The Real and Nominal Prices of Goods: Prices in Labor and Money

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour therefore, is the real measure of the exchangeable value of all commodities.

Everyone is rich or poor depending on how much they can afford the necessities, comforts, and pleasures of life. But once labor has been thoroughly divided among people, a person’s own work can supply very few of these things. They must get the great majority from other people’s labor. They are rich or poor according to how much of that labor they can command or afford to buy. A person may own a commodity they intend to exchange for other goods, rather than use or consume themselves. Its value to them is equal to the amount of labor it enables them to buy or command. Labor, therefore, is the real measure of the exchange value of all commodities.

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money, or with goods, is purchased by labour, as much as what we acquire by the toil of our own body. That money, or those goods, indeed, save us this toil. They contain the value of a certain quantity of labour, which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command.

The real price of everything is the effort and trouble it costs someone to acquire it. To someone who has acquired something and wants to sell or exchange it, its real worth is the effort and trouble it can save them and impose on others. What we buy with money or goods is purchased by labor, just as much as what we acquire through our own physical effort. Money and goods save us that effort. They contain the value of a certain amount of labor. We exchange them for something we assume at the time contains the value of an equal amount of labor. Labor was the first price, the original money paid for everything. All the wealth of the world was originally purchased not with gold or silver, but with labor. To those who possess wealth and want to exchange it for new products, its value is precisely equal to the amount of labor it enables them to purchase or command.

Wealth, as Mr Hobbes says, is power. But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military. His fortune may, perhaps, afford him the means of acquiring both; but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him, is the power of purchasing a certain command over all the labour, or over all the produce of labour which is then in the market. His fortune is greater or less, precisely in proportion to the extent of this power, or to the quantity either of other men’s labour, or, what is the same thing, of the produce of other men’s labour, which it enables him to purchase or command. The exchangeable value of every thing must always be precisely equal to the extent of this power which it conveys to its owner.

As Mr Hobbes says, wealth is power. But a person who acquires or inherits a great fortune does not necessarily gain political power, whether civil or military. The fortune may perhaps give that person the means to gain both. But simply possessing a fortune does not necessarily give a person either kind of power. What a fortune immediately and directly gives its owner is the power to buy a certain command over all the labour available in the market or all its products. A fortune is greater or smaller in exact proportion to the extent of this power. In other words, its size depends on how much of other people’s labour it enables its owner to buy or command. The same is true of the products of other people’s labour. The exchangeable value of anything must always be exactly equal to the extent of this power it gives its owner.

But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labour. The time spent in two different sorts of work will not always alone determine this proportion. The different degrees of hardship endured, and of ingenuity exercised, must likewise be taken into account. There may be more labour in an hour’s hard work, than in two hours easy business; or in an hour’s application to a trade which it cost ten years labour to learn, than in a month’s industry, at an ordinary and obvious employment. But it is not easy to find any accurate measure either of hardship or ingenuity. In exchanging, indeed, the different productions of different sorts of labour for one another, some allowance is commonly made for both. It is adjusted, however, not by any accurate measure, but by the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.

But although labor is the true measure of the exchange value of all goods, people do not usually estimate their value by it. It is often difficult to determine how two different amounts of labor compare. Time spent alone will not always settle the comparison between two kinds of work. We must also consider the different degrees of hardship and ingenuity involved. An hour of hard work may involve more labor than two hours of easy work. An hour spent practicing a trade may involve more labor than a month of work at an ordinary, straightforward job. The trade, for example, may have taken ten years of labor to learn. But hardship and ingenuity are not easy to measure accurately. When people exchange the products of different kinds of labor, they usually make some allowance for both. They do not, however, settle the difference by any exact measure. They settle it through haggling and bargaining in the market. The result is a rough equality that, though not exact, is enough for the business of everyday life.

Every commodity, besides, is more frequently exchanged for, and thereby compared with, other commodities, than with labour. It is more natural, therefore, to estimate its exchangeable value by the quantity of some other commodity, than by that of the labour which it can produce. The greater part of people, too, understand better what is meant by a quantity of a particular commodity, than by a quantity of labour. The one is a plain palpable object; the other an abstract notion, which though it can be made sufficiently intelligible, is not altogether so natural and obvious.

