Part 1

MONEY

AND

TRADE

CONSIDERED:

WITH A PROPOSAL FOR SUPPLYING THE NATION WITH MONEY.

FIRST PUBLISHED AT EDINBURGH MDCCV.

BY THE CELEBRATED

JOHN LAW, ESQ;

AFTERWARD

DIRECTOR TO THE MISSISIPI COMPANY.

GLASGOW,

PRINTED AND SOLD BY R. & A. FOULIS

MDCCL.

MONEY AND TRADE CONSIDERED.

There are several proposals offer’d to remedy the difficulties the nation is under from the great scarcity of money.

That a right judgment may be made, which will be most safe, advantageous and practicable; it seems necessary, 1. that the nature of money be inquired into, and why silver was used as money preferable to other goods. 2. that trade be considered, and how far money affects trade. 3. that the measures have been used for preserving and increasing money, and these now proposed, be examined.

CHAP. I.

_How goods are valued. of barter. of silver; its value as a metal; its qualities fitting it for money; and of the additional value it received from being used as money._

Goods have a value from the uses they are applyed to; and their value is greater or lesser, not so much from their more or less valuable, or necessary uses, as from the greater or lesser quantity of them in proportion to the demand for them. example; water is of great use, yet of little value; because the quantity of water is much greater than the demand for it. diamonds are of little use, yet of great value, because the demand for diamonds is much greater, than the quantity of them.

Goods of the same kind differ in value, from any difference in their quality, one horse is better than another horse. barley of one country is better than barley of another country.

Goods change their value, from any change in their quantity, or in the demand for them. if oats be in greater quantity than last year, and the demand the same, or lesser, oats will be less valuable.

Mr. Locke says, the value of goods is according to their quantity in proportion to their vent. the vent of goods cannot be greater than the quantity, but the demand may be greater: if the quantity of wine brought from France be a 100 ton, and the demand be for 500 ton, the demand is greater than the vent; and the 100 ton will sell at a higher price, than if the demand were only equal to the vent. so the prices of goods are not according to the quantity in proportion to the vent, but in proportion to the demand.

Before the use of money was known, goods were exchanged by barter, or contract; and contracts were made payable in goods.

This state of barter was inconvenient, and disadvantageous. 1. he who desired to barter would not always find people who wanted the goods he had, and had such goods as he desired in exchange.

2. Contracts taken payable in goods were uncertain, for goods of the same kind differed in value.

3. There was no measure by which the proportion of value goods had to one another could be known.

In this state of barter there was little trade, and few arts-men. the people depended on the landed-men. the landed-men laboured only so much of the land as served the occasions of their families, to barter for such necessaries as their land did not produce; and to lay up for seed and bad years. what remained was unlaboured; or gifted on condition of vassalage, and other services.

The losses and difficulties that attended barter, would force the landed-men to a greater consumption of the goods of their own product, and a lesser consumption of other goods; or to supply themselves, they would turn the land to the product of the several goods they had occasion for; tho’ only proper to produce of one kind. so, much of the land was unlaboured, what was laboured was not employ’d to that by which it would have turned to most advantage, nor the people to the labour they were most fit for.

Silver as a metal had a value in barter, as other goods; from the uses it was then apply’d to.

As goods of the same kind differ’d in value, so silver differ’d from silver, as it was more or less fine.

Silver was lyable to a change in its value, as other goods, from any change in its quantity, or in the demand for it.

Silver had qualities which fitted it for the use of money.

1. It could be brought to a standard in fineness, so was certain as to its quality.

2. It was easie of delivery.

3. It was of the same value in one place that it was in another; or differed little, being easie of carriage.

4. It could be kept without loss or expence; taking up little room, and being durable.

5. It could be divided without loss, an ounce in four pieces, being equal in value to an ounce in one piece.

Silver having these qualities, ’tis reasonable to think it was used as money, before it was coined. what is meant by being used as money, is, that silver in bullion was the measure by which goods were valued: the value by which goods were exchanged: and in which contracts were made payable.

He who had more goods than he had use for, would choose to barter them for silver, tho’ he had no use for it; because, silver was certain in it’s quality: it was easie of delivery: it could be kept without loss or expence: and with it he could purchase other goods as he had occasion, in whole or in part, at home or abroad, silver being divisible without loss, and of the same value in different places. If A. B. had 100 sheep, and desired to exchange them for horses; C. D. had 10 horses, which were equal to, or worth the 100 sheep, and was willing to exchange: but as A. B. had not present occasion for the horses, rather than be at the expence of keeping them, he would barter his sheep with E. F. who had the value to give in silver, with which he could purchase the horses at the time he had occasion.

