[§ 8. Of Money as the Measure of Value and Medium of Exchange.]

We come now to the second particular, to consider money, first as the measure of value and then as the medium of permutation or exchange. When people deal Edition: current; Page: [183] in many species of goods, one of them must be considered as the measure of value. Suppose there were only three commodities, sheep, corn, and oxen, we can easily remember them comparatively, but if we have a hundred different commodities, there are ninety-nine values of each arising from a comparison with each of the rest. As these cannot easily be remembered, men naturally fall upon one of them to be a common standard with which they compare all the rest. This will naturally at first be the commodity with which they are best acquainted. Accordingly we find that black cattle and sheep were the standard in Homer’s time. The armour of one of his heroes was worth nine oxen, and that of another worth an hundred1. Black cattle was the common standard in ancient Greece. In Italy, and particularly in Tuscany, everything was compared with sheep, as this was their principal commodity. This is what may be called the natural measure of value. In like manner there were natural measures of quantity, such as fathoms, cubits, inches, taken from the proportion of the human body, once in use with every nation. But by a little observation they found that one man’s arm was longer or shorter than another’s, and that one was not to be compared with the other, and therefore wise men who attended to these things would endeavour to fix upon some more accurate measure, that equal quantities might be of equal values. This method became absolutely necessary when people came to deal in many commodities, and in great quantities of them. Though an inch was altogether inconsiderable when their dealings were confined to a few yards, more accuracy was required Edition: current; Page: [184] when they came to deal in some thousands. We find, in countries where their dealings are small, the remains of this inaccuracy. The cast of the balance is nothing thought of in their coarse commodities.

Since, then, there must of necessity be a common standard of which equal quantities should be of equal values, metals in general seemed best to answer this purpose, and of these the value of gold and silver could best be ascertained. The temper of steel cannot be precisely known, but what degree of alloy is in gold and silver can be exactly found out. Gold and silver were therefore fixed upon as the most exact standard to compare goods with, and were therefore considered as the most proper measure of value.

In consequence of gold and silver becoming the measure of value, it came also to be the instrument of commerce. It soon became necessary that goods should be carried to market, and they could never be cleverly1 exchanged unless the measure of value was also the instrument of commerce. In the age of shepherds it might be no great inconvenience that cattle should be the medium of exchange, as the expense of maintaining them was nothing, the whole country being considered as one great common; but when lands came to be divided, and the division of labour introduced, this custom would be productive of very considerable inconveniences. The butcher and shoemaker might at times have no use for one another’s commodities. The farmer very often cannot maintain upon his ground a cow more than he has. It would be a very great hardship Edition: current; Page: [185] on a Glasgow merchant to give him a cow for one of his commodities. To remedy this, those materials which were before considered as the measure of value, came also to be the instrument of exchange. Gold and silver had all advantages. They can be kept without expense, they do not waste, and they are very portable. Gold and silver, however, do not derive their whole utility from being the medium of exchange; though they never had been used as money, they are more valuable than any other metals. They have a superior beauty, are capable of a finer polish, and are more proper for making any instrument, except those with an edge. For all these reasons, gold and silver came to be the proper measure of value, and the instrument of exchange; but in order to render them more proper for these purposes, it was necessary that both their weight and their fineness should be ascertained. At first their balances were not very accurate, and therefore frauds were easily committed. However, this was remedied by degrees; but common business would not allow of the experiments which are necessary to fix precisely the degree of fineness. Though with a great quantity of alloy, they are to appearance good. It was necessary therefore, to facilitate exchange, that they should fall upon some expedient to ascertain with accuracy both weight and fineness. Coinage most effectually secures both these. The public, finding how much it would tend to facilitate commerce, put a stamp upon certain pieces that whoever saw them might have the public faith that they were of a certain weight and fineness; and this would be what was at first marked upon the coin, as being of most importance1.

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Accordingly, the coins of every country appear to have borne1 the names of the weights corresponding to them2, and they contained the denomination they expressed. The British pound sterling seems originally to have been a pound weight of pure silver3.

As gold could be easily exchanged into silver, the latter came always to be the standard or measure of value. As there cannot be two standards, and in the greater part of purchases silver is necessary, we never say a man is worth so many guineas, but always pounds4.

