No More Learning

If it would suit the interests of Jamaica and Holland to make an
exchange of the commodities which they respectively produce, without the
intervention of England, it is quite certain, that by their being
prevented from so doing, the interests of Holland and Jamaica would
suffer; but if Jamaica is obliged to send her goods to England, and
there exchange them for Dutch goods, an English capital, or English
agency, will be employed in a trade in which it would not otherwise be
engaged. It is allured thither by a bounty, not paid by England, but by
Holland and Jamaica.

That the loss sustained, through a disadvantageous distribution of
labour in two countries, may be beneficial to one of them, while the
other is made to suffer more than the loss actually belonging to such a
distribution, has been stated by Adam Smith himself; which, if true,
will at once prove that a measure, which may be greatly hurtful to a
colony, may be partially beneficial to the mother country.

Speaking of treaties of commerce, he says, "When a nation binds itself
by treaty, either to permit the entry of certain goods from one foreign
country which it prohibits from all others, or to exempt the goods of
one country from duties to which it subjects those of all others, the
country, or at least the merchants and manufacturers of the country,
whose commerce is so favoured, must necessarily derive great advantage
from the treaty. Those merchants and manufacturers enjoy a sort of
monopoly in the country, which is so indulgent to them. That country
becomes a market both more extensive and more advantageous for their
goods; more extensive, because the goods of other nations, being either
excluded or subjected to heavier duties, it takes off a greater quantity
of them; more advantageous, because the merchants of the favoured
country enjoying a sort of monopoly there, will often sell their goods
for a better price than if exposed to the free competition of all other
nations. "

Let the two nations, between which the commercial treaty is made, be the
mother country and her colony, and Adam Smith, it is evident, admits,
that a mother country may be benefited by oppressing her colony. It
may, however, be again remarked, that unless the monopoly of the foreign
market be in the hands of an exclusive company, no more will be paid for
commodities by foreign purchasers than by home purchasers; the price
which they will both pay will not differ greatly from their natural
price in the country where they are produced. England, for example,
will, under ordinary circumstances, always be able to buy French goods,
at the natural price of those goods in France, and France would have an
equal privilege of buying English goods at their natural price in
England. But at these prices, goods would be bought without a treaty. Of
what advantage or disadvantage then is the treaty to either party?

The disadvantage of the treaty to the importing country would be this:
it would bind her to purchase a commodity, from England for example, at
the natural price of that commodity in England, when she might perhaps
have bought it at the much lower natural price of some other country. It
occasions then a disadvantageous distribution of the general capital,
which falls chiefly on the country bound by its treaty to buy in the
least productive market; but it gives no advantage to the seller on
account of any supposed monopoly, for he is prevented by the competition
of his own countrymen from selling his goods above their natural price;
at which he would sell them, whether he exported them to France, Spain,
or the West Indies, or sold them for home consumption.

In what then does the advantage of the stipulation in the treaty
consist? It consists in this: these particular goods could not have been
made in England for exportation, but for the privilege which she alone
had of serving this particular market; for the competition of that
country, where the natural price was lower, would have deprived her of
all chance of selling those commodities. This, however, would have been
of little importance, if England were quite secure that she could sell
to the same amount any other goods which she might fabricate, either in
the French market, or with equal advantage in any other. The object
which England has in view, is, for example, to buy a quantity of French
wines of the value of 5000_l. _--she desires then to sell goods
somewhere by which she may get 5000_l. _ for this purpose. If France
gives her a monopoly of the cloth market, she will readily export cloth
for this purpose; but if the trade is free, the competition of other
countries may prevent the natural price of cloth in England from being
sufficiently low to enable her to get 5000_l. _ by the sale of cloth, and
to obtain the usual profits by such an employment of her stock. The
industry of England must be employed then on some other commodity; but
there may be none of her productions which, at the existing value of
money, she can afford to sell at the natural price of other countries.
What is the consequence? The wine drinkers of England are still willing
to give 5000_l. _ for their wine, and consequently 5000_l. _ in money is
exported to France for that purpose. By this exportation of money its
value is raised in England, and lowered in other countries; and with it
the _natural price_ of all commodities produced by British industry is
also lowered. The advance in the price of money is the same thing as the
decline in the price of commodities. To obtain 5000_l. _, British
commodities may now be exported; for at their reduced natural price
they may now enter into competition with the goods of other countries.
More goods are sold, however, at the low prices to obtain the 5000_l. _
required, which, when obtained, will not procure the same quantity of
wine; because, whilst the diminution of money in England has lowered the
natural price of goods there, the increase of money in France has raised
the natural price of goods and wine in France. Less wine then will be
imported into England, in exchange for its commodities, when the trade
is perfectly free, than when she is peculiarly favoured by commercial
treaties. The _rate_ of profits however will not have varied; money will
have altered in relative value in the two countries, and the advantage
gained by France will be the obtaining a greater quantity of English, in
exchange for a given quantity of French goods, while the loss sustained
by England will consist in obtaining a smaller quantity of French goods
in exchange for a given quantity of those of England.

Foreign trade then, whether fettered, encouraged, or free, will always
continue, whatever may be the comparative difficulty of production in
different countries; but it can only be regulated by altering the
natural price, not the natural value at which commodities can be
produced in those countries, and that is effected by altering the
distribution of the precious metals. This explanation confirms the
opinion which I have elsewhere given, that there is not a tax, a bounty,
or a prohibition on the importation or exportation commodities which
does not occasion a different distribution of the precious metals, and
which does not therefore every where alter both the natural and the
market price of commodities.

It is evident then, that the trade with a colony may be so regulated,
that it shall at the same time be less beneficial to the colony, and
more beneficial to the mother country, than a perfectly free trade. As
it is disadvantageous to a single consumer to be restricted in his
dealings to one particular shop, so is it disadvantageous for a nation
of consumers to be obliged to purchase of one particular country. If the
shop or the country afforded the goods required the cheapest, they would
be secure of selling them without any such exclusive privilege; and if
they did not sell cheaper, the general interest would require that they
should not be encouraged to continue a trade which they could not carry
on at an equal advantage with others. The shop, or the selling country,
might lose by the change of employments, but the general benefit is
never so fully secured, as by the most productive distribution of the
general capital; that is to say, by an universally free trade.

An increase in the cost of production of a commodity, if it be an
article of the first necessity, will not necessarily diminish its
consumption; for although the general power of the purchasers to
consume, is diminished by the rise of any one commodity, yet they may
relinquish the consumption of some other commodity whose cost of
production has not risen. In that case, the quantity supplied will be in
the same proportion to the demand as before; the cost of production only
will have increased, and yet the price will rise, and must rise, to
place the profits of the producer of the enhanced commodity on a level
with the profits derived from other trades.

