb, and the only, or at least the most profitable trade of any, was jobbing in coin, and carrying backwards and forwards the precious metals from Holland to England. Merchants likewise profited greatly from the effects which the utter disorder of the coin produced upon the price of merchan- dize. At such a juncture the resolution was taken to make a new coinage, and upon the prospect of this, a company was found, who, for an exclusive charter to hold a bank for 13 years, willingly lent government at 8 per cent, upwards of a million ster- ling (in light money) with a prospect of being re- paid both interest and capital in heavy. This was not all : part of the money lent, was to be applied for the establishment of the bank, and no less than 4000 pounds a year were allowed to the company, O 98 PRINCIPLES OF MONEY. above the full interest, for defraying the charge of management. Under such circumstances the introduction of bank-money was very superfluous, and would have been very impolitic. This invention is calculated against the raising of the standard; but here the bank profited of that rise in its quality of creditor for the money lent,, and took care not to com-r mence debtor by circulating their paper, until the effect of the new regulation took place in 1696: that is, after the general recoinage of all the clipped silver. From that time till now, the bank of England has been the basis of the nation's credit: and, with great reason, has been constantly under the most intimate protection of every minister. The value of the pound sterling, as we have seen, has been declining ever since the year l6oi, the standard being fixed to silver during all that century, while the gold was constantly rising. No sooner had the proportion taken another turn, and silver begun to rise, than the government of Eng- land threw the standard virtually upon the gold, by regulating the value of the guineas at the exact proportion of the market, whether at the instiga^- tion of the bank or not, I shall not pretend to de- termine. By these operations, however, the com- pany has constantly been a gainer (in its quality of debtor) upon all the paper in circulation; and therefore has lost nothing by not having established a bank-money. PRINCIPLES OF MONEY. 99 The interest of this great company being esta- blished upon the principles we have endeavoured to explain, it is very evident that the government of England never will take any step in the reforma- tion of the coin, which in its consequences can prove hurtful to the hank. Such a step would be contrary both to justice and to common sense. To make a regulation which, by raising the stand- ard, will prove beneficial to the public creditors, to the prejudice of the bank (which 1 may call the public debtor), would be an operation upon public credit, like that of a person who is at great pains to support his house by props upon all sides, and who at the same time blows up the foundation of it with gun-powder. We may therefore conclude, that with regard to the bank of England, as well as every other private banker, the notes which are constantly payable on demand, must be made liable to a conversion at the actual value of the pound sterling at the time of the new regulation. That the bank will gain by this is very certain; but the circulation of their notes is so swift, that it would be absurd to allow to the then possessors of them, that indemnification, which naturally should be shared by all those through whose hands they have passed, in proportion to the debasement of the standard during the time of their respective posses- sion. 100 PRINCIPLES OF MONEY. CHAPTER XV. Regulations which the Principles of this Inquiry point out as expedient to be made by a new Statute for regulating the Britkh Coin. L: fET us now examine what regulations it may be proper to make by a new statute concerning the coin of Great Britain, in order to preserve always the same exact value of the pound sterling realized in gold and silver, in spite of all the incapacities in- herent in the metals to perform the functions of an invariable scale or measure of value. I shall not pretend to determine the precise stand- ard which government may prefer as the best to be chosen for the value of a pound sterling in all future time? ; but let it be what it will, the first point is to determine the exact number of grains of fine gold and fine silver which are to compose it, according to the then proportion of the metals in the London market. 2. To determine the proportion of these metal$ with the pound troy, and in regard that the stand- ards of gold and silver are different, let the mint PRINCIPLES OF MONEY. 101 price of both met tils be regulated according to the pound troy fine. , . 3. To fix the mint price within certain limits: that it is to say, to leave the king and council. !>y proclamation, to carry the mint price of bullion up to the value of the coin, ;i> N the present regula- tion, or to sink it to per cent, below that price, according as government >hall incline to impose more or less duty upon coinage. 4. To order that silver and gold coin shall be itruck of such denominations as the king shall think fit to appoint; in which the proportion of the me- tals above determined, shall be constantly observed through every denomination of the coin, until ne- cessity shall make a new general coinage unavoid- able. 5. To have the number of grains of the fine me- tal in every piece marked upon the exergue, or upon the legend of the coin, in place of some initial letters of titles, which not one person in a thousand can de- cypher: and to make the coin of as compact a form as possible, diminishing the surface of it as much as is consistent with beauty. 6. That it shall be lawful for all contracting par- ties to stipulate their payments either in gold or sil- ver coin, or to leave the option of the species to one of the parties. 7. That where no particular stipulation is made, creditors shall have power to demand payment, half in one species, half in the other; and when the sum 102 PRINCIPLES OF MONEY. cannot fall equally into gold and silver coins, the fractions to b<2 paid in silver. 8. That in haying and selling, when no particu- lar species lias been stipulated, and when no act in writing has intervened, the Option of the species shall he competent to the buyer. 9. That all sums paid or received by the king's receivers, or by bankers, shall be delivered by weight, if demanded. 10. That all money which shall he found to a certain degree under the legal weight, from whatever cause it may proceed, may be rejected in every pay- ment whatsoever; or if offered in payment of a debt above a certain sum, may be taken according to its weight, at the then mint price, in the option of the creditor. 11. That no penalty shall be incurred by those who melt down or export the nation's coin ; but that washing, clipping, or diminishing the weight of any part of it, shall be deemed felony, as much as any other theft, if the person so degrading the coin, shall afterwards make it circulate for lawful money. To prevent the inconveniences proceeding from the variation in the proportion between the metals, it may be provided 1 2. That upon every variation of proportion in the market-price of the metals, the denomination of the gold and silver coins be changed, or else ther pieces be recoined according to the proportions of the market. PRINCIPLES OF MONEY. 103 I am now, once more, to give the rule for con- ducting this operation; which is what has heeu so often called the fixing of the money-unit in the mean proportion of the metal *. It has been observed in the fourth chapter, that the consequence of every variation in the proportion between the value of gold and silver lias this effect, namely, that the same weight of silver acquires, on the change, a different value in gold from what it had before; and the same weight of gold acquires, on the change, a different value in silver, from what it had before. Let us illustrate this by an example: We have said, that in the coin of Great Britain 1 13 grains of fine gold were worth 1718.7 of fine silver; and this proportion is 1 in gold, to 15.^1 in silver. Now, suppose the proportion shall come to be 1 in gold, to 14.5 in silver, in this case the 1 13 grains of gold will be worth 1 13 multiplied by 14.5, or 1638.5. Here there are two different values in silver at difterent times, for the same quantity of gold; namely, Crs.Jine Silver. At the old proportion of 15.21, 113 grains of gold were worth 1718-7 At the new proportion of 1 4.5, 113 grains of gold are worth 1638.5 The sum of both 3357.5 The half of which is . 1678.6 104 PRINCIPLES OF MONEY. This half I call the mean arithmetical proportion- al between the two values of 1 13 grains of gold, ac- cording to the old and new proportion of the metals in the London market. And this, I say, is the num- ber of grains of silver which should compose the value of one pound sterling, as long as the propor- tion continues at 14.5. In like manner with respect to the gold: Grs. of fine Cold. When the proportion was 15. 21 to 1, 1718.7 grains of silver were worth ............ 113 At the new proportion of 14.5, 1718.7 grs. of silver are worth *ZL ............... 118.53 The sum of both is .. ............ 231.53 The half of which is ............. 115.765 This half I call the mean arithmetical proportion- al between the two values of 1718.7 grains of fine silver, according to the old and according to the new proportion of the metals; and this, I say, is the number of grains of fine silver which should com- pose the value of one pound sterling, as long as the proportion continues at 14.5 to 1. This operation is very simple and very clear; and as soon as the value of one pound sterling can be determined to a certain number of grains of fine gold, and to a certain number of grains of fine sil- ver, a new coinage may be made; or the denomi- nation of all the coins (silver and gold) already in PRINCIPLES OF MOXEV. 105 circulation, must be cl Kinged by the rule of three, in proportion to the number of grains of fine metal they severally contuin. Example* What ought to be the new denomination of a guinea? Answer. A guinea contains of fine gold 118.651 grains. Say then by the rule of three: If 115.765 grs. fine gold be worth 240d. or one pound sterling, 118.651 must be equal to 246 pence, or L' From the influence this duty , has upon the price of commodities. And 3* From the imposition itself, as it affects directly, the nation which lays it on, and all other nations trad- ing with it occasionally. When all these combina- tions are taken together, I say nothing will be found more difficult, than to reduce this question to a dis- tinct theory. I have said, that gold and silver ai*e commodities merely like every other thing. I have shewn the ntter impossibility of their being a scale, or an in- variable measure of value. I have observed that their being made into coin (among trading nations) has not the effect of rendering them less a commo- dity than they were before, except so far, as by this operation every piece, instead of being valued by its own weight, comes to be valued according to the mean proportion of all the pieces which com- pose the currency: and I have shewn how the ope- rations of trade are capable to sift out and establish this mean proportion, in spite of very great irregula- rities. These are the principles laid down in the PRINCIPLES OF MONEY. 113 first part, which we must keep in our eye while we examine this question. Since gold and silver, then, are commodities like every other thing, the invariable scale of value must measure them as well as every other commoditv, and money of accompt must be considered in no other light, than a^ a >rale for expressing the pro- portional value of grains of metals, yards of stuffs, pounds of wares, bushels of grain, or gallons of liquors. Let us now suppose a country where the invention of coin is not known, and where a yard of cloth of a certain quality, is commonly sold for 1OO grains of either silver or gold, no matter which The state falls upon the invention of coining, the conve- nience of which every body understands; this coinage, I suppose, to cost 4 per cent. Coin is in- troduced, and commodities are ordered to be bought with it. I ask, what effect ought this revo- lution to produce upon the price of the cloth, accord- ing to strict theory, and without taking in any other combination of circumstances? I answer, that the cloth ought in reason to fall 2 per cent, that is, that the price of a yard ought to be a coin of 98 grains. Here is the reason: He who formerly had the 10O grains, had the value of the yard of cloth, and could change the one for the other when he would. Now he has the 100 grains, but he must give two grains to have it coined, before he can buy; be- cause, after this invention people will not trust to the PRINCIPLES OF MCNEY. weighing of others, nor to the purity of the me- tals; but they will believe, upon the authority of the stamp, that in every piece a certain number of grains of the fine inetal is contained. He, there- fore, who has a coin of 98 grains, conies to the merchant, and offers him his coin for his yard of cloth ; the merchant demands a coin of 100 grains; says the other, these 98 grains which I give you in Coin, cost me two grains to have their weight and fineness ascertained ; and if you refuse to repay me for what I have paid for this manufacture which I offer you for your cloth, I may with equal reason refuse to pay you for what you paid for weaving your wool into cloth. Now shu:e J, in buying your cloth, must pay the weaver, so you, in buying m) piece, must pay the mint. The merchant, con- vinced by this reasoning, takes the piece, and as it circulates from hand to hand, every commodity given in exchange for it, must fall 2 per cent, roja- tively to the grains of metal it was worth before. From this it follows, that since the value of coin rises above its bullion contents with respect to every commodity, it must also rise with respect to the metal it is made of, just as wool manufactured rises with respect to wool which is not manufactured. Now let us suppose that a prince, finding that he has the exclusive privilege of making coin, shall raise his price of coinage to 8 per cent, what will the consequence be? The first consequence of this will be to destroy, PRINCIPLES OF MONEY. 1 1 5 or at least to perplex the idea* of his subjects with regard to coin, and to make them believe, that it is,the stamp, and not the metal whieli constitutes the value of it. The next consequence will he, to reduce the price of the yard of cloth, which was worth 1OO ins of metal before the invention of coinage, from 98 where it stood at first, to 9-2. Now let us suppose that this country, which we >hall call (F), is in the neighbourhood of another which we sh:ill call (I',), where there' is both cloth of the aine quality, and coin of the same weight and fine- ness which costs nothing for the coinage. In the country (E), virti-ri* i/.trihtis, the yard of cloth must br >old for 1OO {rrain-, us it u;i> s<>hl formerly in the country (F) befoiv tlie coinage \\ a- imposed. If the country (F) want the cloth of the country (E) the cloth they demand must cost (F) 1 Of) grains the yard. If the country (K) want the cloth of the country (F), this cloth will also cost 1OO grains; because to procure a coin of 92 grains of the coun- try (F), (K) must pay 8 grains for the coinage, which raises the price of the cloth to 1OO grains. Let us now suppose that for a certain time the country (F) has absolute occasion for the cloth of the country (E). The merchants of (F) who carry on this trade, must scud bullion to (E) to pay for this cloth. But the merchants of the country (F) Tvho deal in bullion, perceiving the usefulne.s of it for this trade, will then raise the price of the 1QO grains Il6 PRINCIPLES OF MONEY. of it above the 92 grains in coin (the common market-price of bullion before this trade was known), and according to the demand made for the foreign cloth, the bullion will rise in the country (F), until 100 grains of it become exactly worth 10O grains in coin. The bullion can never rise higher; because at this period, the coin itself will be exported for bullion; and the country of (E) will accept of 100 grains in their coin as willingly as in any other form. Nor will it ever fall lower than 92 grains; because the mint in the country (F) is always ready to give that price for all the bul- lion which is brought to be coined. Here then is a case, where the coin is made to lose all its advanced price as a manufacture; and this is owing entirely to its being a metal as well as a money of accompt. The consequence, therefore, of this revolution ought to be, that as the price of all merchadize ought to be a certain number of grains of bullion or their equivalent, the yard of cloth ought at this time to cost, in the country of (F), 100 grains, either of coin or bullion, since they are become of the same value. Farther, in proportion as this demand for bullion comes to diminish, that is to say, in proportion as the balance of trade becomes less unfavourable to the country of (F), in the same proportion will coin rise in its price, when compared with bullion; and when the country of (E), in its turn, comes to have PRINCIPLES OF MONEY. 117 occasion for the country of (F), then (E) must pay as formerly for a yard of cloth 92 grains in bullion, and the remaining 8 grains to have it coined; in which case, the yard of cloth will fall to the old price of 92 grains in coin, and will stand at 10O grains in bullion as before. But this theory does not hold in practice, nor can it possibly hold, as long as the greatest part of a people are ignorant of, and even do not feel the re- volutions we have been here describing. The price of bullion is entirely regulated by mer- chants, who have the whole correspondence in their hands. It rises and falls in countries where coin- age is imposed, in proportion to the state of the balance of trade at the time. The smallest rise or fall iu the demand for bullion, is immediately marked by the price of it, and this ought (by the principles we have been laying down) to regulate the rise and fall of every commodity. But this is by no means the case. Commodities rise and fall after a certain time only; and of this interval merchants will constantly profit. Does the price of bullion rise, they immediately sell to strangers as if all prices were immediately risen; but with re- gard to manufacturers, they hide the revolution with great care, and preserve prices from rising, until the competition among themselves discovers the secret. Does the price of bullion fall, they do all they can to keep up the prices of every commo- dity which they sell to strangers, until the competi- IIS PRINCIPLES OF MONET. tion among themselves obliges them to bring them clown; and with regard to manufacturers, they are all in one interest to reduce the prices in proportion to the fall of the bullion, which works its effects by slow degrees. These are the operations of traders, in times when there is a fluctuation m the balance of the trade of a country ; that is to gay, in times when the balance is sometimes favourable, and sometimes not. At such times, the true influence which trade ought to have upon prices is never exactly known, but to the merchants; who seldom fail to profit of their knowledge, instead of communicating it for the benefit of the society. But this is not the case when the balance of trade is quite overturned, that is, when it remains for a long time against a nation, without any favourable vibration; as we shall pre- sently explain, We have seen how, by the changes in the ba- lance of trade, the price of bullion is made suscep- tible of a variation in its value equal to the price of coinage; and we have pointed out the principle which confines the variation within these limits; to wit, the value of the coin as a metal, prevents bullion from rising higher than its full denomina- tion as money; and the mint price, preserves it from falling lower than what the mint is willing to give for it. We have observed how merchants may profit of such variations, and how they obstruct the ope- PRINCIPLES OF MONEY. 119 ration of principles upon the rise and lull of prir We now proceed to another chain of causes, which tend greatly to destroy the due proportion of va- lue between coin and nierchandi/e. This with justice may be put also to the account of the imper- fection of the mctiils iii performing the functions of money of account. First, then, it will be agreed that it is far easier to make a price ri-e, than to make it fall; I be- lieve 1 might take this for granted, without giving the reason for it. At all times, a price which ha* long >tood low. i'1-uy hi- made to ri^e; hut it is ne.\t to impossible to make a price v\hirh has long stood high, to fall in the same manner. Here is the reason Let me suppose the yard of an extensive manufacture which occupies a number of hands, to be worth 10O grain-. The workmen here live nearly at the same expence, and I suppose them to live upon the profits of their work, when they sell at 1OO grains a-yard. The price rises to 120; here is an additional profit of 2O grains. If a sudden turn should diminish the demand which raised the price of the merchandize, it will fall to the old rate without much difficulty; the workmen will consider the 20 grains addition as a precarious profit upon which they cannot reckon ; but let the price of 1 2O grains remain uniformly for some years, the 20 grains will cease to be precarious profits ; they will consolidate, as we have called it, into the value of the merchandize; because the workmen, hy having 12O PRINCIPLES OF MONEY. long enjoyed them, will have bettered their Avay of living; and as they are many, and live uniformly, any thing which obliges them to retrench a part of their habitual expence, is supposed to deprive them of necessaries. This is sufficient, as a hint, upon a subject which branches out into an infinity of different relations, not at all to the present purpose. But it is very much to the purpose to shew how the imposition of coinage must on many occasions, have the effect of attaching the price of commodities to the denomi- nations of the coin, instead of preserving them at- tached to the grains of the metals which compose them, as in theory they ought to be. When wars, e. g. occasion a wrong balance to continue for many years against a nation, this keeps coin at par with bullion for a long time. Is it not very natural, that during this time, manufacturers should estimate their work according to the coin, and not as formerly, according to the bullion ? The consequence of this is, that when peace returns, and when coin begins to rise above the price of bullion, the manufacturers stick to the denomina- tions of the coin, instead of descending in value (as they ought to do by theory) along with the bullion. What is the consequence of this? It is that the prices of manufacturesjfor home-consumption, and of commodities peculiar to the country, stand their ground; that is, prices do not descend, and cannot be brought down by merchants. PRINCIPLES OF MONEY. But as to manufactures for exportation, which are not peculiar, but which are produced by diffe- rent countries, the prices of these are violently pulled down by the force of foreign competition; and the workmen are obliged to diminish them. The imposition of coinage, therefore, does not raise the price of such merchandize as is in common to several nations, and which trade demands from each, without any competition with the natives; that is to say, the prices of them stand as formerly with respect to strangers ; because, though the prices be made to sink at home with respect to the bullion- value of the coin, yet strangers being obliged to pay for them in those coins, are also obliged to pay an advanced bullion-price for the coin, in order to pro- cure them. This is the price of coinage. On the other hand, with respect to such commo- dities as are peculiar to the country, the prices once raised and continued high for some time, attach themselves to the denominations of the coin, and rise along with it. R 1 22 PRINCIPLES OF MONEY. CHAPTER II. Concerning the Influence which the imposing of the Price of Coinage, and the Duty of Seignorage in the English Mint, will have upon the Course of Exchange and Trade of Great Britain. JLN the preceding chapter we have examined a very nice theory, in which such a number of circumstan- ces depending upon facts have heen combined, that little stress is to be laid upon several conclusions which have been drawn from it, unless they be ap- proved by experience. Let the best workman in London make a watch, he cannot depend upon its being a good one, until it be tried; and when that is done, the application of his theory will enable him to discover all the de- fects and irregularities in the movement. It is just so in political matters: the force of theory is not sufficient to form a good plan ; but it is useful for discovering many faults which could not have been foreseen. It is impossible to lay down a distinct theory for the rise and fall of the prices of all sorts of commo- dities in a nation such as Great Britain. All that PRINCIPLES OP MONEY. 123 can be said with certainty, is, that competition on the part of the consumers Trill make them rise., and that competition on the part of the furnishers will make them fall. Now, the competition among the furnishers may he reduced to theory; because it is fixed within determinate limits, which it cannot ex- ceed, and is influenced by this principle, viz. that when profits are reduced to the minimum, that is, to the exact physical-necessary of the workman, all competition among furnishers must cease. But the competition among consumers is fixed within no determinate limits; some demand to sa- ti-fy physical want*; others those of vanity and ca- price. Most inland demand for consumption is of this kind, and consequently it is impossible to fore- see what effect the imposition of coinage will have upon the prices of many commodities. Perhaps they will fluctuate with bullion; perhaps they will adhere to the denominations of the coin. Experience alone can bring this matter to light. But with regard to such commodities as are the object of foreign trade, prices are influenced by cer- tain principles on both sides. Merchants, not the consumers themselves, are the demanders here. Neither vanity or caprice, but profit alone, regu- lates the price they offer. Thus it is, that as all competition among furnishers must cease upon the reduction of profits to the minimum, so all demand from merchants, who in this case represent the con- sumers, must cease, so soon as prices rise above 124 PRINCIPLES OF MONEY. what they can afford to give, consistent with their minimum of profit upon the sale of what they buy. The degree, therefore, of foreign competition will alone regulate the prices of several exportable com- modities, and of consequence the profits of such as are employed in them, as has been said. This pre- mised, we come to examine the influence which the imposition of coinage, will have upon the course of exchange and trade of a nation. In speaking of exchange, as far as it influences the decision of this question, we must throw out all ex- traneous circumstances, and endeavour to reduce it to the plainest theory. When one nation pays to another the price of what they buy, the interposition of bullion is una- voidable; and the whole operation consists in com- paring the value of coin with the value of bullion in the one and in the other nation. Suppose France to owe to England 1000 pounds, sterling; what regulates exchange here is the price of bullion in Paris and in London. The French merchant inquires first, what is the quantity of bul- lion in London, which at the time is equal to the sum he wants to pay? And next, what this quantity of bullion will cost him to procure in the Paris mar- ket? Upon this the par of exchange ought to be re- gulated. Whatever is given more than this quan- tity is the price of transportation, when the balance of trade is against France. Whatever is given less, PRINCIPLES OF MONEY. 