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Friday. April. 8th. 1763. - Adam Smith, Glasgow Edition of the Works and Correspondence Vol. 5 Lectures On Jurisprudence [1762]

Edition used:

Lectures On Jurisprudence, ed. R.. L. Meek, D. D. Raphael and P. G. Stein, vol. V of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1982).

Part of: The Glasgow Edition of the Works and Correspondence of Adam Smith, 7 vols.

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Friday. April. 8th. 1763.

Money has been shewn to be extremely necessary as an instrument of commerce. It by that means promotes the exchange of commodities; this exchange again promotes the industry of the people and facilitates and encourages the division of labour. It is indeed a very naturall invention, and has accordingly been used by all nations who have come to a tollerable degree of improvement. The Europeans, | on their first going into China, Me[e]xico, Peru, and all the eastern countries, found metalls used as the instruments of commerce, and they had the publick stamp upon them, which is all that is requisite to constitute money.

I pointed out the reasons also which broughtj the coin below the originall standard in point of weight, for in point of purity it is at present as high as ever. This has been brought about by the temporary and fraudulent views of the government, who found their interest at times to diminish the coin by adding a greater quantity of alloy, in order to pay off their various debts with a small quantity of silver and gold. I shall by and by shem49 some other effects of these operation<s> on the coin; one which always happens is the diminishing of the nominall value of the coin. This in England is about 1/3; the pound of silver being not quite four oz instead of itsk value, as the pound weight of silver is divided into 63sh 6d so that £1.00sh 08 is 4 oz. {The gold coin has kept pace pretty nearly with it, being now about 46 guineas and a half in the pound.}

| The effects of this operation is very prejudiciall to commerce. The great benefit of money is to give a plain, clear, and ready measure of value and medium of exchange for all commodities; but this is considerably disturbed by this means. Measures tho somewhat inconvenient should never be altered; tho your yard be of an inconvenient length, it is better to allow it to continue so; any alteration[s] always occasions an embarrassment of business. The former standards do not any longer agree and a new calculation is requisitel which take<s> some time to become familiar to us. The case is the same with regard to the measures of value. When any alteration is made one does not readily know how much of the new coin is equall to a certain value; this necessarily embarrasses commerce. The merchant wont sell but for a very high price, being affraid of losing, and the purchaser for the same reason will not give but a very low one[s]. And as both stand off in this manner, the merchant choosing rather to keep up | his goods than to sell them too low, a stagnation must necessarily follow in the exchange of commodities; and money in some measure ceases to answer its end as a measure of value. It is also productive of a great deal of fraud. For in the 1st place, the creditors of the government are cheated of their money; if the coin be one half less they have but one half of the value that was given to the government, tho they have in appearance the whole. To screenm themselves also it is necessary that all debts in the kin<g>dom should be paid by this money in the same manner as byn the old money. So that all the creditors in the kingdom are in this manner defrauded of their just debts. This for some time keeps up the value of the coin and hinders the price of commodities from rising in the same manner as the money has been debased; but afterwards it rises to the proper height if not prevented. Money serves for two purposes, it pays debts ando purchasesp commodities. The first of these purposes it answers tho debased, as the coin can not be refused tho sunk one half in its value. When one carries it to market, especially | to a forreign one, he finds that it will not indeed purchase above what ten shillings formerly purchased for 20 of the new ones; but at the same time he can discharge his debts as easily as before. And by this means the pound, which is worth in reality but ten shillings, keeps up at the value of 18 or 20. All workmen are pay’d by the new coin; the weaver, the mason, etc. all pay their tradesmen in this coin, besides 200000 or 400000 soldiers, an immense number of officers of excise, messenger<s>, and of police are all payed in this coin.q Their wages are in reallity greatly diminished, as they are paid according to the denomination put upon the coin and not its real value. And as the lower class are those who regulate the price of all sorts of necessaries,50 and as they can not now afford the same price as formerly, [and] they must therefore be sold for what they can give. And in this manner the stocks of the people being less, the commodities must fall to a less price also. Soon however the prices of commodities will rise as much as the nominall value of the coin | has risen and the reall one diminished. But this will not happen till the journeymen and mechanicks and labourers, finding that their wages can not support them, gradually raise them to be proportionable to the diminution of the coin, and become able to give their former value; and this will generally happen in a few months. The sovereign would for this reason soon lose more than he had gaind by thus raising of the money. He makes the augmentation when the money is in his treasury, and by that means pays his debts by a smaller value. But afterward as his revenues are to be raised, when the money is thus raised in value tho no higher in denomination he would lose immensely, as the money when given out would not go so far by one half as formerly.—A diminution therefore becomes necessary and always follows the augmentation. If out of four oz your coin 40 shillings, the value of every thing is nominallys doubled; 10 sh become a pound, 1/2 crown a cro[n]wn, etc. | This is frequently done in France by crying up the mark. The mark their as here containd 2/3 of the pound, <?which> in England is equall to ab<o>ut 42 shil. This in France was some timet <?ago> divided into 28 livres; this was at once raised to 40, from thence to 60, and that without any new coinage but merely by an order declaring that the mark should contain so many livres; and afterwards at once from 60 to 120.51 But immediately after these augmentations are issued a diminution is expected. The augmentation is made when the treasury is full, and the government gains by it; and the diminution being made before the revenues are raised prevents in some measure the loss. This alteration is of no less bad consequence than the former. The standard is by this means perpetually fluctuating, and by that means commerce is retarded. As the augmentation injured the creditor, so this injures the debtor, who ought rather to be favoured. For instead of 10 shillings which he owed when | money was cried up he is oblidged to pay 15 or 16. But this is not so much felt as the other, as it is generally brought on by degrees and the people forewarned of the time they are to take place. But this can not entirely prevent them, as the time of the debtors payment may not perhaps come till after the diminution has taken place. The debtors therefor suffer, tho not so much as the creditors do by an augmentation, and it comes on all on a sudden and makes a fraud in every contract which is then existing.

