Various Causes of the Alteration in the Prices.
As long as we shall suppose, in a country standing by itself, the same products, the same consumption, the same quantity of money, the same freedom, no reason can ever be assigned for an increase or falling-off in the price of any article generally known, and of general use; but,
Second Hypothesis,
Let us suppose, that population is doubled as well as the revenue; no alteration can certainly take place in the real value of things;—that value will remain for each article, the same as it was before; that is, the sum of the labour requisite for the production of that article:[5] neither will the relative value undergo any change; the quantity of labour known, or supposed, in two different objects of a certain consumption, will remain, as at first, the sole criterion for fixing the difference of value in the one and the other. The essential relation of general correspondence between the wants, and the real resources, remaining also the same, there can likewise be no real difference in the situation of any individual whatever; if there are every where two consumers to one, the same increase will be found in the number of productors. The only palpable, and unavoidable alteration, always grievous when it is sudden, is that which, in the present hypothesis, must have taken place in the nominal value, that is to say, in the money-price of every thing; for the quantity of coin which was in circulation, being always the same in that country, standing by itself as we have supposed, and without mines, whilst the objects representing the said quantity, had successively doubled, it had been indispensable, successively, either by degrees, or by starts, to come to the point of giving for 2 in money, that which could not be given before for less than 4, or rather of denominating 4, that same quantity of money which hitherto had been denominated 2.—If you look for a precedent of the first effects of a disproportion too considerable or too rapid, between the wants and the demands, or between the mass of coin in circulation, and the number of articles to be circulated, it will be found, in the revolutions which took place in England, during the space of two years only, 1288, 1289, the quarter of wheat rose from 1s. to 2s. then to 3s. 9s. 12s. came down again to 2s. was then raised all at once to 20s. and fell at last to 16s. where it seemed to support itself for some years (see the excellent Inquiry of Mr. Smith, into the Nature and Causes of the Wealth of Nations); this is the man truly capable of dissecting, as it were, that subject, of which I can, at best, but mangle the epidermis.
Third Hypothesis.
To remedy the evil in such circumstances, how many expedients are tried, which only serve to increase it! How many avowed depredations upon pretended usurers, before the Sovereign boldly ventures to partake with them in the public execration by ordering a re-coinage, which, under the same denomination, will give but a part of the weight, or of the quality of the former coin! Yet this cannot be avoided. But by ascertaining, as we have done before, a two-fold increase in the revenue, and supposing one million and a half to have been sufficient to the circulation of the first revenue; if the Prince with his 1,500,000l. instead of a coinage of three millions, should have struck only 2,400,000l.—after some fluctuation, the balance will be restored between the price or nominal value of the negociable articles, and the quantity of money in circulation;—but what had been sold for 5 heretofore, will then go for 4; the prices will have fallen one fifth, and the circulation will be clogged:—But above all, it should be observed, that no one will be the poorer, notwithstanding the diminution of the nominal value.
Fourth Hypothesis.
If the re-coinage has been in the proportion necessary to re-establish exactly the former facility in all the channels of circulation, the former prices will return after the inevitable fluctuations; the quarter of wheat, for instance, which at some period of the revolution, will have been raised to 20s. will fall back to 5s. as it was at the beginning, although the shilling contains only half the silver that it contained at that time, 130 grains we shall say, instead of the 260 or 264 it contained in the year 1300.
Fifth Hypothesis.
Now let us suppose, what has happened in all countries, that the Prince and his Ministers have laid hold of the opportunity, the former, to pay the debts he had incurred in the time of national distress and confusion, the latter, to procure a more rapid increase of their fortunes, and that, with the 1,500,000l. supposed in circulation, they have struck 6 millions, instead of the 3 wanted to answer the real increase of the revenues and of population;—certainly when the calm returns, 10s. will be the price of a quarter of wheat, which sold for 5s. in the first hypothesis;—a most decisive argument this, for the manufacturer to sell at 8 that very cloth which went for 4, and an uncontrovertible ground of right in the working people to charge 4d. for that which before they performed at 2d.—In these two points center all the practical inferences in which any individual in the State can be concerned: yet the shilling will contain only 65 grains of silver, instead of 260;—and if the price of every thing be doubled, it is not on account of the shilling containing only 65 grains in lieu of 260, since, upon this principle, the quarter of wheat must have fetched 20s. instead of 10s.—but it is because, in all cases, there are two pieces of money to answer the purpose of one, and that it was necessary, in order that the second might acquire one half of its former value, that the first should lose that very half.
Sixth Hypothesis.
