When a nation binds itself by treaty either to permit the entry
of certain goods from one foreign country which it prohibits
from all others, or to exempt the goods of one country from duties
to which it subjects those of all others, the country, or at
least the merchants and manufacturers of the country, whose commerce
is so favoured, must necessarily derive great advantage from
the treaty. Those merchants and manufacturers enjoy a sort of
monopoly in the country which is so indulgent to them. That country
becomes a market both more extensive and more advantageous for
their goods: more extensive, because the goods of other nations
being either excluded or subjected to heavier duties, it takes
off a greater quantity of theirs: more advantageous, because
the merchants of the favoured country, enjoying a sort of monopoly
there, will often sell their goods for a better price than if
exposed to the free competition of all other nations.
Such treaties, however, though they may be advantageous to
the merchants and manufacturers of the favoured, are necessarily
disadvantageous to those of the favouring country. A monopoly
is thus granted against them to a foreign nation; and they
must frequently buy the foreign goods they have occasion for
dearer than if the free competition of other nations was admitted.
That part of its own produce with which such a nation purchases
foreign goods must consequently be sold cheaper, because when
two things are exchanged for one another, the cheapness of
the one is a necessary consequence, or rather the same thing
with the dearness of the other. The exchangeable value of its
annual produce, therefore, is likely to be diminished by every
such treaty. This diminution, however, can scarce amount to
any positive loss, but only to a lessening of the gain which
it might otherwise make. Though it sells its goods cheaper
than it otherwise might do, it will not probably sell them
for less than they cost; nor, as in the case of bounties, for
a price which will not replace the capital employed in bringing
them to market, together with the ordinary profits of stock.
The trade could not go on long if it did. Even the favouring
country, therefore, may still gain by the trade, though less
than if there was a free competition.
Some treaties of commerce, however, have been supposed advantageous
upon principles very different from these; and a commercial
country has sometimes granted a monopoly of this kind against
itself to certain goods of a foreign nation, because it expected
that in the whole commerce between them, it would annually
sell more than it would buy, and that a balance in gold and
silver would be annually returned to it. It is upon this principle
that the treaty of commerce between England and Portugal, concluded
in 1703 by Mr. Methuen, has been so much commended. The following
is a literal translation of that treaty, which consists of
three articles only.
Art. I.
His sacred royal majesty of Portugal promises, both in his own
name, and that of his successors, to admit, for ever hereafter,
into Portugal, the woollen cloths, and the rest of the woollen
manufactures of the British, as was accustomed, till they were
prohibited by the law; nevertheless upon this
condition:
Art. II.
That is to say, that her sacred royal majesty of Great Britain
shall, in her own name, and that of her successors, be obliged,
for ever hereafter, to admit the wines of the growth of Portugal
into Britain; so that at no time, whether there shall be peace
or war between the kingdoms of Britain and France, anything more
shall be demanded for these wines by the name of custom or duty,
or by whatsoever other title, directly or indirectly, whether
they shall be imported into Great Britain in or hogsheads, or
other casks, than what shall be demanded for the like quantity
or measure of French wine, deducting or abating a third part
of the custom or duty. But if at any time this deduction or abatement
of customs, which is to be made as aforesaid, shall in any manner
be attempted and prejudiced, it shall be just and lawful for
his sacred royal majesty of Portugal, again to prohibit the woollen
cloths, and the rest of the
British woollen manufactures.
Art. III.
The most excellent lords the plenipotentiaries promise and take
upon themselves, that their above named masters shall ratify
this treaty; and within the space of two months the ratifications
shall be exchanged.
By this treaty the crown of Portugal becomes bound to admit
the English woollens upon the same footing as before the prohibition;
that is, not to raise the duties which had been paid before
that time. But it does not become bound to admit them upon
any better terms than those of any other nation, of France
or Holland for example. The crown of Great Britain, on the
contrary, becomes bound to admit the wines of Portugal upon
paying only two-thirds of the duty which is paid for those
of France, the wines most likely to come into competition with
them. So far this treaty, therefore, is evidently advantageous
to Portugal, and disadvantageous to Great Britain.