In most countries there are three sorts of coin: gold, silver, and copper. ’Tis only the silver and gold which one is oblidged to accept of in payment. We need not take any copper above the lowest exchange, that is above 1, 6 pence.—It may even sometimes be a hardship to be oblidged to take silver, as the banks haveu frequently endeavour’d to perplex by making payment in sixpences; but they ought not to be indulged in | trifling in business. A certain proportion betwixt these coins must necessarily be ascertaind, and this in all well ordered states is not illegible wordv by the caprice of the government but by the market price of gold and silver. If gold brings in the market 16 times as much as the same quantity of silver, then gold and silver coin ought to be as 16:1; if the value of gold be 14 times or 15 times that of silver, then gold and silver coin ought to be as 14 or 15:1. For this reason the value of gold keeps pace with that of silver, and theirw relative value frequently alters according to demand. The guinea, which is now worth 21sh, was formerly worth 22, but was at first cryed down to 21sh 6d and afterwards to 21sh; and before that had been worth only 20sh.52 Gold is said to be worth more in England than in the rest of Europe, being here 16 times the worth of the same weight of silver and in other countries but about 14 or 15 times the value of silver. And hence it is that our silver coin immediately dissappears. We have here 46½ guineas from the pound of gold, and 63sh 6d from the pound of silver; the proportion is | therefore nearly as 16:1; in other countries it is as 14:1. As the silver therefore is of less value than gold, there is profit in carrying it abroad as soon as it comes from the Mint, as 16 pound of silver will purchase only one pound of gold in this kingdom but will procure somewhat more in other countries. One who carries silver abroad gets more gold than he would at home, and bringing the gold back he gets more silver than he could abroad, and by this means can constantly increase his stock; and hence it is that our gold coin continually increases tho the silver diminishes, by this small mistake in the relative proportion of gold and silver. A proposall was made in Parliament to have remedied this, but as it was found to be extremely troublesome it was laid aside. The false shillings which are issued at an other place and are worth not above 10d are for this reason overlooked by the government. They supply the nation with coin, save them the trouble and expence of coinage, and prevent this inconveniency of the exportation of the silver, as this can no longer be profitable.

