1mo. As to the first the best expedients are, 1. To strike the greatest part of the coin in large solid pieces, having as little surface as possible, consistently with beauty and ease of fabrication.
2. To order large sums (of silver at least) to circulate in bags of determinate sums, and determinate weights, all in pieces of the larger denominations.
3. To make all light coin whatsoever go by weight, upon the requisition of the person who is to receive it.
2do. As to the inaccuracy of the fabrication, there is no other remedy than a strict attention in government to a matter of so great consequence.
3tio. The price of coinage principally affects the interest of nations with regard to foreign trade; consequently, trading states should endeavour, as nearly as possible, to observe the same regulations with their neighbours, in every thing which regards the coin. The consequence of this inconvenience to those within the society is unavoidable, and therefore no remedy can be proposed.
4to. The establishment of public credit is the best security against all adulterations of the standard. No fundamental law can bind up a Prince’s hands so effectually as his own interest. While a Prince lives within his income, he will have no occasion to adulterate the coin; when he exceeds it, he will (in a trading nation) have recourse to credit, and if once he establishes that, he must give over meddling with the standard of his coin, or he will get no body to lend him any more. The only Prince who can gain by adulterating of the standard, is he who seeks for extraordinary supplies out of a treasure already formed.
These are, briefly, the expedients to be put in practice by those governments which have the prosperity of their subjects at heart. The infinite variety of circumstances relating to every state can alone decide as to those which are respectively proper to be adopted by each. Our business at present is to point out the variations to which the value of the money-unit is exposed, from every disorder in the coin; and to shew that as far as the value of the unit shall appear affected by them, so far must material money in such a case be defective.
I. Let suppose, at present, the only disorder to consist in a want of the due proportion between the gold and silver in the coin.
This proportion can only be established by the market price of the metals; because an augmentation and rise in the demand for gold or silver has the effect of augmenting the value of the metal demanded. Let us suppose that to-day one pound of gold may buy fifteen pounds of silver; if to-morrow there be a high demand for silver, a competition among merchants, to have silver for gold, will ensue, they will contend who shall get the silver at the rate of fifteen pounds for one of gold: this will raise the price of it, and in proportion to their views of profit, some will accept of less than the fifteen pounds. |The variation ought to be referred to the rising metal, and never to the sinking.| This is plainly a rise in the silver, more properly than a fall in the gold; because it is the competition for the silver which has occasioned the variation in the former proportion between the metals. Had the competition for gold carried the proportion above 1 to 15, I should then have said that the gold had risen.
As it is, therefore, the active demand for either gold or silver which makes the price of the metals to vary, I think language would be more correct (in speaking concerning the metals only) never to mention the sinking of the price of either gold or silver. As to every other merchandize, the expression is very proper; because the diminishing of the price of one commodity, does not so essentially imply the rise of any other, as the sinking of one of the metals must imply the rising of the other, since they are the only measures of one another’s worth. I would not be here understood to mean that the term sinking of the price of gold or silver is improper; all I say is, that the other being equally proper, and conveying with it the cause of the variation (to wit, the competition to acquire one metal preferably to the other) may be preferred, and this the rather, that from using these terms promiscuously (gold has fallen, in place of silver has risen) we are apt to believe, that the falling of the price of the metal, must proceed from some augmentation of the quantity of it; whereas it commonly proceeds from no other cause than a higher demand than formerly for the other.
Let us now suppose that a state having, with great exactness, examined the proportion of the metals in the market, and having determined the precise quantity of each for realizing or representing the money-unit, shall execute a most exact coinage of gold and silver coin. As long as that proportion continues unvaried in the market, no inconvenience can result from that quarter, in making use of the metals for money of account.
But let us suppose the proportion to change; that the silver, for example, shall rise in its value with regard to gold; will it not follow, from that moment, that the unit realized in the silver, will become of more value than the unit realized in the gold coin?
But as the law has ordered them to pass as equivalents for one another, and as debtors have always the option of paying in what legal coin they think fit, will they not all choose to pay in gold, and will not then the silver coin be melted down or exported, in order to be sold as bullion, above the value it bears when it circulates in coin? Will not this paying in gold also really diminish the value of the money-unit, since upon this variation every thing must sell for more gold than before, as we have already observed?
