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Of The Real And Nominal Price Of Commodities Or Of Their Price In Labour And Their Price In Money








Every man is rich or poor according to the degree in which he can afford
to enjoy the necessaries, conveniencies, and amusements of human life.
But after the division of labour has once thoroughly taken place, it is
but a very small part of these with which a man's own labour can supply
him. The far greater part of them he must derive from the labour of
other people, and he must be rich or poor according to the quantity of
that labour which he can command, or which he can afford to purchase.
The value of any commodity, therefore, to the person who possesses it,
and who means not to use or consume it himself, but to exchange it for
other commodities, is equal to the quantity of labour which it enables
him to purchase or command. Labour therefore, is the real measure of the
exchangeable value of all commodities.

The real price of every thing, what every thing really costs to the man
who wants to acquire it, is the toil and trouble of acquiring it. What
every thing is really worth to the man who has acquired it and who wants
to dispose of it, or exchange it for something else, is the toil and
trouble which it can save to himself, and which it can impose upon
other people. What is bought with money, or with goods, is purchased
by labour, as much as what we acquire by the toil of our own body. That
money, or those goods, indeed, save us this toil. They contain the value
of a certain quantity of labour, which we exchange for what is supposed
at the time to contain the value of an equal quantity. Labour was the
first price, the original purchase money that was paid for all things.
It was not by gold or by silver, but by labour, that all the wealth of
the world was originally purchased; and its value, to those who possess
it, and who want to exchange it for some new productions, is precisely
equal to the quantity of labour which it can enable them to purchase or
command.

Wealth, as Mr Hobbes says, is power. But the person who either acquires,
or succeeds to a great fortune, does not necessarily acquire or succeed
to any political power, either civil or military. His fortune may,
perhaps, afford him the means of acquiring both; but the mere possession
of that fortune does not necessarily convey to him either. The power
which that possession immediately and directly conveys to him, is the
power of purchasing a certain command over all the labour, or over
all the produce of labour which is then in the market. His fortune is
greater or less, precisely in proportion to the extent of this power,
or to the quantity either of other men's labour, or, what is the same
thing, of the produce of other men's labour, which it enables him to
purchase or command. The exchangeable value of every thing must always
be precisely equal to the extent of this power which it conveys to its
owner.

But though labour be the real measure of the exchangeable value of all
commodities, it is not that by which their value is commonly estimated.
It is often difficult to ascertain the proportion between two different
quantities of labour. The time spent in two different sorts of work will
not always alone determine this proportion. The different degrees of
hardship endured, and of ingenuity exercised, must likewise be taken
into account. There may be more labour in an hour's hard work, than in
two hours easy business; or in an hour's application to a trade which
it cost ten years labour to learn, than in a month's industry, at an
ordinary and obvious employment. But it is not easy to find any accurate
measure either of hardship or ingenuity. In exchanging, indeed, the
different productions of different sorts of labour for one another, some
allowance is commonly made for both. It is adjusted, however, not by
any accurate measure, but by the higgling and bargaining of the market,
according to that sort of rough equality which, though not exact, is
sufficient for carrying on the business of common life.

Every commodity, besides, is more frequently exchanged for, and thereby
compared with, other commodities, than with labour. It is more natural,
therefore, to estimate its exchangeable value by the quantity of some
other commodity, than by that of the labour which it can produce.
The greater part of people, too, understand better what is meant by a
quantity of a particular commodity, than by a quantity of labour. The
one is a plain palpable object; the other an abstract notion, which
though it can be made sufficiently intelligible, is not altogether so
natural and obvious.

