If it be here objected that this cannot be the case, because when the balance of trade is against the nation which imposes coinage, their coin falls to the price of bullion: I answer, that a balance may be against such a nation, without producing so great a fall in the coin. Coin is reduced to the par of bullion only when the balance is at the height against a nation, and when it has remained so for a long time. Who would give coin at a discount of 8 per cent. if there was a prospect that in a few days, weeks, or even months, it was to rise to its former value?
These are the reasons which engaged me, in a former chapter, to lay it down as a rule, that trading states should endeavour, as nearly as possible, to observe the same regulations with their neighbours, in every thing relating to their coin. It is also in order to facilitate such a regulation, that I shall insert, at the end of this book, a very particular state of the French coinage, and of what I can gather with regard to that of Holland.
The real par not to be calculated by the intrinsic value of the coin, unless bills were drawn in weight of fine bullion.
From what has been said, it appears that the common method of calculating the real par of exchange is not correct, since it is calculated by comparing the quantity of fine bullion in different coins, and attributing the difference between the bullion paid for the paper, and the bullion received in payment of it, as the price of transportation. This, I say, is by no means correct; nor is it possible it should be so, unless bills of exchange were specified in the weight of fine bullion, instead of being specified in the denominations of the coin: an example will make this plain.
Were a merchant in London to ask of another who has a correspondence in Paris, to give him an order for a hundred yards of Abbeville cloth, and to offer him, in exchange, the same quantity of cloth of a worse quality, would not the merchant to whom the proposal is made, immediately calculate the value of both commodities, and demand the difference of the value between what he was to give, and what he was to receive? Could ever this difference be considered as any thing else than the difference between the real worth of the commodities? But were they to exchange at London an hundred pounds of fine silver bullion, for the same weight at Paris; then if the merchant demanded one grain more than he was to give, it must be upon the account of transportation; because, weight for weight, there is not the smallest difference between equal weights of the fine metals.
Bills of exchange, then, being all conceived in denominations of money of accompt, realized in coin; and coin changing in its value with regard to bullion; it is evident that the real par cannot be computed upon the bullion alone contained in the coin.
Obj. Exchange regulates the price of bullion.
If it is objected, that since it is the course of exchange which regulates the price of bullion, all variations between bullion and coin ought to be ascribed to that cause.
Answ. Denied: exchange only raises its price; the mint price pulls it down.
I answer, that it is not the course of exchange which regulates the price of bullion; but exchange makes it ascend from the price to which it is regulated.