125 may be considered as the price of transportation, which the English would he obliged to pay, were the halance against England, if the French mer- chant, by sending hi.s paper to London, did not save England the trouble, by diminishing so far the balance against it: and of this France profits, until the balance turn to the other side. Now let us leave the price of transporation out of the question, and consider only how the imposition of coinage, by affecting the price of bullion, may influence the course of exchange. We ha\v si-en how the imposition of coinage renders the price of bullion susceptible of a varia- tion in its price, equal to the amount of the imposi- tion. Wherever, therefore, coinage costs nothing, there bullion and coin must always be of the same value. The bullion, therefore, in France, may vary 8 per cent, in its price, according to the balance of trade: the bullion in England must be supposed invariable, let the balance stand as it will. According to this representation of the matter, may we not say that bullion in England is always at the highest price it ever can be in France, since it is at the price of the coin? Is not this the condi- tion of France, wheirthe balance of her trade is the most unfavourable it possibly can be? Is not this an advantage to France; since France can buy the bullion with which she pays her English debts cheap in her own market, and can sell it dear 126 PRINCIPLES OF MONET. in that of her creditor? Is there not a profit in bny- ing an ox cheap in the country, and selling him dear in Smithfield market? .Now let me consider the difference there is be- tween the trade of France and that of England as matters now stand; and what would be the case, were the regulations of the mint the same in both countries. Suppose France buys in England for 10OO pounds of her guineas in Virginia tobacco ; and that Eng- land buys in France for 1000 pounds of her louis cTors of Bourdeaux claret; is not this called par? Will not France pay her debt to England with 100O pound of gold bullion? Whereas England must pay 1O8O pounds to France; because 100O pounds weight of her louis d'ors, is worth in France 108O pounds of any bullion of the same standard. The 1 000 pounds then compensate the 100O pounds; the 8O pounds over, must be sent to France, and the carriage of this quantity only, ought to be paid for according to the principles of exchange. Here is evidently a balance of trade against England of 8 per cent, above the real par of the metals. Will any body say that the 8 per cent, is paid for the transportation of 80 pounds of bullion due? Certainly not. Now if the English should declare that they, for the future, would coin neither gold or silver bullion for any person, but at the rate of 8 per cent, below the value of the coin; and if it be true, that this re- PRINCIPLES OF MONEY. 1 2/ gulartion would have the effect of sinking the price of bullion, on many occasions to 8 per cent* below the coin; in this case, would not the English and the French acquit their debts of the 1000 pounds weight of their respective coin upon the same con- ditions? If it shall l)e found, that English draughts on Par- ris, or French remittances to England, shall at any time occasion bullion to rise in the market of Paris above the mint price, will it not be allowed that such a circumstance demonstrates that the balance of trade is then in favour of England? If at diat same time it shall be found, that -exchange is against England, will it not be a demonstration of the truth of what I have here suggested a-* a question worthy of examination? For if the balance of trade be against France, so as to make her buy bullion to send to England, this is a proof that she owes England a balance; and if at the same time the English be paying above the intrinsic value of the metals (in their respective coins) in what they owe to France, this additional value cannot be paid by England as the price of exchange, or to pay for the transportation of their bullion, but to pay the French creditors the addi- tional value of their coin above the price of their bullion. May we not also conclude, that in a kingdom such as England, where coinage is free, the course of exchange is no certain rule for judging of the ba- 128 PRINCIPLES OF MONEY. lance of trade with France ; but only of the value of French coin above French bullion? All authors who have written upon exchange, represent the advanced price given upon bills above the intrinsic value of the coins, to be the price of carriage and insurance, &c. in which case exchange, no doubt, may mark the balance of trade; but if an advanced price must be given in order to put bullion into coin, or in other words, if the inetals in the coin be worth 8 per cent, more than any bullion of the same fineness, is it not evident that a nation may be draw- ing a great balance of bullion from another, al- though she be, at the same time, paying 8 per cent. above the rate of bullion, in the sums she re- pays to the nation which is, her debtor upon the whole; .that is to say, although she be paying above the real par of exchange, as it is commonly calculated. If it be here objected that this cannot be the case, because when the balance of trade is against the nation which imposes coinage, their com falls to the price of bullion : I answer, that a balance may be against such a nation, without producing so great a fall in the coin. Coin is reduced to the par of bul- lion when the balance is at the height only against a nation, and when it has remained so for a long time. Who would give coin at a discount of 8 per cent, if there were a prospect that in a few days, weeks, or even months, it was to rise to its former value? PRINCIPLES OF MONEY. 129 These are the reasons which engaged me, in a former chapter, to lay it clown as a rule, that trad- ing states, should endeavour as nearly as possible, to observe the same regulations with their neigh- bours, in every thing relating to their coin. From what has been said, it appears that the com- inon method of calculating the real par of exchange is not correct, since it is calculated by comparing the quantity of fine bullion in different coins, and at- tributing the difference between the bullion paid for the paper, and the bullion received in payment of it, as the price of transportation. This, I say, is by no means correct; nor is it possible it should be so, unless bills of exchange were specified in the weight of fine bullion, instead of being specified in the de- nominations of the coin. An example will make this plain. Were a merchant in London, to ask of another who has a correspondence in Paris, to give him an order for a hundred yards of Abbeville cioth, and to offer him, in exchange, the same quantity of cloth, of a worse quality, would not the merchant to whom the proposal is made, immediately calculate the value of both commodities, and demand the difference of the value between what he was to give, and what he was to receive? Could ever this diffe- rence be considered as any thing else than the dif- ference between the real worth of the commodities? But were they to exchange at London an hundred pounds of fine silver bullion, for the same weight at S 136 PRINCIPLES OF MONEY. Paris, the proportion of the metals being supposed the same in both places ; then if the merchant de- manded one grain more than he was to give, it must be upon the account of transportation; be- cause, weight for weight, there is not the smallest difference between the fine metals. Bills of exchange, then, being all conceived in denominations of money of accompt, realized in coin; and coin altering in its value with regard to bullion; it is evident that the real par cannot be computed upon the bullion alone contained in the coin. By the balance of trade, I here constantly under- stand a certain quantity of bullion sent by one na- tion to another, to pay what they have not been able to compensate by an exchange of their com- modities, remittances, &c. and not that which they compute in their bills as the difference between the respective values of coin and bullion in both coun- tries. How, then, is the real par of exchange to be re- gulated, so as to determine which nation pays a ba- lance upon the exchange of their commodities? I answer To determine this question, let bullion over all the commercial world be stated at 1OO, and let coin in every country be compared with it according to the current price in each country. In England, for example, (were all disorders of the coin removed), coin must always be at 100. In France, when the balance is favourable, at 108.2/. PRFN'CIPLES OF MONEY. 131 In Germany, (were the Emperor's late regulation with Bavaria to be made general), at 101. And so forth, according to the price of coinage imposed every where. These advanced values above the 1OO, never can rise higher; and the more the ba- lance of their respective trade is unfavourable, the nearer they will severally come to 1OO; below which they never can fall. These fluctuations will constantly be marked in exchange; because all cir- cumstances are exactly combined by merchants but the balance of the trade, and the degree of it, will only be marked Inf the degree in which the ex- change varies from these proportion*. Let me suppose the trade of France to be favour- able upon the whole, by great commissions from Cadiz, and bullion at the same time to be carried to the mint at 8 per cent, below the price of coin. Let me suppose, that upon all the trade of Eng- land with France, there shall be, at this time, a ba- lance of 2 per cent, sent from France to England in bullion; and upon the trade with Germany a ba- lance of 1 per cent. I say, that the par of exchange between England and France is 8 per cent, against England; and that the par of exchange between Germany and Franco is 7 per cent. The course of exchange, therefore, if it be a rule to judge by, ought to mark 6 per cent, against Eng- land; which I say is 2 per cent, in her favour: and the exchange with Germany ought to mark 6* per 132 PRINCIPLES OF MONEY. cent, against Germany; which I call 1 per cent, in her favour. An example will make this plain. Suppose English guineas, German carolins, and French louis, to be all of the same weight and fine- ness ; I say, the real par in the example we have stated is between Paris and London, 10O louis are equal to 108 guineas; because the 108 louis are worth 100 guineas in London, and 108 guineas are worth no more than 100 louis in Paris. Again, between Paris and Francfort, 100 louis are equal to 107 carolins; because 108 carolins are worth at Paris 100 louis; and 1O1 louis at Francfort are worth 10O carolins; consequently, the diffe- rence between 107 and 1O8 is the real par, to wit, 100 louis for 107 carolins. Next, as to the par between London and Francfort, here 10O carolins equal 101 guineas; because 1OO carolins in London are worth 10O guineas; and 101 gui- neas at Francfort ire worth no more than 100 ca- rolins. Now in the ordinary way of reckoning the real par, the 100 louis, 100 carolins, and 100 guineas,, are all supposed to be of the same value, in the three markets; and the difference between this supposed value, and what is paid for it, is supposed to be a loss upon trade. The general rule, therefore, I think, is, to settle the real par of different coins,, not according to the PRINCIPLES OF MONEY. 133 bullion they contain, but according to the bullion they are worth in their own market at the time. If 1000 pounds weight of guineas can pnroha.se at London 100O pounds weight of standard bullion; and that 1000 pound*- of the ^;ime weight of loins can buy at Paris 1080 pounds weight of the same standard bullion; then the 1OOO pounds weight of guineas is at the real par with 925 -rVA pounds weight of the louis, and not worth 1OOO, as is com- monly supposed. If the doctrine laid down in this chapter be found solid; if no essential circumstance has been over- looked, which ought to have entered into our com- binations (points left to the reader to determine), then we may conclude First, That the course of exchange, in the way people take to calculate the real par, is no rule for judging of the balance of trade. Secondly, That the great duty laid upon the fa- brication of the French coin, either deceives the English nation, and makes them conclude, from the course of exchange, that their commerce with France is extremely disadvantageous: or, if it be really disadvantageous, 'that it is the imposition of a duty on coinage in the French mint which oc- casions it. As to the question, whether from the course of exchange, and because the French crown is com- monly paid with thirty-two pence sterling, it may be concluded that the balance of trade is against 134 PRINCIPLES OF MONEY. England, we have decided that it cannot. If there be no other objection against the trade of France but this loss upon exchange ; and if it be true that this is no proof of trade's being against England, but the consequence only of her free coinage; then it will follow, that England may lay as many re- strictions, duties, and clogs, upon the French trade, as she pleases, and may even reduce it to nothing without ever removing the cause of her complaint; while at the same time she may be ruining a trade, which pays her upon the whole a great balance, and npon which trade she has it in her power by fol- lowing a different system in her mint, to render her exchange as favourable as with any other nation in Europe. This point seems to be a matter of no small im- portance to England ; since (from a mistake in point of fact, into which she is led from a delusive appearance) a very lucrative trade, when considered by the balance it produces, may, upon false princv- pies, be proscribed as disadvantageous. PRINCIPLES OF MONET. 135 CHAPTER III. fs the Loss whuh the Course of Exchange marks on the Trade of Great Britain with France real or apparent ? UESTIONS are here proposed which I do not pretend to resolve; all I aim at is to discover how they may be resolved. If this inquiry shall prove an incitement to men of better capacity, to review the same subjects, who have more extensive combinations more experience, and better information as to facts, in this respect it has some degree of merit. I answer to the question proposed, that if the im- position of a duty on coinage in England would have the effect of rendering her trade with France jnore lucrative, then the loss marked by the course of exchange is real, at least in part; if otherwise, it is only apparent. What makes the commerce with any country lu- crative, is the balance paid upon the exchange of their commodities. What regulates the quantity of commodities taken from any country, in the way of trade, is the wants PRINCIPLES OF MONEY. of the country demanding ; and what sets the ba- lance even, is the reciprocal wants of the other country* Nations do not give up correspondence with their neighbours, because these do not accept of merchandize in exchange for merchandize, but because they find their advantage in supplying their wants upon easier terms elsewhere. Every merchant seeks to sell dear; and the dear- er he can sell, the greater is his profit: that mer- chant, therefore, must thrive most, who sells dear- est, and who at the same time can afford to sell cheapest. If an imposition on coinage shall enable England to sell dearer, withoiit depriving her of the advan- tage of being able to sell as cheap as at present, then it will folio \v, that an imposition on coinage will be advantageous. If it shall lay her under a necessity of selling dearer, and deprive her of the possibility of selling so cheap as formerly, then the imposition of coinage will be hurtful. These principles premised, as a foundation for our reasoning, let us first consider the influence of coin- age upon the profits on exportation; and then pro- ceed to inquire into the influence it has upon articles of importation. As to the first, I must observe, that England, as well as every other country, has several articles of exportation, which are peculiar to herself, and others which she must sell in competition with other na- tions. PRINCIPLES OF MONEY. 137 The price of what is peculiar is determined by the competition of those who furnish it at home, and the lowest price is regulated by their minimum of profit. The price of what is common, is regulated by the competition of those who furnish from dif- ferent countries. If the prices of what is peculiar shall remain, as before, attached to the denominations of the coin, after the imposition of a duty on coinage, the com- petition of those who furnish will remain the same as before; because prices will not vary; but the stranger, who buys, must nevertheless pay an ad- vanced price for such merchandize, because the na- tion's coin, with which they are purchased, will be raised in its value with respect to bullion, the only .price he can pay with. If the consequent rise in the price of exchange should diminish the foreign demand for such Eng- lish goods, by raising the price of them in the fo- reign market, this at least will prove that coinage does not make prices fall proportionally at home; because if they had so fallen, strangers would buy as cheap as formerly. If the imposition of coinage, therefore, be said to raise the price of English merchandize in foreign markets, it must be allowed that it will not raise the value of the pound sterling at home, by sink- ing the value of commodities: that is to say, the prices of commodities will adhere to the denomi- nations of the coin; and the coin bearing an advan- T 138 . PRINCIPLES OF MONEY. ced value, above what it bore formerly, strangers must pay it. But will not this diminish the demand for English goods? Not if they be peculiar to England, as we here suppose. But allowing it should, will not this diminution of demand sink the value of the English coin, by influencing the balance of trade ? If so, it will render remittances to England more advan- tageous: consequently, it will recal the demand. The disease, therefore, in this case, seems to draw the remedy along with it. Now what appears here to be a remedy against a disease, is at present, as we may call it, the ordi- nary English diet, since it is sinking the coin to the price of bullion. If, therefore, the having of coin always as cheap as bullion, can be any advantage to trade, the nation is sure of having it, whenever the balance is unfavourable, notwithstanding the imposition of a duty on coinage. Trade has its vicissitudes, and all nations find, at times, that their neighbours must depend upon them. On such occasions, the balance of their commerce is greatly in their favour. Is it not, therefore, an advantage to have a prin- ciple at home, which, upon such occasions, is ca- pable of diminishing with us the value of that mer- chandize (bullion) which strangers must give as the price of all they buy ? On the other hand, the same principle seems to flv to the assistance of trade, when the balance be- PRINCIPLES OF MONEY. cdines unfa von rable, as it virtually diminishes to strangers the price of all our commodities, by rais- ing in our market the value of that commodity (bullion) which they must give as the price of what they buy. "J'h is may suffice, in general, upon exportation. I now pass to tbe second part of this operation, to wit, the influence which tiie imposition of coin- age has upon the interests of trade, when the ques- tion is to purchase the commodities of other coun- tries. 'Jliese operations are quite different, and in examining this theory they mus^t he carefully distin- guished. We have- seen how the imposition of coinage, during the favourable balance of trade, procures to the nation an advanced price upon the sale of her exports. As long as it remains favourable, it must produce the same good effect with regard to her im- portations, by sinking at home the price of the bul- lion with which she must pay for them. Bullion must become cheap in the English market, in pro- portion as the balance of her trade is favourable, and in proportion as it is cheaper there than in other nations (with respect to their respective coins) in the same proportion the nation has an advan- tage in paying what she buys, or in employing her bullion for extending the fund of her own commerce. Upon the other hand, should the balance of her trade turn against her, her bullion rises. This ren- ders the price of all foreign merchandize dearer 140 PRINCIPLES OF MONEY. to the importers than otherwise they would be; because they must pay them in bullion. But this loss is at present constantly incurred; and when in- curred, is not national) the national loss is upon the balance of the trade; but whether this balance be paid in bullion at the mint price, or in bullion at the price of coin, the balance of the trade is just the same. Now if this wrong balance (which I here suppose to proceed merely from the imports exceeding the exports upon trade in general) ren- ders the purchase of foreign commodities dearer to the merchants, without costing more to the nation ; is not this so far advantageous, that it discourages importations just at the time they ought to be dis- couraged, and thereby may tend to set the balance even again? CHAPTER IV. Of the different Methods of imposing coinage; and of the influence they respectively have upon the value of the Money-unit, and upon the domestic interests of the Nation. L HERE are two ways of imposing coinage; one by positive law, and by the force of that authority which is every where lodged in the legislature; the PRINCIPLES OF MONEY. 141 other, which is more gentle, renders the imposition almost insensible, and is effectuated by the influence of the principles of commerce. I shall now give examples of the one and of the other method; I shall point out some of the conse- quences which attend both ; I shall chalk out a rough draught of the principles, which may be applied in forming a plan for laying on this imposition in the English mint: and last of all, I shall shew how the experiment may be made. Were the government of England to call in at pre- sent, all the coin in the nation, in order to be recoin- ed, and to fix the mint price of it, as gold and silver standard bullion, at per cent, below the value of the new coin, this would be imposing coinage by positive law; and being an arbitrary operation upon the coin of the nation, could not fail of influencing the value of the money-unit. Were government, on the other hand, to give or- ders to the mint, to pay for gold and silver bullion for the future, no dearer than per cent, below the coin, this Would be no arbitrary operation on the coin of the nation, and would not, as I imagine, influence the value of the money-unit, although it might sink the price of bullion, by the influence of the principles of commerce. The different consequences of these methods of imposing coinage are now to be explained. Were England during a war, or at any time when the balance of her trade is unfavourable,, to impose 142 PRINCIPLES OF MONET. coinage by law in the manner proposed, the consev quence would be, that all the specie in Great Britain, or at least a considerable part of it, might possibly be melted down, and sold in the market for bills of exchange. In a nation of trade, where credit is so extensively and solidly established, there wonld in such a case, be no difficulty to find an outlet abroad for all the metals in the kingdom; because every thing would then be considered as profit, which was less than the per cent, loss in carrying the coin to the mint. If it be objected, that this plan has been many times executed in France, particularly in 1709 and 1726^ without any such inconveniences; I answer, a I have done upon other occasions, circumstances are to be examined. Upon such occasions, in France, the coin is or- dered to the mint, upon penalties against those who shall not obey; melting down is strictly inquired in- to, and severely punished; all the roads which lead to foreign countries are beset with guards, and no coin is suffered to be exported ; all debts may be de- manded in coin; and all internal commerce is car- ried on with specie. Under these circumstances, it is very evident, that those who have coin or bullion, must either carry it to the mint, or bury it : there is no middle course to be followed. Let me here observe by the bye, how frequent it is to see people blame the greatest ministers rashly, PRINCIPLES OF MONEY. . 143 \ and impute to them the most absurd opinions con- cerning the most Dimple matters. How much ha\e the ministers of France been laughed at, for pre- tending to forbid the exportation of coin, in order - to pay the balance of their trader They did not for- bid the exportation of the coin for tbc paying of their debts: on the contrary, this nation has some- times had its bankers, whose business it was to scud coin to Holland, for this purpose. If the ridicule U turned against those states, who forbid the melting down and exportation of roin, where coinage is tree, I mu>t aNomake answer, that there the prohibition is laid on, to save to govern- ment the expeiice of perpetually recoining what is melted down, or of coining the foreign specie im- ported in return for that of the nation which has been exported without necessity. Let us next examine the consequence of imposing coinage by law, when the plan is so laid down (no matter how) as not to be frustrated by the total de- 'sertion of the mint. Is it not evident, from the principles laid down in the first chapter, that, in this case, the value of the coin must rise, not only with respect to bullion, but w r ith respect to every commodity: or, in other words, that the prices of commodities must fall uni- versally, with respect to the denominations of the coin? For who will pay the same price for a com- modity, after he has been obliged to pay per cent, to purchase the price with which he must 144 PRINCIPLES OF MONEY. buy? But the moment the great operation of the general coinage is over, and that trade begins to work its former effects, while the balance of it is supposed to remain unfavourable, all prices will re- turn to their former rate, with regard to the deno- minations of the coin, by the operation of another principle. The new coin procured at so much cost, will then fall to the price of bullion; that is to say, all the price paid for coinage will be lost, and consequently money will return to its former value; or, in other words, prices will be made to rise to their former height; because then nobody will be obliged to pay per cent, to procure the price. Now, it is the effect produced on prices by the return of a favourable balance, when coin regains an advanced price above bullion, by the influence of commerce, which my theory does not reach to. I cannot discover a principle, which can force the prices of articles of inland consumption to fall and fluctuate with the prices of bullion ; because I find them too closely attached to the denominations of the coin ; and that foreign commerce has not suffi- cient influence upon them. As this combination is beyond my reach to resolve, I leave it to the de- cision of experiment. Let us next examine the consequence of impo- sing coinage by the influence of the principles of commerce. The method here is to leave every one free to do with his coin, or with his bullion, what he pleases. PRINCIPLES OF MONEY. 