To the Editor of the Literary Chronicle
by Crœsus.
Originally published in The Literary Chronicle and Weekly Review (J. Sidebetmem) vol.1 #2 (29 May 1819).
Sir,—So much has been said and written on the subject of Bullion, Paper Money, and Cash Payments, that some apology might be deemed necessary for my obtruding any observations on the public; but as it appears to me, that the real nature of money is much mistaken by most of our writers on Political Economy, and too great a value set on the precious meta!s, I am induced to offer a few remarks on the subject. In the origin of society, when money was unknown, commerce was conducted, both as to provisions and merchandize, by a mutual exchange of the productions of each party; when the agreement was concluded, they were obliged to fetch from the contracting party, the provisions that they stood in need of. Every sale and purchase were thus attended with double journeys, and difficult and expensive conveyance; as society became more extended and enlightened, these difficulties were multiplied. The advantages of an intermediate article, in payment of their purchases, was sensibly felt, and the first adoption of such a mode, was by means of cattle. According to this arrangement, a certain number of sheep or oxen were given in exchange for provisions and merchandize[1]. This custom, which was attended with much inconvenience, existed no longer than the period when metals were first introduced in commerce, as a standard value. The observations which they were undoubtedly led to make on the properties of metals, were the causes which gave them the preference. Durable, pliable, and easily divided, they could be reduced to any size or form that was required; they could be carried without much trouble, kept without danger of decay, and retained for a considerable length of time, the marks with which they had been stamped, and which pave to them an authentic value. This value was increased according to their scarcity. Gold and Silver being more pure and scarce than any other metals, were consequently more precious, and less employed than the others.
The first pieces of money made to replace the value of the cattle, which were before the medium of exchange in trade, bore the figures and names of the animal, and it is probable that each piece of money was of the precise value of the animal that it represented, Thus a hundred pieces on which was the picture of a sheep, were equivalent to a hundred sheep, and the piece of money which bore the figure of an ox or a cow, sufficed for the payment of one of those animals. In a considerable time after the first institution of a metallic currency, nothing but Copper was made use of; Gold and Silver were too scarce; and when those metals were first converted into money, the quantity was exceedingly small, and the pieces very diminutive, with a value proportioned to their scarcity.
The facility afforded to the exchanges of commerce, by means of money, the activity which it inspires in circulation, and its influence in almost every transaction of human life, cause it to be looked upon as the soul of business; and the great bulk of mankind attach so great an importance to it, that they think nothing impossible with those who possess it in abundance, and that it is the duty of every man to accumulate it, and to apply every effort towards an increase of riches.
But this too universal opinion, which merchants, tradesmen, and even governments have adopted, is an error of a prejudicial tendency to the welfare of individuals and of the state. In fact, money is only a sign of agreement, which can have no real value, except in the things which it represents, and by its use in acquiring them. It has no immediate value in satisfying the natural wants of mankind; and if the productions of the earth, which render it substantial, were to fail, money would not prevent man dying of hunger; for we do not eat or drink Gold and Silver. If we prefer the representative to the thing itself, and seek one while we neglect the other, we embrace a dangerous illusion. Money employed otherwise than for its natural purpose, exchange, would be an useless article, and a stone would be quite of as much value.
It is this false opinion of the value of money, that has given birth to the no less false idea, that the acquired fortune of a country constitutes its riches, and that the only advantageous commerce is that which is paid in money, and which, in the result, produces more money than it has expended.
If money constituted wealth, the possessor of Gold and Silver mines would be the only wealthy persons, and the nations which do not possess such mines would be poor; but the truth of the contrary is very evident to those who are acquainted with the affairs of life. Those nations which do not possess the sources of money, purchase it by their labour and productions; and they do not become poor by allowing their money to leave them, by the same way in which they obtained it, because the exchange of money for useful articles is the only real service for which it was intended, Besides this, money returns to them, when they have other productions of their soil or their labour to offer in exchange.
The accumulation of money can never continue in a nation, otherwise than by the annual increase of its territorial productions, The decrease of this reproduction would necessarily entrain that of their money, and cause the poverty of the nation, instead of money decreasing where there is no diminution of territorial riches. Although the quantity of money may diminish from such particular cause, whilst the revenues and commerce of the country retain their position, it would not be poorer, because, when a nation is otherwise rich, and has a free commerce, it can supply the want of money in a hundred different ways; but nothing can supply, without loss, the decrease in the annual reproduction, which is necessary for the real enjoyment of a people. Let us imagine, that the exhaustion of the mines should diminish the quantity of money; the nation would not suffer, because the nominal value of money would be the same every where, and would augment according to its scarcity; there would even be a gain in convenience, inasmuch as the pieces of money then current would have a greater value with a smaller bulk. Indeed, it would increase the convenience of mankind, if value were always to supply the place of bulk, rather than the bulk add to the value.