At this period, let it be supposed, that an epidemical distemper sweeps off three-fourths of the inhabitants, and consequently takes away as much from the revenue:—After the terrors usual in such cases, and a score of prophecies, foretelling that Doomsday is at hand, yet will it appear that the world is not destroyed: it will also appear, that the epidemical disorder has not carried off the money, and that it would be wrong not to make use of it.—The specie must of course, lose nearly three fourths of its value if the whole should continue in circulation, because 4 pieces will present themselves to do the office which 1 could perform before the time of the distemper;—the quarter of wheat, at first rated at 5 shillings, sunk to 4 in the second hypothesis, then sold for 10 in the fifth, will in the present one, rise up to 40, without any one growing richer or poorer for it; for, most assuredly, the price of labour will have increased in proportion to that of its own produce.
Seventh Hypothesis.
The effect would have been the same, if, instead of the distemper just supposed, the general enthusiasm on the discovery of a gold or silver mine, had induced the Sovereign to add to the circulation three times the quantity of specie which had hitherto been sufficient.
Eighth Hypothesis.
In the supposition of an event the most opposite to that of an epidemic disease, viz. of the revenue being increased one half, one third, nay, three fourths, if you please, as well as the population; yet the mine yielding a great deal above what is necessary to answer to an increase in all kinds, and the Sovereign being resolved upon a recoinage of the specie, on principles entirely different from the former, that is, by preserving exactly the same number, standard, and denomination of the coin; the number, because it is sufficient; the denomination, because there must be one, and that it is indifferent which it bears; and the standard, because there is no further danger in fixing it; but, by advancing the weight of a shilling from 65 to 86 grains, there will certainly be no alteration in the prices; the wheat will keep up at 40 shillings, and other articles in the same proportion;—and none will be richer or poorer for it, although, at the price of 40s. the quarter of wheat, they give, without hesitation, 3440 grains of silver for an article for which they gave 650 only, previous to the epidemic disease, or the opening of the mine, which has produced the same effect.
Ninth Hypothesis.
When such revolutions are brought about by slow degrees, no one is sensible either of the effect, or of the cause; but, at last, both are attended to. Let us then suppose, that the generality of the people reflect that gold and silver, considered as coin, derive all their value from imagination;—that money is, strictly speaking, nothing more than a medium adopted to facilitate the division and transport of all other kinds of property;—that it is but a sign, the place of which may be easily supplied by any other, which by general consent may be honoured with the same distinction, or ordered for the same use;—that its value, in this point of view, rises or falls unavoidably, according to its quantity, without influencing the intrinsic or relative value of the articles it represents, a value constantly determined by the sum of the labour that produces them, just as their relative, common quantity follows, servilely and closely, the demand.—All these remarks cannot prevent us from observing a value far more essential in gold and silver, considered as metals susceptible of all the forms that can be useful, or can please the eye, while the nature and texture of their parts secure them from accidents equally disagreeable and dangerous, to which all other metals are liable: we should not therefore be surprised, if some reflexions, suggested by wisdom and humanity, were to lead us to that point which first originated in the extravagance of ambition, and the rage of politics; I mean, that, after having considered that no manner of good was produced by that disparagement of coin, which always resulted from its multiplication, and that the health of man was, on the contrary, interested in putting to a better use those metals, the quantity of which, being doubled in circulation, only served to double the price of every thing;—we should not be surprised, I say, not only that nothing was spared to encourage the goldsmith’s trade, but even, that half of the coin was melted down, and transformed into plate, and the deficit supplied by a quantity of paper-currency, answering to that of the coin thus employed; a paper-currency, which it would be sufficient to distinguish by some mark or token agreed upon, to give it in circulation, exactly the same properties as that part of the metals which was transferred to a more advantageous purpose.
In regard to the danger of paper-currency increasing above the quantity wanted, it is as little to be feared, and its superabundance would soon be made as sensible by its effect, as that of a superfluity of coin.—If you double the mass of money intended for circulation, how will you prevent such articles as sold for 4 only, from rising to 8, or the additional 4 from becoming useless?—And if paper-currency be in question, how will you prevent the extravagantly-avaricious wretch, who envies others the enjoyments he denies to himself, how can you prevent him, I say, from observing that paper rots in the ground, and that to bury his wealth he must exchange it for cash?—how will you prevent this want of money, immediately felt, from destroying, without resource, the credit which that mass of buried money had hitherto given to paper-currency? So long, therefore, as the paper keeps up its credit, one may rest assured that the public is not over-loaded with it. I shall, in the sequel, venture some reflexions on the true cause of that part of the increase in prices, which is attributed to the quantity of paper-currency in circulation; contenting myself here with a recapitulation of what I have just said on the different causes of the alteration in prices, according to the foregoing hypothesis, by concluding,
First, That a nation which should rejoice in being possessed (for the convenience of covetous individuals) of a vortex, into which they could cast, at pleasure, without profit, but also without anxiety, an immense treasure, which was the produce of the pains taken by so many useful and industrious hands, would, in fact, only congratulate herself on being possessed of the effectual means of robbing the present and succeeding ages, of all the advantages that must have accrued from the use made of that money, in any part of the world, where it might have produced, and encouraged a new branch of industry, the reaction of which would have turned to the profit of the nation in possession of such vortex.