But when barter ceases, and money has become the common instrument of
commerce, every particular commodity is more frequently exchanged for
money than for any other commodity. The butcher seldom carries his beef
or his mutton to the baker or the brewer, in order to exchange them for
bread or for beer; but he carries them to the market, where he exchanges
them for money, and afterwards exchanges that money for bread and for
beer. The quantity of money which he gets for them regulates, too, the
quantity of bread and beer which he can afterwards purchase. It is more
natural and obvious to him, therefore, to estimate their value by the
quantity of money, the commodity for which he immediately exchanges
them, than by that of bread and beer, the commodities for which he can
exchange them only by the intervention of another commodity; and
rather to say that his butcher's meat is worth three-pence or fourpence
a-pound, than that it is worth three or four pounds of bread, or
three or four quarts of small beer. Hence it comes to pass, that the
exchangeable value of every commodity is more frequently estimated by
the quantity of money, than by the quantity either of labour or of any
other commodity which can be had in exchange for it.

Gold and silver, however, like every other commodity, vary in their
value; are sometimes cheaper and sometimes dearer, sometimes of easier
and sometimes of more difficult purchase. The quantity of labour which
any particular quantity of them can purchase or command, or the quantity
of other goods which it will exchange for, depends always upon the
fertility or barrenness of the mines which happen to be known about the
time when such exchanges are made. The discovery of the abundant mines
of America, reduced, in the sixteenth century, the value of gold and
silver in Europe to about a third of what it had been before. As it cost
less labour to bring those metals from the mine to the market, so, when
they were brought thither, they could purchase or command less labour;
and this revolution in their value, though perhaps the greatest, is
by no means the only one of which history gives some account. But as a
measure of quantity, such as the natural foot, fathom, or handful, which
is continually varying in its own quantity, can never be an accurate
measure of the quantity of other things; so a commodity which is itself
continually varying in its own value, can never be an accurate measure
of the value of other commodities. Equal quantities of labour, at all
times and places, may be said to be of equal value to the labourer. In
his ordinary state of health, strength, and spirits; in the ordinary
degree of his skill and dexterity, he must always lay down the same
portion of his ease, his liberty, and his happiness. The price which
he pays must always be the same, whatever may be the quantity of goods
which he receives in return for it. Of these, indeed, it may sometimes
purchase a greater and sometimes a smaller quantity; but it is their
value which varies, not that of the labour which purchases them. At
all times and places, that is dear which it is difficult to come at, or
which it costs much labour to acquire; and that cheap which is to be
had easily, or with very little labour. Labour alone, therefore, never
varying in its own value, is alone the ultimate and real standard
by which the value of all commodities can at all times and places be
estimated and compared. It is their real price; money is their nominal
price only.

But though equal quantities of labour are always of equal value to the
labourer, yet to the person who employs him they appear sometimes to be
of greater, and sometimes of smaller value. He purchases them sometimes
with a greater, and sometimes with a smaller quantity of goods, and to
him the price of labour seems to vary like that of all other things. It
appears to him dear in the one case, and cheap in the other. In reality,
however, it is the goods which are cheap in the one case, and dear in
the other.

In this popular sense, therefore, labour, like commodities, may be
said to have a real and a nominal price. Its real price may be said to
consist in the quantity of the necessaries and conveniencies of life
which are given for it; its nominal price, in the quantity of money. The
labourer is rich or poor, is well or ill rewarded, in proportion to the
real, not to the nominal price of his labour.

The distinction between the real and the nominal price of commodities
and labour is not a matter of mere speculation, but may sometimes be of
considerable use in practice. The same real price is always of the same
value; but on account of the variations in the value of gold and silver,
the same nominal price is sometimes of very different values. When a
landed estate, therefore, is sold with a reservation of a perpetual
rent, if it is intended that this rent should always be of the same
value, it is of importance to the family in whose favour it is reserved,
that it should not consist in a particular sum of money. Its value would
in this case be liable to variations of two different kinds: first, to
those which arise from the different quantities of gold and silver which
are contained at different times in coin of the same denomination;
and, secondly, to those which arise from the different values of equal
quantities of gold and silver at different times.

