a sovereign has numbers of subjects, and these have plenty of commodities, he should of course be great and powerful, and they rich and happy, independent of the greater or lesser abundance of the precious metals. These admit of divisions and subdivisions to a great extent; and where they would become so small as to be in danger of being lost, it is easy to mix them with a baser metal, as is practised 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 number may be, or whatever colour they may be supposed to have.
To these difficulties, I answer that the effect here supposed to flow from scarcity of money really arises from the manners and customs of the inhabitants, and that we mistake, as is too usual, a collateral effect for a cause. The {p35} 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 everything depend on the proportion between commodities and money, and that any considerable alteration on either of these has the same effect, either of heightening or lowering the prices. Increase the commodities, they become cheaper; increase 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.
It is also evident that the prices do not so much depend on the absolute quantity of commodities and that of money which are in a nation, as in that of the commodities which come or may come to market, and of the money which circulates. If the coin be locked up in chests, it is 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 conjectures concerning the price of provisions, the corn which the farmer must reserve for the maintenance of himself and family ought never to enter into the estimation. It is only the overplus, compared to the demand, that determines the value.
To apply these principles, we must consider that in the first and more uncultivated ages of any state, ere fancy has confounded her wants with those of nature, men, contented with the productions of their own fields, or with those rude preparations 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 payment in corn or wool, suffices for furniture or clothing. The carpenter, the smith, the mason, the tailor are retained by wages of a like nature; and the landlord himself, dwelling in the neighbourhood, is contented to receive his rent in {p36} the commodities raised by the farmer. The greatest part of these he consumes at home, in rustic hospitality; the rest, perhaps, he disposes of for money to the neighbouring town, whence he draws the few materials of his expense and luxury.
But after men begin to refine on all these enjoyments, and live not always at home, nor are contented with what can be raised in their neighbourhood, there is more exchange and commerce of all kinds, and more money enters into that exchange. The tradesmen will not be paid in corn, because they want something more than barley to eat. The farmer goes beyond his own parish for the commodities he purchases, and cannot always carry his commodities to the merchant who supplies 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 merchants 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 employed than in the former.
The necessary effect is, that, provided the money does not increase in the nation, everything must become much cheaper in times of industry and refinement than in rude, uncultivated ages. It is the proportion between the circulating money and the commodities in the market which determines the prices. Goods that are consumed at home, or exchanged with other goods in the neighbourhood, never come to market; they affect not in the least the current specie; with regard 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 increases the prices. But after money enters into all contracts and sales, and is everywhere 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 enlarged; it is the same case as if that individual sum were to serve a larger kingdom; and therefore, the {p37} proportion being here lessened on the side of the money, everything must become cheaper, and the prices gradually fall.
By the most exact computations that have been formed all over Europe, after making allowance for the alteration in the numerary value or the denomination, it is 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 not much more than four times the coin in Europe that was in the fifteenth century and the centuries preceding it? The Spaniards and Portuguese from their mines, the English, French, and Dutch by their African trade, and by their interlopers in the West Indies, bring home six millions a year, of which not above a third part goes to the East Indies. This sum alone in ten years would probably double the ancient 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 derived from a change of customs and manners. Besides that more commodities are produced by additional industry, the same commodities come more to market after men depart from their ancient simplicity of manners; and though this increase has not been equal to that of money, it has, however, been considerable, and has preserved the proportion between coin and commodities nearer the ancient standard.
Were the question proposed, Which of these methods of living in the people, the simple or refined, is most advantageous to the state or public? I should, without much scruple, prefer the latter, in a view to politics at least; and should produce this as an additional reason for the encouragement of trade and manufactures.
When men live in the ancient simple manner, and supply all their necessaries from 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 burdens, he must take his payment in commodities, with which alone they abound—a method {p38} attended with such great and obvious inconveniences, 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 circulates; and these, it is evident, cannot afford him so much as the whole state could, did gold and silver circulate through 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. Everything is dearer where the gold and silver are supposed equal, and that because fewer commodities come to market, and the whole coin bears a higher proportion to what is to be purchased by it, whence alone the prices of everything are fixed and determined.
Here then we may learn the fallacy of the remark, often to be met with in historians, and even in common conversation, that any particular state is weak, though fertile, populous, and well cultivated, 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. It is 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 every vein, so to speak, and make it enter into every transaction and contract. No hand is entirely empty of it. And as the prices of everything fall by that means, the sovereign has a double advantage: 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 immense power is that empire possessed of, if we may judge by the civil and military list maintained by it! Polybius tells us that provisions were so {p39} cheap in Italy during his time that in some places the stated club[16] at the inns was a semis a head, little more than a farthing!