M. Say acknowledges that the cost of production is the foundation of
price, and yet in various parts of his book he maintains that price is
regulated by the proportion which demand bears to supply. The real and
ultimate regulator of the relative value of any two commodities, is the
cost of their production, and neither the respective quantities which
may be produced, nor the competition amongst the purchasers.

According to Adam Smith the colony trade, by being one in which British
capital only can be employed, has raised the rate of profits of all
other trades; and as in his opinion high profits, as well as high wages,
raise the prices of commodities, the monopoly of the colony trade has
been, according to him, injurious to the mother country; as it has
diminished her power of selling manufactured commodities as cheap as
other countries. He says, that "in consequence of the monopoly, the
increase of the colony trade has not so much occasioned an addition to
the trade which Great Britain had before, as a total change in its
direction. Secondly, this monopoly has necessarily contributed to keep
up the rate of profit in all the different branches of British trade,
higher than it naturally would have been, had all nations been allowed a
free trade to the British colonies. " "But whatever raises in any country
the ordinary rate of profit higher than it otherwise would be,
necessarily subjects that country both to an absolute, and to a relative
disadvantage in every branch of trade of which she has not the monopoly.
It subjects her to an absolute disadvantage, because in such branches of
trade, her merchants cannot get this greater profit without selling
dearer than they otherwise would do, both the goods of foreign countries
which they import into their own, and the goods of their own country
which they export to foreign countries. Their own country must both buy
dearer and sell dearer; must both buy less and sell less; must both
enjoy less and produce less than she otherwise would do. "

"Our merchants frequently complain of the high wages of British labour
as the cause of their manufactures being undersold in foreign markets;
but they are silent about the high profits of stock. They complain of
the extravagant gain of other people, but they say nothing of their
own. The high profits of British stock, however, may contribute towards
raising the price of British manufacture in many cases as much, and in
some perhaps more, than the high wages of British labour. "

I allow that the monopoly of the colony trade will change, and often
prejudicially, the direction of capital; but from what I have already
said on the subject of profits, it will be seen that any change from one
foreign trade to another, or from home to foreign trade, cannot, in my
opinion, affect the rate of profits. The injury suffered will be what I
have just described; there will be a worse distribution of the general
capital and industry, and therefore less will be produced. The natural
price of commodities will be raised, and therefore, though the consumer
will be able to purchase to the same money value, he will obtain a less
quantity of commodities. It will be seen too, that if it even had the
effect of raising profits, it would not occasion the least alteration in
prices; prices being regulated neither by wages nor profits.

And does not Adam Smith agree in this opinion, when he says, that "the
prices of commodities, or the value of gold and silver, as compared with
commodities, depends upon the proportion between the _quantity of
labour_ which is necessary, in order to bring a certain quantity of gold
and silver to market, and that which is necessary to bring thither a
certain quantity of any other sort of goods? " That quantity will not be
affected, whether profits be high or low, or wages low or high. How then
can prices be raised by high profits?




CHAPTER XXIV.

ON GROSS AND NET REVENUE.


Adam Smith constantly magnifies the advantages which a country derives
from a large gross, rather than a large net income. "In proportion as a
greater share of the capital of a country is employed in agriculture,"
he says, "the greater will be the quantity of productive labour which it
puts into motion within the country; as will likewise be the value which
its employment adds to the annual produce of the land and labour of the
society. After agriculture, the capital employed in manufactures puts
into motion the greatest quantity of productive labour, and adds the
greatest value to the annual produce. That which is employed in the
trade of exportation has the least effect of any of the three. "[43]

Granting for a moment that this were true; what would be the advantage
resulting to a country from the employment of a great quantity of
productive labour, if, whether it employed that quantity or a smaller,
its net rent and profits together would be the same. The whole produce
of the land and labour of every country is divided into three portions;
of these, one portion is devoted to wages, another to profits, and the
other to rent. It is from the two last portions only, that any
deductions can be made for taxes, or for savings; the former, if
moderate, constituting always the necessary expenses of production. To
an individual, with a capital of 20,000_l. _, whose profits were 2000_l. _
per annum, it would be a matter quite indifferent, whether his capital
would employ a hundred, or a thousand men, whether the commodity
produced sold for 10,000_l. _, or for 20,000_l. _, provided, in all cases,
his profits were not diminished below 2000_l. _ Is not the real interest
of the nation similar? Provided its net real income, its rent and
profits be the same, it is of no importance whether the nation consists
of ten or of twelve millions of inhabitants. Its power of supporting
fleets and armies, and all species of unproductive labour, must be in
proportion to its net, and not in proportion to its gross income. If
five millions of men could produce as much food and clothing as was
necessary for ten millions, food and clothing for five millions would be
the net revenue. Would it be of any advantage to the country, that to
produce this same net revenue, seven millions of men should be required,
that is to say, that seven millions should be employed to produce food
and clothing sufficient for twelve millions? The food and clothing of
five millions would be still the net revenue. The employing a greater
number of men would enable us neither to add a man to our army and navy,
nor to contribute one guinea more in taxes.

It is not on the grounds of any supposed advantage accruing from a large
population, or of the happiness that may be enjoyed by a greater number
of human beings, that Adam Smith supports the preference of that
employment of capital, which gives motion to the greatest quantity of
industry, but expressly on the ground of its increasing the power of the
country; for he says, that "the riches, and, so far as power depends
upon riches, the power of every country must always be in proportion to
the value of its annual produce, the fund from which all taxes must
ultimately be paid. " It must however be obvious, that the power of
paying taxes, is in proportion to the net, and not in proportion to the
gross revenue.

In the distribution of employments amongst all countries, the capital of
poorer nations will be naturally employed in those pursuits, wherein a
great quantity of labour is supported at home, because in such countries
the food and necessaries for an increasing population can be most easily
procured. In rich countries, on the contrary, where food is dear,
capital will naturally flow, when trade is free, into those occupations,
wherein the least quantity of labour is required to be maintained at
home: such as the carrying trade, the distant foreign trade, where
profits are in proportion to the capital, and not in proportion to the
quantity of labour employed. [44]

Although I admit, that from the nature of rent, a given capital employed
in agriculture, on any but the land last cultivated, puts in motion a
greater quantity of labour than an equal capital employed in
manufactures and trade, yet I cannot admit that there is any difference
in the quantity of labour employed by a capital engaged in the home
trade, and an equal capital engaged in the foreign trade.

