currency. If it be accounted part of the capital of a country, it cannot be estimated according to its utility; according to the value of the capital invested in the precious metals which it has set free; or according to the value of the commodities it circulates: but according to the cost of its manufacture; that is, the cost of the paper and printing; which are, indeed, so small as to be not worth the reckoning.

SECTION V.

On the Value of Money, and the Causes and Effects of a
Change in that Value.

THE value of gold and silver, like the value of commodities, depends, as we have seen, on the cost of acquiring them; and varies with an increasing or decreasing difficulty or expense of acquisition. In the mining countries, it is the cost of extracting them from the earth: in other countries, it is the cost of the goods which must be given to purchase them. Improvements either in extracting, purifying, or conveying them to market, the discovery and working of richer veins of ore, or improvements in the production of the particular sort of goods with which they are purchased, lower their value; while, on the other hand, increased difficulty in working the mines, poorer veins of ore, or increased difficulty in the production or transmission of the goods which are accepted for them, raises their value. The value of metallic money, we have also seen, is determined, within certain limits, by the value of the metal it contains; and, accordingly, money, even when composed of gold and silver, is liable to vary in value from time to time, not only from accidental and temporary causes, as fluctuations of commerce, difference in the productiveness of seasons, and the like, but from natural and permanent causes, occasioning variations in the circumstances under which the metals out of which it is coined are produced and brought to market; and which, though slow and gradual in their operation, and concealed from common observation, are not the less real and decided in their effects on prices,

extending equally, or very nearly equally, throughout the greater part of the commercial world. The value of a paper currency, exchangeable at will, either for coins of a standard weight, or for bullion, is exactly determined by the value of the coin or bullion which can be obtained for it. The reason is obvious. If the value of the paper should at any time fall below that of the coin or metal, that is, should not go so far in making purchases or payments, every person who held the paper would demand the coin or metal. Thus the value of the circulating medium, whether of coin or convertible paper, resolves itself, within certain limits, into the value of gold and silver, or whichever of these metals may be the standard of value; it is determined by the same circumstances, and liable to vary from the

same causes.

so.

As the value of any given quantity of money must, in the nature of things, be equal to the value of the goods for which it will exchange; so, in one sense, the cost of bringing to market this quantity of money, must be equal to the cost of bringing to market the goods in question; but, in another sense, it is not In this cost, both of the money and of the goods, are included the wages of labour, the hire or profits of capital, and the rent of the mines or land. The wages of labour of different kinds are paid for in different countries at very unequal rates; so likewise are the profits of capital in different countries, as well as the rent of land. Consequently, the quantity of labour exerted, of capital and land employed, in bringing to market the money, may be very different from the quantity of labour, capital, and land employed in bringing to market the goods which are bought with it. But what is here spoken of is the cost to the merchant, or last party, who actually brings the two into the market. In each country, the customary rate of wages, profits, and rent must be paid, and more than this will not be given. But as regards the merchant, or last party, the cost on both sides must be equal. For if at any time the cost of bringing to market the goods which a given quantity of money will purchase be greater than the cost of bringing the money, the merchant will not get so good a profit as he would if he brought money instead of goods; and being able to change his article of

import to whatever pays him best, he would cease to bring that kind of goods, and would bring either money or some other kind of goods instead. The consequence would be, that more money, and fewer of this kind of goods, would come to market, until the value of the money should fall, and that of these goods should rise again to an equality with each other.

The actual value of money is of small moment; all that is wanted is a certain steadiness of value, in order that it may pass for as much as it was taken for. Its possessing a higher or lower value, only causes a smaller or larger quantity of it to be employed, and occasions it to be more or less cumbersome in use. The quantity of the precious metals employed in coin is, therefore, matter of indifference. Whether this quantity be

great or small, or whether these metals be in part or wholly dispensed with by paper or some other substitute, comes to the same thing, provided the functions of money be as conveniently and completely performed in the one case as in the other.