It has been celebrated, however, as a masterpiece of the commercial
policy of England. Portugal receives annually from the Brazils
a greater quantity of gold than can be employed in its domestic
commerce, whether in the shape of coin or of plate. The surplus
is too valuable to be allowed to lie idle and locked up in
coffers, and as it can find no advantageous market at home,
it must, notwithstanding any prohibition, be sent abroad, and
exchanged for something for which there is a more advantageous
market at home. A large share of it comes annually to England,
in return either for English goods, or for those of other European
nations that receive their returns through England. Mr. Baretti
was informed that the weekly packet-boat from Lisbon brings,
one week with another, more than fifty thousand pounds in gold
to England. The sum had probably been exaggerated. It would
amount to more than two millions six hundred thousand pounds
a year, which is more than the Brazils are supposed to afford.
Our merchants were some years ago out of humour with the crown
of Portugal. Some privileges which had been granted them, not
by treaty, but by the free grace of that crown, at the solicitation
indeed, it is probable, and in return for much greater favours,
defence and protection, from the crown of Great Britain had
been either infringed or revoked. The people, therefore, usually
most interested in celebrating the Portugal trade were then
rather disposed to represent it as less advantageous than it
had commonly been imagined. The far greater part, almost the
whole, they pretended, of this annual importation of gold,
was not on account of Great Britain, but of other European
nations; the fruits and wines of Portugal annually imported
into Great Britain nearly compensating the value of the British
goods sent thither.
Let us suppose, however, that the whole was on account of
Great Britain, and that it amounted to a still greater sum
than Mr. Baretti seems to imagine; this trade would not, upon
that account, be more advantageous than any other in which,
for the same value sent out, we received an equal value of
consumable goods in return.
It is but a very small part of this importation which, it
can be supposed, is employed as an annual addition either to
the plate or to the coin of the kingdom. The rest must all
be sent abroad and exchanged for consumable goods of some kind
or other. But if those consumable goods were purchased directly
with the produce of English industry, it would be more for
the advantage of England than first to purchase with that produce
the gold of Portugal, and afterwards to purchase with that
gold those consumable goods. A direct foreign trade of consumption
is always more advantageous than a round-about one; and to
bring the same value of foreign goods to the home market, requires
a much smaller capital in the one way than in the other. If
a smaller share of its industry, therefore, had been employed
in producing goods fit for the Portugal market, and a greater
in producing those fit for the other markets, where those consumable
goods for which there is a demand in Great Britain are to be
had, it would have been more for the advantage of England.
To procure both the gold, which it wants for its own use, and
the consumable goods, would, in this way, employ a much smaller
capital than at present. There would be a spare capital, therefore,
to be employed for other purposes, in exciting an additional
quantity of industry, and in raising a greater annual produce.
Though Britain were entirely excluded from the Portugal trade,
it could find very little difficulty in procuring all the annual
supplies of gold which it wants, either for the purposes of
plate, or of coin, or of foreign trade. Gold, like every other
commodity, is always somewhere or another to be got for its
value by those who have that value to give for it. The annual
surplus of gold in Portugal, besides, would still be sent abroad,
and though not carried away by Great Britain, would be carried
away by some other nation, which would be glad to sell it again
for its price, in the same manner as Great Britain does at
present. In buying gold of Portugal, indeed, we buy it at the
first hand; whereas, in buying it of any other nation, except
Spain, we should buy it at the second, and might pay somewhat
dearer. This difference, however, would surely be too insignificant
to deserve the public attention.
Almost all our gold, it is said, comes from Portugal. With
other nations the balance of trade is either against us, or
not much in our favour. But we should remember that the more
gold we import from one country, the less we must necessarily
import from all others. The effectual demand for gold, like
that for every other commodity, is in every country limited
to a certain quantity. If nine-tenths of this quantity are
imported from one country, there remains a tenth only to be
imported from all others. The more gold besides that is annually
imported from some particular countries, over and above what
is requisite for plate and for coin, the more must necessarily
be exported to some others; and the more that most insignificant
object of modern policy, the balance of trade, appears to be
in our favour with some particular countries, the more it must
necessarily appear to be against us with many others.
It was upon this silly notion, however, that England could
not subsist without the Portugal trade, that, towards the end
of the late war, France and Spain, without pretending either
offence or provocation, required the King of Portugal to exclude
all British ships from his ports, and for the security of this
exclusion, to receive into them French or Spanish garrisons.
Had the king of Portugal submitted to those ignominious terms
which his brother-in-law the king of Spain proposed to him,
Britain would have been freed from a much greater inconveniency
than the loss of the Portugal trade, the burden of supporting
a very weak ally, so unprovided of everything for his own defence
that the whole power of England, had it been directed to that
single purpose, could scarce perhaps have defended him for
another campaign. The loss of the Portugal trade would, no
doubt, have occasioned a considerable embarrassment to the
merchants at that time engaged in it, who might not, perhaps,
have found out, for a year or two, any other equally advantageous
method of employing their capitals; and in this would probably
have consisted all the inconveniency which England could have
suffered from this notable piece of commercial policy.
