came the figure of Mr. Rupert Catskill, hands on hips,

Inside the city of Paris the carriage of money from one house to another usually costs 5 sols per bag of 1000 livres. If it were necessary to carry it from the Fauxbourg St. Antoine to the Invalides it would cost more than twice as much, and if there were not generally trustworthy porters of money it would cost still more. If there were often robbers on the road the money would be sent in large amounts, with an escort, at greater cost, and if some one charged himself with the transport at his own cost and risks he would require payment for it in proportion to these costs and risks. So it is that the expense of transport from Rouen to Paris and from Paris to Rouen amounts generally to 50 sols per bag of 1000 livres which in the language of the bankers is 1/4 percent. The bankers generally send the money in strong kegs which robbers can hardly carry off because of the iron and the weight, and as there are always mail coaches on this route the costs are not considerable on the large sums sent between these two places. If the city of Chalons sur Marne every year pays the receiver of the King's taxes, 10,000 ounces of silver on the one hand, and on the other the wine merchants of Chalons and its neighbourhood sell to Paris, through their agents, Champagne wine of the value of 10,000 ounces of silver, if the ounce of silver in France passes in trade for 5 livres, the total of the 10,000 ounces in question will be 50,000 livres both in Paris and in Chalons. The Receiver of Taxes in this example has 50,000 livres to send to Paris, and the agents of the Chalons wine merchants have 50,000 livres to send to Chalons. This double transaction or transport may be avoided by a set off or as they are called bills of exchange, if the parties get together and arrange it. Let the agents of the Chalons wine-merchants take (each his own part) the 50,000 livres to the cashier of the Tax Office at Paris. Let him give them one or more cheques or bills of exchange on the Receiver of Taxes at Chalons, payable to their order. Let them endorse or transfer their order to the Chalons wine merchants and these will obtain from the Receiver at Chalons the 50,000 livres. In this way the 50,000 livres at Paris will be paid to the Cashier of the Tax department at Paris and the 50,000 livres at Chalons will be paid to the wine merchants of that City, and by exchange or set off there will be saved the trouble of sending this money from one city to the other. Or else let the wine merchants at Cahlons,who have 50,000 livres at Paris, go and offer their bills of exchange to the Receiver of Taxes, who will endorse them to the cashier of the tax office at Paris who will collect the amount there, and let the Receiver at Chalons pay the merchants for their bills of exchange the 50,000 livres which he has at Chalons. Whichever way this set off is effected, whether the bills of exchange be drawn from Paris, as in this example ounce for ounce is paid, and 50,000 livres for 50,000 livres, the exchange is said to be at par. The same method might be adopted between these wine merchants at Chalons and the agents of the nobility in Paris who have land in the Chalons district, and the wine merchants or other merchants at Chalons who have sent goods or merchandise to Paris and have money there and other merchants who have drawn merchandise from Paris and sold it at Chalons. If there is a large trade between these two cities bankers will set up at Paris and Chalons who will enter into relations with the interested parties on both sides and will be the agents or intermediaries for the payments which would have to be sent from one of these cities to the other. Now if all the wine and other goods and merchandise which have been sent from Chalons to Paris and have actually been sold there for ready money exceed in value the total receipts of the taxes at Chalons, and the rents which the nobility of Paris have in the Chalons district as well as the value of the goods and merchandise sent from Paris to Chalons and sold there for ready money, by 5000 ounces of silver or 25,000 livres it will be necessary for the banker in Paris to send there for ready money, by 5000 ounces of silver or 25,000 livres it will be necessary for the banker in Paris to send this amount to Chalons in money. This will be the excess or balance of trade between these two cities. It will, I say, be of necessity sent to Chalons in specie, and this operation will be carried out in the following way or in some similar fashion. The agents or correspondents of the wine merchants of Chalons and of others who have sent goods or merchandise from Chalons to Paris have the money for these sales in hand at Paris. They are ordered to remit it to Chalons. They are not accustomed to risk it by carriage, they will apply to the cashier to the Tax Office who will give them cheques or bills of exchange on the Receiver of Taxes at Chalons up to the amount which he has at Chalons, and generally at par. But as they need to send further sums to Chalons they will apply to the banker who will have at his disposal the rents of the Paris nobility who have lands in that district. This banker will furnish them, like the Cashier of the Tax Office, with bills of exchange on his correspondent at Chalons up to the amount of the funds which he has at his disposal at Chalons and had been ordered to bring to Paris. This set off will also be made at par, unless the banker tries to make some little profit out of it for his trouble, as well from the agents who apply to him to send their money to Chalons as from the nobility who have charged him with the transmission of their money from Chalons to Paris. If the banker has also at his disposal at Chalons the value of the merchandise sent thither from Paris and sold there for ready money he will also furnish letters of exchange for this value. But in our case supposed the agents of the Chalons merchants have still in hand at Paris 25,000 livres which they are ordered to remit to Chalons above all the