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level; and have, thus far, removed the value of money from exclusive dependence on the causes which fix the values of things not artificially interfered with.

We are, however, to suppose a state, not of artificial regulation, hut of freedom. In that state, and assuming no charge to he made for coinage, the value of money will conform to the value of the bullion of which it is made. A pound weight of gold or silver in coin, and the same weight in an ingot, will precisely exchange for one another. On the supposition of freedom, the metal cannot he worth more in the state of bullion than of coin; for as it can be melted without any loss of time, and with hardly any expense, this would of course be done, until the quantity in circulation was so much diminished as to equalize its value with that of the same weight in bullion. It may be thought however that the coin, though it cannot be of less, may be, and being a manufactured article will naturally be, of greater value than the bullion contained in it, on the same principle on which linen cloth is of more value than an equal weight of linen yarn. This would be true, were it not that Government, in this country and in some others, coins money gratis for any one who furnishes the metal. The labour and expense of coinage, when not charged to the possessor, do not raise the value of the article. If Government opened an office where, on delivery of a given weight of yarn, it returned the same weight of cloth to any one "who asked for it, cloth would he worth no mf re in the market than the yarn it contained. As soon as coin is worth a fraction more than the value of the bullion, it becomes the interest of the holders of bullion to send it to he joined. If Government, however, throws the expense of coinage, as is reasonable, upon the holder, by making a charge to cover the expense, (which is done by giving back rather less in coin than has been received in bullion, and is called levying a seignorage), the coin will rise, to the extent of the seignorage, above the value of the bullion. If the Mint kept back one per cent, to pay

the expense of coinage, it would be against the interest of the holders of bullion to have it coined,, until the coin was more valuable than the bullion by at least that fraction. The coin, therefore, would be kept one per cent higher in value, which could only be by keeping it one per cent less in quantity, than if its coinage were gratuitous.

The Government might attempt to obtain a profit by the transaction, and might lay on a seignorage calculated for that purpose; but whatever they took for coinage beyond its expenses, would be so much profit on private coining. Coining, though not so easy an operation as melting, is far from a difficult one, and, when the coin produced is of full weight and standard fineness, is very difficult to detect. If, therefore, a profit could be made by coining good money, it would certainly be done: and the attempt to make seignorage a source of revenue would be defeated. Any attempt to keep the value of the coin at an artificial elevation, not by a seignorage, but by refusing to coin, would be frustrated in the same manner.*

§ 2. The value of money, then, conforms, permanently, and, in a state of freedom, almost immediately, to the value of the metal of which it is made; with the addition, or not, of the expenses of coinage, according as those expenses are borne by the individual or by the state. This simplifies extremely the question which we have here to consider: since gold and silver bullion are commodities like any others, and

* In England, though there Is no seignorage on gold coin, (the Mint returning in coin the same weight of pure metal which it receives in bullion) there is a delay of a few weeks after the bullion is deposited, before the coin can be obtained, occasioning a loss of interest, which, to the holder, is equivalent to a trifling seignorage. From this cause, the value of coin is in general slightly above that of the bullion it contains. An ounce of gold, according to che quantity of metal in a sovereign, should be worth 32. 17s. 10id.; but it was usually quoted at 31. 17s. Gd., until the Bank Charter Act of 1844 made it imperative on the Bank to give its notes for all bullion offered to it at the rate of 31. 17*. 9<?

their value depends, like that of other things, on their cost of production.

To the majority of civilized countries, gold and silver are foreign products: and the circumstances which govern the values of foreign products, present some questions which we are not yet ready to examine. For the present, therefore, we must suppose the country -which is the subject of our inquiries, to be supplied with gold and silver by its own mines, reserving for future consideration how far our conclusions require modification to adapt them to the more usual case.

Of the three classes into which commodities are divided—those absolutely limited in supply, those which may be had in unlimited quantity at u given cost of production, and those which may be had in unlimited quantity, but at an increasing cost of production— the precious metals, being the produce of mines, belong to the third class. Their natural value, therefore, is in the long run proportional to their cost of production in the most unfavourable existing circumstances, that is, at the worst mine which it is necessary to work in order to obtain the required supply. A pound weight of gold will, in the gold-producing countries, ultimately tend to exchange for as much of every other commodity, as is produced at a cost equal to its own; meaning by its own cost the cost in labour and expense, at the least productive souices of supply which the then existing demand makes it necessary to work. The average value of gold is made to conform to its natural value in the same manner as the values of other things are made to conform to their natural value. Suppose that it were selling above its natural value; that is, above the value which is an equivalent for the labour and expense of mining, and for the risks attending a branch of industry in which nine out of ten experiments have usually been failures. A part of the mass of floating capital which is on the look-out for investment, would take the direction of mining enterprise; the supply would thus be increased, and the value would fall. If, no the contrary, it were selling below

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its natural value, miners would not be obtaining the ordinary profit; they would slacken their works; if the depreciation was great, some of the inferior mines would perhaps stop working altogether: and a falling off in the annual supply, preventing the annual wear and tear from being completely compensated, would by decrees reduce the quantity, and restore the value.

