Section V.: Of Alterations of the Standard Money.

The first thing to be observed under this head is, that the public authority has generally taken upon itself to fix arbitrarily the commodity, that shall serve as money. This assumption, on its part, has little inconvenience in itself; for the interests of the nation and of the ruling power happen to be exactly the same. Should a government attempt to force an ill-adapted medium into circulation, it would sustain a loss itself on every bargain, and the people would, by degrees, adopt some other medium. Thus, the first issue of coined money among the Romans was by their King Numa, and his coinage was of copper, which at that time of day was the properest metal for the purpose; for, before the time of Numa, the Romans knew no other money but copper in bars. On the same principle, modern governments have made choice of gold and silver, which would undoubtedly have been selected by the general accord of individuals without the interference of their rulers.

But the sovereign power, being firmly persuaded that its mandate was necessary and competent to invest any commodity whatever with the currency of money, succeeded in impressing its subjects with the same notion during the darker ages, and that too at the very time that individuals, with a view to personal interest, were acting upon principles diametrically opposite; for, whoever was dissatisfied with the authorised money, either abstained from selling altogether, or disposed of his goods in some other way.

This error led to another of much more serious mischief, that has overset all order whatever.

The public authority persuaded itself, that it could raise or depress the value of money at pleasure; and that on every exchange of goods for money, the value of the goods adjusted itself to the imaginary value, which it pleased authority to affix to it, and not to the value naturally attached to the agent of exchange, money, by the conflicting influence of demand and supply.

Thus, when Philip I. of France, adulterated the livre of Charlemagne, containing 12 oz. of fine silver, and mixed with it a third part alloy, but still continued to call it a livre, though containing but 8 oz. of fine silver, he was nevertheless fully persuaded, that his adulterated livre was worth quite as much as the livre of his predecessors. Yet it was really worth 1-3 less than the livre of Charlemagne. A livre in coin would purchase but 2-3 of what it had done before. However, the creditors of the monarch, and of individuals, got paid but 2-3 of their just claims; land-owners received from their tenants but 2-3 of their former revenue, till the renewal of leases placed matters on a more equitable footing. Abundance of injustice was committed and authorised: but after all it was impossible to make 8 oz. of fine silver equal to 12.

In the year 1113, the livre, as it was still called, contained no more than 6 oz. of fine silver. At the commencement of the reign of Louis VII. it had been reduced to 4 oz. St. Louis gave the name of livre to a quantity of silver weighing but 2 oz. or 6 gros. 6 grains. At the era of the French revolution, the money bearing that name weighed only the 1-6 of an oz.; so that it had been reduced to 1.72 of its original standard of weight or quality in the days of Charlemagne.

I take no notice, at present, of the great fall experienced in the relative value of fine silver to commodities at large, which has been reduced so low as 1-4 of its former amount; but this is foreign to the subject of the present section, and I shall take occasion to speak of it hereafter.

Thus the term, livre tournois, has at different times been applied to very different quantities of fine silver. The alteration has been effected, sometimes by reducing the size and weight of the coin bearing that denomination, sometimes by deteriorating the standard of quality, that is to say, mixing up a larger portion of alloy, and a smaller one of pure metal; and, sometimes, by raising the denomination of a specific coin; making, for instance, what was before a 2 fr. piece pass under the name of one of 3 fr. As no account is ever taken of any thing but the pure silver, which is the only valuable substance in silver coin, all these expedients have had a similar effect; for this reason; that they all, in fact, reduced the quantity of silver contained in what was called a livre tournois. And this is what all French writers, in compliment to the royal ordinances, have dignified by the term, raising the standard; on the ground, that the nominal value of the coin is raised by these operations; which might, with much more propriety, be said to lower the standard, since the metal, which alone constitutes the money, is thereby reduced in quantity.

