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has given rise to the frequent alterations of the monetary system, to the numerous errors with which these alterations have been attended, and the countless systems invented to correct or prevent them.
The first difficulty on this subject is to know what is meant by money, what is its nature, and wherein it consists.
Several writers, and among them the celebrated Montesquieu, consider money as an ideal and arbitrary sign of value; and it will easily be credited that a doctrine, so favourable to the supreme authority, was immediately adopted by all governments. They have all alternately raised or sunk the nominal value of money according to their wants and temporary interests; and what is not less strange is, that vtfhen this injury was done to public and private property, governments were ignorant of the nature and extent of the evil which they brought upon individuals and nations. The most intelligent men of all nations have been obliged to devote their studies to elucidate this important part of the science; and it is now demonstrated that the value of money can only be raised or sunk in three different ways:
Either by altering its fineness and standard;
Or by diminishing its weight;
Or by giving it a value superior to the exchangeable value of the metals of which it is composed.
When governments alter the fineness or standard of money, and yet retain its nominal value; if the alteration amounts to l-20th, the state loses l-20th of what is due to it from abroad; or^ if the state is indebted to foreign countries, it pays i-20th more, because the foreigner is paid in merchandize, and gets l-20th more than he would have got had not the standard of money been altered. Foreigners even do not confine themselves to this benefit; they introduce counterfeit money into the country, and gain the difference between the nominal value of the new and the real value of the ancient coin.
The advantages which foreigners derive from the altered standard of money, influence the exchange., turn it against the state, and in a short time exhaust the country of its wealth.
An alteration in the weight of coin, without meddling with its standard and its nominal value, is liable to less inconveniencies, because the nation immediately perceives this alteration, and guards against it by raising the price of the produce of labour,
But this raising of prices in proportion to the diminution in the weight of money, does not either prevent or stop the evil. The heavy coin is exported or melted; the active debts which the state has outstanding abroad, are reduced by the whole amount of this diminution in the weight of the coin; which reduction occasions incalculable losses in trade.
Finally, the raising the value of money without altering either its standard or its weight, furnishes foreigners with the means of liquidating their debts with a smaller quantity of the precious metals, or getting paid for what is due to them by requiring a more considerable value; of purchasing the national produce cheaper, and selling their own at the same price as before; of introducing counterfeit money into the state, and of profiting by the difference between this counterfeit coin and the real price of the precious metals.
This occasions the same disadvantages in the exchange^ which have been observed with regard to the alteration of the fineness or standard of money.
Independently of the losses which the alteration of money brings upon nations in their commercial dealings with other nations, its effects are not less disastrous in their interior, civil, and domestic concerns.
1. It causes money to be hoarded, which obstructs pa}'ments, multiplies failures, impairs credit, diminishes and interrupts labour, reduces the labourers to misery, and occasions universal despair.
2. It alters the price of wages and of personal services, and the stipulations of contracts, deprives labourers, servants, -pensioners, and creditors, of part of what is due to them, encourages bad faith, and inflicts a fatal blow to morals.
3. It deprives the sovereign of part of his revenue, forces him to disastrous measures, exposes the state and the subjects to violent commotions, and carries disorder and confusion into every department of civil society.
Not only ought money not to undergo any alteration in its standard or fineness, or in its weight and exchangeable value; but if it be composed of different metals, the proportion of their exchangeable value must also be strictly preserved; so that if the exchangeable value of gold is to that of silver as one to fifteen. that proportion must be accurately observed between the two metals; else the coin, the exchangeable value pf which is superior to its nominal value, would immediately be exported or melted, whilst that of which the exchangeable value is inferior to its nominal value^ would occasion an importation of counterfeit coin, which would bring a double loss upon the state and injure internal circulation.
Lastly, the coin of a country ought not only to preserve the proportion of its exchangeable value; that proportion ought also to be observed in the fractions of coin, else the nation is agaii>exposed to have its over-heavy fractional pieces of coin exported or melted, and the lighter ones counterfeited.
These inconveniencies of the monetary system^ which have been so well developed by celebrated writers*, overturned the opinion which had at first been formed of money, and it was no longer considered as an ideal and arbitrary sign of value. It was supposed that the share which money has in the interchange of commodities consists in fixing the value of each produce. Accordingly, the most enlightened writers, among whom ranks David Hume, taught that money is iC nothing but the representation of labour and commodities, and serves only as a method for rating or estimating them."
"Money," says Hume, " is not, properly speaking, one of the subjects of commerce; but only the instrument which men have agreed upon to facilitate the exchange of one commodity for another. It is not one of the wheels of trade; it is the oil which tenders the motion of the wheels more smooth and easy.*"
* In England, by Locke; in France, by Dutot; in Italy, by fiavanzafi, Rroggta. Gctliam\ C\trlt\ N&ri. and Beccarta.
Though this opinion is rather incorrect, (as we shall see hereafter,) it yet had one good effect; it led to the inference, that since money is the standard measure of value, it cannot be altered without injuring commerce. To augment the value of a coin, a sixth, by altering its standard, its weighty or the exchangeable value of the metal of which it is composed, was perceived to be exactly the same operation as if the capacity of a bushel was feduced by a sixth, and that measure yet retained the same name. It hastened the discovery that such an alteration destroyed commercial relations, injured civil transactions, and paralysed business; and the necessity of respecting the standard measure of exchangeable value was at length submitted to.
Enlightened by the errors of the writers who had gone before them, Count Verri in Italy, and Adam Smith in England, gave accurate notions of the nature and functions of money.
u Some," says Count Ferri, cc fancy that money
* Hume's Essays, Edinb. 1804, vol. i. of Money, page 299. But the quotation in the French has this comparison: u Lyargent pent elre compare a beaucoup d-egards aux voiles d*un vaisseau sans le secours desquelles tin bailment nepourroit traverser Vespace des mers cl naviguer dans les pays les plus eloignes." Which is probably taken from one of the first editions of Hume's Essays; for I have not been able to find this comparison in any of the later editions. Its purport is, that money may, in many respects, be compared to sails, without which a ship could not cross the seas and reach the most distant shores.—T.