Princes and sovereign states have frequently fancied that they had a
temporary interest to diminish the quantity of pure metal contained in
their coins; but they seldom have fancied that they had any to augment
it. The quantity of metal contained in the coins, I believe of all
nations, has accordingly been almost continually diminishing, and hardly
ever augmenting. Such variations, therefore, tend almost always to
diminish the value of a money rent.

The discovery of the mines of America diminished the value of gold and
silver in Europe. This diminution, it is commonly supposed, though I
apprehend without any certain proof, is still going on gradually, and
is likely to continue to do so for a long time. Upon this supposition,
therefore, such variations are more likely to diminish than to augment
the value of a money rent, even though it should be stipulated to be
paid, not in such a quantity of coined money of such a denomination (in
so many pounds sterling, for example), but in so many ounces, either of
pure silver, or of silver of a certain standard.

The rents which have been reserved in corn, have preserved their value
much better than those which have been reserved in money, even where the
denomination of the coin has not been altered. By the 18th of Elizabeth,
it was enacted, that a third of the rent of all college leases should be
reserved in corn, to be paid either in kind, or according to the current
prices at the nearest public market. The money arising from this corn
rent, though originally but a third of the whole, is, in the present
times, according to Dr. Blackstone, commonly near double of what
arises from the other two-thirds. The old money rents of colleges must,
according to this account, have sunk almost to a fourth part of their
ancient value, or are worth little more than a fourth part of the corn
which they were formerly worth. But since the reign of Philip and
Mary, the denomination of the English coin has undergone little or no
alteration, and the same number of pounds, shillings, and pence,
have contained very nearly the same quantity of pure silver. This
degradation, therefore, in the value of the money rents of colleges, has
arisen altogether from the degradation in the price of silver.

When the degradation in the value of silver is combined with the
diminution of the quantity of it contained in the coin of the same
denomination, the loss is frequently still greater. In Scotland, where
the denomination of the coin has undergone much greater alterations
than it ever did in England, and in France, where it has undergone still
greater than it ever did in Scotland, some ancient rents, originally
of considerable value, have, in this manner, been reduced almost to
nothing.

Equal quantities of labour will, at distant times, be purchased more
nearly with equal quantities of corn, the subsistence of the labourer,
than with equal quantities of gold and silver, or, perhaps, of any other
commodity. Equal quantities of corn, therefore, will, at distant times,
be more nearly of the same real value, or enable the possessor to
purchase or command more nearly the same quantity of the labour of other
people. They will do this, I say, more nearly than equal quantities of
almost any other commodity; for even equal quantities of corn will not
do it exactly. The subsistence of the labourer, or the real price of
labour, as I shall endeavour to shew hereafter, is very different upon
different occasions; more liberal in a society advancing to opulence,
than in one that is standing still, and in one that is standing still,
than in one that is going backwards. Every other commodity, however,
will, at any particular time, purchase a greater or smaller quantity
of labour, in proportion to the quantity of subsistence which it can
purchase at that time. A rent, therefore, reserved in corn, is liable
only to the variations in the quantity of labour which a certain
quantity of corn can purchase. But a rent reserved in any other
commodity is liable, not only to the variations in the quantity of
labour which any particular quantity of corn can purchase, but to
the variations in the quantity of corn which can be purchased by any
particular quantity of that commodity.

Though the real value of a corn rent, it is to be observed, however,
varies much less from century to century than that of a money rent,
it varies much more from year to year. The money price of labour, as I
shall endeavour to shew hereafter, does not fluctuate from year to year
with the money price of corn, but seems to be everywhere accommodated,
not to the temporary or occasional, but to the average or ordinary price
of that necessary of life. The average or ordinary price of corn, again
is regulated, as I shall likewise endeavour to shew hereafter, by the
value of silver, by the richness or barrenness of the mines which supply
the market with that metal, or by the quantity of labour which must be
employed, and consequently of corn which must be consumed, in order to
bring any particular quantity of silver from the mine to the market. But
the value of silver, though it sometimes varies greatly from century to
century, seldom varies much from year to year, but frequently continues
the same, or very nearly the same, for half a century or a century
together. The ordinary or average money price of corn, therefore, may,
during so long a period, continue the same, or very nearly the same,
too, and along with it the money price of labour, provided, at least,
the society continues, in other respects, in the same, or nearly in the
same, condition. In the mean time, the temporary and occasional price
of corn may frequently be double one year of what it had been the
year before, or fluctuate, for example, from five-and-twenty to fifty
shillings the quarter. But when corn is at the latter price, not only
the nominal, but the real value of a corn rent, will be double of what
it is when at the former, or will command double the quantity either of
labour, or of the greater part of other commodities; the money price of
labour, and along with it that of most other things, continuing the same
during all these fluctuations.

