Chapter 9: National Opulence Does Not Consist In Money

We have shown what rendered money the measure of value.

The more money that is needed to circulate the goods of any country, the fewer the goods.

  • Therefore, the poverty of any country increases as the money increases.
  • Money in this respect may be compared to the high roads of a country.
  • If we could find any way to save the ground taken up by highways, we would:
  • The worth of a piece of ground does not lie in the number of highways that run through it.
  • We would greatly increase our country's wealth if we:
  • Hence, the beneficial effects of the creation of banks and paper credit.

  • Suppose as above, that:
  • If the banks in Scotland issued notes to the value of 2 million reserving £300,000 metal money to answer immediate demands, there would be

  • The natural circulation however is 2 million.
  • What is over will be sent abroad to bring home materials for food, clothes, and lodging.
  • The only objection against paper money is that it drains the country of gold and silver.
  • But if we consider attentively, we will find that this is no real hurt to a country.
  • Money is not fit for the necessaries of life.

  • If all the coin of the nation were exported, and our commodities increased proportionally, it might be recalled on any sudden emergency sooner than anyone could imagine.
  • This reasoning is confirmed by matter of fact.
  • Banks were first established to facilitate the transference of money.

  • When commerce is carried to a high pitch, the delivery of gold and silver consumes a lot of time.
  • Before the creation of the bank at Amsterdam, the merchants kept certain sums in bags to answer immediate demands.
  • In this case, you must either:
  • The inconveniences from this led to the creation of that bank.
  • In this way, the bank of Amsterdam has a good effect in facilitating commerce.
  • In 1701, when the French army was at Utrecht, a sudden demand was made on it.
  • Before this, a suspicion prevailed that the bankers had fallen into a custom of trading with the money.
  • This plainly showed that:
  • It has been affirmed by some that the bank of Amsterdam has always money in its stores of 80 or 90 million.
  • The constitution of the banks in Britain differs widely from that in Amsterdam.

    Originally, they were on the same footing with the Amsterdam bank.

  • The ruin of a bank would not be so dangerous as is commonly imagined.
  • Suppose all the money in Scotland was issued by one bank, and that it became bankrupt.
  • The wealth of the whole country would not be much hurt by it, because 1% of the country's riches does not consist in money.
  • The only method to prevent the bad consequence from the ruin of banks is to:
  • When several are established in a country, a mutual jealousy prevails.
  • If there were just one bank in Scotland, it would perhaps be a little more enterprising, as it would have no rival.
  • But having many banks puts this beyond all danger.
  • From all these considerations, banks are beneficial to the country's commerce.
  • Several political writers have published treatises to show the pernicious nature of banks and paper money.

    This reasoning was thought very satisfactory in those days.

    Some time after that, Mr. Gee, also a merchant, wrote with the same intention.

  • The absurdity of this is also evident from former considerations.
  • Mr. Hume published some essays showing the absurdity of these and other such doctrines.

  • On the contrary, whenever the amount of money falls below the proportion of goods, the price of goods reduces.
  • Thus, money and goods will keep near about a certain level in every country.
  • Mr. Hume’s reasoning is exceedingly ingenious.
  • Human industry always multiplies goods and money together, though not always in the same proportion.

  • Corn and other commodities of that kind must always be produced in greater abundance than gold, precious stones, and the like, because they are more within the reach of human industry.
  • For these reasons, metal money never increases in proportion to the increase of goods.
  • In savage nations, money gives a vast price, because their only money is what they get by plunder.
  • But when a nation arrives at a certain degree of improvement in the arts, the value of money diminishes.
  • Mr. Locke also published a treatise to show the pernicious consequences of allowing the nation to be drained of money.

    Our riches do not consist in money but commodities because money cannot be used for any of life purposes, but commodities can.

  • It is easy to show how small a proportion the cash in every country bears to the public opulence.
  • It is generally supposed that there are 30 million of money circulating in Britain.
  • Some who support the notion that the country's riches consists in money, say that when a person retires from trade he turns his stock immediately into cash.

  • No man hoards up money for its own sake.
  • The opinion that riches consist in money is absurd in speculation.

  • It has caused so many prejudicial errors in practice, such as the following.

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    Next: Section 2, Chapter 10