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

I. First then, the question is not understood; and the principal thing which obscures people’s ideas concerning it, is their constantly attending to the denominations of the money of accompt, instead of attending to the denominations of the coin. These two things are universally confounded. A pound sterling is always a pound sterling, no doubt; but the grains of silver which compose one pound sterling are not the same in number with those which compose every pound sterling. Now, the moment money is realized in the metals, and that the standard measure of value is affixed to them, let them be worn or not, it is very evident that nothing but the grains of the metal in the several pieces can represent the scale by which the coin becomes a measure of value. Whenever, therefore, people lose sight of this undoubted truth, and begin to measure by the denominations of the ideal money of accompt, without examining whether that value be exactly realized or not, it is just the same thing as if they were to measure a length upon a plan without adjusting their compasses to the scale, and upon a bare supposition that the opening they had, by accident might answer to the length they were to measure.

The true characteristic of a change in the standard is not attended to.

II. The state, in every country almost, is negligent in instructing the people of the consequences of every variation in the coin; and likewise negligent in providing against the inconveniences which result from all changes in those matters. It is not to be supposed that the common people can exactly comprehend the consequences of making a pound sometimes consist of more silver and sometimes of less. When the pieces are heavy however, they weigh them in their hand, and say this is good money; but when they find that they must give as much in tale of this good money to pay their debts, as if it had been light, they feel a regret, but they do not see the injustice of such a regulation.

Farther, when people find that upon a reformation of the coin they are still obliged to acquit their obligations with the same denominations as before, is it not very natural for sellers to insist upon having the former prices for all sorts of commodities. This is the reason why the universal experience of France (which nation has been more accustomed to variations in their coin, than England) proves that merchandize does not immediately rise and fall according to the variations of the coin. But the operations of foreign trade, which are immediately felt and profited of by the trading part of the nation, insensibly affect the dealings of the body of the people, and produce, after a certain time, those effects, which ought to have followed immediately upon the innovation.

Principles will not operate their effect without the assistance of the state.

Now it is very certain that the principles we have been laying down will not, in practice, answer, unless the state should lend a hand, both by instructing their subjects in the nature of the change intended, and by interposing their authority to see justice done among them.

When people understand one another, they soon agree.

Those who oppose the doctrine we have been laying down, go upon the supposition that the law ought to order all obligations to be acquitted according to their denomination after the reformation of the standard. I go upon the supposition that it is just they should be acquitted according to the intrinsic value. Where then lies the difference between our sentiments? We are of the same opinion, as to the main question: for were it true that prices were not to sink 5 per cent. after the reformation, I should be the last man to propose, that debtors ought to be allowed conversions in paying with the new standard; and I suppose that those who support the contrary sentiment would be just as little inclined to oppose a conversion, upon the supposition that ninety five pounds, after the supposed reformation, were to be equivalent, to all intents and purposes, to a hundred at present.

Permanent contracts are confounded with sale in this dispute.

III. The clearest and the best reasoners I have met with upon this subject, are apt upon some occasions to confound the two species of circulation which we have endeavoured carefully to distinguish; to wit, the involuntary which takes place in acquitting contracts already made, with the voluntary which takes place in common sales. As an example of this, and as a means of reconciling opinions, and not with any intention of entring upon refutations, I shall here extract a passage from Mr. Harris upon coins, Part II. p. 96. and insert in Italics what I think will explain the difference between our sentiments.