Money supply

¹⁹ People say that:

However, those people do not say that the exchange of English hardware for French wines is disadvantageous, even if hardware is also a very durable commodity .

If English hardware were not continually exported, it might accumulate for ages and incredibly increase England’s pots and pans.

In reality, the number of such pots in every country is limited by the need for them. It would be absurd to have more pots and pans than necessary for cooking food.

• If the quantity of food increased, the number of pots and pans would increase with it.
• The additional food would maintain more workers who made those additional pots and pans.

The quantity of gold and silver in every country is likewise limited by the need for those metals.

They are used:

• as coin money which circulate commodities
• as plates used as furniture

The quantity of coin in every country is regulated by the value of the commodities circulated by it.

• Increase the value of commodities and some of those commodities will be immediately be sent abroad to buy more coins to circulate them.

The quantity of plate is regulated by the number and wealth of those families who use them.

• Increase the number and wealth of such families, and this increased wealth will probably be used to buy more plates.

Increasing the wealth of any country by introducing or detaining an unnecessary amount of gold and silver is as absurd as increasing the happiness of private families by obliging them to keep unnecessary kitchen plates.

• The expence of buying those unnecessary plates would reduce the amount and goodness of the family’s food.

Likewise, the expence of buying an unnecessary quantity of gold and silver reduces the wealth which feeds, clothes, lodges, maintains, and employs the people in every country*.

It must be remembered that gold and silver, whether in coin or plate, are utensils like the utensils of the kitchen.

• Increase the consumable goods to be circulated, managed, and prepared by gold and silver, and you will infallibly increase the use and amout of gold and silver
• But if you unnaturally increase the amount of gold and silver, you will infallibly reduce the use and amout of gold and silver

If gold and silver were accumulated beyond the amount needed, no law could prevent them from being immediately sent out of the country because:

• their transportation is so easy
• the loss in their lying unemployed is so great

²⁰ It is not always necessary to accumulate gold and silver to carry on foreign wars and maintain fleets and armies in distant countries.

• Fleets and armies are maintained with consumable goods, not with gold and silver*.

The nation which has more than sufficient domestic industry can maintain foreign wars in distant countries because it has the means to buy consumable goods in those distant countries.

²¹ A nation may purchase the pay and provisions of an army in a distant country by sending abroad, some of its:

• accumulated gold and silver
• manufactures
• raw produce

²² The gold and silver stored up in any country may be distinguished into 3 parts:

1. Circulating money

2. The plate of private families

3. The prince’s own treasury, collected by many years parsimony

The Circulating Money

²³ Not much can be spared from the circulating money of the country because there is seldom much redundancy.

The value of goods bought and sold in any country requires a certain amount of money to circulate and distribute them to their consumers.

The channel of circulation draws to itself a sum sufficient to fill it and never admits any more.

In the case of foreign war, something is withdrawn from this channel. Much more people are maintained abroad than at home.

Fewer goods are circulated at home.

• Less money becomes necessary to circulate them.

An extraordinary amount of paper money, exchequer notes, navy bills, and bank bills in England, is generally issued during wartime. These replace the circulating gold and silver.

These allow more gold and silver to be sent abroad. All this is but a poor resource for maintaining an expensive and long foreign war.

²⁴ The melting down of the plate of private families is a more insignificant resource in increasing the circulating money.

In the beginning of the last war, the circulating money of France was not increased enough to compensate the loss of plate.

²⁵ In the past, the accumulated treasures of the prince was a more lasting resource.

Presently, no European prince accumulates treasure, except the king of Prussia.

²⁶ The foreign wars of the present century are perhaps the most expensive wars ever recorded.

These wars depended little on:

• the exportation of the circulating money
• the plate of private families
• the treasure of the prince

The last French war cost Great Britain more than £90 million.

It included:

• £75 million of new debt
• an additional 10% land-tax
• what was annually borrowed of the sinking fund

More than 2/3 of this amount was spent in Germany, Portugal, America, the Mediterranean ports, and the East and West Indies. The English kings had no accumulated treasure. English plate was not melted down.

The circulating gold and silver of England did not exceed £18 million.

• Since the recent gold recoinage, it was much under-rated.

Let us suppose that the gold and silver was £30 million.

• Had the war been done with English money, all of it must have been sent out and returned at least twice between 7 years.
• It would be the most decisive argument on how unnecessary it is for government to watch over the preservation of money.
• The whole money of England must have left and returned two times in that short period without anybody knowing anything about it.

The channel of circulation was never empty during this period.

• The profits of foreign trade were greater than usual during the whole war.
• It was especially greater towards the end of it.

The great profits caused, what it always causes, an over-trading in all of Great Britain.

The overtrading caused the usual complaint of the scarcity of money, which always follows over-trading.

Many people who had no means to buy money nor credit to borrow money, wanted money

The creditors found it difficult to get payment because the debtors found it difficult to borrow.

Gold and silver can be obtained by people who had that value to give for them.

²⁷ The enormous cost of the recent war must have been chiefly defrayed by the exportation of British commodities and not by the exportation of gold and silver.

When the government contracted with a merchant to remit money to a foreign country, the merchant tried to pay his foreign correspondent with commodities in exchange for a bill.

If the British commodities were not in demand in that country, the merchant would send them to another country and buy a bill on that country.

