(3.xii.47) We have already seen, in treating of the properties which recommended theprecious metals for the instrument of exchange, that they are less than almost any other commoditysubject to fluctuation of value. They are not, however, exempt from changes, partly temporary,and partly permanent. The permanent changes take place, chiefly in consequence of a change inthe cost of procuring them. The greatest change of this kind, recorded in history, is that whichtook place on the discovery of the mines of America, from which, with the same quantity oflabour a greater quantity of the metals was obtained. The temporary changes take place, like thetemporary changes in the value of other commodities, by a derangement of the balance ofdemand and supply. For the payment of troops in a foreign country, or subsidies to foreigngovernments and other operations, a great quantity of gold or silver is sometimes bought up. andsent out of the country. This enhances the price, till the balance is restored by importation. Theprofit which may be acquired operates immediately as a motive to restore it. In the interval,however, an advantage may be derived from a paper money not convertible immediately into themetals. If convertible, gold will be demanded, paper will be diminished, and the value of thecurrency will be raised. If not convertible, the currency may be retained of the same or nearly thesame value as it was before. This, indeed, can scarcely be done, and the remedy applied,withsafety, unless where the whole is paper, and government has the supply in its own hands. In thatcase the sameness in the quantity of the currency, as it would be perfectly known, would be asufficient index and security. If the price of gold rose suddenly above the mint price, or, in otherwords, above the rate of the bank notes, without any alteration in the quantity of the currency,the sameness in the quantity of currency would be a sufficient index that the rise was owing to asudden absorption of the gold; which, after a time, would return. If in such circumstances theobligation of keeping up the value of the paper to that of the gold were suspended for a shorttime, a sufficient security against any considerable alteration in the value of the currency wouldbe found in the obligation of keeping the quantity of it the same; because, during any shortperiod of time, there can be no such diminution or increase of the quantity of business to be doneby it, as to require any material alteration. That in the hands of an irresponsible government suchpower of suspension would be dangerous, is true. But an irresponsible government involves allkinds of danger, and this among the rest.
Section XIII. The Value of the Precious Metals in EachCountry Determines Whether It Shall Export or Import (3.xiii.1) Metallic money, or more generally speaking, the precious metals, are nothingmore, considered strictly, and in their essence, than that commodity which is the most generally boughtand sold, whether by individuals, or by nations.
(3.xiii.2) In ordinary language, it is immediately acknowledged, that those commoditiesalone can be exported, which are cheaper in the country from which, than in the country to which, theyare sent; and that those commodities alone can be imported, which are dearer in the country towhich, than in the country from which, they are sent.
(3.xiii.3) According to this proposition, if gold is cheaper in any one country, as in England,for example, it will be exported from England. Again, if gold is dearer in England than in othercountries, it will be imported into England. But, by the very force of the terms, it is implied, thatin any country where gold is cheap, other commodities are dear. Gold is cheap, when a greaterquantity of it is required to purchase commodities; and commodities are dear, for the samereason; namely, when a greater quantity of gold is required to purchase them. When the value ofgold, therefore, in England, is low, gold will be exported from England, on the principle that allcommodities which are free to seek a market, go from the place where they are cheap to theplace where they are dear. But as, in the fact that gold is cheap, is implied the correlative andinseparable fact, that other commodities, at the same time, are dear, it follows, that, when gold isexported, less of other commodities can be exported; that no commodities can be exported, if thevalue of gold is so low as to raise the price of all of them above the price in other countries; andthat a diminished quantity alone can be exported, if the value of gold is only reduced so far as toraise the price of some of them above the price in other countries.
(3.xiii.4) It is evident, therefore, that a country will export commodities, other than theprecious metals, only when the value of the precious metals is high. It is equally evident, that she willimport, only when the value of the precious metals is low. The increase, therefore, of thequantity of the precious metals, which diminishes the value of them, gradually diminishes andtends to destroy the power of exporting other commodities; the diminution of the quantity of theprecious metals which increases their value, increases, by a similar process, the motive toexportation of other commodities, and, of course, in a state of freedom, the quantity exported.
Section XIV. The Value of the Precious Metal, or Medium ofExchange, Which Exportation Is Not Determines the Same in all Countries (3.xiv.1) When we speak of the value of the precious metal, we mean the quantity of otherthings for which it will exchange.
(3.xiv.2) But it is well known that money is more valuable, that is, goes farther in thepurchase of commodities, not only in one country than another, but in one part than another of the samecountry.
