National Opulence Does Not Consist In Money

But labour, not money, is the true measure of value. Therefore, national opulence consists in:

• the quantity of goods and
• the facility of barter

The more money that is needed to circulate the goods of any country, the fewer the goods.

Suppose Scotland’s total stock of corn, cattle, money, etc. amounts to 20 million.

• If 1 million in cash is needed to circulate it, there will only be 19 million of food, clothes, and lodging.
• The people have less by 1 million than they would have if there were no need for this money.

Therefore, the poverty of any country increases as the money increases. Money is a dead stock in itself and supplies no life convenience.

Money in this respect may be compared to the high roads of a country. It does not create corn or grass. But it circulates all the corn and grass in the country. If we could find any way to save the ground taken up by highways, we would=

• considerably increase the quantity of commodities, and
• have more to carry to the market.

The worth of a piece of ground is not based on the number of highways that run through it. Similarly, the riches of a country is in the abundance of life’s necessaries, not in the amount of money used to circulate commerce. We would greatly increase our country’s wealth if we:

• could find a way to send the half of our money abroad to be converted into goods, and
• supply the channel of circulation at home, at the same time.

Paper credit reduces circulation cost

Hence, the beneficial effects of the creation of banks and paper credit.

Suppose as above, that:

• the whole stock of Scotland amounted to 20 million,
• 2 million metal money are employed in the circulation of it, and
• the other 18 million are in commodities.

If the banks in Scotland issued notes to the value of 2 million reserving £300,000 metal money to answer immediate demands, there would be

• 1.7 million pounds circulating in cash, and
• 2 million of paper money besides.

The natural circulation however is 2 million. The channel will receive no more. What is over will be sent abroad to bring home materials for food, clothes, and lodging.

This has a tendency to enrich a nation. It can be seen immediately. The imported commodities immediately adds to the country’s opulence.

The only objection against paper money is that it drains the country of gold and silver. Bank notes will not circulate overseas. Foreign commodities must be paid in coins.

But if we think about it, this is no real hurt to a country because the nation’s opulence does not consist in the amount of coin. It consists in the abundance of commodities necessary for life.

Wealth is in Productivity

Whatever increases these commodities increases the country’s riches. Money is not fit for the necessaries of life. It cannot be our food, clothes, or lodging. It must be exchanged for commodities for those purposes.

If all the nation’s coin were exported and our commodities increased proportionally, those coins can be recalled very quickly upon sudden emergencies.

Goods will always bring in money.

As long as the commodities in a nation increases, they can augment the amount of coin by exporting them if necessary.

The commerce of every European nation has been remarkably increased by the creation of banks. Everybody in Britain is sensible of their good effects. Our American colonies are most flourishing. Most of the commerce there is carried on by paper.

The Bank of Amsterdam= Money Warehousing

Banks were first established to facilitate money transfers. To this day, this is the only design of the bank at Amsterdam.

When commerce is good, the delivery of gold and silver consumes a lot of time. When a great merchant had £20,000 to give away, he would take almost a week to count it out in guineas and shillings. A bank bill prevents all this trouble.

Before the creation of the bank at Amsterdam, the merchants kept certain sums in bags to answer immediate demands in order to lessen the trouble of counting out huge amounts of cash.

In this case, you must either:

• trust the merchant’s honesty or
• you must take the trouble of counting it over.

If you trusted his fidelity, frequent frauds would be committed. If you did not trust him, your trouble was not lessened.

These led to the creation of that bank:

1. You deposit money there.
2. The bank gives you a bill for that amount.

You never withdraw your money because the bill will generally sell above par .

The bank has no office for withdrawal because there is seldom any withdrawals done. Its notes circulate only there. In this way:

• that bank has a good effect in facilitating commerce, and
• Amsterdam’s credit is not endangered by the bank.

In 1701, when the French army was at Utrecht, a sudden demand was made on it. Holland was alarmed with the expected fatal consequences, but no danger ensued.

Before this, its bankers were suspected to be trading with the money. But it was found that a great amount of the money had been scorched by a fire that happened around 50 years before. This showed that the suspicion was baseless and that the bank’s credit remained unhurt.

Some have affirmed that it always has stored money around 90 million. But this has recently been shown to be false, from a comparison of the trade of London and Amsterdam.