Chapter 9: National Opulence Does Not Consist In Money
We have shown what rendered money the measure of value.
But labour, not money, is the true measure of value.
- Therefore, national opulence consists in:
- the quantity of goods and
- the facility of barter
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.
- Suppose Scotland's total stock of corn, cattle, money, etc. amounts to 20 million.
- If 1 million in cash is needed to circulate it, there will only be 19 million of food, clothes, and lodging.
- The people have less by 1 million than they would have if there were no need for this money.
Money in this respect may be compared to the high roads of a country.
- Money is a dead stock in itself.
- It supplies no life convenience.
If we could find any way to save the ground taken up by highways, we would:
- It does not create corn or grass.
- But it circulates all the corn and grass in the country.
The worth of a piece of ground does not lie in the number of highways that run through it.
- considerably increase the quantity of commodities, and
- have more to carry to the market.
We would greatly increase our country's wealth if we:
- Similarly, the riches of a country does not consist in the amount of money used to circulate commerce, but in the great abundance of life's necessaries.
- could find a way to send the half of our money abroad to be converted into goods, and
- supply the channel of circulation at home, at the same time.
Hence, the beneficial effects of the creation of banks and paper credit.
Suppose as above, that:
- It is easy to show that banks are advantageous to the country's commerce.
- the whole stock of Scotland amounted to 20 million,
- 2 million metal money are employed in the circulation of it, and
- the other 18 million are in commodities.
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.
- 1.7 million pounds circulating in cash, and
- 2 million of paper money besides.
What is over will be sent abroad to bring home materials for food, clothes, and lodging.
- The channel will receive no more.
The only objection against paper money is that it drains the country of gold and silver.
- This has a tendency to enrich a nation and may be seen immediately.
- For whatever commodities are imported, just so much is added to the country's opulence.
But if we consider attentively, we will find that this is no real hurt to a country.
- Bank notes will not circulate in a foreign market.
- Foreign commodities must be paid in coins.
- The nation's opulence does not consist in the amount of coin.
- It consists in the abundance of commodities necessary for life.
- Whatever increases these commodities increases the country's riches.
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.
- It cannot be food, clothes, or lodging.
- It must be exchanged for commodities for these purposes.
This reasoning is confirmed by matter of fact.
- Goods will always bring in money.
- As long as the stock of commodities in any nation increases, they can augment the amount of coin if necessary, by exporting their stock overseas.
- The commerce of every European nation has been remarkably increased by the creation of banks.
- Everybody in Britain is sensible of their good effects
- Our American colonies are most flourishing.
- Most of the commerce there is carried on by paper.
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.
- At this day, this is the only design of the bank at Amsterdam.
Before the creation of the bank at Amsterdam, the merchants kept certain sums in bags to answer immediate demands.
- When a great merchant had 20,000 pounds to give away, he would take almost a week to count it out in guineas and shillings.
- A bank bill prevents all this trouble.
In this case, you must either:
- This was done to lessen the trouble of counting out huge amounts of cash.
The inconveniences from this led to the creation of that bank.
- trust the merchant's honesty or
- If you trusted his fidelity, frequent frauds would be committed.
- you must take the trouble of counting it over.
- If you did not trust him, your trouble was not lessened.
In this way, the bank of Amsterdam has a good effect in facilitating commerce.
- You deposit money there.
- The bank gives you a bill to that extent.
- This money is secure.
- You never call for it because the bill will generally sell above par.
- Therefore it is advantageous to you to let it lie.
- The bank has no office for payment, because there is seldom any payment demanded.
In 1701, when the French army was at Utrecht, a sudden demand was made on it.
- Its notes circulate only there.
- Amsterdam's credit is not endangered by the bank.
Before this, a suspicion prevailed that the bankers had fallen into a custom of trading with the money.
- Holland was alarmed with the expected fatal consequences.
- But no danger ensued.
This plainly showed that:
- But at that time, it was found that a great amount of the money had been scorched by a fire that happened in the neighbourhood about 50 years before that.
It has been affirmed by some that the bank of Amsterdam has always money in its stores of 80 or 90 million.
- there was no ground for the suspicion, and
- the bank's credit remained unhurt.
- But this has lately been shown by an ingenious gentleman to be false, from a comparison of the trade of London and Amsterdam.
The constitution of the banks in Britain differs widely from that in Amsterdam.
- Here there is only about 1/6 of the stock kept in readiness for answering demands.
- The rest is employed in trade.
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.
- But the directors took liberty to send out money.
- They gradually came to their present situation.
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:
- A very few individuals would be ruined by it, but not many.
