Chap. XXVIII: Circulation considered with regard to the Rise and Fall of the Price of Subsistence and Manufactures

The intention of this chapter is to apply the principles we have been in search of, to the solution of some questions, which have been treated by those great masters of political reasoning, Messrs de Montesquieu and Hume. The ideas they have broached are so pretty, and the theory they have laid down for determining the rise and fall of prices so simple, and so extensive, that it is no wonder to see it adopted by almost every one who has written after them.

I have not forgot how much I was pleased when I first perused these authors, from the easy distribution which a general theory enabled me to make of certain classes of my ideas then lying without order, in that great repository of human crudities, the memory; which frequently retains more materials, than people, commonly, have either time, or perhaps capacity rightly to digest.

I am very far from pretending to any superiority of understanding over those gentlemen whose opinions I intend to review. accident alone has led me to a more minute examination of the particular circumstances, upon which they have founded their general maxims; and, in consequence of my inquiries, I think I have discovered, that in this, as in every other part of the science of political oeconomy, there is hardly such a thing as a general rule to be laid down.

There is no real or adequate proportion between the value of money and of goods; and yet in every country we find one established. How is this to be accounted for?

We have, in the fourth chapter of this book, already inquired into the principles which point out the influence of trade upon the variation of the price of goods; but the question now comes to be, how to fix and determine the fundamental price, which is the object of variation. It has been said, that the price of a manufacture is to be known by the expence of living of the workman, the sum it costs him to bring his work to perfection, and his reasonable profit. We are now to examine what it is, which in all countries must determine the standard prices of these articles of the first necessity; since the value of them does necessarily influence that of all others.

The best way to come at truth, in all questions of this nature, is to simplify them as much as possible, that they may be first clearly understood.

Whenever a question arises about price, an alienation is necessarily implied; and when we suppose a common standard in the price of any thing, we must suppose the alienation of it to be frequent and familiar. Now I must here observe, that in countries where simplicity reigns (which are those where the decision of this question ought regularly to be sought for, since it is there only where a complication of circumstances do not concur to raise the prices of subsistence) it is hardly possible to determine any standard for the price of articles of the first necessity.

Let us examine the state of those hunting Indians who live by their bow, and of other nations where the inhabitants exercise, I may say universally, that species of agriculture which I have called a direct method of subsistence, and we shall find that the articles of food and necessaries are hardly found in commerce: no person purchases them; because the principal occupation of every body is to procure them for himself. What answer would a Scotch highlander have given any one, fifty years ago, who should have asked him, for how much he sold a quart of his milk, a dozen of his eggs, or a load of his turf? In many provinces, unacquainted with trade and industry, there are many things which bear no determinate price; because they are seldom or never sold.

Sale alone can determine prices, and frequent sale only can fix a standard. Now the frequent sale of articles of the first necessity marks a distribution of inhabitants into labourers, and what we have called free hands. The first are those who produce the necessaries of life; the last are those who must buy them: and as the fund with which they purchase is produced from their industry, it follows, that without industry there can be no sale of articles of subsistence; consequently, no standard price determined.

Another consequence of this reasoning, is, that the sale of subsistence implies a superfluity of it in the hands of the seller, and a proper equivalent for it in the hands of the buyer; and when the equivalent is not money, it also implies a superfluity of the produce of some sort of industry; consequently, by the exchange of superfluities upon certain articles, a man procures to himself a sufficiency upon every one. This represents that gentle dependence which unites the members of a free society.

Does it not follow from this analysis of the question, that the prices of articles of the first necessity depend rather upon the occupation and distribution of the classes of inhabitants, than either upon the abundance of these necessaries, or of the money to purchase them; since many examples may be found, where these articles have borne little or no price, even in countries where money was not wanting. The reason therefore of low prices, is not the vast abundance of the things to be sold, but the little occasion any body has to buy them; every one being provided with them in one way or other, without being obliged to go to market.

How many familiar examples occur every where of this oeconomy! do we not find in every country, even where the numbers of the industrious free are multiplied exceedingly, more than one half of the inhabitants fed directly from the earth? Few of the class of farmers ever go to market for subsistence. Ask a country gentleman the expence of his living, he will tell you the sum of money he yearly spends, perhaps the quantity of his rents in kind, which he consumes in his house, and the rent of the lands he holds himself in farm; but it will never come into his head to reckon the value of every chicken, sheep, or bullock, with which his farm provides him, which he consumes without estimation, and which in many countries he could not dispose of for any determinate value.

