Chapter Six
Of the increase and decrease in the quantity of hard money in
a State
If mines of gold or silver be found in a state and
considerable quantities of minerals drawn from them, the
proprietors of these mines, the undertaker, and all those who
work there, will not fail to increase their expenses in
proportion to the wealth and profit they make: they will also
lend at interest the sums of money which they have over and above
what they need to spend.
All this money, whether lent or spent, will enter into
circulation and will not fail to raise the price of products and
merchandise in all the channels of circulation which it enters.
Increased money will bring about increased expenditure and this
will cause an increase of market prices in the highest years of
exchange and gradually in the lowest.
Everybody agrees that the abundance of money or its
increase in exchange, raises the price of everything. The
quantity of money brought from American to Europe for the last
two centuries justifies this truth by experience.
Mr Locke lays it down as a fundamental maxim that the
quantity of produce and merchandise in proportion to the quantity
of money serves as the regulator of market price. I have tried to
elucidate his idea in the preceding chapters: he has clearly seen
that the abundance of money makes everything dear, but he has not
considered how it does so. The great difficulty of this question
consists in knowing in what way and in what proportion the
increase of money raises prices.
I have already remarked that an acceleration or greater
rapidity in circulation of money in exchange, is equivalent to an
increase of actual money up to a point. I have also observed that
the increase or decrease of prices in a distant market, home or
foreign, influences the actual market prices. On the other hand
money flows in detail through so many channels that it seems
impossible not to lose sight of it seeing that having been
amassed to make large sums it is distributed in little rills of
exchange, and then gradually accumulated again to make large
payments. For these operations it is constantly necessary to
change coins of gold, silver and copper according to the activity
of exchange. It is also usually the case that the increase or
decrease of actual money in a state is not perceived because it
flow abroad, or is brought into the state, by such imperceptible
means and proportions that it is impossible to know exactly the
quantity which enters or leaves the state.
However all these operations pass under our eyes and
everybody takes part in them. I may therefore venture to offer a
few observations on the subject, even though I may not be able to
give an account which is exact and precise.
I consider in general that an increase of actual money
causes in a state a corresponding increase of consumption which
gradually brings about increased prices.
If the increase of actual money comes from mines of gold
or silver in the state the owner of these mines, the adventurers,
the smelters, refiners, and all the other workers will increase
their expenses in proportion to their gains. They will consume in
their households more meat, wine, or beer than before, will
accustom themselves to wear better cloths, finer linen, to have
better furnished houses and other choicer commodities. They will
consequently give employment to several mechanics who had not so
much to do before and who for the same reason will increase their
expenses: all this increase of expense in meat, wine, wool, etc.
diminishes of necessity the share of the other inhabitants of the
state who do not participate at first in the wealth of the mines
in question. The altercations of the market, or the demand for
meat, wine, wool, etc. being more intense than usual, will not
fail to raise their prices. These high prices will determine the
farmers to employ more land to produce them in another year:
these same farmers will profit by this rise of prices and will
increase the expenditure of their families like the others. Those
then who will suffer from this dearness and increased consumption
will be first of all the landowners, during the term of their
leases, then their domestic servants and all the workmen or fixed
wage-earners who support their families on their wages. All these
must diminish their expenditure in proportion to the new
consumption, which will compel a large number of them to emigrate
to seek a living elsewhere. The landowners will dismiss many of
them, and the rest will demand an increase of wages to enable
them to live as before. It is thus, approximately, that a
considerable increase of money from the mines increases
consumption, and by diminishing the number of inhabitants entails
a greater expense among those who remain.
If more money continues to be drawn from the mines all
prices will owing to this abundance rise to such a point that not
only will the landowners raise their rents considerably when the
leases expire and resume their old style of living, increasing
proportionably the wages their servants, but the mechanics and
workmen will raise the prices of their articles so high that
there will be a considerable profit in buying them from the
foreigner who makes them much more cheaply. This will naturally
induce several people to import many articles made in foreign
countries, where found very cheap: this will gradually ruin the
mechanics and manufacturers of the state who will not be maintain
themselves there by working at such low owing to the dearness of
living.
When the excessive has diminished the inhabitants of a
state, those who remain to a too large expenditure, raised
produce of the land and the labour of workmen to excessive
prices, ruined the manufactures of the state by use of foreign
productions on the part of landlords and mine workers, the money
produced by the mines will necessarily go abroad to pay for the
imports: this will gradually impoverish the state and render it
in some sort dependent on the Foreigner to whom it is obliged to
send money every year as it is drawn from the mines. The great
circulation of money, which was general at the beginning, ceases:
poverty and misery follow and the labour of the mines appears to
be only to the advantage of those employed upon them and the
Foreigners who profit thereby.
This is approximately what has happened to Spain since the
discovery of the Indies. As to the Portuguese, since the
discovery of the gold mines of Brazil, they have nearly always
made use of foreign articles and manufactures; and it seems that
they work at the mines only for the account and advantage of
foreigners. All the gold and silver which these two states
extract from the mines does not supply them in circulation with
more precious metal than others. England and France have even
more as a rule.