Labour, therefore, it appears evidently, is the only universal, as well
as the only accurate, measure of value, or the only standard by which
we can compare the values of different commodities, at all times, and
at all places. We cannot estimate, it is allowed, the real value of
different commodities from century to century by the quantities of
silver which were given for them. We cannot estimate it from year to
year by the quantities of corn. By the quantities of labour, we can,
with the greatest accuracy, estimate it, both from century to century,
and from year to year. From century to century, corn is a better measure
than silver, because, from century to century, equal quantities of
corn will command the same quantity of labour more nearly than equal
quantities of silver. From year to year, on the contrary, silver is
a better measure than corn, because equal quantities of it will more
nearly command the same quantity of labour.

But though, in establishing perpetual rents, or even in letting very
long leases, it may be of use to distinguish between real and nominal
price; it is of none in buying and selling, the more common and ordinary
transactions of human life.

At the same time and place, the real and the nominal price of all
commodities are exactly in proportion to one another. The more or less
money you get for any commodity, in the London market, for example,
the more or less labour it will at that time and place enable you to
purchase or command. At the same time and place, therefore, money is the
exact measure of the real exchangeable value of all commodities. It is
so, however, at the same time and place only.

Though at distant places there is no regular proportion between the real
and the money price of commodities, yet the merchant who carries goods
from the one to the other, has nothing to consider but the money price,
or the difference between the quantity of silver for which he buys them,
and that for which he is likely to sell them. Half an ounce of silver at
Canton in China may command a greater quantity both of labour and of
the necessaries and conveniencies of life, than an ounce at London. A
commodity, therefore, which sells for half an ounce of silver at Canton,
may there be really dearer, of more real importance to the man who
possesses it there, than a commodity which sells for an ounce at London
is to the man who possesses it at London. If a London merchant, however,
can buy at Canton, for half an ounce of silver, a commodity which he can
afterwards sell at London for an ounce, he gains a hundred per cent. by
the bargain, just as much as if an ounce of silver was at London exactly
of the same value as at Canton. It is of no importance to him that half
an ounce of silver at Canton would have given him the command of more
labour, and of a greater quantity of the necessaries and conveniencies
of life than an ounce can do at London. An ounce at London will always
give him the command of double the quantity of all these, which half an
ounce could have done there, and this is precisely what he wants.

As it is the nominal or money price of goods, therefore, which finally
determines the prudence or imprudence of all purchases and sales, and
thereby regulates almost the whole business of common life in which
price is concerned, we cannot wonder that it should have been so much
more attended to than the real price.

In such a work as this, however, it may sometimes be of use to compare
the different real values of a particular commodity at different times
and places, or the different degrees of power over the labour of other
people which it may, upon different occasions, have given to those who
possessed it. We must in this case compare, not so much the different
quantities of silver for which it was commonly sold, as the different
quantities or labour which those different quantities of silver could
have purchased. But the current prices of labour, at distant times and
places, can scarce ever be known with any degree of exactness. Those
of corn, though they have in few places been regularly recorded, are in
general better known, and have been more frequently taken notice of
by historians and other writers. We must generally, therefore, content
ourselves with them, not as being always exactly in the same proportion
as the current prices of labour, but as being the nearest approximation
which can commonly be had to that proportion. I shall hereafter have
occasion to make several comparisons of this kind.

