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A TREATISE ON MONEY. 1 - John Ramsay McCulloch, Treatises and Essays on Subjects connected with Economic Policy with Biographical Sketches of Quesnay, Adam Smith & Ricardo 
Treatises and Essays on Subjects connected with Economic Policy with Biographical Sketches of Quesnay, Adam Smith & Ricardo (Edinburgh: Adam and Charles Black, 1853).
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A TREATISE ON MONEY.1
Money2 is a term used to designate the commodity or article which the inhabitants of any given country accept, either voluntarily or by compulsion, as an equivalent for their services, and for whatever else they may have to dispose of.
Circumstances which led to the use of Money. Principal properties which every Commodity used as such ought to possess. Not a Sign or a Measure of Value, but a real Equivalent.
Were the division of labour unknown, and did every individual or family directly produce the articles necessary for his or their consumption, there would be no exchanges, and, consequently, no money. But, after the division of labour has been established, the employment of money becomes necessary, or, at least, highly advantageous. A very small part only of a man’s wants is then directly supplied by his own exertions. The greater part is indirectly supplied by his exchanging services, or such parts of the articles he has produced as exceed his own consumption, for such parts of those produced by others as he has occasion for, and they are willing to part with. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.
“But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former, consequently, would be glad to dispose of, and the latter to purchase, a part of this superfluity. But, if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each be willing to purchase a part of it; but they have nothing to offer in exchange except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange can, in this case, be made between them. He cannot be their merchant, nor they his customers; and they are all of them thus mutually less serviceable to one another. To avoid the inconveniency of such situations, every prudent man, in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.”1
This commodity, or Marchandise banale, as it is termed by the French, whatever it may be, is money.
An infinite variety of commodities have been used as money in different countries and states of society. Those nations who chiefly subsist by the chase, such as the ancient Russians, and the greater part of the Indians who occupy the uncultivated portion of America, use the skins of wild animals as money.1 In a pastoral state of society cattle are sometimes used for that purpose. Homer tells us that the armour of Diomed cost only nine oxen, whilst that of Glaucus cost a hundred.2 The etymology of the Latin word (pecunia) signifying money, and of all its derivatives, would seem to prove that cattle (pecus) had been the primitive money of the Romans.3 And that they had been used as such by the ancient Germans is obvious; for their laws uniformly fix the amount of the penalties to be paid for offences in cattle.4 In remoter ages corn was very generally used, in agricultural countries, as money; and even now, it is by no means uncommon to stipulate for corn rents and wages. Other articles have been used in different countries. Salt is said to be the common money of Abyssinia.5 A species of shells called cowries, gathered on the shores of the Maldive Islands, are used in smaller payments throughout Hindostan, and form the only money of extensive districts in Africa.6 Dried fish serves as money in Iceland and Newfoundland;1 and Dr Smith mentions that, previously to the publication of the Wealth of Nations (1776), it was customary in a village in Scotland for workmen to carry nails, as money, to the baker’s shop and the alehouse.2
But these commodities universally want some of the principal properties which every commodity used as money ought to possess. Products must frequently be brought to market worth only part of an ox or a skin; but as an ox could not be divided, and as the division of a skin would most probably deprive it of the greater part of its value, they could not be exchanged for such money. Divisibility is not, however, the only indispensable quality in a commodity used as a medium of exchange. It is necessary that it should admit of being kept for an indefinite period without deteriorating; that it should by possessing great value in small bulk, be easily transported; and that one piece of money of a certain denomination, should always be precisely equivalent to every other piece of money of the same denomination. But none of the commodities specified above, as having been used as money, possess these properties. Though cattle had been sufficiently divisible, they could neither be preserved, nor transported from one place to another, without a great deal of trouble and expense; while, owing to the difference in their qualities, one ox might be worth two or three oxen of an inferior species. It is plain, therefore, that they could not serve as money except in a very rude state of society, when the arts were almost unknown, and the rearing of cattle formed the principal employment. Corn is sufficiently divisible; but its bulk is far too great in proportion to its value to admit of its easy transportation, and it also is of very different and not easily appreciated qualities. Salt, shells, and fish, are all liable to insuperable objections. Equal quantities of all of them differ very greatly in their values; some of them cannot be divided, and others cannot be preserved or transported without much loss.
The commodities in question were also deficient in a still more important particular. Their value was not sufficiently invariable to permit of their being advantageously used as money. They were not durable commodities, nor was it possible to adjust their supply so as to avoid sudden fluctuations of price. The occasional abundance and scarcity of pasture has a powerful influence over the price of cattle, which is still more seriously affected by the prevalence of epidemical diseases, and other contingencies. The fluctuations in the price of corn, arising from variations of the seasons, are too frequent and obvious to require to be pointed out. And in the islands where cowries are picked up, a strong gale from a particular point of the compass has frequently, in a few hours, sunk their value considerably. It was not, therefore, to be expected that such commodities could be either generally or permanently used as money in civilised societies. No person would willingly buy, or barter produce for an article, which might, in a few weeks, or even days, lose a third or a half of its value.
The desire of uniting the different qualities of invariability of value, divisibility, durability, facility of transportation, and perfect sameness, doubtless formed the irresistible reasons which have induced all civilised communities to employ gold and silver as money. The value of these metals, though far from invariable, changes only by slow degrees; they are readily divisible into any number of parts, which may be again reunited, by means of fusion, without loss; they do not deteriorate by being kept; their firm and compact texture makes them difficult to wear; their cost of production, especially of gold, is so considerable, that they possess great value in small bulk, and can, of course, be transported with comparative facility; and their identity is perfect, the pure gold and silver supplied by Russia and Australia having precisely the same qualities with that furnished by California and Peru. No wonder, therefore, when almost every property necessary to constitute money is possessed in so eminent a degree by the precious metals, that they have been used as such from a very remote æra. Their employment in this function is not ascribable to accident, to the genius of any individual, or to any peculiar combination of circumstances. It grew naturally out of the wants and necessities of society, on the one hand, and the means of supplying them possessed by these metals, on the other. They became universal money, as Turgot has observed, “not in consequence of any arbitrary agreement among men, or of the intervention of any law, but by the nature and force of things.”
