Book XXII. Of Laws in Relation to the Use of Money

　　1. The Reason of the Use of Money. People who have little merchandise, as savages, and among civilised nations those who have only two or three species, trade by exchange. Thus the caravans of Moors that go to Timbuctoo, in the heart of Africa, have no need of money, for they exchange their salt for gold. The Moor puts his salt in a heap, and the Negro his dust in another; if there is not gold enough, the Moor takes away some of his salt, or the Negro adds more gold, till both parties are agreed.

　　But when a nation traffics with a great variety of merchandise, money becomes necessary; because a metal easily carried from place to place saves the great expenses which people would be obliged to be at if they always proceeded by exchange.

　　As all nations have reciprocal wants, it frequently happens that one is desirous of a large quantity of the other's merchandise, when the latter will have very little of theirs, though with respect to another nation the case is directly opposite. But when nations have money, and proceed by buying and selling, those who take most merchandise pay the balance in specie. And there is this difference, that, in the case of buying, the trade carried on is in proportion to the wants of the nation that has the greatest demands; while in bartering, the trade is only according to the wants of the nation whose demands are the fewest; without which the latter would be under an impossibility of balancing its accounts.

　　2. Of the Nature of Money. Money is a sign which represents the value of all merchandise. Metal is taken for this sign, as being durable,[1] because it is consumed but little by use; and because, without being destroyed, it is capable of many divisions. A precious metal has been chosen as a sign, as being most portable. A metal is most proper for a common measure, because it can be easily reduced to the same standard. Every state fixes upon it a particular impression, to the end that the form may correspond with the standard and the weight, and that both may be known by inspection only. The Athenians, not having the use of metals, made use of oxen,[2] and the Romans of sheep; but one ox is not the same as another ox in the manner that one piece of metal may be the same as another.

　　A specie is the sign of the value of merchandise, paper is the sign of the value of specie; and when it is of the right sort, it represents this value in such a manner that as to the effects produced by it there is not the least difference.

　　In the same manner, as money is the sign and representative of a thing, everything is a sign and representative of money; and the state is in a prosperous condition when on the one hand money perfectly represents all things, and on the other all things perfectly represent money, and are reciprocally the sign of each other; that is, when they have such a relative value that we may have the one as soon as we have the other. This never happens in any other than a moderate government, nor does it always happen there; for example, if the laws favour the dishonest debtor, his effects are no longer a representative or sign of money. With regard to a despotic government, it would be a prodigy did things there represent their sign. Tyranny and distrust make every one bury their specie;[3] things therefore are not there the representative of money.

　　Legislators have sometimes had the art not only to make things in their own nature the representative of specie, but to convert them even into specie, like the current coin. C犘ar, when he was dictator, permitted debtors to give their lands in payment to their creditors, at the price they were worth before the civil war.[4] Tiberius ordered that those who desired specie should have it from the public treasury on binding over their land to double the value[5] Under C犘ar the lands were the money which paid all debts; under Tiberius ten thousand sesterces in land became as current money equal to five thousand sesterces in silver. The Magna Charta of England provides against the seizing of the lands or revenues of a debtor, when his movable or personal goods are sufficient to pay, and he is willing to give them up to his creditors; thus all the goods of an Englishman represent money.

　　The laws of the Germans constituted money a satisfaction for the injuries that were committed, and for the sufferings due to guilt. But as there was but very little specie in the country, they again constituted this money to be paid in goods or chattels. This we find appointed in a Saxon law, with certain regulations suitable to the ease and convenience of the several ranks of people. At first the law declared the value of a sou in cattle;[6] the sou of two tremises answered to an ox of twelve months, or to a ewe with her lamb; that of three tremises was worth an ox of sixteen months. With these people money became cattle, goods, and merchandise, and these again became money.

　　Money is not only a sign of things; it is also a sign and representative of money, as we shall see in the chapter on exchange.

　　3. Of ideal Money. There is both real and ideal money. Civilised nations generally make use of ideal money only, because they have converted their real money into ideal. At first their real money was some metal of a certain weight and standard, but soon dishonesty or want made them retrench a part of the metal from every piece of money, to which they left the same name; for example, from a livre at a pound weight they took half the silver, and still continued to call it a livre; the piece which was the twentieth part of a pound of silver they continued to call a sou, though it is no more the twentieth part of this pound of silver. By this method the livre is an ideal livre, and the sou an ideal sou. Thus of the other subdivisions; and so far may this be carried that what we call a livre shall be only a small part of the original livre or pound, which renders it still more ideal. It may even happen that we have no piece of money of the precise value of a livre, nor any piece exactly with a sou, then the livre and the sou will be purely ideal. They may give to any piece of money the denomination of as many livres and as many sous as they please, the variation may be continual, because it is as easy to give another name to a thing as it is difficult to change the thing itself.