Or if E. F. had not silver, but was satisfied to give his bond for the silver, or the horses, payable at the time A. B. wanted them; A. B. would choose to take the bond payable in silver, rather than in horses: because silver was certain in quality, and horses differed much. so silver was used as the value in which contracts were made payable.

Silver was likewise used as the measure by which goods were valued, because certain in quality. if A. B. had a 100 weight of lead, and desired to exchange it for barley, the way to know what quantity of barley was equal in value to the lead, was by the silver. if the 100 weight of lead was equal to five ounces of fine silver, and 5 ounces of fine silver equal to 20 bolls of barley, then 20 bolls was the quantity of barley to be given in exchange for the lead.

Silver being easie of carriage, so equal in one place to what it was in another; was used as the measure by which goods to be delivered in different places were valued. If a piece of wine was to be delivered at Glasgow by A. B. merchant there, to the order of C. D. merchant in Aberdeen: and the value to be delivered in oats at Aberdeen by C. D. to the order of A. B. the wine could not be valued by the quantity of oats it was worth at Glasgow, nor the oats by the quantity of wine they were worth at Aberdeen. wine or oats might differ in quality, or be more or less valuable at the one place than at the other. the way to have known what quantity of oats was equal to the wine, was by the quantity of silver each was worth at the places they were to be delivered. if the piece of wine was worth at Glasgow 20 ounces of fine silver, and 20 ounces of fine silver worth 50 bolls of oats at Aberdeen; then 50 bolls was the quantity of oats to be given there in return for the wine.

Silver being capable of a stamp, princes, for the greater convenience of the people, set up mints to bring it to a standard, and stamp it; whereby its weight and fineness was known, without the trouble of weighing or fyning; but the stamp added nothing to the value.

For these reasons silver was used as money; its being coined was only a consequence of its being applied to that use in bullion, tho’ not with the same convenience.

Mr. Locke and others who have wrote on this subject, say, the general consent of men placed an imaginary value upon silver, because of its qualities fitting it for money.[1]

[1] Locke p. 31. upon interest, and p. 1. upon money.

I cannot conceive how different nations could agree to put an imaginary value upon any thing, especially upon silver, by which all other goods are valued; or that any one country would receive that as a value, which was not valuable equal to what it was given for; or how that imaginary value could have been kept up. but, suppose France receiving silver at an imaginary value, other nations received it at that value, because received so in France: then for the same reason a crown passing in France for 76 Sols, should pass in Scotland for 76 pence, and in Holland for 76 Stivers. but on the contrair, even in France where the crown is raised, ’tis worth no more than before when at 60 Sols.

It is reasonable to think silver was barter’d as it was valued for its uses as a mettal, and was given as money according to its value in barter. the additional use of money silver was applied to would add to its value, because as money it remedied the disadvantages and inconveniencies of barter, and consequently the demand for silver increasing, it received an additional value equal to the greater demand its use as money occasioned.

And this additional value is no more imaginary, than the value silver had in barter as a metal, for such value was because it served such uses, and was greater or lesser according to the demand for silver as a mettal, proportioned to its quantity. the additional value silver received from being used as money, was because of its qualities which fitted it for that use; and that value was according to the additional demand its use as money occasioned.

If either of these values are imaginary, then all value is so, for no goods have any value, but from the uses they are apply’d to, and according to the demand for them, in proportion to their quantity.

Thus silver having a value, and qualities fitting it for money, which other goods had not, was made money, and for the greater convenience of the people was coined.

The names of the different pieces might have been number 1. number 2. and so on; number 60 would have been the same as a crown; for the name and stamp was only to certify, that the piece had such a quantity of silver in it, of such a fineness.

Goods of any other kind that have the same qualities might then, and may now be made money equal to their value. gold and copper may be made money, but neither with so much convenience as silver. payments in copper being inconvenient by reason of its bulk; and gold not being in so great quantity as to serve the use of money. in countries where gold is in great quantity, it is used as money; and where gold and silver are scarce, copper is used.

Gold is coined for the more easie exchange of that metal, and copper to serve in small payments; but silver is the measure by which goods are valued, the value by which goods are exchanged, and in which contracts are made payable.

As money encreased, the disadvantages and inconveniences of barter were removed; the poor and idle were employed, more of the land was laboured, the product encreased, manufactures and trade improved, the landed-men lived better, and the people with less dependance on them.

CHAP. II.

_Of Trade, and how far it depends on money. that the increase of the people depends on Trade. of exchange._

Trade is domestick, or foreign. domestick trade is the imployment of the people, and the exchange of goods within the country.

Foreign trade has several branches.

1. The product and manufacture being more than the consumption, a part is exported, and in return foreign goods are brought home.

2. Selling the goods exported at one port, and loading there to sell another; whereby a greater return is made, than if the goods exported had been carry’d directly there.

