(3.v.6) The case in which a country imports commodities, which she herself is incompetentto produce, is of still more simple investigation. That country, or, more properly speaking, thepeople of that country, have certain commodities of their own, but these they are willing to givefor certain commodities of other countries. They prefer having those other commodities. Theyare benefited, therefore, not by what they give away; that it would be absurd to say; but by whatthey receive.
Section VI. Convenience of a Particular Commodity, as aMedium of Exchange (3.vi.1) In exchanging commodities for one another directly, or in the way of barter, thewants of individuals could not be easily supplied. If a man had only sheep to dispose of; and wantedbread, or a coat; he might find himself subject to either of two difficulties : first, the manpossessing the article which he wished to obtain, might be unwilling to accept of a sheep; or,secondly, the sheep might be of more value than the article which he wished to obtain, and couldnot be divided.
(3.vi.2) To obviate these difficulties, it would be fortunate if a commodity could be found,which every man, who had goods to dispose of, would be willing to receive, and which could bedivided into such quantities, as would adapt themselves to the value of the articles which hewished to obtain. In this case, the man who bad the sheep, and wanted bread or a coat, instead ofoffering his sheep to obtain them, would first exchange it for the equivalent quantity of this othercommodity, and with that he would purchase the bread and other things for which he hadoccasion.
(3.vi.3) This, then, is the true idea of a medium of exchange. It is some one commodity,which, in order to effect an exchange between two other commodities, is first received in exchange forthe one, and then given in exchange for the other.
(3.vi.4) Certain metals, gold, for example, and silver, were found to unite, in a superiordegree, all the qualities desired in a medium of exchange. They were commodities which every man,who had goods to dispose of, was willing to receive in exchange. They could be divided intosuch portions as suited any quantity of other commodities which the purchaser desired to obtain.
They possessed the further recommendation, by including a great value in a small bulk, of beingvery portable. They were also very indestructible; and less than almost any other commoditiesliable to fluctuations of value. From these causes, gold and silver have formed the principalmedium of exchange in all parts of the globe.
(3.vi.5) The precious metals were liable to be mixed with baser metals in a manner which itwas not easy to detect; and thus a less value was apt to be received than that which was understoodto be so. It was also found inconvenient to perform the act of weighing every time that apurchase was to be made. An obvious expedient was calculated to remedy both inconveniences.
Metal might be prepared of a determined fineness; it might be divided into portions adopted toall sorts of purchases; and a stamp might be put upon it, denoting both its weight and itsfineness. It is obvious, that the putting of this stamp could only be entrusted to an authority inwhich the people had confidence. The business has generally been undertaken by governments,and kept exclusively in their own hands. The business of putting the precious metals in the mostconvenient shape, for serving as the medium of exchange, has been denominated coining; andthe pieces into which they are divided have obtained the appellation of money.
Section VII. What Regulates the Value of Money (3.vii.1) By value of money, is here to be understood the proportion in which it exchangesfor other commodities, or the quantity of it which exchanges for a certain quantity of other things.
(3.vii.2) It is not difficult to perceive, that it is the total quantity of the money in any country,which determines what portion of that quantity shall exchange for a certain portion of the goodsor commodities of that country.
(3.vii.3) If we suppose that all the goods of the country are on one side, all the money on theother, and that they are exchanged at once against one another, it is obvious that one-tenth, orone-hundredth, or any other part of the goods, will exchange against one-tenth, or any part of thewhole of the money; and that this tenth, &c. will be a great quantity or small, exactly inproportion as the whole quantity of the money in the country is great or small. If this were thestate of the facts, therefore, it is evident that the value of money would depend wholly upon thequantity of it.
(3.vii.4) It will appear that the case is precisely the same in the actual state of the facts. Thewhole of the goods of a country are not exchanged at once against the whole of the money; thegoods are exchanged in portions, often in very small portions, and at different times, during thecourse of the whole year. The same piece of money which is paid in one exchange to-day, maybe paid in another exchange to-morrow. Some of the pieces will be employed in a great manyexchanges, some in very few, and some, which happen to be hoarded, in none at all. There will,amid all these varieties, be a certain average number of exchanges, the same which, if all thepieces had performed an equal number, would have been performed by each; that average wemay suppose to be any number we please; say, for example, ten. If each of the pieces of themoney in the country perform ten purchases, that is exactly the same thing as if all the pieceswere multiplied by ten, and performed only one purchase each. As each piece of the money isequal in value to that which it exchanges for, if each performs ten different exchanges to effectone exchange of all the goods, the value of all the goods in the country is equal to ten times thevalue of all the money.
