Political discourses: By David Hume Esq.

DISCOURSE III. Of Money.

MONEY is not, properly speaking, one of the subjects of commerce; but only the in|strument, which men have agreed upon to facili|tate the exchange of one commodity for another. 'Tis none of the wheels of trade: 'Tis the oil, which renders the motion of the wheels more smooth and easy. If we consider any one king|dom by itself, 'tis evident, that the greater or less plenty of money is of no consequence; since the prices of commodities are always proportion'd to the plenty of money, and a crown in Harry the VII's. time serv'd the same purpose as a pound does at present. 'Tis only the public, that draws any advantage from the greater plenty of money; and that only in its wars and negociations with fo|reign states. And this is the reason, why all rich and trading countries, from Carthage to Britain and Holland, have employ'd mercenary troops, which they hir'd from their poorer neighbours. Were they to make use of their native subjects, they would find less advantage from their superior riches, and from their great plenty of gold and silver; since the pay of all their servants must rise in proportion to the public opulence. Our small army in Britain

of 20,000 men are maintain'd at as great expence as a French army thrice as numerous. The Eng|lish fleet, during the late war, requir'd as much money to support it as all the Roman legions, which kept the whole world in subjection, during the time of the emperors * 1.1

THE greater number of people and their great|er industry are serviceable in all cases; at home and abroad, in private and in public. But the greater plenty of money is very limited in its use, and may even sometimes be a loss to a nation in its com|merce with foreigners.

THERE seems to be a happy concurrence of causes in human affairs, which check the growth of trade and riches, and hinder them from being confin'd entirely to one people; as might natural|ly at first be dreaded from the advantages of an e|stablish'd commerce. Where one nation has got the start of another in trade, 'tis very difficult for the latter to regain the ground it has lost; because of the superior industry and skill of the former, and the greater stocks, which its merchants are possest' of, and which enable them to trade for so much smaller profits. But these advantages are compen|sated, in some measure, by the low prices of labour in every nation, that has not an extensive com|merce, and does not very much abound in gold and silver. Manufactures, therefore, gradually shift their places, leaving those countries and provinces, which they have already enrich'd, and flying to o|thers, whither they are allur'd by the cheapness of provisions and labour; till they have enrich'd these also, and are again banish'd by the same causes. And in general, we may observe, that the dearness of every thing, from plenty of money, is a disad|vantage, that attends an establish'd commerce, and sets bounds to it in every country, by enabling the poorer states to undersell the richer in all foreign markets.

THIS has made me entertain a great doubt con|cerning the benefit of banks and paper credit, which

are so generally esteem'd advantageous to every nation. That provisions and labour shou'd become dear by the encrease of trade and money, is, in many respects, an inconvenience; but an inconve|nience that is unavoidable, and the effect of that public wealth and prosperity, which are the end of all our wishes. 'Tis compensated by the advan|tages we reap from the possession of these precious metals, and the weight which they give the nati|on in all foreign wars and negotiations. But there appears no reason for encreasing that inconveni|ence by a counterfeit money, which foreigners will never accept of, and which any great disorder in the state will reduce to nothing. There are, 'tis true, many people in every rich state, who, hav|ing large sums of money, wou'd prefer paper with good security; as being of more easy transport and more safe custody. If the public provide not a bank, private bankers will take advantage of this circumstance; as the goldsmiths formerly did in London, or as the bankers do at present in Dublin: And therefore 'tis better, it may be thought, that a public company should enjoy the benefit of that paper credit, which always will have place in every opulent kingdom. But to endeavour artificially to encrease such a credit, can never be the interest of any trading nation; but must lay them under disadvantages, by encreasing money beyond its na|tural proportion to labour and commodities, and thereby heightening their price to the merchant

and manufacturer. And in this view, it must be allow'd, that no bank cou'd be more advantageous than such a one as lockt up all the money it re|ceiv'd, and never augmented the circulating coin, as is usual, by returning part of its treasure into com|merce. A public bank, by this expedient, might cut off much of the dealings of private bankers and mo|ney jobbers; and tho' the state bore the charge of salaries to the directors and tellers of this bank, (for according to the preceeding supposition, it would have no profit from its dealings) the nation|al advantage, resulting from the low price of la|bour and the destruction of paper credit, would be a sufficient compensation. Not to mention, that so large a sum, lying ready at command, would be a great convenience in times of public danger and distress; and might be replac'd at leisure, when peace and tranquillity were restor'd to the nation.

