Money and Trade considered
With a proposal for supplying the Nation with Money
by John Law (1705)
There are several proposals offer’d to remedy the difficulties the nation is under from the great scarcity of money.
That a right judgment may be made, which will be most safe, advantageous and practicable; it seems necessary, 1. that the nature of money be inquired into, and why silver was used as money preferable to other goods. 2. that trade be considered, and how far money affects trade. 3. that the measures have been used for preserving and increasing money, and these now proposed, be examined.
How goods are valued, of barter, of silver; its value as a metal; its qualities fitting it for money, and of the additional value it received from being used as money.
Goods have a value from the uses they are applied to; and their value is greater or lesser, not so much from their more or less valuable, or necessary uses, as from the greater or lesser quantity of them in proportion to the demand for them, example; water is of great use, yet of little value; because the quantity of water is much greater than the demand for it. Diamonds are of little use, yet of great value, because the demand for diamonds is much greater, than the quantity of them.
Goods of the same kind differ in value, from any difference in their quality; one horse is better than another horse; barley of one country is better than barley of another country.
Goods change their value, from any change in their quantity, or in the demand for them. If oats be in greater quantity than last year, and the demand the same, or lesser, oats will be less valuable.
Mr. Locke says, the value of goods is according to their quantity in proportion to their vent, the vent of goods cannot be greater than the quantity, but the demand may be greater: if the quantity of wine brought from France be a 100 ton, and the demand be for 500 ton, the demand is greater than the vent; and the 100 ton will sell at a higher price, than if the demand were only equal to the vent, so the prices of goods are not according to the quantity in proportion to the vent, but in proportion to the demand.
Before the use of money was known, goods were exchanged by barter, or contract; and contracts were made payable in goods.
This state of barter was inconvenient, and disadvantageous.
- he who desired to barter would not always find people who wanted the goods he had, and had such goods as he desired in exchange.
- Contracts taken payable in goods were uncertain, for goods of the same kind differed in value.
- There was no measure by which the proportion of value goods had to one another could be known.
In this state of barter there was little trade, and few artsmen. The people depended on the landed-men. The landed-men laboured only so much of the land as served the occasions of their families, to barter for such necessaries as their land did not produce; and to lay up for seed and bad years, what remained was unlaboured; or gifted on condition of vassalage, and other services.
The losses and difficulties that attended barter, would force the landed-men to a greater consumption of the goods of their own product, and a lesser consumption of other goods; or to supply themselves, they would turn the land to the product of the several goods they had occasion for; tho’ only proper to produce of one kind. So, much of the land was unlaboured, what was laboured was not employ’d to that by which it would have turned to most advantage, nor the people to the labour they were most fit for.
Silver as a metal had a value in barter, as other goods; from the uses it was then apply’d to.
As goods of the same kind differed in value, so silver differ’d from silver, as it was more or less fine.
Silver was liable to a change in its value, as other goods, from any change in its quantity, or in the demand for it.
Silver had qualities which fitted it for the use of money.
- It could be brought to a standard in fineness, so was certain as to its quality.
- It was easie of delivery.
- It was of the same value in one place that it was in another; or differed little, being easie of carriage.
- It could be kept without loss or expence; taking up little room, and being durable.
- It could be divided without loss, an ounce in four pieces, being equal in value to an ounce in one piece.
Silver having these qualities, ’tis reasonable to think it was used as money, before it was coined. What is meant by being used as money, is, that silver in bullion was the measure by which goods were valued: the value by which goods were exchanged: and in which contracts were made payable.
He who had more goods than he had use for, would choose to barter them for silver, tho’ he had no use for it; because, silver was certain in it’s quality: it was easie of delivery: it could be kept without loss or expence: and with it he could purchase other goods as he had occasion, in whole or in part, at home or abroad, silver being divisible without loss, and of the same value in different places. If A. B. had 100 sheep, and desired to exchange them for horses; C. D. had 10 horses, which were equal to, or worth the 100 sheep, and was willing to exchange: but as A. B. had not present occasion for the horses, rather than be at the expence of keeping them, he would barter his sheep with E. F. who had the value to give in silver, with which he could purchase the horses at the time he had occasion.