- Because the amount of cash or paper that people have in their hands bears no proportion to their wealth.
When several are established in a country, a mutual jealousy prevails.
- give monopolies to none, and
- to encourage the creation of as many as possible.
If there were just one bank in Scotland, it would perhaps be a little more enterprising, as it would have no rival.
- They are continually making unexpected runs on one another.
- This puts them on their guard.
- It obliges them to provide themselves against such demands.
But having many banks puts this beyond all danger.
- By mismanagement, it might become bankrupt.
From all these considerations, banks are beneficial to the country's commerce.
- Even if one did break, everyone would have very few of its notes.
- It is a bad policy to restrain them.
Several political writers have published treatises to show the pernicious nature of banks and paper money.
- Mun, a London merchant, published one with this intention.
- It was a reply to a book written on the opposite before.
- He affirms that England must go to ruin if it is drained of its money.
- The circulation of paper banishes gold and silver from the country.
- All other goods which we have are spent on our subsistence.
- These goods gradually diminish and must finally come to an end.
- Money never decays.
- A stock of it will last forever.
- By keeping up big amounts of it in the country, we shall insure our riches as long as the world stands.
This reasoning was thought very satisfactory in those days.
- But from what has been said before concerning the nature of public opulence, it is absurd.
Some time after that, Mr. Gee, also a merchant, wrote with the same intention.
The absurdity of this is also evident from former considerations.
- He tried to show that England would soon be ruined by trade with foreign countries.
- By the exchange, he calculates that the balance is always against us.
- Consequently, in almost all our commercial dealings with other nations we are losers.
- As they drain us of our money, we must soon come to ruin.
- Foreign commerce was not stopped by any regulations.
- The nation has prodigiously increased in riches, and is still increasing.
- He proposed some regulations to prevent our ruin from this quarter.
- If the government had been so foolish as to have complied with, they would more probably have impoverished the nation.
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.
- He proves very ingeniously that:
- money must always bear a certain proportion to the amount of commodities in every country.
- whenever money is accumulated beyond the proportion of commodities in any country, the price of goods will necessarily rise.
- This country will then be undersold at the foreign market
- Consequently, the money must go to other nations.
Thus, money and goods will keep near about a certain level in every country.Mr. Hume’s reasoning is exceedingly ingenious.
- The country undersells others in foreign markets.
- Consequently, money returns in great plenty.
- However, he seems to have gone a little into the notion that public opulence consists in money.
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.
- The labour of men will always be employed in producing whatever is the object of human desire.
- Things will increase in proportion as it is in the power of man to cultivate them.
For these reasons, metal money never increases in proportion to the increase of goods.
- By proper culture, almost any part of the earth's surface can produce corn.
- But gold cannot be found everywhere.
- Even where it is found, it lies concealed in the bowels of the earth.
- A long time and much labour are needed to produce a small amount of it.
In savage nations, money gives a vast price, because their only money is what they get by plunder.
- Consequently, metal money will be sold more cheaply the richer a country becomes.
But when a nation arrives at a certain degree of improvement in the arts, the value of money diminishes.
- They do not know what is needed to produce money in their own country.
- They then begin to search the mines and make it themselves.
- From the fall of the Roman Empire to the discovery of the West Indies, the value of money was very high, and continually increasing.
- Since that latter period its value has decreased considerably.
Mr. Locke also published a treatise to show the pernicious consequences of allowing the nation to be drained of money.
- His notions were also founded on the idea that public opulence consists in money.
- Though he treats it in a more philosophical light.
- He affirms, with Mr. Mun, that:
- if there is no money in a nation it must soon come to ruin
- all commodities are soon spent, but money lasts for ever.
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.
- The 'consumptibility' of goods is the great cause of human industry.
- An industrious people will always produce more than they consume.
- But the annual consumption is much more than 100 million.
- At a population of 10 million and allowing 10 pounds per annum for the subsistence of each person, which is by much too little, the whole annual consumption amounts to 100 million.
- So it appears that the circulating cash bears but a small proportion to the whole opulence of the country.
- However, it is probable that there are less than 30 million people in Britain.
- In this case, the proportion will be still less.
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.
- This is because money is the instrument of commerce.
- A man can change it for the necessaries and elegancies of life more easily than anything else.
- Even the miser who locks up his gold in his chest has this end in view.
- He considers that by keeping money always by him, he can supply at once all the necessities of himself and his family.
The opinion that riches consist in money is absurd in speculation.It has caused so many prejudicial errors in practice, such as the following.
Next: Section 2, Chapter 10