Though the quantity of metal in the livre has been continually decreasing from the days of Charlemagne till the present period, many of our monarchs have, at different times, adopted a contrary course, and advanced the weight and standard of quality, particularly since the reign of St. Louis. The motives for deterioration are evident enough: it is extremely convenient to pay one's debts with less money than one borrowed. But kings are not only debtors; they are frequently creditors too. In the matter of taxation, they stand precisely in the same relative position to the subject, as landlords to their tenants. Now, if every body be enabled by law to pay their debts and discharge their contracts with a less amount of silver than bargained for, the subject, of course, can pay his taxes, and the tenant his rent, with a smaller quantity of that metal. And, although the king received less silver, yet he continued to spend as much as before; for the nominal price of commodities rose, in proportion to the diminution of metal in the coin. When what was before 3 fr. was declared by law to be 4 fr. the government was obliged to pay 4 fr. where it before paid but 3 fr.; so that it was necessary, either to increase the old, or to impose new taxes; in other words, the government, to obtain the same quantity of fine silver, was obliged to demand a greater number of livres from the subject. This course, however, was always odious, even when it really made no difference in the real pressure of taxation, and was often quite impracticable. Recourse was, therefore, had to the restoration of the coin to the higher standard. The livre being made to contain a greater weight of silver, the nation really paid more silver in paying the same number of livres. Thus we find, that the ameliorations of the coin commence nearly about the same period as the establishment of permanent taxation. Before that innovation, the monarch had no personal motive for increasing the intrinsic value of the coin he issued.

It would be a great mistake to suppose that the frequent variations of standard alluded to, were effected in the same clear and intelligible manner which I have adopted to explain them. Sometimes the alteration, instead of being openly avowed, was kept secret as long as possible; and this attempt at concealment gave occasion to the barbarous technical jargon used in this branch of manufacture. At other times, one denomination of coin was altered, while the rest were left untouched; so that, at a given period, a livre, paid in one denomination, contained more silver than if paid in another. Finally, to throw the matter in still greater obscurity, the subject was commonly forced to reckon up his accounts, sometimes in livres and sous, sometimes in crowns, and to pay in coin representing neither livre, sol, nor crown, but either fractions or multiples of these several denominations. Princes, that resort to such pettifogging expedients, can be viewed in no other light, than as counterfeiters armed with public authority.

The injurious effect of such measures upon credit, commercial integrity, industry, and all the sources of prosperity, may be easily conceived; indeed, it was so serious, that, at several periods of our history, the monetary operations of the state suspended all commerce whatever. Philip le Bel drove all foreigners out of the fairs of France, by compelling them to receive his discredited coin in payment, and prohibiting the making of bargains in a coin of better credit. Philip de Valois did the same thing with respect to the gold coin, and with precisely the same result. A contemporary chronicler informs us, that almost all foreign merchants discontinued their dealings with France; that the French traders themselves, ruined by the frequent alterations of the coin, and the consequent uncertainty of values, withdrew to other countries; and that the rest of the king's subjects, both noble and bourgeois, were equally impoverished with the merchants; for which reason, the annalist adds simply enough, the king was not at all beloved.

The examples I have cited are taken from the monetary system of France; but similar expedients have been practised in almost every nation, ancient or modern. Popular forms of government have been equally culpable with those of a despotic character. The Romans, during the most glorious periods of the republic, effected a national bankruptcy more than once, by deteriorating the intrinsic value of their coin. In the course of the first Punic war, the as, which was originally 12 oz. of copper, was reduced to 2 oz.; and, in the second Punic war, was again lowered to 1 oz.

In the year 1722, the State of Pennsylvania, which acted, in this particular, as an independent government, even before the American war, passed a law, enacting, that 1l. sterling should pass for 1l. 5s.; and the United States, and France also, after declaring themselves republics, have both gone still further.

"It would require a separate treatise," says Stewart, "to investigate all the artifices which have been contrived to make mankind lose sight of the principles of money, in order to palliate and make this power in the sovereign to change the value of the coin appear reasonable." He might have added, that such a volume would be of little practical service, and by no means prevent the speedy adoption of some new device of the same kind. The only effectual preventive would be, the exposure of the corrupt system, that engenders such abuses; were that system rendered simple and intelligible, every abuse would be detected and extinguished in the outset.

And let no government imagine, that, to strip them of the power of defrauding their subjects, is to deprive them of a valuable privilege. A system of swindling can never be long-lived, and must infallibly in the end produce much more loss than profit. The feeling of personal interest is that which soonest awakens the intellectual faculties of mankind, and sharpens the dullest apprehensions. Wherefore, in matters affecting personal interest, a government has the least chance of outwitting its subjects. Individuals are not easily duped by measures tending to procure supplies to the state in an under-hand manner: and although they cannot guard against direct outrage, or breach of public faith, yet it can never long escape their penetration, however artfully disguised and concealed. The government will acquire a character for cunning as well as faithlessness, and will lose entirely the powerful engine of credit, which will operate with infinitely more efficacy, than the mere trifle that fraud can procure. Yet, even that trifle will often be wholly engrossed by the agents of government, who are sure to turn every act of injustice towards the subject, to their own private advantage. Thus, while the government loses its credit, its agents get all the profit; and the public authority is disgraced, for no other purpose, than to enrich its menials.