"The capital which sends Scots manufactures to London, and brings back
English corn and manufactures to Edinburgh," says Adam Smith,
"necessarily replaces, by every such operation, two British capitals
which had both been employed in the agriculture or manufactures of Great
Britain.

"The capital employed in purchasing foreign goods for home consumption,
when this purchase is made with the produce of domestic industry,
replaces too, by every such operation, two distinct capitals; but one of
them only is employed in supporting domestic industry. The capital which
sends British goods to Portugal, and brings back Portuguese goods to
Great Britain, replaces, by every such operation, only one British
capital, the other is a Portuguese one. Though the returns, therefore,
of the foreign trade of consumption should be as quick as the home
trade, the capital employed in it will give but one half the
encouragement to the industry or productive labour of the country. "

This argument appears to me to be fallacious; for though two capitals,
one Portuguese and one English, be employed, as Dr. Smith supposes,
still a capital will be employed in the foreign trade, double of what
would be employed in the home trade. Suppose that Scotland employs a
capital of a thousand pounds in making linen, which she exchanges for
the produce of a similar capital employed in making silks in England.
Two thousand pounds, and a proportional quantity of labour will be
employed by the two countries. Suppose now, that England discovers, that
she can import more linen from Germany, for the silks which she before
exported to Scotland, and that Scotland discovers that she can obtain
more silks from France in return for her linen, than she before obtained
from England,--will not England and Scotland immediately cease trading
with each other, and will not the home trade of consumption be changed
for a foreign trade of consumption? But although two additional
capitals will enter into this trade, the capital of Germany and that of
France, will not the same amount of Scotch and of English capital
continue to be employed, and will it not give motion to the same
quantity of industry as when it was engaged in the home trade?




CHAPTER XXV.

ON CURRENCY AND BANKS.


It is not my intention to detain the reader by any long dissertation on
the subject of money. So much has already been written on currency, that
of those who give their attention to such subjects, none but the
prejudiced are ignorant of its true principles. I shall therefore take
only a brief survey of some of the general laws which regulate its
quantity and value.

Gold and silver, like all other commodities, are valuable only in
proportion to the quantity of labour necessary to produce them, and
bring them to market. Gold is about fifteen times dearer than silver,
not because there is a greater demand for it, nor because the supply of
silver is fifteen times greater than that of gold, but solely because
fifteen times the quantity of labour is necessary to procure a given
quantity of it.

The quantity of money that can be employed in a country must depend on
its value: if gold alone were employed for the circulation of
commodities, a quantity would be required, one fifteenth only of what
would be necessary, if silver were made use of for the same purpose.

A circulation can never be so abundant as to overflow; for by
diminishing its value, in the same proportion you will increase its
quantity, and by increasing its value, diminish its quantity. [45]

While the state coins money, and charges no seignorage, money will be
of the same value as any other piece of the same metal of equal weight
and fineness; but if the state charges a seignorage for coinage, the
coined piece of money will generally exceed the value of the uncoined
piece of metal by the whole seignorage charged, because it will require
a greater quantity of labour, or, which is the same thing, the value of
the produce of a greater quantity of labour, to procure it.

While the state alone coins, there can be no limit to this charge of
seignorage; for by limiting the quantity of coin, it can be raised to
any conceivable value.

It is on this principle that paper money circulates: the whole charge
for paper money may be considered as seignorage. Though it has no
intrinsic value, yet, by limiting its quantity, its value in exchange is
as great as an equal denomination of coin, or of bullion in that coin.
On the same principle too, namely, by a limitation of its quantity, a
debased coin would circulate at the value it should bear, if it were of
the legal weight and fineness, not at the value of the quantity of metal
which it actually contained. In the history of the British coinage, we
find accordingly that the currency was never depreciated in the same
proportion that it was debased; the reason of which was, that it never
was multiplied in proportion to its diminished value. [46]

After the establishment of banks, the state has not the sole power of
coining or issuing money. The currency may as effectually be increased
by paper as by coin; so that if a state were to debase its money, and
limit its quantity, it could not support its value, because the banks
would have an equal power of adding to the whole quantity of
circulation.

On these principles it will be seen, that it is not necessary that paper
money should be payable in specie to secure its value; it is only
necessary that its quantity should be regulated according to the value
of the metal which is declared to be the standard. If the standard were
gold of a given weight and fineness, paper might be increased with every
fall in the value of gold, or, which is the same thing in its effects,
with every rise in the price of goods.

"By issuing too great a quantity of paper," says Dr. Smith, "of which
the excess was continually returning, in order to be exchanged for gold
and silver, the Bank of England was, for many years together, obliged to
coin gold to the extent of between eight hundred thousand pounds and a
million a year, or at an average, about eight hundred and fifty thousand
pounds. For this great coinage the Bank, in consequence of the worn and
degraded state into which the gold coin had fallen a few years ago, was
frequently obliged to purchase bullion, at the high price of four pounds
an ounce, which it soon after issued in coin at 3_l. _ 17_s. _ 10-1/2_d. _
an ounce, losing in this manner between two and a half and three per
cent. upon the coinage of so very large a sum. Though the Bank therefore
paid no seignorage, though the Government was properly at the expense of
the coinage, this liberality of Government did not prevent altogether
the expense of the Bank. "

On the principle above stated, it appears to me most clear, that by not
re-issuing the paper thus brought in, the value of the whole currency,
of the degraded as well as the new gold coin, would have been raised;
when all demands on the Bank would have ceased.

Mr. Buchanan, however, is not of this opinion, for he says, "that the
great expense to which the Bank was at this time exposed, was
occasioned, not, as Dr. Smith seems to imagine, by any imprudent issue
of paper, but by the debased state of the currency, and the consequent
high price of bullion. The Bank, it will be observed, having no other
way of procuring[47] guineas but by sending bullion to the mint to be
coined, was always forced to issue new coined guineas, in exchange for
its returned notes; and when the currency was generally deficient in
weight, and the price of bullion high in proportion, it became
profitable to draw these heavy guineas from the Bank in exchange for its
paper; to convert them into bullion, and to sell them with a profit for
bank paper, to be again returned to the Bank for a new supply of
guineas, which were again melted and sold. To this drain of specie, the
Bank must always be exposed while the currency is deficient in weight,
as both an easy and a certain profit then arises from the constant
interchange of paper for specie. It may be remarked, however, that to
whatever inconvenience and expense the Bank was then exposed by the
drain of its specie, it never was imagined necessary to rescind the
obligation to pay money for its notes. "

Mr. Buchanan evidently thinks that the whole currency must, necessarily,
be brought down to the level of the value of the debased pieces; but
surely by a diminution of the quantity of the currency, the whole that
remains can be elevated to the value of the best pieces.

