A Treatise on Political Economy

Jean-Baptiste Say
Say, Jean-Baptiste
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C. R. Prinsep, trans. and Clement C. Biddle., ed.
First Pub. Date
Philadelphia: Lippincott, Grambo & Co.,
Pub. Date
6th edition. Based on the 4th-5th editions.
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In treating of the elevation and depression of the price of commodities, although value has been expressed in money, no notice has been taken of the value of money itself; which, to say the truth, plays no part in real, or even in relative variation of the price of other commodities. One product is always ultimately bought with another, even when paid for in the first instance in money. When the price of wool is doubled, it is purchased with twice the quantity of every other commodity, whether the exchange be made directly, or through the intermediate agency of money. The baker, who could have bought 1 lb. of wool with 6 lbs. of bread, or, with its price in money, say 20 cents, will be obliged to sacrifice 12 lbs. of bread to obtain the 40 cents necessary to purchase 1 lb. of wool at its advanced price. But, if it be proposed to compare together the relative value, not of stockings, meat, sugar, wool, bread, &c., but of any one of those articles with that of money itself, we shall find, that money, like all other commodities, may undergo, and often has, in fact, undergone a real variation; that is to say, a variation in the cost of its production; and a relative one, that is to say, a change of value, in comparison with other products.


Since the discovery of the American mines, silver, having fallen to about a fourth of its former value, has lost three-fourths of its relative value to all other products, whose price has, meanwhile remained stationary; as to that of corn, for instance; consequently, one must give 4 oz. of silver for 1 setier (about 43 bushels) of wheat, which, in the year 1500, was to be had for 1 oz. or thereabout. A commodity, which, since that period, may have fallen to half its price, while silver was falling to one-quarter, will, therefore, have doubled its relative value to silver, for this commodity then cost 1 oz., and would now be worth 4 oz. of silver, had it not fallen itself in value; but having itself lost one-half its value, it is sold for but 2 oz.; that is to say, for twice as much silver as at the former period.


Such is the effect of real and of relative variation in the price of silver. But, independently of these variations, there have been vast alterations in the denomination given, at different periods during the interim, to the same quantity of pure metal, which should make us place very little reliance on the accuracy of our estimate of real and relative variation.


In 1514, an ounce of silver would purchase 1 setier of wheat, which is now worth 4 oz.; this was a relative variation of silver to wheat. This quantity of silver then was denominated 30 sous;*19 and, had the same quantity of silver still preserved the same denomination, 4 oz. would now be called 120s. or 6 fr. Thus, wheat at 6 fr. the setier would have risen in relation to silver, or silver have fallen in comparison with wheat. There would, however, have been no nominal variation. But 4 oz. of silver are now denominated 24 fr. instead of 6 fr.; so that there has been a nominal as well as a relative variation,—a mere verbal alteration. The real and relative variation has been in the ratio of 4 to 1; but the nominal value of money has declined in the ratio of 16 to 1, since 1514.


It is obvious, therefore, that one cannot form an idea of the value of a commodity from its estimate of money price, except during a space of time, and within a space of territory, in which neither the denomination of the coin, nor the value of its material, has undergone any change; else the valuation will be merely nominal, and convey no fixed idea of value whatever. To say that the setier of wheat sold for 30 sous in 1514, without explaining the then value of 30 sous, is giving us a price, that conveys either no idea at all, or a fallacious one, if it be meant to affirm, that the setier of wheat was then worth 30 sous of present money. In comparing values, the denomination of coin is useful only inasmuch as it designates the quantity of pure metal contained in the sum specified. It may serve to denote the quantity of the metal; but never serve as an index of value at any distance of time, or of place.


It is scarcely necessary to point out the effects of an alteration in the quantity of metal, to which a fixed denomination is given, upon national and individual property. Such an expedient can neither increase nor diminish the real, or even the relative value, either of the metal or of any other commodity. If 1 oz. of silver be struck into two crowns instead of one, two crowns will be paid wherever one was given before; that is to say, 1 oz. of silver will be given in either case: so that the value of silver will not have varied. But when a sale has been made on credit for a given time, and payment stipulated in crowns, the seller may be liable to receive ½ oz. in each crown, instead of 1 oz. according to the intention of the contracting parties. This transfer of the old denomination to a different portion of metal will, therefore, unjustly benefit the one party, to the injury of the other. For every profit to one individual is a loss to another, unless it arise from actual production, or from greater economy in the charges of production, which is equivalent to actual production.


