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14: Of Metals Considered as Coinage - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship [1776]

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Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).

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.


14

Of Metals Considered as Coinage

When in earlier chapters I posited measures, it was only to speak more precisely about the relative value of the goods being exchanged. It appears that at the origin of society the tribes had none; nowadays several tribes still do not have any. It is the case that whenever people are not concerned to look closely, they are happy to estimate the quantity of goods at a glance.

Let us move to the time when, in the absence of merchants, the settlers were exchanging their surplus foodstuffs among themselves; and let us look at two settlers, one who has a surplus of corn and lacks a certain quantity of wine, the other who has a surplus of wine, and lacks a certain quantity of corn. To simplify, I assume that they are each furnished with everything else they need.

With this assumption, it is clear that the man who has corn to deliver would not look closely at the size, or the number, of his sacks. Since this corn would have no value for him if it was left on his hands, he considers it well paid for when, by an exchange, he gets for himself all the wine he needs.

The man who has a surplus of wine reasons in the same way. So they exchange without measuring; indeed, it is enough for them to judge on sight, the one the amount of wine he needs, the other the amount of corn.

It is not the same when the settlers make their exchanges through the medium of merchants. Since the latter want to make a profit at one and the same time from the person from whom they buy and the person to whom they sell, they are concerned to judge the quantity of goods more precisely. So they will think of ways to ascertain what they have gained each time they buy and resell.

Now, when instead of judging goods in a rough and ready fashion they have got used to measuring them, one will assume that their value is treated like their quantity, for which there is a fixed measure. We will be all the more likely to assume it, as values will seem to vary like measures. So people will come to make misconceptions. They will speak of value and price without thinking what they are saying: they will forget that the notions they make of them can only be relative; and they will assume that they are absolute.

It is the merchants who will above all have occasioned this misunderstanding: as they were concerned to estimate goods more accurately, they seemed to give them an absolute value. “This measure is worth so much,” they said, and people no longer saw an idea of relativity in this language.

Besides, they were not in the same position as the settlers who, in the days when they traded directly, attached no value to the surplus, except in so far as they could provide themselves with the goods they needed by giving it up.

The surplus with which the merchants trade had belonged to the settlers who gave it up to them. But for the merchants it is not a surplus; it is a useful good they expect to profit from. And so they appreciate it to the full; and the more they claim to appreciate it, the more they seem to give it an absolute value. Metals, used as money, will especially create this illusion.

Iron disintegrates: exposure to the air, however little humidity there is in it, gradually decomposes it. Copper destroys itself too. Only gold and silver keep without corruption.

Each of these metals has a value, which stems from its scarcity, its adaptability and its lasting qualities. Gold is more valuable than silver, silver than copper, and copper than iron.

It has probably always been impossible to calculate exactly the relative and proportional value of these metals; all the more so because this proportion must vary each time some of them become scarcer or more plentiful. They were estimated roughly, sometimes more, sometimes less, according to the quantity of them appearing in trade. A metal had more value when there was little of it on sale, and when people wished to buy a lot. It had less value in the opposite case. We shall deal with their respective value elsewhere.

As soon as it was appreciated that metals have a value, it was found useful to give a piece of metal in exchange for what one was buying; and as this custom took hold, metals became the common measure of all values. Then a merchant was no longer forced to cart wine or some other foodstuff to the settler who had corn to sell. He gave him a piece of metal, and this settler bought everything he needed with the same metal.

Iron was the least suitable for this use. As it corrodes day by day, the person who received it in exchange would make a loss each day. Besides, one is only accustomed to make use of metals as a common measure, because they make commerce easier. Now iron would facilitate it less than the other metals since, as it is the least valuable, we would have to cart it about in greater quantities.

Copper, which keeps better and which is more valuable, would deserve its preference. Every nation uses it; however, since its value is still very limited, it is only useful when one buys low-price goods retail.

So it was gold and silver which were bound especially to be chosen for use as a common measure. They are indestructible; they have great value. The value is found in due proportion in each part; and so one can find, in each part, depending on whether it is larger or smaller, a measure of any sort of value.

