CHAPTER III.

ON SEIGNORAGE.

Adam Smith (b. ii. c. 5. v. i.

p. 60.):

"A small seignorage or duty upon the coinage of both gold and silver would probably increase still more the superiority of those metals in coin, above an equal quantity of either of them in bullion. The coinage would, in this case, increase the value of the metal coined, in proportion to the extent of this small duty; for the same reason that the fashion increases the value of plate in proportion to the price of that fashion. The superiority of coin above bullion would prevent the melting down of the coin, and would discourage its exportation. If, upon any public exigency, it should become necessary to export the coin, the greater part of it would soon return again of its own accord. Abroad, it could sell only for its weight in bullion. At home, it would buy more than that weight. There would be a profit, therefore, in bringing it home again. In France a seignorage of about eight per cent. is imposed upon the coinage, and the French coin, when exported, is said to return home again of its own accord."

Adam Smith (b. iv. c. 6. v. ii. p. 378.):—

"Were the private people, who carry their gold and silver to the Mint, to pay themselves for the coinage, it would add to the value of those metals in the same manner as the fashion does to that of plate. Coined gold and silver would be more valuable than uncoined. The seignorage, if it was not exorbitant, would add to the bullion the whole value of the duty; because the government, having everywhere the exclusive privilege of coining, no coin can come to market cheaper than they think proper to afford it. If the duty was exorbitant indeed-that is, if it was very much above the real value of the labour and expense requisite for coinage-false coiners, both at home and abroad, might be encouraged, by the great difference between the value of bullion

and that of coin, to pour in so great a quantity of counterfeit money, as might reduce the value of the government money. In France, however, though the seignorage is eight per cent., no sensible inconveniency of this kind is found to arise from it. The dangers to which a false coiner is everywhere exposed, if he lives in the country of which he counterfeits the coin, and to which his agents or correspondents are exposed if he lives in a foreign country, are by far too great to be incurred for the sake of a profit of six or seven per cent."

Adam Smith (b. iv. c. 6. v. ii.

p. 380.):

"A seignorage will, in many cases, take away altogether and will, in all cases, diminish the profit of melting down the new coin. This profit always arises from the difference between the quantity of bullion which the common currency ought to contain, and that which it actually does contain. If this difference is less than the seignorage, there will be loss instead of profit. If it is equal to the seignorage, there will neither be profit nor loss. If it is greater than the seignorage, there will indeed be some profit, but less than if there was no seignorage. If before the late reformation of the gold coin, for example, there had been a seignorage of five per cent. upon the coinage, there would have been a loss of three per cent. upon the melting down of the gold coin. If the seignorage had been two per cent., there would have been neither profit nor loss. If the seignorage had been one per cent. there would have been a profit but of one per cent. only, instead of two per cent. Wherever money is received by tale, therefore, and not by weight, a seignorage is the most effectual preventive of the melting down of the coin, and, for the same reason, of its exportation. It is the best and heaviest pieces that are commonly either melted down or exported; because it is upon such that the largest profits are made.”

P. 381.:

"Before the late re-coinage, when the gold currency of England was two per cent. below its standard weight, as there was no seignorage, it was two per cent. below the value of that quantity of standard gold bullion which it ought to have contained. When this great Company (the Bank of England), therefore, bought gold bullion in order to have it coined, they were obliged to pay for it two per cent. more than it was worth after the coinage. But if there had been a seignorage of two per cent. upon the coinage, the common gold currency, though two per cent. below its standard weight, would, notwithstanding, have been equal in value to the quantity of standard gold which it ought to have contained; the value of the fashion compensating, in this case, the diminution of the weight. They would, indeed, have had the seignorage to pay, which being two per cent., their loss upon the whole trans

action would have been two per cent., exactly the same, but no greater than it actually was.'

It will be seen, by the preceding extracts, that Adam Smith was of opinion* (p. 60.), that "a small seignorage or duty upon the coinage of both gold and silver," would "increase the value of the metal coined, in proportion to the extent of this small duty, for the same reason that the fashion increases the value of plate in proportion to the price of that fashion." And in proof of this theory he adduces the instance of the French coinage:-"In France, a seignorage of about eight per cent. is imposed upon the coinage, and the French coin, when exported, is said to return home again of its own accord."