Consequently, merchandize which have not varied in their relative value to any other thing but to gold and silver, must be measured by the mean proportion of the metals, and the application of any other measure to them is altering the standard. If they are measured by the gold, the standard is debased; if by silver, it is raised, as shall presently be proved.
If to prevent the inconvenience of melting down the silver, the state shall give up affixing the value of their unit to both species at once, and shall fix it to one, leaving the other to seek its price as any other commodity, in that case no doubt the melting down of the coin will be prevented; but will ever this restore the value of the money-unit to its former standard? Would it, for example, in the foregoing supposition, raise the debased value of the money-unit in the gold coin, if that species were declared to be the standard? It would indeed render silver coin purely a merchandize, and by allowing it to seek its value, would certainly prevent it from being melted down as before; because the pieces would rise conventionally in their denomination; or an agio, as it is called, would be taken in payments made in silver; but the gold would not, on that account, rise in its value, or begin to purchase any more merchandize than before. Were therefore the standard fixed to the gold, would not this be an arbitrary and a violent revolution in the value of the money-unit, and a debasement of the standard?
If, on the other hand, the state should fix the standard to the silver, which we suppose to have risen in its value, would that ever sink the advanced value which the silver coin had gained above the worth of the former standard unit, and would not this be a violent and an arbitrary revolution in the value of the money-unit, and a raising of the standard?
The only expedient, therefore, as has been said, is in such a case to fix the numerary unit to neither of the metals, but to contrive a way to make it fluctuate in a mean proportion between them; which is in effect the introduction of a pure ideal money of account. This shall be farther explained as we go along.
I have only one observation to make in this place, to wit, that the regulation of fixing the unit by the mean proportion, ought to take place at the instant the standard unit is affixed with exactness both to the gold and silver. If it be introduced long after the market proportion between the metals has deviated from the proportion established in the coin, and if the new regulation is made to have a retrospect, with regard to the acquitting of permanent contracts entred into, while the value of the money-unit had attached itself to the lowest currency, in consequence of the principle above laid down, then the restoring the money-unit to that standard where it ought to have remained (to wit, to the mean proportion) is an injury to all debtors who have contracted since the time that the proportion of the metals began to vary.
This is clear from the former reasoning. The moment the market price of the metals differs from that in the coin, every one who has payments to make pays in that species which is the highest rated in the coin; consequently, he who lends, lends in that species. If after the contract, therefore, the unit is carried up to the mean proportion, this must be a loss to him who had borrowed.
From this we may perceive why, in the first article of the preceding chapter, it was said, that there was less inconvenience from the varying of the proportion of the metals, where the standard is fixed to one of them, than when it is fixed to both. In the first case, it is at least uncertain whether the standard or the merchandize-species is to rise; consequently it is uncertain whether the debtors or the creditors are to gain by a variation. If the standard species should rise, the creditors will gain; if the merchandize-species rises, the debtors will gain; but when the unit is attached to both species, then the creditors never can gain, let the metals vary as they will: if silver rises, then debtors will pay in gold; if gold rises, debtors will pay in silver. But whether the unit be attached to one or to both species, the infallible consequence of a variation is, that one half of the difference is either gained or lost by debtors and creditors. The invariable unit is constantly the mean proportional between the two measures.
I intended to have postponed the entring upon what concerns the interests of debtors and creditors in all variations of the coin, until I came to treat particularly of that matter; but as it is a thing of the greatest consequence to be attended to, in every proposal for altering or regulating the coin of a nation, it will, perhaps, upon that account, bear a repetition.
II. To render our ideas as distinct as possible, we must keep them simple. Let us now suppose that the metals are perfectly well proportioned in the coin, but that the coin is worn by use.
If this be the case, we must either suppose it to be all equally worn, or unequally worn.
If all be equally worn, I think it needs no demonstration to prove, that the money-unit which was attached to the coin, when weighty, (drawing its value from the metals contained in it) must naturally diminish in its value in proportion as the metals are rubbed away.