Dr. Smith appears to have forgotten his own principle, in his argument
on colony currency. Instead of ascribing the depreciation of that paper
to its too great abundance, he asks whether, allowing the colony
security to be perfectly good, a hundred pounds, payable fifteen years
hence, would be equally valuable with a hundred pounds to be paid
immediately? I answer yes, if it be not too abundant.

Experience however shews, that neither a state nor a bank ever have had
the unrestricted power of issuing paper money, without abusing that
power: in all states, therefore, the issue of paper money ought to be
under some check and control; and none seems so proper for that purpose,
as that of subjecting the issuers of paper money to the obligation of
paying their notes, either in gold coin or bullion.

A currency is in its most perfect state when it consists wholly of paper
money, but of paper money of an equal value with the gold which it
professes to represent. The use of paper instead of gold substitutes the
cheapest in place of the most expensive medium, and enables the country,
without loss to any individual, to exchange all the gold which it before
used for this purpose, for raw materials, utensils, and food, by the use
of which both its wealth and its enjoyments are increased.

In a national point of view it is of no importance whether the issuers
of this well regulated paper money, be the government or a bank, it will
on the whole be equally productive of riches, whether it be issued by
one or by the other; but it is not so with respect to the interest of
individuals. In a country where the market rate of interest is 7 per
cent. , and where the state requires for a particular expense 70,000_l. _
per annum, it is a question of importance to the individuals of that
country, whether they must be taxed to pay this 70,000_l. _ per annum, or
whether they could raise it without taxes. Suppose that a million of
money should be required to fit out an expedition. If the state issued a
million of paper, and displaced a million of coin, the expedition would
be fitted out without any charge to the people; but if a bank issued a
million of paper, and lent it to Government at 7 per cent. , thereby
displacing a million of coin, the country would be charged with a
continual tax of 70,000_l. _ per annum: the people would pay the tax, the
bank would receive it, and the society would in either case be as
wealthy as before; the expedition would have been really fitted out by
the improvement of our system, by rendering capital, of the value of a
million, productive in the form of commodities, instead of letting it
remain unproductive in the form of coin; but the advantage would always
be in favour of the issuers of paper; and as the state represents the
people, the people would have saved the tax, if they, and not the bank,
had issued this million.

I have already observed, that if there were perfect security that the
power of issuing paper money would not be abused, it would be of no
importance with respect to the riches of the country collectively, by
whom it was issued; and I have now shewn that the public would have a
direct interest that the issuers should be the state, and not a company
of merchants or bankers. The danger, however, is, that this power would
be more likely to be abused, if in the hands of Government, than if in
the hands of a banking company. A company would, it is said, be more
under the control of law, and although it might be their interest to
extend their issues beyond the bounds of discretion, they would be
limited and checked by the power which individuals would have of calling
for bullion or specie. It is argued that the same check would not be
long respected, if Government had the privilege of issuing money; that
they would be too apt to consider present convenience, rather than
future security, and might, therefore, on the alleged grounds of
expediency, be too much inclined to remove the checks, by which the
amount of their issues was controlled.

Under an arbitrary government this objection would have great force, but
in a free country, with an enlightened legislature, the power of issuing
paper money, under the requisite checks of convertibility at the will of
the holder, might be safely lodged in the hands of commissioners
appointed for that special purpose, and they might be made totally
independent of the control of ministers.

The sinking fund is managed by commissioners, responsible only to
parliament, and the investment of the money entrusted to their charge,
proceeds with the utmost regularity; what reason can there be to doubt
that the issues of paper money might be regulated with equal fidelity,
if placed under similar management?

It may be said, that although the advantage accruing to the state, and,
therefore, to the public, from issuing paper money, is sufficiently
manifest, as it would exchange a portion of the national debt, on which
interest is paid by the public, into a debt bearing no interest, yet it
would be disadvantageous to commerce, as it would preclude the
merchants from borrowing money, and getting their bills discounted, the
method in which bank paper is partly issued.

This, however, is to suppose that money could not be borrowed, if the
Bank did not lend it, and that the market rate of interest and profit
depends on the amounts of the issues of money, and on the channel
through which it is issued. But as a country would have no deficiency of
cloth, of wine, or any other commodity, if they had the means of paying
for it, in the same manner neither would there be any deficiency of
money to be lent, if the borrowers offered good security, and were
willing to pay the market rate of interest for it.

In another part of this work, I have endeavoured to shew, that the real
value of a commodity is regulated, not by the accidental advantages
which may be enjoyed by some of its producers, but by the real
difficulties encountered by that producer who is least favoured. It is
so with respect to the interest for money; it is not regulated by the
rate at which the Bank will lend, whether it be 5, 4, or 3 per cent. ,
but by the rate of profits, which can be made by the employment of
capital, and which is totally independent of the quantity, or of the
value of money. Whether a bank lent one million, ten millions, or a
hundred millions, they would not permanently alter the market rate of
interest; they would alter only the value of the money which they thus
issued. In one case 10 or 20 times more money might be required to carry
on the same business, than what might be required in the other. The
applications to the Bank for money, then, depend on the comparison
between the rate of profits that may be made by the employment of it,
and the rate at which they are willing to lend it. If they charge less
than the market rate of interest, there is no amount of money which they
might not lend,--if they charge more than that rate, none but
spendthrifts and prodigals would be found to borrow of them. We
accordingly find, that when the market rate of interest exceeds the rate
of 5 per cent. at which the Bank uniformly lend, the discount office is
besieged with applicants for money; and, on the contrary, when the
market rate is even temporarily under 5 per cent. the clerks of that
office have no employment.

The reason then why for the last twenty years, the Bank is said to have
given so much aid to commerce, by assisting the merchants with money,
is, because they have, during that whole period, lent money below the
market rate of interest; below that rate at which the merchants could
have borrowed elsewhere; but I confess that to me this seems rather an
objection to their establishment, than an argument in favour of it.

What should we say of an establishment which should regularly supply
half the clothiers with their wool under the market price? Of what
benefit would it be to the community? It would not extend our trade,
because the wool would equally have been bought, if they had charged the
market price for it. It would not lower the price of cloth to the
consumer, because the price, as I have said before, would be regulated
by the cost of its production to those who were the least favoured. Its
sole effect then, would be to swell the profits of a part of the
clothiers beyond the general and common rate of profits. The
establishment would be deprived of its fair profits, and another part of
the community would be in the same degree benefited. Now this is
precisely the effect of our banking establishments; a rate of interest
is fixed by the law below that at which it can be borrowed in the
market, and at this rate the Bank are required to lend, or not to lend
at all. From the nature of their establishment, they have large funds
which they can only dispose of in this way; and a part of the traders of
the country are unfairly, and for the country unprofitably, benefited by
being enabled to supply themselves with an instrument of trade, at a
less charge than those who must be influenced only by market price.