A considerable period must necessarily have elapsed, after the introduction of the precious metals into commerce, before they were used generally as money. But, by degrees, the various qualities which so peculiarly fit them for this purpose would become obvious; and every individual, in consulting his own advantage, would endeavour to exchange some portion of the produce of his industry for commodities which could be easily concealed or carried about, which did not deteriorate by being kept, and of which he could give a portion equivalent to any other article which he might afterwards wish to obtain. When first brought to market, gold and silver, like copper, iron, or any other metal, were in an unfashioned state, in bars or ingots. Sheep, oxen, corn and flour, etc., were then bartered for gold or silver, exactly as they were bartered for iron, copper, cloth, or anything else. The parties having agreed upon the quality and quantity of the metal to be given for the goods, the latter was ascertained by weight. Nor is this a mere conjectural statement, advanced in a later age to explain appearances, and resting on probability only. Aristotle1 and Pliny2 tell us, that such was, in fact, the method by which the precious metals were originally exchanged in Greece and Italy; and the sacred writings present us with a remarkable example of the prevalence of the same primitive practice in the East. We are there told that Abraham weighed four hundred shekels of silver, and gave them in exchange for a piece of ground he had purchased from the sons of Heth.1 It is also mentioned, that this silver was “current money with the merchant,” an expression which evidently refers to its quality only; for, had it been coined, or marked with a stamp, indicating its weight and fineness, it would not have been necessary to have weighed it. These ancient practices still subsist in various countries. In many parts of China, gold and silver do not circulate as coin under the authority of a public stamp. When exchanged, they are cut into pieces, supposed to be nearly proportioned to the value of the article they are to be given for; and the pieces are then weighed to ascertain their precise value. This practice is also prevalent in other countries.2
Before the art of metallurgy was well understood, the baser metals were frequently used as money. Iron was the primitive money of the Lacedemonians, and copper of the Romans. But these metals deteriorate by being kept; and, besides this defect, the rapid improvement of the arts, and the consequent reduction of their price, speedily rendered their bulk in proportion to their value too great to permit of their continuing to serve as money. Copper, however, is still advantageously used in the form of tokens, convertible into silver in very small payments. In Great Britain, copper pence and half-pence are rated far above their real value. But as their issue is exclusively in the hands of government, and as they are legal tender to the extent of one shilling only in any one payment, this over-valuation has not, for reasons which will be afterwards explained, had any bad effect.3
The trouble and inconvenience attending the weighing of the metal in every exchange of gold or silver for commodities, must have been early experienced. But the greatest obstacle to the use of unfashioned metals as money, would undoubtedly be found in the difficulty of determining their quality, or the degree of their purity, with sufficient facility and accuracy. The operation of assaying, is one of great nicety and delicacy; and, notwithstanding all the assistance derived from modern art, it is still no easy matter to ascertain the precise degree of purity of a particular piece of metal. In early ages, such an operation must have been performed in a clumsy and bungling manner. It is most probable, indeed, that when the precious metals were first used as money, their quality would be appreciated only by their weight and colour. A very short experience would, however, be sufficient to show the inexactness of conclusions derived from such loose and unsatisfactory criteria; and the devising of some method by which the fineness of the metal offered in exchanges might be easily and correctly made known, would very soon be felt as indispensable to the general use of gold and silver as money. Such a method was not long in presenting itself. It was early discovered, that, to indicate the purity of the metal, and also to avoid the trouble and expense of weighing it, no more was necessary than to mark each piece with a public stamp, declaring its weight and fineness. Such seem to have been the various steps which led the ancients, at a very remote æra, to the introduction of coined money.1 It was an invention of the greatest utility, and has powerfully contributed to facilitate commerce, and to accelerate the progress of civilisation and the arts.
“Without some article of known exchangeable value, such as coin, readily received as an equivalent for other things, the interchange of commodities must have been very limited, and consequently the divisions of labour very imperfectly established. Now, money obviates these evils, and by a twofold operation, augments production. In the first place, it saves all that time and labour which, while the intercourse between man and man is carried on by barter, must frequently intervene before a person can be supplied with the quantity of the commodity which he wants. In the second place, and in consequence of its saving the time and labour which must otherwise be spent in effecting exchanges, it multiplies the transactions of mercantile industry, and thus allows the divisions of employment to be more thoroughly established. By the first operation, it disengages a very considerable portion of labour from an unproductive occupation, and enables it to receive a more useful direction. By the second operation, it increases in a very high degree the productive powers of the labour already usefully employed. It assists every man in availing himself of the skill and dexterity which he may have acquired in any particular calling, and promotes cultivation in a manner suitable to the climate and soil of different districts, and of different countries. And by both these operations, coined money increases to an extent, not easy to be calculated, the wealth of civilised communities.”1
But however great the advantages attending the use of coins, their introduction had no influence over the nature of exchanges. Equivalents are still given for equivalents. The exchange of a quarter of corn for an ounce of pure unfashioned gold bullion, is undeniably as much a barter, as if it were exchanged for an ox, or a barrel of beer. But supposing the metal to be formed into a coin, that is, marked with a stamp indicating its weight and fineness, it is plain that that circumstance would make no change in the terms of the barter. The coinage saves the trouble of weighing and assaying the bullion, but it does nothing more. A coin is merely a piece of metal of a known weight and fineness; and the commodities exchanged for it are always held to be of equal value. And yet these obvious considerations have been very generally overlooked. Coined money, instead of being viewed in the same light as other commodities, has been regarded as something quite mysterious. It has been said to be both a sign and a measure of value. But a sovereign is not a sign, it is the thing signified. A promissory note, payable at some stated period, may not improperly be considered as the sign of the specie to be paid for it; but that specie is itself a commodity possessed of real exchangeable worth. It is equally incorrect to call money a measure of value, at least in the sense in which that phrase is commonly understood. Gold and silver do not measure the value of commodities, more than the latter measure the value of gold and silver. Every thing possessed of value may either measure, or be measured by, every thing else possessed of value. When one commodity is exchanged for another, each measures the value of the other. If the quartern loaf sold for a shilling, it would be quite as correct to say, that a quartern loaf measured the value of a shilling, as that a shilling measured the value of a quartern loaf.
The quality of serving as a measure of value is, therefore, inherent in every commodity. But the slow degrees by which the precious metals change their value, renders them peculiarly well fitted for forming a standard, by which to compare the values of other and more variable articles. To this standard reference is almost always made in estimating the value of products in civilised countries. We do not say, that one man is worth a thousand acres of land, and that another is worth a thousand sheep; but we ascertain for how much gold or silver the land and the sheep would respectively exchange, and then say, that their proprietors are worth so much money. But in this there is nothing mysterious. We merely compare the value of one commodity with the value of another. And as coin or money is the most convenient standard of comparison, the value of other commodities is usually estimated, or rated, in it.