3. Bringing home the product and manufacture of other countries, from whence, and when they are cheap; to supply countries where, and when they are dear.

4. Bringing home the product of other countries, and exporting it in manufacture.

5. Freighting, or hireing out ships.

Domestick and foreign trade may be carried on by barter; but not for so great a value as by money, nor with so much convenience.

Domestick trade depends on the money. a greater quantity employs more people than a lesser quantity. a limited sum can only set a number of people to work proportioned to it, and ’tis with little success laws are made, for imploying the poor or idle in countries where money is scarce; good laws may bring the money to the full circulation ’tis capable of, and force it to those employments that are most profitable to the country: but no laws can make it go further, nor can more people be set to work, without more money to circulate so, as to pay the wages of a greater number. they may be brought to work on credit, and that is not practicable, unless the credit have a circulation, so as to supply the workman with necessaries; if that’s supposed, then that credit is money, and will have the same effects, on home, and foreign trade.

An addition to the money adds to the value of the country. so long as money gives interest, it is imployed; and money imployed brings profit, tho’ the imployer loses. if 50 men are set to work, to whom 25 shillings is payed per day, and the improvement made by their labour be only equal to, or worth 15 s. yet by so much the value of the country is increased. but as it is reasonable to suppose their labour equal to 40. s. so much is added to the value of the country, of which the imployer gains 15 s. 15 may be supposed to equal the consumption of the labourers, who before lived on charity, and 10 s. remains to them over their consumption.

If a stone of wooll is worth 10 s. and made into cloth worth 2 pound; the product is improved to four times the value it had in wooll: the workmen may be supposed to consume more than when they were not imployed; allow one 4th, the nation is gainer double the value of the product. so an addition to the money, whether the imployer gains or not, adds to the national wealth, eases the country of a number of poor or idle, proportioned to the money added, enables them to live better, and to bear a share in the publick with the other people.

The first branch of foreign trade, which is the export and import of goods, depends on the money. if one half of the people are imployed, and the whole product and manufacture consumed; more money, by imploying more people, will make an overplus to export: if then the goods imported ballance the goods exported, a greater addition to the money will imploy yet more people, or the same people before employed to more advantage; which by making a greater, or more valuable export, will make a ballance due. so if the money lessens, a part of the people then imployed are set idle, or imployed to less advantage; the product and manufacture is less, or less valuable, the export of consequence less, and a ballance due to foreigners.

The 2d and 3d branches of foreign trade, called the trades of carriage; are monopolized out of Europe, by these countries who have colonies; and in Europe, by these who sell cheapest.

Scotland has advantages for trade by which the merchants might undersell merchants in Holland, as cheapness of living, paying less to the publick, having workmen, seamen, and provisions for victualling cheaper: but if the Dutch merchant’s stock is 10000 lib. and his yearly expence 500; he can trade at 10 per cent profit, and add yearly 500 lib. to his stock. whereas a Scots merchant, whose stock is 500 lib. and his yearly expence 50; cannot trade so cheap.

If ’tis ask’t how a Dutch merchant trades who has only 500 lib. stock? he restricts his expence so as he can afford to trade at 10 per cent profit: or money being in greater quantity in Holland, whereby it is easier borrowed, and at less use; he gets credit for more at 3 or 4 per cent, by which he gains 6 or 7. and unless money be in greater quantity in Scotland, or expence retrench’d, we cannot trade so cheap as the Dutch; tho’ we have advantages for trade that they have not, and tho’ they be under disadvantages we are not lyable to. by a greater quantity of money and oeconomy, the Dutch monopolize the trades of carriage even from the English.

The 4th branch of foreign trade, bringing home the product of other countries, and exporting it in manufacture, depends on the quantity of money. we are so far from competing with the Dutch in this trade, that our wooll was sent to Holland, and imported from thence in manufacture; under the difficulty of a prohibition on the export of the wooll, and on the import of the manufacture. yet besides the advantages already named, which we have for trade over the Dutch, the material is the product of our country, and greater privileges are granted to manufacturers here, than in Holland.

’Tis alledged, if the prohibition had continued, manufactures might have come to perfection.

The advantage some men made by manufacture, may have occasion’d the setting up of more, while the money has been diminishing; but that money so imployed, has been taken from some other use it was before imploy’d in: for money cannot serve in two places at one time.

’Tis alledged, that the allowing the wooll to be exported, occasioned the exportation of the money. that at one time 5000 lib. was sent to England to buy wooll. ’tis askt what became of that wooll? they answer, it was sent to France for wine. then, as 5000 lib. of English wooll may be worth 8 or 10 thousand pound in France; so the 5000 lib. sent to England, saved the sending out of 8 or 10000 lib. to France.