When properly suited to the market, the transportation of commodities always earns a big profit. The transportation of gold and silver rarely has any profit.

When those metals are sent abroad to buy foreign commodities, the merchant’s profit arises from the sale of those commodities at home.

It does not arise from the purchase of those goods. When money is sent abroad merely to pay a debt, the merchant gets no returns nor profit. He naturally finds a way to pay his foreign debts with commodities than with gold and silver.

According to the author of The Present State of the Nation, the huge amount of British goods exported during the recent war did not bring back any returns.

Bullion and the Mercantile Republic

²⁸ Besides the three kinds of gold and silver mentioned above, there is a lot of bullion alternately imported and exported for foreign trade in all great commercial countries.

This bullion circulates among commercial countries in the same way as the national coin circulates in every country. This bullion is the money of the great mercantile republic.

The national coin receives its movement and direction from the commodities circulated within the country. The mercantile republic’s bullion gets its movement from the circulation between countries. Both are employed in facilitating exchanges.

The coin facilitates exchanges between individuals.

The bullion facilitates exchanges between nations.

• Part of the bullion of the great mercantile republic probably was employed in the recent war.

The movement and direction of bullion is different during wartime and during peacetime.

Bullion should circulate nearer to the seat of the war.

• It should be more employed to purchase the pay and provisions of the armies there and in the neighbouring countries.

This bullion of the mercantile republic was purchased by Great Britain with British or foreign commodities.

• This brings us back to commodities or the national annual produce, as the ultimate resources which enabled us to carry on the war.

It is natural to suppose that such a great annual expence must have been defrayed from a great annual produce.

For example, the expence of 1761 amounted to over £19 million.

• No accumulation of gold and silver could have supported such an expence. The gold and silver annually imported into Spain and Portugal does not exceed £6 million. This amount would not have been enough to even pay four month’s expence of the recent war.

²⁹ The best commodities for export to distant countries were the finer and more improved manufactures.

Those commodities could purchase there:

• the army’s pay and provisions, or
• the money which the mercantile republic used to buy those pay and provisions

Those commodities contain a great value in a small bulk.

They can be exported far away at little cost.

A country which has a big surplus of such fine manufactures may carry a very expensive foreign war for many years without exporting any gold and silver.

Most of this surplus must be exported without bringing back any returns to the country.

However, it brings back returns to the merchant.

The government buys the bills of the merchant on foreign countries to buy there the army’s pay and provisions.

Some of this surplus may still continue to bring back a return.

During the war, the manufacturers will have a double demand.

Those manufacturers will:

• create the goods sent abroad for paying the bills drawn on foreign countries for army’s pay and provisions
• create the goods for consumption in the country

In the midst of the most destructive foreign war, most manufactures may frequently flourish greatly.

They may:

• decline on the return of the peace
• flourish amidst the ruin of their country
• begin to decay on the return of their country’s prosperity

The different state of British manufactures during the recent war and after the peace is an example of this.

³⁰ No expensive or long foreign war could be conveniently carried on by exporting rude produce.

The cost of exporting the rude produce needed to buy an army’s pay and provisions would be too great. Few countries produce rude produce in excess of what their own people need. It is otherwise with the export of manufactures. The maintenance of people employed in manufacturing is kept at home.

Only the surplus part of their work is exported. Mr. Hume frequently notices the inability of the ancient English kings to sustain any long foreign war uninterrupted. In those days, the English had little means to buy the pay and provisions of their armies overseas.

They could only spend the rude produce or a few coarse manufactures.

• Much of the rude produce could not be spared from the home consumption.
• Their transportation was too expensive.

This inability to fund a long war was caused by the lack of the finer manufactures and not from the lack of money. Then as now, buying and selling in England was transacted by money.

The quantity of the circulating money then must have borne a bigger proportion to the number and value of exchanges then, different from its proportion today.

This is because there was then no paper which now performs the job of gold and silver.

Among nations with little commerce and manufactures, the sovereign can seldom draw any considerable aid from his subjects during war.

In such countries, accumulated treasure is the only resource against such emergencies.

He is thus naturally parsimonious.

In that simple state, the sovereign’s expences are directed in the bounty to his tenants and hospitality to his retainers.

• It is not directed by his vanity.
• But bounty and hospitality very seldom lead to extravagance.
• Vanity almost always leads to extravagance.

Every Russian chief has a treasure.

Ivan Mazepa was the chief of the Cossacks in the Ukraine

• He was the famous ally of Charles the 12th.
• He had a very great treasure.

The French kings of the Merovingian race all had treasures.

When they divided their kingdom among their children, they divided their treasure too. The Saxon princes and the first kings after the Conquest also accumulated treasures.

Seizing the treasure of the preceding king was the most essential measure for securing succession. It was the first exploit of every new reign.

The sovereigns of improved and commercial countries do not need to accumulate treasures. They can draw from their subjects extraordinary aid on extraordinary occasions.

Without the need for treasure, their expence becomes regulated by the same vanity which directs other great proprietors.

• The insignificant pageantry of their court becomes more brilliant everyday.
• Their expence prevents accumulation.
  • It frequently encroaches on more necessary funds.

Dercyllidas saw that the Persian court had many servants but few soldiers, much splendour but little strength. The same can be said of several European princes.