Every commodity is also exchanged for, and therefore compared with, other commodities more often than with labor. So it is more natural to measure its exchange value by an amount of another commodity than by the amount of labor it can produce. Most people also understand an amount of a particular commodity better than an amount of labor. A commodity is a clear, tangible object. Labor is an abstract idea. Although it can be made clear enough, it is not quite so natural and obvious.

But when barter ceases, and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. The butcher seldom carries his beef or his mutton to the baker or the brewer, in order to exchange them for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread and for beer. The quantity of money which he gets for them regulates, too, the quantity of bread and beer which he can afterwards purchase. It is more natural and obvious to him, therefore, to estimate their value by the quantity of money, the commodity for which he immediately exchanges them, than by that of bread and beer, the commodities for which he can exchange them only by the intervention of another commodity; and rather to say that his butcher’s meat is worth three-pence or fourpence a-pound, than that it is worth three or four pounds of bread, or three or four quarts of small beer. Hence it comes to pass, that the exchangeable value of every commodity is more frequently estimated by the quantity of money, than by the quantity either of labour or of any other commodity which can be had in exchange for it.

But when barter stops and money becomes the common means of trade, each commodity is more often exchanged for money than for any other commodity. The butcher rarely takes his beef or mutton to the baker or brewer to exchange it for bread or beer. Instead, he takes the meat to market and exchanges it for money. He then exchanges that money for bread and beer. The amount of money he gets for the meat also determines how much bread and beer he can buy afterward. So it is more natural and obvious for him to measure the meat’s value by the amount of money he receives for it. He can exchange it directly for money, but only indirectly for bread and beer, through the use of another commodity. He would rather say that his meat is worth three or four pence a pound than that it is worth three or four pounds of bread or three or four quarts of small beer. For the same reason, the exchange value of every commodity is more often measured by the amount of money it can buy than by the amount of labor or any other commodity that can be obtained in exchange for it.

Gold and silver, however, like every other commodity, vary in their value; are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. The quantity of labour which any particular quantity of them can purchase or command, or the quantity of other goods which it will exchange for, depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made. The discovery of the abundant mines of America, reduced, in the sixteenth century, the value of gold and silver in Europe to about a third of what it had been before. As it cost less labour to bring those metals from the mine to the market, so, when they were brought thither, they could purchase or command less labour; and this revolution in their value, though perhaps the greatest, is by no means the only one of which history gives some account. But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself continually varying in its own value, can never be an accurate measure of the value of other commodities. Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it. Of these, indeed, it may sometimes purchase a greater and sometimes a smaller quantity; but it is their value which varies, not that of the labour which purchases them. At all times and places, that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Gold and silver, however, vary in value like every other commodity. They are sometimes cheaper and sometimes more expensive, sometimes easier and sometimes harder to buy. A given quantity of gold or silver can purchase or command a certain amount of labor or be exchanged for other goods. How much it can buy always depends on the richness or scarcity of the mines known at the time. In the sixteenth century, the discovery of the abundant mines of America reduced the value of gold and silver in Europe. Their value fell to about a third of what it had been before. It took less labor to bring the metals from the mine to the market. So, once there, they could purchase or command less labor. This change in their value was perhaps the greatest, but history records others as well. A measure of quantity, such as a natural foot, fathom, or handful, may continually change in size. If so, it can never accurately measure the quantity of other things. Likewise, a commodity that continually changes in value can never accurately measure the value of other commodities. Equal amounts of labor may be said to have equal value to the laborer at all times and places. In his ordinary state of health, strength, and spirits, and with his usual skill and dexterity, he must always give up the same share of his ease, freedom, and happiness. The price he pays must always be the same, whatever quantity of goods he receives in return. His labor may indeed purchase more goods at one time and fewer at another. But the value of the goods varies, not the value of the labor that purchases them. At all times and places, something is expensive if it is hard to obtain or takes much labor to acquire. It is cheap if it can be obtained easily or with very little labor. Labor alone, therefore, never varies in its own value. It alone is the ultimate and real standard for estimating and comparing the value of all commodities at all times and places. Labor is their real price. Money is only their nominal price.