It is obvious, from this statement, that the exchange of one commodity, or set of commodities, for another, may be adjusted, with reference to money, without any money being actually in the possession of either of the parties to the exchange. If a horse, for example, commonly sold for ten pieces of silver, an ox for five pieces, and a sheep for one piece, the animals might be exchanged in this proportion without the intervention of money. The frequent recurrence of transactions of this kind seems to have given rise to the notion of an abstract or ideal standard of value. Thus, instead of saying that a horse is worth ten pieces of silver, an ox five pieces, and a sheep one piece, it has been contended that it might as well be said that they are respectively worth 10x, 5x, and 1x; and, since the comparative values of commodities may be as clearly expressed in this way as in sums of money, that the latter may be discarded as a standard, and a set of arbitrary terms adopted in its stead. But those who argue thus completely mistake the nature and functions of a standard. Its object is not so much to mark the known relations between different commodities, as to enable those which are unknown to be easily discovered. And although a series of arbitrary terms may perhaps serve well enough for the first of these purposes, it is quite impossible that it can ever serve for the second. This, however, is the principal object of a standard; and it is sufficiently plain that nothing can be used as such unless it possess the same properties as the things with which it is to be compared. To measure length, a standard must have length; to measure value, it must have value. The value of commodities is ascertained by separately comparing their cost with the cost of money, and we express their relation to each other by stating the result of our inquiries; that is, by mentioning the number of dollars, of pounds, or of fractions of a pound, they are respectively worth. And, when any new commodity is offered for sale, or when any change is made in the cost of an old one, we ascertain its relation to the rest, by comparing it with a dollar or a pound. It is impossible, however, that we could do this, were the terms dollar or pound purely arbitrary, and referable to no really valuable article. We might as well try to estimate distances by an imaginary inch or an imaginary foot, as to estimate prices or values by an imaginary shilling or an imaginary sovereign. When we say that an ox is worth £5 and a sheep £1, we not only mean that each is worth a certain amount of gold or silver, but also, that when an ox and a sheep are compared together—that is, when the one serves as a standard by which to estimate the value of the other—one ox is worth five sheep. But, suppose that we wish to ascertain what is the relative value of some other commodity—a hat, for example—to oxen or sheep. Of what use would it be to be told that one ox was worth five sheep, or that, when the value of an ox was represented by the term “5x,” the value of a sheep was represented by the term “1x”? It is not the relation between oxen and sheep, but the relation between these animals and hats, that we are desirous of learning. And, though this relation may be learned by comparing the cost of oxen and sheep with the cost of hats, or by ascertaining for how much of some other really valuable commodity an ox, a sheep, and a hat will respectively exchange, it is obvious it could never be learned by comparing them with x, or z, or other arbitrary term or symbol. It would not, in truth, be more absurd to attempt to ascertain it by comparing them with the hieroglyphics on an Egyptian sarcophagus. Nothing that will not exchange for something else, can ever be a standard, or measure of value. Commodities are always compared with commodities, and not with abstract terms. Men go to market with real values, and not with the signs of values, in their pockets. And it is to something possessed of real worth—to the gold contained in a sovereign, and not to the word sovereign—that they always have referred, and must continue to refer, in estimating value.1
This principle has been neatly and perspicuously stated by Locke:—“Men, in their bargains,” says he, “contract not for denominations or sounds, but for the intrinsic value; which is the quantity of silver (or gold), by public authority, warranted to be in pieces of such denominations. And it is by having a greater quantity of silver (or gold) that men thrive and grow richer, and not by having a greater number of denominations; which, when they come to have need of their money, will prove but empty sounds, if they do not carry with them the real quantity of silver (or gold) that is required.”1
In common mercantile language, the giving of money for a commodity is termed buying, and the giving of a commodity for money, selling. Price, unless when the contrary is particularly mentioned, always means the value of a commodity rated in money.
Having thus endeavoured to explain the circumstances which led to the introduction of money, and to show what it really is, and what it is not, we proceed to investigate the laws by which its value is regulated. It is chiefly from the prevalence of erroneous opinions on this subject, that the theory of money has been so much misunderstood.
Circumstances which Regulate the Exchangeable Value of Money.
This branch of our subject naturally divides itself into two parts: 1st, an inquiry into the principles which regulate the exchangeable value of money when the power to supply it is free or unfettered; and, 2d, an inquiry how far these principles are liable to be affected by the operation of monopoly.
I. There does not now seem to be much room for difference of opinion respecting the circumstances which regulate the value of the precious metals, and their distribution throughout the various countries of the globe. Bullion is a commodity, on the production of which competition operates without restraint. It is not subjected to any species of monopoly, and its value in exchange must, therefore, depend on the cost of its production, that is, on the quantity of labour required to produce it and bring it to market.
If it always required the same quantity of labour to produce the same quantity of bullion, its value would be invariable; and it would constitute a standard by which the variations in the exchangeable value of other commodities might be correctly ascertained. But this is not the case with bullion or anything else. Its value fluctuates like that of other articles, not only according to the greater or less productiveness of the mines from which it is extracted, but also according to the skill of the miners, the improvement of machinery, and other circumstances.
In his treatise on Political Economy, M. Say has a chapter entitled “De la valeur que la qualité d’être monnoie ajoute à une marchandise.” But a little reflection will convince us, that Say is mistaken, and that the circumstance of the precious metals being used as money does not affect their value. Say reasons on the vulgar hypothesis, that an increase of demand is always productive of an increase of value, an assumption which is totally at variance with principle and fact. Value depends upon the cost of production; and it is obvious that the cost of a commodity may be diminished, while the demand for it is increasing. This is so plain a proposition, as hardly to require to be substantiated by argument. And a reference to the case of cotton goods, the price of which, notwithstanding the vast increase of demand, has been constantly on the decline during nearly a century past, is enough to convince the most sceptical of the extreme erroneousness of Say’s conclusion. But, with regard to the particular case of the precious metals, it is clear that under ordinary circumstances, or when mining is prosecuted under nearly the same conditions as other businesses, the capital devoted to the production of gold and silver must yield the common and ordinary rate of profit; for, if it yielded more than that rate, there would be an influx of capital to the mining business; and, if it yielded less, it would be withdrawn, and vested in some more lucrative employment. And hence, though the demand for gold and silver should, from the adoption of some other commodity as an instrument of exchange, gradually become less, the value of the precious metals would not, on that account, be reduced. A smaller supply would, indeed, be annually brought to market, and a portion of the capital formerly engaged in the mining, refining, and preparing of the metals, would be disengaged. But as the whole stock thus employed yielded only the average rate of profit, the portion which is not withdrawn must continue to do so; or, which is the same thing, gold and silver must continue to sell for the same price. It is true that where mines are, as they almost always are, of different degrees of productiveness, any great falling off in the demand for bullion might, by rendering it unnecessary to work the inferior mines, enable the proprietors of the richer mines to continue their work, and to obtain the ordinary rate of profit on their capitals, by selling bullion at a reduced price. In this case the value of bullion would be really diminished; but this diminution would not be occasioned by a falling off in the demand, but by a greater facility of production. On the other hand, an increased demand for bullion, whether it arose from the suppression of paper money, or from a greater consumption of gold and silver in the arts, or from any other cause, would not be accompanied by any rise of price, unless it were necessary, in order to procure the increased supply, to have recourse to less productive mines. If the mines from which the additional supplies were drawn were poorer than those already wrought, more labour would be necessary to procure the same quantity of bullion, and, of course, its price would rise. But if no such increase of labour were needed, its price would remain stationary, though ten times the quantity formerly required should be demanded.
But these conclusions, though true under the circumstances supposed, are often much modified in practice. The production of the precious metals frequently, indeed, partakes very largely of the nature of a gambling speculation. When gold or silver is found in any particular locality, its abundance, and the facility which it affords to adventurers of enriching themselves, are uniformly exaggerated, and an excess of hands is attracted to the pursuit of the metal. In such cases, it commonly happens that, while a few individuals engaged in the business make fortunes, the great mass make little or nothing. But most people being sanguine enough to think that they will be found in the fortunate class, the supply of bullion may be largely increased, and its value reduced, even though the majority of those engaged in its production should be really carrying on a losing employment.