　　To take away the source of this abuse, it would be an excellent law for all countries who are desirous of making commerce flourish to ordain that none but real money should be current, and to prevent any methods from being taken to render it ideal.

　　Nothing ought to be so exempt from variation as that which is the common measure of all. Trade is in its own nature extremely uncertain; and it is a great evil to add a new uncertainty to that which is founded on the nature of the thing.

　　4. Of the Quantity of Gold and Silver. While civilised nations are the mistresses of the world, gold and silver, whether they draw it from among themselves, or fetch it from the mines, must increase every day. On the contrary, it diminishes when barbarous nations prevail. We know how great was the scarcity of these metals when the Goths and Vandals on the one side, and on the other the Saracens and Tartars, broke in like a torrent on the civilised world.

　　5. The same Subject continued. The bullion drawn from the American mines, imported into Europe, and thence sent to the East, has greatly promoted the navigation of the European nations; for it is merchandise which Europe receives in exchange from America, and which she sends in exchange to the Indies. A prodigious quantity of gold and silver is therefore an advantage, when we consider these metals as merchandise; but it is otherwise when we consider them as a sign, because their abundance gives an alloy to their quality as a sign, which is chiefly founded on their scarcity.

　　Before the first Punic war,[7] copper was to silver as 960 to 1;[8] it is at present nearly as 731/2 to 1. When the proportion shall be as it was formerly, silver will better perform its office as a sign.

　　6. The Reason why Interest was lowered one-half after the Conquest of the Indies. Garcilasso informs us[9] that in Spain after the conquest of the Indies the interest, which was at ten per cent, fell to five. This was a necessary consequence. A great quantity of specie being all of a sudden brought into Europe, much fewer persons had need of money. The price of all things increased, while the value of money diminished; the proportion was then broken, and all the old debts were discharged. We may recollect the time of the System,[10] when everything was at a high price except specie. Those who had money after the conquest of the Indies were obliged to lower the price or hire of their merchandise, that is, in other words, their interest.

　　From this time they were unable to bring interest to its ancient standard, because the quantity of specie brought to Europe has been annually increasing. Besides, as the public funds of some states, founded on riches procured by commerce, gave but a very small interest, it became necessary for the contracts of individuals to be regulated by these. In short, the course of exchange having rendered the conveying of specie from one country to another remarkably easy, money cannot be scarce in a place where they may be so readily supplied with it by those who have it in plenty.

　　7. How the Price of Things is fixed in the Variation of the Sign of Riches. Money is the price of merchandise or manufactures. But how shall we fix this price? or, in other words, by what piece of money is everything to be represented?

　　If we compare the mass of gold and silver in the whole world with the quantity of merchandise therein contained, it is certain that every commodity or merchandise in particular may be compared to a certain portion of the entire mass of gold and silver. As the total of the one is to the total of the other, so part of the one will be to part of the other. Let us suppose that there is only one commodity or merchandise in the world, or only one to be purchased, and that this is divisible like money; a part of this merchandise will answer to a part of the mass of gold and silver; the half of the total of the one to the half of the total of the other; the tenth, the hundredth, the thousandth part of the one, to the tenth, the hundredth, the thousandth part of the other. But as that which constitutes property among mankind is not all at once in trade, and as the metals or money which are the sign of property are not all in trade at the same time, the price is fixed in the compound ratio of the total of things with the total of signs, and that of the total of things in trade with the total of signs in trade also; and as the things which are not in trade to-day may be in trade to-morrow, and the signs not now in trade may enter into trade at the same time, the establishment of the price of things fundamentally depends on the proportion of the total of things to the total of signs.

　　Thus the prince or the magistrate can no more ascertain the value of merchandise than he can establish by a decree that the relation 1 has to 10 is equal to that of 1 to 20. Julian's lowering the price of provisions at Antioch was the cause of a most terrible famine.[11]

　　8. The same Subject continued. The Negroes on the coast of Africa have a sign of value without money. It is a sign merely ideal, founded on the degree of esteem which they fix in their minds for all merchandise, in proportion to the need they have of it. A certain commodity or merchandise is worth three ma-coutes; another, six macoutes; another, ten macoutes; that is, as if they said simply three, six, and ten. The price is formed by a comparison of all merchandise with each other. They have therefore no particular money; but each kind of merchandise is money to the other.

　　Let us for a moment transfer to ourselves this manner of valuing things, and join it with ours: all the merchandise and goods in the world, or else all the merchandise or manufactures of a state, particularly considered as separate from all others, would be worth a certain number of macoutes; and, dividing the money of this state into as many parts as there are macoutes, one part of this division of money will be the sign of a macoute.