But though equal quantities of labour are always of equal value to the labourer, yet to the person who employs him they appear sometimes to be of greater, and sometimes of smaller value. He purchases them sometimes with a greater, and sometimes with a smaller quantity of goods, and to him the price of labour seems to vary like that of all other things. It appears to him dear in the one case, and cheap in the other. In reality, however, it is the goods which are cheap in the one case, and dear in the other.

But although equal amounts of labor are always equally valuable to the worker, they sometimes seem more or less valuable to the employer. The employer sometimes pays for the same amount of labor with more goods and sometimes with fewer. To the employer, the price of labor seems to vary like the price of anything else. Labor seems expensive in one case and cheap in the other. In reality, though, it is the goods that are cheap in one case and expensive in the other.

In this popular sense, therefore, labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniencies of life which are given for it; its nominal price, in the quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion to the real, not to the nominal price of his labour.

In this common sense, labour, like goods, may be said to have a real price and a nominal price. Its real price is the quantity of necessities and comforts of life given in exchange for it. Its nominal price is the amount of money given for it. A worker is rich or poor, well or poorly rewarded, according to the real price of their labour, not its nominal price.

The distinction between the real and the nominal price of commodities and labour is not a matter of mere speculation, but may sometimes be of considerable use in practice. The same real price is always of the same value; but on account of the variations in the value of gold and silver, the same nominal price is sometimes of very different values. When a landed estate, therefore, is sold with a reservation of a perpetual rent, if it is intended that this rent should always be of the same value, it is of importance to the family in whose favour it is reserved, that it should not consist in a particular sum of money. Its value would in this case be liable to variations of two different kinds: first, to those which arise from the different quantities of gold and silver which are contained at different times in coin of the same denomination; and, secondly, to those which arise from the different values of equal quantities of gold and silver at different times.

The distinction between the real and nominal prices of goods and labour is not just a matter of theory. It can sometimes be very useful in practice. The same real price always has the same value. But the value of gold and silver varies, so the same nominal price can have very different values. Suppose a landed estate is sold on condition that a rent be paid forever. If the rent is intended to remain at the same value, it matters how it is set. The family entitled to the rent should not receive a fixed sum of money. The value of that sum would be subject to two kinds of change. First, coins of the same denomination can contain different amounts of gold and silver at different times. Second, equal amounts of gold and silver can have different values at different times.

Princes and sovereign states have frequently fancied that they had a temporary interest to diminish the quantity of pure metal contained in their coins; but they seldom have fancied that they had any to augment it. The quantity of metal contained in the coins, I believe of all nations, has accordingly been almost continually diminishing, and hardly ever augmenting. Such variations, therefore, tend almost always to diminish the value of a money rent.

Rulers and sovereign states have often believed they had a short-term interest in reducing the pure metal in their coins. But they have seldom believed they had any interest in increasing it. As a result, the amount of metal in coins has fallen almost continuously and hardly ever increased. I believe this has happened in all nations. Such changes therefore almost always reduce the value of rent paid in money.

The discovery of the mines of America diminished the value of gold and silver in Europe. This diminution, it is commonly supposed, though I apprehend without any certain proof, is still going on gradually, and is likely to continue to do so for a long time. Upon this supposition, therefore, such variations are more likely to diminish than to augment the value of a money rent, even though it should be stipulated to be paid, not in such a quantity of coined money of such a denomination (in so many pounds sterling, for example), but in so many ounces, either of pure silver, or of silver of a certain standard.

The discovery of the mines of America reduced the value of gold and silver in Europe. People commonly assume that their value is still gradually falling and will continue to fall for a long time. But I believe there is no certain proof of this. If that assumption is true, such changes are more likely to reduce than increase the value of a money rent. This is true even if the rent is specified as a number of ounces of pure silver or silver of a certain standard. It need not be specified as an amount of coined money in a particular denomination, such as pounds sterling.

The rents which have been reserved in corn, have preserved their value much better than those which have been reserved in money, even where the denomination of the coin has not been altered. By the 18th of Elizabeth, it was enacted, that a third of the rent of all college leases should be reserved in corn, to be paid either in kind, or according to the current prices at the nearest public market. The money arising from this corn rent, though originally but a third of the whole, is, in the present times, according to Dr. Blackstone, commonly near double of what arises from the other two-thirds. The old money rents of colleges must, according to this account, have sunk almost to a fourth part of their ancient value, or are worth little more than a fourth part of the corn which they were formerly worth. But since the reign of Philip and Mary, the denomination of the English coin has undergone little or no alteration, and the same number of pounds, shillings, and pence, have contained very nearly the same quantity of pure silver. This degradation, therefore, in the value of the money rents of colleges, has arisen altogether from the degradation in the price of silver.