BUT of this subject of paper credit, we shall treat more largely hereafter. And I shall finish this essay of money, by proposing and explaining two observations, which may, perhaps, serve to employ the thought of our speculative politicians. For to these only I all along address myself. 'Tis enough that I submit to the ridicule sometimes, in this age, attach'd to the character of a philoso|pher, without adding to it that which belongs to a projector.

I. 'T WAS a shrewd observation of Anachar|sis* 1.2 the Scythian, who had never seen money in his own country, that gold and silver seem'd to him of no use to the Greeks, but to assist them in nu|meration and arithmetic. 'Tis indeed evident, that money is nothing but the representation of labour and commodities, and serves only as a method of rating or estimating them. Where coin is in great|er plenty; as a greater quantity of it is then re|quir'd to represent the same quantity of goods; it can have no effect, either good or bad, taking a nation within itself: no more than it wou'd make any alteration on a merchant's books, if instead of the Arabian method of notation, which requires few characters, he shou'd make use of the Roman, which requires a great many. Nay the greater plenty of money, like the Roman characters, is ra|ther inconvenient and troublesome; and requires greater care to keep and transport it. But not|withstanding this conclusion, which must be allow|ed just, 'tis certain, that since the discover of the mines in America, industry has encreas'd in all the nations of Europe, except in the possessors of those mines; and this may justly be ascrib'd, amongst o|ther reasons, to the encrease of gold and silver. Ac|cordingly we find, that in every kingdom, into which money begins to flow in greater abundance than for|merly, every thing takes a new face; labour and

industry gain life; the merchant becomes more en|terprizing; the manufacturer more diligent and skillful; and even the farmer follows his plough with greater alacrity and attention. This is not easily to be accounted for, if we consider only the influence, which a greater abundance of coin has in the kingdom itself, by heightening the price of commodities, and obliging every one to pay a great|er number of these little yellow or white pieces for every thing he purchases. And as to foreign trade, it appears, that great plenty of money is rather disadvantageous, by raising the price of every kind of labour.

To account, then, for this phaenomenon, we must consider, that tho' the high price of commo|dities be a necessary consequence of the encrease of gold and silver, yet it follows not immediately upon that encrease; but some time is requir'd before the money circulate thro' the whole state, and make its effects be felt on all ranks of people. At first, no alteration is perceiv'd; by degrees, it raises the price first of one commodity, then of another; till the whole at last rises to a just proportion, with the new quantity of specie, which is in the kingdom. In my opinion, 'tis only in this interval or interme|diate situation, betwixt the acquisition of money and rise of prices, that the encreasing quantity of gold and silver is favourable to industry. When any quantity of money is imported into a nation, it is

not at first disperst into many hands; but is confin'd to the coffers of a few persons, who immediately seek to employ it to the best advantage. Here are a set of manufacturers or merchants, we shall sup|pose, who have receiv'd returns of gold and silver for goods, which they sent to Cadiz. They are thereby enabled to employ more workmen than formerly, who never dream of demanding higher wages, but are glad of employment from such good paymasters. If workmen become scarce, the manufacturer gives higher wages; but at first re|quires an encrease of labour, and this is willingly submitted to by the artizan, who can now eat and drink better to compensate his additional toil and fatigue. He carries his money to market, where he finds every thing at the same price as formerly, but returns with greater quantity and of better kinds, for the use of his family. The farmer and gardener, finding that all their commodities are taken off, apply themselves with alacrity to the raising of more; and at the same time, can afford to take better and more cloaths from their trades|men, whose price is the same as formerly, and their industry only whetted by so much new gain. 'Tis easy to trace the money in its progress thro' the whole commonwealth; where we shall find, that it must first quicken the diligence of every indivi|dual, before it encrease the price of labour.

AND that the specie may encrease to a consider|able pitch, before it have this latter effect, appears, amongst other reasons, from the frequent operations of the French king on the money; where it was al|ways found, that the augmenting the numerary va|lue did not produce a proportional rise of the prices, at least for some time. In the last year of Louis the XIV. money was rais'd three sevenths, but prices augmented only one. Corn in France is now sold at the same price, or for the same number of livres, it was in 1683, tho' silver was then at 30 livres the mark, and is now at 50.* 1.3 Not to mention, the

great addition of gold and silver, which may have come into that kingdom, since the former period.

