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

That guineas would still pass current for 21 shillings:

If, therefore, it be true, that the shillings are really worth no more than ¹⁄₂₁ of a guinea, what effect would the law, reducing guineas to 20 shillings, have as to merchants? Guineas would pass as before with every banker in London for 21 shillings, and 21 shillings for a guinea.

That the standard would be affixed to the light silver, as it was in 1695:

But as we suppose no new coinage set on foot, and that the light silver would continue to pass current by tale, as at present, what security would there be for the pound sterling not falling every year lower? The standard would then be entirely affixed to the old silver; and no man would pay in guineas at 20 shillings, any more than he will now pay in silver of standard weight. The only expedient then to obtain coin would be, to allow guineas to seek their own value. Upon this they would rise to 21 shillings, which is their intrinsic worth. In this case, would not the shillings, by becoming lighter, become of less value in proportion to the guinea? Was not this the case 1695? Did not this abuse raise the price of guineas, and proportionally debase the worth of the pound sterling?

That merchants would gain by it;

As every thing, therefore, which gradually debases the standard, must be advantageous to those who can avail themselves of it, so the making gold a merchandize, while the bulk of the nation has no standard to measure it with, must be advantageous to those who have a sure one, to wit, the foreign exchange.

debtors would be ruined.

Besides the evident tendency such a measure would have to debase the standard, below the present value, it would be accompanied with the most ruinous consequences to all the class of debtors. I shall beg leave to state an example. A person is debtor, I shall suppose, for a great sum, 100,000l. his creditor demands payment. He offers guineas at the current and conventional value of 21 shillings, the creditor refuses the offer; he offers bank notes, refused: it is no excuse to say that 100,000l. of silver coin cannot be picked up; he who owes must find it. The creditor tells him that the mint is open. Here the debtor is obliged either to part with his guineas at 20 shillings value, or to carry silver, which costs him 65 shillings the pound troy, to the mint, and to pay it to his creditor at the rate of 62. There would be still some consolation, if, from such a hard necessity, the state were to be provided with weighty coin; but that is not the consequence. The creditor is no sooner paid in silver, than he throws his coin into the melting pot, and then sends the bullion to market to be sold at 65 pence the ounce in bank notes.

Consequences as to the bank.

He next goes to the bank, and demands payment of his notes, It is not to be supposed that there is old worn silver enough there to pay all the notes in circulation. The bank must be in the same situation with every debtor, it must send silver to the mint; not as perhaps at present to be afterwards exported, or to furnish work for the mint and then to be melted down again, but to acquit the notes which it had issued in lieu of light silver, or guineas at 21 shillings. The creditor melts down his new silver again, sells it as bullion for bank notes as before, and returns upon the hank with a new demand.