The Online Library of Liberty

A project of Liberty Fund, Inc.

• Notice.
• Mr M C Culloch’s Publications.
• Treaties and Essays On Subjects Connected With Economical Policy; With Biographical Sketches of Quesnay, Adam Smith, and Ricardo
• A Treatise On Money. 1
• Sect. I.—: 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.
• Sect. II.—: Circumstances Which Regulate the Exchangeable Value of Money.
• Sect. III.—: A Moderate Seignorage On Coined Money Advantageous. Principles Which Should Regulate Its Amount. 1
• Sect. IV.—: Expense of a Currency Consisting of the Precious Metals.
• Sect. V.—: Paper Money. Principle On Which Its Value Is Maintained.
• Sect. VI.—: Whether Gold Or Silver Should Be Adopted As the Standard of the Currency, Or Whether It Should Consist of Both.
• Sect. VII.—: Standard of Money. Degradation of the Standard In Rome, France, Great Britain, and Other Countries. Effects of This Degradation.
• Tables Relative to the Money of the United Kingdom.
• Treatise On the Circumstances Which Determine the Course of Exchange.
• Inland Exchange.
• Foreign Exchange.
• Sect. I.—: Nominal Exchange.
• Sect. II.—: Real Exchange.
• Sect. III.—: Computed Exchange.
• History and Influence of Bills of Exchange.
• Essay On Interest and Usury Laws.
• A Treatise On the Letting and Occupancy of Land.
• 1.: Money Rents.
• 2.: Proportional Rents.
• 3.: Produce Rents.
• 4.: Service Rents.
• An Essay Showing the Erroneousness of the Prevailing Opinions In Regard to Absenteeism.
• Sketch of the History of Commerce, to the Sixteenth Century.
• Sect. I.—: PhŒnician Commerce.
• Sect. II.—: Grecian Commerce.
• Sect. III.—: Roman Commerce.
• Sect. IV.—: Italian Commerce In the Middle Ages.
• Sect. V.—: Vasco De Gama and Columbus.
• An Essay On the Rise, Progress, and Decline of Commerce In Holland.
• An Essay On the Rise, Progress, and Decline of the Hanseatic League.
• Essay On the Origin of the Compass.
• Sketch of the Progress of Maritime Law.
• An Essay On the Colonial System of the Ancients.
• Sketch of the Life and Writings of Francis Quesnay.
• Sketch of the Life and Writings of Adam Smith, Ll.d.
• Sketch of the Life and Writings of David Ricardo, Esq., M.P.

Sect. III.—

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.

Sect. IV.—

Expense of a Currency consisting of the Precious Metals.

A moderate seignorage has but an inconsiderable effect in reducing the expense of a metallic currency. This, which is much greater than is generally imagined, is not occasioned by the coinage, which is comparatively trifling, but by the value of the gold and silver vested in coins. If, for example, the currency of the United Kingdom consisted wholly of gold, it would amount to at least sixty millions of sovereigns; and if the customary rate of profit were 6 per cent., it would cost £3,600,000 a-year: for were this sixty millions not employed as money, it would be employed in branches of industry in which, besides affording wages to numerous individuals, it would yield 6 per cent., or £3,600,000 a-year, nett profit to its possessors. And this is not the only loss. The sixty millions would not merely be withheld from the great work of production, and the country deprived of the revenue derived from its employment, but it would be perpetually diminished. The wear and tear of coins is by no means inconsiderable; and supposing the expenses of the coinage were defrayed by a moderate seignorage, the deficiency in the weight of the old worn coins, on their being called in to be recoined, falls on the public. There is, besides, a constant loss from shipwreck, fire, and other accidents. When due allowance is made for these causes of waste, it may not, perhaps, be too much to suppose, that a country, which had sixty millions of gold coins in circulation, would have annually to import and coin the hundredth part of this sum, or £600,000, to maintain its currency at its proper level.

Thus it appears that, were the customary rate of profit in the United Kingdom 6 per cent., it would cost £4,200,000 a-year to maintain sixty millions of gold coins in circulation. A reduction of the rate of profit would no doubt proportionally reduce the amount of this expense; but the reduced expense might still bear the same proportion to the total income of the country that the higher expense did, and if so, the cost of the currency would not be at all diminished. The case of France furnishes a striking example of the heavy charges attending the general use of a metallic currency. The gold and silver currency of that kingdom has been estimated by M. Fould at 2,200 millions fr., and by others at 2,500 millions.1 Now, supposing the lowest estimate to be the more correct, and taking the rate of profit at 6 per cent., this currency must cost France a hundred and thirty-two millions fr. a-year, exclusive of the wear and tear and loss of the coins, which being taken, as before, at the hundredth part of the entire mass, will make the whole annual expense amount to a hundred and fifty-four millions fr., or to about six millions sterling. This heavy expense forms a very material deduction from the advantages resulting from the use of a currency consisting entirely of the precious metals, and has doubtless been the chief cause why all civilised countries have endeavoured to fabricate a portion of their money of less valuable materials. It has not, however, been the only cause. It is obvious, were there nothing but coins in circulation, that the conveyance of large sums from place to place would be a very laborious process; and that even small sums could not be conveyed without considerable difficulty. Of the substitutes, calculated alike to save expense and to lessen the cost of carriage, paper is in every respect the most eligible, and has been by far the most generally adopted. By using it instead of gold, we substitute the cheapest for the most expensive currency; and enable the society to exchange all the coins which the use of paper renders superfluous, for raw materials, or manufactured goods, by the use of which its wealth and enjoyments are increased. It is also transferred with the utmost facility. Hence, since the introduction of bills of exchange, most great commercial transactions have been adjusted by means of paper only; and it also is used to a very great extent in carrying on the ordinary business of society.

[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.”

[1 ] Chevalier de la Monnaie, p. 326.