145 If people incline to melt down or export the coin, they may have entire liberty to do it: no penalty need to be imposed; the expence of procuring new coin, will he sufficient to stop the practice. Suppose then (as an example) that the mint price of fine bullion should be fixed at 8 per cent, below the coin in England; What principle could oblige people to carry bullion to be coined? I answerWhen the balance of trade is favour- able for England, that balance must sooner or later be paid in bullion. If trade still continue favour- able, after the first balance is paid to England, what use can those who have the bullion make of it, if there be no demand for it to work it into plate? To export it, by employing it in trade, does not remove the difficulty, because, while the ba- lance stands favourable, export as much as you will, more bullion must enter than it is possible to export in the way of trade; for we do not suppose that in exporting it, it is to be given away gratis. The bullion, therefore, not being demanded for exportation; not being permitted to pass current for money; and not being demanded for making into plate ; must be employed so as to be profitable to the owner in one way or other. For this pur- pose it must be lent, or employed within the coun- try for purchasing some sort of effects which pro- duce an income. For this purpose the bullion must be coined, in order to render it capable of circula- tion, and of becoming price. U 146 PRINCIPLES OF MONEY. At all times, therefore, when in a country there is bullion, not demanded as such, the proprietor carries it to the mint, he sells it at the mint price; and as this mint price if stated at 8 per cent, below the price of coin, he gives it for the price he can get for it: this he does without regret, because, if next day he should want to change his coin into bullion again, he will find it in the market at the same value. Both theory and experience, over all Europe, where, England excepted, coinage is imposed, prove, that bullion is carried to the mint, and sold below the price of coin, weight for weight of equal fineness. By fixing the mint price at 8 per cent, below the value of the coin, it is not necessary that this price be made invariable: a power may be lodged some- where, by the state, to make deviations from the ordinary mint price. A war breaks out; large quantities of coin are exported; specie becomes scarce: May not the state, at such a time, deliver coin to the mint at the current price of the bul- lion? If peace return and trade become favourable, the mint may then be ordered to sink its price, in proportion to circumstances. In short, the mint may receive bullion at different prices, at different times, without occasioning the smallest confusion by such variations in the intrinsic value of the cur- rent specie, which must constantly be the same. It is of no consequence to any person who receives it, PRINCIPLES OF MONEY. 147 whether the coinage cost nothing, or whether it cost 8 per cent. By this method of imposing coinage, all the ad- vantages reaped by France may be reaped by Eng- land. The bullion will be allowed to fall as low as with them, when trade is favourable. If it rise up- on a wrong balance, the mint need not be stopped in case coin be found wanting for the uses of the state; and when that necessary demand is satisfied, the mint price may be reduced again. The prices of commodities, certainly, will not be affected imnediately by the imposition of coinage in the way it has been proposed to lay it on; but 1 do not say that, upon some occasions, they may not be affected by slow degrees. When the balance of trade at any time has stood long favourable for England; When the coin has remained loiiij. 1 considerably above the price of bul- lion; and when, consequently, the mint has been well employed; then the value of commodities, as has been said, may become influenced by the ope- rations of foreign commerce, and be sunk in their price. Yet even here, this consequence is by no means certain; for this reason, that what turns the balance of trade in favour of a nation, is the demand which foreign markets make for her commodities: now this demand, as it raises the value of her coin above her bullion, so it raises the price of her com- modities, by increasing foreign competition to ac- quire them. 148 PRINCIPLES OF MONEY. " CHAPTER V. How an Experiment may be made to discover with certainty the real Effects of the Imposi- tion of Coinage, W; E have dwelt very long upon this part of our subject, and after all our endeavours to elucidate the principles which ought to decide whether the impo- sition of coinage will raise the value of the pound sterling, in a kingdom which, like Great Britain, is in a mercantile correspondence with nations where this duty is introduced, we have still been obliged to leave the final decision of the question to an ex- periment. By that alone it will be clearly discovered, whe- ther coinage will have the effect, first, of sinking the prices of commodities, to the prejudice of ma- nufacturers; secondly, of raising the price of the pound sterling, to the prejudice of all the classes of debtors within the nation; and thirdly, of hurting trade, by putting England under the necessity of selling dearer, without being able to sell as cheap as before: or whether commodities will remain at their former prices; the pound sterling at the same value; PRINCIPLES OF MONKY. mid England be enabled to .sell dearer to foreigners, when her commerce is favourable, without being obliged upon other occasions to sell cheaper than at present. J shall no\v give a hint concerning a proper method of making the experiment. Suppose peace* to be restored, and a balance <>1 trade favourable to England; that government shall take the resolution to set about the reformation of the coin; that they shall publish the plan of refor- mation, three years before it be intended to com- mence; that they shall make a change in the mean time upon the regulation of the mint, by ordering all silver coin, and all guineas except those of George II. to pass by weight; that shillings shall be ordered to be coined at 6' 5 in the pound troy; the mint price remaining as at present with regard to the gold, and raised to 6'5 new pence per ounce, with regard to the silver. So soon as there shall be a few millions of silver coined free, let the mint price both of gold and silver be diminished; suppose 4 per cent. This, I imagine, will in a short time give an advanced price to coin, and sink the price of bullion; which will have the effect of recalling all the guineas of the late King, from Holland and Flanders; because coin being then dearer than bullion in England, Written in the year 1761. 150 PRINCIPLES OF MONEY. people will choose to send over current guineas to pay their English debts, rather than to remit bills of exchange. In whatever way the experiment be made, by the imposition of the price of coinage, a great ex- pence will be saved to the state, namely, the expence of the mint. The national coin will be kept at home, and, when exported, will be preserved from the melting pot. This is the case with the French coin. Why are louis d'ors worth as much as guineas in many foreign countries? It is evident that they are not intrinsically worth so much by 4i per cent. but they are virtually so in the eyes of money-job- bers; because, being exported from France while coin is fallen low by a wrong balance of their trade, they still retain an advanced value, for this reason, that when sent back, upon a revolution in trade, they become better than bullion, by all the ad- vanced price of the French coin, at a time when their balance becomes favourable; and for this reason they are sought for, and are paid for in pro- portion: whereas any bullion, or any coin whatso- ever, is as good to send to England as her own proper specie. It is this which occasions the guineas to be melted down without the smallest regret. It would be a curious inquiry to examine the proportion of money coined in England and in France, and to compare the quantities coined, with the quantities in existence. People commonly esti PRINCIPLES OF MONEY. 151 uiate the wealth of a nation by the quantity of its coined money. Some go farther, and imagine that the quantity of the coined money is the representa- tion, and even the measure of its wealth. I cannot be of this opinion, for reasons which I have given in another place; but I shall only observe here, that coin, like every other thing, is made in propor- tion to the occasions people have for it. The more equality there is between industry and consumption in any nation, the less coin they have occasion for, in proportion to the alienations they make; the more a nation is given to penury and hoarding, their occasions for coin are proportion- ally greater. An example will make this plain. Suppose two markets A and B in the same country, where paper does not circulate; that 1000 people come to the market A with an intention to sell wliat they have, in order to buy what they want; that 500 resort to the market B with an intention only to sell, and 500 others only to buy. In the last example, it is evident, that the there must be brought to market, in specie, the price of all the goods offered to sale, or else a part must remain unsold: but in the first case, a much smaller proportion will suffice; be- cause no sooner has any one sold the goods he has, than he buys with the money he takes, what he has occasion for; so that the same money circulates from hand to hand. In proportion, therefore, to the trucks of com- modities for commodities, money is the less neces- 152 PRINCIPLES OF MONEY. sary; and in proportion as people sell in order to realize, coin is the more necessary. When hoard- ing was in fashion; and when lending upon interest was little known, had alienation been as frequent as at present, the quantity of coin required must have been much greater. At present nobody hoards, where lending at interest is lawful, except in nations where credit is precarious. Hoarding from this motive is more hurtful than from any other; because, at the same time that by preventing the lending of the coin of the nation, it deprives the public of a cir- culating value, it also prevents bullion from being lent by neighbouring states, and from being earned to the mint by those who have it at home. Whereas hoarding from avarice has none of these incon- veniences: and when credit is good, there will al- ways be found coin sufficient; because a demand for it will always procure it. Why is it thought by some that there is so little coin in England, in proportion to what there is in France? Does any man imagine that this is a mark of poverty? By no means. Let the government of England proscribe the currency of paper money, the coin will quickly return ; because then it will be demanded. But at the present, the paper sup- plies its place, and so it goes abroad in c-rder to gain more; whereas in France it remains at home, and produces nothing. The wealth of a nation can no more be estimated by the quantity of its coin, than the wealth of private people, by the weight of their purse, , PRINCIPLES OF MONEY. 1 53 CHAPTER VI. MUdtboMbtfl fi/fe.tf/'o/?.v <*W Ohwrvatlons concern- ing tJie Doctrine of Money and Coin. A HE use, therefore, of a miscellaneous chapter, after the deduction of the general principles is over, is to serve as an exerci-e upon them. This is done by introducing questions which may tend to illus- trate or explain the matters already treated of, and which have not heen introduced in the hotly of the work, for fear of rendering comhinations too com- plicated, and of drawing the attention from the main object of inquiry. When a particular appear- ance, also, seems to contradict a known principle, this appearance may here he analized, and the pe- culiarity of the case pointed out, and ranged under the principle which influences it. Numbers of ob- jections also occur to readers of such inquiries, and which even naturally occur to the author himself, although he be obliged to take no notice of them at the time, for fear of interrupting his subject. These may properly find a place in a subsidiary chapter. X 154 PRINCIPLES OF MONEY. QUEST. 1 . The first question I shall propose for illustrating this subject shall be Whence it comes to pass that the doctrine of money is so extremely difficult and involved? ANSW. This I ascribe chiefly to the introduction of a money-jargon, employed by people who have had the management of mints, or who have been practical merchants, without knowing any thing of the theory of their business. As long as money went by weight, and was con- sidered as gold and silver bullion, the whole doc- trine of it remained clear and intelligible : but the introduction of a numerary value, or denominations of money of accompt, sometimes attached to one quantity of the metals, sometimes to another; have both introduced an unintelligible language, and have really involved the subject in so many extra- neous circumstances, that, when we consider every thing, the perplexity is not so much to be wonder- ed at. I shall now endeavour to reduce these perplexities under some general heads. The first is, confounding ideas quite different in themselves. The terms gold and silver, money of accompt, coin, bullion, and price, are often under- stood and made use of as synonimous, although no things can be more different. The terms gold and silver, should convey to us no other idea than that of pure physical substances. That of money of * accompt represents an invariable scale for measuring value. PRINCIPLES OF MONEY. 155 Coin, conveys the idea of the public authority as- certaining the exact proportion of tine and alloy in a mixed metal, and the realizing, in a determinate weight of it, the invariable .scale of money, some- times correctly, sometimes incorrectly. Bullion carries the idea of certain determinate mixtures of the metals, commonly ascertained by some public stamp or other, and drawing their va- lue exactly from the proportion of the fine metals they contain, the workmanship being considered as of no value. Price, again, when considered as consisting in. coin, is a more complex idea still. In it are com- prehended the value of the metal*; the authority of the stamp for the currency; the actual value of it as a metal; and the common and universal equivalent of all things alienable. The ideas, therefore, of gold and .si leer, of money, of coin, of bullion, and of price, are all different; they are commonly confounded, both in speaking and in writing: from this arises the first cause of perplexity. The second is owing to the common method of estimating the value, and the proportions between gold and silver; com and bullion; money and mer- chandize. The terms usually employed to express such relations are, rising and sinking, or the like. People employ these terms, without previously agree- ing upon the thing which they are to consider as the fixed. The value of one of the precious metals is constantly relative to that of the other; and yet, 156 PRINCIPLES OF MONEY. without attending to this, we sometimes consider the gold, and sometimes the silver, as the common mea- sure : and while one is talking of gold as a common measure, the person he talks to is considering it per- haps the thing measured. This inaccuracy, in sup- posing sometimes the one as the fixed, and some- times the other, involves us in great obscurities ; es- pecially when we speak upon such matters with those who have not distinct ideas on the subject: and if three or four people be engaged in a conversation upon money, every one using the same term in a different acceptation, the confusion becomes inextri- cable. In like manner, when we speak of coin and bul- lion, that of the two ought to be considered as the fixed which changes its proportion of value the least with respect to all commodities. Were prices attached to grains of silver and gold, bullion ought in that case to be considered as fixed; but as they are more attached to the denominations of the coin, coin ought to be considered as fixed. In the next place, in speaking of coin and com- modities, we say, for example, that the imposition of coinage sinks the price of commodities. We do not, in this case, speak correctly ; because if any thing ought to be considered as fixed, it is the rela- tive proportion of value between the different sorts of commodities. In this case, therefore, I think it would be more proper to say, that coinage raises the value of coin, than that it sinks the value of commodities. PRINCIPLES OF MONEY. To prevent the ambiguity of such expressions from occasioning confusion, without departing too far from common language, I have frequently spoken of commodities as rising and .sinking in tlieir values with respect to coin; hut I have at the same time observed the influence which this rising and Milking has uj>on the rising and Milking of the value ot the pound sterling realized in it. Thirdly, Our comparing the value of .siher >ome- times with the pure metal, sometimes with that com- pounded with alloy, involves us frequently in a Ian- ,e which is hardly to he understood. Says one, a pound of siher, tnp , is worth 6j shillings. He means a pound of fine siher. We in England, says another, coin our pound troy of .silver into b'^ shillings, lie in . pound of standard silver, which contains 18 penny- weights of copper. Says a third, our pound of silver, which we coin into 62 shillings, is not worth b^x. 6d. lie understands shillings of fine silver of the same weight with those of standard silver. Another affirms, that an ounce of standard silver, which at the mint, and in the coin, is Worth no more than 5.s. 2d. is worth in the market 5s. Gd. He means, that one must pay at this rate for silver bullion, when it is purchased with over-rated gold. Fourthly, Another cause of perplexity in the money-jargon, is the prodigious abuse of the terms which express the denominations of the coin, or the numerary unit. 158 PRINCIPLES OF MONEY. French historians write familiarly of sums of money in livres and crowns, through all the stages of the monarchy. English writers (for the most part) do the same, in speaking of pounds sterling. Nothing is more different, however, than the ideas expressed by the same term. Were any person, talking of lengths and dis- tances, to use the word foot, sometimes to signify yard, sometimes perch; or to use the word mile, to signify sometimes league, sometimes inch, and some- times fathom ; who could comprehend one word of his discourse concerning the matter ? Should we not even laugh at such a person, for pretending to inform us of any thing concerning lengths or dis- tances. If any change be made upon the value of the money-unit of a country, which is called a pound ; in propriety of language, it can no more be called a pound, after the change, than it can be called a rhinoceros. Fifthly, Another reason for the obscurity of mo- ney-jargon, is the manner in which writers express themselves, when they speak of variations in the value of money. Upon this occasion, says one, the king raised the money 5 per cent. What does this mean ? No man living can understand the expres- sion ; because it may signify, that he raised either the denomination of the coin, or the value of the unit. If he raised the coin, he debased the unit : if he sunk the coin, he raised the unit. A crown PRINCIPLES OF MONEY. 159 of 6 livres is a coin ; a liver is a unit. If it be said that the six-livre piece is raised ; this is as much as to say, it is made to he more than 6 unites: conse- quently, as the silver in the piece does not change its weight, it follows, that the unit, or money of accompt, is diminished. On the other hand, if it be said that the livre is raised, it implies that the crown, which contained 6 livres, is made to con- tain less than 6 units: therefore, the value of the unit is raised; that is, it is made to contain more silver than before. QUEST. II. What is the difference between the effects produced by raising the value of the coin by the imposition of coinage, and raising the denomi- nation of it ? This question is proposed as a farther mean of rendering the money-jargon intelligible. ANSW. The imposition of coinage, when it gives an advanced value to coin above the metals it con- tains, is very different from that advanced value which the coin appears to receive when the .Sove- reign arbitrarily raises the denomination of it ; or as the French call it, when he augments its nume- rary value. When the imposition of coinage gives an advan- ced value to the coin above the bullion it contains, this advanced value becomes real, and extends itself to foreign nations ; that is to say, the coin, so aug- mented as a manufacture, must be bought with more foreign coin than formerly. But when the denomination, or numerary value, is augmented, 160 PRINCIPLES OF MONEY. the same piece (though augmented in denomination) is bought by strangers with the same quantity of their coin as before. An example will make this plain. Let us suppose the coin in France, in war time, to he reduced to the value of bullion, and that the value of a crown of three livres, by the course of exchange, should be then worth 29? pence heavy silver sterling money; if the balance of the French trade should become favourable in general, and that coin should become 8 per cent, dearer than bullion in the Paris market, then the price of the crown of three livres will rise 8 per cent, upon the London exchange above 29! pence heavy silver sterling money, although there be respectively no balance to be paid in bullion either by England or France. But let France ordain, that the crown of three livers shall be raised in its denomination to six livres, and let the coin at that time be supposed to be at par with bullion in the Paris market, the crown of three livres will then be paid as formerly with 29! pence : that is to say, the augmentation of the denomination will have no effect upon the value of the coin in other countries ; whereas the augmen- tation produced by the operations of trade, in con- sequence of the imposition of coinage, is a real aug- mentation, since it extends to foreign nations. Now it is certain and evident, that the augmen- tation of the numerary value has the undoubted effect of sinking the value of the numerary unit PRINCIPLES OF MONEY* l6l realized in the coin ; we ought therefore on such occasions to say, that France has diminished the value of the livre, and not that she has raised the value of the coin. But the abuse of language has made people consider the livre as the thing fixed, and therefore the coin is considered as the thing which rises and sinks. The consequence of this is, to introduce another abuse of language People MIX, that the prices of commodities rise: I ask, With respect to what? Not with respect to the pieces of the coin, but with respect to the denomi- nations they carry : that is to say, with respect to livres; although the livre be considered as the thing fixed. There is, however, a reason why people should express themselves in this improper manner, which proceeds from the perplexity and confusion of their ideas concerning money. When any king or state arbitrarily changes the numerary value of the coin, commodities are found, by universal experience, to stick so closely to the denominations of it, that people are apt to think that it is the king's will and pleasure, and not the metal of which the coin is made, which gives it a value. But commodities depart from these deno- minations by degrees, and fix themselves a-new at a determinate value of the fine rnetals, proportioned to what they bear in foreign nations. This is brought about by the operations of commerce; and conse- quently, the rise of prices not taking place till some time after the Bumerary value of the xroin has been Y PRINCIPLES OF MONEY. augmented, people accustom themselves to say, that the augmenting the denomination of the coin raises prices, and that diminishing the denomination sinks them. But did all prices strictly adhere to the grains of bullion contained in the coin, and not to the denominations of the numerary value, then language would change, and nobody would speak about the rising and sinking of prices, but of the rising and sinking of livres, sols, and deniers. I hope, from what has been said, that the dif- ference between raising the value of the coin by imposing coinage, and raising the numerical value of it by augmenting the denomination or numerary value of it, is perfectly understood. The first raises the value of the numerary unit, by giving a real additional value to the coin as a manufacture: the last raises, for a while, the value of the numerary unit; merely because the price oF commodities, being attached to the denominations of money of accompt, stick to them, until the operations of trade reduce them to their true principle. Whenever, therefore, the terms rising and sink- ing are applied to value, the thing which is said to rise, is supposed to be the moveable; and the thing it is compared with, or with respect to which it is said to rise or sink, is supposed to be the term fixed. Every one, therefore, who reads books upon this subject, ought, upon all occasions where there is mention made of rising and sinking of the price of the gold, silver, bullion, coin, exchange, or com- PRINCIPLES OF MONEY. l63 moclities, constantly to cast his eye upon the thing which is supposed to be fixed, and retaining this in his mind, he will preserve his ideas distinct. QUEST. III. Let us suppose that the imposition of coinage, when properly laid on, will not raise the value of the pound sterling; and consequently that it will not affect the domestic interests of Great Bri- tain: it may be asked, What influence this impo- sition will have upon the interest of her foreign cre- ditors, since it must affect exchange? ANSW. The foreign creditors of the nation will thereby be gainers, provided their interest continue