CHAPTER II. [OF MONEY, THE CIRCULATING MEDIUM.] [SECT. I.—OF THE ORIGIN AND USE OF MONEY.] THE Division of Labour, wherever it has been carried to any considerable extent, presupposes the establishment of some common medium of exchange. Without this previous arrangement it would be impossible for an individual to devote himself exclusively to a particular species of employment; divesting himself of every care for the supply of his other wants, and trusting to the fruits of his own labour for the power of commanding the produce of that of his neighbours; and it is thus that the use of money becomes a powerful, and indeed necessary auxiliary to the other circumstances which lay the foundation of the progressive improvement of the species. It would lead me into a detail inconsistent with my present plan, to attempt the slightest historical sketch with respect to the origin of this invention, and to the successive forms which it assumes in proportion as the operations of commerce become more extensive and complicated. These different stages in this history, from the first and simplest operations of barter, to the refinements of paper credit, have been traced by various writers, particularly by Mr. Harris in his Essay upon Money and Coins,* and by Mr. Smith in the Wealth of Nations.† * [In two parts. The first was published in 1757, the second in 1758. The work is anonymous: but by Mr. M'Culloch it is ascribed to Joseph Harris, Assaymaster of the Mint; whereas by Watt and the Catalogues in general, the author is called William Harris, D.D.,-which last is, I presume, an error.-Mr. Stewart's reference will be found in Part I. chap. ii.] † [Book I. chap. iv.; Vol. I. p. 33, seq., tenth edition.] In process of time, among all civilized nations, gold, silver, and copper have supplanted all other commodities as the great instruments of commerce. For this purpose, indeed, these metals are so admirably adapted, that we may justly consider them, particularly the two first, as destined for it by nature, independently of all convention or of all laws.1 The circumstances which recommend silver and gold as the fittest materials for money, are chiefly the following.-First, When pure, and unmixed with base metals, they have everywhere the same characteristics, and in all respects the same qualities. Secondly, They are divisible into minute parts, which are again susceptible of a complete re-union by fusion. Thirdly, They are durable, portable, easily kept, and not liable to injury from want of use. Fourthly, They are susceptible of any form, and any impression. Fifthly, They are not too common, nor to be obtained without a valuable consideration in land and labour. To the provision which nature has thus made for facilitating commerce, in the qualities which so remarkably characterize these metals, it may be worth while to add the advantages which we derive from the variety of metals in which these qualities are to be found. In rich and commercial countries, coins of gold and silver alone would by no means answer all the purposes of exchange. Coins of gold and silver are not well adapted for that retail trade in which, however, the greatest number of subjects are principally concerned. Coins of silver, again, are too bulky for larger payments. It is necessary, therefore, that coins should be made of different metals. Accordingly, in all such countries, this has taken place sooner or later in the progress of commercial refinement. With respect to the history of the coins in England, a great deal of very curious information has been lately brought together, and very perspicuously stated by Lord Liverpool, in his Treatise on the Coins of the Realm, [1805.] The enumeration which has been already given of the qualities which so peculiarly fit the precious metals to perform the 1 See Turgot, [Sur la Formation et la Distribution des Richesses, sect. xlv. Euvres, Tome V. p. 48.] function of media of exchange, seems of itself fully sufficient to account for the universal use made of them in commerce, abstracting altogether from the useful purposes to which they are applicable in the various arts. In stating this remark, it is scarcely necessary for me to add, that I would by no means be understood to deny the important uses of which gold and silver are susceptible, or the intrinsic value which they derive from their beauty and subserviency to the arts of decoration. On this subject I am ready to admit all that has been urged by Mr. Smith, in that part of his work where he attempts to shew that, except iron, they are more useful than any other metal. He says "The demand for those metals arises partly from their utility and partly from their beauty. If you except iron, they are more useful than perhaps any other metal. As they are less liable to rust and impurity, they can more easily be kept clean; and the utensils either of the table or the kitchen are often upon that account more agreeable when made of them. A silver boiler is more cleanly than a lead, copper, or tin one; and the same quality would render a gold boiler still better than a silver one. Their principal merit, however, arises from their beauty, which renders them peculiarly fit for the ornaments of dress and furniture. No paint or dye can give so splendid a colour as gilding. The merit of their beauty is greatly enhanced by their scarcity. . . . These qualities of utility, beauty, and scarcity, are the original foundation of the high price of those metals, or of the great quantity of other goods for which they can everywhere be exchanged. This value was antecedent to, and independent of, their being employed as coin, and was the quality which fitted them for that employment. That employment, however, by occasioning a new demand, and by diminishing the quantity which could be employed in any other way, may have afterwards contributed to keep up or increase their value."