sums mentioned above. If they offer this money to the Cashier of the Tax Office he will reply that he has no more funds at Chalons, and cannot supply them with bills of exchange or cheques on that city. If they offer the money to the banker he will tell them that he has no more funds at Chalons and has no need to draw, but if they will pay him 3 per cent for exchange he will provide cheques. They will offer one or two per cent and at last 2? not being able to do better. At this price the Banker will decide to give them bills of exchange, that is if they pay to him at Paris 2 livres 10 sols he will supply a bill of exchange for 100 livres on his Chalons correspondent, payable at 10 or 15 days, so as to put his correspondent in a position to make the payment of the 25,000 livres for which he draws upon him. At this rate of exchange he will send him the money by mail or carriage in specie, gold or, in default of gold, silver. He will pay 10 livres for each bag of 1000 livres, or in bank parlance 1 per cent. He will pay his Chalons correspondent as commission 5 livres per bag of 1000 livres or ?per cent, and will keep one per cent for his own profit. On this footing the exchange at Paris for Chalons is at 2?per cent above par, because one pays 2 livres 10 sols for each 100 livres as the commission on exchange. It is somewhat in this way that the balance of trade is transported from one city to the other through bankers, and generally on a large scale. All those who bear the name of bankers are not accustomed to these transactions and many of them deal only in commissions and bank speculations. I will include among bankers only those who remit money. It is they who always fix the exchange, the charge for which follows the cost and risks of the carriage of specie in the different cases. The charge of exchange between Paris and Chalons is rarely fixed at more than 2?or 3 per cent over or under par. But from Paris to Amsterdam the charge will amount to 5 or 6 per cent when specie has to be sent. The journey is longer, the risk is greater, more correspondents and commission agents are involved. From India to England the charge for carriage will be 10 to 12 per cent. From London to Amsterdam it will hardly exceed 2 per cent in peace time.

came the figure of Mr. Rupert Catskill, hands on hips,

In our present example it will be said that the exchange at Paris for Chalons will be 2?per cent above par, and at Chalons it will be said that the exchange for Paris is 2?per cent below par, because in these circumstances he who will give money at Chalons for a letter of exchange for Paris will give only 97 livres 10 sols to receive 100 livres at Paris. And it is evident that the City or Place where exchange is above par is in debt to that where it is below par so long as the exchange continues on this basis. Exchange at Paris is 2?per cent above par for Chalons only because Paris is indebted to Chalons and that the money for this debt must be carried from Paris to Chalons. This is why when exchange is commonly seen to be below par in one city as compared with another it may be concluded that this first city owes a balance of trade to the other, and that when the exchange at Madrid or Lisbon is above par for all other countries it shows that these two capitals must send specie to other countries. In all places and cities which use the same money and the same gold and silver specie like Paris and Chalons sur Marne, London and Bristol, the charge for exchange is known and expressed by giving and taking so much per cent above or below par. When 98 livres are paid in one place to receive 100 livres in another it is said that exchange is about 2 per cent below par when 102 livres, are paid in one place to receive only 100 livres in another it is said that the exchange is exactly 2 per cent above par, when 100 livres are given in one place for 100 livres in another it is said that the exchange is at par. There is no difficulty or mystery in all this. But when exchange is regulated between two cities or places where the money is quite different, where the coins are of different size, fineness, make, and names, the nature of exchange seems at first more difficult to explain, though at bottom this exchange differs from that between Paris and Chalons only in the jargon of bankers. At Paris one speaks of the Dutch exchange by reckoning the ecu of three livres against so many deniers de gros of Holland, but the parity of exchange between Paris and Amsterdam is always 100 ounces of gold or silver against 100 ounces of gold or silver of the same weight and fineness. 102 ounces paid at Paris to receive 100 ounces at Amsterdam always comes to 2 per cent above par. The banker who effects the remittance of the balance of trade must always know how to calculate parity. But in the language of foreign exchange the price of exchange at London with Amsterdam is made by giving a pound sterling in London to receive 35 Dutch escalins at the bank: with Paris in giving at London 30 deniers or pence sterling to receive at Paris one ecu or three livres tournois. These methods of speech do not say whether exchange is above or below par, but the banker who remits the balance of trade reckons it up well and knows how much foreign money he will receive for the money of his own country which he despatches. Whether we fix the exchange at London for English silver in Muscovy roubles, in Mark Lubs of Hamburg, in Rixdollars of Germany, in Livres of Flanders, in Ducats of Venice, in Piastres of Genoa or Leghorn, in Millreis or Crusadoes of Portugal, in Pieces of Eight of Spain, or Pistoles, etc. the parity of exchange for all these countries will be always 100 ounces of gold or silver against 100 ounces; and if in the language of exchange it happens that one gives more or less than this parity, it comes to the same in effect as if exchange is said to be so much above or below par, and we shall always know whether or not England owes a balance to the place with which the exchange is settled just as in our example of Paris and Chalons.

