Nominal Variation of Price, and of the Peculiar Value of Bullion and of Coin

In treating of the elevation and depression of the price of commodities, although value has been expressed in money, no notice has been taken of the value of money itself; which, to say the truth, plays no part in real, or even in relative variation of the price of other commodities.

One product is always ultimately bought with another, even when paid for in the first instance in money.

When the price of wool is doubled, it is purchased with twice the quantity of every other commodity, whether the exchange be made directly, or through the intermediate agency of money. The baker, who could have bought 1 lb. of wool with 6 lbs. of bread, or, with its price in money, say 20 cents, will be obliged to sacrifice 12 lbs. of bread to obtain the 40 cents necessary to purchase 1 lb. of wool at its advanced price.

But, if it be proposed to compare together the relative value, not of stockings, meat, sugar, wool, bread, &c., but of any one of those articles with that of money itself, we shall find, that money, like all other commodities, may undergo, and often has, in fact, undergone a real variation; that is to say, a variation in the cost of its production; and a relative one, that is to say, a change of value, in comparison with other products.

It is obvious, therefore, that one cannot form an idea of the value of a commodity from its estimate of money price, except during a space of time, and within a space of territory, in which neither the denomination of the coin, nor the value of its material, has undergone any change; else the valuation will be merely nominal, and convey no fixed idea of value whatever.

To say that the setier of wheat sold for 30 sous in 1514, without explaining the then value of 30 sous, is giving us a price, that conveys either no idea at all, or a fallacious one, if it be meant to affirm, that the setier of wheat was then worth 30 sous of present money. In comparing values, the denomination of coin is useful only inasmuch as it designates the quantity of pure metal contained in the sum specified. It may serve to denote the quantity of the metal; but never serve as an index of value at any distance of time, or of place.

It is scarcely necessary to point out the effects of an alteration in the quantity of metal, to which a fixed denomination is given, upon national and individual property. Such an expedient can neither increase nor diminish the real, or even the relative value, either of the metal or of any other commodity.

If 1 oz. of silver be struck into two crowns instead of one, two crowns will be paid wherever one was given before; that is to sav, 1 oz. of silver will be given in either case= so that the value of silver will not have varied. But when a sale has been made on credit for a given time, and payment stipulated in crowns, the seller may be liable to receive A oz. in each crown, instead of 1 oz. according to the intention of the contracting parties. This transfer of the old denomination to a different Since the discovery of the American mines, silver, having fallen to about a fourth of its former value, has lost three- fourths of its relative value to all other products, whose price has, meanwhile remained stationary; as to that of corn, for instance; consequently one must give 4 oz. of silver for 1 setier (about 43 bushels) of wheat, which, in the year 1500, was to be had for 1 oz. or thereabout. A commodity, which, since that period, may have fallen to half its price, while sil- ver was falling to one-quarter, will, therefore, have doubled its relative value to silver, for this commodity then cost 1 oz., and would now be worth 4 oz. of silver, had it not fallen itself 166Book II= On Distribution of her own to offer in exchange, was compelled to give the precious metals, of which India absorbed an immense quan- tity. Nevertheless, the multiplication of products tended to the increase and diffusion of wealth; mere higlers grew up into opulent merchants, and the fishing towns of Holland al- ready reckoned amongst their citizens individuals worth 200,000 dollars. The costly objects, that none bat princes could before aspire to possess, became attainable by the com- mercial classes; and the increasing taste for plate and expen- sive furniture created a greater demand for gold and silver to be employed on those objects. Beyond all question, the value of those metals would have prodigiously advanced, had not the mines of America been then opportunely discovered. portion of metal will, therefore, unjustly benefit the one party, to the injury of the other. For every profit to one individual is a loss to another, unless it arise from actual production, or from greater economy in the charges of production, which is equivalent to actual production. With regard to the peculiar and inherent value of bullion or of money, it originates, like that of all other commodities, in the uses to which it is applicable, as we have before observed. The degree of that value is greater or less, according as its use is more or less extensive, its employment more or less necessary, and its supply more or less abundant. Gold and silver, though the most common materials of money can not act as such while in an uncoined state; they are then not money, but the raw material of money. In the present con- dition of society, every individual can not turn bullion into coin at his pleasure; and, therefore, coin may be of consider- ably higher value than bullion of the same standard of weight and quality, if the demand for coin be more urgent than the demand for bullion. But bullion can never be perceptibly higher in value than coin of equal weight and quality; be- cause the latter may be readily converted into the former. The reason why coin so seldom much exceeds bullion in value is, that the avidity of governments, which are monopolists of the business of coinage, to profit by the difference between coin and bullion, has led them into the error of overstocking the market with their manufacture of coin. Thus it is, that coin is never depressed in value below, and rarely much elevated above bullion. Wherefore, the detail of the circumstances, that have hitherto been, or may hereafter be, the occasion of variations in the intrinsic value of gold or silver bullion, will serve at the same time to explain the variations of their value in the peculiar character of money.

