The true unit is the mean proportional between the value of the metals.
Consequently, merchandize which have not varied in their relative value to any other thing but to gold and silver, must be measured by the mean proportion of the metals, and the application of any other measure to them is altering the standard. If they are measured by the gold, the standard is debased; if by silver, it is raised, as shall presently be proved.
If to prevent the inconvenience of melting down the silver, the state shall give up affixing the value of their unit to both species at once, and shall fix it to one, leaving the other to seek its price as any other commodity, in that case no doubt the melting down of the coin will be prevented; but will ever this restore the value of the money-unit to its former standard? Would it, for example, in the foregoing supposition, raise the debased value of the money-unit in the gold coin, if that species were declared to be the standard? It would indeed render silver coin purely a merchandize, and by allowing it to seek its value, would certainly prevent it from being melted down as before; because the pieces would rise conventionally in their denomination; or an agio, as it is called, would be taken in payments made in silver; but the gold would not, on that account, rise in its value, or begin to purchase any more merchandize than before. Were therefore the standard fixed to the gold, would not this be an arbitrary and a violent revolution in the value of the money-unit, and a debasement of the standard?
If, on the other hand, the state should fix the standard to the silver, which we suppose to have risen in its value, would that ever sink the advanced value which the silver coin had gained above the worth of the former standard unit, and would not this be a violent and an arbitrary revolution in the value of the money-unit, and a raising of the standard?
The only expedient, therefore, as has been said, is in such a case to fix the numerary unit to neither of the metals, but to contrive a way to make it fluctuate in a mean proportion between them; which is in effect the introduction of a pure ideal money of account. This shall be farther explained as we go along.
The unit to be attached to the mean proportion, upon a new coinage, not after the metals have varied.
I have only one observation to make in this place, to wit, that the regulation of fixing the unit by the mean proportion, ought to take place at the instant the standard unit is affixed with exactness both to the gold and silver. If it be introduced long after the market proportion between the metals has deviated from the proportion established in the coin, and if the new regulation is made to have a retrospect, with regard to the acquitting of permanent contracts entred into, while the value of the money-unit had attached itself to the lowest currency, in consequence of the principle above laid down, then the restoring the money-unit to that standard where it ought to have remained (to wit, to the mean proportion) is an injury to all debtors who have contracted since the time that the proportion of the metals began to vary.
This is clear from the former reasoning. The moment the market price of the metals differs from that in the coin, every one who has payments to make pays in that species which is the highest rated in the coin; consequently, he who lends, lends in that species. If after the contract, therefore, the unit is carried up to the mean proportion, this must be a loss to him who had borrowed.
It is better to affix the unit to one than to both metals.
From this we may perceive why, in the first article of the preceding chapter, it was said, that there was less inconvenience from the varying of the proportion of the metals, where the standard is fixed to one of them, than when it is fixed to both. In the first case, it is at least uncertain whether the standard or the merchandize-species is to rise; consequently it is uncertain whether the debtors or the creditors are to gain by a variation. If the standard species should rise, the creditors will gain; if the merchandize-species rises, the debtors will gain; but when the unit is attached to both species, then the creditors never can gain, let the metals vary as they will: if silver rises, then debtors will pay in gold; if gold rises, debtors will pay in silver. But whether the unit be attached to one or to both species, the infallible consequence of a variation is, that one half of the difference is either gained or lost by debtors and creditors. The invariable unit is constantly the mean proportional between the two measures.