Rents set in corn have kept their value much better than rents set in money. This is true even where the denomination of the coin has not changed. In the 18th year of Elizabeth’s reign, a law was passed requiring one third of the rent on all college leases to be set in corn. It could be paid either in corn or at the current price at the nearest public market. According to Dr. Blackstone, the money from this corn rent is now commonly nearly twice the amount from the other two thirds, though it was originally only a third of the whole. By this account, the colleges’ old money rents must have fallen to almost a quarter of their former value. They are worth little more than a quarter of the corn they were once worth. But since the reign of Philip and Mary, the denomination of English coin has changed little or not at all. The same number of pounds, shillings, and pence have contained very nearly the same quantity of pure silver. The fall in the value of the colleges’ money rents has therefore arisen entirely from the fall in the value of silver.

When the degradation in the value of silver is combined with the diminution of the quantity of it contained in the coin of the same denomination, the loss is frequently still greater. In Scotland, where the denomination of the coin has undergone much greater alterations than it ever did in England, and in France, where it has undergone still greater than it ever did in Scotland, some ancient rents, originally of considerable value, have, in this manner, been reduced almost to nothing.

When silver loses value and coins of the same denomination contain less silver, the loss is often even greater. Coin denominations have changed much more in Scotland than in England, and even more in France than in Scotland. As a result, some old rents that were originally worth a great deal have been reduced to almost nothing.

Equal quantities of labour will, at distant times, be purchased more nearly with equal quantities of corn, the subsistence of the labourer, than with equal quantities of gold and silver, or, perhaps, of any other commodity. Equal quantities of corn, therefore, will, at distant times, be more nearly of the same real value, or enable the possessor to purchase or command more nearly the same quantity of the labour of other people. They will do this, I say, more nearly than equal quantities of almost any other commodity; for even equal quantities of corn will not do it exactly. The subsistence of the labourer, or the real price of labour, as I shall endeavour to shew hereafter, is very different upon different occasions; more liberal in a society advancing to opulence, than in one that is standing still, and in one that is standing still, than in one that is going backwards. Every other commodity, however, will, at any particular time, purchase a greater or smaller quantity of labour, in proportion to the quantity of subsistence which it can purchase at that time. A rent, therefore, reserved in corn, is liable only to the variations in the quantity of labour which a certain quantity of corn can purchase. But a rent reserved in any other commodity is liable, not only to the variations in the quantity of labour which any particular quantity of corn can purchase, but to the variations in the quantity of corn which can be purchased by any particular quantity of that commodity.

Over long periods, equal amounts of labour can be bought with more nearly equal amounts of corn, the worker's means of subsistence, than with equal amounts of gold and silver, or perhaps any other commodity. Equal amounts of corn will therefore have more nearly the same real value over long periods. They will enable their owner to buy or command more nearly the same amount of other people's labour. Corn will do this more nearly than almost any other commodity. Yet even equal amounts of corn will not do it exactly. As I shall try to show later, a worker's subsistence, or the real price of labour, varies greatly in different circumstances. It is more generous in a society growing wealthier than in one standing still. It is also more generous in a society standing still than in one going backwards. At any given time, however, every other commodity will buy more or less labour according to how much subsistence it can buy at that time. Rent payable in corn is therefore subject only to changes in the amount of labour that a given quantity of corn can buy. But rent payable in any other commodity is subject to those changes and also to changes in how much corn a given quantity of that commodity can buy.