In the progress of industry, commercial nations have found it convenient
to coin several different metals into money; gold for larger payments,
silver for purchases of moderate value, and copper, or some other coarse
metal, for those of still smaller consideration, They have always,
however, considered one of those metals as more peculiarly the measure
of value than any of the other two; and this preference seems generally
to have been given to the metal which they happen first to make use
of as the instrument of commerce. Having once begun to use it as their
standard, which they must have done when they had no other money, they
have generally continued to do so even when the necessity was not the
same.

The Romans are said to have had nothing but copper money till within
five years before the first Punic war (Pliny, lib. xxxiii. cap. 3),
when they first began to coin silver. Copper, therefore, appears to
have continued always the measure of value in that republic. At Rome all
accounts appear to have been kept, and the value of all estates to have
been computed, either in asses or in sestertii. The as was always the
denomination of a copper coin. The word sestertius signifies two asses
and a half. Though the sestertius, therefore, was originally a silver
coin, its value was estimated in copper. At Rome, one who owed a great
deal of money was said to have a great deal of other people's copper.

The northern nations who established themselves upon the ruins of the
Roman empire, seem to have had silver money from the first beginning of
their settlements, and not to have known either gold or copper coins for
several ages thereafter. There were silver coins in England in the time
of the Saxons; but there was little gold coined till the time of Edward
III nor any copper till that of James I. of Great Britain. In England,
therefore, and for the same reason, I believe, in all other modern
nations of Europe, all accounts are kept, and the value of all goods
and of all estates is generally computed, in silver: and when we mean to
express the amount of a person's fortune, we seldom mention the number
of guineas, but the number of pounds sterling which we suppose would be
given for it.

Originally, in all countries, I believe, a legal tender of payment could
be made only in the coin of that metal which was peculiarly considered
as the standard or measure of value. In England, gold was not considered
as a legal tender for a long time after it was coined into money. The
proportion between the values of gold and silver money was not fixed
by any public law or proclamation, but was left to be settled by the
market. If a debtor offered payment in gold, the creditor might either
reject such payment altogether, or accept of it at such a valuation of
the gold as he and his debtor could agree upon. Copper is not at present
a legal tender, except in the change of the smaller silver coins.

In this state of things, the distinction between the metal which was the
standard, and that which was not the standard, was something more than a
nominal distinction.

In process of time, and as people became gradually more familiar
with the use of the different metals in coin, and consequently better
acquainted with the proportion between their respective values, it has,
in most countries, I believe, been found convenient to ascertain this
proportion, and to declare by a public law, that a guinea, for example,
of such a weight and fineness, should exchange for one-and-twenty
shillings, or be a legal tender for a debt of that amount. In this state
of things, and during the continuance of any one regulated proportion of
this kind, the distinction between the metal, which is the standard,
and that which is not the standard, becomes little more than a nominal
distinction.

In consequence of any change, however, in this regulated proportion,
this distinction becomes, or at least seems to become, something more
than nominal again. If the regulated value of a guinea, for example,
was either reduced to twenty, or raised to two-and-twenty shillings,
all accounts being kept, and almost all obligations for debt being
expressed, in silver money, the greater part of payments could in either
case be made with the same quantity of silver money as before; but would
require very different quantities of gold money; a greater in the
one case, and a smaller in the other. Silver would appear to be more
invariable in its value than gold. Silver would appear to measure the
value of gold, and gold would not appear to measure the value of silver.
The value of gold would seem to depend upon the quantity of silver which
it would exchange for, and the value of silver would not seem to depend
upon the quantity of gold which it would exchange for. This difference,
however, would be altogether owing to the custom of keeping accounts,
and of expressing the amount of all great and small sums rather
in silver than in gold money. One of Mr Drummond's notes for
five-and-twenty or fifty guineas would, after an alteration of this
kind, be still payable with five-and-twenty or fifty guineas, in the
same manner as before. It would, after such an alteration, be payable
with the same quantity of gold as before, but with very different
quantities of silver. In the payment of such a note, gold would appear
to be more invariable in its value than silver. Gold would appear to
measure the value of silver, and silver would not appear to measure
the value of gold. If the custom of keeping accounts, and of expressing
promissory-notes and other obligations for money, in this manner should
ever become general, gold, and not silver, would be considered as the
metal which was peculiarly the standard or measure of value.

