Money and trade considered

by John Law

Another objection is made against the bank. that it encouraged the exportation of money, by furnishing sums in such species as were of most value abroad. to answer this objection, I shall make a supposition. A. B. merchant has occasion for a 1000 lib. in Holland, and desires C. D. banker to give him a bill for that value; there is no money due in Holland to Scots merchants, so C. D. must export the money to pay the bill he draws: but, there being no bank, nor any possibility of getting a 1000 lib. in 40 pence pieces, he sends out money of different species. this does not hinder the money to go out, but makes the exchange dearer by 2 or 3 per cent, than it would have been if 40 pence pieces could have been got. and tho’ no other money were left, but old marks, if a ballance is due, these will go out, tho’ not worth 10 pence: the exchange will be so much higher, the profit of exporting is the same; and so far from doing hurt to the country, the bank by furnishing such pieces as could be exported to least loss, kept the exchange 2 or 3 per cent lower than otherwise it would have been, and saved yearly the sending out a considerable sum to pay a greater ballance, the higher exchange would have occasioned.

CHAP. IV.

The several measures now proposed, considered. as, raising or allaying the money. coyning the plate. regulating the ballance of trade. or, re-establishing the bank.

When I use the words, raising the money, I desire to be understood raising it in the denomination; for I do not suppose it adds to the value.

There is no way silver can be made more valuable, but by lessening the quantity, or increasing the demand for it. if the export and consumption of silver be greater than the import, or the demand be increased; silver will be of more value. if the quantity imported be greater than the quantity exported or consumed, or the demand lessened; silver will be of less value.

If raising or allaying the money could add to its value, or have any good effect on home or foreign trade; then no nation would want money. a 100 lib. might be raised or allayed to 2, to 10, to a 100 times the denomination it had, or more as there were occasion. but as ’tis unjust to raise, or allay money; because, then all contracts are payed with a lesser value than was contracted for; and as it has bad effects on home or foreign trade: so no nation practises it, that has regard to justice, or understands the nature of trade and money. if A. B. sell 12 chalder of victual for a 100 lib. payable in 6 months, with which he is to pay bills of exchange of that value, to be drawn on him then from France for wine he has commission’d; and in that time the money is raised or allayed to double, the 100 lib. A. B. receives will only pay half the bill he has to pay, being only equal to 50 lib. of the money he contracted for. nor will that 100 lib. buy the same quantity of goods of the country, that a 100 lib. bought before: it will pay where money is due, and satisfie past contracts made upon the faith of the publick, because the prince says every man shall take half what is owing him in full payment. but in bargains to be made, the value of the money will be considered; goods will rise, tho’ perhaps not to the proportion the money is raised; and such persons as do not raise their goods, equal to the money, are imposed on.

When 6 pence is raised to 12 pence, the 6 pence is worth 12 pence; but the value of the pence is lowered to half-pence.

To explain this matter better, I shall suppose when money is raised, goods rise, or not.

If goods rise, then raising the money has not the effect designed. if a piece of serge is sold for 40 sh. and the shilling be raised to 18 pence, the piece of serge will be sold for 3 lib. this adds to the tale of the money, and pays debts with two thirds of what is due, but does not add to the money. this is the natural consequence of raising the money; for, it is not the sound of the higher denomination, but the value of the silver is considered.

If, when money is raised, goods keep the prices they had before: then all goods exported are sold for a lesser value abroad, and all goods imported are sold dearer. a half-crown is raised to 40 pence, and that half-crown buys the same quantity of goods 40 pence bought before; then the merchant who sends goods to Holland, to the value of 300 lib. which are sold for 390 lib. there, would gain 220 lib. on the value of 300 lib. exported: because, 390 lib. in Holland, would be equal to, or worth by exchange at the par, or sent in bullion, 520 lib. in Scotland. that trade would bring no more profit to the nation, than when the return of the goods yielded only 390 lib. for, 390 lib. before it was raised, had the same quantity of silver, that 520 lib. rais’d money would have; and bought as great a quantity of foreign goods. but that trade would be so profitable to the merchant, that more people would deal in it than could get goods to buy; and as more buyers than sellers would raise the prices here, so one merchant under-selling the other would lower the prices in Holland. but tho’ the prices kept low here, and our merchants kept up the prices abroad: the Dutch knowing the goods were so cheap in the country, would buy none from our merchants, but commission them in return of goods they sent.