With regard to the peculiar and inherent value of bullion or of money, it originates, like that of all other commodities, in the uses to which it is applicable, as we have before observed. The degree of that value is greater or less, according as its use is more or less extensive, its employment more or less necessary, and its supply more or less abundant.


Gold and silver, though the most common materials of money can not act as such while in an uncoined state; they are then not money, but the raw material of money. In the present condition of society, every individual can not turn bullion into coin at his pleasure; and, therefore, coin may be of considerably higher value than bullion of the same standard of weight and quality, if the demand for coin be more urgent than the demand for bullion. But bullion can never be perceptibly higher in value than coin of equal weight and quality; because the latter may be readily converted into the former. The reason why coin so seldom much exceeds bullion in value is, that the avidity of governments, which are monopolists of the business of coinage, to profit by the difference between coin and bullion, has led them into the error of overstocking the market with their manufacture of coin. Thus it is, that coin is never depressed in value below, and rarely much elevated above bullion. Wherefore, the detail of the circumstances, that have hitherto been, or may hereafter be, the occasion of variations in the intrinsic value of gold or silver bullion, will serve at the same time to explain the variations of their value in the peculiar character of money.


It has already been noticed,*20 that the ten-fold supply of those metals, poured into the market in consequence of the discovery of America, did not effect a corresponding reduction of their value to 1/10 of what it had before been. For, the demand for them was at the same period greatly enlarged by the contemporaneous increase of commerce, manufacture, and luxury. All the leading states of Europe had before been wholly destitute of industry: the circulation of products, whether as capital or for mere consumption, was very trifling in amount. Industry and productive energy made a sudden and simultaneous effort all over Europe; and the commodity employed as the material of money, the agent of exchange, could not but come more in demand, upon the greater extent and frequency of mutual dealings. About the same time, the new route to the Eastern ocean, by rounding the Cape of Good Hope, was discovered, and drew abundance of adventurers into that direction; the products of the East obtained a more general consumption; but Europe, having no other products of her own to offer in exchange, was compelled to give the precious metals, of which India absorbed an immense quantity. Nevertheless, the multiplication of products tended to the increase and diffusion of wealth; mere higlers grew up unto opulent merchants, and the fishing towns of Holland already reckoned amongst their citizens individuals worth 200,000 dollars. The costly objects, that none but princes could before aspire to possess, became attainable by the commercial classes; and the increasing taste for plate and expensive furniture created a greater demand for gold and silver to be employed on those objects. Beyond all question, the value of those metals would have prodigiously advanced, had not the mines of America been then opportunely discovered.


Their discovery completely turned the scales. The rapid increase of the use and demand for gold and silver was far more than counterbalanced by the increasing supply, which completely glutted the market. Hence the great reduction of their value, which has been before observed upon, and which would have been far greater still, but for the concurrence of the circumstances just stated, whereby the value of silver, or its price in commodities at large, was checked in its fall, and limited to one-fourth, instead of being depressed in equal ratio with the increased supply, that is to say, to one-tenth.


This counteracting force must have escaped the penetration of Locke, or he would not have said, that the tenfold increase of silver, since the year 1500, necessarily raised the price of commodities in a tenfold degree. The few instances he might have cited in support of his position, were by no means sufficient to establish its accuracy; for a far greater number and variety of products might be mentioned, for which, as well as for silver, the demand compared with the supply had increased in the ratio of 2 ½ to 1, between 1500 and the date of the work of Locke in question.*21 But, although this may be true of some particular products, it may not be so of abundance of others, for some of which the demand has not advanced at all since 1500, while the supply of others has kept pace with the progressive demand, and consequently the ratio of their value remained stationary, with the exception of trifling temporary variations arising from causes of a nature wholly distinct; which, by the way, should teach us the necessity, in this science, of submitting insulated facts to the test of reasoning: for fact will not subvert theory, unless the whole of the facts applicable be taken into consideration, as well as the whole of the circumstances, that may vary the nature of those facts which is hardly possible in any case.