In reality, during the continuance of any one regulated proportion
between the respective values of the different metals in coin, the value
of the most precious metal regulates the value of the whole coin. Twelve
copper pence contain half a pound avoirdupois of copper, of not the
best quality, which, before it is coined, is seldom worth seven-pence
in silver. But as, by the regulation, twelve such pence are ordered to
exchange for a shilling, they are in the market considered as worth a
shilling, and a shilling can at any time be had for them. Even before
the late reformation of the gold coin of Great Britain, the gold, that
part of it at least which circulated in London and its neighbourhood,
was in general less degraded below its standard weight than the greater
part of the silver. One-and-twenty worn and defaced shillings, however,
were considered as equivalent to a guinea, which, perhaps, indeed, was
worn and defaced too, but seldom so much so. The late regulations have
brought the gold coin as near, perhaps, to its standard weight as it
is possible to bring the current coin of any nation; and the order
to receive no gold at the public offices but by weight, is likely to
preserve it so, as long as that order is enforced. The silver coin still
continues in the same worn and degraded state as before the reformation
of the cold coin. In the market, however, one-and-twenty shillings of
this degraded silver coin are still considered as worth a guinea of this
excellent gold coin.

The reformation of the gold coin has evidently raised the value of the
silver coin which can be exchanged for it.

In the English mint, a pound weight of gold is coined into forty-four
guineas and a half, which at one-and-twenty shillings the guinea, is
equal to forty-six pounds fourteen shillings and sixpence. An ounce of
such gold coin, therefore, is worth £ 3:17:10½ in silver. In England, no
duty or seignorage is paid upon the coinage, and he who carries a pound
weight or an ounce weight of standard gold bullion to the mint, gets
back a pound weight or an ounce weight of gold in coin, without any
deduction. Three pounds seventeen shillings and tenpence halfpenny an
ounce, therefore, is said to be the mint price of gold in England, or
the quantity of gold coin which the mint gives in return for standard
gold bullion.

Before the reformation of the gold coin, the price of standard gold
bullion in the market had, for many years, been upwards of £3:18s.
sometimes £ 3:19s, and very frequently £4 an ounce; that sum, it is
probable, in the worn and degraded gold coin, seldom containing more
than an ounce of standard gold. Since the reformation of the gold coin,
the market price of standard gold bullion seldom exceeds £ 3:17:7 an
ounce. Before the reformation of the gold coin, the market price was
always more or less above the mint price. Since that reformation, the
market price has been constantly below the mint price. But that market
price is the same whether it is paid in gold or in silver coin. The late
reformation of the gold coin, therefore, has raised not only the value
of the gold coin, but likewise that of the silver coin in proportion to
gold bullion, and probably, too, in proportion to all other commodities;
though the price of the greater part of other commodities being
influenced by so many other causes, the rise in the value of either
gold or silver coin in proportion to them may not be so distinct and
sensible.

In the English mint, a pound weight of standard silver bullion is coined
into sixty-two shillings, containing, in the same manner, a pound weight
of standard silver. Five shillings and twopence an ounce, therefore,
is said to be the mint price of silver in England, or the quantity of
silver coin which the mint gives in return for standard silver bullion.
Before the reformation of the gold coin, the market price of standard
silver bullion was, upon different occasions, five shillings and
fourpence, five shillings and fivepence, five shillings and sixpence,
five shillings and sevenpence, and very often five shillings and
eightpence an ounce. Five shillings and sevenpence, however, seems to
have been the most common price. Since the reformation of the gold coin,
the market price of standard silver bullion has fallen occasionally to
five shillings and threepence, five shillings and fourpence, and five
shillings and fivepence an ounce, which last price it has scarce
ever exceeded. Though the market price of silver bullion has fallen
considerably since the reformation of the gold coin, it has not fallen
so low as the mint price.