If the coin be unequally worn, the money-unit will be variously realized, or represented; that is to say, it will be of different values, according to the weight of the pieces.
The consequence of this is the same as in the disorder of the proportion of the metals: debtors will choose to pay in the light pieces, and the heavy will be melted down. In proportion, therefore, to this disorder, will the value of the unit gradually descend. This was the great disorder in England in 1695; while the standard of the pound sterling was affixed to the silver only, the gold being left to seek its own value.
III. Since the invention of the money wheel, the inaccuracy in the fabrication is greatly prevented. Formerly, when money was coined with the hammer, the mint-masters weighed the coin delivered by the workmen, in cumulo, by the pound troy weight, without attending very exactly to the proportion of the pieces. At present exactness is more necessary, and every piece must be weighed by itself.
It is of very great consequence that all the pieces and denominations of coin be in exact proportion to that of their current value, which is always relative to the money-unit of accompt. When any inequality happens there, it is easy to perceive how all the pieces which are above the proportion of their just weight, will be immediately picked up, and melted down, and none but the light ones will remain in circulation.
This, from the principles already laid down, must proportionally diminish the value of the money-unit.
From what has been observed concerning the deviations in the coin from the proportion in the market price of the metals, and from the legal weight, we may lay down this undoubted principle, That the value of the money-unit of accompt is not to be sought for in the statutes and regulations of the mint, but in the actual intrinsic value of that currency in which all obligations are acquitted, and all accompts are kept.
IV. As I have at present principally in view to lay down certain principles with regard to money, which I intend afterwards to apply to the state of the British coin; and as these principles are here restricted to the effects which every variation in the coin has upon the value of the unit of money in accompt, I shall in this place only observe, as to the imposition of coinage,
That coin being necessary in every country where the money-unit is attached to the metals, it must be procured by those who are obliged to acquit their obligations in material money.
If, therefore, the state shall oblige every one who carries the metals to the mint to pay the coinage, the coin they receive must be valued, not only at the price the metals bear in the market, when they are sold as bullion, (or mere metal, of no farther value than as a physical substance) but also at the additional value these metals receive in being rendred useful for purchasing commodities, and acquitting obligations. This additional value is the price of coinage.
If, therefore, in a country where coinage is free, as in England, this coinage shall come to be imposed, the money-unit continuing to be affixed as before to the same quantity of the metals, ought to rise in its value; that is, ought to become equal to a greater quantity of every sort of merchandize than before; consequently, as the rough metals of which the coin is made are merchandize, like every other thing, the same number of money-units realized, or represented in the coin, ought to purchase more of the metals than before: That is to say, that in every country where coinage is imposed, bullion must be cheaper than coin.
This proposition would be liable to no exception; were it true that no debt could be exacted but in the nation’s coin; because in that case, the creditor would be constantly obliged to receive it at its full value.
But when nations owe to one another, the party debtor must pay the party creditor in his coin: the debtor, therefore, is obliged to sell his own coin for what he can get for it, and with that he must buy of the coin of his creditor’s country, and with this he must pay him.
Let us, to avoid abstract reasoning, take an example: and we cannot choose a better than that of England and France. In England, coinage is free, in France it costs 82⁄10 per cent. as shall be made out in its proper place.
France owes England 1000l. sterling. In paying the bullion contained in this sum, either in gold or silver, in the market of London, the debt is paid; because the coiningcoining of it costs nothing. Here France acquits her debt cheaper than by sending her own coin as bullion; because the bullion she sends is not worth an equal weight of her coin.
England owes France 20,000 livres. In paying the bullion contained in this sum, England is not quit; she must also pay France 82⁄10 per cent. in order to put it into coin.
I reserve the farther examination of all the intricate consequences of this principle, until I come to the application of it, in the Second part.
V. The operation of raising and debasing the coin is performed in three ways.
1mo, By augmenting or diminishing the weight of the coin.
2do, By augmenting or diminishing the proportion of alloy in the coin.
3tio, By augmenting or diminishing the proportion between the money (coin) and the money of accompt, as if every sixpence were called a shilling, and every twenty sixpences a pound sterling.
The French call this increasing or diminishing the numerary value: and as I think it is a better term than that of raising or sinking the denomination, I shall take the liberty now and then to employ it.
