Money, Credit and Interest

by Nicholas Barbon

Money is a Value made by a Law.

The Difference of its Value is known by the Stamp and Size of the Piece.

One Use of Money is as the Measure of Value.

• The Value of any thing is expressed in money. For example, it is said: It’s worth so many shillings, or so many Pounds

Another Use of Mony is as a Change or Pawn for the Value of all other Things.

• This is why the Value of Mony must be made certain by Law, or else it could not be made a certain Measure, nor an Exchange for the Value of all things.

It is not absolutely necessary, Mony should be made of Gold or Silver. This is because it gets its sole value from the Law. It is not Material upon what Metal the Stamp be set.

Mony hath the same Value, and performs the same Uses, if it be made of Brass, Copper, Tin, or any thing else.

The Brass Mony of Spain, the Copper Mony of Sweeden, and Tin Farthings of England, have the same Value in Exchange, according to the Rate they are set at and perform the same Uses, to Cast up the Value of things, as the Gold and Silver Mony does;

Six Pence in Farthings will buy the same thing as Six Pence in Silver.

The Value of a thing is well understood by saying, It is worth Eight Farthings, as that it is worth Two Pence: Gold and Silver, as well as Brass, Copper and Tin Mony, change their Value in those Countries, where the Law has no force, and yield no more than the Price of the Metal that bears the Stamp:

Therefore, all Foreign Coins go by Weight, and are of no certain Value, but rise and fall with the Price of the metal. Pieces of Eight, yield sometimes 4 sh. 6 d. 4 sh. 7 d. and 4 sh 8 d. as the Value of Silver is higher or lower: And so doth Dollars, and all Forreign Coin, change their Value; and were it not for the Law that fixeth the Value, an English Crown Piece would now yield five Shillings and Two Pence, for so much is the Value of it, if it were melted, or in a Foreign Country.

But the chief Advantage of making Silver and Gold, being Metals of great Value, those who design Profit by Counterfeiting the Coin, must Counterfeit the Metals, as well as the Stamp, which is more difficult than the Stamp. There’s another Benefit to the Merchant, by such Mony; for Gold and Silver being Commodities for other Uses, than to make Mony; to make Plate, Gold & Silver Lace, Silks, etc.

Coins of little bulk, in respect of their Value, the Merchant transmits such Mony from Place to Place, in Specie, according as he finds his advantage, by the Rise of Bulloin; though this may be a Conveniency to the Merchant, it often proves a Prejudice to the State, by making Mony scarce: Therefore, there are Laws in most Countries, that Prohibit the Transportation of Mony, yet it cannot be prevented; for in Spain, though it be Capital, yet in Two Months after the Gallions are come home, there is scarce any Silver Mony to be seen in the Country.

Some Men have so great an Esteem for Gold and Silver, that they;

• believe that they have an intrinsic Value in themselves
• cast up the value of everything by them

The Reason of the Mistake is because Money is made of Gold and Silver. They do not distinguish between Money, and Gold and Silver.

Money has a certain Value because of the Law. But the Value of Gold and Silver are uncertain, and varies their Price, as much as Copper, Lead, or other Metals.

In the Places where they are dug, considering the smalness of their Veins, with the Charges of getting them, they do not yield much more Profit than other Minerals, nor pay the Miners better Wages for digging them.

And were it not for the Waste, made of Gold and Silver, by Plate, Lace, Silks, and Guilding, and the Custom of the Eastern Princes, to lay them up and bury them, that Half which is dug in the West, is buried in the East. The great quantities dug out of the Earth, since the Discovery of the West Indies, would have so much lessened the Value, that by this time, they would not have much exceeded the Value of Tin, or Copper:

Therefore, How greatly would those Gentlemen be disappointed, that are searching after the Philosopher’s Stone, if they should at last happen to find it?

For, if they should make but so great a Quantity of Gold and Silver, as they, and their Predecessors have spent in search after it, it would so alter, and bring down the Price of those Metals, that it might be a Question, whether they would get so much Over-plus by it, as would pay for the Metal they change into Gold and Silver.

It is only the Scarcity that keeps up the Value, and not any Intrinsick Vertue or Quality in the Metals; For if the Vertue were to be considered, the Affrican that gives Gold for Knives, and Things made of Iron being a much more Useful metal, than either Gold or Silver. To Conclude this Objection, Nothing in it self hath a certain Value; One thing is as much worth as another: And it is time, and place, that give a difference to the Value of all things.

Credit is a Value raised by Opinion, it buys Goods as Mony doe’s; and in all Trading Citys, there’s more Wares sold upon Credit, then for present Mony.

