An Inquiry into the Principles of Political Oeconomy (Vol. 1 of 2) / Being an essay on the science of domestic policy in free nations. In which are particularly considered population, agriculture, trade, industry, money, coin, interest, circulation, banks, exchange, public credit, and taxes

by Sir James Steuart

Here is then the proof of what was said in the end of the first chapter, that the wearing of one shilling had the effect of contributing towards the diminution of the value of the pound sterling every where; a proportion which, at first sight, has the air of a paradox, though, when it is understood, nothing is more consistent with the ruling principles of commerce.

Exchange a good measure for the value of a pound sterling.

Exchange, therefore, in my humble opinion, is one of the best measures for valuing a pound sterling, present currency. Here occurs a question.

Does the great quantity of paper money in England tend to diminish the value of the pound sterling?

The use of paper money not hurtful in debasing the standard.

I answer (according to my weak conceptions) in the negative. Paper money is just as good as gold or silver money, and no better. The variation of the standard, we have already said, and I think proved, must influence the interests of debtors and creditors proportionally every where. From this it follows, that all augmentation of the value of the money-unit in the specie must hurt the debtors in the paper money; and all diminutions on the other hand must hurt the creditors in the paper money, as well as every where else. The payments, therefore, made in paper money, never can contribute to the regulation of the standard of the pound sterling; it is the specie received in liquidation of that paper money which alone can contribute to mark the value of the British unit; because it is affixed to nothing else.

The pound sterling not regulated by statute, but by the mean value of the current money.

From this we may draw a principle, That in countries where the money-unit is entirely affixed to the coin, the actual value of it is not according to the legal standard of that coin, but according to the mean proportion of the actual worth of those currencies in which debts are paid.

Why exchange appears so commonly against England.

From this we see the reason why the exchange between England and all the trading towns in Europe has long appeared so unfavourable. People calculate the real par, upon the supposition that a pound sterling is worth 1718.7 grains troy of fine silver, when in fact the currency is not perhaps worth 1638, the value of a new guinea in silver, at the market proportion of 1. to 14.5; that is to say, the currency is but 95.3. per cent. of the silver standard of the 43d of Elizabeth. No wonder then if the exchange be thought unfavourable.