From this I still conclude, that it is in countries of industry only where the standard prices of articles of the first necessity can be determined; and since in these, many circumstances concur to render them either higher or lower than in other places, it follows, that in themselves they bear no determinate proportion whatsoever, to the quantity of gold and silver in the country, as I hope presently to make still more evident.

What is it then which determines the standard value of these articles, in countries of industry? Here follows the best answer I can give to this question.

The standard price of subsistence is determined from two considerations. The first from the number of those who are obliged to buy, that is to say, of those who have them not of their own, and who are not provided with them, in lieu of service, by those who have. The second is, from the degree of employment found for those who are obliged to purchase them.

The number of the buyers of subsistence, nearly determines the quantity to be sold: because it is a necessary article, and must be provided in a determinate proportion for every one: and the more the sale is frequent, the more the price is determinate. Next as to the standard: this, I apprehend, must depend upon the faculties of the buyers; and these again must be determined by the extent of those of the greatest numbers of them; that is to say, by the extent of the faculties of the lower classes of the people. This is the reason why bread, in the greatest famine, never can rise above a certain price; for did it exceed the faculties of the great classes of a people, their demand would be withdrawn, which would leave the market overstocked for the consumption of the rich; consequently, such persons, who in times of scarcity are forced to starve, can be such only whose faculties fall, unfortunately, below the standard of those of the great class; consequently, in countries of industry, the price of subsistence never can rise beyond the powers to purchase of that numerous class who enjoy nothing beyond their physical necessary; consequently, never to such an immoderate height as to starve considerable numbers of the people; a thing which very commonly happens in countries where industry is little known, where multitudes depend merely upon the charity of others, and who have no resource left, so soon as this comes to fail them.

The faculties, therefore, of those who labour for a physical-necessary, must, in industrious nations, determine the standard value of subsistence, and the value in money which they receive for their work will determine the standard of their faculties, which must rise or fall according to the proportion of the demand for their labour.

By this exposition of the matter, I do not pretend to have dissipated every obscurity. The question still remains complex, as the nature of it requires it should do; and the solution of it depends upon farther considerations, which now lead me to the examination of the doctrine of Messrs de Montesquieu and Hume, concerning the influence of riches upon the increase of prices. I shall begin by shortly laying this doctrine before my readers, in three propositions.

First, The prices (say they) of commodities are always proportioned to the plenty of money in the country. So that the augmentation of wealth even fictitious, such as paper, affects the state of prices, in proportion to its quantity.

Secondly, The coin and current money in a country is the representation of all the labour and commodities of it. So that in proportion as there is more or less of this representation (money), there goes a greater or less quantity of the thing represented (commodities, &c.) to the same quantity of it. From this it follows that

Thirdly, Increase commodities, they become cheaper; increase money, they rise in their value.

Nothing can be more beautiful than these ideas. They appear, at first sight, sufficiently extensive to comprehend every variation of circumstances which can happen. Who was the first author of this doctrine, I cannot say. I find it in Mr Locke, and in the Spectator for the 19th of October 1711; but they have been beautifully illustrated by Monsr de Montesquieu; and Mr Hume has extended the theory, and diversified it prettily in his political discourses; which have done much honour to that gentleman, and drawn the approbation of the learned world so much, that there is hardly a nation in Europe which has not the pleasure of reading them in their own language.

Upon examining this theory, when I came to treat of the matters it is calculated to influence, I found I could not make it answer to the principles I had pursued, in the most natural order in which I had been able to deduce them: and this consideration obliged me, with regret, to lay it aside, and to follow another, much more complex. I have already expressed the mortification I have always had upon finding myself forced to strike out a general rule, and this, of all others, had at first hit my fancy the most; but I am obliged to say, that upon a close examination of the three propositions, I am forced to range this ingenious exposition of a most interesting subject, among those general and superficial maxims which never fail to lead to error.

