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-fourgros 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.
A merchant may send his stock into a foreign country when the
exchange is below par without injuring his fortune, because, when it
returns, he recovers what he had lost; but a prince who sends only
specie into a foreign country which never can return, is always a loser.
When the merchants have great dealings in any country, the exchange
there infallibly rises. This proceeds from their entering into many
engagements, buying great quantities of merchandise, and drawing upon
foreign countries to pay for them.
A prince may amass great wealth in his dominions, and yet specie may
be really scarce, and relatively common; for instance, if the state is
indebted for much merchandise to a foreign country, the exchange will be
low, though specie be scarce.
The exchange of all places constantly tends to a certain proportion,
and that in the very nature of things. If the course of exchange from
Ireland to England is below par, and that of England to Holland is also
under par, that of Ireland to Holland will be still lower; that is, in
the compound ratio of that of Ireland to England, and that of England to
Holland; for a Dutch merchant who can have his specie indirectly from
Ireland, by way of England, will not choose to pay dearer by having it
in the direct way. This, I say, ought naturally to be the case; but,
however, it is not exactly so. There are always circumstances which vary
these things; and the different profit of drawing by one place, or of
drawing by another, constitutes the particular art and dexterity of the
bankers, which does not belong to the present subject.
When a state raises its specie, for instance, when it gives the name
of six livres, or two crowns, to what was before called three livres, or
one crown, this new denomination, which adds nothing real to the crown,
ought not to procure a single gros more by the exchange. We ought only
to have for the two new crowns the same number of gros which we before
received for the old one. If this does not happen, it must not be
imputed as an effect of the regulation itself, but to the novelty and
suddenness of the affair. The exchange adheres to what is already
established, and is not altered till after a certain time.
When a state, instead of only raising the specie by a law, calls it
in, in order to diminish its size, it frequently happens that during the
time taken up in passing again through the mint there are two kinds of
money — the large, which is the old, and the small, which is the new;
and as the large is cried down as not to be received as money, and bills
of exchange must consequently be paid in the new, one would imagine then
that the exchange should be regulated by the new. If, for example, in
France, the ancient crown of three livres, being worth in Holland sixty
gros, was reduced one-half, the new crown ought to be valued only at
thirty. On the other hand, it seems as if the exchange ought to be
regulated by the old coin; because the banker who has specie, and
receives bills, is obliged to carry the old coin to the mint in order to
change it for the new, by which he must be a loser. The exchange then
ought to be fixed between the value of the old coin and that of the new.
The value of the old is decreased, if we may call it so, both because
there is already some of the new in trade, and because the bankers
cannot keep up to the rigour of the law, having an interest in letting
loose the old coin from their chests, and being sometimes obliged to
make payments with it. Again, the value of the new specie must rise,
because the banker having this finds himself in a situation in which, as
we shall immediately prove, he will reap great advantage by procuring
the old. The exchange should then be fixed, as I have already said,
between the new and the old coin. For then the bankers find it to their
interest to send the old out of the kingdom, because by this method they
procure the same advantage as they could receive from a regular exchange
of the old specie, that is, a great many gros in Holland; and in return,
a regular exchange a little lower, between the old and the new specie,
which would bring many crowns to France.
Suppose that three livres of the old coin yield by the actual
exchange forty-five gros, and that by sending this same crown to Holland
they receive sixty, but with a bill of forty-five gros, they procure a
crown of three livres in France, which being sent in the old specie to
Holland, still yields sixty gros; thus all the old specie would be sent
out of the kingdom, and the bankers would run away with the whole
profit.
To remedy this, new measures must be taken. The state which coined
the new specie would itself be obliged to send great quantities of the
old to the nation which regulates the exchange, and, by thus gaining
credit there, raise the exchange pretty nearly to as many gros for a
crown of three livres out of the country. I say to nearly the same, for
while the profits are small the bankers will not be tempted to send it
abroad, because of the expense of carriage and the danger of
confiscation.
It is fit that we should give a very clear idea of this. Mr.
Bernard, or any other banker employed by the state, proposes bills upon
Holland, and gives them at one, two, or three gros higher than the
actual exchange; he has made a provision in a foreign country, by means
of the old specie, which he has continually been sending thither; and
thus he has raised the exchange to the point we have just mentioned. In
the meantime, by disposing of his bills, he seizes on all the new
specie, and obliges the other bankers, who have payments to make, to
carry their old specie to the mint; and, as he insensibly obtains all
the specie, he obliges the other bankers to give him bills of exchange
at a very high price. By this means his profit in the end compensates in
a great measure for the loss he suffered at the beginning.
It is evident that during these transactions, the state must be in a
dangerous crisis. Specie must become extremely scarce — 1, because much
the greatest part is cried down; 2, because a part will be sent into
foreign countries; 3, because every one will lay it up, as not being
willing to give that profit to the prince which he hopes to receive
himself. It is dangerous to do it slowly; and dangerous also to do it in
too much haste. If the supposed gain be immoderate, the inconveniences
increase in proportion.
We see, from what has been already said, that when the exchange is
lower than the specie, a profit may be made by sending it abroad; for
the same reason, when it is higher than the specie, there is profit in
causing it to return.
But there is a case in which profit may be made by sending the
specie out of the kingdom, when the exchange is at par; that is, by
sending it into a foreign country to be coined over again. When it
returns, an advantage may be made of it, whether it be circulated in the
country or paid for foreign bills.
If a company has been erected in a state with an immense number of
shares, and these shares have in a few months risen twenty or
twenty-five times above the original purchase value; if, again, the same
state established a bank, whose bills were to perform the office of
money, while the legal value of these bills was prodigious, in order to
answer to the legal value of the shares (this is Mr. Law's System), it
would follow, from the nature of things, that these shares and these
bills would vanish in the same manner as they arose. Stocks cannot
suddenly be raised twenty or twenty-five times above their original
value without giving a number of people the means of procuring immense
riches in paper: every one would endeavour to make his fortune; and as
the exchange offers the most easy way of removing it from home, or
conveying it whither one pleases, people would incessantly remit a part
of their effects to the nation that regulates the exchange. A continual
process of remittances into a foreign country must lower the exchange.
Let us suppose that at the time of the System, in proportion to the
standard and weight of the silver coin, the exchange was fixed at forty
gros to the crown; when a vast quantity of paper became money, they were
unwilling to give more than thirty-nine gros for a crown, and afterwards
thirty-eight, thirty-seven, &c. This proceeded so far, that after a
while they would give but eight gros, and at last there was no exchange
at all.
The exchange ought in this case to have regulated the proportion
between the specie and the paper of France. I suppose that, by the
weight and standard of the silver, the crown of three livres in silver
was worth forty gros, and that the exchange being made in paper, the
crown of three livres in paper was worth only eight gros, the difference
was four-fifths. The crown of three livres in paper was then worth
four-fifths less than the crown of three livres in silver.
