Front Page Titles (by Subject) CHAPTER XVIII.: On Money. - Letters to Mr. Malthus, and A Catechism of Political Economy
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CHAPTER XVIII.: On Money. - Jean Baptiste Say, Letters to Mr. Malthus, and A Catechism of Political Economy 
Letters to Mr. Malthus, on Several Subjects of Political Economy, and on the Cause of the Stagnation of Commerce. To Which is added, A Catechism of Political Economy, or Familiar Conversations on the Manner in which Wealth is Produced, Distributed, and Consumed in Society, trans. John Richter (London: Sherwood, Neely, and Jones, 1821).
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If money is nothing but merchandise, why is coined silver of greater value than the same weight of silver uncoined?
For the same reasons that a silver tea-pot is worth more than the same weight of silver in an ingot.
The fashion that the moneyer gives to the silver is then of the same kind as that given by the silversmith?
Precisely of the same kind.
What utility does the fashion of the moneyer give to the silver?
The impression on the money announces the weight and quality of the coin; that is, the quantity of fine metal and of alloy therein; consequently, it saves those who receive it the expence of weighing and assaying it.
Why do government reserve to themselves the exclusive right of coining money?
In order to prevent the abuses which individuals might create in this manufacture, by not making it of the same finenesss and weight which the impression indicates; and sometimes they reserve that right, in order to obtain the profit of it, which makes part of its revenue.
Cannot the government, by virtue of this exclusive privilege of coining money, raise the value of money much beyond the expences of manufacturing this merchandise?
It can do so, by reducing greatly the quantity of pieces coined, or the amount of the money.
What would happen then?
The money-merchandise becoming more scarce in proportion to the quantity of other merchandise in circulation, that is, which we are disposed to sell or to buy; this money-merchandise would be more in demand relatively to all other merchandise. We should give less money in exchange for more of other goods; in other words, goods would fall in price.
Should we not feel in commerce some inconvenience arising from the scarcity of money?
If that effect took place, the inconvenience would not be lasting, because the total real value of the money would not be diminished by it. There would be fewer pieces, but each of the pieces would be worth more; or, in other words, other goods would nominally fall in price, and their sum total would still bear exactly the same proportion with the sum total of the money.
What inconvenience would be felt in this case?
The ingots and utensils of gold and silver, being a different kind of merchandise from money, although made of the same material, would fall in price like all other merchandise: this would make a great disproportion between these metals in money and in ingots. There would be a considerable gain in converting them into money, which is an inducement to counterfeit and fabricate false money.
You have just shewn in what case money-merchandise rises in value with respect to other merchandise; in what case does it fall with respect to such merchandises?
When the quantity of the money is augmented relatively to all other merchandise, then more money is offered for less merchandise: the money would fall; in other words, the other merchandise would become nominally dearer.
You say nominally; but is it not really, when it is not the name of the money which is changed, and we actually give a greater weight of metal?
The value of the metal is, in this case, really less; but the value of the other merchandise, not having really changed, the variation of their price is only nominal. With the same quantity of corn, we purchase the same quantity of stuff. A bushel of corn, instead of being worth six shillings, is worth twelve; but a yard of cotton, instead of costing two shillings, costs four: thus, to buy three yards of stuff, we are still obliged to sell a bushel of corn as before; and a bushel of corn, though worth double the quantity of money, is still only equal to the value of the same quantity of stuff.
This is what happened when the discovery of the mines of South America threw into circulation an immense quantity of gold and silver, in comparison to what there had been before. To obtain the same quantity of corn, we must now give nearly three times as much silver as before the discovery of these mines.
America has then thrown into circulation three times as much silver as there was before?
She has circulated much more; but commerce, population, and riches, having greatly augmented since this discovery, the necessity for gold and silver, as well for the purposes of money as for furniture and ornaments, has greatly augmented also; and has prevented the precious metals from suffering a depreciation in proportion to their abudance. They have been produced in ten times the quantity, but have been three times more in demand.