In order to set the matter in as clear a light as possible, I shall make a short application of my own principles, relating to the decision of the main question, namely the causes of the rise and fall of prices, and conclude my chapter with some remarks upon the three propositions above laid down, submitting the whole to the better judgment of my reader. I have laid it down as a principle, that it is the complicated operations of demand and competition, which determines the standard price of everything. If there be many labourers, and little demand, work will be cheap. If the increase of riches, therefore, have the effect of raising demand, work will increase in its value, because there competition is implied; but if it has only the effect of augmenting demand, prices will stand as formerly. What then will become of the additional quantity of coin, or paper-money? I answer, that in both cases it will enter into circulation, in proportion to the rise or augmentation of demand; with this difference, that in the first case, it will have the effect of raising prices; because the supply is not supposed to augment in proportion: in the second, prices will stand as they were; because the supply is supposed to augment in proportion. These are the consequences of the augmentation of wealth, when it has the effect of either raising or augmenting demand. But if upon the increase of riches it be found that the state of demand remains without any variation, then the additional coin will probably be locked up, or converted into plate; because they who have it, not being inspired with a desire of increasing their consumption, and far less with the generous sentiment of giving their money away, their riches will remain without producing more effect than if they had remained in the mine. As for paper-money, so soon as it has served the first purpose of supplying the demand of him who borrowed it, because he had at that time no coin) it will return upon the debtor in it, and become realized; because of the little use found for it in carrying on circulation.

Let the specie of a country, therefore, be augmented or diminished, in ever so great a proportion, commodities will still rise and fall according to the principles of demand and competition; and these will constantly depend upon the inclinations of those who have property or any kind of equivalent whatsoever to give; but never upon the quantity of coin they are possessed of.

Let the quantity of the coin be ever so much increased, it is the desire of spending it alone, which will raise prices. Let it be diminished ever so low, while there is real property of any denomination in the country, and a competition to consume in those who possess it, prices will be high, by the means of barter, symbolical money, mutual prestations, and a thousand other inventions. Let me give an example.

Suppose a country where prices are determined, and where the specie is sufficient for the circulation: is it not plain, that if this country have a communication with other nations, there must, in carrying on trade, be a proportion between the prices of many kinds of merchandize, and that the sudden augmentation or diminution of the specie at home, supposing it could of itself operate the effects of raising or sinking prices, would be restrained in its operation by foreign competition? But let us suppose it cut off from every communication whatsoever, which seems the only case where this theory can operate with any appearance of justness, will any body pretend, that the frugal or extravagant turn of the inhabitants will have no influence upon prices; and will it be asserted, that no variation in the spirit of a people, as to frugality and dissipation, can take place, except upon a variation in the quantity of their gold and silver?

It may be answered, that as to articles of superfluity, no doubt the genius of a people, together with the quantity of the specie, may influence prices; but that in articles of indispensible necessity, they must constantly remain in proportion to the mass of riches. This I cannot admit to be just. Let me take the example of grain, which is the most familiar. Is it not plain, from what we have said above, that the proportion of wealth, found in the hands of the lowest class of the people, constantly regulates the price of it; consequently, let the rich be ever so wealthy, the price of subsistence can never rise above the faculties of the poor industrious. And is it not also plain, that those of the lowest class of the people, who purchase subsistence must buy it with the returns they receive from the rich for their industry? Now if the quantity of the wealth of the rich does not regulate their demand for the service of the poor, must it not follow, that the price of grain, as well as of every other thing offered to sale, must depend upon the degree of competition among the rich for the labour of the poor, that is, upon the demand for industry and not on the quantity of wealth in the country?

Nobody ever denied, that the extraordinary demand for a commodity had the effect of raising the price of it: and certainly nobody will deny, that the demand for a particular commodity may be greater at one time than at another, though the same quantity of this commodity be found at both times in the country; and the same quantity of specie likewise not only in the country, but also in circulation.

I acknowledge that in a country where there is much coin, and where credit is little known, a high and extraordinary demand for an article of superfluity may raise the price more than in another where the coin is more scarce; because, on certain occasions, the price of a thing may have no other bounds than the extent of the faculties of the buyer. In like manner, in other countries, where there is scarcely coin, or credit, it may be impossible for the highest demand to raise the price of such things even to the common standard established in those where there is great wealth. But these instances appear to be too particular to serve for the foundation of a general rule, with respect to the state of prices in the present situation of the nations of Europe, which, less or more, are all in communication with one another.

