What regulates the price of bullion.
The price of bullion, like that of every other merchandize, is regulated by the value of the money it is paid with.
If bullion, therefore, sells in England for 65 pence an ounce, paid in silver coin, it must sell for 65 shillings the pound troy; that is to say, the shillings it is commonly paid with, do not exceed the weight of 2⁄65 of a pound troy: for if the 65 shillings with which the pound of bullion is paid weighed more than a pound troy, it would be a shorter and better way for him who wants bullion, to melt down the shillings and make use of the metal, than to go to market with them in order to get less.
We may, therefore, be very certain, that no man will buy silver bullion at 65 pence an ounce, with any shilling which weighs above 1⁄65 of a pound troy.
We have gone upon the supposition that the ordinary price of bullion in the English market is 65 pence per ounce. This has been done upon the authority of some late writers on this subject[[R]]: it is now proper to point out the causes which may make it deviate from that value.
[R]. This was writ in Germany, anno 1759, when I was not well informed of certain facts, and it is not worth while to make any alterations, as it is only a supposition.
The intrinsic value of the currency.
I. It may vary and certainly will vary in the price according as the currency is better or worse. When the expences of a war, or a wrong balance of trade, have carried off a great many heavy guineas, it is natural that bullion should rise; because then it will be paid for more commonly in light gold and silver; that is to say, with pounds sterling, below the value of 113 grains fine gold, the worth of the pound sterling in new guineas.
A demand for exporting bullion.
II. This wrong balance of trade, or a demand for bullion abroad, becoming very great, may occasion a scarcity of the metals in the market, as well as a scarcity of the coin; consequently, an advanced price must be given for it in proportion to the greatness and height of the demand. In this case, both the specie and the bullion must be bought with paper. But I must observe, that the rise in the price of bullion proceeds from the demand for the metals, and the competition between merchants to procure them, and not because the paper given as the price is at all of inferior value to the specie. The least discredit of this kind would not tend to diminish the value of the paper; it would annihilate it at once. Therefore, since the metals must be had, and that the paper cannot supply the want of them when they are to be exported, the price rises in proportion to the difficulties in finding metals elsewhere than in the English market.