FROM the whole of this reasoning we may con|clude, that 'tis of no manner of consequence, with regard to the domestic happiness of a state, whe|ther money be in a greater or less quantity. The good policy of the magistrate consists only in keep|ing it, if possible, still encreasing; because, by that means, he keeps a spirit of industry alive in the na|tion, and encreases the stock of labour, wherein consists all real power and riches. A nation, whose money decreases, is actually, at that time, much weaker and more miserable, than another nation, who possesses no more money, but is on the en|creasing hand. This will be easily accounted for, if we consider, that the alterations in the quantity of money, either on the one side or the other, are not immediately attended with proportionable alte|rations in the prices of commodities. There is al|ways an interval before matters be adjusted to their new situation; and this interval is as pernicious to industry, when gold and silver are diminishing, as it is advantageous, when these metals are encreasing. The workman has not the same employment from the manufacturer and merchant; tho' he pays the same price for every thing in the market. The farmer cannot dispose of his corn and cattle; tho' he must pay the same rent to his landlord. The

poverty and beggary and sloth, which must ensue, are easily foreseen.

II. The second observation I propos'd to make with regard to money, may be explain'd after the following manner. There are some kingdoms, and many provinces in Europe, (and all of them were once in the same condition) where money is so scarce, that the landlord can get none at all from his tenants; but is oblig'd to take his rent in kind, and either to consume it himself, or transport it to pla|ces, where he may find a market. In those coun|tries, the prince can levy few or no taxes, but in the same manner: And as he will receive very small benefit from impositions so pay'd, 'tis evi|dent, that such a kingdom has very little force e|ven at home; and cannot maintain fleets and ar|mies to the same extent, as if every part of it a|bounded in gold and silver. There is surely a greater disproportion betwixt the force of Germany at present and what it was three centuries ago,* 1.4 than there is in its industry, people and manfac|tures. The Austrian dominions in the empire are in general well peopled and well cultivated, and are of great extent, but have not a proportionable weight in the balance of Europe; proceeding, as is commonly suppos'd, from their scarcity of money. How do all these facts agree with that principle of

reason, that the quantity of gold and silver is in it|self altogether indifferent? According to that prin|ciple, wherever a sovereign has numbers of sub|jects, and these have plenty of commodities, he shou'd, of course, be great and powerful, and they rich and happy, independent of the greater or les|ser abundance of the precious metals. These ad|mit of divisions and sub-divisions to a great extent; and where they wou'd become so small as to be in danger of being lost, 'tis easy to mix them with a baser metal, as is practis'd in some countries of Europe; and by that means raise them to a bulk more sensible and convenient. They still serve the same purposes of exchange, whatever their num|ber may be, or whatever colour they may be sup|pos'd to have.

To these difficulties I answer, that the effect, here suppos'd to flow from scarcity of money, re|ally arises from the manners and customs of the in|habitants, and that we mistake, as is usual, a col|lateral effect for a cause. The contradiction is only apparent; but it requires some thought and reflection to discover the principles, by which we can reconcile reason to experience.

It seems a maxim almost self-evident, that the prices of every thing depend on the proportion be|twixt commodities and money, and that any con|siderable alteration on either of these has the same

effect either of heightening or diminishing the price. Encrease the commodities, they become cheaper: Encrease the money, they rise in their value. As on the other hand, a diminution of the former, and that of the latter have contrary tendencies.

'TIS also evident, that the prices do not so much depend on the absolute quantity of commodities and of money, which are in a nation; as on that of the commodities, which come or may come to market, and of the money, which circulates. If the coin be lockt up in chests, 'tis the same thing with regard to prices, as if it were annihilated: If the commodities be hoarded in granaries, a like effect follows. As the money and commodities, in these cases, never meet, they cannot affect each other. Were we, at any time, to form con|jectures concerning the prices of provisions, the corn, which the farmer must reserve for the main|tenance of himself and family, ought never to en|ter into the estimation. 'Tis only the overplus, compar'd to the demand, that determines the value.

