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obtained by any producer, except the producer of gold ; whose returns from his mine, not depending on price, will be the same as before, and his expenses being less, he will obtain extra profits, and will be stimulated to increase his production. E converso, if the metal is below its natural value; since this is as much as to say that prices are high, and the money expenses of all producers unusually great ; for this, however, all other producers will be compensated by increased money returns; the miner alone will extract from his mine no more metal than before, while his expenses will be greater ; his profits therefore being diminished or annihilated, he will diminish his production, if not abandon his employment.

In this manner it is that the value of money is made to conform to the cost of production of the metal of which it is made. It may be well, however, to repeat (what has been said before) that the adjustment takes a long time to effect, in the case of a commodity so generally desired and at the same time so durable as the precious metals. Being so largely used not only as money, but for plate and ornament, there is at all times a very large quantity of these metals in existence; while they are so slowly worn out, that a comparatively small annual production is sufficient to keep up the supply, and to make any addition to it which may be required by the increase of goods to be circulated, or by the increased demand for gold and silver articles by wealthy consumers. Even if this small annual supply were stopped entirely (which it never is, the richer mines continuing to be worked, though at some diminution of rent,) it would require many years to reduce the quantity so much as to make any very material difference in prices. The quantity may be increased, much more rapidly than it can be diminished; but the increase must be very great before it can make itself much felt over such a mass of the precious metals as exists in the whole commercial world. And

hence the effects of all changes in the conditions of production of the precious metals are at first, and continue to be for many years, questions of quantity only, with little reference to cost of production.

$ 3. Since, however, the value of money really conforms, like that of other things, although more slowly, to its cost of production, some political economists have objected altogether to the statement that the value of money depends on its quantity combined with the rapidity of circulation; which, they think, is assuming a law for money that does not exist for any other commodity, when the truth is that it is governed by the very same laws. To this we may answer, in the first place, that the statement in question assumes no peculiar law. It is simply the law of demand and supply, which is acknowledged to be applicable to all commodities, and which, in the case of money as of most other things, is controlled, but not set aside, by the law of cost of production, since cost of production would have no effect on value if it could have none on supply. But, secondly, there really is, in one respect, a closer connection between the value of money and its quantity, than between the values of other things and their quantity. The value of other things conforms to the changes in the cost of production, without requiring, as a condition, that there should be any actual alteration of the supply: the potential alteration is sufficient; and if there even be an actual alteration, it is but a temporary one, except in so far as the altered value may make a difference in the demand, and so require an increase or diminution of supply, as a consequence, not a cause, of the alteration in value. Now this is also true of gold and silver, considered as articles of expenditure for ornament and luxury; but it is not true of money. If the cost of production of gold were reduced one fourth, by the discovery of more fertile

mines, it might happen that there would not be more of it bought for plate, gilding, or jewelry, than before ; and if so, though the value would fall, the quantity extracted from the mines for these purposes would be no greater than previously. Not so with the portion used as money; that portion could not fall in value one fourth, unless actually increased one fourth ; for, at prices one fourth higher, one fourth more money would be required to make the accustomed purchases; and if this were not forthcoming, some of the commodities would be without purchasers, and prices could not be kept up. Alterations, therefore, in the cost of production of the precious metals, do not act upon the value of money except just in proportion as they increase or diminish its quantity; which cannot be said of any other commodity. It would therefore, I conceive, be an error, both scientifically and practically, to discard the proposition which asserts a connection between the value of money and its quantity.

It is evident, however, that the cost of production, in the long run, regulates the quantity; and that every country (temporary fluctuations excepted) will possess, and have in circulation, just that quantity of money, which will perform all the exchanges required of it, consistently with maintaining a value conformable to its cost of production. The prices of things will, on the average, be such that money will exchange for its own cost in all other goods; and, precisely because the quantity cannot be prevented from affecting the value, the quantity itself will be kept at the amount consistent with that standard of prices—at the amount necessary for performing, at those prices, all the business required of it.

“ The quantity wanted will depend partly on the cost of producing gold, and partly on the rapidity of its circulation. The rapidity of circulation being given, it would depend on the cost of production; and the cost of production



being given, the quantity of money would depend on the rapidity of its circulation.”* After what has been already said, I hope that neither of these propositions stands in need of any further illustration.

Money, then, like commodities in general, having a value dependent on, and proportional to, its cost of production; the theory of money is, by the admission of this principle, stripped of a great part of the mystery which apparently surrounded it. We must not forget, however, that this doctrine only applies to the places in which the precious metals are actually produced; and that we have yet to inquire whether the law of the dependence of value on cost of production applies to the exchange of things produced at distant places. But however this may be, our propositions with respect to value will require no other alteration, where money is an imported commodity, than that of substituting for the cost of its production, the cost of obtaining it in the country. Every foreign commodity is bought by giving for it some domestic production ; and the labor and capital which a foreign commodity costs to us, is the labor and capital expended in producing the quantity of our own goods which we give in exchange for it. What this quantity depends upon,—what determines the proportions of interchange between the productions of one country and those of another,-is indeed a question of somewhat greater complexity than those we have hitherto considered. But this at least is indisputable, that within the country itself the value of imported commodities is determined by the value, and consequently by the cost of production, of the equivalent given for them; and money, where it is an imported commodity, is subject to the same law.

From some printed, but not published, Lectures of Mr. Senior; in which the great differences in the business done by money, as well as in the rapidity of its circulation, in different states of society and civilization, are interestingly illustrated.




$1. Although the qualities necessary to fit any commodity for being used as money are very rarely united in any considerable perfection, there are two commodities which possess them in an eminent, and nearly an equal degree; the two precious metals, as they are called; gold and silver. Some nations have accordingly attempted to compose their circulating medium of these two metals indiscriminately.

There is an obvious convenience in making use of the more costly metal for larger payments, and the cheaper one for smaller ; and the only question relates to the mode in which this can best be done. The mode most frequently adopted has been to establish between the two metals a fixed proportion; to decide, for example, that a gold coin called a sovereign should be equivalent to twenty of the silver coins called shillings: both the one and the other being called, in the ordinary money of account of the country, by the same denomination, a pound; and it being left free to every who has a pound to pay, either to pay it in the one metal or in the other.

At the time when the valuation of the two metals, relatively to each other, say twenty shillings to the sovereign, or twenty-one shillings to the guinea, was first made, the proportion probably corresponded, as nearly as it could be made to do, with the ordinary relative values of the two metals, grounded on their cost of production; and if those natural or cost values always continued to bear the same ratio to one another, the arrangement would be unobjectionable. This, however, is far from being the fact. Gold

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