to be paid in denominations of pounds sterling, and not in a determinate number of grains of the fine metals, as w.is proposed to be done in the four- teenth chapter of the first part. The reason is plain: upon all occasions, when coin carries an advanced price above bullion, tbo^e who have funds in Eng- land will gain upon exchange. This gain will no- wise, I think, be at the expence of the nation, but at the expence of those foreigners who have occasion for paper draughts upon London. A creditor of England (in Holland I shall sup- pose) draws for a thousand pounds sterling (the in- terest of his English fund); a Dutchman who owes a thousand pounds sterling in London, buys his bill: must he not pay the creditor of England, not only the intrinsic value of the bullion contained in the thousand pounds sterling, but also the difference be- tween the thousand pounds sterling in coin^ and the l64 PRINCIPLES OF MONEY, bullion it contains, according to the price of it in the London market? This difference then, received by the proprietor of the English funds, is clear gain to him, and is no loss to the nation ; it is a loss to, the Dutchman. Farther, every Dutchman who pays his debts to people residing in England, must suffer the same loss; that is, h'e must pay the coinage, which at present the state makes him a present of. From this I think it is plain, that while the ba^ lance of trade is favourable to England, or at par, all remittances made by foreigners, to pay their English debts, must pay the coinage. The operation of this principle has not a little contributed to facilitate the establishment of the French credit. When France borrows, especially in war time, fo- reigners can remit to Paris the money they lend near- ly at par with bullion. Then they pay little or no coinage; and when peace is restored, the coin ris- ing in its value, they gain annually, at no loss to France, several per cent, upon their draughts for their interest, to wit, all the advanced value of the coin. QUEST. IV, Is the preserving of the pound ster- ling at the mean value of a determinate weight of fine gold, and fine silver, a sure method of realizing the unit of money of account, so as to preserve it at all times invariable ? ANSW. I apprehend it is not; although it seems PRINCIPLES OF MONEY. l65 to be the best that can be devised, upon supposition that the metals are to be made use of, as the most proper substance for realizing the scale. I have said, in the beginning of this book, that the use of the scale was to measure the relative va-* lue of things alienable. Now the metals themselves being of the number of things alienable, and their proportion of value being nowise determined, but liable to augmentations and diminutions, as well as that of grain or any other commodity, no scale that is attached to them can measure any thing but their weight and fineness, and consequently can be no permanent measure for any thing cl>c. Did the price of commodities rise and fall with re- spect to grains of the fine metals in the same pro- portion that it rises and falls with regard to the com- modities themselves, the scale would be exact: but if the grains of metal can acquire an increment, and a diminution of value, from circumstances entirely peculiar to themselves, such circumstances must ren- der the scale they compose inaccurate with respect tp the price of commodities. Now we have seen how the imposition of coinage enhances the value of coin. The rising and sinking of the interest of money has the same effect. The vicissitudes to which credit is liable, have a prodi- gious influence upon the value of the metals. The manners even of a people, which can be determined by no principle, operate the same effect. When people, for example, are given to hoarding, the me- l66 PRINCIPLES OF MONEY. tals come to be demanded with more eagerness, that is, the competition to acquire them is greater ; consequently the value of them with respect to all commodities, is greater than when they are purely considered as money of accompt. That scale, therefore, is the only just one, which measuring the value of the metals, like that of every thing else, renders every individual of a state equal- ly rich, who is proprietor of the same number of de- nominations of it; whether his wealth be in gold, silver, or any other property or commodity. Now I agree that, at any given time, this is the case when the scale is properly attached to the me- tals; but it is not permanently so. A determinate property in land bears sometimes a greater, some- times a less proportion to a determinate property in money. When the scale is attached to the metals, he who is proprietor, for instance, of a thousand de- nominations in coin, becomes richer or poorer ac- cording to the fluctuation of the value of this com- modity, the metals. Whereas when the scale is not attached to any species of commodity, nothing cap change his proportion of wealth. The bank of Amsterdam pays none in either gold or silver coin, or bullion; consequently it cannot be said, that the florin banco is attached to the me- tals. What is it then which determines its value? I answer, That w r hich it can bring; and what it can bring when turned into gold or silver, shews the proportion of the metals to every other common PRINCIPLES OF MONEY. dity whatsoever at that time: such and such only is the nature of an invariable scale. To conclude; no material money, let it be con- trived as it will, is exempted from vicissitudes in its value as a metal. This is proved by the universal ri- sing's and sinkings in the price of commodities, in consequence of circumstances peculiar to the coin. These risings and sinkings of prices, I say, are pro- perly the risings and sinkings of the value of the coin, and this fluctuation again in the value of the coin, is a lengthening and contracting of the equal parts of the scale of value which is attached to it. Now there is no such thing as any vicissitudes iiithe prices of all commodities with respect to bank mo- ney, although nothing is more common than fluc- tuations in agio, with respect to current money; consequently, bank money has a property and a sta- bility in it, which no material money is capable of acquiring, and for this reason it is preferable to it, and is properly considered as the thing fixed. QUEST. V. Will not the imposition of coinage in England prevent, upon many occasions, the car- rying of bullion to be coined at the mint, when it would be carried were the coinage free ? ANSW. Without all doubt. When coinage is free, every man who imports bullion runs with it to the mint : there it is proved, cut, and stamped to his hand, and at no cost. Now to what purpose all this expence ? Why carry bullion to be coined, while the balance of trade is against a nation, since 16*8 PRINCIPLES OF MONEY. such bullion must be re-exported, together with a part of the national stock of the metals ? Besides, the coining of it gratis adds not the smallest value to the metals considered as a manufacture; con- sequently, upon the exportation the whole price of coinage is entirely lost, and the national stock of coin is not thereby augmented; nor would it be aug- mented while trade is unfavourable, were five hun* dred mints kept constantly at work. The imposition of coinage, therefore, has these good effects. First, it prevents bullion from being coined, except when such coined bullion can re- main in the country and augment the national stock of coin. Secondly, as has been said, it gives an additional value to the coin, even in foreign coun- tries, and thereby prevents it from being melted down abroad, in order to be re-coined in other mints, and to augment the stock of coin in rival nations. I believe nobody ever imports louis d'ors to be coined in the English mint (notwithstanding the be- nefit there is in importing gold into England from France, where the proportion of the metals is low- er), yet nothing is more common than to carry gui- neas to every foreign mint, at the bare price of bul- lion. This is the reason why so little English coin, and so much French coin, is found in circulation in countries foreign to both these nations. Louis d'ors, in consequence of the high imposi- tion of coinage in the French mint, pass current, PRIM II M.I ^ OK MONEY. almost every where, for more than their intrinsic value, even when compared with the coin of the very nation where they circulate without the sanc- tion of public authority ; and when this authority regulates their currencv, according to their intrinsic value, such regulation has the MHiie eftect as for- bidding them altogether; because the moment a money-jobber lays bis hand upon them at the sta- tute value, he circulates them no more; but sends them cither back to France, or to some country where they pas*, by a con ventional value, above their intrinsic worth. Thus, louis d'or\, as well as all French coin, are effectually prevented from being melted down, and so soon as the balance of the French trade becomes favourable, they return home. (>i EST. VI. Is not this return of louis d'ors to -w France, upon the balance of their trade becoming favourable, a loss to France? since, in this case, the balance of their trade is paid with a less weight of bullion than it would be paid with, were their coin worth no more than bullion. And secondly, Because, when the coin is exported to pay the balance, it is exported upon the footing of bullion, and when it returns it is paid back at an advanced price. The difficulty of resolving this cjuestion proceeds from the complication of circumstances in which it is involved ; and the intention of proposing it, is to shew how necessary it is, in practice, to combine every circumstance in political problems. Z 170 PRINCIPLES OF MONEY. I shall therefore observe, that since, at all times almost, French coin passes (out of France) for more than its intrinsic value, it is not well possible to suppose that, even during a wrong balance of the French trade, their coin can ever fall so low as the price of bullion ; consequently, the French exporting their coin, upon such occasions, above the value of bullion, are gainers of all the diffe- rence. This compensates the loss (if any they sus- tain) upon the return of their coin. In the second place, when the balance becomes favourable for France, and when there is found a profit in sending back the French coin, the demand made for it by those who want to pick it up in foreign countries, raises the value of it in circulation ; this again fa- vours the trade of France, and makes the difference of paying what one owes to France in bullion at the market price, or in louis d'ors at the advanced value, very inconsiderable ; which consequently pre- vents merchants from finding any great advantage in sending back large quantities of it. Or in another view. This going out and return- ing of the French coin, may be considered as a loss to France in this respect, that when the balance of her trade is against her, when her coin loses of its advanced value in payments made to strangers for the price of foreign commodities, those who con- sume such commodities in France, must consume them at an advanced price to- themselves, but at no additional profit to foreign suppliers ; because as to PRINCIPLES OF MONEY. 1/1 these last, the French coin, with which we suppose the commodities to be paid, having lost of its value every where, cannot then purchase so much as at aii( Jier time, and consequently is not worth so much to the foreign supplier who receives it. In this respect, therefore, France may be sup- posed to lose upon exporting her coin, to wit, so far us she consumes foreign commodities at an ad- vanced value. In these respects only can France be considered as a loser upon exporting her coin: but in having it returned upon her, when at an advanced price above bullion, the loss is nothing; because the ad- vanced price then is a real value added to the coin, and there is no manner of difference as to France, to receive, for the balance of her trade, an hundred pounds weight of her own lonN d'oix, or an hun- dred and eight pounds of standard gold bullion, at such times as bullion is commonly carried to the mint; because the one and the other weight of coin and bullion will answer the same occasions both in the Paris market, and in most of the trading towns n Europe. From these principles we may gather how effec- tually the imposition of coinage must prevent the melting down of the coin, provided a sufficient at- tention is had to preserve the denominations of the coin in both species at the exact proportion of the market-price of the metals. 172 PRINCIPLES OF MOKEV. QUEST. VII. The two metals being valued by one another, if the English, by valuing the gold higher than the French do, occasion the exportation of their silver, why should not the French, by valuing their silver higher than the English do, occasion thereby the exportation of their gold ? And if the English, by over-rating their gold, prevent the carrying of silver to be Coined at their mint, why should not the French by over-rating their silver prevent the carrying of gold to be coined in their mint? ANSW. The English over-rate their gold not only with respect to other nations, but with respect to the value of it in their own market; whereas the French preserve, in their gold and silver coins, nearly the proportion between the metals as they are sold in their own market. In France nobody can profit by melting down either of the species, in order to sell it with advan- tage as bullion; but in England, by melting the heavy silver coin, one may sell it in London for more gold than the same .coin not melted can pur- chase. But here it is objected, that although the pro- portion between gold and silver in the English coin were set upon a par with that of the metals in the London market, still one species may be ex- ported with profit, provided the proportion be dif- ferent in other nations. PRINCIPLKS 01" MONEY. 173 It is a principle in commerce, that the demand for any commodity raises the value of it. Whenever, therefore, one of the metals bears a value in one nation helo\v what it hears in another, this uudcr-value makes that sjK'cie^ more demanded by strangers, and consequently it rises in its value, even at home. By this principle the proportion between the me- tals in European markets is kept nearly the same and the small difference which is found does not *o much proceed from the demand of foreign trade as from the taste of the inhabitants. The foreign demand tends to make, the proportion equal in all markets, and the internal demand lor one metal preferably to another, is what makes it vary. The carrying of the metals backwards and for- wards is attended with risque and expence. There is not, therefore, so much danger of a nation's beinnj stripped of one of its species of current coin by such a trade, as there is when the proportion of the market-price of the metals is different, at home, from that observed in the coin; because in the last case, every one may profit of the disproportion, at the trifling expence of melting down the rising species. From this we may conclude, that nations ought to regulate the proportion of the metals in their coin, according to the market price of them at home, without regard to what it is found to be in 174 PRINCIPLES OF MONEY. other nations; because they maybe assured, that the moment any difference in the market-price shall begin to be profited of, that very demand will alter the proportion, and raise the market-price of the metal sought for by foreigners. While the coin, therefore, is kept at the proportion of the market at home, and while the denominations of both species are made to keep pace with it, it will be utterly im- possible for one nation to hurt another by any traffic in the metals. Here it is farther objected, that were these prin- ciples just, there would not be found so great a disproportion as there actually is, between the value of gold and silver in Europe, and in the empire of China. To this I answer, that the principles are just; and that this difference proceeds from incidental cir- cumstances, which I shall now point out. First, then, the European trade hardly penetrates into that vast empire. Secondly, The lowness of the proportion between gold and silver is maintained by the high internal demand for silver in China. Thirdly,^The India trade being every where in the hands of companies, there is not so great a compe- tition between the sellers of silver in the Chinese market, as if that trade were open to every private adventurer ; consequently the price of it is not so liable to be diminished. And last of all, The ex- pence of carrying silver thither, and the long lying PRINCIPLES OF MONEY. 175 out of the interest, would put a stop to the trade, were the proportion between the metals to rise in China. This prevents competition still more be- tween the different European companies, and conse- quently prevents the rising of the proportion. QUEST. VIII. Is it the interest of princes to de- base the standard of their coin? ANSW. The question turning entirely upon the interest of princes, I shall take no notice of the iniquity of such a measure with respect t< their sub- jects; but shall confine it purely to the interest princes may have in exercising: this branch of pre- rogative. I answer then, as I have hinted above, that it is their intercut to debase the standard of their coin, when they are in the situation of debtors; aud it is their interest to raise the standard \\ hen they are in the situation of creditor-. Debasing the standard I have explained to be the the diminution of the intrinsic value of the unit be- low what it was before, either by raising the deno- mination, augmenting the alloy, or diminishing the weight of the coin. Now since princes pay their servants by denomi- nations, that is, by money of accompt, the more they augment the denomination of the coin they possess, the more they gain upon what they have at the time. But they lose proportionally upon their revenue ever after; because the rents and duties PRINCIPLES OF MONEY. levied on their subjects being also paid by deno- minations, the prince loses every year on his in- come proportionally what he had gained upon one operation. From this we may draw a principle, that kings who have begun to debase the standard, ought to go regularly on every year, as long as they find themselves in the state debtors; and when they come to alter their situation, and become of the class of creditors, it is then their interest to raise the standard. The inconveniences, therefore, which proceed from this exercise of power, may be reduced to three. First, It disturbs the ideas of a whole nation with regard to value, and gives an advantage in all bar- gains, to those of the society who can calculate, over those who cannot. Secondly, It robs the whole class of debtors when the standard is raised; and it robs the whole class of creditors when it is debased. Thirdly, It ruins credit; because no man will borrow or lend, in a country where he cannot be sure of receiving back the full value of his loan; or of being in a capacity of clearing himself by paying back the just value he had borrowed. This last circumstance has overturned the whole scheme in France. Princes would go on debasing their standard as formerly, could they doit and pre- serve their credit. But who will lend a shilling to PRINCIPLES OF MONEY. a prince-, if he suspects he will pay him back, per- haps with sixpence? C^UEST. IX. WJiat is the best form to be given to coin ? ANSW. The intention of coinage, for circulation, being to ascertain the quantity of the fine metals in every piece, and not to represent the effigies of the sovereign, we see a manifest difference every where between the impressions struck upon medals, and those upon the current coin: in the first, the head is raised; in the last, it is purposely made flat. Anciently, the impression put upon some of the English coins was ;i cross; which being indented on the penny, instead of being raised, occasioned these pieces frequently to be broken into four parts. This is said to have given rise to the denomination of far- things, or fourth parts. The indenting of the im- pression upon the coin, is no doubt a preservative against its wearing; but, as it is liable to other incon- veniences, and is so repiignant to custom, it would be ridiculous, perhaps, to propose it. I shall reduce, therefore, all I have to propose as a supplement to what has been suid already on this subject, to a very few observations* First, The less surface any piece has in proportion to its mass, the less it will wear in circulation; and 0.3 all coin is made cylindrical, the nearer it approaches to the cylinder, whose height is equal to its diame- ter, the less surface it will have. Coin, therefore* Aa 178 PRINCIPLES OF MONEY. ought to be made thick, and for this reason, louis d'ors are of a better form than guineas, as guineas are of a far better form than ducats. Were it easy to give the surface a spheroidal form on both sides* rendering the coin thicker in the middle than at the edges, the surface would be thereby a little more di- minished. Secondly, The great credit of paper money in England, is a vast advantage in many respects. It renders coin less necessary. While this credit sub- sists, large payments will always be made in paper; and this renders the coinage of gold in large heavy pieces less necessary. The coin, therefore, in Eng- land, ought to be calculated for the easy changing of bank notes, not with a view to the making great payments in it. For this purpose, two and three pound pieces might be full as convenient as single guineas, and half-guineas might be confined to a smaller number. Small denominations of gold coin lead to expence, and tend to raise the prices of such commodities as people of fashion pay imme- diately out of their own pockets. As for the silver, the same principles are to be observed. Crown pieces are very convenient in payments, and have a great advantage over shillings and sixpences in point of surface. The practice in France of coining the greatest part of their silver in such pieces, abun- dantly shews how r few of the lesser denominations (that is shillings, &c.) are necessary for carrying on circulation. PRINCIPLES OF MONEY. 179 Thirdly, The copper coin of England is exceed- ingly bulky, in order to give it an intrinsic value. This makes many people ashamed to carry it; con- sequently increases expence, and raises the price of many things for the reason already given. What inconvenience could there possibly be in making pence of a mixed metal of a much lower standard than the other coin? The coin would he less bulky, and the intrinsic value might he pre- served. This is the custom all over Germany. The lower denominations of the coin are all of different fineness. The standard for what they call the gray; the 7? tne l > tne 17? tne 2O creutzer pieces, are all of different fineness; but still in the same sum, in whatever coin it be paid, according to the laws of the empire, there ought to be found the same quan- tity of fine silver. This enables them to coin pieces of very small denominations ; which have however the same intrinsic value with the other denomina- tions of the coin, and which are neither of an un- wieldy bulk, or of an inconvenient smallness. This is the regulation in Germany: I do not say that it is well observed. Farthings of copper are good and convenient; a few of these ought always to be preserved in favour of the lower classes of the people, who thereby are enabled to keep down the prices of the small neces- saries of life : a matter of the greatest importance to a trading nation, 1 80 PRINCIPLES OF MONEY. Nations ought to copy from one another what is good and convenient, and should be above the thral- dom of little prejudices in favour of established cus- toms, which have frequently nothing but custom to recommend them. Fourthly, It must be observed that upon adopt- ing the German regulation as to pence, such coin must not be allowed to be put up in bags of coin de- livered by weight; nor made a legal tender beyond the value of the lowest silver coin. END OF BOOK SECOND. PRINCIPLES OF MONEY, BOOK THE THIRD. OF BANKS. CHAPTER I. Of the varlons Kinds of Credit. .OANKS differ from one another in point of poli- cy, as well as in the principle upon which their cre- dit is built. If they be considered relatively to their policy, they may be divided into banks of circulation, and banks of deposit. If they be considered relatively to the principles upon which their credit is built, they may be divided into banks upon private credit, banks upon mercan- tile credit, and banks upon public credit. It is to this last division only I must attend, in the distribution of what is to follow; and therefore it is PRINCIPLES OF MONEY. proper to set out by explaining what I understand by the terms I have here introduced. First, Private credit. This is established upon a security, real or personal, of value sufficient to make good the obligation of repayment both of capital and interest. This is the most solid of all. Secondly, Mercantile credit. This is established upon the confidence the lender has, that the bor- rower, from his integrity and knowledge in trade, may be able to replace the capital advanced, and the interest due during the advance, in terms of the agreement. This is the most precarious of all. Thirdly, Public credit. This is established upon the confidence reposed in a state or body politic, who borrow money upon condition that the capital shall not be demandable; but that a certain propor- tional part of the sum shall be annually paid, either as interest, or in extinction of part of the capital; for the security of which, a permanent annual fund is appropriated, with a liberty, however, to the state to free itself at pleasure, upon repaying the whole; when nothing to the contrary is stipulated. PRINCIPLES OF MONEY. 163 CHAPTER II. Of Private OW/V. P: RIVATE credit is either real, personal, or mixed. Real security, every body understands. It is ihe object of law, not of politics, to give an enumera- tion of its different branches. By this term, we Understand no more than the pledging an immov- able subject for the payment of a debt. As by a personal security we understand the engagement of the debtor's whole effects for the relief of his credi- tor. The mixed, I have found it necessary to su- peradd, in order to explain with more facility the security of one species of banks. The notes issued by banks upon private credit, stand upon a mixed security: that is, both real and personal. Personal, as far as they affect the banker, and the banking stock pledged for the security of the paper: and real, as far as they affect the real securities granted to the banker for the notes he lends, which after- wards enter into circulation. 