When the gold and silver mines of America first began to be wrought, the most extravagant ideas were entertained of their productiveness; so much so, that they were supposed to be able to bear a duty of half the produce. But it was soon found that the exaction of such a duty would occasion their total abandonment. It was consequently lowered, by successive reductions, to a tenth; and even this was felt to be oppressive, so that, in the end, the duty was fixed at a twentieth part, or five per cent. And, despite this reduction, the trade of mining, speaking generally, was unprofitable. Ulloa says, that in Peru, an individual who embarked in a mining speculation used to be considered as a ruined man, or as having adventured in a lottery, in which, though there were many great prizes, the blanks had a decided preponderance;1 and, according to Humboldt, nearly the same thing was experienced in Mexico; the search after mines, and the working of them, being there looked upon as a sort of gambling adventure, in which many were ruined, while a few only attained to great wealth.2
It remains to be seen whether the result of the late extraordinary discoveries in California and Australia will be different. We suspect, however, that it will not; and that in the lottery of these countries, as in that of Mexico and Peru, the blanks will greatly exceed the prizes. It is understood that, last year (1851), there were in California above 100,000 persons engaged in the raising of gold, or in the employments subordinate to and immediately connected therewith. And if we estimate the value of the labour of these parties at £100 a-year each, at an average, we shall not probably be beyond, but within, the mark; and, on this hypothesis, it would require a sum of £10,000,000 to defray their mere wages. Now, it would appear from the accounts most worthy of credit, that the produce of the gold diggings, etc., of California in 1851, amounted to from £12,000,000 to £14,000,000; and, taking it at the latter amount, which is perhaps exaggerated, still it would only yield £4,000,000 of surplus, which, were it equally divided among the parties employed in raising it, would give £40 to each. But instead of being equally, it is most unequally, divided; and, while a few have perhaps realised from £1000 to £5000, or upwards, it is plain that very many can have made little or nothing, not even ordinary wages. And this, no doubt, will also be the case in Australia. But the brilliant prizes, and the stories of cobblers and ditchers whom a fortunate chance has suddenly raised to opulence, will not fail to attract crowds of competitors. And the probability is, that the business of gold-raising will be zealously prosecuted, even though it should make a most inadequate return to the aggregate hands engaged in it. Under such circumstances, the supply of bullion may become, to a considerable extent, independent of the cost of its production; and the value of gold in the market may, for lengthened periods, depend chiefly on its quantity compared with the demand.
Although, therefore, it be true that, under ordinary circumstances, commodities are but seldom brought to market unless they sell at a price sufficient to repay the cost of their production, including therein a reasonable profit to the producers, yet many things occur to disturb the equilibrium between cost and price. And though, in the great majority of instances, such disturbances, when they do occur, are rarely of any very considerable permanency, such is not the case with gold and silver. The circumstances connected with their production are so very peculiar, that they may be furnished for indefinite periods, and in large quantities, even when they do not really indemnify the great body of their producers.
After gold and silver have been brought to market, their conversion into coin, or manufactured articles, depends on a comparison of the profits which may be derived from each operation. Bullion would not be taken to the mint if it would yield a greater profit by sending it to a silversmith; and the latter would not work up bullion into plate, if he could turn it to better account by converting it into coin. Hence the values of bullion and coin, in countries where the expenses of coinage are defrayed by the state, nearly correspond. When there is any unusual demand for bullion in the arts, coin is melted down; and when, on the contrary, there is any unusual demand for coin, plate is sent to the mint, and the equilibrium of value maintained by its fusion.
It appears, therefore, that while competition operates without restraint on the production of gold and silver, their value will vary, as above stated. And, while they constitute the currency of the commercial world, the price of commodities, or their value rated in gold or silver, will vary, not only according to the variations in the exchangeable value of the commodities themselves, but also according to the variations in the value of the gold or silver with which they are compared.
II. But if competition were not allowed to operate in the production of the precious metals—if they were monopolised, and limited in their quantity—their exchangeable value would no longer be regulated by these principles. If, after the limitation, they still continued to be used as money, and if, in consequence of improved methods of production, raw and manufactured commodities, and valuable products of all sorts, were very much multiplied, the exchanges which the limited amount of money would have to perform, would be proportionally increased. A smaller sum would, therefore, have to be appropriated to each transaction, or, which is the same thing, money prices would be diminished. When the supply of money is fixed, the amount of it given in exchange for commodities, varies inversely as the demand, and can be affected by nothing else.
We have assumed in this statement, for the sake of simplifying and elucidating the subject, that the substitutes which may be used for money, and the methods of economising the latter, are the same at both periods. Nothing, however, is easier than to allow for any change in the one or the other. And, supposing this allowance to have been made, it follows, if double the usual supply of commodities be brought to market in a country with a limited currency, that their money price will be reduced a half; and that, if only half the usual supply be brought to market, it will be doubled; and this, whether the cost of their production be increased or diminished. Products are not then exchanged for money, because it is a commodity capable of being advantageously used in the arts, and which has cost a certain quantity of labour, but because it is the universal equivalent used by the society, and will, as such, be willingly received by every one. The remark of Anacharsis, the Scythian, that gold and silver coins seemed to be of no use but to assist in numeration and arithmetic,1 would, if confined to a limited currency, be as just as it is ingenious. Sovereigns, livres, dollars, etc., would then really constitute mere tickets or counters for computing the value of property, and transferring it from one individual to another. And as small tickets or counters would serve for this purpose quite as well as large ones, it is unquestionably true that a debased currency may, by limiting its quantity, be made to circulate at the value it would bear if the power to supply it were unrestricted, and it were possessed of the legal weight and fineness: and, by still further limiting its quantity, it may be made to pass at any higher value.
Thus it appears, that whatever may be the material of the money of any country, whether it consist of gold or silver, or of copper, iron, leather, salt, cowries, or paper, and however destitute it may be of all intrinsic value, it is yet possible, by sufficiently limiting its quantity, to raise its value in exchange to any conceivable extent.
Suppose the existing money of Great Britain to consist of 50,000,000 or 60,000,000 of one pound notes, and that we are prevented from increasing or diminishing this sum, either by issuing additional notes or coins, or by withdrawing the notes in circulation: It is obvious that the quantity of commodities for which such notes would continue to exchange, would increase or diminish with the increase or diminution of the commodities brought to market. If we suppose that three times the amount of products now offered for sale, are offered ten or twenty years hence, and that the economy of circulation has continued the same, prices will fall to one-third part of their present amount; or, which is the same thing, the exchangeable value of the paper money will increase in a threefold proportion: and, on the other hand, if the products brought to market diminish in the same proportion, the exchangeable value of the paper money will be equally reduced.