Though the real value of a corn rent, it is to be observed, however, varies much less from century to century than that of a money rent, it varies much more from year to year. The money price of labour, as I shall endeavour to shew hereafter, does not fluctuate from year to year with the money price of corn, but seems to be everywhere accommodated, not to the temporary or occasional, but to the average or ordinary price of that necessary of life. The average or ordinary price of corn, again is regulated, as I shall likewise endeavour to shew hereafter, by the value of silver, by the richness or barrenness of the mines which supply the market with that metal, or by the quantity of labour which must be employed, and consequently of corn which must be consumed, in order to bring any particular quantity of silver from the mine to the market. But the value of silver, though it sometimes varies greatly from century to century, seldom varies much from year to year, but frequently continues the same, or very nearly the same, for half a century or a century together. The ordinary or average money price of corn, therefore, may, during so long a period, continue the same, or very nearly the same, too, and along with it the money price of labour, provided, at least, the society continues, in other respects, in the same, or nearly in the same, condition. In the mean time, the temporary and occasional price of corn may frequently be double one year of what it had been the year before, or fluctuate, for example, from five-and-twenty to fifty shillings the quarter. But when corn is at the latter price, not only the nominal, but the real value of a corn rent, will be double of what it is when at the former, or will command double the quantity either of labour, or of the greater part of other commodities; the money price of labour, and along with it that of most other things, continuing the same during all these fluctuations.

The real value of a rent paid in corn varies much less from century to century than rent paid in money. But it varies much more from year to year. As I shall try to show later, the money price of labour does not change annually with the money price of corn. Instead, it seems everywhere to adjust to the average or ordinary price of this necessity, not to temporary or occasional prices. As I shall also try to show later, the average or ordinary price of corn is governed by the value of silver. That value depends on how rich or barren the mines supplying the market are. It also depends on how much labour is needed to bring a given quantity of silver from the mine to market, and consequently how much corn must be consumed in the process. The value of silver sometimes changes greatly from century to century. But it seldom changes much from year to year. It often remains the same, or nearly the same, for fifty or a hundred years at a time. The ordinary or average money price of corn may therefore remain the same, or nearly the same, for that long too. So may the money price of labour, provided that society remains otherwise in the same, or nearly the same, condition. Meanwhile, the temporary or occasional price of corn may often double from one year to the next. For example, it may rise from twenty-five to fifty shillings a quarter. But when corn is at the higher price, both the nominal and the real value of a corn rent will double. The rent will buy twice as much labour or twice as much of most other commodities. For the money price of labour, and of most other things, remains the same throughout these fluctuations.

Labour, therefore, it appears evidently, is the only universal, as well as the only accurate, measure of value, or the only standard by which we can compare the values of different commodities, at all times, and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century by the quantities of silver which were given for them. We cannot estimate it from year to year by the quantities of corn. By the quantities of labour, we can, with the greatest accuracy, estimate it, both from century to century, and from year to year. From century to century, corn is a better measure than silver, because, from century to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.

Labour, then, is clearly the only universal and accurate measure of value. It is the only standard by which we can compare the values of different goods at all times and places. We cannot, as is acknowledged, measure their real value from century to century by the amounts of silver paid for them. Nor can we measure it from year to year by the amounts of grain paid for them. But we can measure their real value with the greatest accuracy, both across centuries and from year to year, by the amount of labour they command. Across centuries, grain is a better measure than silver. This is because equal amounts of grain will command more nearly the same amount of labour than equal amounts of silver will. From year to year, however, silver is a better measure than grain. This is because equal amounts of silver will command more nearly the same amount of labour.

But though, in establishing perpetual rents, or even in letting very long leases, it may be of use to distinguish between real and nominal price; it is of none in buying and selling, the more common and ordinary transactions of human life.

Distinguishing between real and nominal prices may be useful when setting perpetual rents or granting very long leases. But the distinction is of no use in buying and selling, the more common and ordinary transactions of daily life.

At the same time and place, the real and the nominal price of all commodities are exactly in proportion to one another. The more or less money you get for any commodity, in the London market, for example, the more or less labour it will at that time and place enable you to purchase or command. At the same time and place, therefore, money is the exact measure of the real exchangeable value of all commodities. It is so, however, at the same time and place only.

At the same time and place, the real and nominal prices of all goods are exactly proportional. For example, the more or less money you get for a good in the London market, the more or less labor that money will buy at that time and place. Money is therefore an exact measure of the real exchange value of all goods at the same time and place. But it is an exact measure only at the same time and place.