came the figure of Mr. Rupert Catskill, hands on hips,

Further explanations of the nature of the Exchanges

came the figure of Mr. Rupert Catskill, hands on hips,

We have seen that the exchanges are regulated by the intrinsic value of specie, that is at par, and their variation arises from the costs and risks of transport from one place to another when the valance of trade has to be sent in specie. Argument is unnecessary in a matter which we see in fact and practice. Bankers sometimes introduce refinements into this practice. If England owes France 100,000 ounces of silver for the balance of trade, if France owes 100,000 ounces to Holland, and Holland 100,000 to England, all these three amounts may be set off by bills of exchange between the respective bankers of these three states without any need of sending silver on either side. If Holland sends to England in January merchandise of the value of 100,000 ounces of silver and England only sends to Holland in the same month merchandise to the value of 50,000 ounces (I suppose the sale and payment made in January on both sides) there will be due to Holland in this month a balance of trade of 50,000 ounces, and the exchange on Amsterdam will be in London in January 2 or 3 per cent above par, or in the language of exchange, the exchange on Holland which was in December at par or at 35 escalins to the pound sterling in London will rise there in January to about 36 escalins. But when the Bankers have sent this balance of 50,000 ounces to Holland the exchange on Amsterdam will naturally fall back to par or 35 escalins in London. But if an English banker foresees in January, owing to the sending into Holland of an unusual quantity of merchandise, that at the time of payments and sales in March Holland will be indebted considerably to England, he may instead of sending the 50,000 ecus or ounces due in January to Holland, furnish in that month bills of exchange on his Amsterdam correspondent payable at double usance or two months, the amount of the value to be paid on maturity, and by this method profit on the exchange which in January was above par and in March will be below par, and so gain doubly without sending a sol to Holland. This is what bankers call speculation, which often causes variations in the exchanges for a short period independently of the balance of trade; but in the long run we must get back to this balance which fixes the constant and uniform rule of exchange. And though the speculations and credits of bankers may sometimes delay the transport of the sums which one city or state owes to another, in the end it is always necessary to pay the debt and send the balance of trade in specie to the place where it is due. If England gains regularly a balance of trade with Portugal and always loses a balance with Holland the rates of exchange with Holland and Portugal will make this evident: it will be seen that at London the exchange on Lisbon is below par and that Portugal is indebted to England. It will be seen also that the exchange on Amsterdam is above par and that England is indebted to Holland. But the quantity of the debt cannot be seen from the exchanges. It will not be seen whether the balance of silver drawn from Portugal will be greater or less than what has to be sent to Holland. There is however one thing which will always show at London whether England gains or loses the general balance of her trade (by general balance is understood the difference of the individual balances with all the foreign states which trade with England), and that is the price of gold and silver metal but especially of gold (now that the proportion between gold and silver in coined money differs from the market rate, as will be explained in the next chapter). If the price of gold metal in the London market, which is the centre of English trade, is lower than the price at the Tower where guineas or gold coins are minted, or at the same price as these coins intrinsically, and if gold metal is taken to the Tower in exchange for their value in guineas or minted coins, it is a certain proof that England is a gainer in the general balance of her trade. It proves that the gold taken from Portugal suffices not only to pay the balance which England sends into Holland, Sweden, Muscovy, and the other states where she is indebted, but that there remains some of the gold to be sent to the Mint, and the quantity or sum of this general balance of trade is known from that of the specie coined at the Tower of London. But if the gold metal is sold in the London market above the Tower price, which is usually ?.18.0 an ounce, the metal will no longer be taken to the Mint, and this is a certain sign that so much gold is not drawn from abroad (from Portugal for instance) as must be sent into the other countries where England is indebted. It is a proof that the general balance of trade is against England. This would not be known but for the prohibition in England to send gold coin out of the country. But this prohibition is the reason why the timid London bankers prefer to buy gold metal (which they are allowed to send abroad) at ?.18.0 up to ? an ounce for export rather than send out guineas or gold coins at ?.18.0 against the law and at the risk of confiscation. Some of them take this risk, others melt the gold coins to send them out as bullion, and it is impossible to judge how much gold England loses when the general balance of trade is against her. In France the cost of minting is deducted, usually 1?per cent, i.e. the price for coin is always higher than for uncoined metal. To know whether France loses in the general valance of her trade, it will suffice to know whether the bankers send French coins abroad. If they do so it is a proof that they do not find bullion to buy for export, since the bullion though at a lower price than coined money in France, is of greater value than these coins in foreign countries by at least 1?per cent. Though the exchanges rarely vary apart from the balance of trade between one country and others, and though this balance is naturally the mere difference in value of the goods and merchandise which the state sends to other countries and receives from them, yet there are often circumstances and accidental causes which cause considerable sums to be conveyed from one state to another without any question of merchandise or trade, and these causes affect the exchanges just as the balance of trade