184 PRINCIPLES OF MONfef* CHAPTER III; Of Banks, i, .N deducing the principles of banking, I shall 0*6 the bes.t I can' to go through the subject systema* tically. Banks may be divided as to their policy, into two genera] classes, viz. those which issue notes payable in coin to bearer; and tbose which only transfer" the credit written down in their books from one person to another. Those who issue notes, I call banks of circula- tion; those which transfer their credit, I call banks of deposit. I shall, according to this distribution, first explaiii the principles upon which the banks of circulation are constituted and conducted, before I treat of the others. This will lead me to avail myself of the division I have made of credit, into private, mercantile, and public: because, according to the purposes for which a bank is established, the ground of confidence, that is, the credit of the bank, comes to rest upon one or other of them. PRINCIPLES OF MONEY. 185 In countries where trade and industry are in their infancy, credit can be but little known; conse- quently, they who have solid property must find peat difficulty in turning it into money. Under such circumstances, it is proper to establish i hank upon the principles of private credit. This bank must issue notes upon land and other securi- 1 ie^, and the profits of it must arise from the per- manent interest drawn for the money lent. Of this nature are the banks of Scotland. In countries where trade is established, industry flourishing, credit extensive, circulation copious and rapid, as is the case with England, banks upon mortgage, however useful they may prove for other purposes, would not answer the demands of the trade of London, and the service of government, so well as the bank of England. o The ruling principle of this bank, and ground of their confidence, is mercantile credit. The bank of England does not lend upon mortgage, nor per- sonal security: their profits arise from discounting bills ; loans to government, upon the faith of taxes, to be paid within the year; and upon the credit cash of those who deal with them. In France, under the regency of the Dtike of Orleans, there was a bank erected upon the princi- ples of public credit. The ground of confidence there, and the only security for all the paper they issued, were the funds appropriated for the pay- ment of the interest of the public debts. Bb 186 PRINCIPLES OF MONEY. Banking, in the age we live, is that branch of credit which best deserves the attention of a states- man. Upon the right establishment of banks, de- pends the prosperity of trade, and the equable course of circulation. By them solid property may be melted down. By the means of banks, money may be constantly kept at a due proportion to aliena- tion. If alienation increase, more property may be melted down. If it diminish, the quantity of money stagnating, will be absorbed by the bank, and part of the property formerly melted down in the securities granted to them, will be, as it were, consolidated anew. Banks must pay, as agents for the country, the balance of their trade with foreign nations. Banks keep the mints at work; and it is by their means, principally, that private, mercan- tile, and public credit are supported. I can point out the utility of banks in no way so striking, as to recal to inind the surprizing effects of Mr. Law's ^>ank, established in France, at a time when there was neither money or credit in the kingdom. The superior genius of this man produced, in two years time, the most surprizing effects imaginable ; he revived industry; he established confidence; and shewed to the world, that while the landed pro- perty of a nation is in the hands of the inhabitants, and while the lower classes are willing to be indus- trious, money never can be wanting. I must now proceed in order, towards the investigation of the principles which influence this intricate and com- plicated branch of my subject. PRINCIPLES OF MONEY. 187 < HAPTER IV. Of Banks of Circulation upon .Mortgage or private Credit. ANKS of circulation upon mortgage or private credit, are those which issue notes upon private se- curity, payable to hearer on demand, in the current coin of the nation. They are constituted in the following manner : A number of men of property join together in a contract of banking, either ratified or not by public authority, according to circumstances. For this purpose, they form a stock which may consist in- differently of any species of property. This fund is engaged to all the creditors of the company, as a security for the notes they propose to issue. So soon as confidence is established with the public, they grant credits, or cash accompts, upon good security; concerning which they make the proper regulations. In proportion to the notes issued in consequence of these credits, they provide a sum of coin, such as they judge to be sufficient to an- swer such notes as shall return upon them for pay- ment. 188 PRINCIPLES OF MONEY. The profits of the bank proceed from the interest paid upon all the money advanced by the bank, in consequence of credits given. Out of these profits must be deducted, first, the charge of management. Secondly, The loss of in- terest for all the coin they preserve in their coffers, as well as the expence they are put to in providing it. And thirdly, The expence of transacting and pay- ing all balances due to other nations. Let it be observed, that I do not consider the original bank stock, or the interest arising from that, as any part of the profits of the bank. So far as it regards the bank, it is their original property; and so far as it regards the public, it serves for a col- lateral security to it, for the notes issued. It be- comes a pledge, as it were, for the faithful dis- charge of the trust reposed in the bank: without such a pledge, the public could have no security to indemnify it, in case the bank should issue notes for no permanent value received. This would be the case, if they thought fit to issue their paper either in payment of their own private debts, or for articles of present consumption, or in a precarious trade. When paper is issued by a bank for no value re- ceived, the security of such paper stands upon the original capital of the bank alone ; whereas when it is issued for value received, that value is the secu- rity on which it immediately stands, and the bank stock is, properly speaking, only subsidiary. As a farther illustration of this principle, let me PRINCIPLES OF MONEY. 189 suppose an honest man, intelligent, and capable to undertake a bank. I say that such a person, without one shilling of stock, may carry on a bank of domestic circulation, to as good purpose as if he had a million; and his paper will be every bit as good as that of the bank of England. Every note he issues will be secured on good private secu- rity; this security carries interest to him, in pro- portion to the money which has been advanced by him, and stands good for the notes he has issued. Suppose then, that after having issued for a million sterling, all the notes should return upon him in one day Is it not plain, that they will find, with the honest banker, the original securities, taken by him at the time he issued thenit' And is it not true, that he will have, belonging to himself, the interest re ceived upon these securities, while his notes were in circulation, except so far as this interest has been spent in carrying on the business of his bank? Large bank stocks, therefore, serve only to establish their credit; to secure the confidence of the public, who cannot see into their administration; but who wil- lingly believe, that men who have considerable property pledged in security of their good faith, will not probably deceive them. This stock is the more necessary, from the obli- gation to pay in the metals. Coin may be Wanting, upon some occasions, to men of the greatest landed property. Is this a reason to suspect their credit? Just so of banks. The bank of England may be 19O PRINCIPLES OF MONEY. possessed of twenty millions sterling of good effects, to wit, their capital ; and securities for all the notes they have issued; and yet that bank might be obliged to stop payment, upon a sudden demand of a few mil- lions of com. From what has been said, we may conclude, that the solidity of a bank which lends upon private secu- rity, does not so mucli depend upon the extent of their original capital, as upon the good regulations they observe in granting credit. In this the public are nearly interested ; because the bank securities are really taken for the public, who are creditors on them in virtue of the notes which circulate through their hands. CHAPTER V. Such Banks ought to issue their Notes on private, not mercantile Credit. ET me therefore reason upon the example of two bankers; one issues his notes upon the best real or personal security; another gives credit to merchants and manufacturers, upon the princi- ples of mercantile credit, which we have explain- PRINCIPLES OF MONEY. ed above. The notes of the one and of the other enter into circulation, and the question comes to be, which are the best? If we judge by the stock of the two bankers, per- haps they may be equal, both in value and solidity; but it is not upon this circumstance that the ques- tion depends. The notes in circulation, may far exceed the amount of the largest bank stock; and therefore, it is not on the original stock, but on the securities taken at issuing the notes, that the so- lidity of the two currencies is to be estimated. Those secured on private credit, are as solid as lands and personal estates; they stand upon the principles of private credit. Those secured on the obligations of merchants and manufacturers, de- pending upon the success of their trade, are good or bad in proportion to such success. Every bank- ruptcy of one of their debtors, involves the bank, and carries off either apart of their profits, or of their stock. Which way, therefore, can the public judge of the affairs of bankers, except by attending to the nature of the securities upon which they give credit. 1'RINCIPLES OF MONEY. CHAPTER VI. Cse of Subaltern Bankers and Exchangers, M, .ERCHANTS and manufacturers, however* have constant occasion for money or credit; and at the same time, they cannot be supposed to have ei- ther real or personal estates to pledge, in order to obtain a loan directly from the banks, -who ought to lend upon no other security. To remove this difficulty, we find a set of mer- chants, men of substance, who obtain from the banks very extensive credits upon the joint real and personal security of themselves and friends. With this assistance from the bank, and with money bor- rowed from private people, repayable on demand, something below the common rate of interest, they support the trade of Scotland, by giving credit to the merchants and manufacturers. To this set of men, therefore, are banks of circu- lation upon mortgage to leave this particular branch of business. It is their duty, it is the interest of the country, and no less that of banks, that they be supported in so useful a trade; a trade which animates all the commerce and manufactures of Scot- PRINCIF-LES OF MONEY. land, and which consequently promotes the circula- tion of those very notes upon which the profits of the hanks do arise. These merchants are settled in all the most considerable towns: they are well acquainted with the stock, capacity, industry, and integrity of all the dealers in their district: they are many; and by this lire able to go through all the detail which their bu- siness requires; and their profits, a- \u- * hall see pre- sently, are greater than those of banks, who lend at a stated interest. The common denomination by which they are called in Scotland, is that of Hankers; but, to avoid their being confounded with the bankers in Eng- land (whose business is very different) we shall, while we are treating of the doctrine of banks, call them by the name of Kxchangcr*, since their trade ig principally carried on by bills of exchange. As often as these exchangers give credit to deal- ers in any way, they constantly -tate a commission of k per cent, or more, according to circumstances, over and above the interest of their advance; these are profits, which greatly surpass those of any bank. One thousand pounds credit given by a bank, may not produce ten pounds in a year for interest : where- as were a like credit given by a banker, to a mer- chant, who draws it out, and replaces it forty times in a year, there will arise upon it a commission of 20 per cent, or ^200, Cr 1 94 PRINCIPLES OF MONEY. This set of men are exposed to risks and losses, which they bear without complaint, because of their great profits; but it implies a detail, which no bank can descend to. These exchangers break from time to time; and no essential hurt is thereby occasioned to national credit. The loss falls upon those who lend to them, or trust them with their money, upon precarious security; and upon merchants, who make allow- ances for such risks. In a word, they are a kind of insurers, and draw premiums in proportion to their risks, To this set of men, therefore, it should be left tp give credit to merchants, as the credit they give is purely mercantile; and to banks alone, who give credit on good private security, it should be left tp conduct the great national circulation, which ought to stand upon the solid principles of private credit. From this example we may discover the justness of the distinction I have made between private and mercantile credit: had I not found it necessary, I should not have introduced it. PRINCIPLES OF MONEY. 195 CHAPTER VII. Concerning the Obligation to pay in Coin, and the Consequences thereof. i N all hanks of circulation upon mortgage, the obligation in the note is to pay in coin, upon de- mand. No coin is ever '(except in very particular cases) carried to a bank, in order to procure notes. The greatest part of notes issue from the banks, con- cerning which we are treating, either in consequence of a loan, or of a credit given by the bank, to such as can give security for it. This loan is made in their own notes ; which are quickly thrown into cir- culation by the borrower; who borrowed them, be- cause he had occasion to pay them away. Coin, again, comes to a bank, in the common course of circulation, by payments made to it, ei- ther for the interest upon their loans, or when mer- chants and landed men throw the payments made to them into the bank, towards filling up their credits; or by way of a safe deposit for their money. These payments are made to the bank in the ordinary cir- culation of the country. When there is a consider- able proportion of coin in circulation, then the PRINCIPLES OF MONEY. bank receives much coin ; and when there is little, they receive little. Whatever they receive is laid by to answer notes which are offered for payment; but whenever a draught is made upon them for the money thrown in as above, they pay in paper. The consequences of the obligation to pay in coin are two. The first is, that when the nation comes to owe a foreign balance, the notes which the bank had issued to support a domestic circulation only> come upon it for the payment of this balance; and thereby the coin which it had provided for home de- mand only, is draivn out. The second inconvenience resulting from this ob- ligation to pay in coin is, that the confusion of the English coin, and the lightness of a great part of it, obliges the bank of England to purchase the me- tals at a price far above that which they can draw back for them after they are coined. The great pro- fit is then made in melting down and exporting the heavy species. This profit turns out a real loss to the bank of England, which is constantly obliged to provide new coin,, in proportion as it is wanted. PRINCIPLES OP MONEY. 1<)7 CHAPTER VIII. How a wrong Balance of' Trade affects Banks ojf Circulation. v 7 HEN there is a balance due by any nation, upon the whole of their mercantile transactions with the rest of the world, such balance must be paid in -coin. This we call a wrong balance. Those who transact the payment of this balance, are those who regulate the course of exchange; and we may sup- pose, without the least danger of being deceived, that the course is always higher than the ex- pence of procuring and transporting the metals; because the overcharge is profit to the exchanger, who without this profit could not carry on his business. These exchangers, then, must have a command of coin; and where can they get it so easily, and so readily, as from banks \vho are bound to pay in it? Every merchant who imports foreign commodi- ties, must be supposed to have value in his hands, from the sale of them; but this value must consist in the money of the country: if this be mostly in 198 PRINCIPLES dr MONE\*. bank paper, he must give the bank paper for a bill to the exchanger, whose business it is to place funds in those parts upon which bills are demand- ed. The exchanger again (to support the fund which he exhausts by his draughts) must de- mand coin from the banks, for the notes he re- ceived from the merchant, when he gave him the foreign bill. Besides the wrong balances of trade transacted in this manner, which banks are constantly obliged to make good in coin, every other payment made to foreigners has the same effect. It is not because it is a balance of trade, but because it is a pay- ment which cannot be made in paper currency, that a demand is made for coin. Coin we have called the money of the world, as notes may be called the money of society. The first then must be procured when we pay a balance to foreign- ers; the last is full as good when we pay among ourselves. It is proper, however, to observe, that there is a great difference between the wrong balance of trade, and the general balance of payments. The first marks the total loss of the nations, when her imports exceed the value of her exports ; the second comprehends three other articles, viz. 1 . The ex- pence of the natives in foreign countries. 2. The payment of all debts, principal and interest, due to foreigners. 3. The lending of money to other nations. PRINCIPLES OF MONEY. 199 These three put together, make what I call the general balance of foreign payments: and these added to the wrong balance of trade, may be called the grand balance with the world. Now as long as the payment of this grand balance is negotiated by exchangers, all the coin required to make it good must be supplied by banks, while they have one note in circulation. How then is this coin to be procured by nations who have no mines of their own r CHAPTER IX. How a grand Balance may be paid by Banks, without the assistance of Coin. JL$ID all the circulation of a country consist in coin, this grand balance, as we have called it, would be paid out of the coin, to the diminution of it. We have said that the acquisition of coin, or of the precious metals, adds to the intrinsic value of a countr)%-as much as if a portion of territory were PRFNCIPLES OF MONEY. * added to it. The truth of this proposition will now soon appear evident. We have also said, that the creation of symboli- cal money, adds no additional wealth to a country, but only provides a fund of circulation out of solid property; which enables the proprietors to con- sume and to pay proportionally for their consump- tion: and we have shewn how 'by this contrivance, trade and industry are made to flourish. May we riot conclude, from these principles, that as nations who have coin, pay their grand ba- lance out of their coin, to the diminution of this species of their property, so nations who have melted down their solid property into symbolical money, must pay their grand balance out of the symbolical money; that is to say, out of the solid property of which it is the symbol? But this solid property cannot be sent abroad^ and it is alleged that nothing but coin can be em-^ ployed in paying this grand balance. l"o this, I answer, that in such a case the credit of a bank may step in; without which a nation which runs short of coin, and which comes to owe a grand balance, must quickly be undone. We have said, that while exchangers trans act the balance, the whole load of providing coin lies upon banks. Now the whole solid property melted down, in their paper, is in their hands; because I consider the securities given them for their paper, to be the same as the property itself. Upon this property. PRINCIPLES OF MONEY. 201 there is an yearly interest paid to the bank: this in- terest, then, must be engaged to foreigners by the bank, in lieu of what is owing to them by the na- tion; arid when once a fund is borrowed upon it abroad, the rest is easy to the bank. This shall be farther explained as we go along. CHAPTER X. of f cm /to ran/ Credits jot the Payment of a wrong Balance. i HAVE said, that when the national stock of coin is not sufficient to provide banks with the quan- tity demanded of them, for the payment of the grand balance, that a loan innst take place. To this it may he objected, that a credit is sufficient to procure coin* without having recourse to a formal loan. The difference I make between a loan and a credit consists in this, that by a credit we under- stand a temporary advance of money, which the person who gives the credit expects to have repaid in a short time, with interest for the advance, and commission for the credit; whereas by a loan we understand the lending of money for an indefinite time, with interest during non-payment. Dd 202 PRINCIPLES OF MONEY. Now I say, the credit, in this case, will not an- swer the purpose of supplying a deficiency of coin; unless the deficiency has been accidental, and that a return of coin, from a new favourable grand ba- lance, be quickly expected. The credit will indeed answer the present exigency; but the moment this credit comes to be replaced, it must be replaced either by a loan, or by a supply of coin ; or by a renewal of the former credit ; but, by the supposi- tion, coin is found to be wanting for paying the grand balance; consequently, nothing but a loan, made by the lenders either in coin, in the metals, or in a liberty to draw upon them, can remove the in- convenience; and if recourse be had to a new credit, instead of the loan, the same difficulty will recur, whenever this credit again comes to be made good by repayment. Upon the whole, we may conclude, that nations who owe a balance to other nations, must pay it either with their coin, or with their solid property; consequently, the acquisition of coin is, in this par- ticular, as advantageous as the acquisition of lands; but when coin is not to be procured, the transmis- sion of the solid property to foreign creditors is an operation which banks must undertake; because it is they who are obliged either to do this, or to pay in coin. PRINCII'LT S OF MONtV. 503 CHAPTER XI. Of the Hart resulting to Banks, when they lean- the Payment of a wrong Balance to Exchangers. v v E have seen in a former chapter, how ex- changers and banks are mutually assistant to one another: the exchangers, by swelling and supporting Circulation: the bank, by supplyingthem with credit for this purpose. While parties are united by a common interest, all goes well: but interest divides, by the same principle that it unites. \o sooner does a nation incur a balance against ttself, thtin exchangers set themselves to work to make a fortune, by conducting the operation of pay- ing it. They appear then in the light of political usurers to a spendthrift heir, who has no guardian. This guardian should be the bank, who upon such occasions (and upon such only) ought to interpose between the nation and her foreign creditors. This it may do. by constituting itself at once debtor for the whole balance, and by taking foreign exchange into its hand, until such time as it shall have dis- tributed the debt it has contracted for the nation, among those individuals who really owe it. This operation performed, exchange may be left to those 204 PRINCIPLES OF MONEY. who make this branch their business, because then they will find no opportunity of combining either against the interest of the bank or of individuals. When a national bank neglects so necessary a duty, as well as so necessary a precaution, the whole class of exchangers become united by a common in- terest against it; and the country is torn to pieces, by the fruitless attempt it makes to support itself, without the help of the only expedient that can re- lieve it. Those exchangers having the grand balance to transact with other nations, make use of their cre- dits with the bank, and of its notes, in order to draw coin from the bank, which they export. This throws a great load upon the bank, which is constantly obliged to provide a sufficient quantity of coin for answering all demands; for we have laid it down as a principle, that whatever coin or bills are necessary to pay this grand balance, in every way it can be transacted, it must ultimately be paid by the bank; because whoever wants coin for any purpose, and has bank notes, can force the bank to pay them in coin, or stop payment. PRINCIPLES OF MONEY. < IIAPTEK XII. Jn what Manner the Payment of a wrong Balance affect a Circulation. HA1 I may communicate my ideas with the greater precision, I must here eater into a short de- tail of some principles, iind then reason on a sup- position. It has heen said, that the consequence of credit and paper-money, .secured on solid property, was to augment the mass of the circulating equivalent, in proportion to the uses found for it. These uses may be comprehended under two ge- neral heads. The first, payment of what one owes; the second, buying what one has occasion for. The one and the other may he called by the general term of ready-money demands. A certain sum of money, therefore, is necessary for carrying on domestic alienation; that is, for satisfying ready-money demands. Let us call this quantity (A). Next, in most countries in Europe (I may say in all), it is customary to circulate coin, which, for many uses, is found fitter than paper (no matter for 206 PRINCIPLES" OF what reason); custom has established it, and with custom even statesmen must comply. Let this quantity of coin, necessary for circulating the paper-money, he called (B), and let the paper- money he called (C); consequently (A) will be equal to the sum of (B)-and (C). Again, we have said, that all balances owing by nation to nation, must be paid either in coin, or in the metals ; and that bank paper can be of no use in such payments * Let the quantity of the metals or coin, going out or coming into the country for payment of such ba- lance, be called (D). These short designations premised, we may rea- son with more precision. (A) is the total mass of money (coin and paper) necessary at home, and is composed of (B) the coin, and of (C) the paper- money; and (D) stands for that mass of coin, or metal, which ^oes and comes according as the grand halancv is favourable or unfavourable with other nations. Now, from what has been said, we may deter- mine that there should at all times remain in the country, or in the bank, a quantity of coin equal to (B); and if this be ever found to fall short, the hank does not discharge its duty. When a favourable balance of trade brings the price of exchange below par, and brings coin into the country, the consequence is, either to animate trade and industry, to augment the mass of pay- ments, to swell (A), and still to preserve (G) in PRINCIPLES OF MONEY. circulation; or else to make (A) regorge, so as to sink the interest of nionw below the bank lending price. In this cade people will carry hack the re- gorging part of (C) to the hank, and withdraw their securities; which is consolidating, as we have called it, the property which had been formerly melted down, for want of this circulating equivalent (money). This is constantly the consequence of a stagnation of paper, from an overc! .f it, thrown into circulation. It returns upon the hank, and dimi- nishes the mass of their securities, but never the mass of their coin. Let us now suppose a hank established in a coun- try which owes a balance to other nations. In this case, the bank must possess, or he able to command, a sum of coin or bills equal to (II) and (D); (B) for domestic, and (D) for foreign circula- tion. Those who owe this balance (D), and who are supposed to have value for it, in the currency of the country, must, in order to pay it, either exhaust a part of (B), by sending it away, or they must carry a part of (C) to the bank, to be paid for in coin. If they pick up a part of (B) in the country, then the coin in circulation, being diminished below its proportion, the possessors of (C) will come upon the hank for a supply, in order to make up (B) to its former standard. Banks complain without rea- son. If they carry part of (C) to be changed at PRINCIPLES OF MONEY, the bank, for the payment of (D), they thereby di- minish the quantity of (C);- consequently there will be a demand upon the bank for more notes, to sup- port domestic circulation; because those notes which have been paid in coin by the bank are returned to the bank, and have diminished the mass of (C); which therefore must be replaced by a new melting down of solid property. Now I mnst here observe, that this recruit of notes, supposed to be issued by the bank, in order to fill up (C) to the level, really implies an addi- tion made to the mass of securities formerly lodged with the bank: and represents, not improperly, that part of the landed property of a country which the bank must dispose of to foreigners, in order to pro- cure from them the coin or bills necessary for an-r swering the demand of (D), When notes, therefore, are carried to the hank for payment of debts due to the bank, they then diminish the mass of solid property melted down in the securities lodged in the bank: but when notes are carried to the bank, to be converted into coin or bills, for foreign exportation, they do not dimU nish the mass of the securities: on the contrary, the consequence is to pave the way for the augmentation of them ^ because I suppose that these notes, so gi- ven in to the bank and taken out of the circle, are to he replaced by the bank to domestic circulation, to which they belonged ; and the bank must be at the expence of turning into coin or foreign bills, PRINCIPLES OF MONEY. 