It was my intention to have done this much more fully than in the present treatise; but having been interrupted by unforeseen circumstances, and being unwilling to delay any longer the publication of this essential part of my proposed plan, I have determined to submit it to the public in its present form; and will only add here a few observations on a question closely connected with it, which has lately excited much interest and discussion.
Among the questions for the determination of which a standard measure of value is most particularly required, are those which relate to alterations in the value of the currency. We know perfectly well, from experience, that commodities are subject to great variations of price, and that many of these variations may arise from causes which alter the natural value of these commodities, and are equally applicable to a large mass of them, as to a very few. On the supposition of a large mass being altered, any article which had retained the same natural value, would have its power of purchasing considerably affected; but this would be owing to an alteration in the value of the mass of commodities, and not in the value of the article, which by the supposition remains the same. It follows, that although money may increase in its power of purchasing, it does not necessarily increase in value. But in estimating the value of money, some criterion or other must be referred to. If we cannot refer to the mass of commodities, we must refer to some one object, and this object can only be labour. Our present inquiry, therefore, must be into the causes which affect the value of the precious metals as compared with labour.
These causes are of two kinds:—first, those which occasion a high or low rate of profits, which, as connected with the progressive cultivation of poorer land, and operating universally and necessarily on the precious metals in common with all other commodities, and raising or lowering them with regard to labour, may be denominated the primary and necessary cause of the high or low value of metallic money.—And secondly, those which depend on the fertility and vicinity of the mines; the different efficiency of labour in different countries; the abundance or scarcity of exportable commodities; and the state of the demand and supply of commodities and labour compared with money; which may be denominated the secondary and incidental causes of the high or low value of metallic money.
These two different kinds of causes will sometimes act in conjunction, and sometimes in opposition, so that it may not always be easy to distinguish their separate effects; but as these effects have really a different origin, it is desirable to keep them as separate as we can.
The marks which distinguish a fall in the value of the precious metals, arising from the primary cause, are,—a rise in the money price of raw produce and labour, without a general rise in the price of wrought commodities. All of them, indeed, as far as they are composed of raw produce, will have a tendency to rise; but, in a large class of commodities, this tendency to rise will be more than counterbalanced by the effect of the fall of profits.—Some therefore will rise, and some will fall, as I stated in my last work,[Q] according to the nature of the capitals employed upon them, compared with those which produce money; and while the money prices of corn and labour very decidedly increase, the prices of commodities, taken on the average, may possibly remain not far from the same.
On the other hand, when the value of metallic money falls, from the secondary causes above noticed, there will be a tendency to a proportionate rise of all commodities as well as of corn and labour, though in some cases it may take a considerable time before it is completely effected. And, in general, whenever a fall in the value of money takes place, without a fall in the rate of profits, an event which is generally open to observation, it is to be attributed to incidental and secondary causes affecting the relations of money to labour, and not to that which is connected with the taking of poorer land into cultivation.
Of these two classes of causes the second produces much the greatest part of those differences in the value of metallic money, which are the most observable in different countries, and at different periods in the same country. If India and England had each of them mines of equal natural fertility, the superior efficiency of English labour, assisted by machinery, would extract a much greater quantity of metal from such mines; and the money price of labour might be three or four times higher, and the value of money three or four times lower in England than in India.
The same effect is, at present, practically produced by the skill and machinery employed on the manufactures with which England purchases her gold. If she can prepare exportable commodities which are in demand abroad, with much less labour than other nations, she will be able to buy gold at a much lower natural value, and will continue to import it under favourable exchanges, till its value falls in proportion.
It is farther established by experience, that a brisk or slack demand for commodities and labour, and particularly for corn, has a considerable effect on the value of gold. Such a demand not only occasions a more rapid circulation of money, and enables the same quantity to perform a greater number of transactions, but calls into action a greater quantity of credit and private paper,[R] so that a general rise of bullion prices, including labour, seems to be at all times possible, even without any fresh importations of the precious metals; and the only practical limit to this rise, is the turn of the exchange, and the impossibility of maintaining the exchanges nearly at par beyond a certain elevation of labour and commodities.
The secondary and incidental causes here enumerated, as affecting the value of gold, often completely overcome the effects arising from the primary cause. The state of bullion prices in most of the countries of the commercial world make it evident, that the efficiency of labour, and the abundance of exportable commodities, are much more powerful in lowering the value of bullion in the countries where they prevail, than high profits in raising it; and the same appears to be true, in reference to an increased demand for corn and labour.