5361. MONEY, Circulating Medium.—[further continued] .
The only advantage
which [Adam] Smith proposes by substituting
paper in the room of gold and silver
money, B. 2. c. 2. 434, is “to replace an expensive
instrument with one much less costly,
and sometimes equally convenient”; that is
to say, page 437, “to allow the gold and silver
to be sent abroad and converted into
foreign goods”, and to substitute paper as
being a cheaper measure. But this makes no
addition to the stock or capital of the nation.
The coin sent was worth as much, while
in the country, as the goods imported and
taking its place. It is only, then, a change of
form in a part of the national capital, from
that of gold and silver to other goods. He
admits, too, that while a part of the goods
received in exchange for the coin exported
may be materials, tools and provisions for the
employment of an additional industry, a part,
also, may be taken back in foreign wines,
silks, &c., to be consumed by idle people who
produce nothing; and so far the substitution
promotes prodigality, increases expense and
corruption, without increasing production.
So far also, then, it lessens the capital of the
nation. What may be the amount which the
conversion of the part exchanged for productive
goods may add to the former productive
mass, it is not easy to ascertain, because,
as he says, page 441, “it is impossible to determine
what is the proportion which the circulating
money of any country bears to the
whole value of the annual produce. It has
been computed by different authors, from a
fifth to a thirtieth of that value”. In the
United States it must be less than in any
other part of the commercial world; because
the great mass of their inhabitants being in
responsible circumstances, the great mass of
their exchanges in the country is effected on
credit, in their merchants' ledger, who supplies
all their wants through the year, and at
the end of it receives the produce of their
farms, or other articles of their industry. It
is a fact that a farmer with a revenue of ten
thousand dollars a year, may obtain all his
supplies from his merchant, and liquidate
them at the end of the year by the sale of his
produce to him, without the intervention of
a single dollar of cash. This, then, is merely
barter, and in this way of barter a great
portion of the annual produce of the United
States is exchanged without the intermediation
of cash. We might safely, then, state
our medium at the minimum of one-thirtieth.—
To J. W. Eppes. Washington ed. vi, 234.
Ford ed., ix, 407.
(M.
Nov. 1813)