When examined more closely, the following are the details of the process. If gold is above its natural or cost value—the coin, as we have seen, conforming in its value to the bullion— money will be of high value, and the prices of all things, labour included, will be low. These low prices will lower the expenses of all producers; but as their returns will also be lowered, no advantage will be 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 bo stimulated to increase hisproduction. The reverse is the case 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 stopt entirely, 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 a-t first, and continue to be for many years, questions of quantity only, with little reference to cost of production. More especially is this the case when, as at the present time, many new sources of supply have been simultaneously opened, most of them practicable by labour alone, without any capital in advance beyond a pickaxe and a week's food, and when the operations are as yet wholly experimental, the comparative permanent productiveness of the different sources being entirely unascertained.

§ 3. Since, however, the value of money really conforms, like that of other things, though 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 sot 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 connexion be

tween 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 X)f 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 permanent cost of production of gold were reduced one-fourth, it might happen that there would not be more of it bought for plate, gilding, or jewellery, 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 onefourth, unless actually increased onefourth ; 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 connexion 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 countrv (temporary fluctuations excepted) will possess, and have in circulation, jost that quantity of money, which will pjerform all the exchanges required oi it, consistently with maintaining a value conformable to its cost of production. The prices of things will, on the avorage, 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 (by a sort of Belf-acting machinery) 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, stript 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 enquire 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 labour and capital which a foreign commodity costs to us, is the" labour 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 tne 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.

CHAPTER X.

OF A DOUBLE STANDARD, AND SUBSIDIABY COINS.

§ 1. Though the qualities necessary to fit any commodity for being used as money are rarely united in any considerable perfection, there are two commodities which possess them in an eminent, andnearly 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.

* 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!"'

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 caEeda 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 one 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 and silver, though the least variable in value of all commodities, are not invariable, and do not always vary simultaneously. Silver, for example, was lowered in permanent value more than gold, by the discovery of the American mines; and those small variations of value which take place occasionally, do not affect both metals alike. Suppose such a variation to take place: the value of the two metals relatively to one another no longer agreeing with their rated prortion, one or other of them will now rated below its bullion value, and there will be a profit to be made by melting it.

Suppose, for example, that gold rises in value relatively to silver, so that the quantity of gold in a sovereign is now worth more than the quantity of silver in twenty shillings. Two consequences will ensue. No debtor will any longer find it his interest to pay in gold. He will always pay in silver, because twenty shillings are a legal tender for a debt of one pound, and he can procure silver convertible into twenty shillings, for less gold than that contained in a sovereign. The other consequence will be, that unless a sovereign can be sold for more than twenty shillings, all the sovereigns will be melted, since as bullion they will purchase a greater number of shillings than they exchange for as coin. The converse of all this would happen if silver, instead of gold, were the metal which had risen in comparative value. A sovereign would not now be worth so much as twenty shillings, and whoever had a pound to pay would prefer paying

it by a sovereign ; while the silver coins would be collected for the purpose of being melted, and sold as bullion for gold at their real value, that is, above the legal valuation. The money of the community, therefore, would never really consist of both metals, but of the one only which, at the particular time, best suited the interest of debtors; and the standard of the currency would be constantly liable to change from the one metal to the other, at a loss, on each change, of the expense of coiaage on the metal which fell out of use.

It appears, therefore, that the value of money is liable to more frequent fluctuations when both metals are a legal tender at a fixed valuation, than when the exclusive standard of the currency is either gold or silver. Instead of being only affected by variations in the cost of production of one metal, it is subject to derangement from those of two. The particular kind of variation to which a currency is rendered more liable by having two legal standards, is a fall of value, or what is commonly called a depreciation; since practically that one of the two metals will always be the standard, of which the real has fallen below the rated value. If the tendency of the metals be to rise in value, all pavments will be made in the one which has risen least; and if to fall, then in that which has fallen most.

§ 2. The plan of a double standard is still occasionally brought forward by here and there a writer or orator as a great improvement in currency. It is probable that, with most of its adherents, its chief merit is its tendency to a sort of depreciation, there being at all times abundance of supporters for any mode, either open or covert, of lowering the standard. Some, however, are influenced by an exaggerated estimate of an advantage which to a certain extent is real, that of being able to have recourse, for replenishing the circulation, to the united stock of gold and silver in the commercial world, instead of being confined to one of them, which, from accidental absorption, may

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