The whole business, which the whole community can carry on, depends on
the quantity of capital, that is, of its raw material, machinery, food,
vessels, &c. , employed in production. After a well regulated paper money
is established, these can neither be increased nor diminished by the
operations of banking. If then the state were to issue the paper money
of the country, although it should never discount a bill, or lend one
shilling to the public, there would be no alteration in the amount of
trade; for we should have the same quantity of raw materials, of
machinery, food, and ships; and it is probable too, that the same amount
of money might be lent, not at 5 per cent. indeed, a rate fixed by law,
but at 6, 7, or 8 per cent. , the result of the fair competition in the
market between the lenders and the borrowers.

Adam Smith speaks of the advantages derived by merchants from the
superiority of the Scotch mode of affording accommodation to trade, over
the English mode, by means of cash accounts. These cash accounts are
credits given by the Scotch banker to his customers, in addition to the
bills which he discounts for them; but as the banker, in proportion as
he advances money, and sends it into circulation in one way, is debarred
from issuing so much in the other, it is difficult to perceive in what
the advantage consists. If the whole circulation will bear only one
million of paper, one million only will be circulated; and it can be of
no real importance either to the Banker or merchant, whether the whole
be issued in discounting bills, or a part be so issued, and the
remainder be issued by means of these cash accounts.

It may perhaps be necessary to say a few words on the subject of the two
metals, gold and silver, which are employed in currency, particularly as
this question appears to perplex, in many people's minds, the plain and
simple principles of currency. "In England," says Dr. Smith, "gold was
not considered as a legal tender for a long time after it was coined
into money. The proportion between the values of gold and silver money
was not fixed by any public law or proclamation; but was left to be
settled by the market. If a debtor offered payment in gold, the creditor
might either reject such payment altogether, or accept of it at such a
valuation of the gold, as he and his debtor could agree upon. "

In this state of things it is evident that a guinea might sometimes
pass for 22_s. _ or more, and sometimes for 18_s. _ or less, depending
entirely on the alteration in the relative market value of gold and
silver. All the variations too in the value of gold, as well as in the
value of silver, would be rated in the gold coin,--it would appear as if
silver was invariable, and that gold only was subject to rise or fall.
Thus, although a guinea passed for 22_s. _ instead of 18_s. _ gold might
not have varied in value, the variation might have been wholly confined
to the silver, and therefore 22_s. _ might have been of no more value
than 18_s. _ were before.
And on the contrary, the whole variation might
have been in the gold: a guinea, which was worth 18_s. _ might have risen
to the value of 22_s. _

If now we suppose this silver currency to be debased by clipping, and
also increased in quantity, a guinea might pass for 30_s. _; for the
silver in 30_s. _ of such debased money might be of no more value than
the gold in one guinea. By restoring the silver currency to its mint
value, silver money would rise; but it would appear as if gold fell, for
a guinea would probably be of no more value than 21 of such good
shillings.

If now gold be also made a legal tender, and every debtor be at liberty
to discharge a debt by the payment of 420 shillings, or twenty guineas,
for every 21_l. _ that he owes, he will pay in one or the other according
as he can most cheaply discharge his debt. If with five quarters of
wheat he can procure as much gold bullion as the mint will coin into
twenty guineas, and for the same wheat as much silver bullion as the
mint will coin for him into 430 shillings, he will prefer paying in
silver, because he would be a gainer of ten shillings by so paying his
debt. But if on the contrary he could obtain with this wheat as much
gold as would be coined into twenty guineas and a half, and as much
silver only as would coin into 420 shillings, he would naturally prefer
paying his debt in gold. If the quantity of gold which he could procure
could be coined only into twenty guineas, and the quantity of silver
into 420 shillings, it would be a matter of perfect indifference to him
in which money, silver or gold, it was that he paid his debt. It is not
then a matter of chance; it is not because gold is better fitted for
carrying on the circulation of a rich country, that gold is ever
preferred for the purpose of paying debts; but simply because it is the
interest of the debtor so to pay them.

During a long period previous to 1797, the year of the restriction on
the Bank payments in coin, gold was so cheap, compared with silver, that
it suited the Bank of England, and all other debtors, to purchase gold
in the market, and not silver, for the purpose of carrying it to the
mint to be coined, as they could in that coined metal more cheaply
discharge their debts. The silver currency was during a great part of
this period very much debased, but it existed in a degree of scarcity,
and therefore on the principle which I have before explained, it never
sunk in its current value. Though so debased, it was still the interest
of debtors to pay in the gold coin. If indeed the quantity of this
debased silver coin had been enormously great, or if the mint had issued
such debased pieces, it might have been the interest of debtors to pay
in this debased money; but its quantity was limited and it sustained its
value, and therefore gold was in practice the real standard of
currency.

That it was so, is no where denied; but it has been contended that it
was made so by the law which declared that silver should not be a legal
tender for any debt exceeding 25_l. _, unless by weight, according to the
mint standard.

But this law did not prevent any debtor from paying any debt, however
large its amount, in silver currency fresh from the mint; that the
debtor did not pay in this metal, was not a matter of chance, nor a
matter of compulsion, but wholly the effect of choice; it did not suit
him to take silver to the mint, it did suit him to take gold thither. It
is probable that if the quantity of this debased silver in circulation
had been enormously great, and also a legal tender, that a guinea would
have been again worth thirty shillings; but it would have been the
debased shilling that would have fallen in value, and not the guinea
that had risen.

It appears then, that whilst each of the two metals was equally a legal
tender for debts of any amount, we were subject to a constant change in
the principal standard measure of value. It would sometimes be gold,
sometimes silver, depending entirely on the variations in the relative
value of the two metals, and at such times the metal, which was not the
standard, would be melted, and withdrawn from circulation, as its value
would be greater in bullion than in coin. This was an inconvenience
which it was highly desirable should be remedied, but so slow is the
progress of improvement, that although it had been unanswerably
demonstrated by Mr. Locke, and had been noticed by all writers on the
subject of money since his day, a better system was never adopted till
the last session of Parliament, when it was enacted that gold only
should be a legal tender for any sum exceeding forty-two shillings.