To those who don’t throughly examine the state of this country, it may seem odd that wooll should be allowed by law to be exported: but if the product of Scotland cannot be manufactur’d with less than 50000 people, and the money that can be spar’d to manufacture, be only capable to employ 25000, one half of the product will be lost if it is not allowed to be exported.

The 5th branch, the freighting or hireing out ships, depends on the money, and the other branches of trade. where ships are in use to be freighted by strangers, and supported by a great demand for their own trade; there all sorts of ships are to be hired cheaper than in other places; and merchants are sure of such ships as are proper for the goods they load with, and the countries they trade to.

This trade of freighting brings the goods of other countries to Holland, tho’ design’d for sale elsewhere. if woollen manufacture from England to Portugal yields 25 per cent profit, and to Holland 15; the English merchant will choose to fend such goods to Holland for 15 per cent, rather than to Portugal for 25; and the Dutch merchant who is able to trade cheaper, from the cheapness of freight, etc. is satisfied for the other 10 to carry to Portugal.

Most authors who have wrote on trade divide it into national and private. they say, a merchant may gain where the nation loses. if a 1000 lib. is exported to the Indies in money or bullion, and a 1000 lib. in goods or provisions; the return worth 8000 lib. the merchant gains 6000; but as these goods are all consumed in the country, the nation loses the 1000 lib. money or bullion exported.

They don’t consider whether the 8000 lib. of goods imported (all supposed to be consum’d in the country) does not lessen the consumption of the product or manufacture of the country, so as to occasion an addition to the export, at least equal to the 1000 lib. money or bullion exported. but allowing they do not lessen the consumption of the goods of the country, and the use of them be not at all necessary; yet these goods being worth 8000 lib. at home or abroad, the nation gains 6000. if the people consume them, and in extravagant uses, that’s not the fault of the trade, nor for that reason should that trade be call’d disadvantageous; it is the fault of the government, who ought to hinder the too great consumption of foreign goods; especially, such as might be wanted without causing a greater consumption of the goods of the country, that care being taken, by making the vent less profitable at home, than abroad; merchants would export them, or for the future lessen the import.

If East-India goods that sell for a 1000 lib. in England, are only worth abroad 800 lib, the duty payed at their entry being return’d, and more given as a draw-back to encourage the export, their vent abroad will be more profitable than in England.

A people may consume more of their own or foreign goods, than the value of the product, manufacture, and profits by trade; but their trade is not disadvantageous, it is their too great consumption: and the too great consumption of the product and manufacture of the country, may be as hurtful as that of foreign goods; for, if so much is consumed, that the remainder exported won’t pay the consumption of foreign goods, a ballance will be due, and that ballance will be sent out in money or bullion.

A nation may gain where the merchant loses, but wherever the merchant gains, the nation gains equal, and so much more, as the maintenance and wages of the people employ’d and the duty on the goods amounts to. if a ship insur’d is lost, the nation loses, and the merchant loses nothing; but in that case the insurer is the merchant, and loses equal to the nation.

As trade depends on money, so the encrease or decrease of the people depends on trade. if they have employment at home, they are kept at home: and if the trade is greater than serves to employ the people, it brings more from places where they are not employ’d. Sir William Petty values a man at 20 years purchase, by that computation a seaman whose wages is forty shil. a month, is valued 480 lib.

Scotland has a very inconsiderable trade, because she has but a very small part of the money. there is a little home trade, but the country is not improv’d, nor the product manufactur’d. there is a little of the first branch of foreign trade, and that is carried on with great disadvantage to the people, who pay dearer for most foreign goods, and are worse serv’d, than other nations: if they have any cheaper, ’tis from the lower duty on the import. in Scotland low prices are given for goods bought up to be exported, the merchants profit being great: if a 100 stone of wooll is worth in Holland ten piece of linen cloth, these ten pieces are sold in Scotland for the value of a 180 or 200 stone of such wooll. such goods as do not yield that great profit, are not exported; and these that do, are not exported in any quantity, the merchant’s stock being small. Scotland has no part of the other branches of foreign trade, not being able to trade so cheap as other nations.

Some think if interest were lower’d by law, trade would increase, merchants being able to employ more money and trade cheaper. such a law would have many inconveniencies, and it is much to be doubted, whether it would have any good effect; indeed, if lowness of interest were the consequence of a greater quantity of money, the stock apply’d to trade would be greater, and merchants would trade cheaper, from the easiness of borrowing and the lower interest of money, without any inconveniencies attending it.

Tho’ interest were at 3 per cent in Holland, and continued at 6 in Scotland; if money were to be had equal to the demands at 6, the advantages we have for trade, which the Dutch have not, would enable us to extend trade to its other branches, notwithstanding the difference of interest.