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Nassau Senior on how the universal acceptance of gold and silver currency creates a world economy (1830)

The British classical economist Nassau William Senior (1790-1864) wrote a number of works on both paper money and hard currency in the late 1820s. In this quote he discusses how the portability and widespread acceptance of precious metal currency creates a true global economy:

In fact the portableness of the precious metals and the universality of the demand for them render the whole commercial world one country, in which bullion is the money and the inhabitants of each nation form a distinct class of labourers. We know that in the small market of every district the remuneration paid to the producer is in proportion to the value produced. And consequently that if one man can by superior diligence, or superior skill, or by the assistance of a larger capital, or by deferring for a longer time his remuneration, or by any advantage natural or acquired, occasion a more valuable product, he will receive a higher reward. It is thus that a lawyer is better paid than a watchmaker, a watchmaker than a weaver, a first-rate than an ordinary workman. And for the same reason in the general market of the world an Englishman is better paid than a Frenchman, a Frenchman than a Pole, and a Pole than a Hindoo.

It is probable that the connexion between the value, in the precious metals, of labour, or, in other words, money wages, and the cost of importing the precious metals, may not appear so clear to many of my hearers as it does to myself. But I would ask those to whom it is not evident, Whether England and France and the other countries which use plate and money, without possessing mines, must not annually import a certain quantity of the precious metals to supply the annual wear of plate and money? Whether they must not obtain this supply directly or indirectly from the countries possessing mines? Whether the average profits of the capitalists who employ labourers to produce the commodities in return for [13] which this supply is obtained, must not be the same as the average profits of other capitalists in the same country? Whether the gold and silver which these capitalists import are not sent by them to the mint to be coined for their own benefit, or exchanged for gold and silver previously coined? Whether the money thus obtained, after deducting what may be payable as rent, is not divided into two portions, one of which is retained by the capitalists as profit, and the other given to their labourers, as wages? Whether their labourers are likely to receive either more or less than any other labourers in the same country, undergoing equal toils? Whether therefore the wages obtained by the labourers, in return for whose labour the precious metals are imported, do not regulate the wages of all other labourers in the same country? And whether the price, or, in other words, the value in gold and silver of all those commodities which are not the subjects of a monopoly, does not depend, in a country not possessing mines, on the gold and silver which can be obtained by exporting the result of a given quantity of labour the current rate of profit, and, in [14] each individual case, the amount of the wages which have been paid, and the time for which they have been advanced?

In fact the portableness of the precious metals and the universality of the demand for them render the whole commercial world one country, in which bullion is the money and the inhabitants of each nation form a distinct class of labourers. We know that in the small market of every district the remuneration paid to the producer is in proportion to the value produced. And consequently that if one man can by superior diligence, or superior skill, or by the assistance of a larger capital, or by deferring for a longer time his remuneration, or by any advantage natural or acquired, occasion a more valuable product, he will receive a higher reward. It is thus that a lawyer is better paid than a watchmaker, a watchmaker than a weaver, a first-rate than an ordinary workman. And for the same reason in the general market of the world an Englishman is better paid than a Frenchman, a Frenchman than a Pole, and a Pole than a Hindoo.

About this Quotation:

The financial crises created by the French Revolution and the Napoleonic Wars during the 1790s to the mid-1810s persisted well after the hostilities came to an end in 1815. The French had experienced one of the world’s worst hyperinflations with the confiscated, land-backed paper currency called the “assignats” and the British Empire which had bankrolled the pro-monarch and anti-republican coalition had been forced to suspend the payment of gold on demand for its paper notes. This gave classical economists a great deal to think about concerning governments’ role in monetary matters as we see in the writings of David Ricardo on bullion and here with Senior on paper money. Senior is interested in where gold and silver come from, what impact their importation has on domestic prices, how this effects the return on capital and the level of wages. He comes to the conclusion that when there is a widely accepted “world currency” like gold these impacts are not restricted to one economy or one labor force but to the entire world where this currency is used in exchanges. In other worlds, the use of gold as a medium of exchange makes “the whole commercial world one country” - which is what the world was becoming by the end of the 19th century, before this was destroyed by the outbreak of the First World War in 1914.

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