would do. Such are the sums of money which one state sends into another for its secret services and political aims, for subsidies to allies, for the upkeep of troops, Ambassadors, noblemen who travel, etc., capital which the inhabitants of one state send to another to invest in public or private funds, the interest which these inhabitants receive annually from such investments, etc. The exchanges vary with all these accidental causes and follow the rule of the transport of silver required. In considering the balance of trade matters of this kind are not separated, and indeed it would be very difficult to separate them. They have very certainly an influence on the increase and decrease of circulating money in a state and on its comparative strength and power. My subject does not allow me to enlarge on the effects of these accidental causes: I confine myself always to the simple views of commerce lest I should complicate my subject, which is too much encumbered by the multiplicity of the facts which relate to it. Exchanges rise more or less above par in proportion to the great or small costs and risks of the transport of money and this being granted they naturally rise much more above par in the cities or states where it is forbidden to export money than in those where its export is free. Suppose that Portugal consumes regularly every year considerable quantities of woollen and other manufactures of England, as well for its own people as for those of Brazil, that it pays for them partly in wine, oils, etc., but for the surplus payment there is a regular balance of trade remitted from Lisbon to London. If the King of Portugal rigorously prohibits under penalty not only of confiscation but of life the transport of any gold or silver metal out of his States, the terror of this prohibition will in the first place stop the Bankers from meddling about sending the balance. The price of the English manufactures will be kept in hand at Lisbon. The English merchants unable to receive their funds from Lisbon will send no more cloth thither. The result will be that cloth will become extraordinarily dear. Though their price has not gone up in England they cease to be sent to Lisbon because their value cannot be recovered. To have these cloths the Portuguese nobility and others who cannot do without them will offer twice the usual price, but as they cannot get enough of them without sending money out of Portugal, the increased price of cloth will become the profit of any one who in spite of the prohibition will export gold or silver. This will encourage various Jews and others to take gold and silver to English vessels in the port of Lisbon, even at the risk of their lives. They will gain at first 100 or 50 per cent in this traffic and this profit is paid by the Portuguese in the high price they give for the cloth. They will gradually familiarise themselves with this manoeuvre after having often practised it successfully, and at length money will be seen to be put on board English ships for a payment of 2 or 1 per cent. The King of Portugal lays down the law or prohibition. His subjects, even his courtiers, pay the cost of the risk run to circumvent and elude it. No advantage then is gained by such a law, on the contrary it causes a real loss to Portugal since it causes more money of the state to go abroad than if there were no such law. For those who gain by this manoeuvre, whether Jews or others, send their profits abroad, and when they have enough of them or when they take fright they often themselves follow their money. If some of these lawbreakers were taken in the act, their goods confiscated and their lives forfeited, this circumstance and execution instead of stopping the export of money would only increase it, because those who formerly were satisfied with 1 or 2 per cent for exporting money will ask 20 or 50 per cent, and so the export must always go on to pay the balance. I do not know whether I have succeeded in making these reasons clear to those who have no idea of trade. I know that for those who have practical knowledge of it nothing is easier to understand, and that they are rightly astonished that those who govern states and administer the finances of great kingdoms have so little knowledge of the nature of exchanges as to forbid the export of bullion and specie of gold and silver. The only way to keep them in a state is so to conduct foreign trade that the balance is not adverse to the state.

Of the variations in the proportion of values with regard to the metals which serve as money

If metals were as easily found as water commonly is everybody would take what he wanted of them and they would have hardly any value. The metals which are most plentiful and cost the least trouble to produce are also the cheapest. Iron seems the most necessary, but as it is commonly found in Europe with less trouble and labour than copper it is much cheaper. Copper, silver, and gold are the three metals in general use for money. Copper mines are the most abundant and cost less in land and labour to work. The richest copper mines today are in Sweden. 80 ounces of copper are needed there to pay for an ounce of silver. It is also to be observed that the copper extracted from some mines is more perfect and lustrous than what is obtained from others. The copper of Japan and Sweden is brighter than that of England. That of Spain was, in the time of the Romans, better than that of Cyprus. But gold and silver, from whatever mine extracted, are always of the same perfection when refined. The value of copper, as of everything else, is proportionable to the land and labour which enter into its production. Beside the ordinary uses to which it is put, like pots and pans, kitchen utensils, locks, etc. it is in nearly all states used as money in small purchases. In Sweden it is used even in large payments when silver is scarce there. During the first five centuries of Rome it was the only money. Silver only began to be employed in exchange in the year 484. The ratio of copper to silver was then rated in the mints at 72 to 1: in the coinage of 512 at 80 to 1: in 537, 64 to 1: in 586 at 48 to 1; in 663 by Drusus and 672 by Sulla at 53 to 1: in 712 by Marcus Antonius and 724 by Augustus 56 to 1: in AD 54 under Nero 60 to 1: in 160 AD under Antoninus 64 to 1; in the time of Constantine AD 330, 120 and 125 to 1: in the age of Justinian about AD 550 at 100 to 1. Since then it has