It is to be observed that the measure of quantity has always increased, while that of value has decreased. The British pound has now decreased to less than a third of its original value, which was sixty-three shillings, while the measure of quantity has considerably increased. The reason is that the interest of the government requires this. It is the interest of the baker and the brewer to make the measure of quantity as little as possible; and therefore there are inspectors appointed who, when it is brought down, always settle it a little farther up. All our measures, which were taken from the Roman foot, fathom, and inch, Edition: current; Page: [187] are now a great deal more. In like manner what was called Troy weight, from Troy, a town in Champaigne1, where then the greatest commerce was carried on, gave rise to a heavier weight, because there was usually given the cast of the balance along with it, and as this rendered dealings inaccurate, it was necessary that this cast of the balance should be determined. Accordingly, averdupois (avoir du poise2), or heavy weight, was settled at thirteen ounces; but as this was a number not easily divided, it was settled at sixteen, the ounces being made proportioned to it3.

Thus the measure of quantity has been increasing; we shall next show how the coin decreased. When the government takes the coinage into its own hands, the expenses naturally fall upon it, and if any private man coins, he must lessen the value or have nothing but his labour for his pains; and besides, as no man’s authority can be so great as to make his coin pass in common payments, he must forge the stamp of the government. As the government took the task upon themselves, they would endeavour, in order to prevent frauds, to prevent counterfeiting the king’s coin, and encroaching on his prerogative; besides, as the public faith was engaged, it was necessary to prevent all kinds of fraud, because it was likewise necessary that people should be obliged to receive the coin according to its denomination, and that if any refused it after a legal tender of payment was made, the debtor should be free, and the creditor guilty of felony4. In rude and Edition: current; Page: [188] barbarous periods the government was laid under many temptations to debase the coin, or, according to the mint language, to raise it; when, for instance, on any important occasion, such as paying of debts, or of soldiers, it has occasion for two millions, but has no more than one, it calls in the coin of the country, and, mixing with it a greater quantity of alloy, makes it come out two millions, as like as possible to what it was before. Many operations of this kind have been performed in every country; but England, from the freedom which it has almost uninterruptedly enjoyed, has been less troubled with this than any other nation. There it has only fallen to one-third, but in many other countries it is not a fiftieth of its original value.

The inconveniences of such practices are very great. The debasement of the coin hinders commerce, or, at least, greatly embarrasses it. A new calculation must be made how much of the new coin must be given for so much of the old. People are disposed to keep their goods from the market, as they know not what they will get for them. Thus, a stagnation of commerce is occasioned; besides, the debasing of the coin takes away the public faith. Nobody will lend any sum to the government, or bargain with it, as he perhaps may be paid with one half of it. As there is a fraud committed by the government, every subject must be allowed to do the same, and pay his debts with the new money, which is less than he owed. This scheme, however, serves the purpose for some small time, on the following account. The use of money is twofold: for the payment of debts, and the purchasing of commodities. When the coin is debased, a debt of twenty shillings is then paid with ten; but if the new coin be carried to a foreign market, it will give nothing but the old value. All day-labourers are paid in the new coin. The necessities of life must be sold at what the greater part of people can give, and consequently their price will Edition: current; Page: [189] for some time be diminished. However, the king himself loses much, though he gains in the meantime. His doubling it is no doubt a present advantage, but it necessarily diminishes his revenue, because all his taxes are paid in the new coin. To prevent this loss the French, and indeed all other nations on a like occasion, when they double the money by edict without re-coinage, make the augmentation after the money is called in, and before it goes out, and a diminution is made before next term of payment1. A diminution has always a worse effect than an augmentation. An augmentation injures the creditor, a diminution the debtor, who should always be favoured2. If I bind for ten pounds and be obliged to pay fifteen, common industry must be excessively embarrassed3.

The coins of most countries are either of copper, silver, or gold. We are obliged even to receive payment in sixpences, which sometimes is the occasion of confusion and loss of time. The different coins are regulated, not by the caprice of the government, but by the market price of gold and silver, and according to this the proportion of gold and silver [is] settled. This proportion sometimes varies a little. The guineas some time ago were valued at Edition: current; Page: [190] twenty-two shillings, and at other times they have been at twenty1. The gold rises more in proportion in Britain than anywhere else, and as it makes the silver of somewhat less value it is the cause of a real inconvenience. As silver buys more gold abroad than at home, by sending abroad silver they bring gold in return, which buys more silver here than it does abroad. By this means a kind of trade is made of it, the gold coin increasing and the silver2 diminishing3. Some time ago a proposal was given in to remedy this, but it was thought so complex a case that they resolved for that time not to meddle with it.