The principles we have now stated are of the greatest importance to a right understanding of the real nature of money. Its value depends, at any given moment, on the quantity of it in circulation, compared with the demand. If it consist partly of coin, and partly of paper immediately convertible into coin, the value of the paper will obviously depend upon, and be, in fact, identical with, that of the coin. But if it consist of paper notes, not convertible into coin, and which, nevertheless, are legal tender, then it is plain that the value of such notes must be wholly determined by the number of them in circulation. Such a currency having little or no intrinsic worth, its value, in exchange, depends on the extent to which it has been issued, and on the fact of its being legal tender. By restricting its issue, its value may be raised to any extent.
Speaking generally, the value in exchange of a currency, consisting of the precious metals, is coincident with the cost of their production. If a sovereign commonly exchange for two or three bushels of wheat, or a hat, it is because the same labour is commonly required for its production as for that of either of these commodities; while, if with a limited and inconvertible paper money, they exchange for a one pound note, it is because such is the proportion which, as a part of the mass of commodities offered for sale, they bear, taking the cost of each into account, to the supply of paper in the market. This proportion would, it is evident, be not only immediately, but permanently, affected by an increase or diminution either of paper or commodities. But the relation which commodities bear to a freely supplied metallic currency could not be permanently changed, except by a change in their cost, or in that of the metals.
We have already seen in how far these conclusions are liable to be affected by the peculiar circumstances under which gold and silver are frequently produced. But how much soever their value in exchange may diverge for a while from the cost of their production, its uniform tendency is to coincide with that cost; and though the value of bullion, as compared with other articles, may differ very widely at different periods, these differences are usually manifested only by slow degrees. The vast extent of the surface over which the precious metals are spread, and the many purposes to which they may be applied, prevents even the largest additional supplies from suddenly reducing their value; while, on the other hand, their great durability prevents any sudden diminution of their quantity, and the influence of a falling off in the supply from being speedily visible.
It may, therefore, be laid down generally, that the value of money depends on the quantity of it in circulation compared with the exchanges to be effected by its means, or with the business it has to perform. When, however, money consists of coins, their value is most commonly limited by, and proportioned to, the cost of their production; whereas, when it consists of paper, not convertible into coin, its value is exclusively determined by the magnitude of its issues, and has nothing to do with the cost of its production. That cost may, indeed, in its case, be regarded as zero.
Such seem to be the circumstances which regulate the value of money, both when the power to supply it is not subjected to any species of monopoly, and when it is monopolised and limited. In the former case, its value generally depends, like that of the greater number of other commodities, on the cost of its production; while, in the latter case, its value is unaffected by that circumstance, and depends entirely on the extent to which it has been issued, compared with the demand.
The conclusions deducible from these principles are most important. A metallic currency, on the coinage of which a high seignorage or duty was charged, and a paper currency, not convertible into the precious metals, were occasionally seen to circulate at the same value with a metallic currency of full weight, and which had been coined at the expense of the state. But no rational or consistent explanation of these apparently anomalous results could be given until the effects produced by limiting the supply of money had been appreciated. Now, however, that this has been done, these difficulties have disappeared. The theory of money has been perfected, and we may estimate, a priori, what, under any given circumstances, would be the effect of imposing a seignorage, or of issuing inconvertible paper.
A Moderate Seignorage on Coined Money advantageous. Principles which should regulate its amount.1
The governments of most countries have retained the power of coining exclusively in their own hands. In antiquity this privilege was reserved to prevent the confusion which must attend the circulation of coins of different denominations were individuals permitted to issue them at pleasure, and to give the public greater security, that the stamp should truly indicate the weight and fineness of the metal.1 And in more modern times it has been used not only as a means of affording a better guarantee to the public, but also of increasing the national revenue. Much difference of opinion has, however, existed in regard to a proceeding of this sort. It has been contended that the state ought in no circumstances to charge any duty on coined money; and that the expenses of the mint should always be defrayed by the public. In this opinion we cannot concur; and the reasoning of Dr Smith, in favour of a moderate seignorage, appears to us to be quite unanswerable. No good reason has been given why those who want coins should not pay for their coinage. A sovereign is more valuable than a piece of pure unfashioned gold bullion of the same weight; and for this plain reason, that while it is equally well fitted for being used in the arts, it is better fitted for being used as money. In imposing a duty or seignorage on coins to defray the expense of coinage, government merely receives the equivalent of the additional value conferred by the process on the bullion. Those who carry gold to the mint would, in truth, have no more reason to complain were they made to pay the cost of its manufacture than those who carry it to a jeweller.
But there are other reasons why a seignorage, to this extent at least, ought to be exacted. Wherever the expenses of coinage are defrayed by the state, coined gold or silver, and gold or silver bullion, are very nearly of the same value. And hence, whenever it becomes profitable to export the precious metals, coins, in the manufacture of which a considerable expense has been incurred, are sent abroad indifferently with bullion. It has indeed been attempted, by prohibiting the exportation of coins, to prevent the loss that may thus be occasioned; but these efforts having proved singularly ineffectual, have been abandoned in this and most other countries. Admitting, however, that it were possible, which it certainly is not, to prevent, or materially limit, the clandestine exportation of coins, it is conceded on all hands to be quite nugatory to attempt to prevent their conversion into bullion. In this there is almost no risk. And the security with which their fusion may be effected, and the trifling expenses attending it, will always enable them to be melted down and sent abroad whenever there is any unusual foreign demand for the precious metals. This exportation would, however, be either prevented or materially diminished by the imposition of a seignorage or duty, equal to the expense of coinage. Coins being, by this means, rendered more valuable than bullion, it would be sent abroad in the event of the exchange becoming unfavourable, or of gold becoming a suitable article of export. And if, as Smith has observed, it became necessary on any emergency to export coins, they would, most likely, be re-imported. Abroad they would be worth only so much bullion, while at home they would be worth this much, and the expense of coinage besides. There would, therefore, be an obvious inducement to bring them back; and the supply of currency would be maintained at its proper level, without its being necessary for the mint to issue fresh coins.
Besides relieving the country from the useless expense of coining money sent abroad as an article of commerce, a moderate seignorage would either prevent or materially lessen that fusion of the heavier coins, which always takes place whenever a currency becomes degraded or deficient in weight. Previously to the recoinage of 1774, the weight of bullion contained in the greater number of the gold coins in circulation was reduced nearly two per cent. below the mint standard; and, of course, the price of gold bullion, estimated in this degraded currency, rose two per cent., or from £3, 17s. 10½d., its mint price, to £4 per ounce. This, however, was too minute a difference to be taken into account in the ordinary business of buying and selling. And the possessors of coins fresh from the mint, or of full weight, not obtaining more produce in exchange for them than for the lighter coins, sent the former to the melting-pot, and sold them as bullion. But it is easy to see that this fusion would have been prevented had the coins been laden with a seignorage of two per cent. The heavy coins could not then have been melted without losing the value given them by the seignorage; and this being equal to the excess of the market price of bullion above the mint price, nothing would have been gained by the melters. Had the seignorage been less than two per cent., the average degradation of the coin, had it, for example, been only one per cent., all those coins whose value was not more than one per cent. degraded below their mint standard, might have been melted; but if the seignorage had exceeded two per cent., no coins would have been melted until the degradation had increased to the same or a greater extent.