The writers of the Encyclopedie have fallen into the same error, in stating,*22 that a household establishment, wherein the silver plate should not have varied in quantity or quality from the middle of the sixteenth century to the present time, would be but one-tenth as rich in plate now as at the former period. Whereas, its comparative wealth would be reduced to one-fourth only; since, although the increase of supply has depressed that value to 10/100, the increase of demand, on the other hand, has raised it to 95/100.*23


It is deserving of attention, that the major part of the coin is in constant circulation, in the appropriate sense of the word, as defined above. In this respect it differs from most other commodities; for they are in circulation only so long as they are in the hands of the dealers, and retire from it as soon as transferred to the consumer. Money, even when employed as capital, is never desired as an object of consumption, but merely as one of barter; every act of purchase is an offer of money in barter, and a furtherance of its circulation. The only part withdrawn from circulation is what may be hoarded or concealed, which is always done with a view to its re-appearance.


Gold or silver, in the shape of plate, embroidery, or jewellery, is in circulation only while in quest of, or in readiness for a purchaser; which it ceases to be, when it reaches the possession of the consumer.


The general use of silver amongst all the civilized nations of the world, coupled with its great facility of transport, makes it a commodity of such extensive demand, that none but a very large influx of fresh supply can sensibly affect its value. Thus, when Xenophon, in his essay on the revenues of Athens, urges his countrymen to give more assiduous attention to the working of the mines of Attica, by the suggestion, that silver does not, like other commodities, decline in value with the increase in quantity, he must be understood to say, that it does not perceptibly decline. Indeed, the mines of Attica were too inconsiderable in their product, to influence the value of the stock of that metal then existing in the numerous and flourishing states upon the borders of the Mediterranean Sea, and in Persia and India; between all which and Greece the commercial intercourse was sufficiently active, to keep the value of silver stationary in the Grecian market. The driblet of silver, furnished by Attician metallurgy, was a mere rivulet trickling into an ocean of existing supply. It was impossible for Xenophon to foresee the influx of the American torrent, or to guess at the consequence of its irruption.


If silver were, like corn and other fruits of the earth, an object of human food and sustenance, the enlargement of the sources of its supply would not have lowered its value; for the strong impulse of the human race, towards the multiplication of their species to a level with the means of subsistence, would have made the demand keep pace with the increase of supply. The tenfold multiplication of corn would be followed by a tenfold increase of the demand for it; inasmuch as it would engender new mouths to consume it; and corn would maintain nearly the same average of relative value to other commodities.


This will explain, why the variations of the value of silver are both slow in operation, and considerable in amount. Their slowness is owing to the universality of the demand, which prevents a moderate variation of supply from being sensibly felt; and their magnitude to the limited uses of the metal, which prevent the increase of demand from keeping pace with a rapid increase of supply.


Silver has utility for the purposes of plate, furniture, and ornament, as well as for those of money; and is the more copiously employed on those objects, in proportion to the degree of national wealth. Its use in the peculiar character of money is proportionate to the quantity of moveable and immoveable objects of property, that there may be to be circulated; wherefore, coin would be more abundantly required in richer than in poorer nations, were not the following circumstances to control this general rule.


1. The superior rapidity of circulation, both of money and commodities in a state of national opulence, which makes a smaller quantity of money requisite, in proportion to the total of commercial dealings. The same sum in a rich country will effect perhaps ten successive operations of exchange in the same space of time, as one in a poor country.*24 Wherefore, the multiplication of commodities to be circulated is not necessarily attended with a co-extensive increase of the demand for money. The business of circulation is extended; but the agent of circulation becomes more active and efficient.


2. In a state of national opulence, credit is a more frequent substitute for money. In Chap. XXII, of the preceding book, it has been shown how a portion of the national money may be dispensed with by the employment of convertible paper, without any resulting inconvenience.*25 By this expedient, the use of metal money, and, consequently, the demand for silver for the purposes of money, is considerably diminished. Nor is convertible paper the sole expedient of substitution amongst an industrious and commercial people; every kind of private obligations and covenants, as well as sales on credit, transfers of money-credit, and even mere debtor and creditor accounts current, have an effect precisely analogous.


Thus the necessity, and consequently the demand, for metal money never advances in equal ratio with the progressive multiplication of other products; and it may be truly said, that the richer a nation is, the smaller is the amount of its coin, in comparison with other nations.


Were the quantum of the supply alone to determine the exchangeable value of a commodity, silver would stand to gold in the ratio of 1 to 45; for silver and gold are produced by metallurgy as 45 to 1.*26 But the demand for silver is greater than for gold; its uses are both far more general and far more various; and thus its relative value is prevented from falling lower than 1 to 15.