I cannot here omit taking notice of two very remarkable circumstances which we learn from undoubted historical authority, which seem to contradict one another, and which throw a great obscurity upon the principles I have been endeavouring to explain. I shall therefore introduce them by way of illustration, and when they are examined, I hope they will confirm my doctrine.

The first is, that in Scotland, formerly, when coin and credit were certainly very rare, the price of eight pounds weight of oatmeal, which is now commonly sold at eight pence sterling, was then valued at no more than two-thirds of one penny: and that a labouring man used to receive one penny and one third of a penny sterling for his week's subsistence; that is to say, the value of sixteen pounds of oatmeal, which to this day is the regulated quantity given for this purpose.

There is a very curious confirmation of the authenticity of this computation, in an hospital at old Aberdeen; where in former times, some proprietors of lands had settled a certain quantity of oatmeal in favour of the poor of the hospital, with a liberty to the hospital to accept the meal in kind, or the conversion at two-thirds of a penny for every eight pounds weight. They imprudently chose the last, and to this very day they are paid according to this standard. Now it is certainly impossible that any degree of plenty whatsoever, or any failing of demand, could at present reduce the price of this commodity so very low consequently, it may be said that it is the augmentation of wealth, not that of demand, which raises prices.

The second fact we learn from antiquity, that at the time when Greece and Rome abounded in wealth, when every rarity, and the work of the choicest artists was carried to an excessive price, an ox was bought for a mere trifle, and grain was cheaper perhaps than ever it was in Scotland.

If the application of our principles to the circumstances of those times, produce a solution of these apparent inconsistencies; and if we thereby can discover that the low prices of grain, both in Scotland, where there was little money, and at Rome where there was a great deal, was entirely owing to the little demand for articles of subsistence; will it not follow, that our principle is just, and that the other, notwithstanding the ingenuity of the thought, must fail in exactness; since it will appear, that low prices may be equally compatible with wealth, and with poverty.

Now as to Scotland in former times, as in all countries where there is little industry; where the inhabitants are mostly fed directly from the earth, without any alienation of her fruits taking place; where agriculture is exercised purely as a method of subsisting; where rents are low, and where, consequently, the free hands, who live upon them for the price of their industry, must be few; the demand for grain in the public markets must be very small; consequently, prices will be very low, whether there be little, or whether there be much money in the country. The reason is plain. The demand is proportioned here, not to the number of those who consume, but of those who. buy now those who consume, are all the inhabitants, but those who buy, are the few industrious only who are free, and who gain an independent livelihood by their own labour and ingenuity: now the price of their week's subsistence in Scotland was formerly one penny one third, consequently the subsistence they bought could not rise above this standard.

Next as to the state of Greece and Rome, where slavery was established. Those who were fed by the labour of their own slaves, by those of the state, or by the grain gratuitously distributed to the people, had no occasion to go to market; consequently, they did not enter into competition with the buyers. Farther, the simplicity of manners, and the few manufactures then known, made wants in general less extensive; consequently, the number of the industrious free was small, and they were the only persons who could have occasion to purchase food and necessaries; consequently, the competition of the buyers must have been small in proportion, and prices low.

Add to this the reflections which naturally present themselves upon examining the nature of supplying the markets. These were supplied partly from the surplus produced upon the lands of the great men, laboured by slaves; who being fed from the lands, the surplus cost in a manner nothing to the proprietors; and as the number of those who had occasion to buy, were very few, this surplus was sold cheap. Besides, the grain distributed to the people gratis, must necessarily have kept down the market, as a part of it would naturally, sometimes, be found superfluous to those who received it; and consequently, come to be sold in competition with that raised at private expence.

But when a fine mullet was brought to market, or when an artist appeared with a curious piece of work, the case was very different. The rich had plenty of money, who all appeared in competition for the preference; consequently, prices rose to an extravagant height. The luxury of those times, though excessive, was confined to a few, and as money, in general, circulated but slowly through the hands of the multitude, it was constantly accumulating in those of the rich, who found no measure, but their own caprice, in regulating the prices of what they wished to possess, and had money to purchase.