* In the whole of this passage I certainly agree with Mr. Smith, excepting where he says, that the intrinsic value of gold and silver was the quality which fitted them for their employ* [Book I. chap. xi. ; Vol. I. p. 268, seq., tenth edition.] ment as coin. It appears to me, that this intrinsic value, which I shall allow to gold and silver in its fullest extent, ought to be regarded in the theory of money as merely accidental circumstances, from which it is proper to abstract with all possible care, as tending only to embarrass our conceptions; for the same reason, that in studying the theory of mechanics, we abstract from the effects of friction, the rigidity of ropes, and the weight of the materials of which machines are composed. The considerations, undoubtedly, mentioned by Mr. Smith, add to the exchangeable value of money, by increasing the demand for the materials of which it is made, in the very same manner as this value would be increased by a deficiency to the same extent, in the ordinary supply coming from the mines. But I cannot help thinking, that the quantity of gold and silver employed in the arts, bears but a very trifling proportion to that which circulates in the shape of money or bullion over the commercial world, so trifling, indeed, as to render it of little moment in the present argument, or at most to place it on the same footing with those circumstances in mechanics, from which, though it is necessary to attend to them in practice, it is nevertheless convenient to abstract in theory, in studying the principle on which any of the simple mechanical powers produces its effect. At any rate, when gold is converted into coin, its possessor never thinks of anything but its exchangeable value, or supposes a coffer of guineas to be more valuable, because they are capable of being transformed into a service of plate for his own use; whatever satisfaction the possessor of a service of plate may derive from the consideration that it may be converted into guineas. Why, then, should we suppose, that if the intrinsic value of gold and silver were annihilated completely, they might not still perform, as well as now, all the functions of money, supposing them to retain all those recommendations formerly stated, which give them so decided a superiority over everything else which could be employed for the same purpose. Supposing the supply of the precious metals, at present afforded by the mines, to fail entirely all over the world, there can be little doubt that all the plate now in existence would be gradually converted into money, and gold and silver would soon cease to be employed in the ornamental arts. In this case, a few years would obliterate entirely all idea of the intrinsic value of these metals; while their value would be understood to arise from those characteristical qualities which recommend them as media of exchange. But so far from sinking in their exchangeable value, they would every day become more valuable in the market than before, in proportion as their quantity was diminished by the slow waste occasioned by commercial circulation. Mr. Smith's doctrine, at the same time, I must own, coincides with the general opinion on this subject; and Mr. Harris carries it so far, as to propose it as a questionable point, whether coins would have preserved their value and been continued as money, if silver and gold had not been applicable to other purposes. I confess I can see no good reason for this observation; as, independently of the intrinsic value of these metals, their peculiar adaptation to their different ends, as signs or measures of value, could not have failed to have given them an exclusive title to this employment. I am therefore disposed to think, that Bishop Berkeley was not wide of the truth, (for I would not go so far as to adopt his idea in its full extent,) when he proposed the following doubts in his pamphlet, entitled The Querist, "Whether money is to be considered as having an intrinsic value, or as being a commodity, a standard, a measure, or a pledge, as is variously suggested by writers? And whether the true idea of money, as such, be not altogether that of a ticket or counter?" The ingenious author certainly did not mean, in this query, to deny that gold and silver have an intrinsic value, but only to insinuate, that this is an accidental or secondary consideration from which we ought to abstract entirely in forming a precise idea of their function as money. This is perfectly evident from the qualifying words "as such," which he introduces into the Query. The same functions might be performed by a variety of other metals, but by none which unites so many advantages; and * [Query xxiii.] VOL. VIII. Y |