(3.xii.32) But, in these circumstances, it would be the interest of those who issued the notesto raise their value by reducing their quantity. If they endeavoured to maintain the high quantity,they would be condemned perpetually to issue and perpetually to withdraw; because every manwho became possessed of any of their notes would have an interest in bringing them back againfor gold; and on each of these occasions the issuers would sustain a loss. They would issue thenotes at the rate of 3 l. 17 s. 10-1/2 d.; that is they would receive a value of 3 l. 17 s. 10-1/2 d. when they issued them; but when they received them back, they would be obliged to pay anounce of gold, for 31. 17 s. 10-1/2 d. of their notes; and that ounce might cost them 4 l., or anygreater sum.
(3.xii.33) If the currency were supplied by paper, without coins, the issuers of the papercould, by lessening its quantity, and thereby enhancing its value, reduce the price of gold. Suppose, bythis means, they were to reduce it to 3 l. per ounce. They might fill their coffers with gold at thisprice; and having done so, they might raise its price by increasing their issues till it became theinterest of the holders of their notes to demand it or them at 3 l. 17 s. 10-1/2 d. They would makea profit of 17 s. 10-1/2 d. on every ounce of gold thus trafficked; and they might continuallyrepeat the operation. A simple expedient, however, would be an effectual security against thisdanger. As the obligation to sell gold at a fixed price renders it the interest of those who issuepaper not to increase their notes in such a manner as to raise gold above that price, so anobligation on them to buy gold at a fixed price would render it their interest not to reduce theamount of their notes in such a manner as to sink it below that price. The value of the notesmight thus be kept very steadily conformable to that of the metallic standard.
(3.xii.34) In the case of a metallic currency, government can reduce the value of the coins,only by lessening the quantity of the precious metal contained in them; otherwise, as soon as itreduced the value of the coins sufficiently to afford a motive for melting them, they would, asfast as issued, disappear. In the case of a paper currency, it is only necessary for government towithdraw the obligation to pay metal for it on demand, when the quantity may be increased, andthereby the value diminished, to any amount.
(3.xii.35) Paper currency is issued without obligation to pay for it, in two ways : either, whengovernment is the issuer, and renders its paper legal tender, without obligation to give metal forit in exchange; or when the paper currency is regulated by one great establishment, as the Bankof England, and government suspends its obligation to pay for its notes.
(3.xii.36) The effects of an increase of the quantity, and consequent diminution of the valueof the currency in any particular country, are two : first, a rise of prices; secondly, a loss to all thosepersons who bad a right to receive a certain sum of money of' the old and undiminished value.
(3.xii.37) By the term price, I always understand the quantity of money which is given inexchange. An alteration in the value of money, it is obvious, alters the relative value of nothingelse. All things -bread, cloth, shoes, &c. rise in value as compared with money; but not oneof them rises in value as compared with any other.
(3.xii.38) This difference of price is, in itself, of no consequence to any body. The man whohas goods to sell gets more money for them, indeed; but this money will purchase him just the samequantity of commodities, as he was enabled to purchase with the price he obtained before. Theman who has goods to purchase has more money to give for them; but he is enabled to do so, bygetting just as much more for the commodities he has to sell.
(3.xii.39) With respect to the second effect of a degradation in the value of money, it is to beobserved, that there exists at all times, in civilized countries, a number of obligations to paycertain sums of money to individuals : either all at once, as debts; or in succession, as annuities.
It is very obvious, that the individual who has contracted with a man to receive 100 l. sustains aloss when the currency is reduced in value and he receives no more than 100 l. It is equallyobvious that the party who has to pay the sum, is benefitted to the same amount. Thesecircumstances are reversed when the alteration which has taken place is an increase of the value.
In that case the man who has to pay sustains the loss; the man who receives payment makes thegain. These losses are evils of great magnitude, as far as men's feelings and happiness areconcerned; and they imply a gross violation of those rules for the guardianship of thathappiness, which are comprehended under the term justice. It is, however, no destruction, andconsequently no loss, of property.
(3.xii.40) Hume has supposed that certain other effects are produced by the increase of thequantity of money. When an augmentation of money commences, individuals, more or fewer, gointo the market with greater sums. The consequence is, that they offer better prices; and Humeaffirms, that the increased prices give encouragement to producers, who are incited to greateractivity and industry, and that an increase of production is the consequence.
(3.xii.41) This doctrine implies a want of clear ideas respecting production. The agents ofproduction are the commodities themselves, not the price of them. They are the food of thelabourer, the tools and machinery with which he works, and the raw materials which he worksupon. These are not increased by the increase of money : how then can there be moreproduction? This is a demonstration that the conclusion of Hume is erroneous. It may besatisfactory also to unravel the fallacy of his argument.
(3.xii.42) The man who goes first to market with the augmented quantity of money, eitherraises the price of the commodities which he purchases, or he does not.