The real interest of a government is, to look not to fictitious, disgraceful, and destructive resources, but to such as are really prolific and inexhaustible; and one can render it no better service, than to expose and render abortive those of the former kind, and point out to it those of the latter.

The immediate consequence of a deterioration of the coin is, a proportionate reduction of all debts and obligations payable in money; of all perpetual or redeemable rent-charges, whether upon the state or upon individuals; of all salaries, pensions, and rack-rents; in short, of all values previously expressed in money; by which reduction, the debtor gains what the creditor loses. It is a legal authorization of a partial bankruptcy, or compromise, by every money-debtor with his creditor, for a sum less than his fair claim, in the ratio of the diminution of precious metal in the same denomination of coin.

Thus, whatever government has recourse to this expedient, is not content with giving itself an illegitimate advantage, but urges all other debtors to do so likewise.

The kings of France, however, have not always allowed their subjects to reap the same advantage in their private concerns, which the monarch proposed to himself by the operation of increasing or diminishing the quantity of metal contained in a particular denomination of coin. Their personal motive was, on all such occasions, to pay less, or receive more silver or gold themselves, than in honesty they ought; but they sometimes compelled individuals, notwithstanding the alteration, to pay and receive in the old coin, or, if in the new, at the current rate of exchange between the two. This was a close copy of a Roman precedent. When that republic, in the second Punic war, reduced the as of copper from two oz. to one, the republic paid its creditors 1 as instead of two, that is to say, 50 per cent. on their claims. But private accounts were kept in denarii; and the denarius, which till then was worth 10 asses, was, by law, made to pass for 16 asses; so that individuals paid 16 asses or oz. of copper only for every denarius, instead of paying 20 as they should have done to fulfil their engagements: that is to say, 10 asses of 2 oz. or 20 of 1 oz. each, for every denarius. Thus, the republic paid a dividend of 50 per cent. only, but compelled private persons to pay one of 80 per cent.

A bankruptcy, effected by deterioration of the coin, has been sometimes considered in the light of a plain and simple bankruptcy, or mere reduction of the public debt. It has been thought less injurious to the public creditor to pay him in adulterated coin, that he again may pay over at the same rate as he receives it, than to curtail his claim by ¼, ½, or in any other proportion. Let us see how the two methods differ.

In either case, the creditor is equally a loser in all his purchases posterior to the bankruptcy. Whether his income be abridged by one-half, or whether he find himself obliged to pay for every thing twice as dear as before, is to him precisely the same thing.

As to all his own existing debts, he may undoubtedly get rid of them on the same terms as the public has discharged his own claim; but what ground is there for supposing, that the public creditors are always in arrear in their private accounts with the rest of the community? They stand in the same relation to society as all other classes; and there is every reason to believe that the public creditors have as much owing to them by one set of individuals as they owe themselves to another; in short, that the accounts will square. Thus, the injustice they do to their private claimants is balanced by the injury they receive; and a bankruptcy, in the shape of a deterioration of the coin, is to them full as bad, as in any other shape.

But it is attended with other serious evils, destructive of national welfare and prosperity.

It occasions a violent dislocation of the money-prices of commodities, operating in a thousand different ways, according to the particular circumstances of each respectively, and thereby disconcerting the best planned and most useful speculations, and destroying all confidence between lender and borrower. Nobody will willingly lend when he runs the risk of receiving a less sum than he has advanced; nor will any one be in a hurry to borrow, if he is in danger of paying more than he gets. Capital is, consequently, diverted from productive investment, and the blow given to production by deterioration of the coin, is commonly followed up by the still more fatal ones of taxation upon commodities, and the establishment of a maximum of price.

Nor is the effect less serious in respect to national morality. People's ideas of value are kept in a state of confusion for a length of time, during which knavery has an advantage over honest simplicity, in the conduct of pecuniary matters. Moreover, robbery and spoliation are sanctioned by public practice and example; personal interest is set in opposition to integrity; and the voice of the law to the impulse of conscience.