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19: Of the Comparative Value of the Metals from Which Coins Are Made - 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).

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


19

Of the Comparative Value of the Metals from Which Coins Are Made

Copper, silver and gold which one uses in coinage have, like all merchandise, a value based on their utility; and that value increases or diminishes according to whether one reckons them to be scarcer or in greater abundance.

Let us suppose that in Europe there is a hundred times more copper than silver, and twenty times more silver than gold. With this assumption, where we only consider these metals with reference to quantity, it will take a hundred pounds of copper to make a value equivalent to a pound of silver, and twenty pounds of silver to make a value equal to a pound of gold. So one will express these relationships by saying that copper is to silver as a hundred is to one, and that silver is to gold as twenty is to one.

But if mines are found that are very plentiful in silver and especially in gold, these metals will no longer have the same relative value. Copper, for example, will be to silver as fifty is to one, and silver will be to gold as ten is to one.

In commerce there cannot always be an unchanged quantity of each of these metals. Their relative value must therefore vary from one time to another. However, it does not only vary by reason of the quantity, because if the quantity remains the same, there is another cause which can make these metals scarcer or more abundant.

Indeed, the use one makes of a metal may be more or less common. If one used copper in most of the utensils for which one uses earth, the metal would become scarcer; and instead of being to silver in the ratio of fifty to one, it could be in the ratio of thirty to one. On the other hand, if in our kitchens we came to use iron instead of copper pots, it would become more plentiful and would be to silver as eighty is to one.

It is then not only by the quantity that we judge the abundance or the rarity of a good: it is by the quantity considered in relation to the uses to which we put it. Now, it is clear that this relative quantity diminishes, in step with our using the good for a greater number of tasks; and that it increases as we use it for a smaller number.

We shall reason likewise about gold and silver. That when these metals are in the ratio of twenty to one, and the practice comes in of lavishing silver on movable goods and on clothes, silver will become scarcer, and could be in the ratio of ten to one with gold. But should one then come to prefer gold and silver on movable goods and on clothes, gold in its turn will become scarcer, and will be in the ratio of one to fifteen with silver.

Metals are thus rarer or more plentiful, depending on whether we use them for more or fewer purposes. In consequence we can only judge their relative value in so far as we can compare the uses we make of the one with those we make of the other.

But how are we to judge these uses and compare them? By the amount of each of these metals that people ask for in the market. Because one only buys goods in so far as one wants to use them. The relative value of these metals is therefore appraised in the markets. In truth it is not done so geometrically: it cannot be done with exact precision. But in the end the markets alone make the rule, and the government is obliged to follow it.

If this value must vary from time to time, such variations are never abrupt, since habits always change slowly. So in the long term, gold and silver keep the same value in relation to each other.

Between neighbouring peoples, trade tends to make the same goods equally plentiful in each one as in the others; and in consequence it gives them all the same value; it succeeds in this especially when they are, like gold and silver, transportable with ease and without hindrance. The position is that then they circulate among many nations as they would in a single nation; and they sell in all the markets as if they were selling in a single common market.

Let us assume that the states of Europe are all in the habit of forbidding the export and import of gold and silver, and that this prohibition has had its effect.

Let us assume again that there is the same quantity of gold in England as in France, but more silver in one of the kingdoms than in the other. Finally, let us assume that in Holland there is much more gold than anywhere else, and much less silver.

With these assumptions, where the quantity of gold relative to silver is different from one state to another, the relative value of these metals cannot be the same in the markets of the three nations. Gold, for example, will have one price in France, one in Holland, another in England.

But if one allows these metals to circulate freely among the peoples of Europe, then one will not value them according to the ratio they bear to each other in France, in Holland, or in England; but one will value them according to the relationship they bear to each other in all the nations taken together. Although unequally divided, they will be considered to be in the same quantity everywhere, because whatever surplus there is in gold, for instance, in a state today, can leave it and pass tomorrow into another. There you have the reason why in all the markets of Europe one judges the ratio of gold and silver as one would judge it in a single common market.

You can see how the relative value of gold and silver is estimated in the same way in several states, when these metals can pass freely from the one to the other. But when distant nations cannot have continuous trade between each other, and so to speak daily trade, then this value is reckoned differently in each, because it is fixed in markets which have not enough contact with each other, and from which, for that reason, one could not form a single common market. In Japan, for example, gold is to silver as one is to eight, while in Europe it is as one to fourteen and a half, or one to fifteen.

I have said that markets set the law for government. To understand this, let us assume that in all the markets of Europe, gold is to silver as one is to fourteen, and that none the less the government in France values these metals in the ratio of one to fifteen, and let us see what must ensue.

In France you will need fifteen ounces of silver to buy one ounce of gold; while abroad, you will pay for an ounce of gold with fourteen ounces of silver: on fifteen ounces of silver you will therefore gain an ounce each time that you carry silver abroad to change it against gold, and consequently silver will gradually slip out of the kingdom. When later the government wants to bring it back, it will again lose a fifteenth; since, for one ounce of gold, one would only give fourteen ounces of silver. Now it would avoid all these losses if it conformed to the price of the common market.