209 the value of these additional securities granted for this new recruit of not. Were trade to run constantly against a country, the consequence would be infinitely mischievous. But in this case, banks never could neglect laying down a plan whereby to avoid a constant loss si- milar to what they casually sustain, when such a revolution comes suddenly or unexpectedly upon them. The method would be, to establish an annual subscription abroad for borrowing a sum equivalent to the grand balance. If the security offered be good, therein no fear but subscribers will be found, while there is an ounce of gold and silver in Europe. The bank of England has an expedient of ano- ther nature, in what they call their bank circulation; which is a premium granted to certain persons, upon an obligation to pay a cetain sum of coin upon demand. This is done with a view to answer pressing occasions. But England being a pros- perous trading nation, which seldom has any consi- derable grand balance against her (except in time of war, when the public borrowings supply in a great measure the deficiency, as shall be afterwards ex- plained), this bank circulation is turned into a job; the subscriptions being lucrative, are distributed among the proprietors themselves, who make no provision for the demand; and were the demand again to come upon them (as has been the case) the Ee 210 PRINCIPLES OF MONEY. subscribers would, as formerly, make a call on the bank itself, by picking up their notes, and pay their subsciptions with the bank's own coin. To obviate this inconvenience, which was severely felt in the year 1745, the bank of England should have opened a subscription for a perpetual loan in some foreign country; Holland, for example; where she might have procured large quantities of foreign coin. Such a seasonable supply would have proved a real augmentation of the metals ; the sup- ply they got from their own domestic subscribers, was only fictitious*. In the infancy of banking, we find banks taking a general alarm whenever a wrong balance of trade occasions a run upon them. This terror drives them to expedients for supporting their credit, which we are now to examine, and which we shall find to have a quite contrary tendency. The better to explain this combination, we must recal to mind, that the payment of the grand ba- * At this time there \vas another circumstance, 1 besides the de- mand of a balance to be paid abroad, which distressed the bank, viz. a suspicion which took place, that if the rebellion had succeed- ed, the credit of the bank would have totally failed. This very case points out the great advantage of banks upon mortgage of private credit. We have said, that the credit of such bariks ought to he estab- lished upon the principles of private securities only. If their notes be issued upon solid property, then no rebellion can influence them. But of this more hereafter, PRINCIPLES OF MONEY. 211 lance in Coin or bills is unavoidable to banks. We have said that this balance is commonly paid by exchangers, who pick up the coin in circulation; a tiling the bank cannot prevent. This we have cal- led exhausting a part of (B). The consequence of this is,, to make the proprietors of (C) come upon the bank, and demand coin for filling up (B): to this the bank must also agree. But by these ope- rations (C) comes to be diminished below the level necessary for carrying on trade, industry, and alie- nation: upon which 1 have said there commonly roim^ an application to the bank to give more cre- dit, in order to support domestic circulation, which if complied with, more solid property is conse- quently melted down. This swells the mass of securities, and raises (A) to its former level. But here the bank has a choice, and may refuse to grant more credit. In the former operations it had none. Now if the bank, from a terror of being drained of coin, should refuse to issue notes upon new credits, for the demands of domestic circulation; in this case, I say, they fail in their duty to the nation, as banks, and hurt their own interest. As to their duty to the nation, I shall Hot insist upon it; but I think I can demonstrate that they fail in their manner of reasoning, with respect to their own interest, and that is enough. I say, then, in the first place, that as long as there is one single note in circulation, and any part of a grand balance owing, this note will come upon PRINCIPLES OF MONEY. the bank for payment, without a possibility of its avoiding the demand. Refusing credit, therefore, while any notes remain in the hands of the public, is refusing an interest which may help to make up the past losses. But of this more hereafter. In the next place, I think I have demonstrated, that as soon as the grand balance is paid, it is im- possible that any more demands for coin can come upon the bank for exportation. Why then should a bank do so signal a prejudice to their country, as to refuse to lend them paper, which the ready- money demands of the country must keep in cir- culation ? And why do this at so great a loss to themselves ? In this light nothing can appear more imprudent, than to refuse credit. A bank is forced to pay to the last farthing of this balance. By paying it, the notes that were ne- cessary for domestic circulation are returned to them; and they refuse to replace them, for fear that their supplying a circulation should create a new balance against them! This is voluntarily taking on themselves all the loss of banking, and rejecting the advantages of it. To bring what has been said within a narrower compass, and to lay it under our eye at once, let us call the sum of money necessary for carrying on the domestic circulation of a country where a bank is established, (A). The specie itself, to carry it on, (B). The balances to other nations, (D). PRINCIPLES OF MONEY. 213 The bank must be able to command coin and credit equal to the sum of (B) and (D). If they have in credit the value of (D) in any foreign place, where a general circulation of exchange is carried on, then they have occasion only for (B) at home, and can furnish bills to the amount of (D). But in furnishing bills to the amount of (D), those who receive the hills from the bank, must pay to the bank the value of these bills in bank notes: and the notes with which they pay for the bill- must be taken out of (A), which (A) we Mippose to be necessary for carrying on domestic circulation. This diminution upon the value of (A), will occa- sion a new demand for notes in order to carry (A ) to its former extent; and the bank at issuing the notes demanded, will receive new securities from those who demand them. Farther; the interest paid upon these new securities, will answer for the payment of the interest of the money -owing to foreigners, in consequence of the bills drawn upon them to the order of those who bought the bills from the bank for the payment of (D). This transaction concluded, the consequence will be; that (A) will be made up to the complete sum necessary for domestic circulation; and that the interest of the money borrowed from foreigners, in order to acquit the balance (D), will be paid out of the interest paid upon the new securities. As soon as (D) is thus completely paid off, were coin drawn from the bank, and sent away by pri- 214 ^RINCiPLES OF MONEY* vate people, (exchangers, c.) it would form a balance due to the country; which balance would render exchange favourable, and would occasion a loss to those who sent away the coin. During this period, the more credit the bank skives, so much more will its profits increase,, and no demand can be made upon it for coin. CHAPTER XI I L Continuation of the subject; and of the Principles on which Banks ought to borrow abroad^ and give Credit at home. TV. HE principle of banking upon mortgage, is to lend paper money, and to give credit to those who have property, and a desire to melt it down. If such banks, therefore, borrow, it must be done con- sistently with the principles upon which their bank- ing is founded. If the borrowing should tend to destroy those advantages which their lending had procured, theYi the operation is contrary to prin- ciples, and abusive. So much for recapitulation. PRINCIPLES OF MONEY. 216 Wliile trade flourishes and brings in a balance, banks never have occasion to borrow; it is then they lend and give credit. When the country where the bank is established begins to owe a balance to other nations, the bank is obliged to pay it off in coin or in bills. In such cases, it is inconsistent with their principles and in- terest, to withhold lending and giving credit, as far as is necessary lor keeping up the fund of domestic circulation. To refuse credit, and at the same time to borrow at home, must then, at first sight, appear to be doubly inconsistent. But in order to t, after a short circulation; and thus draw out again the whole coin furnished by the undertaker. This pro- duces a prodigious circulation of coin, and induces people to imagine that either the grand balance is inexhaustible, or that the premium upon money at L,ondon is very high, or that people can contrive a fictitious balance, as a means of profiting upon coin, after the balance has been actually paid. This method of providing coin is absolutely de- lusive, and opens a door to infinite abuse. Those who furnish the coin to tlie bank, are either in a concert against the bank, and drayv it out as fast as they throw it in; or they are not in a concert. If they be in a concert, they profit by it ; if they be not, they are hurt by their contract, and other ex- changers draw the advantage ; but the bank is equally a loser in both cases. Let me suppose that they are in no concert, and that they honestly procure the coin at their own expence. If the bapk pay them notes for the coin they furnish, we must suppose that the coin they have procured, is not in consecmence of a loan, but of a credit given them in the place from which the coin is sent : for I never can suppose that any mer- chant will borrow coin upon a loan, and lie out of so large a capital while he has bank notes in his 230 PRINCIPLES OF MONJE?, hand to pay what he has received. If he have pro* cured this coin upon credit, will not this credit, when it comes to be replaced, augment the grand balance against the nation in favour of the country or city which granted that credit? And must not that ba- lance be paid by exchangers out of the coin received by the bank? If, therefore, we suppose that the undertaker does not draw out the very coin he had just delivered into the bank, will not exchangers do it for him; will they not be ready with notes, as soon as the coin is lodged in the bank, to draw it out, and send it oftj in order to furnish the under- taker with bills to fill up his credit for the coin he had received from people residing in the place to which the exchangers have sent coin, to be ready to answer their draughts? Does this differ in the least from what is called drawing and redrawing, which is sufficient to ruin any man, and must not a like practice ruin a bank, by raising exchange to a monstrous height? This being the case, the shortest and best me- thod for preventing such abuses, is to oblige banks to pay upon demand, in coin or bills, at the option of the holder of the note. This will force them into the method for providing them; to wit, fairly to borrow money from nations to whom we owe, and to pay a regular interest for it, without an obli- gation to refund the capital, until the grand balance shall take a favourable turn; in which case, the banks will regorge with coin drawn from strangers; PRINCIPLES OF MOXEY. 231 and these strangers will then find as great an interest in being repaid, as the bank found in borrowing from f/ici/i, while the balance was in their favour. We have- said, that a statesman should oblige all public banks to pay regularly upon demand, in coin or bills, at the option of the holder of the note. But then he must facilitate to them the means which he has in his power for providing themselves with the coin, or bills demanded. For this purpose, lie mu>t lirt provide them with a mint; for how, without a mint, can a bank con- vert into coin the metals it may provide from other countries ? Next, he must put that mint under such regulations as to cut off all profit from money- jobbers, who will be ready to draw the coin out of the bank the moment they find the least advantage in tampering with it. In order to prevent this abuse, a reasonable rate of coinage should be imposed, ac- rording to the principles laid down in the third book; and when banks have occasion to pay a balance out of the nation's coin, a drawback for part of the coin- age should be given them. This drawback will sup- port the value of the coin, and the loss of the re- mainder of the coinage will engage them to export bullion preferably to coin, when it is to be found: and if no drawback were given, the coinage would be totally lost to the bank. When this deduction is given, the coin must be melted down, and stamped in bars at the mint; both in order to prevent frauds in the drawbacks, and to 232 PRINCIPLES OF disappoint strangers who receive it at the price df* bullion, from gaining the price of coinage when they return it back. And in the last place, all the light coin should be banished from circulation, and made to pass by weight, for bullion at the Current price df the market. All banks should both receive and de- liver coin by weight, when the sums are so consi- derable as to require full bags of coin to pay them. It is not here necessary to repeat what has been said tipon this subject so much at length in another place. The method of facilitating to banks the means df providing bills for the payment of foreign balances, is, secondly, to assist them in procuring loans beyond the district of their own circulation. If government shall be satisfied that the intention of demanding such loans, is to enable the bank to interpose their credit in favour of the trade and industry of those who circulate their paper, and who have no way of paying such balances, but with their solid property; in this case, government will undoubtedly assist the bank in obtaining loans for so national a purpose, by declaring the security upon which they desire the loan, to be good, and by becoming answerable to the public for the solidity of it. PRINCIPLES OF MONEY. 233 CHAPTER XV. Of subaltern Banks of Circulation, and of their Com- petition with one another. E have hitherto treated of the principles which influence national banks of circulation; we now come to examine some peculiarities attending hanks of a subaltern nature, which for the most part trust to the national bank for all supplies of coin ; and when this resource fails them, they are thereby involved in difficulties which are not easily got the better of. Besides this inconvenience, to which all subaltern banks are subject, they are frequently exposed to competition with one another. The great point of their ambition is to gain cre- dit with the national bank; and could they prevail with that company to receive their notes, or to give them credit for their draughts, in cases of necessity* they would be at their ease; because the national bank would then be at the whole expence of provid- ing coin and bills, and they would have nothing to think of, but to extend the sphere of their own cir- culation. Did these banks consider one another in a proper Hb 234 PRINCIPLES OF MONEY. light, they must see in an instant that the solidity of every one is equally good; because I now suppose them all standing upon the principles of private, not mercantile credit, as above explained. What benefit then can they possibly reap from their mutual jealousies, from gathering up each other's notes, and coining with a run upon one another from time to time? The consequences of this will be, to oblige themselves and others to pre- serve for domestic circulation a larger quantity of coin than is necessary, and thereby to diminish their own profit. If, as matters stand, a very great inconvenience result to Scotland from the want of a communica- tion of paper credit with England, and if thereby an exchange of 4 and even 5 per cent, have been paid for bills upon London, because all the coin in Scotland is locked up in banks; I ask what would be the consequence, if banks had their will in ba- nishing from the circulation of their own district, every other notes but their own? In this case, we might, in a short time, find an exchange of 4 and 5 per cent, between Fife and Lothian, between Glasgow and Ayr, and so of the rest. What would then become of manufacturers, who could not dis- pose of their work at the distance of a few miles, without having recourse to exchangers for their payment? If such an abuse were once allowed to creep in, there would be no other remedy but to destroy banks altogether, and throw the little coin there is into circulation. PRINCIPLES OF MONEY. 235 CHAPTER XVI. Of some Regulations proper to be made with regard to national Banks. JD ROM what has been viicl, we may conclude, that were a national bank upon mortgage, estab- lished on a plan calculated to answer the purposes of the most extensive domestic circulation, it might be regulated in the following manner. First, Let a large stock of property, of one spe- cies or other, be provided, in order to gain the con- fidence of the public, and let it be pledged for the payment of all the notes. Secondly, Let all solid property intended to be melted down into paper money, be first constituted in such a manner as to be easily sold, and in the mean time secured to the company, for their ad- vance, preferably to every other person; and let it be of a revenue fully sufficient to acquit the interest for ever. Thirdly, The capitals due to the bank must not be demandable by the bank, as long as the interest is regularly paid. Fourthly, All bank securities must be pledged in 236 PRINCIPLES OF MONEY. the hands of Government for the interest of what- ever money the bank may borrow with their consent, beyond the district of their own circulation. Fifthly, A national, bank when rightly constituted, may however be safely indulged in more extensive methods for circulating their paper, than merely on land security. The bank of England is allowed by charter to issue notes for discounting bills of ex- change; it may trade in gold and silver; and may advance money to government upon the security of taxes imposed and levied with the year: but it is in general debarred from commerce, and every pre- carious object of traffic. The reason is plain. The paper it issues becomes the property of the na- tion, and may form in a short time the greatest part of the currency of it. In such a case, were the bank exposed to losses by trade, or by the insolvency of debtors for great sums, the whole credit of the nation might be ruined, and all the lower classes of the ma- nufacturing inhabitants undone, before such a blow could be repaired. Sixthly, Under proper regulations, bank paper might be made a legal tender in every payment: in which case it is hardly possible that any considerable demand for coin should ever be made upon them, except for the payment of the grand balance. Seventhly, This national bank ought to have diffe- rent offices in different cities within the kingdom, and these would make subaltern banks both useless and unprofitable. It might even be stipulated, that a cer- PRINCIPLES OF MONEY. 237 tain proportion of bank stock, placed in the name or for the behoof of any city, should entitle that city to a proportional part of the administration \vithin their own district. CHAPTER XVII. When and in what Case Banks should le obliged fo keep open Books. JlF no national bank be established under proper regulations, and if entire liberty be allowed to every one to take up the trade of banking, who can issue his notes, I think it is against all principles of good policy not to oblige such banks to keep books open, to be inspected regularly by some authority or other; in order to see upon what security that paper stands, which is the instrument of commerce, and a part of every man's private property. This policy is the more necessary, because, were any one bank to break, either through knavery, misconduct, or misfortune of a particular company, this would cast a general discredit upon all paper money, and be the means of bringing on those calamities which we have so often mentioned. 388 PRINCIPLES OF MONEY. The ordinary objection against this proposal is, the inconvenience of throwing open the secrets of trade. But here, I say, if the affairs of a hank are in so ticklish a situation as not to bear inspection, this very supposition shews how necessary it is not to permit such a bank to continue its circulation. The only inspection, in which the public is interest- ed, is to know the quantity of notes which are issued, and the extent and nature of the securities pledged for them. They have no business to examine the state of the bank cash, or of particular people's cre- dit. The bank may be without a shilling in its coffers, and still its paper be as good as if it had a million. Such an inspection, as I propose, would rather confirm than shake its credit, but it would be the means of preventing it from launching out into speculations in matters of commerce, which is not its district; and from gaming with national property. It is not sufficient to say, that the holder of the note, if he doubts the security, may demand payment of it: because it is not here the interest of any indi- vidual, but that of the public, which we are attend- ing to. If, according to the principles of common reason, it be just that a creditor should have it in his power to watch over the abilities of his debtor, so as to secure his payment; certainly it is. equally just that the public, which I consider here as the credi- tor, should be made certain that what is circulating with as great facility as the king's coin, does contain a real value in it. Would it be a good answer from PRINCIPLES OF MONEY. 