Chap. 1b: Metal Money Supply

Demand Motive

12 The amount of commodities human industry can buy or produce is naturally regulated by the effective demand in every country.

  • It is regulated by the demand of people who are willing to pay the rent, labour, and profits needed to make them.
  • Gold and silver are the commodities which best regulate themselves most exactly to this effective demand.
    • No other commodities can be more easily transported from where they are cheap to where they are dear.
    • For example, if there were an effective demand for more gold in England, a packet-boat could bring 50 tons of gold from Lisbon.
      • The 50 tons could be coined into more than 5 million guineas.
    • But if there were an effective demand for grain worth 5 million guineas, importing it at 5 guineas a ton would require 1 million tons of shipping or 1,000 ships of 1,000 tons each.
      • The navy of England would be insufficient.

13 When the quantity of gold and silver imported into any country exceeds the effective demand, no government vigilance can prevent their exportation.

  • All the sanguinary laws of Spain and Portugal are unable to keep their gold and silver at home.
    • The continual importations from Peru and Brazil exceed Spain and Portugal’s effective demand.
    • The importations sink the price of those metals in Spain and Portugal below those of neighbouring countries.
  • On the contrary, if their amount fell short of the effective demand that its price rose above the price of the neighbouring countries, the government would not need to import them.
    • If the government prevented their importation, it would be unable to prevent it effectively.
  • When the Spartans gained the means to buy gold and silver, they broke through all the prohibitions Lycurgus imposed to prevent their entrance into Sparta.
  • All the sanguinary laws of the customs are unable to prevent the importation of the teas of the Dutch and Gottenburgh East India Companies.
    • Because they are cheaper than the teas of the British company.
      • A pound of tea at its highest price of 192 pence, is 100 times bulkier than the silver paid for it.
      • It is more than 2,000 times bulkier that the same price in gold and consequently so many times more difficult to smuggle.

14 It is partly due to the easy transportation of gold and silver that their price does not fluctuate like the price of other commodities.

  • Other commodities are hindered by their bulk from shifting when the market becomes overstocked or understocked with them.
  • The price of those metals also varies.
    • But the changes in their price are generally slow, gradual and uniform.
  • For example, it is supposed that during the past and present centuries, gold and silver in Europe were constantly and gradually sinking in value due to the continual importation from the Spanish West Indies.
    • But to make any sudden change in the price of gold and silver requires such a revolution in commerce as that of the discovery of America.

15 If gold and silver should fall short in a country which can buy them, there would be more expedients for supplying them than almost any other commodity.

  • If the materials of manufacture are wanted, industry must stop.
  • If provisions are wanted, the people must starve.
  • But if metal money is wanted, barter will supply its place, though with much inconvenience.
    • Credit can replace money with less inconvenience.
    • A well-regulated paper money can replace it without any inconvenience and with some advantages.
  • Therefore, it is unnecessary for government to watch over the metal money supply in any country.

The Scarcity of Money

16 The scarcity of money is the most common complaint.

  • Money, like wine, must always be scarce with those who do not have the means to buy it nor credit to borrow it.
    • Those who have them will seldom be lacking in the money or wine that they need.
  • This complaint of the scarcity of money is not always confined to improvident spendthrifts.
    • It is sometimes general through a whole mercantile town and the country.
    • Over-trading is the common cause of it.
    • Sober men, whose projects cost more than their capitals, will likely have no means to buy money nor credit to borrow it.
      • They are like prodigals whose expence has exceeded to their revenue.
      • Before their projects can be brought to bear, their stock is gone, and their credit with it.
      • They run everywhere to borrow money.
        • Everybody tells them they have none to lend.
  • Such complaints do not always prove that gold and silver are not circulating in the country.
    • It only proves that many people who want money have nothing to give for them.
  • When profits are greater than ordinary, over-trading becomes a general error among big and small dealers.
    • They do not always send more money abroad than usual.
    • But they buy an unusual amount of goods on credit at home and abroad.
      • They send those goods to some distant market hoping that the returns will come before the demand for payment.
      • The demand comes before the returns, and they have nothing to purchase money or give security for borrowing.
  • The scarcity of money is caused by the difficulty which:
    • such people find in borrowing and
    • their creditors find in getting payment
  • It is not caused by any scarcity of gold and silver.

17 It would be too ridiculous to prove that wealth only consists in goods and not in money.

  • Money always makes a part of the national capital.
    • But it generally makes but a small of it.
  • It is always the most unprofitable part of the national capital.

Selling Vs. Buying

18 Merchants find it easier to buy goods with money [buying] than to buy money with goods [selling].

  • Goods do not always draw money so readily as money draws goods.
    • In the long-run goods draw more money than money draws goods.
    • This is because goods can serve other purposes besides buying  money.
      • But money can serve no other purpose besides buying goods.
  • Its national annual produce would be the same as usual, because the same consumable capital would be employed in maintaining it.
  • Even if gold and silver could not be obtained for a country’s goods, the country would not be ruined.
    • It might:
      • suffer some loss and inconvenience
      • be forced to find ways to supply the place of money
  • But only a very small part of the national annual produce can ever be destined for buying gold and silver from overseas.
    • Most of the national produce is circulated and consumed within the country.
    • Most of the surplus sent abroad is destined for buying other foreign goods.
  • A merchant may be ruined by not being able to sell his goods in time, but a nation is not.
    • The whole capital of a merchant frequently consists in perishable goods destined for buying money [sale] .
  • This is because money is the known and established instrument of commerce for which everything is readily given in exchange.
    • It is not because wealth consists more in money than in goods.
  • Not everything will be readily exchanged for money.
    • Most goods are more perishable than money.
  • The merchant may sustain a bigger loss by keeping goods.
    • When he has goods, he is more liable to demands for money.
    • He can only answer them after he has sold those goods.
    • Above all, his profit arises directly from selling than from buying.
    • He is more anxious to exchange his goods for money than his money for goods.
  • “Money, therefore, runs after goods, but goods do not always or necessarily run after money.”
    • A buyer does not always mean to sell again, but frequently to use or to consume.
      • But a seller always means to buy again.
    • The man who buys, frequently has finished his whole business.
      • But the man who sells only has done not more than half of his business.
  • People desire money not for money’s sake.

    • They desire it for the sake of what they can purchase with it.

Money Supply

19 It is said, consumable commodities are soon destroyed, but gold and silver are more durable.

  • If not continually exported, gold and silver might be accumulated for ages to increase the country’s real wealth.
    • It is most disadvantageous for any country to trade such lasting commodities for such perishable ones.
  • However, the exchange of English hardware for French wines is not disadvantageous, even if hardware is a very durable commodity.
    • If English hardware were not continually exported, it might accumulate for ages and incredibly increase England’s pots and pans.
    • But 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 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 indulge 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 good cheer of private families by obliging them to keep an unnecessary number of kitchen plates.
    • The expence of buying those unnecessary plates would reduce the amount and goodness of the family’s food.
    • The expence of buying an unnecessary quantity of gold and silver must reduce 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 of gold and silver
      • the amount of gold and silver
    • But if you unnaturally increase the amount of gold and silver, you will infallibly reduce:
      • the use of gold and silver
      • the amount 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:

  1. Some of its accumulated gold and silver
  2. Some of its manufactures
  3. Some of its rude produce

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

  1. The circulating money
  2. The plate of private families
  3. The money collected by many years parsimony and laid up in the prince’s treasury

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, according to the most exaggerated computation, 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 seven 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.

Words: 3625

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