Take any country at any given time, and there is a certain quantity of money wanted to perform the offices of money, and, let this quantity be what it may, it is always sure to be in circulation in that country. It may not be always the same number of pieces of coin or notes, these may be very different at different times, but it is the value of these pieces or notes: this value always equals the duty it has to perform, or the quantity of goods and services it circulates. There comes into the market, on one side, a certain quantity of goods to be sold for money, with a certain quantity of land, labour, and capital to be let to hire for money. On the other side, there comes a certain quantity of money; and the goods, with the labour, land, and capital, of the one side, are sold or let to hire against the money on the other which is to pay for them. Prices therefore adjust themselves to meet the two sides, and vary from time to time, according as the proportions brought to market on each side vary. Increase the commodities, and they become cheaper; increase the money, and they rise in price. So, on the other hand, a diminution either of the former or of the latter has a contrary effect.

"Prices do not so much depend," as Hume remarks, " on

the absolute quantity of commodities and that of money, which are in a nation, as on that of the commodities which come or may come to market, and of the money which circulates. If the coin be locked up in chests, it is the same thing with regard to prices, as if it were annihilated; if the commodities be hoarded in magazines and granaries, a like effect follows. As the money and commodities, in these cases, never meet, they cannot affect each other. Were we, at any time, to form conjectures concerning the price of provisions, the corn which the farmer must reserve for seed and for the maintenance of himself and family, ought never to enter into the estimation. It is only the overplus, compared to the demand, that determines the value."*

This whole value of the circulating medium of a country may become greater or less in three ways. Either, 1. Through a change in the mode of conducting business, requiring a greater or less employment of money to carry on its transactions; or, 2. Through a larger quantity of goods, services, and land, sold or hired, and to be paid for, leading to the introduction and use of more money; or, lastly, Through a more rapid or slower circulation of the money.

In the earlier stages of society, before the division of employments had been well established, and commerce been much extended, the greater part of the produce of industry was consumed at home, or given directly in payment for other produce or labour. In such a stage, "The wool of the farmer's own flock, spun in his own family, and wrought by a neighbouring weaver, who receives his payment in corn or wool, suffices for furniture and clothing. The carpenter, the smith, the mason, the tailor, are retained by wages of a like nature; and the landlord himself, dwelling in the same neighbourhood, is content to receive his rent in the commodities raised by the farmer." But when the division of employments is better established, there are more exchange and commerce of all kinds, and more money enters into that exchange. Goods that are consumed at home, or exchanged with other goods in the neighbourhood, as they never come to market, do not in the least affect the current specie. • Essay III.

But after money enters into all contracts and sales, and is everywhere the measure of exchange, the same national cash has a much greater task to perform; all commodities are then in the market, and the sphere of circulation is enlarged. Hence one reason why, since the discovery of America, prices in Europe have not risen in so great a measure as the circulating cash has been increased-the state of society has required a larger circulating medium to carry on its transactions.

Again, when the industry of a country is fully employed, is highly productive, and the riches of the people increased, more money is required to circulate the values created and possessed by it. But when its industry is inefficient, and its people poor, but little money is sufficient for their use.

Once more, the quantity of money necessary for making a certain number of payments in a given time, is in the inverse ratio of its velocity of circulation. Whatever, therefore, quickens its circulation, contributes to economize it, and render a smaller quantity sufficient to make the same number of payments. And if by any cause its movement be retarded, the want of a larger quantity will be felt. The operations of banking, and the employment of paper in lieu of coined money, economize money, bring into use sums which would otherwise lie idle in the coffers of private persons, and thus increase the rapidity of circulation. When the people are in easy circumstances, their money is sometimes kept on hand for a considerable time, and unemployed; but when they are in a needy condition, no sooner does their money come in than it is paid away again in the purchase of articles they want, or in the discharge of debts contracted. In mercantile transactions, on the other hand, a high state of mercantile confidence accelerates the circulation; while it is apt to be retarded during intervals of distrust and alarm. Every merchant who lies under pecuniary engagements, must, as Mr. Thornton observes, not only arrange the punctual fulfilment of these, but must reserve a further provision against contingencies. During an interval of alarm, he of course makes this reserve somewhat larger than in ordinary times, and at a period of great confidence he ventures to keep it rather less. Some kinds of paper, too, circulate more slowly than other kin's. Bills of