We have only two things further to mention relating to the price of commodities:
It is commonly supposed that the premium of interest depends on the value of gold and silver.
The value of these are regulated by their quantity.
As the quantity increases, the value diminishes.
As the quantity decreases, the value rises.
However, the premium of interest is regulated by the quantity of stock.
Around the time of the discovery of the West Indies, the common interest was at 10% or 12%.
Since that time, it has gradually diminished.
The plain reason is this.
Under the feudal constitution, there could be very little accumulation of stock.
which will appear from considering the situation of those three orders of men, which made up the whole body of the people: the peasants, the landlords, and the merchants.
The peasants had leases which depended on their masters' caprice.
They could never increase in wealth because the landlord was ready to squeeze it all from them.
Therefore, they had no motive to acquire it.
The landlords' wealth could only be increased a little.
So they lived an indolent life and were involved in perpetual wars.
The merchants were again oppressed by all ranks.
They were not able to secure the produce of their industry from rapine and violence.
Thus, there could be little accumulation of wealth at all.
But after the fall of the feudal government, these obstacles to industry were removed.
The stock of commodities began to increase gradually.
What one trade lends to another is not so much to be considered as money, as commodities
No doubt it is generally money which one man delivers another in loan.
But then it is immediately turned into stock, and thus the quantity of stock enables you to make more loans.
The price of interest is entirely regulated by this circumstance.
If only a few were able to lend money, and many people wanted to borrow it, interest would be high.
But if the amount of stock on hand were so great as to enable many to lend, it must fall proportionably.
Chapter 15: Exchange
Exchange is a method invented by merchants to facilitate the payment of money at a distance.
Suppose I owe £100 to a merchant at London.
I apply to a banker in Glasgow for a bill upon another merchant in London, payable to my creditor.
For this, I must give the banker £100 and reward him for his trouble.
This reward is called the price or premium of exchange.
Between Glasgow and London it is sometimes at 2%, sometimes more, sometimes less.
Between London and Glasgow again it is sometimes 4% or 5% below par.
Between Glasgow and the West India colonies, it is often at 50 % below par.
The value of exchange is always regulated by the risk of sending money between two places.
However, it is often greater than the risk.
This is owing to paper circulation.
Between Glasgow and London, one can easily get £100 carried for 15 or 16 shillings.
But paper in Scotland makes a great part of the currency.
There is an inconveniency in getting bank notes exchanged for gold and silver.
A merchant chooses rather to pay 2% than take the trouble of changing the notes for cash and sending the money.
This is also the cause of the high price of exchange between Virginia and Glasgow.
In the American colonies, the currency is paper.
Their notes are 40 or 50% below par because the funds are insufficient.
In every exchange, you must pay:
some profit to the banker, and
the degradation of money in notes.
This is the cause of the rise of exchange.
Whenever it rises beyond the price of insurance, it is owing to the money of one country being lower than that of another.
This was the cause of the high price of exchange between France and Holland around the time of the Mississippi Company.
It was then at 80 or 90%.
All the money had been expelled from France by Mr. Law.
The whole circulation was paper.
The credit of the bank had fallen.
All these reasons conspired to raise the exchange to such an enormous pitch.