To apply these principles, we must consider, that in the first and more uncultivated ages of a|ny state, e're fancy has confounded her wants with those of nature, men, contented with the produc|tions of their own fields, or with those rude prepa|rations, which they themselves can work upon

them, have little occasion for exchange, or at least for money, which, by agreement, is the common measure of exchange. The wool of the farmer's own flock, spun in his own family, and wrought by a neighbouring weaver, who receives his pay|ment in corn or wool, suffices for furniture and cloathing. The carpenter, the smith, the mason, the taylor are retain'd by wages of a like nature; and the landlord himself, dwelling in the neigh|bourhood, is contented to receive his rent in the commodities rais'd by the farmer. The greatest part of these he consumes at home, in rustic ho|spitality: The rest, perhaps, he disposes of for mo|ney to the neighbouring town, whence he draws the materials of his expence and luxury.

BUT after men begin to refine on all these en|joyments, and live not always at home, nor are contented with what can be rais'd in their neigh|bourhood, there is more exchange and commerce of all kinds, and more money enters into that ex|change. The tradesmen will not be paid in corn; because they want something more than barely to eat. The farmer goes beyond his own parish for the commodities he purchases, and cannot always carry his commodities to the merchant, who sup|plies him. The landlord lives in the capital or in a foreign country; and demands his rent in gold and silver, which can easily be transported to him. Great undertakers and manufacturers and mer|chants

arise in every commodity; and these can conveniently deal in nothing but in specie. And consequently, in this situation of society, the coin enters into many more contracts, and by that means is much more employ'd than in the former.

THE necessary effect is, that provided the mo|ney does not encrease in the nation, every thing must become much cheaper in times of industry and refinement, than in rude, uncultivated ages. 'Tis the proportion betwixt the money, that cir|culates, and the commodities in the market, that determines the prices. Goods, that are consum'd at home, or exchang'd with other goods in the neighbourhood, never come to market; they af|fect not, in the least, the current specie; with re|gard to it they are as if totally annihilated; and consequently this method of using them sinks the proportion on the side of the commodities, and en|creases the prices. But after money enters into all contracts and sales, and is every where the measure of exchange, the same national cash has a much greater task to perform; all commodities are then in the market; the sphere of circulation is enlarg'd; 'tis the same case as if that individual sum were to serve a larger kingdom; and therefore, the proportion being here diminish'd on the side of the money, every thing must become cheaper, and the prices gradually fall.

BY the most exact computations, that have been form'd all over Europe, after making allowance for the change in the numerary value or the deno|mination, 'tis found, that the prices of all things have only risen three, or at most four times since the discovery of the West Indies. But will any one assert, that there is no more than four times the coin in Europe, that was in the fifteenth cen|tury and the centuries preceding it? The Spani|ards and Portuguese from their mines, the En|glish, French and Dutch, by their African trade, and by their interlopers in the West Indies, bring home about seven millions a year, of which not a|bove a tenth part goes to the East Indies. This sum alone in five years would probably double the antient stock of money in Europe. And no other satisfactory reason can be given, why all prices have not risen to a much more exorbitant height, except that deriv'd from a change of customs and manners. Besides, that more commodities are produc'd by additional industry, the same commo|dities come more to market, after men depart from their antient simplicity of manners. And tho' this encrease has not been equal to that of mo|ney, it has, however, been considerable, and has preserv'd the proportion betwixt coin and commo|dities nearer the antient standard.

WERE the question propos'd, which of these methods of living in the people, the simple or the

refin'd, is the most advantageous to the state or pub|lic, I shou'd, without much scruple, prefer the latter, in a view to politics at least; and should produce this as an additional reason for the encou|ragement of trade and manufactures.

WHEN men live in the antient simple manner, and supply all their necessities from their domestic industry or from the neighbourhood, the sovereign can levy no taxes in money from a considerable part of his subjects; and if he will impose on them any burthens, he must take his payment in commodities, with which alone they abound; a method attended with such great and obvious in|conveniencies, that they need not here be insisted on. All the money he can pretend to raise must be from his principal cities, where alone it circu|lates; and these, 'tis evident, cannot afford him so much as the whole state cou'd, did gold and sil|ver circulate thro' the whole. But besides this obvious diminution of the revenue, there is also another cause of the poverty of the public in such a situation. Not only the sovereign receives less money, but the same money goes not so far as in times of industry and general commerce. Every thing is dearer, where the gold and silver are sup|pos'd equal; and that because fewer commodities come to market, and the whole coin bears a high|er proportion to what is to be purchas'd by it;

whence alone the prices of every thing are fix'd and determin'd.

