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CHAPTER V: of the meaning of certain words specially applicable to money and the precious metals.—price, value, premium, dearness, cheapness - Michel Chevalier, On the Probable Fall in the Value of Gold: The Commercial and Social Consequences which may ensue, and the Measures which it invites 
On the Probable Fall in the Value of Gold: The Commercial and Social Consequences which may ensue, and the Measures which it invites. Translated from the French, with preface, by Richard Cobden, Esq. (New York: D. Appleton and Co., 1859).
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of the meaning of certain words specially applicable to money and the precious metals.—price, value, premium, dearness, cheapness
Before bringing these preliminary generalities to a close, and entering upon the core of the subject, I beg to be allowed to define the true meaning of some expressions which are frequently used in our day in discussing the question of the currency. On this point we find persons who are not without influence on public opinion, deluding themselves with phrases of dubious meaning, and it is against this danger that I would wish to warn the reader, and those persons themselves.
The expressions which I have here more particularly in view are those of value and price, applied not as has already been done to commodities in general,* but especially' to the currency, and the precious metals of which it is made. I allude also to the expressions, premium, clearness, and cheapness, taken in relation to the same objects,—the currency and the precious metals.
In ordinary language, the words value and price are often used as synonymes. They are different, however, in their meaning, as has been already shown in reference to commodities in general. It is well here to define this difference in regard to the currency, and the precious metals of which it is made. It is such that one could indicate instances where, if the value of one of the precious metals fell, its price would rise. This is not a scholastic subtlety, imagined for the amusement of triflers; it is a fact presented to us in even vast proportions, in history. Thus, from the time of the discovery of America to our day, the value of gold in ingots or in coins has certainly diminished, since at the present time a given quantity of gold in coins or ingots is exchanged for a smaller quantity of corn, or of other ordinary products, or for fewer days' labour. However, the price of gold, in silver money, has increased; and in thus expressing myself, I do not allude to the circumstance of the coins having been altered, to such an extent that the weight of metal which was denominated a silver pound, under Saint Louis, would have made twenty pounds under Louis XVI. A rise in price of this kind is only nominal. That which is meant, and which is incontestable, is that, supposing that the currency in France had never been altered, and that its coins had continued of the same weight and fineness as in 1492, the year of the first voyage of the great Genoese navigator, the gold coin which would then have exchanged for ten or eleven silver coins of the same weight would in the nineteenth century have regularly exchanged for fifteen or sixteen. In a word, the price of gold has positively and effectively risen, from 1492 to our day, in the ratio of 10½ to 15½, whilst its value has declined.
The price of a thing, as has already been said, is its value in relation to money. When the precious metals are in question, it is convenient to distinguish between ingots and coined money, and also to particularise the species of money in which the price is measured. If, for example, I speak of gold, I am bound for clearness not only to indicate whether I refer to the ingot or the twenty-franc piece, but also whether I reckon the price in silver or gold coins. Assuming the coinage to be accurately struck, a fair assumption in these days when the operations of the Mint are brought to such perfection, and that every piece of gold is of full and equal value, then the price in gold currency, of a thousand francs in gold coin, or say fifty pieces of twenty francs, can only be a thousand francs. But the price of an ingot, containing weight for weight, and fineness for fineness, the same quantity of gold as the fifty pieces, may according to circumstances exceed them in value. It would be worth more if, under circumstances of real or supposed exigency, there were a great demand for ingots for coining at the same time that there were very few on offer in the market. It is a case which occurs but seldom, but which has happened in our day. Thus, between the 1st July, 1855, and the 1st January, 1858, the Bank of France purchased at a premium gold to the amount of 1,363 million francs (£54,520,000), the premium on which in some instances amounted to 15 per 1,000. The sum total paid by the Bank for premiums, in this interval of two years and a half, exceeded fourteen million francs (£560,000).*
On the contrary, the ingot will be worth more than coins of the same metal, always assuming them to be of full weight and fineness, when bullion flows to the Mint to be coined. Its destination being the coinage, it is natural that it should be at a disadvantage in comparison with coined money to the extent of the expense of the operation, including the loss of interest during the time that the bullion is retained at the Mint. The case now indicated, in which the ingot sells for less than an equal weight of coined metal, is that which usually presents itself to our view in European countries.
Another case, in which the ingot may be worth more than coins, is that of a country, for example, where a gold currency abounds, and from which this metal may be exported to other conntries in which the coins of the exporting State are not current. It might be more advantageous in such a case to export ingots than coins, or, to express the same thing in other words, it might be necessary to convert the coins into ingots before forwarding them to their destination; then the ingot would necessarily be worth more than the coins, weight for weight, and fineness for fineness.
A directly opposite case to the preceding is that where the money of the exporting country enjoys, through prejudice or otherwise, great favour in other regions. Commerce then finds it advantageous to withdraw coined money rather than ingots from this country, to transport it to those regions. Hence a sufficient reason why the money should be at a greater or less premium over the raw metal. It is thus that Spanish dollars, especially those called pillars, were, and still are, in great request in China, and pass in some localities at a value quite disproportioned to the quantity of metal they contain. There needs no other motive why they should be sought for, not only in the country of their production, but all over the world, and paid for in ingots at a premium.