239 any man who held a piece of false money in his hand, for the use of circulation, to skreen himself by alleging, that if it be false, nobody need take it I It is the right of every man to detect false coin; but it is the right of government only to detect doubtful paper: because law only can authorize such an in- quisition. Does not the charter of the bank of Entr- land establish this right in government? CHAPTER XVIIL Is it flie Interest of Banks to grant Credits and Cash Accompts to Exchangers and otliers, who make a Trade of sending Coin out of the County? T. HE answer to this question is very short. From the principles we have deduced, it is plain, that it is both the office and interest of banks to give credit to all who can give good security for it. To set this matter in a clear light, let me suppose that, some time ago, the banks had at once with- drawn all the credits granted to exchangers; and opened a subscription for a loan of money, equal to S40 PRINCIPLES OF MONEY. what they might estimate the sum lent to this set of men within the country, for the sake of carrying on their business. According to principles, these two operations should go hand in hand: the recalling the credits would, no doubt, have greatly distressed exchang- ers ; but as long as they could find money to bor- row from private hands, this inconvenience would have been lessened. Besides, I apprehend that the late custom among exchangers, of borrowing at 4 per cent, owes its existence to the difficulty they felt in obtaining extensive credits from the bank; and if this be the case, then there has been a lucrum ce.v- sans to the bank of 5 per cent, upon the amount of all these borrowings ; because exchangers, I appre- hend, would prefer a credit from the bank at 5 per cent, to a loan at 4 per cent, payable on demand, according to the occasions of those who keep their money with them. The most effectual method, therefore, to hurt ex- changers, would have been to have recalled all their credits, and offered to borrow, upon the same terms, what was lent to them. The execution of such a plan would, I think, have been, first, diametrically opposite to the inte- rest of the banks; secondly, would have occasioned such a run upon exchangers, as to throw them into great distress ; and thirdly, would have ended in the total ruin of the trade of Scotland. That such a plan is diametrically opposite to all PRINCIPLES OF MONKY; 241 priiiciples of bunking, I suppose, is by this time suf- ficiently understood. Tii:it it would have occasioned a run upon ex- changers, is pretty certain; because, however ^ood their credit might be, it mu>t bo acknowledged to be inferior to that of the banks: and therefore nobody would prefer them for debtors, to the bank, upon the same ter The third consequence is as evident, upon a short reflection, as the other two. The run upon the ex- changers would have obliged them to make a call upon all the merchants and dealers in Scotland, to whom they gave credit: for which purpose, and for which alone, they find an interest in borrowing at so high an interest as 4 per cent. The call, then, made by the exchangers upon their debtors, is neither more or less than a call upon the money employed in the trade of Scotland. CHAPTER XIX. Application of the Principles above deduced, towards forming the Policy if Circulation. JL ROM the principles above deduced, there arise three principal objects of attention. The first, the circulation of paper for domestic li 242 PRINCIPLES OF MONEY. The second, the method of providing coin for this purpose. The third, the method of paying foreign halances. These three ohjects are absolutely different in their nature, and they are influenced hy different principles. The consequence of blending them to- gether, is to render the subject, which is abun- dantly intricate in its own nature, still more dark and perplexed. First, As to the circulation of paper for domestic use. It has been said, that the great utility of banks of circulation upon mortgage, was to facilitate the melting down of solid property; in order to enable every one who has property, to circulate the capital of it for the advancement of industry. For this purpose he comes to a bank, pledges the capital he wants to melt down, and receives for his obligation, bearing interest, paper money which bears none. From these data, I say, that the regular method hy which the bank should acquit the obligation in the notes, is by restoring the security granted at issuing the notes, if they be returned by the debtor in it. All farther obligations laid upon banks, par- ticularly that to pay in coin or inland bills, is merely an equivalent expected from them in lieu of their great profits. When paper issued for domestic circulation re-. turns to a bank, were it not for the profits on their PRIN'CIPLES OF MONKV. 2-13 trade, I see no reason why a bunk should pay in any other species of property than what it received; and if, by the interest they receive for their noU-. they be abundantly indemnified tor all the difference between paying in coin and in transfer, I think the public would be a gainer to dispense with this obli- gation in lieu of an abatement of interest; which would be an advantage to commerce, not to be coun- terbalanced by the other. Secondly, The method of providing coin for do- mestic circulation is the business of mints, not of banks. I have, in the third book, treated very fully of the doctrine of coin, and of mints. I have shewn the difference between money, which i\ the scale for reckoning value, and coin, which /.y certain deno- minations of money, realised in a proportional weight of the precious metul*. 1 have Uiesvn how necessary a thing it is to impose the price of coinage upon the metals manufactured into coin: and I have said that it is inconsistent with all principles, to allege that the metals, when coined, should thereby acquire no additional value. The expence, therefore, of providing the inet-il- should be thrown upon those who want coin ; and the mint should be obliged to convert gold and silver into, coin, upon the demander's paying the coinage. This coin loaded with the price qf coinage, never will be sent abroad to pay a foreign balance; never will be locked up in banks, which will have little 244 PRINCIPLES OF MONEY. occasion for it. It will, therefore, remain in circu- lation., and serve those purposes for which the inr habitants think fit to employ it. This coin, I say, never will be exported, as long as any uncoined metals can be found in the country: and if upon a national distress it be thought fit to facilitate the exportation of it, the state may (as we observed above) appoint the mint to receive it hack, in order to melt it down into ingots, stamped with the mark of sterling, repaying to the bearer per- cent, of the coinage. Thirdly, The trade of paying off foreign balances will then become a particular branch of business ; of which we shall treat more at large, when we come to examine the principles of exchange. All that is necessary to be said in this place, is to recal the principle we have mentioned above, viz. that when a nation cannot pay in her metals, ma- nufactures, and natural produce, what she owes to strangers, she must pay in her solid property, that is, she must mortgage the revenue of such property, for a capital borrowed out of the country, which capital she must employ for the payment of her foreign debts. This operation, then, should be performed by a. regular and systematic plan. PRINCIPLES OF MONEY. CHAPTER XX. Objections to this Doctrine. JL HAT bank notes can never be received as ape-: cie, but from a persuasion that they may be ex- changed for it on demand. To this I answer, that it is sufficient they be re- ceived as value; and that they answer i-very purpose in carrying on alienation. The use of paper money is to keep the reckoning between parties, who are $olbendo; the use of specie or coin is to avoid the inconvenience of giving credit to persons who per- haps may not be so. When merchants inake delivery on account, they . then give credit to their customers : when they sell for bank bills, they give credit to the bank: when they are paid in coin, they give credit to nobody; because they receive the real value in the coin Where then is the difference between receiving the real value, and receiving an obligation for it, con- cerning the validity of which every one in the coun- try is perfectly satisfied? Money, we have said, ought to be invariable in its value: coin never can be so, because it is both money and merchandize; money, with respect to the denomination it carries by law; merchandize, 246 PRINCIPLES OF MONEY. with respect to the metal it is made of: but paper may. If the country owes a balance to other nations, let it be paid; nothing so just. If the precious metals be the most proper vihicles, as I may say, for conveying this value, let them be procured and sent off; but never let us say, that be- cause some of our money may be made of these me- tals, that all our money should be made of them; in order that those who transact the balance may have an opportunity of sending our metals away with, greater ease, and thereby depriving us of the means of carrying on alienations among ourselves. CHAPTER XXL How by a return of a favourable Balance tfie Bank may be enabled to pay off the Debts due to Fo* reigners, and thus deliver the Nation from that Burthen. \ >EFORE the payment of any balance for the behoof of Scotland be made, the securities in the hands of the bank can be equal only to the notes in PRINCIPLES OF MONEY. 24JT domestic circulation, and the accumulated profits thereon. Let this he called (A). In proportion as these notes come hack upon the hank, in a demand for bills to pay balances; in the saint? proportion will there be a sum of securities added to the former mass (granted upon new credits given for filling up the void thereby occasioned to domestic circulation), which (juantity I shall call (B). (A), then, represents the securities equivalent to the notes in circulation. (B) represents the securities equivalent to the debts contracted by the bank, in favour of stran- gers. Now let us suppose trade to become favourable, and to produce a balance in favour of Scotland; what will be the effect of this ? I say, that this balance will be paid to Scotland, either in coin, or in the metals, or in produce, or in. manufactures, or in bills. If it consists in the metals, it will, if coined, fill up, pro tanto, a part of circulation : this will make a proportional part of bank paper return upon the bank, and extinguish a proportional part of their securities; which we have called (A). But then there w r ill he more coin in circulation than former- ly; consequently, more coin will enter into pay- ments made to the bank, than formerly. But we must suppose, that before this favourable turn of commerce, there was coin enough both in the bank, and in the country for the uses of domestic circula- 248 PRINCIPLES OF MONEY. tion ; consequently, the bank will send off this su- perfluity of coin, and with it they will repay a part of the debt they formerly contracted. In the next place, let us suppose this favourable balance to consist in foreign bills, upon London, Amsterdam, &c. These will be discounted by the bank, and notes issued for them. The bills will be sent off by the bank, in order still to extinguish a part of what is owing to foreigners. These notes^ again, being superfluous to circulation, which we suppose to be full, will return upon the bank, and still diminish the mass of (A). By these operations, we see how (A) will be con- stantly diminishing; but then, in the same propor- tion 5 we see how the mass of foreign debts will also be diminishing. Consequently (B), which was en- gaged for them, will be returning to be the free pro- perty of the bank; and as we suppose no variation upon tile sum in circulation, we may consider this as a sort of conversion of (B) into (A), and when all (B) shall be thus converted into (A), then the debt formerly contracted by the bank, in favour of Scotland, will be totally paid off by the same me- thod, (only inverting the operations) by which it was contracted. PRINCIPLES OF MONEY. 949 CHAPTER XXII. Of the Bank of England and Banks of Circulation established on Mercantile Credit. i HAVE examined with all the care I am capable of, the nature of banks calculated lor the melting down of solid property, and the converting of it into paper for the use of circulation. The nature of such banks is but little known in countries where they have not been established; there- fore a distinct account of them may suggest hints, which in time may prove useful. I now proceed to i\ deduction of the principles on which are founded those banks which are chiefly cal- culated for the use of commerce; and, as the ground- work of my inquiry, I shall trace some of the princi- pal operations of the Bank of England. The establishment of this great company was formed about the year 1694. Government at that time having great occasion for money, a set of men was found who lent to it about ^Cl,20O,OOO sterling, at 8 per cent, for the exclusive privilege of bank- ing for 13 years: with this additional clause, that ^4000 sterling per annum should be given them ^ 250 PRINCIPLES OF MONEY. to defray the expence of the undertaking. This sum of 1,200,000 sterling, was the original bank stock. It has been since increased to 1 1^000,000 by farther loans to government, for the prolonga- tion of their privileges ; as has been taken notice of in the ifith chapter of the second part. This stock, as in banks of circulation upon mort> gage, is to be considered only as a subsidiary secu- rity to the public for the notes they issue : were it the principal and only security for their paper, this bank would then be founded on the principle of public, not of mercantile credit; under which last denomination we are going to point out in what the nature of it differs from those we have already ex- plained. It is a rule with the bank of England to issue no notes upon mortgage, permanent loan, or personal security. The principal branches of their business may be comprehended under four articles, viz. 1 . The circulation of the trade of London. 2. The exchequer business of Great Britain. 3 . The pay- ing of the interest of all the funds transferable at the bank. 4. Their trade in gold and silver. I shall now shortly explain the nature of these four great operations; and first, as to the circulation of the trade of London. If a London merchant has occasion for money at any time, he sends to the bank the bills he has, be- fore they become due ; and the bank discounts them at certain rates, according to the nature. PRINCIPLES OF MONEY. 25JI If it be a foreign bill, the bank, in discounting it, retains of the sum, at the rate of 4 per cent, per an- Hum, for the time the bill has to run ; but if the bill be at a longer date than 60 days, they will not dis- count it. So in this case the merchant must keep his bill until it is within 60 days of the term of payment. The reason for this i* evident: the security upon which such bill stands, is purely mercantile. The nearer, therefore, the payment is, the less risk the bank incurs from the failure of those who are bound in it. The intention of this operation of discounting bills, is plainly to employ the cash of the bank in a Way to draw an interest for it; but as merchants al- low their money to lie dead for as short a time as they possibly can, the bank must have quick returns for what they advance upon discount, in order to be constantly ready to answer all demands. This is no loss to the bank, and a prodigious advantage to trade, as I shall briefly explain. The bank is constantly receiving cash from every person who keeps their cash with it. This occasions a constant fluctuation of payments, which of course must leave at all times a considerable sum of other people's money in the bank; because it never is in advance to any one. By long practice in the trade, this sum of money becomes determinate: let us call it the average- money in the hands of the bank. It is then with 252 PRINCIPLES OF MONEY. tliis average-money alone, that the bank can dis- count bills. Now if the trade of London do afford bills to be discounted at different dates within Sodays, sufficient to absorb the whole average-money of the bank appropriated for discounting, this branch of business would not go forward with the celerity required for the trade of London, did the bank in- dulge merchants so far as to discount at a longer From this AVC learn another reason why the bank of England discounts no bill which has more than 60 days to run. The first, mentioned already, is for the greater security of payment; and the se- cond, which we now discover, is in order to be ablo to discount more bills th an other wise they could do, did they discount at a longer day. Besides foreign bills, which the bank of England tlisrounts at 4 /wr cent. they also discount inland bills, and notes of hand between merchants in Lon- would be compensated by the reciprocal debts due by Lon- don for subsistence, &c. and the compensation would go on as at present by bills. But were the case other- wise, and did a change of circumstances oblige the country to make delivery in coin to London, the hold- ers of the country notes would constantly, as is the case in Scotland, have recourse to the bank establish- ed in the district, for the coin wanted to be sent to London. CHAPTER XXIII. Of the Jirst Establishment of Mr. Laws Bank in France, in 1716. AN deducing the principles of credit, I have It chiefly in view, to set in a fair light, the security on which paper money is established: and, as I ima- gine this important branch of my subject will still be rendered more intelligible by an example of the abuse to which this great engine of commerce is ex- PRINCIPLES OF MON 26l posed, I now propose to give my reader a short ac- count of the famous bank of circulation first esta- blished iu France by Mr. Law; but afterwards pros- tituted, (whether by design or fatality, I shall not here determine), to serve the worst of purposes; defraud- ing the creditors of the state, and a multitude of pri- vate pei-sons. So dreadful a calamity brought upon tbat nation, by the abuse of paper credit, maybe a warning to all states to beware of the like. The best way to guard against it, i> to be apprised of the delusion of it, and to see through the spring and motives by which the Missisippi bank was conducted. After the death of the late kini: oi France, Louis XI V. the debts contracted by that monarch were found to extend to 2OOO millions of livres; that is, to upwards of 140 millions sterling. It was proposed to the Duke of Orleans, regent of the kingdom, to expunge the debts by a total bank- ruptcy. This proposal he rejected nobly; and in- stead of it established a commission, called the Visa, to inquire into the claims of such of the nation's cre- ditors as were not then properly liquidated, nor se- cured by the appropriation of any fund for the pay- ment of the interest. After many arbitrary proceedings, this commis- sion threw the king's debts, at last, into a kind of order. Those formerly provided for were all put at 4 per 26*2 PRINCIPLES OF MONEY. cent* The creditors, to the amount of six hundred millions, which had not been liquidated, nor provided for, had their claims reduced, by the commission to two hundred and fifty millions ; for which they ob- tained notes of state (Billets d'etat, as they were cal- led), bearing an interest of 4 per cent. also. These operations performed, the total debts of the late king were reduced to the sum above mentioned; to wit, two thousand millions; bearing an interest of 4 per cent, or eighty millions per annum. From the necessities of government, and the dis- tressed situation of the kingdom, this interest was ill paid ; and there hardly remained, out of an ill-paid revenue, wherewith to defray the expence of the ci- vil government. About this time, Mr. Law presented to the regent the plan of a bank of circulation. For the better understanding of this affair of Mr. Law's bank, and the views he had in establishing it at that time, I must give a short account of the most material variations of the French coin, 'before and after the king's death, September 1, 1715; which I shall make as short as possible, consistently with per- spicuity. PRINCIPLES OF MONEY. CHAPTER XXIV. flirtations in the French Cohi, before and after the Death of Louis XIV. N the year 1709, there was a new general coin- age in France; by which operation the king gained 23rj per cent, upon all the specie coined*. Out of the marc of standard gold were coined 3O louis (Tors, of 20 livres denomination each. Out of the marc of standard silver, 8 crowns, of 5 livres de- nomination each. So that the silver was put at 40 livres the marc. But, JJy an edict of the month of September 1713, the old king appointed a diminution of the denomina- tion of silver and gold coins; by which, after eleven successive changes, the coin of France was ordered to he brought down, from 40 livres the marc, to 28: so that the 8 crowns, which were called 40 livres in the month of September 1713, by the second day of September 1,7 15, (the day after the king's death), were to be called only 28 livres. I say, called, be- * Dutot, vol. i. page 104. PRINCIPLES OF MONEY. cause certainly the crowns had suffered no variation but in their name. On the 15th of August 1715, a few days before the king's death, he issued a declaration, ordering that for the future the silver coin should remain at 28 livres per marc. At this rate of conversion the two thousand mil- lions were equal to 14 2, 8 5 7,1 40 sterling. Soon after the king's death, on the second of Ja- nuary 1716, the new ministry issued an edict, which totally destroyed, all. This was the most extraordi- nary operation, I believe, that ever was invented; and to it was owing the establishment of Mr. Law's bank. I must therefore explain it. There had been no general coinage since 170/; the Ion is d'or had then been coined at 20 livres, and the crowns at 5, as has been said. The edict of 2d January 1716? ordered a new general coinage, on the same footing, both as to weight, fineness, and denomination, as that of 1709: the only difference was, that the first had an old man's head upon it; the other had that of a child of six years old. By this first operation, there was an end put to the former diminutions on the denomination of the coin; which was now raised again to 40 livres the marc, as in 1709. This is nothing. ^ There being no difference between the old coin and the new, except the stamp, the old coin was called in, and a new face was stamped on the very same pieces. But when the louis d'ors were called PRINCIPLES OF MONEY. 265 in, they Were received at the mint at no more thart 16 livres; and by a stroke of the wheel, they were> in an instant, converted into 20 livres, the denomi- nation of the new coin. Thus a person who brought 20 old louis d'ors to the mint, received back l6 of his own 20, new stamped, and no injustice was said to be done. Under these circumstances, it was natural for the inhabitants to wish to dispose of their old coin> at any other market than that at the King's mint. They did what they could to smuggle it to Holland; where the industrious Dutchman stamped a 16- livre piece with the head of a child, as well as the king of France could do, and sent it back to France for a 20-livre piece. These operations were prevented as well as government could; and every method was tried to force in the old coin to the mint. Mr. Law judged this a very proper occasion to form the plan of a bank of circulation, upon the prin- ciples we have already explained * He gave in his scheme to the Duke of Orleans; by whom it was approved of; and the bank was esta- blished the 2d of May of the same year, 1716. The first thing Mr. Law did, was to buy up with bank notes this old coin, at a price above what the mint gave for it; but many per cent, below the pro- portion of its value: his paper (payable in the new coin at 40 livres per marc) was sought after for this as well as other reasons ; and an immense profit ensued. Mm 26*6* PRINCIPLES OF MONEV. CHAPTER "XXV. Continuation of the Account of Law's Bank. HE bank accordingly was established in favour of Law and Company, by letters patent, of the 2dof May 1716- The company was called, the General Bank; and the note run thus: The bank promises to pay to the bearer at sight livres, in coin of the same weight and fineness witU the coin of this day, value received at Paris. The first fund of this bank consisted in 1200 ac- tions (or shares) of one thousand crowns (or 5000 livres) bank money; in all six millions ; consequent- ly, the shares were worth ^250 sterling, and the bank stock worth ^200,000 sterling. By the clause in the note, by which the bank was obliged to pay according to the then weight and fineness of the coin, those who received their paper were secured against the arbitrary measures common in France of raising the denomination of the coin; and the bank was secured against the lowering of it. In a short time, most people preferred the notes to the coin; and accordingly they passed for 1 per cent. more than the coin itself. This bank subsisted, and obtained great credit, PRINCIPLES OF MONEY, until the 1st of January 1/19; at which time the king reimbursed nil the proprietors of the shares, and took the hank into his o\vn hand, under the name of the Uoyal Bank. Upon this revolution, the tenor of the note WUN changed, It ran thus: The hank promises to pay- to the hearer at sight .... li\ res, in silver coin, value received at Paris. By this alteration, the money in the notes was made to keep pace with the money in the coin; and both were equally affected hy every arbitrary vari- ation upon it. This was called rendering the paper monnoiejixe ; hecause the denominations contained in it did not vary according to the variations of the coin: I should have called it montion* variable; he- cause it was exposed to changes with respect to its real value. Mr. Law strenuously opposed this change in the bank notes. No wonder! it was diametrically op-r ppsite to all principles of credit. Jt took place, however, and nobody seemed dissatisfied; the na- tion was rather pleased: so familiar were the varia- tions of the coin in those days, that nobody ever considered any thing with regard to coin or money, but its denomination. The consequences of the vari- ations in the value of denominations, upon the ac-= compts between debtors and creditors, were not then attended to; and the credit of the notes of the royal bank continued just as good as the credit of those of * Law's had been; although the livres in this con- PRINCIPLES OF MONEY. tained a determinate value; and the livres in that could have been reduced at any time to the value of halfpence, by an act of the king's authority, who was the debtor in them. Nay more, they in fact stood many variations during the course of the sys- tem, without suffering the smallest discredit. This appears wonderful; and yet it is a fact. As long as the credit of this bank subsisted, it appeared to the French to be perfectly solid. The bubble no sooner burst, than the whole nation was thrown into astonishment and consternation. No- body could conceive from whence the credit had sprung; what had created such mountains of wealth in so short a time; and by what witchcraft and fas- cination it had. been made to appear in an instant, in the short period of one day. I shall now proceed to set before my reader the great lines of the royal Missisippi bank of France, from the 1st of January 1719? to the total overthrow of all credit, upon the fatal 21st day of May 1720. This was a golden dream, in which the French na- tion, and a great part of Europe was plunged, for the shoit sj:ace of 506 days. PRINCIPLES OF MONEY, 269 CHAPTER XXVL Account of the Royal Mississippi Bank of France, e$-* talllshed on Public Credit, N order to unravel the chaos of this affair in a proper manner, it will not he amiss to begin by giv- ing the reader an idea of the plan which naturally might suggest itself to the regent of France, from the hint of Mr Law's bank. By the help of this clue, he will be the better able to conduct himself through the operation of this system, as the French call it. The regent perceived, that in consequence of the credit of Law's bank, people grew fond of pa- per money. The consequence of this, he saw, was to bring a great quantity of coin into the bank. The debts of France were very great, being, as has been said, above 2000 millions. The coin, at this time, in France, was reckoned at about 1200 mil- lions, at 60 livres the marc, or 40 millions sterling. The regent thought, that if he could draw either the whole, or even the greatest part of this 1200 millions of coin into his bank, and replace the use of it to the kingdom, by as much paper, secured upon his word, that he should then be able to pay 37 PRINCIPLES OF MONEY, off, with it, near one half of all the debts of France; and by thus throwing back the coin into circulation, in paying off the debts, that it would return of itself into the bank, in the course of payments made to the state; that credit would be thereby supported, as the bank would be enabled to pay in coin the notes as they happened to return, in the course of domestic circulation. Accordingly, during the whole year 1719? the qredit of the royal bank was without suspicion, al- though the regent had, by the last day of December of that year, coined of bank paper, for no less a sum than 769 millions, reckoning in 69 millions of paper which had been formerly issued by the ge- neral bank of Law and company; for which he had given value to the proprietors, when, he took the bank into his own hands, as we have said above. I must here observe, that by this plan of tjie re- gent, there w r as, in one sense, a kind of security for the notes issued. So far as they were issued fqr coin brought in from the advanced value of the paper, this coin was the security: in the second place, when the coin was paid away to the creditors; of the state, the regent withdrew the obligations, which had been granted to them; and although J allow that the. king's own obligation withdrawn, was no security to the public, who had received bank notes for the payment of it; yet still the in- terest formerly paid to the creditors, was a fund out qf which, upon the principles of public credit, the annual interest for the notes was secured, OF MONEY. r llie next remarkable and interesting revolution made upon this famous bank, was by the arret of 22d February, 1/2O; which constituted the union of the royal bank with the company of the Indies. By this arret, the king delivered to that company the whole management of the bank, with all the pro- tits made by him since the first of January 1/19* and to be made in time to come. Notwithstanding tli is cession, the king remained guarantee for all the notes, which were not to be coined without an order of council: the company was to be responsible to the king at all times for their administration; and, as a security for their good management, they engaged to lend the king no less than sixteen hun- dred millions of livres. Here is the rera and beginning of all the con- fusion. From this loan proceeded the downfal of the whole system. But before I proceed to explain the scheme of the regent in these operations upon credit, I think it will contribute to the clearing up of the subject in general, to premise some short account of the rise and progress of this great company of the Indies: and to give a short abstract of some of the most me- morable transactions during the Missisippi scheme, in the order of time in which they followed one another. PRINCIPLES OF M CHAPTER XXVIL A short Account of the French Company of the Indies. c ARDINAL de Richlieu, that gi'eat minister to Louis XIIL was the first who established trading companies in France, 1628, about the time of the siege of Rochelle* He then set on foot the companies of the West and East Indies. Several others, viz. one for Canada, one for the Leeward Islands, and another for Cayenne, were successively established in the beginning of the reign of Louis XI V* These companies, before 1664, had frequently changed thejr forms, and had succeeded very ill. At that time the great Colbert was in the admn nistration of the king's affairs. He engaged his master to think seriously of establishing the trade of his kingdom upon solid principles ; for which rea- son all the partners in the former projects of com- merce to the new world were reimbursed ; and a new establishment was made, called the Compagnie des Indes Occidentales. This exclusive trade comprehended that of Ca- PRINCIPLES OF MONEY. 