The great annual importation of gold and silver is neither
for the purpose of plate nor of coin, but of foreign trade.
A round-about foreign trade of consumption can be carried on
more advantageously by means of these metals than of almost
any other goods. As they are the universal instruments of commerce,
they are more readily received in return for all commodities
than any other goods; and on account of their small bulk and
great value, it costs less to transport them backward and forward
from one place to another than almost any other sort of merchandise,
and they lose less of their value by being so transported.
Of all the commodities, therefore, which are bought in one
foreign country, for no other purpose but to be sold or exchanged
again for some other goods in another, there are none so convenient
as gold and silver. In facilitating all the different round-about
foreign trades of consumption which are carried on in Great
Britain consists the principal advantage of the Portugal trade;
and though it is not a capital advantage, it is no doubt a
considerable one.
That any annual addition which, it can reasonably be supposed,
is made either to the plate or to the coin of the kingdom,
could require but a very small annual importation of gold and
silver, seems evident enough; and though we had no direct trade
with Portugal, this small quantity could always, somewhere
or another, be very easily got.
Though the goldsmith's trade be very considerable in Great
Britain, the far. greater part of the new plate which they
annually sell is made from other old plate melted down; so
that the addition annually made to the whole plate of the kingdom
cannot be very great, and could require but a very small annual
importation.
It is the same case with the coin. Nobody imagines, I believe,
that even the greater part of the annual coinage, amounting,
for ten years together, before the late reformation of the
gold coin, to upwards of eight hundred thousand pounds a year
in gold, was an annual addition to the money before current
in the kingdom. In a country where the expense of the coinage
is defrayed by the government, the value of the coin, even
when it contains its full standard weight of gold and silver,
can never be much greater than that of an equal quantity of
those metals uncoined; because it requires only the trouble
of going to the mint, and the delay perhaps of a few weeks,
to procure for any quantity of uncoined gold and silver an
equal quantity of those metals in coin. But, in every country,
the greater part of the current coin is almost always more
or less worn, or otherwise degenerated from its standard. In
Great Britain it was, before the late reformation, a good deal
so, the gold being more than two per cent and the silver more
than eight per cent below its standard weight. But if forty-four
guineas and a half, containing their full standard weight,
a pound weight of gold, could purchase very little more than
a pound weight could of uncoined gold, forty-four guineas and
a half wanting a part of their weight could not purchase a
pound weight, and something was to be added in order to make
up the deficiency. The current price of gold bullion at market,
therefore, instead of being the same with the mint price, or
L46 14s. 6d., was then about L47 14s. and sometimes about L48.
When the greater part of the coin, however, was in this degenerate
condition, forty-four guineas and a half, fresh from the mint,
would purchase no more goods in the market than any other ordinary
guineas, because when they came into the coffers of the merchant,
being confounded with other money, they could not afterwards
be distinguished without more trouble than the difference was
worth. Like other guineas they were worth no more than L46
14s. 6d. If thrown into the melting pot, however, they produced,
without any sensible loss, a pound weight of standard gold,
which could be sold at any time for between L47 14s. and L48
either of gold or silver, as fit for all the purposes of coin
as that which had been melted down. There was an evident profit,
therefore, in melting down new coined money, and it was done
so instantaneously, that no precaution of government could
prevent it. The operations of the mint were, upon this account,
somewhat like the web of Penelope; the work that was done in
the day was undone in the night. The mint was employed, not
so much in making daily additions to the coin, as in replacing
the very best part of it which was daily melted down.
Were the private people, who carry their gold and silver to
the mint, to pay themselves for the coinage, it would add to
the value of those metals in the same manner as the fashion
does to that of plate. Coined gold and silver would be more
valuable than uncoined. The seignorage, if it was not exorbitant,
would add to the bullion the whole value of the duty; because,
the government having everywhere the exclusive privilege of
coining, no coin can come to market cheaper than they think
proper to afford it. If the duty was exorbitant indeed, that
is, if it was very much above the real value of the labour
and expense requisite for coinage, false coiners, both at home
and abroad, might be encouraged, by the great difference between
the value of bullion and that of coin, to pour in so great
a quantity of counterfeit money as might reduce the value of
the government money. In France, however, though the seignorage
is eight per cent, no sensible inconveniency of this kind is
found to arise from it. The dangers to which a false coiner
is everywhere exposed, if he lives in the country of which
he counterfeits the coin, and to which his agents or correspondents
are exposed if he lives in a foreign country, are by far too
great to be incurred for the sake of a profit of six or seven
per cent.