Secondly, That a nation, which should rejoice in being the owner of an immense quantity of coin in circulation, would, in fact, congratulate herself on that want of credit which renders such quantity indispensable.
Thirdly, That as soon as government, in such a nation, should have solemnly given up the right, supposed to be unalienable, of paying its debts, from no other motive but that of extreme honour and benevolence, the nation might then part with half her coin, and without impeding the circulation, increase her enjoyments and her wealth, which can be nothing more than the total of her annual labour, together with the monuments still subsisting of the labour of preceding years: a total, which could not but increase in the case now supposed.
Fourthly, That, in regard to the coin, the most wretched paper-factory, assisted with that credit which is founded, not on kindness, but on justice and interest, is far preferable to the richest mine in America.
Fifthly, That the difference in the real value between one article and another, is only the difference of the labour which produces it; and that all regulation, tending to throw a veil on the quantity of labour contained in one article, is unjust; since it turns to the prejudice of any individual in the community, who is not the author of this unknown labour.
Sixthly, That the nominal price of the essential article, to which that of the others must finally revert and conform, fixed at first by its proportion in the quantity of articles to be represented, and by the divisions and subdivisions of the mass of money then existing for that use, this nominal common price will certainly rise or fall, constantly, and without the least inconvenience, just as that first quantity of coin shall cease to answer, by more or by less, to the quantity of the objects of which it was calculated to transfer the property.
Seventhly, That, supposing it to be a fact, proved incontestably by the mint-registers, and the average price at Windsor, that from the year 1300 to 1309, wheat, at its highest rate, was not above 7s. per quarter, the shilling weighing 264 grains of silver, which made the quarter come only to 1848 grains; that in the year 1551, the same sold for 8s. the shilling containing then only 60 grains, which made it exactly 160 grains per quarter; and that the same sells now, I will say, at 40s. the shilling containing 86 grains, which is 3440 grains for a quarter of wheat; yet, from these facts no inference can be drawn that could affect any individual whatever, unless it should be proved, that money makes part of our food, or that it is impossible, at this present time, to procure, with any given labour, more or less wheat than that identical labour could procure at that period.
Eighthly, That the real difference between 1848 grains of silver, and 3440, which is perceivable between the prices of the years 1300 and 1785, would not even be sufficient, were it considered by itself, to invalidate, or confirm this futile proposition, that the mass or stock of money is nearly doubled in England; for we have already found, that, supposing the case of an epidemic distemper, which would have carried off three fourths of the people, and consequently reduced the revenue in the same proportion, the price of every thing must have increased fourfold, if the three fourths of the coin had not been buried under ground; we have seen, on the contrary, that it has been possible to withdraw from circulation half of the current cash, and make good this substraction in a very advantageous manner, by introducing scraps of paper in its stead, without making any alteration in the general prices, or in the least affecting the circumstances of any one, poor or rich, unless some collateral incident should intervene to bring about a change; and the least reflexion will convince us, that the mass of specie might be quadruplicated in a nation, without any material variation in the prices, if the sum of labour, and of its products, as well as of the consumption, should augment proportionably.
But, in stating that the only—the infallible reason for the variations of common prices in the foregoing hypotheses, is the change of proportion between the mass of specie, or of the paper-currency which represents it, and the articles of which the one, or the other, is to transfer the property, there is no inconsistency in persisting to pretend that taxes add to the former prices, both the amount of the impost, and the profit due to the trader who advances it. But, in both cases the progress is different: in the former, it is the quantity of the specie actually in being which necessitates and fixes the prices; in the latter, it is the necessary advance in the prices, that necessitates and fixes the quantity of specie, or paper-money which is substituted to it.—Luckily, as we have already observed, it has been enough for England to find, once for all, money to the amount of 5 millions sterling, (cash and paper) for discharging to the end of time, the interest of a debt computed at 238 millions, the same currency.—But upon a supposition that the debt incurred by France, from the year 1774, should amount to 15 or 1600 millions tournois, and the yearly produce of French industry in all its branches, (at the common rate of 1775) be of 2,400,000,000l.—the interest of 80 millions and upwards, to be paid for such a debt, requires an adequate increase of taxes:—now, 80 millions tournois constitute about the 30th part of the annual revenue produced by French industry, the nominal value of which must be increased by those taxes;—but as paper-money does not supply in France the place of cash, it has been, of course, necessary to augment by one 30th, the mass of specie, which proved sufficient before the rise in the prices, occasioned by the impost;—this mass, it is said, was rated at 2,400,000,000 of livres, the 30th part of which is 66,666,666 13s. and 4d. tournois, a very considerable sum indeed; but nevertheless nothing more has been necessary, to prevent any inquietude on the subject, than to procure that sum, once for all; and, once for all likewise, to add thereto the effect of some re-actions, of which I shall speak presently; nothing more, I say, was wanted to secure, in an indefensible manner, the interest of a loan of 1500 millions, and to secure it so as to raise in the minds of the holders of stock to so immense an amount, no other apprehension than that of their being reimbursed.