always varied below the ratio of 100 to 1 in the European mints. Today when copper money is only used in small dealings, whether alloyed with calamine to make yellow copper as in England, or with a small portion of silver as in France and Germany it is generally rated in the, proportion of 40 to 1, though the market price of copper is ordinarily to that of silver as 80 or 100 to 1. The reason is that the cost of coining is generally deducted from the weight of the copper. When there is not too much of this small money for effecting the petty exchanges in the state, coins of copper or copper and alloy pass without difficulty in spite of their defect in intrinsic value . But when it is attempted to pass them in a foreign country they will only be taken at the weight of the copper and the silver alloy. Even in states where through the avarice or ignorance of the governors, currency is given to too great a quantity of this small cash for the transaction of small dealings, and it is ordered that it should be received up to a certain limit in large payments it is unwillingly accepted and small cash is at a discount in silver coin, as in the token money and Ardites in Spain in large, payments. Yet small coins always pass without difficulty in small purchases, the value of the payments being usually small in themselves the loss is still less. This is why they are accepted without difficulty, and that copper is exchanged for small silver coins above the weight and intrinsic value of copper in the state itself, but not in other states, each state having wherewith to carry on its small dealings with its own copper coins. Gold and silver, like copper, have a value proportionable to the land and labour necessary for their production; and if the public assumes the cost of minting these metals their value in bars and in coin is identical, their market value and their mint value is the same, their value in the state and in foreign countries is always alike, depending on the weight and fineness, that is on weight alone if the metals are pure and without alloy. Silver mines have always been found more abundant than those of gold, but not equally in all countries or at all times. Several ounces of silver have always been needed to buy one ounce of gold, sometimes more sometimes less according to the abundance of these metals and the demand for them. In the year AUC 310, 13 ounces of silver were needed in Greece to buy an ounce of gold, i.e. gold was to silver as 1 to 13: AUC 400 or thereabouts 1 to 12, AUC 460 1 to 10 in Greece, Italy and the whole of Europe. This ratio of 1 to 10 seems to have persisted for 3 centuries to the death of Augustus, AUC 767 or AD 14. Under Tiberius gold became scarce or silver more plentiful, and the ratio gradually rose to 1 to 12, 12? and 13. Under Constantine AD 330 and Justinian AD 550 it was 1 to 14. Later history is more obscure. Some authors think it was 1 to 18 under certain French kings. In AD 840 under Charles the Bald gold and silver coins were struck at 1 to 12. Under St Louis, who died in 1270 the ratio was 1 to 10: in 1361, 1 to 12: in 1421 over 1 to 11: in 1500 under 1 to 12: about 1600, 1 to 12: in 1641, 1 to 14: in 1700, 1 to 15: in 1730, 1 to 14? The quantity of gold and silver brought from Mexico and Peru in the last century has not only made these metals more plentiful but has increased the value of gold compared with silver which has been more abundant, so that in the Spanish mints, following the market prices, the ratio is fixed at 1 to 16. The other States of Europe have followed pretty closely the Spanish price in their Mints, some at 1 to 15, others at 15 7/8, 15 5/8, etc. following the ideas and views of the Directors of the Mints. But since Portugal has drawn great quantities of gold from Brazil the ratio has commenced to fall again if no in the Mints at least in the markets, and this gives a greater value to silver than in the past. Moreover a good deal of gold is often brought from the East Indies in exchange for the silver taken thither from Europe, because the ratio is much lower in India. In Japan where there are a good many silver mines the ratio of gold to silver is today 1 to 8: in China 1 to 10: in the other countries of the Indies on this side 1 to 11, 1 to 12, 1 to 13, and 1 to 14 as we get nearer to the West and to Europe. But if the mines of Brazil continue to supply so much gold the ratio may probably fall eventually to 1 to 10 even in Europe which seems to me the most natural if anything but chance is the guide to the ratio. It is quite certain that when all the gold and silver mines in Europe, Asia and Africa were the most exploited for the Roman republic the ratio of 1 to 10 was the most constant. If all the gold mines regularly produced a tenth part of what the silver mines produce, it could not be determined that for that reason the ratio between these two metals would be as 1 to 10. The ratio would always depend on the demand and on the market price. Possibly rich people might prefer to carry gold money in their pockets rather than silver and might develope a taste for gildings and gold ornaments rather than silver, thus increasing the market price of gold. Neither could the ratio between these metals be arrived at by considering the quantity of them found in a state. Suppose the ratio 1 to 10 in England and that the quantity of gold and silver in circulation there were 20 million ounces of silver and 2 million ounces of gold, that would be equal to 40 million ounces of silver, and suppose that 1 million ounces of gold be exported from England out of the 2 millions, and 10 million ounces of silver brought in in exchange, there would then be 30 million ounces in of silver and only 1 million ounces of gold, still equivalent in all to 40 million ounces of silver. If the quantity of ounces be considered there are 30 millions of silver and 1 million of gold, and therefore if the quantity of the two metals decided the ratio it would be as 1 to 30, but that is impossible. The ratio in the neighbouring countries is 1 to 10, and it would therefore cost only 10 million ounces of silver with a trifle for the cost of carriage to bring back to the state 1 million ounces of gold in exchange for 10 million ounces of silver. To judge then of the ratio between gold and silver the market price is alone decisive: the number of those who need one metal in exchange for the other, and of those who are willing