From what has been said, it appears, that the riches of a country have no determinate influence upon prices; although, I allow, they may accidentally affect them: (what I mean is, that they may influence them; but they cannot regulate them:) and if we depart from the principles above laid down, to wit, that prices are regulated by the complicated operation of demand and competition, in order to follow the other, we must add a restriction (which I observe Mr Hume has attended to on one occasion, although he has lost sight of it on several others), to wit, that the price of every commodity is in proportion to the sum of money circulating in the market for that commodity; which is almost my proposition in other words: for the money to be employed in the purchase of any commodity, is just the measure of the demand. But even here, the money in the market destined only for the purchase of a particular commodity, does not regulate the price of it. Nothing but the finishing of the transaction, that is, the convention between the buyer and seller, can determine the price, and this must depend upon inclination, not weight of money, as an example will make plain.

I shall suppose grain to have been at forty shillings per quarter, in a country market, for several months together, where the ordinary demand for the current consumption is twenty quarters every market day. If at any time an extraordinary demand should happen, which may exceed all that is to be found in the market, there will be a competition among the buyers, which will have the effect of raising the market. Now, according to the doctrine of our learned author, it may be said, that the corn rises in proportion to the quantity of the specie which is in the market, and that it is because of this increase of specie, that the grain rises in its price. I answer, first, allowing this to be true, can it be said, that a particular temporary, or perhaps accidental demand for a few quarters of corn, more than usual, implies any augmentation of the quantity of money, or the smallest diminution either upon the total consumption, or total quantity of grain contained in the country? For if the demand have risen in one market, it must probably have diminished in another, since the Same inhabitants cannot consume in two places. This I think every person must agree to, without farther illustration. But I say farther, that prices will not rise in proportion to the money in the market; but in proportion to the desire of acquiring grain in those who have this money.

Suppose the whole quantity of grain in the market to be thirty quarters; if there be no demand for more, these will be sold at forty shillings as the twenty quarters would have been. But suppose the demand to be for sixty quarters, and that there is a hundred and twenty pounds sterling ready to be employed for corn, does it follow, that grain will rise to four pounds a quarter, because the money in the market bears this proportion to the quantity of grain? Certainly not.

We must therefore, I think, adopt the other principle, and follow the proportions of demand and competition; and then we shall find, that if the sellers want to raise their price up to the proportion of the money in the market, all demand will cease, as effectually as if it had never been made; and the sellers will afterwards be obliged to accept of such a moderate augmentation as shall be in proportion to the urgency of the demand, but never in proportion to the money ready to be employed.

The circulation of every country, as we have shewn above, must ever be in proportion to the industry of the inhabitants, producing the commodities which come to market: whatever part of these commodities is consumed by the very persons who produce them, enters not into the it. If the coin circulation of grain, nor does it in anywise affect prices of of a country, therefore, fall below the proportion of the produce of industry offered to sale, industry itself will come to a stop; or inventions, such as symbolical money, will be fallen upon to provide an equivalent for it. But if the specie be found above the proportion of the industry, it will have no effect in raising prices, nor will it enter into circulation: it will be hoarded up in treasures, where it must wait not only the call of a desire in the proprietors to consume, but of the industrious to satisfy this call.

We may therefore conclude, in consequence of the principles we have laid down, that, whatever be the quantity of money in any nation, in correspondence with the rest of the world, there never can remain in circulation, but a quantity nearly proportional to the consumption of the rich, and to the labour and industry of the poor inhabitants. The value of each particular species of which consumption is determined by a complication of circumstances at home and abroad; consequently, the proportion is not determined by the quantity of money actually in the country.

If the contrary is maintained, and if it be still affirmed that the proportion between specie and manufactures must be reciprocal and determinate, then I am authorised to draw this conclusion, to wit: That if the greatest produce of industry must be sold for what specie is found in the country, let the sum be ever so small; so in like manner, the smallest produce of industry must be sold for all the specie found in the country, let the sum be ever so great. Consequently, in the first case, we must suppose, that the industrious will never seek for a better price from abroad; and in the second, that the moneyed people must spend all they have in supplying their most moderate wants, and never seek for cheaper merchandize than what they can find at home. Consequently there can be no foreign trade, nor can there ever be any hoarding.

I shall now conclude my chapter, with a few observations upon the three propositions as they stand in their order.

Prop. 1. Prices are in proportion to the plenty of money. And thus the augmenting even of fictitious wealth, such as paper, affects the state of prices, according to its quantity.