Dr. Smith does not appear to have been quite aware of the effect of
employing two metals as currency, and both a legal tender for debts of
any amount; for he says that "in reality, during the continuance of any
one regulated proportion between the respective values of the different
metals in coin, the value of the most precious metal regulates the value
of the whole coin. " Because gold was in his day the medium in which it
suited debtors to pay their debts, he thought that it had some inherent
quality by which it did then, and always would regulate the value of
silver coin.

On the reformation of the gold coin in 1774 a new guinea fresh from the
mint would exchange for only twenty-one debased shillings; but in the
reign of King William, when the silver coin was in precisely the same
condition, a guinea also new and fresh from the mint would exchange for
thirty shillings. On this Mr. Buchanan observes, "here, then, is a most
singular fact, of which the common theories of currency offer no
account; the guinea exchanging at one time for thirty shillings, its
intrinsic worth in a debased silver currency, and afterwards the same
guinea exchanged for only twenty-one of those debased shillings. It is
clear that some great change must have intervened in the state of the
currency between these two different periods, of which Dr. Smith's
hypothesis offers no explanation. "

It appears to me, that the difficulty may be very simply solved, by
referring this different state of the value of the guinea at the two
periods mentioned, to the different _quantities_ of debased silver
currency in circulation. In King William's reign gold was not a legal
tender, it passed only at a conventional value. All the large payments
were probably made in silver, particularly as paper currency, and the
operations of banking, were then little understood. The quantity of this
debased silver money exceeded the quantity of silver money, which would
have been maintained in circulation, if nothing but undebased money had
been in use; and consequently it was depreciated as well as debased. But
in the succeeding period when gold was a legal tender, when bank-notes
also were used in effecting payments, the quantity of debased silver
money did not exceed the quantity of silver coin fresh from the mint,
which would have circulated if there had been no debased silver money;
hence though the money was debased, it was not depreciated. Mr.
Buchanan's explanation is somewhat different, he thinks that a
subsidiary currency is not liable to depreciation, but that the main
currency is. In King William's reign silver was the main currency, and
hence was liable to depreciation. In 1774 it was a subsidiary currency,
and therefore maintained its value. Depreciation, however, does not
depend on a currency being the subsidiary or the main currency, it
depends wholly on its being in excess of quantity.

To a moderate seignorage on the coinage of money there cannot be much
objection, particularly on that currency which is to effect the smaller
payments. Money is generally enhanced in value to the full amount of the
seignorage, and therefore it is a tax which in no way affects those who
pay it, while the quantity of money is not in excess. It must, however,
be remarked, that in a country where a paper currency is established,
although the issuers of such paper should be liable to pay it in specie
on the demand of the holder, still, both their notes and the coin might
be depreciated to the full amount of the seignorage on that coin, which
is alone the legal tender, before the check, which limits the
circulation of paper, would operate. If the seignorage on gold coin were
5 per cent. , for instance, the currency, by an abundant issue of
bank-notes, might be really depreciated 5 per cent. before it would be
the interest of the holders to demand coin for the purpose of melting it
into bullion; a depreciation to which we should never be exposed, if
either there was no seignorage on the gold coin; or, if a seignorage
were allowed, the holders of bank-notes might demand bullion, and not
coin, in exchange for them, at the mint price of 3_l. _ 17_s. _ 10-1/2_d. _
Unless then the bank should be obliged to pay their notes in bullion or
coin, at the will of the holder, the late law which allows a seignorage
of 6 per cent. , or four pence per oz. , on the silver coin, but which
directs that gold shall be coined by the mint without any charge
whatever, is perhaps the most proper, as it will more effectually
prevent any unnecessary variation of the currency. [48]




CHAPTER XXVI.

ON THE COMPARATIVE VALUE OF GOLD, CORN, AND LABOUR, IN RICH AND IN POOR
COUNTRIES.


"Gold and silver, like all other commodities," says Adam Smith,
"naturally seek the market where the best price is given for them; and
the best price is commonly given for every thing in the country which
can best afford it. Labour, it must be remembered, is the ultimate price
which is paid for every thing; and in countries where labour is equally
well rewarded, the money price of labour will be in proportion to that
of the subsistence of the labourer. But gold and silver will naturally
exchange for a greater quantity of subsistence in a rich than in a poor
country; in a country which abounds with subsistence, than in one which
is but indifferently supplied with it. "

But corn is a commodity, as well as gold, silver, and other things; if
all commodities, therefore, have a high exchangeable value in a rich
country, corn must not be excepted; and hence we might correctly say,
that corn exchanged for a great deal of money, because it was dear, and
that money too exchanged for a great deal of corn, because that also was
dear; which is to assert that corn is dear and cheap at the same time.
No point in political economy can be better established, than that a
rich country is prevented from increasing in population, in the same
ratio as a poor country, by the progressive difficulty of providing
food. That difficulty must necessarily raise the relative price of food,
and give encouragement to its importation. How then can money, or gold
and silver, exchange for more corn in rich, than in poor countries? It
is only in rich countries, where corn is dear, that landholders induce
the legislature to prohibit the importation of corn. Who ever heard of a
law to prevent the importation of raw produce in America or
Poland? --Nature has effectually precluded its importation by the
comparative facility of its production in those countries.

How then can it be true, that "if you except corn, and such other
vegetables, as are raised altogether by human industry, all other sorts
of rude produce--cattle, poultry, game of all kinds, the useful fossils
and minerals of the earth, &c. , naturally grow dearer as the society
advances. " Why should corn and vegetables alone be excepted? Dr. Smith's
error throughout his whole work, lies in supposing that the value of
corn is constant; that though the value of all other things may, the
value of corn never can be raised. Corn, according to him, is always of
the same value, because it will always feed the same number of people.
In the same manner it might be said, that cloth is always of the same
value, because it will always make the same number of coats. What can
value have to do with the power of feeding and clothing?

Corn, like every other commodity, has in every country its natural
price, viz. that price which is necessary to its production, and without
which it could not be cultivated: it is this price which governs its
market price, and which determines the expediency of exporting it to
foreign countries. If the importation of corn were prohibited in
England, its natural price might rise to 6_l. _ per quarter in England,
whilst it was only at half that price in France. If at this time, the
prohibition of importation were removed, corn would fall in the English
market, not to a price between 6_l. _ and 3_l. _, but ultimately and
permanently to the natural price of France, the price at which it could
be furnished to the English market, and afford the usual and ordinary
profits of stock in France; and it would remain at this price, whether
England consumed a hundred thousand, or a million of quarters. If the
demand of England were for the latter quantity, it is probable that,
owing to the necessity under which France would be, of having recourse
to land of a worse quality, to furnish this large supply, the natural
price would rise in France; and this would of course affect also the
price of corn in England. All that I contend for is, that it is the
natural price of commodities in the exporting country, which ultimately
regulates the prices at which they shall be sold, if they are not the
objects of monopoly, in the importing country.