In the proportion between the different metals in the English coin,
as copper is rated very much above its real value, so silver is rated
somewhat below it. In the market of Europe, in the French coin and
in the Dutch coin, an ounce of fine gold exchanges for about fourteen
ounces of fine silver. In the English coin, it exchanges for about
fifteen ounces, that is, for more silver than it is worth, according to
the common estimation of Europe. But as the price of copper in bars
is not, even in England, raised by the high price of copper in English
coin, so the price of silver in bullion is not sunk by the low rate of
silver in English coin. Silver in bullion still preserves its proper
proportion to gold, for the same reason that copper in bars preserves
its proper proportion to silver.

Upon the reformation of the silver coin, in the reign of William III.,
the price of silver bullion still continued to be somewhat above the
mint price. Mr Locke imputed this high price to the permission of
exporting silver bullion, and to the prohibition of exporting silver
coin. This permission of exporting, he said, rendered the demand for
silver bullion greater than the demand for silver coin. But the number
of people who want silver coin for the common uses of buying and selling
at home, is surely much greater than that of those who want silver
bullion either for the use of exportation or for any other use. There
subsists at present a like permission of exporting gold bullion, and
a like prohibition of exporting gold coin; and yet the price of gold
bullion has fallen below the mint price. But in the English coin, silver
was then, in the same manner as now, under-rated in proportion to gold;
and the gold coin (which at that time, too, was not supposed to require
any reformation) regulated then, as well as now, the real value of the
whole coin. As the reformation of the silver coin did not then reduce
the price of silver bullion to the mint price, it is not very probable
that a like reformation will do so now.

Were the silver coin brought back as near to its standard weight as
the gold, a guinea, it is probable, would, according to the present
proportion, exchange for more silver in coin than it would purchase
in bullion. The silver coin containing its full standard weight, there
would in this case, be a profit in melting it down, in order, first to
sell the bullion for gold coin, and afterwards to exchange this gold
coin for silver coin, to be melted down in the same manner. Some
alteration in the present proportion seems to be the only method of
preventing this inconveniency.

The inconveniency, perhaps, would be less, if silver was rated in the
coin as much above its proper proportion to gold as it is at present
rated below it, provided it was at the same time enacted, that silver
should not be a legal tender for more than the change of a guinea, in
the same manner as copper is not a legal tender for more than the
change of a shilling. No creditor could, in this case, be cheated in
consequence of the high valuation of silver in coin; as no creditor can
at present be cheated in consequence of the high valuation of copper.
The bankers only would suffer by this regulation. When a run comes upon
them, they sometimes endeavour to gain time, by paying in sixpences,
and they would be precluded by this regulation from this discreditable
method of evading immediate payment. They would be obliged, in
consequence, to keep at all times in their coffers a greater quantity of
cash than at present; and though this might, no doubt, be a considerable
inconveniency to them, it would, at the same time, be a considerable
security to their creditors.

Three pounds seventeen shillings and tenpence halfpenny (the mint price
of gold) certainly does not contain, even in our present excellent
gold coin, more than an ounce of standard gold, and it may be thought,
therefore, should not purchase more standard bullion. But gold in coin
is more convenient than gold in bullion; and though, in England, the
coinage is free, yet the gold which is carried in bullion to the mint,
can seldom be returned in coin to the owner till after a delay of
several weeks. In the present hurry of the mint, it could not be
returned till after a delay of several months. This delay is equivalent
to a small duty, and renders gold in coin somewhat more valuable than an
equal quantity of gold in bullion. If, in the English coin, silver was
rated according to its proper proportion to gold, the price of silver
bullion would probably fall below the mint price, even without any
reformation of the silver coin; the value even of the present worn and
defaced silver coin being regulated by the value of the excellent gold
coin for which it can be changed.