From this, Mr Hume disapproves of the introduction of paper money, when specie is wanting, and says, that if nothing were allowed to circulate but gold and silver, the quantity being less, prices would be lower.

This is neither more or less than a project to destroy credit, with a view to support trade and industry. Because it would effectually prevent any person from making a consumption, except at the time he happened to be provided with ready money. Does the paper-money in England keep up the prices of grain at present, January 1759? And will not every article of necessaries fall, in a short time, as low in this country as in any other in Europe; if the same measures continue to be followed?

Were all paper-money in this kingdom proscribed at once, no doubt the prices of many things would fall very considerably; but such a fall would neither be universal or equable. The reason of this fall would not be, because the specie would become proportionally divided among all the inhabitants, according to the value of their property; nor because of the small quantity of it, since prices abroad would still regulate many at home: but because of the sudden revolution, and the violent overturn thereby produced on the balance of work and demand. The scale of the first would preponderate to such a degree, that those classes of the industrious, who work for daily subsistence in furnishing superfluities, would enter into so strong a competition with one another, that the price of their work would fall to nothing, while subsistence would remain at the price of exportation. If it be asked what could occasion this difference, I answer, because the workmen who supply superfluities, adapted to the taste of their own nation, would find no more demand for them, from the want of credit, or of a circulating fund at home to buy with; and strangers would not profit of the fall in the price of a superfluity not adapted to their own taste; but they would very willingly become purchasers of every bushel of grain become superfluous, and thereby starve so many of the inhabitants; and this last circumstance would keep the price of subsistence upon a pretty even level with that of other countries.

But if we suppose all communication cut off with strangers, would this proportion between money and prices then hold true? By no means. Here is the reason: there are many ways of alienating goods or natural produce, without the assistance of specie. Immense quantities of both may be consumed by barter, or in lieu of service, where money is never heard of; now all this portion alienated, enters into the mass of what is called produce and manufactures which come to market; but can have no influence upon the specie, nor can specie have any upon it, since the money remains inactive during these operations.

Another reason is, that there is no such thing as preserving specie of a country in an equal repartition, so as to serve the occasions of every body in proportion to their worth. The reason is manifest: money, like every other thing, will come into the hands of those who give the greatest value for it, and when the quantity of it is small in any country, where nothing can be procured without it, such proprietors of lands as have the greatest desire to consume, will purchase the specie by giving a higher interest, or by selling their lands cheaper than other people.

This alone is sufficient to prove that the repartition of specie can never be in proportion to property; and this also destroys the supposition of prices rising and falling according to the proportion of it, even in a country cut off from every foreign communication. But here is still another proof: any individual who has, by mortgaging his lands, got together a large proportion of the specie of his country, will raise prices in his own neighbourhood, by making an extraordinary demand for work; and the rest of the same country, drained of their circulating value, must diminish their demand; consequently, prices will fall elsewhere. I now come to the second proposition.

The coin and current money of a country, is the representation of all its labour and commodities; so that in proportion as there is more or less of this representation, a greater or less quantity of it will go for the same quantity of the thing represented.

To this representation I cannot agree, and I apprehend this to be the source of the error. A proper equivalent for labour and manufactures may, in one sense, be called a representation; but there is no necessity for this equivalent to consist in coin. Are not meat and clothes an equivalent for personal service? Is not a free house and a bit of land, a very good equivalent for all the manufactures a country weaver can work up for me who am his landlord? Were there not one penny of coin in the country, would it follow, that there could be no alienation, or that every thing might there be got for nothing?

Coin has an intrinsic value; and when it comes into a country, it adds to the value of the country, as if a portion of territory were added to it: but it has no title to represent any thing vendible, by preference, or to be considered as the only equivalent for all things alienable. It is made a common price, on no other account than because of its rarity, its solidity, its being of a nature to circulate; and suffers a correct division without end, and because it carries its value along with it, which is a proper equivalent for every thing; and at the same time is by its nature little liable to vary.

Were, indeed, a statesman to perform the operation of circulation and commerce, by calling in, from time to time, all the proprietors of specie in one body, and all those of alienable commodities, workmen, &c. in another'. and were he, after informing himself of the respective quantities of each, to establish a general tariff of prices, according to our author's rule; this idea of representation might easily be admitted; because the parcels of manufactures would then seem to be adapted to the pieces of the specie, as the rations of forage for the horses of an army are made larger or smaller, according as the magazines are well or ill provided at the time: but has this any resemblance to the operations of commerce?