Now if the increase of money in the state proceeds from a
balance of foreign trade (i.e. from sending abroad articles and
manufactures in greater value and quantity than is imported and
consequently receiving the surplus in money) this annual increase
of money will enrich a great number of merchants and Undertakers
in the state, and will give employment to numerous mechanics and
workmen who furnish the commodities sent to the foreigner from
whom the money is drawn. This will increase gradually the
consumption of these industrial inhabitants and will raise the
price of land and labour. But the industrious who are eager to
acquire property will not at first increase their expense: they
will wait till they have accumulated a good sum from which they
can draw an assured interest, independently of their trade. When
a large number of the inhabitants have acquired considerable
fortunes from this money, which enters the state regularly and
annually, they will, without fail, increase their consumption and
raise the price of everything. Though this dearness involves them
in a greater expense than they at first contemplated they will
for the most part continue so long as their capital lasts; for
nothing is easier or more agreeable than to increase the family
expenses, nothing more difficult or disagreeable than to retrench
them.
If an annual and continuous balance has brought about in a
state a considerable increase of money it will not fail to
increase consumption, to raise the price of evening and even to
diminish the number of inhabitants unless additional produce is
drawn from abroad proportionable to the increased consumption.
Moreover it is usual in states which have acquired a considerable
abundance of money to draw many things from neighbouring
countries where money is rare and consequently everything is
cheap: but as money must be sent for this the balance of trade
will become smaller. The cheapness of land and labour in the
foreign countries where money is rare will naturally cause the
erection of manufactories and works similar to those of the
state, but which will not at first be so perfect nor so highly
valued.
In this situation the state may subsist in abundance of
money, consume all its own produce and also much foreign produce
and over and above all this maintain a small balance of trade
against the foreigner or at least keep the balance level for many
years, that is import in exchange for its work and manufactures
as much money from these foreign countries as it has to send them
for the commodities or products of the land it takes from them.
If the state is a maritime state the facility and cheapness of
its shipping for the transport of its work and manufactures into
foreign countries may compensate in some sort the high price of
labour caused by the too great abundance of money; so that the
work and manufactures of this state, dear though they be, will
sell in foreign countries cheaper sometimes than the manufactures
of another state where labour is less highly paid.
The cost of transport increases a good deal the prices of
things sent to distant countries; but these costs are very
moderate in maritime states, where there is regular shipping to
all foreign ports so that Ships are nearly always found there
ready to sail which take on board all cargoes confided to them at
a very reasonable freight.
It is not so in states where navigation does not Nourish.
There it is necessary to build ships expressly for the carrying
trade and this sometimes absorbs all the profit; and navigation
there is always very expensive, which entirely discourages trade.
England today consumes not only the greatest part of its
own small produce but also much foreign produce, such as Silks,
Wines, Fruit, Linen in great quantity, etc. while she sends
abroad only the produce of her mines, her work and manufactures
for the most part, and dear though labour be owing to the
abundance of money, she does not fail to sell her articles in
distant countries, owing to the advantage of her shipping, at
prices as reasonable as in France where these same articles are
much cheaper.
The increased quantity of money in circulation in a state
may also be caused, without balance of trade, by subsidies paid
to this state by foreign powers, by the expenses of several
ambassadors, or of travellers whom political reasons or curiosity
or pleasure may induce to reside there for some time, by the
transfer of the property and fortune of some Families who from
motives of religious liberty or other causes quit their own
country to settle down in this state. In all these cases the sums
which come into the state always cause an increased expense and
consumption there and consequently raise the prices of all things
in the channels of exchange into which money enters.
Suppose a quarter of the inhabitants of the state consume
daily meat, wine, beer, etc. and supply themselves frequency with
cloths, linen, etc. before the increase in money, but that after
the increase a third or half of the inhabitants consume these
same things, the prices of them will not fail to rise, and the
dearness of meat will induce several of those who formed a
quarter of the state to consume less of it than usual. A man who
eats three pounds of meat a day will manage with two pounds, but
he feels the reduction, while the other half of the inhabitants
who ate hardly any meat will not feel the reduction. Bread will
in truth go up gradually because of this increased consumption,
as I have often suggested, but it will be less dear in proportion
than meat. The increased price of meat causes diminished
consumption on the part of a small section of the people, and so
is felt; but the of a small section of the people, and so is
felt; but the increased price of bread diminishes the share of
all the inhabitants, and so is less felt. If 100,000 extra people
come to live in a state of 10 millions of inhabitants, their
extra consumption of bread will amount to only pound in 100 which
must be subtracted from the old inhabitants; but when a man
instead of 100 pounds of bread consumes 99 for his subsistence he
hardly feels this reduction.
When the consumption of meat increases the farmers add to
their pastures to get more meat, and this diminishes the arable
land and consequently the amount of corn. But what generally
causes meat to become dearer in proportion than Bread is that
ordinarily the free import of foreign corn is permitted while the
import of Cattle is absolutely forbidden, as in England, or heavy
import duties are imposed as in other states. This is the reason
why the rents of meadows and pastures go up in England, in the
abundance of money, to three times more than the rents of arable
land.
There is no doubt that Ambassadors, Travellers, and
Families who come to settle in the state, increase consumption
there and that prices rise in all the channels of exchange where
money is introduced.
As to subsidies which the state has received from foreign
powers, either they are hoarded for state necessities or are put
into circulation. If we suppose them hoarded they do not concern
my argument for I am considering only money in circulation.
Hoarded money, plate, Church treasures, etc. are wealth which the
state turns to service in extremity, but are of no present
utility. If the state puts into circulation the subsidies in
question it can only be by spending them and this ill very
certainly increase consumption and send up all prices. Whoever
receives this money will set it in motion in the principal affair
of life, which is the food, either of himself or of some other,
since to this everything corresponds directly or indirectly.