2*3 nada, the Caribbee Islands, Acady, Newfoundland, Cayenne, the French continent of America, from the river of the Amazons to that of Oronoko, the coasts of Senegal, Goree, and other places in Africa; the whole for -i(J years. The game year, lo'b'-l, there was another company formed for the east Indies, of which we shall speak afterwards. The greatest* encouragement was given to these new establishments. Large sums were advanced by the king for several years without interest, and upon condition, that if at the end of that term any loss were found on I lie trade, it should fall upon the mo- ney due to the king. On examining into the West India company's af- fairs, after trn years' administration, that is to say, in the year l(>7-4, it was found, that instead of pro- fiting of their exclusive privilege, by carrying on a regular trade themselves, they had sold permissions to private people to trade with thefli. This abuse committed by the company had, how- ever, inspired a taste for trade among the French; which the king wishing to promote, he reimbursed to the company all their expences, added their pos- sessions to his domain, and threw the trade open to his subjects. Thus ended the first company of the West Indies, railed by the French, the Compagnie d Occident. After the suppression of this company, the French tjade to America was carried on and improved by Nn 274 PRINCIPLES OF MONEY. private adventurers, some of which obtained particu- lar grants, to enable them to form colonies. Of this number was Robert Chevalier de la Sale, a native of Rouen. It was he who first discovered the river Missisippi, and who proposed to the king, in l6$3, to establish a colony there. He lost his life in the attempt. Hiberville, a Canadian, took up the project; but soon died. He was succeeded by Anthony Crozat, in 1712, who had better success : but the death of the king in 1715, and the rising genius of Mr. Law, engaged the regent of France to make Crozat re- nounce his exclusive privilege of trading. Upon which, by edict of the 6th of September 171 7> was formed the second Compagnie d' Occident, in favour of- Mr. Law: to which was added the fur trade of Canada, then in the hands of private adventurers, and with these, the farm of the tobacco, for which he paid 1,500,000 livres a year. I now come fo the East India company. I have already mentioned the establishment of it by the great Colbert, in 1664. After his death, want of experience in those who succeeded him, abuse of administration, carelessness in those who carried on the company's business, competition between different companies, and, in short, every obstacle to new establishments, con- curred with the consequences of the long and ex- pensive wars of Louis XIV. to render all commer- cial projects unsuccessful; and all the expence be- PRINCIPLES OF MONEY. #75 stowed in establishing these companies was in a manner lost. In 1710, the merchants of St. Malo undertook the East India trade. It languished in their hands until 1719* an d their importations were not suffi- cient to supply the demand of France for India goods: for this reason it was taken from them, and incorporated with Mr. Law's company of the West Indies, in May 1719. By this incorporation was established the great Company of the Indies, which still subsists in France: the only monument extant of the famous and unfor- tunate Law. For the better understanding, therefore, what is to follow, let us attend to some historical and chro- nological anecdotes, relative to the wonderful ope- rations of this Missisippi bank, and company of the Indies. These I shall set down according to the order of time in which they happened, and my reader may have recourse to them as he goes along. Without the help of this table, I should be in- volved in a history of those events, which, however amusing it might be to some readers, would be quite inconsistent with the nature of this inquiry. 276 PRINCIPLES OF MONEY* CHAPTER XXVIll. Chronological Anecdotes. 1709. JjL GENERAL coinage in France; the marc! of standard silver, worth two pounds sterling, put at 4O livres denomination. Septemher 1713. The king reduces the denomi- 1 nation of the silver coin to 28 livres the marc, and the gold in proportion. These reductions were made gradual and progres- sive, and were finally to take place no sooner than the 2d of Septemher 1715. August 1715. The king declares, that in time- to come, the coin was to remain stahle at 28 livres the marc of fine silver. September 1 5 1715. The king dies. January 2, l/l6. The regent of France order* a new general coinage; raises the silver coin to 40 livres the marc, and cries down the old king's coin (though of the same weight, fineness, and denomi- nation) 20 per cent. May 17l6\ Law's hank established; bank notes coined; and the old coin bought up at great dis* count. September 6, 1717- Law's company of the West established. PklNClfLfcS dF MONfcV: September 4, 1718. He undertakes the Farm of tobacco. September 22, 1718. The first creation of ac^ tions of the company of the West, to the number of 200,000, subscribed for in state billets^ at the rate of 5OO livres per action. January 1, 1719- The bank taken from LaW, and vested in the king. At this time the number of bank notes coined, amounted to 59 millions of livres. April 22, 17*9- A new coinage of 51 millions of notes; in which the tenure of the note was changed, and the paper declared monnoieji May 1/19. Law's company of the West incor- porated with the company of the East Indies; after which it was called the Company of the Indies. June 1719. Created 50,OOO new actions of the incorporated company; sold for coin at 550 livres er action. June 3, 17!9- The mint made over to the com- pany for 50 millions. June 10, 1719. Coined of bank notes for 5O millions of livres. July 1719. Created 5 0,OOO actions as above; old for notes, at 1000 livres per action. July 25, 1719. Coined of bank notes for 24O millions. August 1719. The company obtains the gene- ral farms ; promises a dividend upon every action of 200 livres; agrees to lend the king sixteen hun- PRINCIPLES or MONEY. tired millions at 3 per cent, and have transferred to them 48 millions per annum for the interest of that sum. September 12, 1719- Coined of bank notes for 1 20 millions* September 13, 17 19- Created no less than 100,000 actions; price fixed at 5000 livres per action. September 28, 17 19* Created 100,000 more actions; price as the former, fixed at 5000 livres each. October 2, 1719. Created 100,000 more actions; price as the former, fixed at 5000 livres each. October 4, 1719. Coined by the regent's pri^ vate order, not delivered to the company, 24,000 more actions, which completed the number of 624,000 actions; beyond which, they never ex- tended. October 24, 1719. Coined of bank notes for 120 millions. December 29, 1719- Coined of bank notes for 129 millions. January 1720. Coined. of bank notes for 21 miL- lions. February 1720. Coined of bank notes for 279 millions. February 22, 1720. Incorporation of the bank, with the company of the Indies. February 27, 1720. A prohibition by which no one was to have in his custody, more than 500 livres of coin. PRINCIPLES OF MONEY. 2/9 March 5, 1720. The coin raised to 80 livres per marc. March 11, 1720. The coin brought down to 65 livres per marc; and gold forbidden to be coined at the mint, or used in commerce. March 1720. Coined of bank notes for 191,803,060 livres. April 1 720. Coined of bank notes for 792,474,720 livres. May l, 1720. Coined of bank notes for 642,395,130 livres. May 21, 1720. The denomination of the paper diminished by arret of council, which, in an in- stant, put an end to all credit, and made the bubble burst. At this period, had been coined of bank notes to the immense sum of Livres. 2,696,400,000 Of which had been issued 2,235,083,590 Remained in the bank* 46l,3l6,41O May 27. 1720. The arret of the 21st of this month recalled, and the paper restored to its full denomination. May 29, 172O. The coin raised to 82 livres 10 sols per marc. Dutot, vol. i. page 144. Vol. ii. page 207, 80 PRINCIPLES OF MONEY. June 3. 1720. 400,000 actions belonging to the regent are burnt; and the 24,000 more, which were created October 4, 17 19? suppressed; also 25 millions of the interest formerly granted to the company, for their loan of l6'00 millions, yielded up by the company, and constituted again upon the town house of Paris. October 10, 1720. All bank notes are ordered, by arret of this day, to be suppressed, if not brought to the bank before the 1st of December following, in, ^>rder to be paid in manner therein specified. CHAPTER XXIX. Continuation of the Account of the Royal Bank of France, until the Time that the Company of the Indies promised a Dividend of 200 Livres per Action* T HESE things premised, what follows, will, I hope, be easily understood. As soon as the regent of France perceived the wonderful effects produced by Law's bank, he iinme- PRINCIPLES OF MONEY. 281 diately resolved to make use of that engine, for clearing the king's revenue of a part of the uusnp- portable load of 80 millions of yearly interest, due, though indeed very irregularly paid, to the credi- tors. It was to compass this end, that he bestowed on Law the company of the West Indies, and the farm of the tobacco. To absorb 100 millions of the most discredited articles of the King's debts, 200,000 actions or shares of this company were created. These were rated at 50O livres each, and the subscription for the actions was ordered to be paid in billets d'etat, so much discredited by reason of the bad payment of the interest, that 5OO livres, nominal value in these billets, would not have sold upon change for above l6'o or 170 livres. In the subscription they were tuken for the full value. As these actions became part of the company's stock, and as the interest of the bille-ts was to be paid to the company by the king, this was effectually a loan from the company to the king of 100 millions at 4 per cent. The next step was to pay the interest regularly to the company. Upon this the actions which had been bought for 170 livres, real value, mounted to par, that is, to 500 livres. This was ascribed to the wonderful operations of the bank; whereas it was wholly owing to the vegu-v lar payment of the interest. 282 PRINCIPLES OF MONEY. In May following, 1 7 1 9, the East India company was incorporated with the West India company: and it was stipulated that the 200,000 actions for- merly created, were to be entitled to a common share of the profits of the joint trade. But as the sale of the first 200,000 actions had produced no liquid value which could be turned into trade, (having been paid for in state billets), a crea- tion of 500,000 new actions was made in June 1719, and the subscription opened at 550 livres payable in effective coin. The confidence of the public in Mr. Law, was at this time so great, that they might have sold for much more: but it was judged expedient to limit the subscriptions to this sum ; leaving the price of the actions to rise in the market, according to de- mand, in favour of the original subscribers. This money, amounting to 27,500,000 livres in coin, was to be employed in building of ships, and other preparations for carrying on the trade. The hopes of the public were so much raised by the favourable appearance of a most lucrative trade, that more actions were greedily demanded. Accordingly, in a month after, July 1719, another creation was made of 50,000 actions; and the price of them fixed at 1000 livres. It must be observed, that all actions delivered by the company of the Indies, originally contained an obligation on the company for no more than 4 per PRINCIPLES OF MONKY. , 283 cent, upon the value of 500 livres, with a proportion of the profits on the trade; so that the rise of the actions proceeded entirely from the hopes of those great profits, and from the sinking of the rate of interest; a consequence of the plenty of money to be lent, But besides the trade, what raised their value at this time was, that just before the last creation of actions, June 10, 1/19, the king had made over the mint to the company, for a consideration of 50 millions of livres; and this opened a new branch of profit to every one interested. The sale of the last coined actions taking place at 100O livres each, so great a rise seems to have en- gaged the regent to extend his views much farther than ever. The fourth creation of actions was in the begin- ing of September 1719. In the interval between the third and the fourth creation, the regent made over the general farms to the company, who paid three millions and a half advanced rent for them. And the company obliged themselves to lend the king (including the 100 mil- lions already lent upon the first creation of actions) the immense sum of 1600 millions at 3 per cent* that is, for 48 millions interest. No sooner had they got this new source of riches into their hands, than they promised a dividend of no less than 200 livres on every action, which was 284 PRINCIPLES OF MOXKYi ten times more than was divided on them \rhen at first created. The consequence of this was, that (supposing the dividend to have been permanent and secure) an ac- tion then became as well worth 500O livres as at Jirst it was worth 500 livres ; accordingly to 5000 did it rise, upon the promise of this new dividend. By this operation the whole debts of France were to be turned into actions; and the company was to become the public debtor, instead of the King, who would have had no more to pay but 48 million of interest to the company. CHAPTER XXX. Continuation of the Account of the Royal Bank of France, until the total Bankruptcy, on May 21, NOW resume the thread of my story. We left off at that period when the credit of the company and of the bank was in all its glory, November ; the action selling at 10,000 livres,, dividend PRINCIPLES OF MONEY. 285 600 livres a-year per action, and the bank lending at 2 per cent all this was quite consistent with the then rate of money. In this state did matters continue until the 22d of February 1720, when the bank was incorporated with the company of the Indies. The king still continued guarantee of all the hank notes; none were to be coined hut by his au- thority: and the comptroller-general for the time being, was to have, at all times, together with the Prevof des merchand* of Pans, ready access to in- !>pc'ct the books of the bank. As the intention, at the time of the incorporation, was to coin a very great quantity of notes, in order to buy up the actions, and to borrow back the mo- ney, iu order to pay off the creditors, it was proper to gather together as much coin as possible, to guard against a run upon the bank: for which pur- pose, the famous Arret de Conseil, of the 2/th of February I? 20, was published, forbidding any person to keep by them, more than 500 livres in coin. This was plainly annulling the obligation iu the bank paper, to pay to the bearer on demand, the sum specified, in stiver coin. Was it not very natural, that such an an^et should have, at once, put an end to the credit of the bank? No such thing however happened. The credit re- mained as solid after this as before; and nobody 586 PRINCIPLES OF MONEY, minded gold or silver any more than if the denomi- nation in their paper had had no relation to these metals. Accordingly, many who had coin and confidence, brought it in, and were glad to get pa- per for it. The coin being collected in about a week's time, another Arret de Conscil, of the 5th of March, was issued, raising the denomination from 60 livres to 80 livres the marc. Thus, I suppose, the coin which the week before had been taken in at Go livres, was paid away at 80: and the bank gained 33 j per cent. upon this operation. Did this hurt the credit of the bank paper? Not in the least. As soon as the coin was paid away, which was not a long operation, for it was over in less than a week; another Arret de Cornell, of the llth of the same month of March, came out, declaring that, by the first of April, the coin was to be again reduced to 70 livres the marc, and on the first of May to 65 livres. Upon this the coin, which had been paid away the week before, came pouring into the bank, for fear of the diminution which was to take place the first of April. In this period of about three weeks, the bank received in coin about 44 millions of livres; and those who brought it in thought they were w r ell rid of it. It was during the months of February, March, and April 1720, that the great operations of the system were carried on. PRINCIPLES OF MONEY. 2&J We may see by the chronological anecdotes in the 28th chapter, what prodigious sums of bank notes were coined, and issued during that time. It was during this period also, that a final conclusion was put to the reimbursing all the public creditors with bunk notes : in consequence of which payment, the former securities granted to them by the king, under the authority of the parliament of Paris, were with- drawn and annulled. Here then we have conducted this scheme to the la.st period. There remained only one step to lie made to con- clude the operation, to wit, the sale of the actions, which the regent had in his custody to the number of 400,000. These were to be sold to the public, who were at this time in possession of bank notes to the value of 2,235,063,590 livres. See the foregoing table. Had the sale of the actions taken place, the notes would all have returned to the bank, and there have been destroyed : by which operation, the company would have become debtor to the public for the di- vidends of all the actions in their hands, and to the king for all those which might have remained in the hands of the regent. But alas! all this is a vain speculation. The sys- tem, which hitherto had stood its ground in spite of the most violent shocks, was now to tumble into ruin from a childish whim. 2S8 FUmCfPLES OP MONEY. In order to set this stroke of political arithmetic in the most ludicrous light possible, I must do it in Dutot's own words, uttered with a sore heart and in sober sadness. " This prodigious quantity of money in circuta-t cf tion," says he, ec had raised the price of every " thing excessively : so in order to bring down pricey " it was judged more expedient to diminish the de- " nomination of the banknotes, than to raise the " denomination of the coin; because that diminish- " ed the quantity of money, this augmented it." This was the grand point under deliberation, be- fore the famous arretof the 21st of May was given, viz. whether it were better to raise the value of the coin, which did not belong to the bank) but to t he- French nation, to double the denomination it bore at this time, that is, to 130 livres the marc, by which means the 13OO millions would have made 2600 millions, or to reduce the 2600 millions of baak notes to one half, that is, to 13OO millions, the total denomination of the coin. After a most learned deliberation, it was resolved to reduce to one half, the denomination of all the paper of France, bank notes as well as actions, in- stead of raising the denomination of the coin; and this because the prices of commodities were sup- posed to be in proportion to the quantity of the de- nominations of money. The arret was no sooner published, than the PRINCIPLES OF MONEY* 289 paper fabric fell to nothing. The day following, the 22ci of May, a man might have starved with a hun- dred millions of paper in his pocket. The diminution upon the paper, by the arret of the 21st of May, raised a most terrible clamour; and Law became the execration of France, instead of being considered as its saviour. He was banished^ and reduced to beggary the same day. Had matters been left without any change at all, no bad consequences would have followed: these existed only in the heads of the French theorists. There was, indeed, twice as much money in bank notes as in coin, in the whole kingdom of France: and what then r When the regent saw the fatal effects of his arret 'of the 21st of May, he revoked it on the 27th of the Same month. On the 29th, he re-established all the paper at its former denomination: but confidence was gone, and was no more to be recalled. PP PRINCIPLES OF MONEY* CHAPTER XXXI. Of Banks of Deposit and Transfer. i NOW dismiss the subject of banks of circulation* The unspeakable advantages drawn from this insti- tution, when properly regulated, in-supplying 'money at all times to those who have property for the en- couragement of industry, and for improvements or all sorts ; and the bad consequences which result to society, from the abuse they are exposed to; has en- gaged me, perhaps, in too long a discussion of vari- ous circumstances relating to them. I now crnneto treat of banks of deposit, or of trans- fer of credit: an institution of the greatest utility for commerce. These two species of banks differ essentially in two particulars. First, That those of circulation serve the purpose of melting down unwieldy property into money; and of preserving the quantity of it at the proportion of the uses found for it. Those of deposit, are, calcu- lated to preserve a sum of coin, or a quantity of pre- cious movables, as a fund for carrying on the circu- lation of payments, with a proportional value of cre- dit or paper money secured upon them. PRINCIPLES OF MONEY. Secondly, In the banks of circulation, the fund up- on which the credit is built, is not corporeally in the custody of the bank ; in the other it is. The fundamental principle, then, of banks of de- posit, is the faithful preservation of the fund deliver- ed to the bank, upon which credit, in money, is given for the value. If at any time a bank of deposit should lend, or should in anywise dispose of any part of this fund, which may consist in coin, bullion, or any other pre- cious movable, once delivered to them, to the end that a credit in money may be written down for it in their books of transfer, in favour of the depositor, and his assigns ; by this act, the bank departs from the principles upon which it is established. And if any bank be established which, by its regulations, may so dispose of the fund of its credit; then such a bank becomes of a mixed nature, and participates of that of a bank of circulation. JNI> OF BOOK THIRD. PRINCIPLES OF MONEY, BOOK THE FOURTH. QF EXCHANGE. CHAPTER I. Of the First Principles of Exchange. A REGULAR bill of exchange is a mercantile contract, in which four persons are concerned, viz. first The drawer, who receives the value. Second- Jy, His debtor in a distant place, upon whom the bill is drawn, and who must accept and pay it. Third- ly, The person who gives value for the bill, to whose order it is to be paid. Fourthly, The person to whom it is ordered to be paid, creditor to the third. By this operation, reciprocal debts, due in two dis- tant parts are paid by a sort of transfer, or permuta- tion of debtors and creditors. (A) in London, }s creditor to (B) in Paris, value 294 PRINCIPLES OF MONEY. ^ 100; (C) again in London, is debtor to (D) in Paris, for a like sum. By the operation of the bill of exchange, the London creditor is paid by the London debtor, and the Paris creditor is paid by the Paris debtor; consequently, the two debts are paid, and no money is sent from London to Paris, nor from Paris to London. In this example, (A) is the drawer, (B) is the ac-r ceptor, (C) is the purchaser of the bill, and (D) re- ceives the money. Two persons here receive the money, (A) and (D), and two pay the money, (B) and (C); which is just what must be done when two debtors and two creditors clear accounts. This is the plain principle of a bill of exchange. From which it appears that reciprocal and equal debts only can be acquitted by them. When it therefore happens, that the reciprocal debts of London and Paris (to use the same ex- ample) are not equal, there arises a balance on one side. Suppose London to owe Paris a balance, va- lue