A portion of the demand for the precious metals is occasioned by their gradual destruction by use; for, although less subject to decay than most products, they are still perishable in a certain degree; and doubtless the wear, though slow, must be considerable upon the immense quantity of gold and silver in constant use, as well in the character of money, as in the various objects of spoons, forks, goblets, dishes, and jewellery of all sorts. There is likewise a large consumption in plating and gilding. Smith asserts, that the manufacturers of Birmingham alone, in his time, worked up annually, as much as the worth of 50,000l. in these ways.*27 A further allowance must be made for the consumption of embroidery, tissue, book-binding, &c., all which may be set down as finally lost to other purposes. Add to this the buried hoards, the knowledge of which dies with the possessor, and the quantity lost by shipwreck.


If the nations of the world go on increasing their wealth, as most of them certainly have done for the last three centuries, their want of the precious metals will progressively advance, as well in consequence of the gradual wear, which will be greater in proportion to their increasing use, as of the multiplication and increased aggregate value of other commodities, which will create a larger demand for the purposes of transfer and circulation. If the produce of the mines do not keep pace with the increasing demand, the precious metals will rise in value, and less of them be given in exchange for other products in general. If the progress of mining shall keep pace with the advances of human industry, their value will remain stationary, as it seems to have done for the last two centuries; during which the demand and supply have regularly advanced together.*28 And, if the supply of those metals outrun the progress of general wealth, as it seems to be doing at this moment, they will fall in respect to other commodities at large. Metal-money will thereby be rendered more cumbrous; but the other uses of gold and silver will be more widely diffused.


It would be a long and tedious task to expose all the false reasoning and erroneous views, originating in the perpetual confusion of the different kinds of variation, that it has cost so much time to analyze and distinguish. It is enough to put the reader into a condition himself to discover their fallacy, and estimate the tendency of measures avowedly directed to influence public wealth, by operating upon the scale of value.

Notes for this chapter

Traité Historique, Leblanc: and, Essai sur les Monnaies, by Dupre de Saint Maur
Suprà, book i. chap. 21. sect. 7.
The increased intensity of the demand for silver compared with its supply, consequent upon the discovery of America, is stated at 2½ to 1, because, but for this increase of demand, the tenfold supply would have reduced its value to one-tenth of what it had been previously to that event, and given to 100 oz. the value of 10 oz. only. But 100 oz. were only reduced to one-fourth of their former value, i. e. to the value of 25 oz.; which bears to 10 oz. the ratio of 2½ to 1. This could not have been the case, unless the demand for silver, compared with the supply, had advanced in that proportion. But the supply having increased tenfold in the same interval, if we would find the ratio of the actual increase of the demand for silver, whether for the purposes of circulation, of luxury, or of manufacture, since the first discovery of the American mines, we must multiply 2½ by 10, which will give 25. And probably this estimate will not exceed the truth, although 25 times may seem a prodigious advance. However, it would doubtless have been infinitely less considerable, but for the influx of supply from America; for the excessive dearness of silver would have greatly curtailed the use of it. Silver plate would probably be as rare as gold plate is now; and silver coin would be less abundant, because it would go further, and be of higher value.
Art. Monnaies.
If we are to believe Ricardo, the increase of demand has no effect upon value, which is determined solely by the cost of production. He seems not to have perceived, that it is demand that makes productive agency an object of appreciation. A diminution of the demand for silver bullion would throw all those mines out of work, of which the lower scale of price was not adequate to the charges of bringing the product to market.
In a poor country, after a dealer has disposed of his wares, he is sometimes a long while before he can provide himself with the returns he has in view; and, during the interval, the money-proceeds remain idle in his hands. Moreover, in a poor country, the investment of money is always difficult. Savings are slow and gradual, and are seldom turned to profitable account, until after a lapse of many years; so that a great deal of money is always lying by in a state of inaction.
Ricardo, whom I look upon as the individual in Europe the best acquainted with the subject of money, both in theory and in practice, has shown, in his Proposal for an economical and secure Currency, that, when the good government of the state may be safely reckoned upon, paper may be substituted for the whole of a metallic money; and a material possessed of no intrinsic value by skilful management, be made to supplant a dear and cumbrous one, whose metallic properties are never called into play by the functions of money.
Humboldt. Essai Pol. sur la Nouvelle Espagne, 8vo. tom. iv. p. 222.
Wealth of Nations, book i. c. 11. The manufacturing consumption of Birmingham and other towns has greatly increased since the date of that work.*