But Dr. Smith, who has so ably supported the doctrine of the natural
price of commodities ultimately regulating their market price, has
supposed a case in which he thinks that the market price would not be
regulated either by the natural price of the exporting or of the
importing country. "Diminish the real opulence either of Holland, or the
territory of Genoa," he says, "while the number of their inhabitants
remains the same; diminish their power of supplying themselves from
distant countries, and the price of corn, instead of sinking with that
diminution in the quantity of their silver which must necessarily
accompany this declension, either as its cause or as its effect, will
rise to the price of a famine. "

To me it appears, that the very reverse would take place: the diminished
power of the Dutch or Genoese to purchase generally, might depress the
price of corn for a time below its natural price in the country from
which it was exported, as well as in the countries in which it was
imported, but it is quite impossible that it could ever raise it above
that price. It is only by increasing the opulence of the Dutch or
Genoese, that you could increase the demand, and raise the price of corn
above its former price; and that would take place only for a very
limited time, unless new difficulties should arise in obtaining the
supply.

Dr. Smith further observes on this subject: "When we are in want of
necessaries, we must part with all superfluities, of which the value, as
it rises in times of opulence and prosperity, so it sinks in times of
poverty and distress. " This is undoubtedly true; but he continues, "it
is otherwise with necessaries. Their real price, the quantity of labour
which they can purchase or command, rises in times of poverty and
distress, and sinks in times of opulence and prosperity, which are
always times of great abundance, for they could not otherwise be times
of opulence and prosperity. Corn is a necessary, silver is only a
superfluity. "

Two propositions are here advanced, which have no connexion with each
other; one, that under the circumstances supposed, corn would command
more labour, which is not disputed; the other, that corn would sell at
a higher money price, that it would exchange for more silver; this I
contend to be erroneous. It might be true, if corn were at the same time
scarce, if the usual supply had not been furnished. But in this case it
is abundant, it is not pretended that a less quantity than usual is
imported, or that more is required. To purchase corn, the Dutch or
Genoese want money, and to obtain this money, they are obliged to sell
their superfluities. It is the market value and price of these
superfluities which falls, and money appears to rise as compared with
them. But this will not tend to increase the demand for corn, nor to
lower the value of money, the only two causes which can raise the price
of corn. Money, from a want of credit, and from other causes, may be in
great demand, and consequently dear, comparatively with corn; but on no
just principle can it be maintained, that under such circumstances money
would be cheap, and therefore, that the price of corn would rise.

When we speak of the high or low value of gold, silver, or any other
commodity in different countries, we should always mention some medium
in which we are estimating them, or no idea can be attached to the
proposition. Thus, when gold is said to be dearer in England than in
Spain, if no commodity is mentioned, what notion does the assertion
convey? If corn, olives, oil, wine, and wool, be at a cheaper price in
Spain than in England; estimated in those commodities, gold is dearer in
Spain. If again, hardware, sugar, cloth, &c. be at a lower price in
England than in Spain, then, estimated in those commodities, gold is
dearer in England. Thus gold appears dearer or cheaper in Spain, as the
fancy of the observer may fix on the medium by which he estimates its
value. Adam Smith, having stamped corn and labour as an universal
measure of value, would naturally estimate the comparative value of gold
by the quantity of those two objects for which it would exchange: and,
accordingly, when he speaks of the comparative value of gold in two
countries, I understand him to mean its value estimated in corn and
labour.

But we have seen, that, estimated in corn, gold may be of very different
value in two countries. I have endeavoured to shew that it will be low
in rich countries, and high in poor countries; Adam Smith is of a
different opinion: he thinks that the value of gold estimated in corn is
highest in rich countries. But without further examining which of these
opinions is correct, either of them is sufficient to shew, that gold
will not necessarily be lower in those countries which are in possession
of the mines, though this is a proposition maintained by Adam Smith.
Suppose England to be possessed of the mines, and Adam Smith's opinion,
that gold is of the greatest value in rich countries, to be correct:
although gold would naturally flow from England to all other countries
in exchange for their _goods_, it would not follow that gold was
necessarily lower in England, as compared with corn and labour, than in
those countries. In another place, however, Adam Smith speaks of the
precious metals being necessarily lower in Spain and Portugal, than in
other parts of Europe, because those countries happen to be almost the
exclusive possessors of the mines which produce them. "Poland, where the
feudal system still continues to take place at this day as beggarly a
country as it was before the discovery of America. _The money price of
corn, however, has risen_; THE REAL VALUE OF THE PRECIOUS METALS HAS
FALLEN in Poland, in the same manner as in other parts of Europe. Their
quantity, therefore, must have increased there as in other places, _and
nearly in the same proportion to the annual produce of the land and
labour_. This increase of the quantity of those metals, however, has
not, it seems, increased that annual produce, has neither improved the
manufactures and agriculture of the country, nor mended the
circumstances of its inhabitants. Spain and Portugal, the countries
which possess the mines, are, after Poland, perhaps, the two most
beggarly countries in Europe. The value of the precious metals, however,
_must be lower in Spain and Portugal_ than in any other parts of Europe,
loaded, not only with a freight and insurance, but with the expense of
smuggling, their exportation being either prohibited, or subjected to a
duty. _In proportion to the annual produce of the land and labour,
therefore, their quantity must be greater in_ those countries than in
any other part of Europe: those countries, however, are poorer than the
greater part of Europe. Though the feudal system has been abolished in
Spain and Portugal, it has not been succeeded by a much better. "

Dr. Smith's argument appears to me to be this:--Gold, when estimated in
corn, is cheaper in Spain than in other countries, and the proof of this
is, not that corn is given by other countries to Spain for gold, but
that cloth, sugar, hardware, are by those countries given in exchange
for that metal.




CHAPTER XXVII.

TAXES PAID BY THE PRODUCER.


M. Say greatly magnifies the inconveniences which result if a tax on a
manufactured commodity is levied at an early, rather than at a late
period of its manufacture. The manufacturers, he observes, through whose
hands the commodity may successively pass, must employ greater funds in
consequence of having to advance the tax, which is often attended with
considerable difficulty to a manufacturer of very limited capital and
credit. To this observation no objection can be made.

Another inconvenience on which he dwells is, that in consequence of the
advance of the tax, the profits on the advance also must be charged to
the consumer, and that this additional tax is one from which the
treasury derives no advantage.