The seignorage in France raises the value of the coin higher
than in proportion to the quantity of pure gold which it contains.
Thus by the edict of January 1726, the mint price of fine gold
of twenty-four carats was fixed at seven hundred and forty
livres nine sous and one denier one-eleventh, the mark of eight
Paris ounces. The gold coin of France, making an allowance
for the remedy of the mint, contains twenty-one carats and
three-fourths of fine gold, and two carats one fourth of alloy.
The mark of standard gold, therefore, is worth no more than
about six hundred and seventy-one livres ten deniers. But in
France this mark of standard gold is coined into thirty Louis
d'ors of twenty-four livres each, or into seven hundred and
twenty livres. The coinage, therefore, increases the value
of a mark of standard gold bullion, by the difference between
six hundred and seventy-one livres ten deniers, and seven hundred
and twenty livres; or by forty-eight livres nineteen sous and
two deniers.
A seignorage will, in many cases, take away altogether, and
will, in all cases, diminish the profit of melting down the
new coin. This profit always arises from the difference between
the quantity of bullion which the common currency ought to
contain, and that which it actually does contain. If this difference
is less than the seignorage, there will be loss instead of
profit. If it is equal to the seignorage, there will neither
be profit nor loss. If it is greater than the seignorage, there
will indeed be some profit, but less than if there was no seignorage.
If, before the late reformation of the gold coin, for example,
there had been a seignorage of five per cent upon the coinage,
there would have been a loss of three per cent upon the melting
down of the gold coin. If the seignorage had been two per cent
there would have been neither profit nor loss. If the seignorage
had been one per cent there would have been a profit, but of
one per cent only instead of two per cent. Wherever money is
received by tale, therefore, and not by weight, a seignorage
is the most effectual preventative of the melting down of the
coin, and, for the same reason, of its exportation. It is the
best and heaviest pieces that are commonly either melted down
or exported; because it is upon such that the largest profits
are made.
The law for encouragement of the coinage, by rendering it
duty-free, was first enacted during the reign of Charles II
for a limited time; and afterwards continued, by different
prolongations, till 1769, when it was rendered perpetual. The
Bank of England, in order to replenish their coffers with money,
are frequently obliged to carry bullion to the mint; and it
was more for their interest, they probably imagined, that the
coinage should be at the expense of the government than at
their own. It was probably out of complaisance to this great
company that the government agreed to render this law perpetual.
Should the custom of weighing gold, however, come to be disused,
as it is very likely to be on account of its inconveniency;
should the gold coin of England come to be received by tale,
as it was before the late recoinage, this great company may,
perhaps, find that they have upon this, as upon some other
occasions, mistaken their own interest not a little.
Before the late recoinage, when the gold currency of England
was two per cent below its standard weight, as there was no
seignorage, it was two per cent below the value of that quantity
of standard gold bullion which it ought to have contained.
When this great company, therefore, bought gold bullion in
order to have it coined, they were obliged to pay for it two
per cent more than it was worth after coinage. But if there
had been a seignorage of two per cent upon the coinage, the
common gold currency, though two per cent below its standard
weight, would notwithstanding have been equal in value to the
quantity of standard gold which it ought to have contained;
the value of the fashion compensating in this case the diminution
of the weight. They would indeed have had the seignorage to
pay, which being two per cent, their loss upon the whole transaction
would have been two per cent exactly the same, but no greater
than it actually was.
If the seignorage had been five per cent, and the gold currency
only two per cent below its standard weight, the bank would
in this case have gained three per cent upon the price of the
bullion; but as they would have had a seignorage of five per
cent to pay upon the coinage, their loss upon the whole transaction
would, in the same manner, have been exactly two per cent.
If the seignorage had been only one per cent and the gold
currency two per cent below its standard weight, the bank would
in this case have lost only one per cent upon the price of
the bullion; but as they would likewise have had a seignorage
of one per cent to pay, their loss upon the whole transaction
would have been exactly two per cent in the same manner as
in all other cases.