    * Mr. Jacobs, in his work on the precious metals, to which we have already had occasion to refer, has shed much light on the consumption, as well as on the production, of gold and silver, both before and since the discovery of the American continent. His twenty-sixth chapter is devoted to an inquiry into the consumption of the precious metals from 1810 to 1830. This chapter abounds with highly instructive and curious details, which it would be here impossible to present, but which furnish the grounds of the following statements, also taken from the same chapter, and which fully demonstrate the great increase in the consumption of gold and silver, in what our author, in this note, calls "the manufacturing consumption," since the date of Dr. Adam Smith's work on the Wealth of Nations, to which he refers.

    According, then, to Mr. Jacobs, the annual consumption of the precious metals, from 1810 to 1830, in their application to ornamental and luxurious purposes, he estimates as follows:

    In Great Britain, 2,457,221 l.
    France, 1,200,000
    Switzerland, 350,000
    The rest of Europe, 1,605,490
    America, 280,630
    Making the whole amount, 5,893,341 l. equal to 28,288,036 dollars.
    American Editor.

We are assured by Humboldt, that the produce of the mines of Mexico has, in the last 100 years, been increased in the ratio of 110 to 25; also, that such is the abundance of silver ore, in the chain of the Andes, that, reckoning the number of veins either worked superficially, or not worked at all, one would be led to imagine, that Europe has hitherto had a mere sample of their incalculable stores. Essai Pol. sur la N. Espagne, 8vo. tom. iv. p. 149.

The very slight and gradual depreciation of gold and silver, effected by their immense and increasing annual supply, is one amongst many proofs of the rapid and general advance of human wealth, whereby the demand is made to keep pace with the supply. Yet I am inclined to think, that their value, after remaining nearly stationary for a century, has within the last thirty years begun again to decline. The setier of wheat, Paris measure, which was for a long time, on an average, sold for 4 oz. of silver, has now risen to 4½ oz., and rents are raised upon every renewal of lease. All other things seem to be rising in the like proportion: which indicates, that silver is undergoing a depreciation of relative value.*

    * In a former note we referred to the great decline, since the year 1809, in the productiveness of the whole mines, both in this and in the eastern continent, on the authorities which Mr. Jacobs has given, in his learned work on the precious metals. From the same work, we here extract his concluding observations of the twenty-sixth chapter, in relation to the stock of coin now in existence, by which it will appear, that during the twenty years from 1810 to 1830, the diminution of gold and silver coin amounted to nearly one-sixth part of the whole stock.

    "We have estimated," says Mr. Jacobs, "the stock of coin in existence at the end of the year 1809 to have been 380 million pounds; and the additions made to it between that period and the year 1829, at the rate of 5,186,800 pounds annually, would make it 103,736,000 pounds.

    From the 380,000,000 of coin left in 1809, we deduct for loss by abrasion, at the rate of 1 part in 400 in each year, which in the 20 years would amount to 18,095,220l., thus leaving in 1829, 361,904,780 l.
    To which may be added the supply from the mines, 103,736,000
    Thus showing 465,640,780 l.
    From which must be deducted that converted into utensils and ornaments, 5,612,611
    And that transferred into Asia, 2,000,000
    7,612,611 annually.
    Or in twenty years, 152,252,220
    This would show the estimated amount at the end of 1829 to be, 313,388,560 l.
    Or less than at the end of 1809, 66,611,440 l.
    Or a diminution of nearly one-sixth part in the twenty years."

    "During the period we have been considering, and indeed for many years before, the comparative value of gold to silver had scarcely experienced any alteration. According to the view here taken, the amount of gold applied to purposes of luxury had far exceeded that of silver, perhaps in the proportion of four to one; but, on the other hand, the treasure transferred to India and China has consisted chiefly of silver, and much more gold had been brought to Europe from those countries than had been conveyed to them. It has before (twenty-fifth chapter of this inquiry) been attempted to be shown that the durability of gold in coin is in the proportion of four to one greater than that of silver. It has, too, been shown that the recently increased produce of the mines of Russia has consisted chiefly of gold. These circumstances, on which our limits do not admit of enlargement, might be shown to be sufficient to account for the equable rate of value which has been preserved between the two metals during a long period." American Editor.

Book II, Chapter V

End of Notes

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