Under this head, we shall have to examine the laws of currency and exchange; of which I will note here the first principles.
Money Is An Expression Of Right
Money has been inaccurately spoken of as merely a means of circulation. It is, on the contrary, an expression of right. It is not wealth, being the sign of the relative quantities of it, to which, at a given time, persons or societies are entitled.
If all the money in the world, notes and gold, were destroyed in an instant, it would leave the world neither richer nor poorer than it was. But it would leave the individual inhabitants of it in different relations.
Money is, therefore, correspondent in its nature to the title-deed of an estate. Though the deed be burned, the estate still exists, but the right to it has become disputable.
The worth of money remains unchanged, as long as the proportion of the quantity of existing money to the quantity of existing wealth, or available labour which it professes to represent, remains unchanged.
If the wealth increases, but not the money, the worth of the money increases; if the money increases, but not the wealth, the worth of the money diminishes.
Money, therefore, cannot be arbitrarily multiplied, any more than title-deeds can. So long as the existing wealth or available labour is not fully represented by the currency, the currency may be increased without diminution of the assigned worth of its pieces. But when the existing wealth, or available labour, is once fully represented, every piece of money thrown into circulation diminishes the worth of every other existing piece, in the proportion it bears to the number of them, provided the new piece be received with equal credit; if not, the depreciation of worth takes place exclusively in the new piece, according to the inferiority of its credit.
When, however, new money, composed of some substance of supposed intrinsic value (as of gold), is brought into the market, or when new notes are issued which are supposed to be deserving of credit, the desire to obtain money will, under certain circumstances, stimulate industry; an additional quantity of wealth is immediately produced, and if this be in proportion to the new claims advanced, the value of the existing currency is undepreciated. If the stimulus given be so great as to produce more goods than are proportioned to the additional coinage, the worth of the existing currency will be raised.
Arbitrary control and issues of currency affect the production of wealth, by acting on the hopes and fears of men; and are, under certain circumstances, wise. But the issue of additional currency to meet the exigencies of immediate expense, is merely one of the disguised forms of borrowing or taxing.
It is, however, in the present low state of economical knowledge, often possible for Governments to venture on an issue of currency, when they could not venture on an additional loan or tax, because the real operation of such issue is not understood by the people, and the pressure of it is irregularly distributed, and with an unperceived gradation. Finally, the use of substances of intrinsic value as the materials of a currency, is a barbarism;—a remnant of the conditions of barter, which alone can render commerce possible among savage nations. It is, however, still necessary, partly as a mechanical check on arbitrary issues; partly as a means of exchanges with foreign nations. In proportion to the extension of civilization, and increase of trustworthiness in Governments, it will cease. So long as it exists, the phenomena of the cost and price of the articles used for currency, are mingled with those of currency itself, in an almost inextricable manner; and the worth of money in the market is affected by multitudinous accidental circumstances, which have been traced, with more or less success, by writers on commercial operations; but with these variations the true political economist has no more to do than an engineer fortifying a harbour of refuge against Atlantic tide, has to concern himself with the cries or quarrels of children who dig pools with their fingers for its ebbing currents among the sand.