Or if E. F. had not silver, but was satisfied to give his bond for the silver, or the horses, payable at the time A. B. wanted them; A. B. would choose to take the bond payable in silver, rather than in horses: because silver was certain in quality, and horses differed much, so silver was used as the value in which contracts were made payable.
Silver was likewise used as the measure by which goods were valued, because certain in quality, if A. B. had a 100 weight of lead, and desired to exchange it for barley, the way to know what quantity of barley was equal in value to the lead, was by the silver. If the 100 weight of lead was equal to five ounces of fine silver, and 5 ounces of fine silver equal to 20 bolls of barley, then 20 bolls was the quantity of barley to be given in exchange for the lead.
Silver being easie of carriage, so equal in one place to what it was in another; was used as the measure by which goods to be delivered in different places were valued. If a piece of wine was to be delivered at Glasgow by A. B. merchant there, to the order of C. D. merchant in Aberdeen: and the value to be delivered in oats at Aberdeen by C. D. to the order of A. B. the wine could not be valued by the quantity of oats it was worth at Glasgow, nor the oats by the quantity of wine they were worth at Aberdeen, wine or oats might differ in quality, or be more or less valuable at the one place than at the other, the way to have known what quantity of oats was equal to the wine, was by the quantity of silver each was worth at the places they were to be delivered, if the piece of wine was worth at Glasgow 20 ounces of fine silver, and 20 ounces of fine silver worth 50 bolls of oats at Aberdeen; then 30 bolls was the quantity of oats to be given there in return for the wine.
Silver being capable of a stamp, princes, for the greater convenience of the people, set up mints to bring it to a standard, and stamp it; whereby its weight and fineness was known, without the trouble of weighing or fyning; but the stamp added nothing to the value.
For these reasons silver was used as money; its being coined was only a consequence of its being applied to that use in bullion, tho’ not with the same convenience.
Mr. Locke and others who have wrote on this subject, say, the general consent of men placed an imaginary value upon silver, because of its qualities fitting it for money.
I cannot conceive how different nations could agree to put an imaginary value upon anything, especially upon silver, by which all other goods are valued; or that any one country would receive that as a value, which was not valuable equal to what it was given for; or how that imaginary value could have been kept up. But, suppose France receiving silver at an imaginary value, other nations received it at that value, because received so in France: then for the same reason a crown passing in France for 76 Sols, should pass in Scotland for 76 pence, and in Holland for 76 Stivers. But on the contrair, even in France where the crown is raised, ’tis worth no more than before when at 60 Sols.
It is reasonable to think silver was bartered as it was valued for its uses as a metal, and was given as money according to its value in barter. The additional use of money silver was applied to would add to its value, because as money it remedied the disadvantages and inconveniencies of barter, and consequently the demand for silver increasing, it received an additional value equal to the greater demand its use as money occasioned.
And this additional value is no more imaginary, than the value silver had in barter as a metal, for such value was because it served such uses, and was greater or lesser according to the demand for silver as a metal, proportioned to its quantity. The additional value silver received from being used as money, was because of its qualities which fitted it for that use; and that value was according to the additional demand its use as money occasioned.
If either of these values are imaginary, then all value is so, for no goods have any value, but from the uses they are apply’d to, and according to the demand for them, in proportion to their quantity.
Thus silver having a value, and qualities fitting it for money, which other goods had not, was made money, and for the greater convenience of the people was coined.
The names of the different pieces might have been number 1. number 2. and so on; number 60 would have been the same as a crown; for the name and stamp was only to certify, that the piece had such a quantity of silver in it, of such a fineness.
Goods of any other kind that have the same qualities might then, and may now be made money equal to their value. Gold and copper may be made money, but neither with so much convenience as silver. Payments in copper being inconvenient by reason of its bulk; and gold not being in so great quantity as to serve the use of money. In countries where gold is in great quantity, it is used as money; and where gold and silver are scarce, copper is used.
Gold is coined for the more easie exchange of that metal, and copper to serve in small payments; but silver is the measure by which goods are valued, the value by which goods are exchanged, and in which contracts are made payable.
As money increased, the disadvantages and inconveniences of barter were removed; the poor and idle were employed, more of the land was laboured, the product increased, manufactures and trade improved, the landed-men lived better, and the people with less dependence on them.
 Locke p. 31. upon interest, and p. 1. upon money
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