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9: Blows Directed Against Commerce: Variation in 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).

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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.


9

Blows Directed Against Commerce: Variation in Coinage

We have seen that pieces of money are portions of metal, on to which public authority has placed a stamp to make known the amount of gold and silver they contain.

If, among pieces of coin, one only used pure gold and silver, it would be enough to weigh them to know their worth. But because these metals are amalgamated with a certain amount of copper, whether to work them more easily or to pay the costs of minting, one needs to know further in what relation the amount of gold or silver is to the amount of copper.

A gold piece considered as a whole is made up of twenty-four parts called carats. If these twenty-four parts were so many parts of gold one would say that the standard of the piece was twenty-four carats. But because there is always some alloy, the standard is always below twenty-four. If there is one part of copper, the standard is at twenty-three, if there are two it is at twenty-two; if there are three it is at twenty-one, etc.

In the same way, one considers a silver piece as a whole to be composed of twelve deniers; and one says that the silver standard is at eleven deniers if the piece contains one part of alloy; that it is at ten if it contains two parts, etc. It is understood that these divisions into twenty-four carats and twelve deniers are arbitrary, and that any other would have been equally suitable to fix the standard of the coinage.

The right to coin money can only belong to the sovereign. That is to say, he alone is worthy of public confidence, he alone can state the standard and the weight of the gold and silver pieces in circulation.

[1798 addition: The sovereign, that is to say, the king in a monarchy, and in a republic the nation or the body which represents it; the sovereign, I say, alone worthy of trust, can alone fix the denomination and the weight of pieces of gold and silver in circulation. The right to coin money can only belong to the sovereign.]

He is not only owed the expenses of minting, he is also owed a duty or a profit for his stamp, which has a value, since it is useful.

[1798 addition: But from whom should he demand his due? The money which is mine today will be yours tomorrow: if it is not fair that you should be made to pay since you do not yet have it, it is no more just that I should be made to pay since it is going to slip away from me. Indeed, it is neither for you nor for me that one coins money, it is for the citizen body: so it is up to this body to pay; in consequence it is for the landowners to pay if the old taxes do not cover this expense.]

But it is in his interest to limit this duty, because too great a profit on his part would invite counterfeiting. He alone sells coins. This monopoly, based on public utility, would become wicked if he abused it. He would have himself to blame for the crimes he had caused, and the need he would be under to punish them.

It is easy to judge that our four monarchs have abused this right and multiplied counterfeiters. They have done more.

In the early days, a livre in coins weighed twelve ounces of silver; and with these twelve ounces, twenty pieces called sous were made, and they were each a twentieth part. So twenty sous made a livre in weight.

Now our four monarchs changed the coinage by degrees. They sold, as the twentieth part of twelve ounces of silver, sous which were only the twenty-fifth part, the thirtieth, the fiftieth; and they finished by making sous which were only the hundredth part of an ounce. However, the public, which had at first judged that twenty sous make a livre, continued through habit to judge that twenty sous make a livre, without much understanding what it meant by sous and by livres. One might have said that their language concealed from them the deceit perpetrated on them, and conspired with the sovereign to deceive them. It is one of the most striking examples of the abuse of words.

When it was recognised that one no longer attached any precise idea to the denominations livre and sou, the monarchs noticed that they had a simpler way of raising or lowering the value of the coinage without changing it. That was to declare that what was worth, for instance, six livres, would in future be worth eight, or would be worth no more than five. So the pieces of money in commerce were, with the same quantity of silver, worth more or less according to what they judged fitting.

This operation is so absurd that if it were an assumption on my part you would say that it was unreal. People would object to me: How do you expect it to enter the sovereign’s mind to persuade the public that six is eight, or only five? What gain would he draw from this clumsy fraud? Would it not rebound on him? And would people not pay him with the same money with which he pays? Monarchs however have regarded these frauds as the great art of finance. Indeed, the least realistic assumptions that I have made are more realistic than many of the facts.

I shall not dwell on all the drawbacks that arise from variation in the coinage. It is enough for me to show how they damage commerce.

Confidence is absolutely necessary in commerce, and to establish it one must have, in the exchanges of value for value, a common measure which is exact and recognised as such. Gold and silver had that advantage when the stamp of the sovereign authority truly attested the standard, and never deceived.

But once the monarch had changed the coins, one could no longer accept them with confidence, because one no longer knew what they were worth. One had either to be deceived or oneself to deceive. So the sovereign’s deception placed deception in lieu of confidence in trade, and people could neither buy nor sell unless forced to by need.

When it pleased the monarch to raise and lower the value of the coins by turn without having changed their standard or their weight, the abuse was greater still; people did not know how to use a measure which, as it varied continually, was no longer a measure.

It is true that they could have disregarded the pretended value which was only in the name given to the piece of money: they could have calculated the amount of silver it contained and used it according to that valuation. That is what the prince did not permit. He wanted an écu, which contained an ounce of silver, to be taken for a hundred sous, six francs or eight livres, at his discretion; and he wanted this, because otherwise he would not have drawn from the fraud the profit that he found in having himself paid when money was low, and in himself paying when money was high. But we must look at the government procedures, to judge better the chaos these changes must produce.

Usually he did not make the coinage fall suddenly to the lowest limit at which he intended to halt it. He brought it down by steps. He issued an ordinance through which he declared that in the space of twenty months écus, for instance, which were worth a hundred sous, would lose 1 per cent a month; and that way he brought it down by degrees to be worth no more than four livres.

One could surmise that the coinage would rise after having fallen; because that was the government’s method of proceeding in this operation, as it thought it would find a profit in these alternate rises and falls. So people no longer knew on what they could count. Cautious people who did not want to lay out their money at the risk of losing it locked it up again. They waited for the moment to use it again with less risk, and trade suffered from this.

Others, less wise, seeing that at the beginning of the reductions one made twenty livres with four écus and that at the end it took five to make the same sum, hastened to put their money in the market place. For the same reason those who were indebted hurried to pay their debts.

So people found it very easy to borrow. This ease deceived incautious merchants who thought they must seize this opportunity to form some new enterprises. They took this money that was offered them, and they bought, but dearly, either because their competing demands raised prices, or because they paid with money which, from one day to the next, was to fall in value.

However, after several reductions, the king himself began to lock up the silver in his strongboxes. Payment at his treasury ceased. So mistrust was general and one saw no more silver in circulation. Merchants who had borrowed it did not have enough for everyday essential expenditure. Then, forced to empty their warehouses and to sell at a 50 or 60 per cent loss, they saw how they had been deceived in their speculations. The majority became bankrupt.

At the height of this crisis, the government suddenly raised the écu of four livres to a hundred sous, and it thought it had gained 25 per cent. But this gain is imaginary, and the harm it brought to the people real.

When I say it raised the écu, I am not speaking with enough precision. It banned the écu whose value it had lowered. It laid down that it should be carried to the mint where it was only received on the basis of four francs; and it made a new écu at the same standard, which it made worth a hundred sous.

Because it raised the duties of its mint to 20 per cent it thought it was finding 20 per cent profit in this operation. But counterfeiters bought the old écus for four livres five, four livres ten; and they made new ones which they sold, like the king, for a hundred sous. The government had thus grossly deceived itself.

For the rest, it matters little what is the standard and the weight of the coinage. It is enough that the stamp guarantees the amount of silver that each piece contains and that the prince, by abusing words, does not embark on placing a value that is imaginary, and hence always variable, in place of a real value which is permanent.