This reasoning is bottomed on the supposition that the coins on which a seignorage is charged are not issued in excess. If they were, the above-mentioned consequences would not follow. Their too great multiplication might sink them even below their value as bullion, and occasion their immediate fusion or exportation. So long, however, as the state only coins the bullion brought to the mint by individuals, there is no risk of this happening. No one, we may be pretty well assured, would carry bullion to that establishment, and pay the expenses of its coinage, unless the coins were thereby rendered so much more valuable than the unfashioned metal.
Were government to buy bullion, and coin money on its own account, it might, by a little attention, easily avoid all over-issue. Suppose the seignorage were two per cent., then any given weight of coins of the mint standard ought, provided the currency be not redundant, to purchase two per cent. more than the same weight of bullion. So long, therefore, as this proportion is preserved between money and bullion, it shows that the proper supply of currency has been issued. If the value of the coins decline below this limit, too many of them must have got into circulation; and if, on the contrary, their value increase, the supply is too limited, and an additional quantity may be advantageously issued.
It must not, however, be concealed, that if it were attempted to charge a high seignorage, it would be extremely difficult, or rather quite impracticable, to limit the supply of coins. The inducement to counterfeit money would, under such circumstances, be very greatly increased, while the chances of detection would be very much diminished. It would not then be necessary, to derive a profit from counterfeit coins, that they should be manufactured of base metal. The saving of a heavy charge on account of seignorage might of itself afford a sufficient profit; and this could be derived, though the metal contained in the forged coins were of the standard purity. But though it might, for this reason, and most probably would, be quite impossible to limit the supply of currency, and consequently to sustain its value, were any thing like an exorbitant seignorage charged, the same difficulty would not stand in the way of a moderate one. The business of counterfeiting would not be carried on did it not yield a premium sufficient to indemnify the forgers for the risks and odium to which they are exposed. A seignorage less than this would not encourage the issue of counterfeit coins. And though it might be difficult to form any very precise estimate of the amount of the premium referred to, it would not probably be under three or four per cent.1
In his evidence before the Lords’ Committee in 1819, Mr Mushet stated that, with the improved machinery in use in the mint, gold coin could be manufactured for about 10s. per cent.2 And the manufacture of the silver coin might then, we believe, be taken at about three times as much, or at one and a-half per cent. It appears from an account given in the Report published in 1849 (p. 86), of the Commissioners appointed to inquire into the Constitution, etc., of the Mint, that the expense of coinage, at an average of the eleven years ending with 1848, amounted, exclusive of law expenses, to £1, 5s. 3¾d. per cent. The total amount coined during this period was £38,275,486, of which £34,877,664 was gold, £3,329,716 silver, and £68,103 copper. It is said to be very difficult to distinguish exactly the separate cost of coining the different metals. There can, however, be little doubt that the changes lately introduced into the mint will effect a very considerable saving in the expense of coining; and the probability is, that in future it will be under one per cent. on the average value of the total coins issued. In France the procedure at the mint has been so much perfected that the expense of coining gold has been reduced to six fr. on 3,100 fr., or to ·0193 per cent., and that of silver to 75 cent. per 100 fr., or ¾ per cent.1 In Russia the gold costs 0·85, and the silver 2·95 per cent.2
The precise period when a seignorage began to be charged upon English silver coins has not been ascertained. It must, however, have been very early. Ruding mentions, that in a mint account of the 6th Henry III., one of the earliest he had met with, the profit on £3,898, 0s. 4d. of silver coined at Canterbury, is stated to be £97, 9s., being exactly 6d. a-pound, of which the king had £60, 18s. 3⅓d., and the bishop the residue.3 In the 28th Edward I. the seignorage amounted to 1s. 2½d. per pound, 5½d. being allowed to the master of the mint, to indemnify him for the expenses of coinage, and 9d. to the crown as its profit. Henry VI. increased the master’s allowance to 10d. and 1s. 2d., and the king’s to 1s. and 2s. In the reign of Edward IV., the seignorage varied from 4s. 6d. to 1s. 6d. It was reduced to 1s. in the reign of Henry VII.; but was prodigiously augmented in the reigns of his successors, Henry VIII. and Edward VI., whose wild and arbitrary measures produced, as will be afterwards shown, the greatest disturbance of the currency. During the lengthened reign of Elizabeth, the seignorage varied from 1s. 6d. to 2s. per pound; at which sum it continued, with very little variation, until the 18th of Charles II. (1666), when it was remitted.
From this period down to 1817, no seignorage was charged on the silver coin; but a new system was then adopted. Silver having been underrated in relation to gold in the mint proportion of the two metals fixed in 1718, heavy silver coins were withdrawn from circulation, and gold only being used in all the larger payments, it became, in effect, what silver had formerly been, the standard of the currency. The act 56th Geo. III., cap. 68, regulating the present silver coinage, was framed not to interfere with this arrangement, but so as to render silver entirely subsidiary to gold. For this purpose it was made legal tender to the extent of only 40s.; and 66s. instead of 62s. are coined out of a pound of troy, the 4s. being retained as a seignorage, which, therefore, amounts to 6 per cent. The power to issue silver is exclusively in the hands of government; who may, by not throwing too much of it into circulation, prevent its fusion, until the market price of silver rise above 5s. 6d. an ounce.
This arrangement was censured in the debates on the resumption of cash-payments in 1819. It was contended that the over-valuation of silver with respect to gold would make debtors use it in preference in discharging their debts, and that the gold coins would be melted or exported. The result has shown that this opinion was erroneous. Debtors cannot discharge their debts by silver payments; for, as seen above, it is legal tender for 40s. only; and no creditor can be compelled, or would be disposed to take it in payment of a larger debt, except at its real value.1
In the 18th of Edward III., the period when we begin to have authentic accounts of the gold coinage, a pound troy of gold bullion was coined into florins, of the value of £15. Of this sum only £13, 16s. 6d. was given to the party who brought the bullion to be coined, £1, 3s. 6d. being retained as seignorage, of which 3s. 6d. went to the master, and £1 to the king. But it appears, from the mint indentures, that the seignorage on the coinage of nobles for the same year, amounted to only 8s. 4d. And, from this remote period to the accession of the Stuarts, with the exception of the coins issued in the 4th and 5th Edward IV., and the 34th, 36th, and 37th Henry VIII., the total charge of coining a pound weight of gold bullion seldom exceeded 7s. or 8s. money of the time. In the 2d James I., a pound weight of gold bullion was coined into £40, 10s.; a seignorage of £1, 10s. being deducted; 6s. 5d. of which went to the master, and £1, 3s. 7d. to the crown. The seignorage on gold was remitted at the same time (18th Charles II.) with the seignorage on silver, and has not since been revived.1
It appears from the official accounts, that the immense sum of £90,029,764 was coined at the mint into gold coins between the years 1816 and 1847, both included. If we estimate the cost of this coinage, including the loss on the old worn coins, brought to the mint to be recoined, at 12s. per cent., it will amount to about £540,000. But had a low seignorage of 2 per cent. been charged during this period, two-thirds, probably, of this immense coinage would have been rendered unnecessary; at the same time that it would have yielded a revenue of nearly 1½ per cent. on the sums that were coined.