| The intention of money as an instrument of commerce is to circulate goods nec<e>ssary for men,x and food, cloaths, and lodging. The greater part of the food, cloaths, etc. which is laid out to procure this circulation, the less of food, cloaths, and lodging is there in the country, and the people are so much the worse fed, cloathd, and lodged, caet. paribus. So that the nation, instead of having receivd an addition to its wealth by the increase of the medium of circulation, is realy increased in poverty, caet. paribus. For it is not this money which makes the opulence of a nation, but the plenty of fodd,y cloaths, and lodging which is circulated.—For if we suppose the whole worth of the money and commodities in Scotland to be 20 mills (no matter whether it be more or less<)>, if of this one million is necessary to circulate the rest, then 19 mills are left to feed, cloath, etc. the inhabitants. If 2 mills be necessary to the purpose, which from the bank accounts is nearly the case, then there is only 18 millions to f., c., l. the people. So that in the one case as many people as are supported by one million are | laid aside to support circulation, and <in> the later case as much as 2 m. can afford of f., c., l. The smaller the quantity necessary to circulate the stock of f., c., l., the stock remaining is so much the greater. It is so much dead stock which increases not the opulence of the nation, as it neither fs., c., nor lodges any one, but just serves merely to circulate these things and bring them to a market. The more that is employed in this shape, the less is there of the convenienci<e>s of life to be had in the country. The high roads may in one sense be said to bear more grass and corn than any other ground of equall bulk, as by facilitating carriage they cause all the other ground to be more improved and encourage cultivation, by which means a greater quantity of corn and grass is producd. But of themselves they produce nothing. Now if by any means you could contrive to employ less ground in them by straightening them or contracting | their breadth without interrupting the communication, so as to be able to plow up 1/2 of them, you would have so much more ground in culture and consequently so much more would be produced, viz a quantity equall to what is produced by 1/2 of the road. Much spare ground producing nothing would be turnd to produce grass and corn, etc. from whence food and cloathing would be produced to the people. Tis in the same manner that money increases opulence. Tis not in money that opulence consists, any more than on the high ways that the corn grows; it consists in the abundance of the necessarys and conveniences of life and the industry of the people; money is only beneficiall in circulating of these. It is evident therefore that the less of the wealth and stock of the nation is employed in this manner, the more will there be of commodities and necessarys in the nation. Any contrivance which would tend to lessen the stock employed in | circulating the rest would tend to increase publick opulence. Paper money is an expedient of this sort. Two millions or thereabouts are necessary to carry on the circulation in Scotland; some say only 1 million, but the accounts of the banks show that it is nearer to two millions. If the stock therefore or wea<l>th of a nation be 20 millions there are still 18 to be circulated.— — —

If now we should suppose that the 6 great banking companies in Scotland should at once issue notes to the amount of 2 mills. These are given out to the merchants who have bank credit. Of the 2 mills of money in the circulation we shall suppose each bank keeps £50000 by them to answer any emergency of demand. The whole six will therefore have 300000 pounds by them. And there will be £1700000 of gold and silver and 2 mills of paper money to carry on the circulation; in all 3700000, so that the money for circulation is nearly doubled. For the paper (as is now the case<)> is as readily accepted of as the gold or silver, and can be exchanged for it on going to the bank which issued them. But notwithstanding of this the real wealth of no one is increased. If a | merchant have bank credit, and being worth £1000 take out £1000 of notes from them, I have still but £1000 of wea<l>th in my possession. The circulation in the kingdom depends on the wea<l>th of the byers; a man of £10000 will circulate 20 times as much as one of 500, and he five times as much as one of £100 pr annum. Every wise man is sensible that his wealth is not increased by this money, and tho some fools may spend more, thinking they have got an addition to their wea<l>th, the prudent part which is to be supposed the majority will spend in the same manner as before. The exchange or circulation will therefore be pretty much the same as before (as the majority generally act with common sense in this matter), and the same quantity of money will carry it on. The two millions which were sufficient before stillz answer all the demands. The country can consume no more, and whatever is above that overflows. The whole of the £3,700,000 cana not be consumed in the kingdom; some part will therefore be sent abroad. Paper money can not be sent abroad as it will not be receivd but at a very high discount, the credit of the bank not extending so far. The paper money being at first given out [to merchants] on cash account | to the merchants, who give a bill equall to the money they take out, a merchant has by this means[s] perhaps 1000 pounds more than he had of his own. This he can not employ altogether at home as the country will not consume it; the paper can not be sent abroad; he therefore employs his coined money in forreign countrys, where it is exchanged for goods of different sorts. The quantity of goods brought home being in this manner increased, more hands must be employd in manufacturing them. Two mills carry on the circulation, and £300000 supply the banks; so that there are goods brought into the country to the ammount of £1,700000, which being wrought and manufactured feed, cloath, lodge, and employ a part of the inhabitants, as it is sent abroad for some thing that may be food, cloathing, etc. The people, it is true, consume this within the year; but at the same time they produce more by their industry, which enables the merchants to bring against the next year a greater quantity of goods to feed, cloath, and employ the people. We see accordingly that since the institution of banks in Scotland the trade and manufactures have been gradually increasing so53