Some will say, perhaps, “this reasoning is frivolous, and founded on the absurd supposition of a general combination, a kind of universal conspiracy, in order to raise the price of every thing proportionably to the taxes.” I know that such a combination, such a conspiracy is impossible; I know that there is not in France a single edict, nor any particular act of parliament in England, to enforce, or even to permit it; but I am sensible that such an act, and such an edict, would be perfectly useless, when I see, that in either of those countries there is not a rational being, capable of reflexion, who will not say, Taxes occasion a dreadful advance in the prices of every thing: it is true that the order is sometimes inverted, and then the cry is—How cruel it is that the price of every article is increased, whilst the taxes diminish our means of purchase!—But if every article rises in a due proportion, we must conclude that there is no alteration in the state of the balance; for if every individual in a nation buys up, every one sells also, one his labour, another his wares, a third his corn; and if every thing grows dearer, except the article you have to sell, you must own yourself completely in the wrong: luckily the landed proprietors are as little in the wrong as they possibly can be; for as often as they renew a lease, they increase their rental, just as if they had got possession of my little secret, or as if there were corporations also in agriculture.—The agents of industry are still less liable to be in the wrong, for all their operations are founded on the following rule:—For purchase so much,—for freight so much,—so much for taxes,—to these add my commission or profit—The balance is so much, which I must be paid, as I shall settle with the members of my corporation. Besides, the commercial part of the nation is too well persuaded how necessary it is to secure a favourable general balance, to be mistaken in the means of equipoising their private ones.
It is my opinion, therefore, that one may, without being a conjurer, foretell that the last dreadful and convulsive shock, almost generally felt all over the world, will finally, and in a very little time, end in the loose remembrance of some thousands of hands having been, foolishly enough, taken from their peaceable occupations, very favourable to population, to employ them in forwarding destructive plans, to which many thousands of men have fallen a sacrifice; one might also add, thousands of depredations, some of which, the most pardonable in their nature, have been punished at the gallows: perhaps even they will say modestly in France, We have reduced the English, but we were four to one—and then England will proudly answer, We have been reduced, but we were only one to four; nor would it be at all unreasonable to lament, that the value of 4 or 5 millions sterling in gold and silver, fatuously ornamented with the escutcheons of England and France, to consolidate for ever the interest of 140 or 150 millions, which constitute the last debts contracted by the two rival nations, be not humbly stamped with the puncheon made use of to mark the plate in London and Paris ... but, to suppose that there will be in London or Paris a single carriage less! that France will lessen her importation of English goods, or that the demand for French wines will be less from England—is an idea which cannot, in my mind, coincide with that of a population and industry which, hitherto had sufficed in both nations to answer all those different purposes; of a population, I say, and of an industry, which will, in all likelihood, go on still increasing every day, wherever they shall not be checked by the laws.
One of the most fatal effects that spring from that increase in the prices, occasioned by the impost, is, as they say, the impossibility to which a country is reduced, of supporting abroad the rivalship, the competition of a nation less burdened with taxes, who of course can, they say, undersell every thing.
Such is, in fine, the question which I thought the fastidious details I have entered into, ought to preface, and might render of more easy solution. But I request the reader to examine previously,
1st, Whether an accession of wealth, an addition of gold and money to the circulation, would not increase the prices of every thing, as necessarily as taxes must do it;—2dly, If that increase in prices, procured by wealth, would not be accompanied with the same inconveniences in regard to the supporting of a competition abroad;—and, 3dly, If the stranger to whom we should declare ourselves compelled to sell him our goods dearer, because we are grown richer than the rival nation, would not have the same answer to give us, as if he were told, that the cause of the advance in the price is, our being loaded more heavily with taxes.
If these three questions cannot be answered but in the affirmative, we should then be obliged to suspect that there is something inexplicable, ill judged, and not better grounded in the clamours which resound in every part of England on this subject; and this surmise might perhaps incline the reader to peruse, without prejudice, what I am going to set down, with no other view, than to find out some useful truths.