Nations that possess mines, ought to look upon their metals as a production of their territory, which yields no other net value than that which remains after the expenses of exportation, They have the same interest in exporting their metals as an agricultural nation has to export its productions, and this interest is the more valuable, when money is not considered an actual wealth, otherwise than for the purposes of exchange.
Some profound politicians carry this train of thinking still farther, and imagine, according to the experience of ages, that a nation which possesses Gold and Silver mines, would act very wisely in shutting them up, and supplying the exportation of the precious metals, as has been dove in China; for, say they, the representative does harm to the article which it replaces; and the abundance of the representative prevents an abundance of real commodity; this is seen every where. However this may be, it is quite certain, that in countries where Gold is abundant, the necessary productions of life are brought from a great distance, and a luxurious and fantastical sterility usurps the place of general happiness. This sort of national decay, which announces a near destruction, is derived from very simple causes, but which are, however, too numerous, and too little connected with the object of this article, to require particular mention. The advantage of possessing mines is not, therefore, so great as it has been represented, since those nations which have none, can, with the natural productions of their soil, procure the metals that they are in need of. Many reasons combine to prove that a nation would do wrong in seeking to acquire more money than they really require, or in preventing its being exported; among others, it may be observed, that where money is too common, it augments the price of productions and of manual labour beyond that of other countries, which is equivalent to an interdiction of commerce.
It is, however, in drawing from a nation more money than is sent to it, that another nation obtains the balance of commerce. But this is a retail idea, if we may use the expression, and consequently an anti-political one, for the interest of the retailer is necessarily opposed to that of real commerce, and this idea, so dear to all who look at nothing but money in the intercourse of trade, is as false as it is ungenerous. Happily for those who are influenced by this ambition, it is impossible to realize it, because the reciprocal laws of commerce present an obstacle, and preserve the balance in an equilibrium, which it is difficult to turn at all, and impossible to turn in a permanent and durable manner.
Money of itself is only a sterile wealth, and has no other use in a nation than the facility which it affords to sales and purchases, and for payment of the revenue and taxes, which put it in circulation, so that the same money passing from one hand to another, effects those payments and completes the operations of commerce. The mass of acquired riches, or fortune, in an agricultural nation, is only just equal to the net produce of the territorial riches. A greater quantity of money would be useless, because it would not be in circulation.
Although the taxes are paid in money, it is not money that discharges them, but the annual riches of the soil. It is in these riches, and not, as the generality of people think, in the acquired fortune of a nation, that its strength and prosperity consist. Money does not operate the successive renewal of these riches; but it is easily produced by written engagements, guaranteed by the produce of the country, which is exported. Money then is not the real wealth of a rising and improving nation, for money cannot generate money. A crown well employed will indeed produce two crowns; but it ts the production that is multiplied and not the money. Thus money ought not to remain in idle bands.
It is by no means an indifferent matter to a state, whether money passes into the pocket of Peter or Paul; it is essential that it should not be taken from him who employs it for the public welfare. It is the dispersion of money, and its employment in satisfying the various wants of the people, that form the fortune of an opulent kingdom. The want of an exchange leads to the use of money in the purchase of merchandize, and the disposal of merchandize in exchange for money, for money and merchandize are only riches according to their nominal value.
Where a kingdom is rich and flourishing, by the commerce of its productions, it has, by its correspondence, riches in other countries, and paper becomes every where a substitute for money. The abundance and sale of its productions every where insure the use of the fortune of other nations; and money is never wanting m a well-cultivated country, to pay, to the sovereign and to the land-holders, the revenues furnished by the saleable productions annually supplied by the soil; but though money is not wanting for the payment of these revenues, we must not take the change, and suppose that the taxes can be established in the circulation of money.
The views of a government ought not to be confined to money; they should extend further, and apply to the abundance and nominal value of the productions of the earth, for the increase of the revenue. It is in this part of the visible and annual riches, that the prosperity and power of a nation consist. It is that which fixes and attaches the subjects to the soil. Money, industry, mercantile commerce, and traffic, form only a precarious wealth, which, without the productions of the soil, would only constitute a republican state, upon a narrow and unsubstantial basis. I am, &c. &c. Crœsus.
1. In all imperfectly formed societies, which still adhere to this rude simplicity, and in which money does not circulate, there are similar modes of exchange; thus, the Laplanders and the savages of America make use of the skins of the Minever, Ermine, and Beaver, in payment of the goods with which they are supplied; in other countries, gold dust, ivory, shells, &c. ave used for the same purpose.