These three operations may be reduced to one, and expressed by one term: they all imply the augmenting or diminishing the weight of the pure metals in the money-unit of accompt.
It would require a separate treatise, to investigate all the artifices which have been contrived, to make mankind lose sight of the principles of money, in order to palliate and make this power in the sovereign of changing the value of the coin, appear reasonable. But these artifices seem to be at an end, and Princes now perceive that the only scheme to get money when occasion requires, is to preserve their credit, and to allow the coin, by which that credit is reckoned to remain in a stable condition. There are still, however, examples of such operations to be met with; for which reason I shall subjoin, towards the end of this book, a particular inquiry into the interest of Princes with regard to the altering the value of their coin, which is a synonimous term with that of altering the value of the unit of money.
I. We have briefly pointed out the effects of the imperfections of the metals in producing a variation in the value of the unit of accompt, we must now point out the consequences of this variation.
If the changing the content of the bushel by which grain is measured, would affect the interest of those who are obliged to pay, or who are intitled to receive, a certain number of bushels of grain for the rent of lands; in the same manner must every variation in the value of the unit of accompt affect all persons who, in permanent contracts, are obliged to make payments, or who are intitled to receive sums of money stipulated in multiples or in fractions of that money-unit.
Every variation, therefore, upon the intrinsic value of the money-unit, has the effect of benefiting the class of creditors, at the expence of debtors, or vice versa.
This consequence is deduced from an obvious principle. Money is more or less valuable in proportion as it can purchase more or less of every kind of merchandize. Now without entring a-new into the causes of the rise and fall of prices, it is agreed upon all hands, I suppose, that whether an augmentation of the general mass of money in circulation has the effect of raising prices in general, or not, any augmentation of the quantity of the metals appointed to be put into the money-unit, must at least augment the value of that money-unit, and make it purchase more of any commodity than before; that is to say, if 113 grains of fine gold, the present weight of a pound sterling in gold, can buy 113 pounds of flour; were the pound sterling raised to 114 grains of the same metal, it would buy 114 pounds of flour; consequently, were the pound sterling augmented by one grain of gold, every miller who paid a rent of ten pounds a year, would be obliged to sell 1140 pounds of his flour, in order to procure 10 pounds to pay his rent, in place of 1130 pounds of flour which he sold formerly to procure the same sum; consequently by this innovation, the miller must lose yearly ten pounds of flour, which his master consequently must gain. From this example, I think it is plain, that every augmentation of metals put into the pound sterling, either of silver or gold, must imply an advantage to the whole class of creditors who are paid in pounds sterling, and consequently, must be a proportional loss to all debtors who must pay by the same denomination.
I should not have been so particular in giving a proof of so plain a proposition, had it not escaped the penetration of the great Mr. Locke.
In 1695 there was a proposal made to the government of England, to diminish the value of the pound sterling by 20 per cent. by making a new coinage of all the silver, and by making every shilling ⅕ lighter than before. The author of this project (Mr. Lowndes) having given his scheme to the public, was answered by Mr. Locke, That this debasing the value of the money-unit was effectually defrauding all the landed interest of 20 per cent. of their rents. Lowndes replied, that silver was augmented 20 per cent. in its value, and that therefore the pound sterling, though reduced 20 per cent. in its weight of pure silver, was still as valuable as before. This proposition Mr. Locke exploded with the most solid reasoning, and indeed nothing could be more absurd, than to affirm, that silver had risen in value with respect to itself. But though Mr. Locke felt that all the landed interest, and all those who were creditors in permanent contracts, must lose 20 per cent. by Mr. Lowndes’s scheme, yet he did not perceive (which is very wonderful) that the debtors in these contracts must gain. This led him to advance a very extraordinary proposition, which abundantly proves that the interests of debtors and creditors, which are now become of the utmost consequence to be considered attentively by modern statesmen, were then but little attended to, and still less understood.