There are Two Sorts of Credit; the one, is Grounded upon the Ability of the Buyer; the other, upon the Honesty: The first is called a Good man,which implys an Able Man; he generally buys upon short Time; to pay in a Month, which is accounted as ready Mony, and the Price is made accordingly. The other is accounted and Honest Man;

He may be poor; he Generally buys for three and Six Months or longer so as to pay the Merchant by the Return of his own Goods; and therefore, the Seller relys more upon the Honesty of the Buyer, than his Ability: Most of the Retail Traders buy upon this Sort of Credit, and are usually Trusted for more than double they are worth.

In Citys of great Trade, there are publick Banks of Credit, as at Amsterdam and Venice: They are of great Advantage to Trade, for they make Payments easie, by preventing the Continual Trouble of telling over Mony, and cause a great Dispatch in Business:

Publick Banks are of so great a Concern in Trade, that the Merchants of London, for want of such a Bank, have been forced to Carry their Cash to Goldsmiths, and have thereby Raised such a Credit upon Goldsmiths Notes, that they pass in Payments from one to another like Notes upon the Bank; And although by this way of Credit, there hath been very Vast Sums of Mony lost, not less then too Millions within five and Twenty Years, yet the Dispatch and Ease in Trade is so great by such Notes, that the Credit is still in some Measure kept up.

Therefore, it is much to be wondered at, that since the City of London is the Largest, Richest, and Chiefest City in the World, for Trade; Since there is so much Ease, Dispatch, and Safety in a Publick Bank; and since such vast Losses has Happened for want of it; That the Merchant and Traders of London have not long before this time Addressed themselves, to the Government, for the Establishing of a Publick Bank.

The Common Objection, that a Publick Bank cannot be safe in a Monarchy, is not worth the Answering; As if Princes were not Governed by the same Rules of Policy, as States are, To do all things for the Well-fair of the Subjects, wherein their own Interest is concerned.

It is True, in a Government wholly Dispotical, whose Support is altogether in it’s Millitary Forces; where Trade hath no Concern in the Affaires of the State; Brings no Revenue, There might be a Jealousy, that such a Bank might tempt a Prince to Seize it; when by doing it, he doth not Prejudice the Affairs of his Government:

But in England, where the Government is not Dispotical; but the People Free; and have as great a Share in the soveraign Legislative Power, as the Subjects of any States have, or ever had; where the Customs makes great Figures, in the Kings Exchequer; where Ships are the Bullworks of the Kingdom; and where the Flourish of Trade is as much the Interest of the King as of the People, There can be no such Cause of Fear:

For, What Objections can any Man make, that his Mony in the Bank, may not be as well secured by a Law, as his Property is? Or; Why he should be more afraid of Losing his Mony, than his Land or Goods?

Interest is the Rent of Stock, and is the same as the Rent of Land.

The First, is the Rent of the Wrought or Artificial Stock; the latter, of the Unwrought or Natural Stock.

Interest is commonly reckoned for Money because the Money borrowed at Interest, is to be repayed in Money.

But this is a mistake because the Interest is paid for Stock: for the Mony borrowed, is laid out to buy Goods, or pay for them before bought:

No Man takes up Money at Interest, to lay it by him, and lose the Interest of it.

One use of Interest is the Rule by which the Trader makes up the Account of Profit and Loss.

By Dealing, the Merchant expects to get more then Interest by his Goods; because of bad Debts, and other Hazards which he runs. Therefore, he reckons all he gets above Interest, is Gain; all under, Loss. But if no more than Interest, neither Profit, nor Loss.

Another use of Interest is as the measure of the Value of the Rent of Land.

It sets the Price in Buying and Selling of Land.

This is done by adding 3 Years Interest to the principal in order to get the usual Value of the Land of a Country.

The difference of 3 Years is allowed because Land is more certain than Mony or Stock.

Thus in Holland, where Mony is at 3% by reckoning how many times 3 is in 100 Pounds, which is 33. Adding 3 Years more makes 36 Years Purchase – the Value of the Land in Holland.

By the same Rule, interest at 6% in England means that Land is worth but 20 Years Purchase. In Ireland, land is worth but 13 because interest there is at 10%.*

*Superphysics note: This shows the invese correlation of land-value and money-interest, arising from the certainty of land and the uncertainty of the other

Therefore, Interest in all Countries is setled by a Law to make it certain. Otherwise, it could not be a Rule for the Merchant to make up his Account, nor the Gentleman, to Sell his Land by.