Chapter 1: Why we use Money
The following people trade by exchange:
- savages who have few merchandizes
- civilized nations who have only two or three species.
The caravans of Moors who go to Timbuktu, in the heart of Africa, do not need money.
- They exchange their salt for gold.
- The Moor puts his salt in a heap.
- The Negro puts his gold dust in another.
- If there is not gold enough, the Moor takes away some of his salt, or the Negro adds more gold, until both parties are agreed.
But when a nation traffics with a great variety of merchandizes, money becomes necessary because a metal:
- is easily carried from place to place,
- saves the great expences from exchange.
All nations have reciprocal wants.
- Country A frequently wants much of the merchandize of Country B, when Country B has very little desire for the merchandise of Country A.
- But when nations have money, they proceed by buying and selling.
- Those who take most merchandise, pay the balance in specie.
- There is this difference:
- In the case of buying, the trade is proportional to the wants of the nation that has the greatest demands.
- In bartering, the trade is only according to the wants of the nation whose demands are the fewest.
- Without such demand, the latter would not be able to balance its accounts.
Chapter 2: The Nature of Money
Money is a sign which represents the value of all merchandizes.
- Metal is taken for this design, as being durable, because it:
- consumes but little by use; and
- without being destroyed, it is capable of many divisions.
- A precious metal has been chosen as a sign, as being most portable.
- A metal is most proper for a common measure, because it can be easily reduced to the same standard.
- Every state fixes upon it a particular impression, to the end that the form may correspond with the standard and the weight, and that both may be known by inspection only.
The Romans used sheep.
The Athenians used oxen.
- In Clio, Herodotus tells us that:
- The Lydians found out the art of coining money
- The Greeks learnt it from the Lydians
- The Athenian coin had the impression of their ancient ox
- I have seen one of those pieces in the Earl of Pombroke’s cabinet.
- But one ox is not the same as another ox, in the manner that one piece of metal may be the same as another.
As specie is the sign of the value of merchandizes, paper is the sign of the value of specie.
- When it is of the right sort, it represents this value in a way that its effects are not different.
Money is the sign and representative of a thing just as every thing is a sign and representative of money.
- The state is in a prosperous condition when:
- money perfectly represents all things; and
- all things perfectly represent money and are reciprocally the sign of each other.
- That is, when they have such a relative value, that we may have the one as soon as we have the other.
- This never happens in any other than a moderate government, nor does it always happen there.
- For example, if the laws favour the dishonest debtor, his effects are no longer a representative or sign of money.
- With regard to a despotic government, it would be a prodigy, did things there represent their sign.
- Tyranny and distrust make every one bury their money.
- things are not there then the representative of money.
Legislators have sometimes make things representative of specie and convert them even into specie, like the current coin.
- When Cæsar was dictator, he permitted debtors to give their lands in payment to their creditors, at the price they were worth before the civil war.
- Tiberius ordered, that those who desired specie should have it from the public treasury, on binding over their land to double the value.
- Under Cæsar, the lands were the money which paid all debts.
- Under Tiberius, 10,000 sesterces in land became as current money, equal to 5,000 sesterces in silver.
The magna charta of England provides against the seizing the lands or revenues of a debtor, when:
- his moveable or personal goods are sufficient to pay, and
- he is willing to give them up to his creditors.
- Thus all the goods of an Englishman represented money.
The laws of the Germans constituted money a satisfaction for the injuries that were committed, and for the sufferings due to guilt.
- But as there was but very little specie in the country, they again constituted this money to be paid in goods or chattels.
- This we find appointed in a Saxon law, with certain regulations suitable to the ease and convenience of the several ranks of people.
- At first, the law declared the value of a sou in cattle.
- The sou of two tremises was equal to:
- a 1-year old ox or
- an ewe with her lamb.
- Three tremises was worth an ox of 16 months.
- With these people, money became cattle, goods, and merchandize and these again became money.
Money is not only a sign of things; it is also a sign and representative of money, as we shall see in the chapter on exchange.
Chapter 3: Ideal [nominal] Money
THERE is both real and ideal money.
- Civilized nations generally only use ideal money, because they have converted their real money into ideal.
- Their real money was initially some metal of a certain weight and standard:
- But soon dishonesty or want made them retrench a part of a metal from every piece of money, but retained the same name;
- For example, they removed a half of the silver from a livre at a pound weight, but still called it a livre.
- A livre is supposed to have 5% a pound of silver.
- They continued to call a sou, though it is no more 5% of this pound of silver.
- By this method:
- the livre is an ideal livre
- the sou an ideal sou.
- Thus of the other subdivisions a livre is only a small part of the original livre.
- It may even happen, that we have no piece of money of the precise value of a livre, nor any piece exactly with a sou.
- Then the livre and the sou will be purely ideal.
- They may give to any money the denomination of as many livres and sous as they please.
- But the variation may be continuous because it is as easy to give another name to a thing, as it is difficult to change the thing itself.
To take away the source of this abuse, it would be an excellent law for all countries who want commerce to flourish, to:
- ordain, that only real money should be current; and
- prevent any methods to render it ideal.
Nothing should so exempt from variation, as that which is the common measure of all.
- Trade is in its own nature extremely uncertain.
- It is a great evil to add a new uncertainty to that which is founded on the nature of the thing.
Chapter 4-5: The Quantity of Gold and Silver
WHILE civilized nations are the mistresses of the world, gold and silver, whether they draw it from amongst themselves, or fetch it from the mines, must increase every day.
- On the contrary, it diminishes when barbarous nations prevail.
- We know how great was the scarcity of these metals, when the Goths and Vandals on the one side, and on the other the Saracens and Tartars, broke in like a torrent on the civilized world.
THE bullion drawn from the American mines, imported into Europe, and from thence sent to the east, has greatly promoted the navigation of the European nations.
- for it is a merchandize which Europe receives in exchange from America, and which she sends in exchange to the Indies.
- A prodigious quantity of gold and silver is therefore an advantage, when we consider these metals as a merchandize; but it is otherwise, when we consider them as a sign; because their abundance gives an allay to their quality as a sign, which is chiefly founded on their scarcity.
- Before the first Punic war, copper was 960 to 1 silver
- This supposes a mark or 8 ounces of silver to be worth 49 livres, and copper 20 sols per pound.
- it is at present nearly as 73 and a half to 1. When the proportion shall be as it was formerly, silver will better perform its office as a sign.
Next Chapter 6: Why Interest was lowered