Chap. 5c: Coin Reformation

British coins

31 In the English mint, a pound of gold is coined into 44.5 guineas.

  • At 252 pence a guinea, a pound of gold is worth 11,214 pence. [252*44.5]
    • An ounce of guinea therefore is worth 934.5 pence in silver. [11,214/12 troy ounces]
  • In England, no seignorage is paid on the coinage.
    • The mint will turn a pound of gold exactly into a pound of gold coin.
  • 934.5 pence is the mint price or nominal price of gold in England.
    • It is the amount of gold coin which the mint gives for a troy ounce of gold bullion.

32 Before the gold coin’s reformation, an ounce of gold bullion was worth between 936-960 pence.

  • Its market price was above the mint price.
  • After the reformation, it seldom exceeded 931 pence an ounce.
    • Its market price was below the mint price.
  • The reformation raised the value of the gold and silver coins, probably proportional to all other commodities.

33 12 troy ounces of silver bullion is coined into 62 shillings [744 pence].

  • The nominal mint price of silver is therefore said to be 62 pence an ounce [744/12].
  • Before the gold coin’s reformation, the market price of silver bullion was between 64-68 pence an ounce.
    • The most common price was 67 pence.
  • After the reformation, its market price fell to 63-65 pence an ounce.
  • The market price of silver bullion has fallen considerably since the reformation.
    • But it has not fallen so low as the mint price.

34 The nominal value of the English copper coin is very much above its real value.

  • The nominal value of the silver coin is somewhat below its own real value.
  • In the French and Dutch coins, an ounce of fine gold exchanges for 14 ounces of fine silver.
    • In the English coin, it exchanges for 15 ounces, or for more silver than it is worth.
  • But the real price of copper bars is not raised by the high nominal price of the English copper coin.
    • The real price of silver in bullion is not sunk by the low nominal price of the English silver coin.
  • Silver bullion still preserves its proper proportion to gold bullion for the same reason that copper bars preserve their proportion to silver bullion.

The Reformation Of The Silver Coin
35  After the silver coin’s reformation, which happened in the reign of William III, the price of silver bullion stayed above the mint price.

John Locke

John Locke

  • Mr. Locke wrongly imputed this high price to:
    • the permission of exporting silver bullion
    • the ban on exporting silver coin
  • He thought the exportation of silver bullion raised the demand for silver above the demand for silver coin.
    • But at home, there are more people who want silver coin for normal transactions than people who want silver bullion for exportation or any other use.
  • Currently:
    • gold bullion can also be exported
    • gold coin exportation is also prohibited
      • Yet the price of gold bullion has fallen below the mint price.
  • Then and now:
    • The silver coin was under-rated relative to gold.
    • The gold coin regulated the silver coin’s real value.
      • Back then, the gold coin was not supposed to require any reformation.
  • The silver coin’s reformation did not, and will likely not, reduce the price of silver bullion relative to the mint price.


36 If the silver coin were brought back to its standard weight as the gold coin, a gold guinea would probably exchange for more silver coins than a guinea in bullion form.

  • In this case, the silver coin would contain its full standard weight.
    • It would be then profitable to:
      1. Melt it down into silver bullion
      2. Sell the silver bullion for gold coins
      3. Sell the gold coins for silver coins to be melted down again.
  • Some change in the present proportion is the only way to prevent this inconveniency.


37 The inconveniency might be less if the silver in the coin was rated higher to gold, in the same proportion as it is currently rated below gold, provided that:

  • silver should not be a legal tender for more than the change of a guinea in the same way as copper is not a legal tender for more than the change of a shilling.
  • In this case, no creditor could be cheated by the high valuation of silver in the coin.
    • Currently, no creditor can be cheated because of the high valuation of copper.
  • Only the banks would suffer by this regulation.
  • This regulation would:
    • Prevent banks from paying in sixpences in order to evade immediate payment during bank runs
    • Oblige banks to keep more cash as added security to their creditors.


38 934.5 pence worth of gold coin (its mint price) certainly does not have more than an ounce of standard gold.

  • Gold in coin is more convenient than gold in bullion.
    • Gold bullion takes several months to be coined and returned to the owner.
      • This delay is equal to a small duty
      • It renders gold in coin more valuable than gold in bullion.
  • If the nominal price of silver was properly proportional to the nominal price of gold, the price of silver bullion would probably fall below the mint price even without any silver coin reformation.
    • The value of the worn silver coin would be regulated by the value of the excellent gold coin for which it can be changed.


39 A small seignorage on gold and silver coinage would probably increase the value of the gold and silver in coin above gold and silver in bullion, in proportion to the price of the seignorage.

  • The coinage would increase the real value of the metal coined, for the same reason that the fashion increases a plate’s value in proportion to the price of that fashion.
  • The superiority of coin over bullion would prevent the melting down and exportation of coin.
  • Even if it is exported, it would return again.
    • Because abroad, it could sell only for its weight in bullion.
    • At home, it would buy more than that weight.
    • There would be profit in bringing it home again.
  • France has a seignorage of about 8%.
    • French coin returns home when exported.


40 Bullion prices fluctuate just like any other commodity.

  • Those metals are frequently lost by:
    • See and land accidents,
    • Waste in gilding, plating, lace and embroidery, and
    • Wear and tear of coin and plate.
  • Countries with no mines must continually import them to repair this loss.
  • Merchant importers import just enough bullion to meet the immediate demand.
    • Sometimes, they over-import or under-import.
      • When they over-import bullion, they sometimes sell it for a lower price.
      • When they under-import, they sell it for a higher price.

But when the market price of bullion holds steadily above or below the mint price for several years, the cause is in the coin’s state.

    • This state makes the coin have a different value than the amount of bullion which it should contain.
    • The constancy of the effect supposes a proportional constancy in the cause.


41 Metal money is more or less an accurate measure of the amount of gold or silver in the money.

  • For example, if 44.5 guineas had 12 troy ounces of gold, or 11 ounces of fine gold and one ounce of alloy, the gold coin would be an accurate measure of goods with that value.
  • But if 44.5 guineas had less than 12 troy ounces of gold by wear and tear, the gold coin becomes an inaccurate measure, like how other weights and measures become inaccurate.
    • The merchant adjusts the price of his goods according to the actual value of gold in the coin, based on his experience.
    • The price of goods adjusts to match the actual amount of metals in the coins.

 42 I define the money-price of goods as the amount of pure gold or silver for which they are sold, not the denomination of the coin.

  • For example, 80 pence from 1272 to 1302 is equal in money-price to 240 pence now in  1776 because it had the same amount of pure silver.


Next: Book 1, Chapter 6A: Components of Price

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