We find in the 46th page of Mr. Locke’s Farther Considerations concerning the raising the value of Money, that Mr. Lowndes had affirmed in support of his scheme, that this new money would pay as much debt, and buy as many commodities as the then money which was one fifth heavier. Then adds Mr. Locke, “What he says of debts is true; but yet I would have it well considered by our English gentlemen, that though creditors will lose ⅕ of their principal and use, and landlords will lose ⅕ of their income, yet the debtors and tenants will not get it. It may be asked, who will get it? Those, I say, and those only, who have great sums of weighty money (whereof one sees not a piece now in payments) hoarded up by them, will get it. To these, by the proposed change of our money, will be an increase of ⅕ added to their riches, paid out of the pockets of the rest of the nation.”
If the authority of any man could prevail, where reason is dark, it would be that of Mr. Locke; and had any other person than Mr. Locke advanced such a doctrine, I should have taken no notice of it.
Here that great man, through inadvertency, at once gives up the argument in favour of his antagonist, after he had refuted him in the most solid manner: for if a man, who at that time had hoarded heavy money, was to gain ⅕ upon its being coined into pieces ⅕ lighter, Mr. Locke must agree with Mr. Lowndes, that a light piece was as much worth as a heavy one.
Those who had heavy money at that time locked up in their coffers, would gain no doubt, provided they were debtors; because having, I shall suppose, borrowed 4000l. sterling in heavy money, and having it augmented to 5000l. by Mr. Lowndes’s plan, they might pay their debt of 4000l. and retain one thousand clear profit for themselves. But supposing them to have no debts, which way could they possibly gain by having heavy money, since the 5000l. after the coinage, would have bought no more land, nor more of any commodities, than 4000l. would have done before the coinage.
We may therefore safely conclude, that every diminution of the metals contained in the money-unit, must imply a loss to all creditors; and that in proportion to that loss, those who are debtors must gain.
That on the contrary, whatever augmentation is made of the money-unit, such augmentation must be hurtful to debtors, and proportionally advantageous to creditors.
In the preceding chapters, I have laid down, with as much distinctness as I am capable of, the most general principles which influence the doctrine of money, and to those I think every other may be applied.
The combination, however, of these principles with one another, occasions a surprizing variety of problems, relating to money, coin, and bullion, which are difficult to resolve, only by the difficulty there is found in applying them to the rule.
In order therefore to render this inquiry more useful, I shall now apply the principles I have laid down, to the state of the British coin, and to the resolution of every question which shall occur during the examination of the disorder into which it has fallen. A deviation from the standard weight of the coin, and proportion of the metals (small if compared with what was common in former ages) has introduced very great obstructions in the circulation of the two species, and presents very great inconveniencies when there is any question of removing them by a new regulation of the mint.
The most distinct method of treating such matters, is, to consider all coin as reduced to the weight of the pure metals; and to avoid the perplexity of different denominations of weights, I shall examine all by the troy grain.
The interests I intend to combine in this matter not being confined to those of England alone, I have entred into the most accurate calculation possible, with regard to the coin of those nations which I shall have occasion to mention, and to compare with that of England. These I have reduced to a general table which is inserted at the end of this volume. The reader may have recourse to it upon every occasion where mention is made of the conversion of money into grains of silver and gold, and thereby form to himself a far better idea of many things than I could otherwise have given him.
The defects in the British coin are three.
1mo. The proportion between the gold and silver in it is found to be as 1 to 152⁄10, whereas the market price may be supposed to be nearly as 1 to 14½.
2do. Great part of the current money is worn and light.
3tio. From the second defect proceeds the third, to wit, that there are several currencies in circulation which pass for the same value, without being of the same weight.
4to. From all these defects results the last and greatest inconvenience, to wit, that some innovation must be made, in order to set matters on a right footing.
I shall take no notice of the inaccuracies of fabrication, because these are inseparable from the imperfections of human art, and as long as they are not very considerable, no profit can be made in discovering them, and therefore no bad consequence can result from them.
The English, besides the unit of their money which they call the pound sterling, have also the unit of their weight for weighing the precious metals.
This is called the pound troy, and consists of 12 ounces, every ounce of 20 penny weight, and every penny weight of 24 grains. The pound troy, therefore, consists of 240 penny weight, and 5760 grains.