to make such an exchange, determines the ratio. It often depends on the humour of men: the bargaining is done roughly and not geometrically. Still I do not think that one can imagine any rule but this to arrive at it. At least we know that in practice it is the one which decides, as in the price and value of everything else. Foreign markets affect the price of gold and silver more than they do the price of any other goods or merchandise because nothing is transported with greater ease and less injury. If there were a free and regular trade between England and Japan, if a number of ships were regularly employed in this trade and the balance of trade were in all respects equal, i.e. if as much merchandise were always sent from England to Japan, having regard to price and value, as was imported from Japan, it would end in drawing at last all the gold from Japan in exchange for silver, and the ratio between gold and silver in Japan would be made the same as it is in England, subject only to the risks of navigation; for in our hypothesis the costs of the voyage would be supported by the trade in merchandise. Taking the ratio at 1 to 15 in England and 1 to 8 in Japan there would be more than 87 per cent to gain by carrying silver from England to Japan and bringing back gold. But this difference is not enough in the ordinary course to pay the costs of so long and difficult a voyage. It pays better to bring back merchandise from Japan rather than gold in exchange for silver. It is only the costs and risks of the transport of gold and silver which can leave a difference in the ratio between these metals in different states: in the nearest state the ratio will differ very little, there will be a difference from one state to another of 1, 2 or 3 per cent and from England to Japan the total of all these differences of ratio will amount to more than 87 per cent. It is the market price which decides the ratio of the value of gold to that of silver. The market price is the base of this proportion in the value assigned to coins of gold and silver. If the market price varies considerably, that of the coinage must be reformed to follow the market rate. If this be not done confusion and disorder set in in the circulation, and coins of one or the other metal will be taken above the Mint value. There are an infinity of examples of this in antiquity. There is a quite recent one in England under the regulations made at the London Mint. The ounce of silver, eleven twelfths fine, is worth there 5s 2d sterling. Since the ratio of gold to silver (which had been fixed at 1 to 16 in imitation of Spain) has fallen to 1 to 15 and 1 to 14? the ounce of silver sold at 5s 6d sterling, while the gold guinea continued to circulate at 2 1s 6d sterling, which caused the export from England of all the silver crowns, shillings and sixpences which were not worn by circulation, silver money became so scarce in 1728 (though only the most worn pieces remained) that people had to change a guinea at a loss of nearly 5 per cent. The trouble and confusion thus produced in trade and circulation obliged the Treasury to request the celebrated Sir Isaac Newton, Master, of the Tower Mint, to make a Report on the measures he thought most suitable to remedy this disorder. There was nothing easier. It was only necessary to follow the market price of silver in coining silver at the Tower. And whereas the ratio of gold to silver was of old time by the laws and regulations of the Tower Mint 1 to 15? it was only necessary to make the silver coins lighter in the proportion of the market price which had fallen below 1 to 15; and, to anticipate the variation which the gold of Brazil brings about annually in the ratio between these two metals, it might even have been possible to fix it on the footing of 1 to 14? as was done in 1725 in France and as they will be forced later to do in England itself. It is true that the coinage in England might equally have been adjusted to the market price and ratio by diminishing the nominal value of gold coins. This was the policy adopted by Sir Isaac Newton in his Report, and by Parliament in consequence of this Report. But, as I shall explain, it was the least natural and the most disadvantageous policy. Firstly it was more natural to raise the price of silver coins, because the public had already done so in the market, the ounce of silver which was worth only 62d sterling at the Mint being worth more than 65d in the market, and all the silver money being exported except what the circulation had considerably reduced in weight. On the other hand it was less disadvantageous to the English nation to raise the silver money than to lower the gold money considering the sums which England owes the foreigner. If it is supposed that England owes the foreigner 5 millions sterling of capital, invested in the public funds, it may be equally supposed that the Foreigner paid this amount in gold at the rate of 21s 6d a guinea or in silver at 65d sterling the ounce, according to the market price. These 5 millions have therefore cost the Foreigner at 21s 6d the guinea 4,651,163 guineas; but now that the guinea is reduced to 21s the capital to be repaid is 4,761,904 guineas, a loss to England of 110,741 guineas, without counting the loss on the interest annually paid. Newton told me in answer to this objection that according to the fundamental laws of the Kingdom silver was the true and only monetary standard and that as such it could not be altered. It is easy to answer that the public having altered this Law by custom and the price of the market it had ceased to be a law, that in these circumstances there was no need to adhere scrupulously to it to the detriment of the nation and to pay to foreigners more than their due. If the gold coins were not considered true money, gold would have supported the variation, as in Holland and China where gold is looked upon rather as merchandise than money. If the silver coins had been raised to their market price without touching gold there would have been no loss to the foreigner, and there would have been plenty of silver coins in circulation. They would have been coined at the Mint, whereas now no more will be coined until some new arrangement is made. By reducing the value of gold (brought about by Newton's Report from 21s 6d to 21s) the ounce of silver which was sold in the London market before at 65 pence and 65?pence no longer sold in truth but