| All industry is employed, and has and will be to the end of the world, in increasing and multiplying the objects of human desire; that is, equally goods and money: goods as the end and money as the mean<s>. But these do not increase equally. Which is most easily and certainly multiplied, gold or corn. Gold finding is altogether uncertain. One may go to Peru or the Andes or Appening mountains and not add a guinea to the present stock. Corn, tho not so profitable as gold mines some times are, is more certain and hardly ever fails when set about. And as therefore corn and indeed all other commodities and manufactures are more easily multiplyed than gold, goods will increase in a greater proportion than money, which will therefore riseb in its price and they fall. In a nation of savages, as our Saxon ancestors or the present North Americans, mony has an immense price and is only possessed by the richestc sort as bein<g> | vastly rared and will purchase an immense quantity of goods. All the gold or silver they have must be the produce of their own country, and they have no commerce. Their skill to find it out and seperate it from the ore can be very small; those arts require more improvement. The arts ofe working gold and silver and seperating them from the ore are not to be expected from them. They fave54 not the art of working and fining them so as to give them that admirable lustre which makes them the object of desire and a friendf of vanity amongst mankind. They are therefore scar<c>e and of g<r>eat value.—When mankind are more improv’d, all the mines are carefully wrought, and commerce brings in abundance of them, and they sink in their value. This has been the case. From the fall of the Roman Empire till <the> discovery of the Span. West Indies prices continuall<y> rose, since | which they have fallen, unless at the Revolution when they rose for some time.

[j]Replaces ‘debased’

[49 ]Sic. No doubt ‘shew’ was intended.

[k]Reading doubtful

[l]‘and new calculations’ deleted

[m]Reading doubtful

[n]The last seven words replace ‘also as well as’

[o]Illegible word deleted

[p]Replaces ‘exchanges’

[q]The words ‘N.B. France’ are written vertically in the margin at about this point

[50 ]73–4 above.

[r]Reading doubtful

[s]Reading doubtful

[t]The last two words replace ‘at first’

[51 ]Cf. ii.81 above.

[u]Reading doubtful

[v]Illegible word

[w]Reading doubtful

[52 ]Guineas were worth 20 shillings when first coined in 1663, then moved to 21 shillings, then 21 shillings 6 pence. 7 and 8 William III, c. 19 (1696) provided that a guinea should not be taken at more than 22 shillings, but in 1699 the House of Commons resolved that the Act did not oblige anyone to accept guineas at 22 shillings, after which they fell to 21 sh. 6d. The maximum was reduced to 21 sh. by proclamation of 22 December 1717.

[x]Reading doubtful

[y]Sic

[z]Reading doubtful

[a]Reading doubtful

[53 ]The word ‘so’ falls at the end of the last line of 132, and there is no full point after it. 132 is the last (recto) page of a gathering which the student has numbered 33; and 133, on which the text is resumed, is the first page of a gathering which the student has numbered 40. It seems quite likely that six gatherings numbered 34–39, containing material corresponding to the passages in LJ(B) 246–53, below, of which there is no counterpart in LJ(A), were omitted from the bound volume, presumably by accident. There is no comparable discontinuity in the numbering of the gatherings anywhere else in the MS. It is true that the number of the last gathering in vol. iii is 126, whereas the first gathering in vol. iv has been numbered 129. But this discontinuity was clearly deliberate: as stated above (p. 10), the reporter evidently intended to write up some additional material at the end of vol. iii, on a number of blank leaves which he instructed the binder to insert.

[b]Replaces ‘fall’

[c]Reading doubtful

[d]Reading doubtful

[e]Illegible word deleted

[54 ]Sic. No doubt ‘have’ was intended.

[f]Reading doubtful