For some years past, there has been a very extensive demand for sovereigns and half-sovereigns,2 which, being obtained free of all charge, fresh from the mint, are exported or melted, as the case may be. It is needless, after what has been previously stated, to dwell at any greater length on the futility of this practice. It is the sieve of the Danaids over again. We might, on the same principle, supply natives and foreigners with plate ad libitum at the price of the bullion, making them a present of the workmanship. Whatever may be thought of the policy of making coins yield a revenue, there can be no reasonable doubt that they should, at all events, be charged with the expense of coinage.
As the regulation of the seignorage, when it did exist, depended entirely on the will of the sovereign, we need not be surprised at the variations in its amount, or that it should have fluctuated according to the necessities and caprices of succeeding princes. It was, indeed, hardly possible that it should have been otherwise. Our ancestors were ignorant of the principle, by a strict adherence to which the imposition of a considerable seignorage can alone be rendered advantageous. They considered it as a tax which might be increased and diminished at pleasure. And, far from taking any steps to limit the quantity of coin in circulation, so as to maintain its value, they frequently granted to corporate bodies, and even to individuals,1 the privilege of issuing coins, not subject to a seignorage. No wonder, therefore, that it should have been considered as a most unjust and oppressive tax, and that its abolition should have been highly popular.
Besides the revenue arising from the seignorage, our kings formerly derived a small revenue from the remedy or shere. It being found impossible to coin money corresponding in every particular, of weight and purity, with a given standard, a small allowance is made to the master of the mint, whose coins are held to be properly executed, provided their imperfections, whether on the one side or the other, do not exceed this allowance, or remedy. Its amount, from the reign of Edward III. down to 1816, was generally about one-eighth part of a carat, or 30 grains of pure gold per pound of gold bullion, and two pennyweight of pure silver per pound of standard silver bullion. In 1816, the remedy for gold coins was fixed at 12 grains per pound in the weight, and 15 grains per do. in the fineness; that for silver being, at the same time, reduced a half.
It does not appear that our princes derived any considerable advantage from the remedy previously to the reign of Elizabeth. But she, by reducing the master’s allowance for the expense of coinage from 1s. 2d. to 8d., obliged him to come as near as possible to the lowest limit allowed by the remedy. Had the coins been delivered to those who brought bullion to the mint by weight, the queen, it is plain, would have gained nothing by this device. But, in the latter part of her reign, and the first seventeen years of that of her successor, James I., they were delivered by tale, so that the crown saved, in this way, whatever additional sum it might otherwise have been necessary to pay the master for the expenses of coinage. In the great recoinage in the reign of William III., the profit arising from the remedy amounted to only 8s. on every hundred pounds weight of bullion; and the coinage is now conducted with so much precision, and the coins issued so near their just weight, that no revenue is derived from this source.
The continental princes have, we believe, without any exception, charged a seignorage on the coinage of money. In France, this duty was levied at a very early period. By an ordonnance of Pepin, dated in 755, a pound of silver bullion is ordered to be coined into twenty-two pieces, of which the master of the mint was to retain one, and the remaining twenty-one were to be delivered to the merchant bringing the bullion to the mint.1 There are no means of ascertaining the amount of the seignorage taken by the successors of Pepin, until the reign of Saint Louis (1226-1270), who coined the marc of silver into 58 sols, while he only delivered 54 sols, 7 deniers, to the merchant: at this period, therefore, the seignorage amounted to a sixteenth part of the marc, or to 6 per cent. It was subsequently increased or diminished without regard to any fixed principle. In the great recoinage in 1726, it amounted, on the gold coin, to 7 per cent., and to 5 per cent. on silver. In 1729, the mint prices, both of gold and silver, were augmented, and the seignorage on the former reduced to 5 per cent., and on the latter to 4⅛ per cent. A farther reduction took place in 1755 and 1771, when the seignorage on gold was fixed at 1 per cent., and on silver at 1 per cent.1 At the Revolution the seignorage was converted into a brassage, being reduced nearly to the expense of coinage.
[1 ] Originally published in the Encyclopædia Britannica.
[2 ] Etymologists differ respecting the derivation of the word money. Some contend that it comes from monere (quia nota inscripta de valore admonet), because the stamp impressed on coined money indicates its weight and fineness (Bouteroue, “Recherches sur les Monnoyes de France, p. 1); and others that it originates in the circumstance of silver being first coined at Rome in the temple of Juno Moneta.—Suidas, in voce Μονητα.
[1 ] Wealth of Nations, M‘Culloch’s ed., in one vol., p. 10.
[1 ] Storch, Traité d’Economie Politique, tome iii. p. 16; Ulloa, Mémoires Philosophiques sur l’Amérique, tome ii. p. 100.
[2 ] Iliad, lib. 6, lin. 235. Garnier contends, in a note to his translation of the Wealth of Nations (v. p. 18, ed. 1822), that by oxen in the statement now referred to, Homer did not mean the animals so called, but coins impressed with the figure of an ox. But though the oldest Attic and some other ancient coins were marked with an ox, it does not follow that cattle were not used as money previously to their being issued. Indeed, the fair presumption is, that that circumstance was the cause of their figures being impressed on the coins.
[3 ] Morellet, Prospectus d’un Nouveau Dictionnaire de Commerce, p. 115.
[4 ] Storch, in loco citato.
[5 ] Wealth of Nations, p. 10.
[6 ] “Dans les pays ou le cuivre a trop de valeur pour pouvoir représenter celle des plus menues denrées, on est encore obligé lui substituer quelque autre matière plus commune. C’est cette circonstance qui a fait adopter aux Indiens l’usage des cauris en guise des petite monnoie. Cet usage pourroit paroître étrange dans les pays aussi riches et d’une civilisation aussi ancienne que le Bengale et l’Indoustan: mais le cuivre y est si rare, et les vivres y sont à si bon marchè qu’une pièce de la valeur de 1 cop. et ¼ [about a halfpenny English] peut y acheter une quantite des denrées suffisante pour la subsistence journalière d’un homme du peuple. On est donc obligé de deviser la plus petite monnoie de cuivre en plusieurs fractions; et comme une monnoie d’aussi peu de valeur couteroit plus à fabriquer qu’elle ne pourroit valoir, on la remplace par un coquillage dont la nature fait presque tous les fraix. Quelque mince que soit la valeur d’un cauris, elle suffit dans ces contrées fertiles pour acheter une piece des bananes ou quelque autre fruit commun.”—Le Goux de Flaix, Essai sur l’Indoustan, tome i. pp. 143-226, quoted by Storch, Economie Politique, tome iii. p. 133.
[1 ] Smith, ubi supra; and Horrebow, Description de l’Islande, tome ii. p. 90.
[2 ] Wealth of Nations, loc. cit.
