Hume's Political Discourses. David Hume
in Dublin; and therefore it is better, it may be thought, that a public company should enjoy the benefit of the paper-credit which always will have place in every opulent kingdom. But to endeavour artificially to increase such a credit can never be the interest of any trading nation; but must lay them under disadvantages, by increasing money beyond its natural proportion to labour and commodities, and thereby heightening their price to the merchant and manufacturer. And in this view, it must be allowed that no bank could be more advantageous than such a one as locked up all the money it received,[13] and never augmented the circulating coin, as is usual, by returning part of its treasure into commerce. A public bank by this expedient might cut off much of the dealings of private bankers and money-jobbers; and though the state bore the charge of salaries to the directors and tellers of this bank (for, according to the preceding {p30} supposition, it would have no profit from its dealings), the national advantage, resulting from the low price of labour 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 what part of it was used might be replaced at leisure, when peace and tranquillity were restored to the nation.
But of this subject of paper-credit we shall treat more largely hereafter, and I shall finish this essay on money by proposing and explaining two observations, which may perhaps serve to employ the thoughts of our speculative politicians, for to these only I all along address myself. It is enough that I submit to the ridicule sometimes in this age attached to the character of a philosopher, without adding to it that which belongs to a projector.
It was a shrewd observation of Anacharsis the Scythian, who had never seen money in his own country, that gold and silver seemed to him of no use to the Greeks but to assist them in numeration and arithmetic. It is 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 greater plenty, as a greater quantity of it is required 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 would make any alteration on a merchant’s books if, instead of the Arabian method of notation, which requires few characters, he should make use of the Roman, which requires a great many. Nay, the greater quantity of money, like the Roman characters, is rather inconvenient, and requires greater trouble both to keep and transport it. But notwithstanding this conclusion, which must be allowed just, it is certain that since the discovery of mines in America industry has increased in all the nations of Europe, except in the possessors of those mines; and this may justly be ascribed, amongst other reasons, to the increase of gold and silver. Accordingly, we find that in every kingdom into which {p31} money begins to flow in greater abundance than formerly everything takes a new face; labour and industry gain life, the merchant becomes more enterprising, the manufacturer more diligent and skilful, 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 greater number of these little yellow or white pieces for everything 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 phenomenon, we must consider that though the high price of commodities be a necessary consequence of the increase of gold and silver, yet it follows not immediately upon that increase; but some time is required before the money circulates through the whole state, and makes its effects be felt on all ranks of people. At first, no alteration is perceived; by degrees the price rises, first of one commodity then of another, till the whole at last reaches a just proportion with the new quantity of specie which is in the kingdom. In my opinion, it is only in this interval or intermediate situation, between the acquisition of money and rise of prices, that the increasing quantity of gold and silver is favourable to industry. When any quantity of money is imported into a nation, it is not at first dispersed into many hands, but is confined 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 suppose, who have received 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 requires an increase of labour; and this is willingly submitted to by the artisan, {p32} who can now eat and drink better, to compensate his additional toil and fatigue. He carries his money to market, where he finds everything 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 commodities are taken off, apply themselves with alacrity to the raising more; and at the same time can afford to take better and more clothes from their tradesmen, whose price is the same as formerly, and their industry only whetted by so much new gain. It is easy to trace the money in its progress through the whole commonwealth; where we shall find that it must first quicken the diligence of every individual, before it increase the price of labour.
And that the specie may increase to a considerable pitch before it have this latter effect appears, amongst other instances, from the frequent operations of the French king on the money; where it was always found that the augmenting the numerary value did not produce a proportional rise of the prices, at least for some time. In the last year of Louis XIV. money was raised 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; though silver was then at thirty livres the mark, and is now at fifty;[14] not to mention the great addition of gold and {p33} silver which may have come into that kingdom since the former period.
From the whole of this reasoning we may conclude that it is of no manner of consequence, with regard to the domestic happiness of a state, whether money be in a greater or less quantity. The good policy of the magistrate consists only in keeping it, if possible, still increasing; because, by that means, he keeps alive a spirit of industry in the nation, and increases the stock of labour, in which consists all real power and riches. A nation whose money decreases is actually, at that time, much weaker and more miserable than another nation which possesses no more money but is on the increasing 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 alterations in the prices of commodities. There is always 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 increasing. The workman has not the same employment from the manufacturer and merchant, though he pays the same price for everything in the market; the farmer cannot dispose of his corn and cattle, though he must pay the same rent to his landlord. The poverty, and beggary, and sloth which must ensue are easily foreseen.
The second observation which I proposed to make with regard to money may be explained 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 {p34} none at all from his tenants, but is obliged to take his rent in kind, and either to consume it himself, or transport it to places where he may find a market. In those countries the prince can levy few or no taxes but in the same manner; and as he will receive very small benefit from impositions so paid, it is evident that such a kingdom has very little force even at home, and cannot maintain fleets and armies to the same extent as if every part of it abounded in gold and silver.[15] There is surely a greater disproportion betwixt the force of Germany at present and what it was three centuries ago, than there is in its industry, people, and manufactures. 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 supposed, from the scarcity of money. How do all these facts agree with that principle of reason, that the quantity of gold and silver is in itself altogether indifferent? According to that principle,