Though at distant places there is no regular proportion between the real and the money price of commodities, yet the merchant who carries goods from the one to the other, has nothing to consider but the money price, or the difference between the quantity of silver for which he buys them, and that for which he is likely to sell them. Half an ounce of silver at Canton in China may command a greater quantity both of labour and of the necessaries and conveniencies of life, than an ounce at London. A commodity, therefore, which sells for half an ounce of silver at Canton, may there be really dearer, of more real importance to the man who possesses it there, than a commodity which sells for an ounce at London is to the man who possesses it at London. If a London merchant, however, can buy at Canton, for half an ounce of silver, a commodity which he can afterwards sell at London for an ounce, he gains a hundred per cent. by the bargain, just as much as if an ounce of silver was at London exactly of the same value as at Canton. It is of no importance to him that half an ounce of silver at Canton would have given him the command of more labour, and of a greater quantity of the necessaries and conveniencies of life than an ounce can do at London. An ounce at London will always give him the command of double the quantity of all these, which half an ounce could have done there, and this is precisely what he wants.

The real price of goods does not have a consistent relationship to their money price in distant places. Yet a merchant carrying goods between those places needs to consider only their money price. That is, the merchant considers the difference between the silver paid for the goods and the silver expected in return. In Canton in China, half an ounce of silver may buy more labour and more necessities and comforts than an ounce in London. A commodity that sells for half an ounce of silver in Canton may therefore be more expensive in real terms. It may be worth more to its owner in Canton than a commodity selling for an ounce is to its owner in London. But suppose a London merchant buys a commodity in Canton for half an ounce of silver. If he can later sell it in London for an ounce, he gains one hundred per cent on the bargain. He gains just as much as he would if an ounce of silver had exactly the same value in London as in Canton. It does not matter to him that half an ounce in Canton would buy more labour, necessities, and comforts than an ounce in London. In London, an ounce will always buy him twice as much of all these things as half an ounce would there. And that is precisely what he wants.

As it is the nominal or money price of goods, therefore, which finally determines the prudence or imprudence of all purchases and sales, and thereby regulates almost the whole business of common life in which price is concerned, we cannot wonder that it should have been so much more attended to than the real price.

The nominal or money price of goods ultimately determines whether any purchase or sale is wise or unwise. It therefore governs almost all everyday business involving prices. So it is no wonder that people have paid much more attention to the money price than to the real price.

In such a work as this, however, it may sometimes be of use to compare the different real values of a particular commodity at different times and places, or the different degrees of power over the labour of other people which it may, upon different occasions, have given to those who possessed it. We must in this case compare, not so much the different quantities of silver for which it was commonly sold, as the different quantities or labour which those different quantities of silver could have purchased. But the current prices of labour, at distant times and places, can scarce ever be known with any degree of exactness. Those of corn, though they have in few places been regularly recorded, are in general better known, and have been more frequently taken notice of by historians and other writers. We must generally, therefore, content ourselves with them, not as being always exactly in the same proportion as the current prices of labour, but as being the nearest approximation which can commonly be had to that proportion. I shall hereafter have occasion to make several comparisons of this kind.

In a work like this, however, it may sometimes be useful to compare a commodity’s real value at different times and places. That is, we may compare how much power the commodity gave its owners over other people’s labor on different occasions. To do this, we must compare not so much the amounts of silver for which the commodity commonly sold. Instead, we must compare how much labor those amounts of silver could have purchased. But we can hardly ever know labor’s going price at distant times and places with any precision. Grain prices have been recorded regularly in few places, but they are generally better known. Historians and other writers have also mentioned them more often. We must therefore generally make do with grain prices. They are not always exactly proportional to labor’s going price, but they are usually the closest approximation available. I will have occasion to make several such comparisons later.

In the progress of industry, commercial nations have found it convenient to coin several different metals into money; gold for larger payments, silver for purchases of moderate value, and copper, or some other coarse metal, for those of still smaller consideration, They have always, however, considered one of those metals as more peculiarly the measure of value than any of the other two; and this preference seems generally to have been given to the metal which they happen first to make use of as the instrument of commerce. Having once begun to use it as their standard, which they must have done when they had no other money, they have generally continued to do so even when the necessity was not the same.

As industry developed, trading nations found it convenient to make coins from several metals. They used gold for large payments, silver for moderately priced purchases, and copper or another base metal for smaller purchases. However, they have always treated one of these metals as the main measure of value. They generally seem to have preferred the metal they first used for trade. At first, they had no other money, so they had to use that metal as their standard. Once they began using it as their standard, they generally continued to do so, even when it was no longer necessary.