If there was a reasonable seignorage, while at the same time
the coin contained its full standard weight, as it has done
very nearly since the last recoinage, whatever the bank might
lose by the seignorage, they would gain upon the price of the
bullion; and whatever they might gain upon the price of the
bullion, they would lose by the seignorage. They would neither
lose nor gain, therefore, upon the whole transaction, and they
would in this, as in all the foregoing cases, be exactly in
the same situation as if there was no seignorage.
When the tax upon a commodity is so moderate as not to encourage
smuggling, the merchant who deals in it, though he advances,
does not properly pay the tax, as he gets it back in the price
of the commodity. The tax is finally paid by the last purchaser
or consumer. But money is a commodity with regard to which
every man is a merchant. Nobody buys it but in order to sell
it again; and with regard to it there is in ordinary cases
no last purchaser or consumer. When the tax upon coinage, therefore,
is so moderate as not to encourage false coining, though everybody
advances the tax, nobody finally pays it; because everybody
gets it back in the advanced value of the coin.
A moderate seignorage, therefore, would not in any case augment
the expense of the bank, or of any other private persons who
carry their bullion to the mint in order to be coined, and
the want of a moderate seignorage does not in any case diminish
it. Whether there is or is not a seignorage, if the currency
contains its full standard weight, the coinage costs nothing
to anybody, and if it is short of that weight, the coinage
must always cost the difference between the quantity of bullion
which ought to be contained in it, and that which actually
is contained in it.
The government, therefore, when it defrays the expense of
coinage, not only incurs some small expense, but loses some
small revenue which it might get by a proper duty; and neither
the bank nor any other private persons are in the smallest
degree benefited by this useless piece of public generosity.
The directors of the bank, however, would probably be unwilling
to agree to the imposition of a seignorage upon the authority
of a speculation which promises them no gain, but only pretends
to insure them from any loss. In the present state of the gold
coin, and as long as it continues to be received by weight,
they certainly would gain nothing by such a change. But if
the custom of weighing the gold coin should ever go into misuse,
as it is very likely to do, and if the gold coin should ever
fall into the same state of degradation in which it was before
the late recoinage, the gain, or more properly the savings
of the bank, in consequence of the imposition of a seignorage,
would probably be very considerable. The Bank of England is
the only company which sends any considerable quantity of bullion
to the mint, and the burden of the annual coinage falls entirely,
or almost entirely, upon it. If this annual coinage had nothing
to do but to repair the unavoidable losses and necessary wear
and tear of the coin, it could seldom exceed fifty thousand
or at most a hundred thousand pounds. But when the coin is
degraded below its standard weight, the annual coinage must,
besides this, fill up the large vacuities which exportation
and the melting pot are continually making in the current coin.
It was upon this account that during the ten or twelve years
immediately preceding the late reformation of the gold coin,
the annual coinage amounted at an average to more than eight
hundred and fifty thousand pounds. But if there had been a
seignorage of four or five per cent upon the gold coin, it
would probably, even in the state in which things then were,
have put an effectual stop to the business both of exportation
and of the melting pot. The bank, instead of losing every year
about two and a half per cent upon the bullion which was to
be coined into more than eight hundred and fifty thousand pounds,
or incurring an annual loss of more than twenty-one thousand
two hundred and fifty pounds, would not probably have incurred
the tenth part of that loss.
The revenue allotted by Parliament for defraying the expense
of the coinage is but fourteen thousand pounds a year, and
the real expense which it costs the government, or the fees
of the officers of the mint, do not upon ordinary occasions,
I am assured, exceed the half of that sum. The saving of so
very small a sum, or even the gaining of another which could
not well be much larger, are objects too inconsiderable, it
may be thought, to deserve the serious attention of government.
But the saving of eighteen or twenty thousand pounds a year
in case of an event which is not improbable, which has frequently
happened before, and which is very likely to happen again,
is surely an object which well deserves the serious attention
even of so great a company as the Bank of England.
Some of the foregoing reasonings and observations might perhaps
have been more properly placed in those chapters of the first
book which treat of the origin and use of money, and of the
difference between the real and the nominal price of commodities.
But as the law for the encouragement of coinage derives its
origin from those vulgar prejudices which have been introduced
by the mercantile system, I judged it more proper to reserve
them for this chapter. Nothing could be more agreeable to the
spirit of that system than a sort of bounty upon the production
of money, the very thing which, it supposes, constitutes the
wealth of every nation. It is one of its many admirable expedients
for enriching the country.
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