Their discovery completely turned the scales. The rapid increase of the use and demand for gold and silver was far more than counterbalanced by the increasing supply, which completely glutted the market. Hence the great reduction of their value, which has been before observed upon, and which would have been far greater still, but for the concurrence of the cir- cumstances just stated, whereby the value of silver, or its price in commodities at large, was checked in its fall, and limited to one-fourth, instead of being depressed in equal ratio with the increased supply, that is to say, to one-tenth.

This counteracting force must have escaped the penetration of Locke, or he would not have said, that the tenfold increase of silver, since the year 1500, necessarily raised the price of commodities in a tenfold degree. The few instances he might have cited in support of his position, were by no means sufficient to establish its accuracy; for a far greater number and variety of products might be mentioned, for which, as well as for silver, the demand compared with the supply had increased in the ratio of 2½ to 1, between 1500 and the date of the work of Locke in question. 21

But, although this may be true of some particular products, it may not be so of abundance of others, for some of which the demand has not advanced at all since 1500, while the supply of others has kept pace with the pro- gressive demand, and consequently the ratio of their value remained stationary, with the exception of trifling temporary variations arising from causes of a nature wholly distinct; which, by the way, should teach us the necessity, in this sci- ence, of submitting insulated facts to the test of reasoning: for fact will not subvert theory, unless the whole of the facts applicable be taken into consideration, as well as the whole of the circumstances, that may vary the nature of those facts’ which is hardly possible in any case.

The ten-fold supply of those metals, poured into the market in consequence of the discovery of America, did not effect a corresponding reduction of their value to 1/10 of what it had before been.

For, the demand for them was at the same period greatly enlarged by the contemporaneous increase of commerce, manufacture, and luxury.

All the leading states of Europe had before been wholly destitute of industry= the circulation of products, whether as capital or for mere consumption, was very trifling in amount.

Industry and productive energy made a sudden and simultaneous effort all over Europe; and the commodity employed as the material of money, the agent of exchange, could not but come more in demand, upon the greater extent and frequency of mutual dealings. About the same time, the new route to the Eastern ocean, by rounding the Cape of Good Hope, was discovered, and drew abundance of adventurers into that direction; the products of the East obtained a more general consumption; but Europe, having no other products

The writers of the Encyclopedie have fallen into the same error, in stating, 22 that a household establishment, wherein the silver plate should not have varied in quantity or quality from the middle of the sixteenth century to the present time, would be but one-tenth as rich in plate now as at the former period.

Whereas, its comparative wealth would be reduced to 1/4 only; since, although the increase of supply has depressed that value to 10/100, the increase of demand, on the other hand, has raised it to 25/100. 23

new mouths to consume it; and corn would maintain nearly the same average of relative value to other commodities. This will explain, why the variations of the value of silver are both slow in operation, and considerable in amount.