In this latter objection I cannot agree with M. Say. The state, we will
suppose, wants to raise _immediately_ 1000_l. _ and levies it on a
manufacturer, who will not, for a twelve-month, be able to charge it to
the consumer on his finished commodity. In consequence of such delay, he
is obliged to charge for his commodity an additional price, not only of
1000_l. _ the amount of the tax, but probably of 1100_l. _, 100_l. _ being
for interest on the 1000_l. _ advanced. But in return for this additional
100_l. _ paid by the consumer, he has a real benefit, inasmuch as his
payment of the tax which Government required immediately, and which he
must finally pay, has been postponed for a year; an opportunity,
therefore, has been afforded to him of lending to the manufacturer, who
had occasion for it, the 1000_l. _ at 10 per cent. , or at any other rate
of interest which might be agreed upon. Eleven hundred pounds payable at
the end of one year, when money is at 10 per cent. interest, is of no
more value than 1000_l. _ to be paid immediately. If Government delayed
receiving the tax for one year till the manufacture of the commodity
was completed, it would, perhaps, be obliged to issue an Exchequer bill
bearing interest, and it would pay as much for interest as the consumer
would save in price, excepting, indeed, that portion of the price which
the manufacturer might be enabled, in consequence of the tax, to add to
his own real gains. If, for the interest of the Exchequer bill,
Government would have paid 5 per cent. , a tax of 50_l. _ is saved by not
issuing it. If the manufacturer borrowed the additional capital at 5 per
cent. , and charged the consumer 10 per cent. , he also will have gained 5
per cent. on his advance over and above his usual profits, so that the
manufacturer and Government together gain, or save, precisely the sum
which the consumer pays.

M. Simonde, in his excellent work, _De la Richesse Commerciale_,
following the same line of argument as M. Say, has calculated that a tax
of 4000 francs, paid originally by a manufacturer, whose profits were at
the moderate rate of 10 per cent. , would, if the commodity manufactured
only passed through the hands of five different persons, be raised to
the consumer to the sum of 6734 francs. This calculation proceeds on
the supposition, that he who first advanced the tax, would receive from
the next manufacturer 4400 francs, and he again from the next, 4840
francs; so that at each step 10 per cent. on its value would be added to
it. This is to suppose that the value of the tax would be accumulating
at compound interest, not at the rate of 10 per cent. per annum, but at
an absolute rate of 10 per cent. , at every step of its progress. This
opinion of M. de Simonde would be correct if five years elapsed between
the first advance of the tax, and the sale of the taxed commodity to the
consumer; but if one year only elapsed, a remuneration of 400 francs,
instead of 2734, would give a profit at the rate of 10 per cent. per
annum, to all who had contributed to the advance of the tax, whether the
commodity had passed through the hands of five manufacturers or fifty.




CHAPTER XXVIII.

ON THE INFLUENCE OF DEMAND AND SUPPLY ON PRICES.


It is the cost of production which must ultimately regulate the price of
commodities, and not, as has been often said, the proportion between the
supply and demand: the proportion between supply and demand may, indeed,
for a time affect the market value of a commodity, until it is supplied
in greater or less abundance, according as the demand may have increased
or diminished; but this effect will be only of temporary duration.

Diminish the cost of production of hats, and their price will ultimately
fall to their new natural price, although the demand should be doubled,
trebled, or quadrupled. Diminish the cost of subsistence of men, by
diminishing the natural price of the food and clothing, by which life
is sustained, and wages will ultimately fall, notwithstanding that the
demand for labourers may very greatly increase.

The opinion that the price of commodities depends solely on the
proportion of supply to demand, or demand to supply, has become almost
an axiom in political economy, and has been the source of much error in
that science. It is this opinion which has made Mr. Buchanan maintain
that wages are not influenced by a rise or fall in the price of
provisions, but solely by the demand and supply of labour; and that a
tax on the wages of labour would not raise wages, because it would not
alter the proportion of the demand of labourers to the supply.

The demand for a commodity cannot be said to increase, if no additional
quantity of it be purchased or consumed; and yet under such
circumstances its money value may rise. Thus, if the value of money were
to fall, the price of every commodity would rise, for each of the
competitors would be willing to spend more money than before on its
purchase; but though its price rose 10 or 20 per cent. if no more were
bought than before, it would not, I apprehend, be admissible to say,
that the variation in the price of the commodity was caused by the
increased demand for it. Its natural price, its money cost of
production, would be really altered by the altered value of money; and
without any increase of demand, the price of the commodity would be
naturally adjusted to that new value.

"We have seen," says M. Say, "that the cost of production determines the
lowest price to which things can fall: the price below which they cannot
remain for any length of time, because production would then be either
entirely stopped or diminished. " Vol. ii. p. 26.

He afterwards says that the demand for gold having increased in a still
greater proportion than the supply, since the discovery of the mines,
"its price in goods, instead of falling in the proportion of ten to one,
fell only in the proportion of four to one;" that is to say, instead of
falling in proportion as its natural price had fallen, fell in
proportion as the supply exceeded the demand. [49] "_The value of every
commodity rises always in a direct ratio to the demand, and in an
inverse ratio to the supply. _"

The same opinion is expressed by the Earl of Lauderdale.

"With respect to the variations in value, of which every thing valuable
is susceptible, if we could for a moment suppose that any substance
possessed intrinsic and fixed value, so as to render an assumed quantity
of it constantly, under all circumstances, of an equal value, then the
degree of value of all things, ascertained by such a fixed standard,
would vary according to the proportion _betwixt the quantity of them_,
and the demand for them, and every commodity would of course be subject
to a variation in its value, from four different circumstances.

1. "It would be subject to an increase of its value, from a diminution
of its quantity.

2. "To a diminution of its value, from an augmentation of its quantity.

3. "It might suffer an augmentation in its value, from the circumstance
of an increased demand.

4. "Its value might be diminished by a failure of demand.

"As it will, however, clearly appear that no commodity can possess fixed
and intrinsic value, so as to qualify it for a measure of the value of
other commodities, mankind are induced to select, as a practical measure
of value, that which appears the least liable to any of these four
sources of variations, _which are the sole causes of alteration of
value_.

"When in common language, therefore, we express the _value_ of any
commodity, it may vary at one period from what it is at another, in
consequence of eight different contingencies.

1. "From the four circumstances above stated, in relation to the
commodity of which we mean to express the value.

2. "From the same four circumstances, in relation to the commodity we
have adopted as a measure of value. "[50]

This is true of monopolized commodities, and indeed of the market price
of all other commodities for a limited period.