at 64d. But as it was coined at the Tower the ounce was valued in the market at 64d and if it was taken to the Tower to be coined it would be worth no more than 62d. So no more is taken. A few shillings or fifths of crowns have been struck at the expense of the South Sea Company, losing the difference of the market price; but they disappeared as soon as they were put into circulation. Today no silver coins can be seen in circulation if they are of full mint weight, only coins which are worn and do not exceed in weight the market price. However the value of silver continues to rise imperceptibly in the market. The ounce which was worth only 64 after the reduction of which we have spoken has risen again to 65?and 66 in the market; and in order to have silver coin in circulation and coined at the Tower, it will be necessary again to reduce the value of the gold guinea from 21s to 20s and to lose to the foreigner double of what is lost already unless it is preferred to follow the natural course and to adjust silver coin to the market price. Only the market price can find the ratio of the value of gold and silver as of all other values. Newton's reduction of the guinea to 21s was devised only to prevent the disappearance of the light and worn coins which remain in circulation, and not to fix in gold and silver coins the true ratio of their price, I mean by their true ratio that which is fixed by market prices. This price is always the touchstone in these matters. Its variations are slow enough to allow time to regulate the mints and prevent disorders in the circulation. In some centuries the value of silver rises slowly against gold, in others the value of gold rises against silver. This was the case in the age of Constantine who reduced all values to that of gold as the more permanent; but the value of silver is generally the more permanent and gold is more subject to variation.

Of the augmentation and diminution of coin in denomination

According to the principles we have established the quantity of money circulating in exchange fixes and determines the price of everything in a State taking into account the rapidity or sluggishness of circulation. We often see however in the increases and decreases practised in France such strange variations that it might be supposed that market prices correspond rather to the nominal value of coin than to its quantity in exchange, the quantity of livres tournois in money of account rather than the quantity of marks and ounces, which seems directly opposed to our principles. Suppose, as happened in 1714, ecu is current for 5 livres and the King Arret which orders the lowering of the ecu for 20 months, viz 1 per cent per month to nominal value to 4 livres instead of 5. Let us see will be naturally the consequences of this having regard to the spirit of the Nation. All those who owe money will make haste to pay it during the diminutions so as not to lose by them. Undertakers and Merchants find it easy to borrow which decides the least able and the least increase their enterprise. They borrow money, as fancy, without interest and load themselves with violence of their demands. Vendors have getting rid of their merchandise for money which diminish in their hands in nominal value. They towards foreign merchandise and import considerable quantities of it for the consumption of several years. All this causes money to circulate more rapidly and raises the price of everything. Then high prices prevent the foreigner from taking merchandise from France as usual. France keeps her own merchandise and at the same time imports great quantities. This double operation is the reason why considerable amounts of specie must be sent abroad to pay the balance. The rate of exchange never fails to show this disadvantage. Exchange is commonly seen at 6 and 10 per cent against France during these diminutions. Enlightened people in France hoard their money in these times. The King finds means to borrow much money on which he willingly loses the diminution, proposing to compensate himself by an augmentation at the end of the diminution. With this object after several diminutions they begin to hoard money in the King's Treasury, to postpone the payments, pensions, and army pay. In these circumstances money becomes extremely rare at the end of the diminutions both by reason of the sums hoarded by the King and various individuals and by reason of the nominal value of the coin, which value is diminished. The amounts sent abroad also contribute greatly to the scarcity of money, and this scarcity gradually brings it about that the merchandise with which the undertakers are loaded up is offered at 50 or 60 per cent below the prices prevailing at the time of the first diminutions. Circulation falls into convulsions. Hardly enough money can be found to send to market. Many Undertakers and Merchants go bankrupt and their merchandise is sold at bargain prices. Then the King augments anew the coinage, settles the new ecu or ounce of silver of the new issue at 5 livres, begins with this new coinage to pay the troops and the pensions. The old coinage is demonetised and received at the Mint at a lower nominal value. The King profits by the difference. But all the sums of new coinage which come from the Mint do not restore the abundance of money in circulation. The amounts kept hoarded by individuals and those sent abroad greatly exceed the nominal increase on the coinage which comes from the Mint. The cheapness of merchandise in France begins to draw thither the money of the foreigner, who finding it 50 or 60 or more per cent cheaper sends gold and silver metal to France to buy it. In this way the foreigner who sends his bullion to the Mint recoups himself easily from the tax paid there on this bullion. He finds the double advantage of the low price of the merchandise he buys, and the loss of the Mint charge falls really on the French in the sale of their merchandise to the foreigner. They have merchandise enough for several years' consumption. They resell to the Dutch, for example, the spices which they bought of them for two thirds of what they paid. All this takes place gradually, the foreigner decides to buy these merchandises from France only because of their cheapness. The balance of trade, which was against France at the time of the diminutions turns in her favour at the time of augmentation, and the King is able to profit by 20 per cent or more