Gold in Coinage

²² The law for encouragement of the coinage by rendering it duty-free, was first enacted during the reign of Charles 2nd for a limited time.

It continued by different prolongations until in 1769 when it was rendered perpetual. To replenish their coffers with money, the bank of England is frequently carried bullion to the mint.

They probably imagined that it was more for their interest that the coinage should be at the expence of government than their own.

It was probably out of complaisance to the Bank of England that the government rendered this law perpetual.

Should the custom of weighing gold become disused it is very likely caused by its inconvenience.

Should the English gold coin be received by tale, as it was before the late recoinage, the Bank of England may find that they have mistaken their own interest.

²³ Before the recent recoinage, there was no seignorage.

When the English gold currency was 2% below its standard weight, it was 2% below the value of the gold bullion it should have contained. When the Bank of England bought gold bullion to have it coined, they were obliged to pay 2% more than its worth after coinage.

But if there had been a seignorage of 2% on the coinage, the gold currency though 2% below its standard weight, would have been equal in value to the gold it should have contained. The value of the fashion would compensate the diminution of the weight.

They would have had the seignorage of 2% to pay Their loss on the whole transaction would have been 2% exactly the same, but no greater than it actually was.

²⁴ If the seignorage was 5% and the gold currency was only 2% below its standard weight, the bank would have gained 3% on the bullion price.

But as the bank would have to pay a 5% seignorage, their loss on the whole transaction would have been exactly 2%.

²⁵ If the seignorage was only 1% and the gold currency 2% below its standard weight, the bank would have lost only 1% on the price of the bullion.

But as the bank would have to pay a 1% seignorage, their loss on the whole transaction would have been exactly 2% as in all other cases.

²⁶ If there was a reasonable seignorage while the coin contained its full standard weight, whatever the bank loses by the seignorage, they would gain from the bullion’s price.

Whatever they gain from the price of the bullion, they would lose by the seignorage. They would neither lose nor gain on the whole transaction. They would be exactly in the same situation as if there was no seignorage.

²⁷ When the tax on a commodity is so moderate as not to encourage smuggling, its merchant does not pay the tax though he advances it to government.

The tax is paid by the last purchaser or consumer. But money is a commodity to which every man is a merchant. People buy money to sell it again.

Money has no last purchaser or consumer in ordinary cases. When the tax on coinage is so moderate as not to encourage false coining, everybody advances the tax but nobody finally pays it. Because everybody gets the value of the tax back in the higher value of the coin.

²⁸ A moderate seignorage would not increase bank expences.

It would not increase the expence of persons who carry their bullion to the mint to be coined. The want of a moderate seignorage does not diminish it in any case.

Whether there is a seignorage or not, the coinage costs nothing to anybody if the currency contains its full standard weight.

If it is short of that weight, the coinage must always cost the difference between the bullion which should be contained in it, and that which actually is contained in it.

²⁹ When the government defrays the expence of coinage, it incurs some small expence.

It loses some small revenue which it might get by a proper duty. The bank or any private persons do not benefit in any way by this useless public generosity.

³⁰ Bank directors would probably be unwilling to impose a seignorage which promises them no gain, but only pretends to insure them from any loss.

They certainly would gain nothing by such a change in the present state of the gold coin, as long as it continues to be received by weight.

The gain of the bank from a seignorage would probably be very big if= the custom of weighing the gold coin is ever misused, as it is very likely to be the gold coin should ever be degraded again as it was before the recent recoinage Only the Bank of England sends any large amount of bullion to the mint.

The burden of the annual coinage falls entirely on it. If this annual coinage was only to repair the losses and wear and tear of the coin, it could seldom exceed £50,000 to 100,000.

But when the coin is degraded below its standard weight, the annual coinage must fill up the large vacuities caused by the continual exportation and melting of the current coin. This happened 10-12 years before the recent gold coin reformation. The annual coinage then was more than £850,000. Without seignorage, the bank lost yearly about 2.5% on the bullion which was coined into more than £850,000. It was an annual loss of more than £21,250. But if there was a seignorage of 4-5% on the gold coin, it would probably stop the exportation and melting of coin. It probably would not have incurred 10% of that loss.

³¹ The revenue allotted by Parliament for defraying the cost of coinage is only £14,000 a year.

The real cost of the government, the fees of the officers of the mint, do not exceed £7,000. The savings of this small sum does not deserve the serious attention of government. But the frequent annual savings of £18,000-20,000 a year surely deserves the serious attention of the Bank of England.

³² Some of the foregoing reasonings might have been more properly placed in the following chapters of Book 1:

• The origin and use of money
• The difference between the real and the nominal price of commodities.

But as the law for the encouragement of coinage originates from those vulgar prejudices of the mercantile system, it is more proper to put them in this chapter.

The mercantile system supposes that money constitutes the wealth of every nation. Nothing could be more agreeable to the spirit of that system than a bounty on the production of money.

It is one of its many admirable expedients for enriching the country.