The fineness of the silver is reckoned by the number of ounces and penny weights of the pure metals in the pound troy of the composed mass; or in other words, the pound troy, which contains 5760 grains of standard silver, contains 5328 grains of fine silver, and 432 grains of copper, called alloy.
Thus standard silver is 11 ounces 2 penny weights of fine silver in the pound troy, to 18 penny weights copper, or 111 parts fine silver to 9 parts alloy.
Standard gold is 11 ounces fine to one ounce silver or copper employed for alloy, which together make the pound troy; consequently, the pound troy of standard gold, contains 5280 grains fine, and 480 grains alloy, which alloy is reckoned of no value.
This pound of standard silver is ordered, by statute of the 43d of Elizabeth, to be coined into 62 shillings, 20 of which make the pound sterling; consequently the 20 shillings contain 1718.7 grains of fine silver, and 1858.06 standard silver.
The pound troy of standard gold, 11⁄12 fine, is ordered by an act of King Charles II. to be cut into 44½ guineas; that is to say, every guinea contains 129.43 grains of standard gold, and 118.644 of fine gold, and the pound sterling, which is 20⁄21 of the guinea, contains 112.994, which we may state at 113 grains of fine gold, as has been said.
The coinage in England is entirely defrayed at the expence of the state. The mint price for the metals is the very same with the price of the coin. Whoever carries to the mint an ounce of standard silver, receives for it in silver coin 5s. 2d. or 62d. whoever carries an ounce of standard gold receives in gold coin 3l. 17s. 10d½. the one and the other making exactly an ounce of the same fineness with the bullion. Coin, therefore, can have no value in the market above bullion; consequently, no loss can be incurred by those who melt it down.
When the guinea was first struck, the government (not inclining to fix the pound sterling to the gold coin of the nation) fixed the guinea at 20 shillings, (which was then below its proportion to the silver) leaving it to seek its own price above that value, according to the course of the market.
By this regulation no harm was done to the English silver standard; because the guinea, or 118.644 grains fine gold being worth more, at that time, than 20 shillings, or 1718.7 grains fine silver, no debtor would pay with gold at its standard value, and whatever it was received for above that price was purely conventional.
Accordingly guineas sought their own price until the year 1728, that they were fixed a-new, not below their value as at first, but at what was then reckoned their exact value, according to the proportion of the metals, to wit, at 21 shillings, and at this they were ordered to pass current in all payments.
This operation had the effect of making the gold a standard as well as the silver. Debtors then paid indifferently in gold as well as in silver, because both were supposed to be of the same intrinsic as well as current value; in which case no inconvenience could follow upon this regulation. But, in time, silver came to be more demanded; the making of plate began to prevail more than formerly, and the exportation of silver to the East Indies increasing yearly, made the demand for it greater; or perhaps brought its quantity to be proportionally less than before. This changed the proportion of the metals, and by slow degrees they have come from that of 1 to 15.2 (the proportion they were supposed to have when the guineas were fixed and made a lawful money at 21 shillings) to that of 14.5 the present supposed proportion.
The consequence of this has been, that the same guinea which was worth 1804.6 grains fine silver, at the time it was fixed at 21 shillings, is now worth no more than 1719.9 grains of fine silver according to the proportion of 14½ to 1.
Consequently, debtors, who have always the option of the legal species in paying their debts, will pay pounds sterling no more in silver but in gold; and as the gold pounds they pay in, are not intrinsically worth the silver pounds they paid in formerly, according to the statute of Elizabeth, it follows that the pound sterling in silver is really no more the standard, since no body will pay at that rate, and since no body can be compelled to do it.
Besides this want of proportion between the metals, the silver coined before the reign of George I. is now become light by circulation; and the guineas coined by all the Princes since Charles II. pass by tale, though many of them are considerably diminished in their weight.
Let us now examine what profit the want of proportion, and the want of weight in the coin can afford to the money jobbers, in melting it down or exporting it.
Did every body consider coin only as the measure for reckoning value, without attending to its value as a metal, the deviations of gold and silver coin from perfect exactness either as to proportion or weight, would occasion little inconvenience.