The idea of coin being the representation of all the industry and manufactures of a country, is pretty; and has been invented for the sake of making a general rule for operating an easy distribution of things extremely complex in their nature. From this comes error. We substitute a complex term, sometimes in one sense, and sometimes in another, and we draw conclusions as if it expressed a fixed and determinate idea.

If in algebra, x, y, z, &c. ever stood for more than a single idea, the science would become useless; but as they never represent but the very same notion, they never change their nature through all manner of transpositions.

It is not the same of terms in any other science, as abundantly appears from the question now before us: coin is called a representation because it is an equivalent; and because it is a representation, it must bear an exact proportion to the thing represented. And since in some particular examples, this representation appears to hold; therefore the rule is made general, although circumstances may be different. If, for example, a merchant, or a private person, has in hand a thousand pounds worth of grain, no doubt that the thousandth part of the merchandize is worth the thousandth part of the sum; because both are determinate in their quantity and quality. but the parcels of this corn, though exactly proportioned to the price of the whole, do not draw their value from this proportion, but from the total value of the whole mass; which is determined from the complicated operations of demand and competition, as has been said, and not from the specie of the country which can bear no proportion either to the quantity or quality of the grain.

There may be vast quantities of coin in a country of little industry; and, vice versa, coin is constantly an equivalent, but never a representation more than any other equivalent which may be contrived. Were the doctrine of this second proposition true, every commodity in a country should be sold like a parcel of the grain in the foregoing example, by the rule of three; as the property of all the labour and manufactures of the country is to the part I intend to alienate, so is all the gold and silver in the country to the part I am entitled to receive. This ideal of regulating prices may be very philosophical, but it is not very mercantile. I now proceed to the third and last proposition. Increase the commodities, they become cheaper: increase the money, they rise in their value.

This proposition is much too general; the first part of it is commonly true, the last part is more commonly false.

What can increase commodities, but a demand for them? If the demand be equal to the augmentation, there will be no alteration in the price.

Let extraordinary plenty increase subsistence, it will naturally fall in the price; but it may be hoarded up, and made to rise in spite of the plenty; it may be demanded from abroad; this also will make it rise.

Let the production of superfluities, not exportable, be produced by workmen whose branch is overstocked, prices will undoubtedly fall. The same observations are true of a diminution in the quantity of commodities. If this diminish by degrees, from a diminution of demand, the price of them will not rise.

If the quantity of subsistence fall below the necessary consumption of the inhabitants, the price of it will undoubtedly rise.

If the articles of superfluity be diminished, prices will rise in proportion only to the eagerness to buy, that is, to the competition, not to the deficiency. On the other hand, as to coin or money.

Increase the money, nothing can be concluded as to prices, because it is not certain that people will increase their expences in proportion to their wealth; and although they should, the moment their additional demand has the effect of producing a sufficient supply, prices will return to the old standard.

But diminish the quantity of specie usually employed in circulation, you both retard this, and hurt the industrious; because we suppose the former quantity exactly sufficient to preserve both in the just proportion to the desires and wants of the inhabitants.

These are but a few of the numberless modifications necessary to be applied to this general rule; and I hope what I have said will justify the observation I have made on the whole doctrine; to wit, that it is much more specious than solid, in every one of its three branches.

Let me just propose one question more upon this subject, and then I shall conclude.

Suppose the specie of Europe to continue increasing in quantity every year, until it amounts to ten times the present quantity, will prices rise in proportion?

I answer, that such an augmentation might happen, without the smallest alteration upon prices, or that it might occasion a very great one, according to circumstances. Were industry to increase to ten times what it is at present, that is to say, were the produce of it to increase to ten times its present value, according to the actual standard of prices, the value of every manufacture and produce might remain without alteration. This supposition is possible: because no man can tell to what extent demand may carry industry. If, on the other hand the scale of demand could be supposed to preponderate, so as to draw all the wealth into circulation, without having the effect of augmenting the supply (which I take to be impossible) then prices would rise to ten times the present standard, at least in many articles.

This solution is entirely consistent both with Mr Hume's principle and mine; because nothing is so easy in an hypothesis, as to establish proportions between things, which in themselves are beyond all the powers of computation.