So it is not following a convention that gold and silver have been introduced into commerce as a convenient means for exchanges; it is not by whim that they have been given a value. They have, like all other merchandise, a value based on our needs; and because this value, larger or smaller according to the amount of metal, does not perish, they have, for that reason alone, become the measure of all others, and the most convenient.

We have seen that trade increases the amount of wealth, because by facilitating and multiplying exchanges it gives value to those goods which had none. We see here that trade must increase this quantity of wealth still further when it has, in gold and silver considered as merchandise, a common measure of all values, since exchanges are then made easy and multiply ever more.

But this measure had to be fixed and determined. However, it is probable that, in the early days, people judged volume by sight, and weight by hand. This uncertain regime doubtless caused damage and complaints. The need to avoid them was felt: people set about it, and scales were invented to weigh metals. So an ounce of silver, for instance, was the price of a septier of corn or of a cask of wine.

This innovation succeeded in confusing all ideas on the value of things. When people believed they were seeing price in a measure which, like an ounce of gold or silver, was always the same, they did not doubt that they had an absolute value, and no longer entertained other than confused ideas on this subject.

All the same there was a great advantage in being able to determine the weight of each piece of gold and silver; because if previously what we call price was a vague estimate without precision, you can understand that people must have found in these metals, weighed and cut up, the more exact price of all other merchandise, or a surer measure of their value.

It is as merchandise that gold and silver circulated, when the buyer and the seller were reduced to weighing the quantity they needed to hand over as the price of other merchandise. This practice, which was general, still carries on in China and elsewhere.

However, it was inconvenient always to have to carry scales, and that was not the only drawback: one also had to make sure of the degree of purity of the metals, a degree which affects the value.

Public authority came to the help of trade; it had the gold and silver circulating assayed: it determined what one calls the standard, that is the degree of purity. It then made separate portions which it weighed; and it stamped on each a mark which attested the standard and the weight.

Here we have money. One knows its value at a glance. It prevents fraud, it injects confidence into trade and consequently makes trade still easier.

Gold and silver coin would not have been suitable for the small purchases one makes daily: one would have had to cut it up into tiny pieces which could scarcely have been handled. That is why copper coin was introduced. Copper coin even seems to have been the first in use; it sufficed on its own, when the tribes only had things of small value to exchange.

In becoming coin, metals have not ceased to be merchandise; they have an extra imprint and a new denomination; but they are still what they were, and they would not have a value as coinage if they did not continue to have value as merchandise. This observation is not as pointless as it might seem, because people would say, in the common reasoning on money, that it is not merchandise, and yet they do not have much to say about what it is.

Gold and silver coinage reveals that there are things of high price in trade. It is therefore a proof of wealth. But it is not so by virtue of its quantity: because commerce can make do with less as with more. If it were eight times more plentiful, it would have eight times less value, and one would have to carry a mark to market instead of an ounce. If it were eight times scarcer, it would have eight times more value, and one would only have to carry an ounce instead of a mark. It is therefore a proof of wealth by the mere fact that it is used. It is that in having a great value on its own, it proves that there are articles in trade which also have great value. But if it became as common as copper, it would lose its value; and then, in exchanges, it could serve as a measure of value for the nations which seem to us the poorest. When we deal with the circulation of silver we shall see how one judges its abundance and its scarcity.

Used as coin, gold and silver had a new use and new utility. These metals thus acquired fresh value. An abundance of gold and silver is thus an abundance of articles which have value, and consequently it is wealth.

But whatever value one places on gold and silver, the first and main wealth is not at all in the plentifulness of these metals. This wealth is only in the abundance of products which are consumed. However, because with gold and silver one can lack for nothing, one soon comes to regard these metals as the sole wealth, or at least as the principal wealth: that is an error. But it would also be an error to say that an abundance of gold and silver is not true wealth. We must confine ourselves to distinguishing two types of wealth.

I shall note in finishing this chapter that those who consider coin as representative signs of the value of things express themselves too inexactly; because they seem to regard them as arbitrarily chosen signs, which only have value by convention. If they had noticed that metals were merchandise before they became money, and that they have continued to be merchandise, they would have recognised that they are only suited to be the common measure of all values because they have value in themselves, and independently of all convention.