HERE then we may learn the fallacy of the re|mark, often to be met with in historians, and even in common conversation, that any particular state is weak, tho' fertile, populous, and well cultivat|ed, merely because it wants money. It appears, that the want of money can never injure any state within itself: For men and commodities are the real strength of any community. 'Tis the simple manner of living which here hurts the public, by confining the gold and silver to few hands, and preventing its universal diffusion and circulation. On the contrary, industry and refinements of all kinds incorporate it with the whole state, however small its quantity may be: They digest it into e|very vein, so to speak; and make it enter into e|very transaction and contract. No hand is entire|ly empty of it; and as the prices of every thing fall by that means, the sovereign has a double advan|tage: He may draw money by his taxes from every part of the state, and what he receives goes farther in every purchase and payment.

WE may infer, from a comparison of prices, that money is not more plentiful in China, than it was in Europe three centuries ago: But what im|mense power is that empire possest of, if we may judge by the civil and military list, maintain'd by

it? Polybius* 1.5 tells us, that provisions were so cheap in Italy during his time, that in some places the stated club in the inns was a semis a head, little more than a farthing: Yet the Roman power had even then subdu'd the whole known world. A|bout a century before that period, the Carthagini|an ambassadors said, by way of raillery, that no people liv'd more sociably amongst themselves than the Romans; for that in every entertainment, which, as foreign ministers, they receiv'd, they still observ'd the same plate at every table.† 1.6 The absolute quantity of the precious metals is a mat|ter of great indifference. There are only two cir|cumstances of any importance, viz. their gradual encrease, and their thorough concoction and cir|culation thro' the state; and the influence of both these circumstances has been here explained.

IN the following discourse we shall see an in|stance of a like fallacy, as that above mention'd; where a collateral effect is taken for a cause, and where a consequence is ascrib'd to the plenty of money; tho' it be really owing to a change in the manners and customs of the people.

Notes

• * 1.1

  APRIVATE soldier in the Roman infantry had a denarius a day, somewhat less than 8 pence. The Roman emperors had common|ly 25 legions in pay, which, allowing 5000 men to a legion, makes 125,000. Tacit. ann. lib. 4. 'Tis true, there were also auxilia|ries to the legions; but their numbers are uncertain as well as their pay. To consider only the legionaries, the pay of the private men could not exceed 1600,000 pound. Now the parliament in the last war commonly allow'd for the fleet 2500,000. We have therefore 900,000 over for the officers and other expences of the Roman le|gions. There seem to have been but few officers in the Roman ar|mies, in comparison of what are employ'd in all our modern troops, except some Swiss corps: And these officers had very small pay: A centurion, for instance, only double a common soldier. And as the soldiers from their pay (Tacit. ann. lib. 1.) bought their own cloaths, arms, tents and baggage; this must also diminish consider|ably the other charges of the army. So little expensive was that mighty government, and so easy was its yoke over the world. And indeed, this is the more natural conclusion from the forego|ing calculations. For money, after the conquest of Egypt, seems to have been nearly in as great plenty at Rome, as it is at present in the richest of the European kingdoms.
• * 1.2

  Plut. Quomodo quis suos profectus in virtute sentire possit.
• * 1.3

  THESE facts I give upon the authority of Mons. de Tot in his Reflections politiques, an author of reputation. Tho' I must con|fess, that the facts, which he advances on other occasions, are often so suspicious as to make his authority less in this matter. However, the general observation, that the augmenting the mo|ney in France does not at first proportionably augment the prices, is certainly just.

  By the bye, this seems to be one of the best reasons for a gradu|al and universal augmentation of the money, which can be given, tho' it has been entirely overlook'd in all those volumes, which have been wrote on that question by Melon, Du Tot, and Paris de Verney. Were all our money, for instance, recoin'd, and a penny's worth of silver taken from every shilling, the new shil|ling wou'd probably purchase every thing that cou'd have been bought by the old; the prices of every thing wou'd thereby be in|sensibly diminish'd; foreign trade enliven'd; and domestic indus|try, by the circulation of a greater number of pounds and shillings, wou'd receive some encrease and encouragement. In executing such a project, 'twou'd be better to make the new shilling pass for 24 half-pence, in order to preserve the illusion, and make it be ta|ken for the same.
• * 1.4

  THE Italians gave to the emperor Maximilian, the nick|name of Pocchi-danari. None of the enterprises of that prince e|ver succeeded, for want of money.
• * 1.5

  Lib. 2. cap. 15.
• † 1.6

  Plin. lib. 33. cap. 11.