A small seignorage or duty upon the coinage of both gold and silver,
would probably increase still more the superiority of those metals in
coin above an equal quantity of either of them in bullion. The
coinage would, in this case, increase the value of the metal coined in
proportion to the extent of this small duty, for the same reason that
the fashion increases the value of plate in proportion to the price of
that fashion. The superiority of coin above bullion would prevent the
melting down of the coin, and would discourage its exportation. If, upon
any public exigency, it should become necessary to export the coin, the
greater part of it would soon return again, of its own accord. Abroad,
it could sell only for its weight in bullion. At home, it would buy more
than that weight. There would be a profit, therefore, in bringing it
home again. In France, a seignorage of about eight per cent. is imposed
upon the coinage, and the French coin, when exported, is said to return
home again, of its own accord.

The occasional fluctuations in the market price of gold and silver
bullion arise from the same causes as the like fluctuations in that of
all other commodities. The frequent loss of those metals from various
accidents by sea and by land, the continual waste of them in gilding and
plating, in lace and embroidery, in the wear and tear of coin, and in
that of plate, require, in all countries which possess no mines of their
own, a continual importation, in order to repair this loss and this
waste. The merchant importers, like all other merchants, we may believe,
endeavour, as well as they can, to suit their occasional importations
to what they judge is likely to be the immediate demand. With all their
attention, however, they sometimes overdo the business, and sometimes
underdo it. When they import more bullion than is wanted, rather than
incur the risk and trouble of exporting it again, they are sometimes
willing to sell a part of it for something less than the ordinary or
average price. When, on the other hand, they import less than is wanted,
they get something more than this price. But when, under all those
occasional fluctuations, the market price either of gold or silver
bullion continues for several years together steadily and constantly,
either more or less above, or more or less below the mint price, we
may be assured that this steady and constant, either superiority or
inferiority of price, is the effect of something in the state of the
coin, which, at that time, renders a certain quantity of coin either of
more value or of less value than the precise quantity of bullion which
it ought to contain. The constancy and steadiness of the effect supposes
a proportionable constancy and steadiness in the cause.

The money of any particular country is, at any particular time and
place, more or less an accurate measure or value, according as the
current coin is more or less exactly agreeable to its standard, or
contains more or less exactly the precise quantity of pure gold or pure
silver which it ought to contain. If in England, for example, forty-four
guineas and a half contained exactly a pound weight of standard gold,
or eleven ounces of fine gold, and one ounce of alloy, the gold coin of
England would be as accurate a measure of the actual value of goods at
any particular time and place as the nature of the thing would admit.
But if, by rubbing and wearing, forty-four guineas and a half generally
contain less than a pound weight of standard gold, the diminution,
however, being greater in some pieces than in others, the measure of
value comes to be liable to the same sort of uncertainty to which all
other weights and measures are commonly exposed. As it rarely happens
that these are exactly agreeable to their standard, the merchant adjusts
the price of his goods as well as he can, not to what those weights
and measures ought to be, but to what, upon an average, he finds, by
experience, they actually are. In consequence of a like disorder in the
coin, the price of goods comes, in the same manner, to be adjusted, not
to the quantity of pure gold or silver which the coin ought to contain,
but to that which, upon an average, it is found, by experience, it
actually does contain.

By the money price of goods, it is to be observed, I understand always
the quantity of pure gold or silver for which they are sold, without any
regard to the denomination of the coin. Six shillings and eight pence,
for example, in the time of Edward I., I consider as the same money
price with a pound sterling in the present times, because it contained,
as nearly as we can judge, the same quantity of pure silver.





Next: Of The Component Part Of The Price Of Commodities

Previous: Of The Origin And Use Of Money



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