Great numbers indeed, in every modern society, consider coin in no other light, than that of money of accompt, and have great difficulty to comprehend what difference any one can find between a light shilling and a heavy one; or what inconvenience there can possibly result from a guinea’s being some grains of fine gold too light to be worth 21 shillings standard weight. And did every one think in the same way, there would be no occasion for coin of the precious metals at all; leather, copper, iron, or paper, would keep the reckoning as well as gold and silver.
But although there be many who look no farther than at the stamp on the coin, there are others whose sole business it is to examine its intrinsic worth as a commodity, and to profit of every irregularity in the weight and proportion of metals.
By the very institution of coinage, it is implied, that every piece of the same metal, and same denomination with regard to the money-unit, shall pass current for the same value.
It is, therefore, the employment of those money jobbers, as I shall call them, to examine, with a scrupulous exactness, the precise weight of every piece of coin which comes into their hands.
The first object of their attention, is, the price of the metals in the market: a jobber finds, at present, that with 14.5 pounds of fine silver bullion, he can buy one pound of fine gold bullion.
He therefore buys up with gold coin, all the new silver as fast as it is coined, of which he can get at the rate of 15.2 pounds for one in gold; these 15.2 pounds silver coin he melts down into bullion, and converts that back into gold bullion, giving at the rate of only 14.5. pounds for one.
By this operation he remains with the value of 7⁄10 of one pound weight of silver bullion clear profit upon the 15½ pounds he bought; which 7⁄10 is really lost by the man who inadvertently coined silver at the mint, and gave it to the money jobber for his gold. Thus the state loses the expence of the coinage, and the public the convenience of change for their guineas.
But here it may be asked, Why should the money jobber melt down the silver coin, can he not buy gold with it as well without melting it down? I answer, he cannot; because when it is in coin, he cannot avail himself of its being new and weighty. Coin goes by tale, not by weight; therefore, were he to come to market with his new silver coin, gold bullion being sold at the mint price I shall suppose, viz. at 3l. 17s. 10½d. sterling money per ounce, he would be obliged to pay the price of what he bought with heavy money, which he can equally do with light.
He therefore melts down the new silver coin, and sells it for bullion, at so many pence an ounce, the price of which bullion is, in the English market, always above the price of silver at the mint, for the reasons now to be given.
When you sell standard silver bullion at the mint, you are paid in weighty money; that is, you receive for your bullion the very same weight in standard coin; the coinage costs nothing; but when you sell bullion in the market, you are paid in worn out silver, in gold, in bank notes, in short, in every species of lawful current money. Now all these payments have some defect: the silver you are paid with is worn and light; the gold you are paid with is over-rated, and perhaps also light; and the bank notes must have the same value with the specie with which the bank pays them, that is, with light silver or over-rated gold.
It is for these reasons, that silver bullion, which is bought by the mint at 5s. 2d. per ounce of heavy silver money, may be bought at market at 65 pence[Q] the ounce in light silver, over-rated gold, or bank notes, which is the same thing.
Q. The price of silver is constantly varying in the London market; I therefore take 65 pence per ounce as a mean price, the less to perplex calculations, which here are all hypothetical.
Farther, we have seen how the imposition of coinage has the effect of raising coin above the value of bullion, by adding a value to it which it had not as a metal.
Just so when the unit is once affixed to certain determined quantities of both metals, if one of the metals should afterwards rise in value in the market, the coin made of that metal must lose a part of its value as coin, although it retains it as a metal. Consequently, as in the first case, it acquired an additional value by being coined, it must now acquire an additional value by being melted down. From this we may conclude, that when the standard is affixed to both the metals in the coin, and when the proportion of that value is not made to follow the price of the market, that species which rises in the market is melted down, and the bullion is sold for a price as much exceeding the mint price, as the metal has risen in its value.
If, therefore, in England the price of silver bullion is found to be at 65 pence the ounce, while at the mint it is rated at 62; this proves that silver has risen 3⁄65 above the proportion observed in the coin, and that all coin of standard weight may consequently be melted down with a profit of 3⁄65. But as there are several other circumstances to be attended to, which regulate and influence the price of bullion, we shall here pass them in review the better to discover the nature of this disorder in the English coin, and the advantages which money jobbers may draw from it.