What happens when, under the same denomination of money, a guinea, for example, the government gives less metal than it gave before.
The value of the money, which had fallen really with respect to other merchandise, then falls nominally.
Explain that by an example.
When the piece, called six livres tournois, does not contain more silver than that which was before called three livres tournois, we do not obtain for six livres more merchandise than we before obtained for three livres; that is, the same quantity of merchandise costs the same weight of silver. The value of the ingot of silver has scarcely varied from the year 1636 to the present time: with an ounce of silver we can buy the same quantity of those goods, whose value appears to have undergone the least variation. The setier of corn sold commonly for twelve livres tournois, and the same setier sold in 1789 for twenty-four livres; but twenty-four livres in 1789 did not contain a greater weight of silver, than in 1636 there was in twelve livres.*
What effect does this produce on the interests of individuals?
With respect to debts contracted previously by the government, if it pays them in money which is really worth less, it becomes bankrupt by all that there is less in the value of the new, than there had been in the old money.
And when it authorizes individuals to discharge their former debts in the new money, it authorizes them to commit a similar bankruptcy to its own.
With regard to the bargains made by individuals after the change in the money, this change produces no inconvenience; the bargains are made according to the real value of the new money.
Does a nation, whose money is carried into other countries, lose in consequence of this operation?
No, for the individuals who send it, take care to obtain at least an equal value in return.
Does the nation gain by such an exportation?
Yes, when she takes care not to coin money gratuitously, and never to manufacture this kind of merchandise, unless she is sufficiently indemnified for the employment of her capital and the wages of her industry.
What relation is there between the value of gold and silver?
Their relative values vary continually, and in different places, like the relative values of any other merchandise whatever. The value of the gold is raised in regard to that of silver, if gold is more demanded or less offered; hence the agio one is obliged sometimes to pay for the purchase of gold coin with silver money.
Does the same variation exist between copper and silver monies?
Not commonly; because we do not receive copper money pure, nor that of copper mixt with silver, which is called billon, at the rate of its intrinsic value, but in consequence of the facility which it affords for obtaining a piece of silver. If a hundred sous, which are paid me in copper, are intrinsically worth no more than four francs, what does it signify to me: I receive them for five francs, because I am sure to get for them, whenever I please, a piece of five francs. But when copper money becomes too abundant, and one can no longer obtain for it at pleasure the quantity of silver that it represents, its value is altered, and it can be no longer disposed of without loss.
Repeat to me summarily the essential principles which relate to money.
The numerous exchanges, and other transactions which cannot be dispensed with in a populous and civilized society, render absolutely necessary the use of an intermediate merchandize, which is money.
This merchandise is commonly of silver, manufactured for that purpose.
The value of this merchandise is established, like all other metals, in direct proportion to the demand for it, or of the necessity one has for it; and in inverse proportion to the quantity offered, or of the quantity which is actually in circulation.
The metal coined into money is a merchandise, totally different from the metal fashioned into any other thing. An ounce of metal in money may equal in value two ounces of metal in an ingot; because it is not in the power of every body to convert the ingot into money: but an ounce of metal in an ingot cannot be worth much more than an ounce of metal in money, because any body cannot convert the money into an ingot.
Whatever be the name given to any piece of money, whether it is called three lives or six livres, it is not really worth, as it regards other merchandise, more than the value of the metal and the fashion; but this fashion may be paid for too dearly, as it is exclusive, and as government keeps to itself the right of coining money.*
[* ]The marc of silver, of the standard of the mint (of Paris), was worth about twenty-five livres in 1636; in 1789, fifty livres tournois. In England, where no alteration had been made in the weight or fineness of the money, scarcely any variation took place in the price of corn: the average of seven years previous to 1636, was about 6s. 1¾d. and for seven years previous to 1790, was 5s. 10¾d. per bushel.—Tr.
[* ]It was not possible, in an elementary work like this, to include any but the most important principles, and which were essential to the interest of the public. The subject is treated at length in the Treatise on Political Economy.