It would be a very different hypothesis from the foregoing, to suppose that the coins have become worn by the process of circulation, so. as to have lost an appreciable part of their weight, as always occurs after the currency has remained a long time without being renewed. It is quite clear that, in such a case, an ingot of gold, containing weight for weight, and fineness for fineness, the quantity of metal contained in fifty perfect twenty-franc pieces, would be worth more than fifty of the same pieces when rendered light from excessive usage. Consequently, the price of an ingot in the current coins would be at a great premium. But then the fifty twenty-franc pieces, withdrawn from the circulation, would not really and substantially be pieces of twenty-francs. They would be simply pieces of nineteen francs, or eighteen francs, to which, by an abuse of language, or by the neglect of the authorities to resort to a recoinage, they had preserved the name and the currency of twenty-franc pieces.
It is needless to add that what has been said of coins and ingots of gold, applies equally to silver coins in relation to ingots of silver, and vice versa.
Examples of differences of this kind between the price of ingots and that of coins of the same metal abound in history. To observe the phenomenon in all its simplicity, and, if I may so speak, in all its purity, it is better to consult the history of England than that of other states, because out of England, the facts relating to the currency have been almost everywhere complicated with the incidents of a falsification of the standard. In England, then, the reduction in the intrinsic value of the currency by the passage from hand to hand, a loss to which the sweaters of coins have not failed to contribute their proportion when once they have ceased to possess their full legal weight, has sometimes been so great that the ingot corresponding legally with a certain number of coins, contained a quarter, a third, or even a half more of metal than these did, taken from the average of the current circulation. It followed that the ingot bore an enormous premium, a premium moreover which was quite apparent. This is what befel the silver currency in the reign of William III., before the recoinage of 1695. The ingot of silver was at a great premium in the current coins of the same metal; indeed, the English gold coin so well known under the name of the guinea, and which was at that time of good weight, passed for much more than its value in shillings. From the moment that the silver money had been recoined, and was thus perfect, the premium which the ingot had gained disappeared; that of the guineas, in relation to the silver money, fell to the insignificant amount which corresponded to the slight difference in the market quotations for these two metals, and the current value conferred by law or usage upon these' gold coins as compared with good silver money.*
It is not an uncommon thing in France to hear it affirmed that gold has lost none of its value since the discovery of the Australian and Galifornian mines, and as a proof the fact is cited that, in the market of Paris, ingots of gold are at par, or at least that they are only at a small premium. Persons who reason thus fall into a confusion, which, however, it becomes necessary to treat with some care, for men of very distinguished talent have fallen into it; I will soon quote an example. To know with certainty whether gold is dearer or cheaper, whether it be at a premium or not, the method is not to compare ingots of this metal with gold coins. Between the ingot and coins of full weight and fineness there can only be by accident a sensible difference. It is limited, in fact, by the charge at the Mint, including the interest of capital during the interval of time absorbed in the process of coining. A better, and the only good measure of the rise or fall occurring in the value of gold is that which takes place in its price in silver money, or, which amounts to the same thing, in the price of silver ingots in gold coins; and then it must be premised that no disturbance shall have arisen to cause a sudden change in the value of silver.
Thus, at the present time, the very decided premium which silver is acquiring, represents exactly the divergence that has occurred between gold and silver, for this premium indicates the excess of the price of silver as compared with the legal par in gold coins. Now, for how much does the fall in gold enter into this divergence? and for how much the rise in silver, if any rise have really taken place? This is not the question at present under discussion, and if it were, I doubt the possibility of solving it with any precision in figures. I have merely wished to point out the error into which some persons fall who try to estimate the exact rise or fall of gold by comparing the market price of ingots of this metal with the coins into which they are or may be converted.
This error, however, occurs, without any qualifying circumstances, in Lord Liverpool's treatise.* After demonstrating that silver has a less stable value than gold, that statesman, gifted nevertheless with a rare intelligence, estimates the variations which gold and silver commodities had undergone, by a reference to their price in current money, at a time when the currency consisted exclusively of gold or of bank notes convertible on demand into gold. One could hardly succeed in finding a device better calculated to persuade the mystified reader that silver alone undergoes any variations, and that gold by some inexplicable privilege escapes all appreciable alterations. Such a mistake, on the part of an authority of so high an order, whose good faith, moreover, is above all suspicion, shows how much attention must be brought to the study of the currency, and to the qualification of monetary facts, if we would avoid vulgar errors, and not become the dupes of false appearances.
of the present production of gold and its outlet.
[*]See Section II., Chapter I.
[*]On this subject some persons are of opinion that the Bank submitted to terms which might have been avoided. Without noticing in detail all that has been urged in this sense, I may call to mind the information afforded by Lord Liverpool (p. 150, edition of 1805, of his treatise on the English currency), that when the Bank of England in 1797 struggled with all its might to avoid a suspension of specie payments, she purchased no gold above the money standard, that is to say at more than £3. 17s. 10½d. an ounce, of metal of the legal fineness. For the twenty years that preceded the suspension of specie payments, the average of the price paid by her for gold was 2¾d. an ounce under the standard or Mint price.
[*]See Lord Liverpool's treatise, p. 69. There is also a very interesting exposé of the monetary situation of Great Britain at this time, in the brilliant History of England, by Lord Macaulay, Chap XXI.
[*]Page 149; edition, 1805.