How the arbitrary method of raising the denomination of coin affects prices at home.
Now it is certain and evident, that the augmentation of the numerary value has the undoubted effect of sinking the value of the numerary unit realized in the coin, and that upon such occasions we ought to say, that the King has diminished the value of the livre, and not that he has raised the value of the coin. But the abuse of language has made people consider the livre as the thing fixed, and therefore the coin is considered as the thing which rises and sinks. The consequence of this is, to introduce another abuse of language. People say, that the prices of commodities rise: I ask, With respect to what? Not with respect to the pieces of coin, but with respect to the denominations they carry: that is to say, with respect to livres; although the livre be considered as the thing fixed. There is, however, a reason why people express themselves in this improper manner, which proceeds from the perplexity and confusion of their ideas concerning money.
When the King of France arbitrarily changes the numerary value of his coin, commodities are found, by universal experience, to stick so closely to the denominations of it, that people are apt to think that it is the King’s will and pleasure, and not the metal of which the coin is made, which gives it a value. But commodities depart from these denominations by degrees, and fix themselves a-new at a determinate value of the fine metals, proportioned to what they bear in foreign nations. This is brought about by the operations of commerce; and consequently, the rise of prices not taking place till some time after the numerary value of the coin has been augmented, people accustom themselves to say, that the augmenting the denomination of the coin raises prices, and that diminishing the denomination sinks them. But did all prices strictly adhere to the grains of bullion contained in the coin, and not to the denominations of the numerary value, then language would change, and no body would speak about the rising and sinking of prices, but of the rising and sinking of livres, sols, and deniers.
I hope, from what has been said, that the difference between raising the value of the coin by imposing coinage, and the raising the nominal value of it by augmenting the denomination or numerary value of it, is perfectly understood. The first raises the value of the numerary unit, by giving a real additional value to the coin as a manufacture: the last raises, for a while, the value of the numerary unit; only because the price of commodities, being attached to the denominations of money of accompt, stick to them, until the operations of trade reduce them to their true principle.
Whenever, therefore, the terms rising and sinking are applied to value, the thing which is said to rise, is supposed to be the moveable; and the thing it is compared with, or with respect to which it is said to rise or sink, is supposed to be the term fixed. Every one, therefore, who reads books upon this subject, ought, upon all occasions where there is mention made of rising and sinking of the price of the gold, silver, bullion, coin, exchange, or commodities, constantly to cast his eye upon the thing which is supposed to be fixed, and retaining that in his mind, he will preserve his ideas distinct.
Quest. 2. How will the imposition of coinage affect the creditors of Great Britain?
Quest. III. Let us suppose that the imposition of coinage, when properly laid on, will not raise the value of the pound sterling; and consequently that it will not affect the domestic interests of Great Britain: it may be asked, What influence that imposition will have upon the interest of her foreign creditors, since it must affect exchange?
Answ. If they continue to be paid by denominations, they will gain; if by weight of metal, they will not gain, nor will they lose.
Answ. The foreign creditors of the nation will thereby be gainers, provided their interest continues to be paid in denominations of pounds sterling, and not in a determinate number of grains of the fine metals, as was proposed to be done in the fourteenth chapter of the first part. The reason is plain: upon all occasions, when coin carries an advanced price above bullion, those who have funds in England will gain upon exchange. This gain will nowise, I think, be at the expence of the nation, but at the expence of those foreigners who have occasion for paper draughts upon London.