　　If we suppose the quantity of specie in a state doubled, it will be necessary to double the specie in the macoute; but if in doubling the specie you double also the macoute, the proportion will remain the same as before the doubling of either.

　　If, since the discovery of the Indies, gold and silver have increased in Europe in the proportion of 1 to 20, the price of provisions and merchandise must have been enhanced in the proportion of 1 to 20. But if, on the other hand, the quantity of merchandise has increased as 1 to 2 —— it necessarily follows that the price of this merchandise and provisions, having been raised in proportion of 1 to 20, and fallen in proportion of 1 to 2 —— it necessarily follows, I say, that the proportion is only as 1 to 10.

　　The quantity of goods and merchandise increases by an augmentation of commerce, the augmentation of commerce by an augmentation of the specie which successively arrives, and by new communications with freshly-discovered countries and seas, which furnish us with new commodities and new merchandise.

　　9. Of the relative Scarcity of Gold and Silver. Besides the positive plenty and scarcity of gold and silver, there is still a relative abundance and a relative scarcity of one of these metals compared with the other.

　　The avaricious hoard up their gold and silver, for as they do not care to spend, they are fond of signs that are not subject to decay. They prefer gold to silver, because as they are always afraid of losing, they can best conceal that which takes up the least room. Gold therefore disappears when there is plenty of silver, by reason that every one has some to conceal; it appears again when silver is scarce, because they are obliged to draw it from its confinement.

　　It is then a rule that gold is common when silver is scarce, and gold is scarce when silver is common. This lets us see the difference between their relative and their real abundance and scarcity, of which I shall presently speak more at large.

　　10. Of Exchange. The relative abundance and scarcity of specie in different countries forms what is called the course of exchange.

　　Exchange is a fixing of the actual and momentary value of money.

　　Silver as a metal has value like all other merchandise, and an additional value as it is capable of becoming the sign of other merchandise. If it were no more than mere merchandise, it would lose much of its value.

　　Silver, as money, has a value, which the prince in some respects can fix, and in others cannot.

　　1. The prince establishes a proportion between a quantity of silver as metal, and the same quantity as money, 2. He fixes the proportion between the several metals made use of as money. 3. He establishes the weight and standard of every piece of money. In fine, 4, he gives to every piece that ideal value of which I have spoken. I shall call the value of money in these four respects its positive value, because it may be fixed by law.

　　The coin of every state has, besides this, a relative value, as it is compared with the money of other countries. This relative value is established by the exchange, and greatly depends on its positive value. It is fixed by the general opinion of the merchants, never by the decrees of the prince; because it is subject to incessant variations, and depends on a thousand accidents.

　　The several nations, in fixing this relative value, are chiefly guided by that which has the greatest quantity of specie. If she has as much specie as all the others together, it is then most proper for the others to regulate theirs by her standard: and the regulation between all the others will pretty nearly agree with the regulation made with this principal nation.

　　In the actual state of the globe, Holland is the nation we are speaking of. Let us examine the course of exchange with relation to her.

　　They have in Holland a piece of money called a florin, worth twenty sous, or forty half-sous or gros. But, to render our ideas as simple as possible, let us imagine that they have not any such piece of money in Holland as a florin, and that they have no other but the gros: a man who should have a thousand florins should have forty thousand gros; and so of the rest. Now the exchange with Holland is determined by our knowing how many gros every piece of money in other countries is worth; and as the French commonly reckon by a crown of three livres, the exchange makes it necessary for them to know how many gros are contained in a crown of three livres. If the course of exchange is at fifty-four, a crown of three livres will be worth fifty-four gros; if it is at sixty, it will be worth sixty gros. If silver is scarce in France, a crown of three livres will be worth more gros; if plentiful, it will be worth less.

　　This scarcity or plenty, whence results the mutability of the course of exchange, is not the real, but a relative, scarcity or plenty. For example, when France has greater occasion for funds in Holland than the Dutch of having funds in France, specie is said to be common in France and scarce in Holland: and vice versa.

　　Let us suppose that the course of exchange with Holland is at fifty-four. If France and Holland composed only one city, they would act as we do when we give change for a crown: the Frenchman would take three livres out of his pocket, and the Dutchman fifty-four gros from his. But as there is some distance between Paris and Amsterdam, it is necessary that he who for a crown of three livres gives me fifty-four gros, which he has in Holland, should give me a bill of exchange for fifty-four gros payable in Holland. The fifty-four gros is not the thing in question, but a bill for that sum. Thus, in order to judge of the scarcity or plenty of specie,[12] we must know if there are in France more bills of fifty-four gros drawn upon Holland than there are crowns drawn upon France. If there are more bills from Holland than there are from France, specie is scarce in France, and common in Holland; it then becomes necessary that the exchange should rise, and that they give for my crown more than fifty-four gros; otherwise I will not part with it; and vice versa.