Their slowness is owing to the universality of the demand, which prevents a moderate variation of supply from being sensibly felt; and their magnitude to the limited uses of the metal, which prevent the increase of demand from keeping pace with a rapid increase of supply Silver has utility for the purposes of plate, furniture, and ornament, as well as for those of money; and is the more copiously employed on those objects, in pro- portion to the degree of national wealth.

Its use in the peculiar character of money is proportionate to the quantity of moveable and immoveable objects of property, that there may be to be circulated; wherefore, coin would be more abundantly required in richer than in poorer nations, were not the following circumstances to control this general rule.

The major part of the coin is in constant circulation, in the appropriate sense of the word, as defined above. In this respect it differs from most other commodities; for they are in circulation only so long as they are in the hands of the dealers, and retire from it as soon as transferred to the consumer.

Money, even when employed as capital, is never desired as an object of consumption, but merely as one of barter; every act of purchase is an offer of money in barter, and a furtherance of its circulation. The only part withdrawn from circulation is what may be hoarded or concealed, which is always done with a view to its re- ap- pearance. Gold or silver, in the shape of plate, embroidery, or jewellery, is in circulation only while in quest of, or in readiness for a purchaser; which it ceases to be, when it reaches the posses- sion of the consumer.

1. The superior rapidity of circulation, both of money and commodities in a state of national opulence, which makes a smaller quantity of money requisite, in proportion to the total of commercial dealings.

The same sum in a rich country will effect perhaps ten successive operations of exchange in the same space of time, as one in a poor country. 24 Wherefore, the multiplication of commodities to be circulated is not nec- essarily attended with a co-extensive increase of the demand for money. The business of circulation is extended; but the agent of circulation becomes more active and efficient. The general use of silver amongst all the civilized nations of the world, coupled with its great facility of transport, makes it a commodity of such extensive demand, that none but a very large influx of fresh supply can sensibly affect its value. Thus, when Xenophon, in his essay on the revenues of Ath- ens, urges his countrymen to give more assiduous attention to the working of the mines of Attica, by the suggestion, that silver does not, like other commodities, decline in value with the increase in quantity, he must be understood to say, that it does not perceptibly decline. Indeed, the mines of Attica were too inconsiderable in their product, to influence the value of the stock of that metal then existing in the numerous and flour- ishing states upon the borders of the Mediterranean Sea, and in Persia and India; between all which and Greece the com- mercial intercourse was sufficiently active, to keep the value of silver stationary in the Grecian market. The driblet of sil- ver, furnished by Attician metallurgy, was a mere rivulet trick- ling into an ocean of existing supply. It was impossible for Xenophon to foresee the influx of the American torrent, or to guess at the consequence of its irruption.

2. In a state of national opulence, credit is a more frequent substitute for money. In Chap. XXII, of the preceding book, it has been shown how a portion of the national money may be dispensed with by the employment of convertible paper, without any resulting inconvenience. 25

By this expedient, the use of metal money, and, consequently, the demand for silver for the purposes of money, is considerably diminished.

Nor is convertible paper the sole expedient of substitution amongst an industrious and commercial people; every kind of private obligations and covenants, as well as sales on credit, transfers of money-credit, and even mere debtor and creditor accounts current, have an effect precisely analogous.

Thus the necessity, and consequently the demand, for metal money never advances in equal ratio with the progressive multiplication of other products; and it may be truly said, that the richer a nation is, the smaller is the amount of its coin, in comparison with other nations.

If silver were, like corn and other fruits of the earth, all object of human food and sustenance, the enlargement of the sources of its supply would not have lowered its value; for the strong impulse of the human race, towards the multiplication of their species to a level with the means of subsistence, would have made the demand keep pace with the increase of supply.

The tenfold multiplication of corn would be followed by a tenfold increase of the demand for it; inasmuch as it would engender Were the quantum of the supply alone to determine the exchangeable value of a commodity, silver would stand to gold in the ratio of 1 to 45; for silver and gold are produced by metallurgy as 45 to 1. 26 But the demand for silver is greater than for gold; its uses are both far more general and far more various; and thus its relative value is prevented from falling lower than 1 to 15.