on all the bullion brought into France and taken to the Mint. As Foreigners now owe a trade balance to France and have not in their country coins of the new issue they must take their bullion and coins of the old issue to the Mint to obtain new coins for payment. But this trade balance which Foreigners owe to France arises only from the merchandise which they import from it at low prices. France is all round the dupe of these operations. She pays very high prices for foreign goods during the diminutions, sells them back at very low prices at the time of the augmentation to the same foreigners, sells her own merchandise at low prices which she had kept so high during the diminutions and so it would be difficult for all the money which left France during the diminutions to come back during the augmentation. If coins of the new issue are counterfeited abroad, as is nearly always the case, France loses the 20 per cent which the King has established as the Mint charge. This is so much gained for the Foreigner who profits further by the low prices of merchandise in France. The King makes a considerable profit by the Mint tax, but it costs France three times as much to enable him to make this profit. It is well understood that when there is a current balance of trade in favour of France against the foreigner the King is able to raise a tax of 20 per cent or more by a new coinage and an increase in the nominal value of coins. But if the trade balance was against France at the time of this new coinage and augmentation the operation would have no success and the King would not derive a great profit from it. The reason is that in this case it is necessary to send money continually abroad. But the old ecu is as good in foreign countries as the new. That being so the Jews and Bankers will give a premium or bonus in secret for the old coins and the individual who can sell them above the Mint price will not take them thither. At the Mint they give him only about 4 livres for his ecu, but the Banker will give him at first 4 livres 5 sols, and then 4 livres 10, and at last 4 livres 15. And this is how it may happen that an augmentation of the coinage may lack success. It can hardly happen when the raising is made after the lowerings indicated, because then the balance naturally turns in favour of France, as we have explained. The experience of the augmentation of 1726 may serve to confirm all this. The diminutions which had preceded this augmentation were made suddenly without warning, which prevented the ordinary operations of diminutions. This prevented the trade balance from turning strongly in favour of France at the augmentation of 1726, few people took their old coin to the Mint, and the profit of the Mint tax which was in view had to be abandoned. It is not within my subject to explain the reasons of Ministers for lowering the coinage suddenly nor the reasons which deceived them in their project of the augmentation of 1726. I have mentioned the increases and decreases in France only because their results seem sometimes to clash with the principles I have established that abundance or scarcity of money in a State raises or lowers all prices proportionably. After explaining the effects of lowering and raising the coinage, as practised in France, I maintain that they neither destroy nor weaken my principles, for if I am told that what cost 20 livres or 5 ounces of silver before the lowering referred to does not even cost 4 ounces or 20 livres of the new money after the augmentation, I will assent to this without departing from my principles, because there is less money in circulation than there was before the diminutions, as I have explained. The difficulties of exchange in the times and operations of which we speak cause variations in the prices of things and in that of the interest of money which cannot be taken as a rule in the ordinary principles of circulation and dealing. The change in the nominal value of money has at all times been the effect of some disaster or scarcity in the State, or of the ambition of some Prince or individual. In the year A.U.C. 157 Solon increased the nominal value of the drachma of Athens after a sedition and abolition of debt. Between A.U.C. 490 and 512 the Roman Republic several times increased the nominal value of its copper coins, so that their as came to be worth six. The pretext was to provide for the needs of the State and to pay the debts incurred in the first Punic War. This did not fail to cause great confusion. In 663 Livius Drusus, Tribune of the people, increased the nominal value of amount, and this gave occasion to introduce confusion into exchange. In A.U.C. 712 Antony in his Triumvirate increased the nominal of silver by 5 per cent, mixing iron with the silver, to meet the needs of the Triumvirate. Many Emperors subsequently debased or increased coinage. The Kings of France at different times have done likewise. This is why the livre tournois, which was a pound weight of silver has sunk to so little value. These proceedings have never failed to cause disorder in States. It matters little or nothing what is the nominal value of coins provided it be permanent. The pistole of Spain is worth 9 livres or florins in Holland, about 18 livres in France, 37 livres 10 sols at Venice, 50 livres at Parma. In the same proportion values are exchanged between these different countries. The price of everything increases gradually when the nominal valne of coins increases, and the actual quantity in weight and fineness of the coins, taking into account the rapidity of circulation, is the base and regulator of values. A State neither gains nor loses by the raising or lowering of these coins so long as it keeps the same quantity of them, though individuals may gain or lose by the variation according to their engagements. All people are full of false prejudice and false ideas as to the nominal value of their coinage. We have shown in the Chapter on Exchanges that the invariable rule of them is the price and fineness of the current coins of different countries, marc for marc and ounce for ounce. If a raising or lowering of the nominal value changes this rule for a time in France it is only during a crisis and difficulty in trade. A return is always made little by little to intrinsic value, to which prices are necessarily brought both in the market and in the foreign exchanges.

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