　　Thus the various turns in the course of exchange form an account of debtor and creditor, which must be frequently settled, and which the state in debt can no more discharge by exchange than an individual can pay a debt by giving change for a piece of silver.

　　We will suppose that there are but three states in the world, France, Spain, and Holland; that several individuals in Spain are indebted to France, to the value of one hundred thousand marks of silver; and that several individuals of France owe in Spain one hundred and ten thousand marks: now, if some circumstance both in Spain and France should cause each to withdraw his specie, what will then be the course of exchange? These two nations will reciprocally acquit each other of a hundred thousand marks; but France will still owe ten thousand marks in Spain, and the Spaniards will still have bills upon France, to the value of ten thousand marks; while France will have none at all upon Spain.

　　But if Holland was in a contrary situation with respect to France, and in order to balance the account must pay her ten thousand marks, the French would have two ways of paying the Spaniards: either by giving their creditors in Spain bills for ten thousand marks upon their debtors in Holland, or else by sending specie to the value of ten thousand marks to Spain.

　　Hence it follows that when a state has occasion to remit a sum of money to another country, it is indifferent, in the nature of the thing, whether specie be conveyed thither or they take bills of exchange. The advantage or disadvantage of these two methods solely depends on actual circumstances. We must inquire which will yield most gros in Holland-money carried thither in specie, or a bill upon Holland for the like sum.[13]

　　When money of the same standard and weight in France yields money of the same standard and weight in Holland, we say that the exchange is at par. In the actual state of specie[14] the par is nearly at fifty-four gros to the crown. When the exchange is above fifty-four gros, we say it is high; when beneath, we say it is low.

　　In order to know the loss and gain of a state in a particular situation of exchange, it must be considered as debtor and creditor, as buyer and seller. When the exchange is below par, it loses as a debtor, and gains as a creditor; it loses as a buyer and gains as a seller. It is obvious it loses as debtor; suppose, for example, France owes Holland a certain number of gros, the fewer gros there are in a crown the more crowns she has to pay. On the contrary, if France is creditor for a certain number of gros, the less number of gros there are in a crown the more crowns she will receive. The state loses also as buyer, for there must be the same number of gros to purchase the same quantity of merchandise; and while the exchange is low, every French crown is worth fewer gros. For the same reason the state gains as a seller. I sell my merchandise in Holland for a certain number of gros; I receive then more crowns in France, when for every fifty gros I receive a crown, than I should do if I received only the same crown for every fifty-four. The contrary to this takes place in the other state. If the Dutch are indebted a certain number of crowns to France, they will gain; if this money is owing to them, they will lose; if they sell, they lose; and if they buy, they gain.

　　It is proper to pursue this somewhat further. When the exchange is below par; for example, if it be at fifty instead of fifty-four, it should follow that France, on sending bills of exchange to Holland for fifty-four thousand crowns, could buy merchandise only to the value of fifty thousand; and that on the other hand, the Dutch sending the value of fifty thousands crowns to France might buy fifty-four thousand, which makes a difference of 8/54, that is, a loss to France of more than one-seventh; so that France would be obliged to send to Holland one-seventh more in specie or merchandise than she would do were the exchange at par. And as the mischief must constantly increase, because a debt of this kind would bring the exchange still lower, France would in the end be ruined. It seems, I say, as if this should certainly follow; and yet it does not, because of the principle which I have elsewhere established;[15] which is that states constantly lean towards a balance, in order to preserve their independency. Thus they borrow only in proportion to their ability to pay, and measure their buying by what they sell; and taking the example from above, if the exchange falls in France from fifty-four to fifty, the Dutch who buy merchandise in France to the value of a thousand crowns, for which they used to pay fifty-four thousand gros, would now pay only fifty thousand, if the French would consent to it. But the merchandise of France will rise insensibly, and the profit will be shared between the French and the Dutch; for when a merchant can gain, he easily shares his profit; there arises then a communication of profit between the French and the Dutch. In the same manner the French, who bought merchandise of Holland for fifty-four thousand gros, and who, when the exchange was at fifty-four, paid for them a thousand crowns, will be obliged to add one-seventh more in French crowns to buy the same merchandise. But the French merchant, being sensible of the loss he suffers, will take up less of the merchandise of Holland. The French and the Dutch merchant will then both be losers, the state will insensibly fall into a balance, and the lowering of the exchange will not be attended with all those inconveniences which we had reason to fear.