He also adduces† (p. 378.) another reason:-"The seignorage, if it was not exorbitant, would add to the bullion the whole value of the duty, because the government having everywhere the exclusive privilege of coining, no coin can come to market cheaper than they think proper to afford it;" and he again compares the value conferred on bullion to the value conferred by the fashion upon plate, and gives the instance of the French coinage.

Although Adam Smith mentions a small seignorage, yet he says (p. 380.), "If, before the late reformation of the gold coin, there had been a seignorage of five per cent. on the coinage," &c.

He also observes (p. 381.):-" Before the late recoinage, when the gold currency of England was two per cent. below its standard weight," &c.:

"But if there had been a seignorage of two per cent. upon the coinage, the common gold currency, though two per cent. below its standard weight, would, notwithstanding, have been equal in value to the quantity of standard gold which it ought to have contained; the value of the fashion compensating, in this case, the diminution of the weight."

These opinions and reasonings fully express the

*

p. 42.

† p. 42.

p. 43.

conviction of this celebrated author, that a charge for seignorage, if not exorbitant, conferred a value upon coin equivalent to an increase of weight, and would supply the deficiency of quantity when the coin was, by wearing, below the standard weight.

*

And he concludes (p. 380.):

"Wherever money is received by tale, therefore, and not by weight, a seignorage is the most effectual preventive of the melting down of the coin, and, for the same reason, of its exportation."

How are these opinions to be reconciled with those of the same author in the following extracts?

Adam Smith (b. i. c. 5. v. i. p. 62.):

"By the money price of goods, it is to be observed, I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin. Six shillings and eightpence, for example, in the time of Edward I., I consider as the same money price with a pound sterling in the present times; because it contained, as nearly as we can judge, the same quantity of pure silver."

And (b. i. c. 11. v. i. p. 269.):

"But the nominal sum which constitutes the market price of every commodity is necessarily regulated, not so much by the quantity of silver which, according to the standard, ought to be contained in it, as by that which, it is found by experience, actually is contained in it. This nominal sum, therefore, is necessarily higher when the coin is much debased by clipping and wearing, than when near to its standard value."

And (b. iv. c. 3. v. ii. p. 273.):—

"But the value of the current coin of every country, compared with that of any other country, is in proportion, not to the quantity of pure silver which it ought to contain, but to that which it actually does contain."

It seems extraordinary that Adam Smith should introduce another element into the "money price of goods," besides "the quantity of pure gold or silver for which they are sold," that the expense of coinage and the charge of seignorage may be made elements in constituting "the money price of goods." Is it

not inconsistent to say that the value of the money or coin may, by the seignorage, be increased two, five, or even eight per cent., and at the same time to say that "the nominal sum which constitutes the market price of every commodity, is necessarily regulated by the quantity of silver which is found by experience to be actually contained in it?"

Adam Smith (b. iv. c. 6. v. ii. p. 382.):

"When the tax upon a commodity is so moderate as not to encourage smuggling, the merchant who deals in it though he advances, does not properly pay the tax, as he gets it back in the price of the commodity. The tax is finally paid by the last purchaser or consumer. But money is a commodity with regard to which every man is a merchant. Nobody buys it but in order to sell it again; and with regard to it, there is in ordinary cases no last purchaser or consumer. When the tax upon coinage, therefore, is so moderate as not to encourage false coining, though everybody advances the tax, nobody finally pays it, because everybody gets it back in the advanced value of the coin."

The seignorage is here considered as a tax upon money similar to a tax upon commodities, and false coining is compared to smuggling; and as a tax may be so moderate as not to encourage smuggling, so the seignorage may be so moderate as not to encourage false coining. It would follow, that the seignorage might be imposed to any amount that did not encourage false coining, as a tax on commodities may be imposed to any amount that does not encourage smuggling; with this difference, however, that every man must deal in money; and no one is obliged to deal in an extravagantly taxed commodity, for which there may be no purchaser. It is difficult to imagine a tax that is productive, and which is never paid. Such a tax would appear to be no tax at all. If false coining be the only danger and limit, if that can be prevented, the seignorage may be 10, or 20, or 50 per cent., and a half sovereign be worth a sovereign in currency. It is certain that the seignorage is paid by the person who carries the bullion of the legal tender coin, whether silver or gold, to the Mint to be coined, and the Mint or the Government gains it: the question is, whether he will be able to sell the