[1 ] Polit. lib. i. cap. 9.
[2 ] Hist. Nat. lib. 33, cap. 3.
[1 ] Genesis, chap. xxiii. ver. 16.
[2 ] Goguet, De l’Origine des Loix, etc. tom. i. p. 268, 4to edit. See also Park’s Travels, vol. i. p. 464, 8vo. edit.
[3 ] See Memorandum on the Silver Coinage of 1817, by the Master of the Mint, p. 378, of the Appendix to the Lord’s Report on the Resumption of Cash Payments by the Bank.
[1 ] Goguet, De l’Origine des Loix, etc., tom. i. p. 269.
[1 ] Torrens on the Production of Wealth, p. 305.
[1 ] The following passage of Montesquieu has often been referred to in proof of the existence of an ideal standard:—“Les noirs de la côte d’Afrique ont un signe des valeurs sans monnoie; c’est un signe purement idéal fondé sur le degré d’estime qu’ils mettent dans leur esprit à chaque marchandise, à proportion du besoin qu’ils en ont; une certaine denrée, ou marchandise, vaut trois macutes; une autre, six macutes; une autre, dix macutes; c’est comme s’ils disoient simplement trois, six, dix. Le prix se forme par la comparaison qu’ils font de toutes les marchandises entre elles: pour lors, il n’y a point de monnoie particulière, mais chaque portion de marchandise est monnoie de l’autre.”—Esprit des Loix, liv. xxii. cap. 8.
But, instead of giving any support to the notion of an abstract standard, this passage might be confidently referred to in proof of its non-existence. Had Montesquieu said that the blacks determined the values, or prices; of commodities, by comparing them with the arbitrary term macute, the statement, though erroneous, would have been at least in point. But he says no such thing. On the contrary, he states distinctly that the relative values of commodities (marchandises) are ascertained by comparing them with each other (entre elles), and that it is merely the result of the comparison that is expressed in arbitrary terms.
So much for the weight to be attached to this statement, supposing it to be well founded. The truth is, however, that the term macute is not really arbitrary, and employed only to mark an ascertained proportion, but that it has a reference to, and is in fact, the name of an intrinsically valuable commodity. “On a bien dit,” says l’Abbé Morellet, “que ce mot macute étoit une expression abstraite et générale de la valeur, et cela est vrai au sens où nous l’expliquerons plus bas; mais on n’a pas remarqué que cette abstraction a été consequente et posterieure à l’emploi du mot macute pour signifier une marchandise, une denrée réelle à laquelle on avoit longtems comparé toutes les autres.
“Macute en plusieurs lieux de la côte d’Afrique, est encore le nom d’une certaine étoffe: ‘Chez les negres de la côte d’Angola,’ dit le voyageur Angelo, ‘les macutes sont des pièces de nattes d’une aune de long;’ Jobson dit aussi que les macutes sont une espèce d’étoffe.
“Les étoffes ont toujours été l’objet d’un besoin tres-pressant chez des peuples aussi barbares, depourvus de toute espèce d’industrie.—Les nattes en particulier leur sont de la plus grande nécessité. Elles sont divisées en morceaux peu considerables et d’une petite valeur; elles sont très-uniformes dans leurs parties, et les premières qu’on a faites auront pu être semblables les unes aux autres, et d’une bonté égale, sous la même dénomination; toutes ces qualités les ont rendu propres à devenir la mésure commune des valeurs.”—Prospectus d’un Nouveau Dictionnaire de Commerce, p. 121.
The following extract from Park’s Travels gives an example of a similar kind:—“In the early intercourse of the Mandingoes with the Europeans, the article that attracted most notice was iron. Its utility in forming the instruments of war and husbandry made it preferable to all others; and iron soon became the measure (standard) by which the value of all other commodities was ascertained. Thus a certain quantity of goods, of whatever denomination, appearing to be equal to a bar of iron, constituted, in the trader’s phraseology, a bar of that particular merchandise. Twenty leaves of tobacco, for instance, were considered as a bar of tobacco; and a gallon of spirits (or rather half spirits and half water) as a bar of rum; a bar of one commodity being reckoned equal in value to a bar of another commodity. As, however, it must unavoidably happen that, according to the plenty or scarcity of goods at market, in proportion to the demand, the relative value would be subject to continual fluctuation, greater precision has been found necessary; and, at this time, the current value of a single bar of any kind is fixed by the whites at two shillings sterling. Thus, a slave, whose price is L.15, is said to be worth 150 bars.”—Travels in the Interior of Africa, 8vo. edit., vol. i. p. 39.
[1 ] Farther Considerations concerning Raising the Value of Money. Locke’s Works, ii. 94. 4to. 1777.
[1 ] Ulloa, Voyage de l’Amerique, i. 379, Amsterdam, 1752.
[2 ] Nouvelle Espagne, liv. ii. cap. 7, edit. 1825.
[1 ] Hume’s Essay on Money.
[1 ] Seignorage, strictly speaking, means only the clear revenue derived by the state from the coinage. But it is now commonly used to express every deduction made from the bullion brought to the mint to be coined, whether on account of duty to the state, or of the expense of coinage (properly brassage). We always use the phrase in its more enlarged sense.
[1 ] Le Blanc, Traité Historique des Monnoyes de France, p. 90, ed. Amst. 1692.
[1 ] Mr Tooke read a very able paper on seignorage before the Lords’ Committee of 1819, on the resumption of cash-payments. It is printed in the appendix to their report.
[2 ] Minutes of Evidence, p. 207.
[1 ] Chevalier de la Monnaie (p. 110). This work forms the third volume of Chevalier’s “Cours d’Economie Politique.”
[2 ] Storch. tom. vi. p. 74.
[3 ] Annals of the British Coinage, vol. i. p. 179, 4to edition.
[1 ] Those who wish for a farther elucidation of this subject, may refer to Mr Mushet’s evidence in the Appendix to the Lords’ Report “on the Expediency of the Banks resuming Cash-payments,” where it is discussed at great length, and in a very able manner.
[1 ] In the tables annexed to this article, the reader will find a detailed account of the amount of the seignorage and its fluctuations in different periods.
[2 ] At present (1852), this demand is greater than usual, in consequence of the large exports of coin to Australia.
[1 ] Ruding’s Annals of the Coinage, vol. i. p. 185. When the right of seignorage was abolished, there was a pension, payable out of the profits derived from it, granted under the great seal, for twenty-one years, to Dame Barbara Villiers, which the legislature ordered to be made good out of the coinage duties imposed by that act. (See Ruding, in loco citato, and Leake’s Historical Account of English Money, 2d edit., p. 356.)
[1 ] Le Blanc, p. 87.
[1 ] Necker, “Administration des Finances” (tom. iii. p. 8).—Dr Smith has stated (“Wealth of Nations,” p. 21), on the authority of the “Dictionnaire des Monnoies,” of Abot de Bazinghen, that the seignorage on French silver coins, in 1775, amounted to about eight per cent. The error of Bazinghen has been pointed out by Garnier, in his translation of the “Wealth of Nations.”