The Romans are said to have had nothing but copper money till within five years before the first Punic war (Pliny, lib. xxxiii. cap. 3), when they first began to coin silver. Copper, therefore, appears to have continued always the measure of value in that republic. At Rome all accounts appear to have been kept, and the value of all estates to have been computed, either in asses or in sestertii. The as was always the denomination of a copper coin. The word sestertius signifies two asses and a half. Though the sestertius, therefore, was originally a silver coin, its value was estimated in copper. At Rome, one who owed a great deal of money was said to have a great deal of other people’s copper.

The Romans are said to have used only copper money until five years before the first Punic war (Pliny, lib. xxxiii. cap. 3). They then began to coin silver. Copper, therefore, appears to have remained the measure of value throughout the life of the Roman republic. In Rome, all accounts appear to have been kept in either asses or sestertii. The value of all estates also appears to have been calculated in these units. The as was always the name of a copper coin. The word sestertius means two and a half asses. So although the sestertius was originally a silver coin, its value was measured in copper. In Rome, someone who owed a great deal of money was said to have a great deal of other people’s copper.

The northern nations who established themselves upon the ruins of the Roman empire, seem to have had silver money from the first beginning of their settlements, and not to have known either gold or copper coins for several ages thereafter. There were silver coins in England in the time of the Saxons; but there was little gold coined till the time of Edward III nor any copper till that of James I. of Great Britain. In England, therefore, and for the same reason, I believe, in all other modern nations of Europe, all accounts are kept, and the value of all goods and of all estates is generally computed, in silver: and when we mean to express the amount of a person’s fortune, we seldom mention the number of guineas, but the number of pounds sterling which we suppose would be given for it.

The northern nations that settled on the ruins of the Roman empire seem to have had silver money from the beginning of their settlements. They seem not to have known gold or copper coins for several centuries afterward. England had silver coins in Saxon times, but little gold was coined until the reign of Edward III. No copper was coined until the reign of James I of Great Britain. In England, therefore, all accounts are kept in silver, and the value of all goods and estates is generally calculated in silver. I believe the same is true, for the same reason, in all other modern nations of Europe. When we state the size of a person’s fortune, we rarely use the number of guineas. Instead, we use the number of pounds sterling we think it would be worth.

Originally, in all countries, I believe, a legal tender of payment could be made only in the coin of that metal which was peculiarly considered as the standard or measure of value. In England, gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or proclamation, but was left to be settled by the market. If a debtor offered payment in gold, the creditor might either reject such payment altogether, or accept of it at such a valuation of the gold as he and his debtor could agree upon. Copper is not at present a legal tender, except in the change of the smaller silver coins.

Originally, I believe, every country accepted only coins of one metal as legal tender. That metal was the one especially regarded as the standard or measure of value. In England, gold was not legal tender for a long time after it was first made into coins. No law or public proclamation fixed the relative values of gold and silver coins. Instead, the market determined their values. If a debtor offered to pay in gold, the creditor could reject the payment altogether. Or the creditor could accept it at a value agreed upon with the debtor. Copper is not currently legal tender, except as change for smaller silver coins.

In this state of things, the distinction between the metal which was the standard, and that which was not the standard, was something more than a nominal distinction.

In this situation, the difference between the metal used as the standard and the metal that was not was more than just a difference in name.

In process of time, and as people became gradually more familiar with the use of the different metals in coin, and consequently better acquainted with the proportion between their respective values, it has, in most countries, I believe, been found convenient to ascertain this proportion, and to declare by a public law, that a guinea, for example, of such a weight and fineness, should exchange for one-and-twenty shillings, or be a legal tender for a debt of that amount. In this state of things, and during the continuance of any one regulated proportion of this kind, the distinction between the metal, which is the standard, and that which is not the standard, becomes little more than a nominal distinction.

Over time, people became more familiar with using different metals in coins. As a result, they better understood the relative values of these metals. In most countries, I believe, people found it convenient to establish a fixed ratio between their values. A public law could then declare, for example, that a guinea of a particular weight and purity should exchange for twenty-one shillings. The law could also make it legal tender for a debt of that amount. Under these conditions, the distinction between the standard metal and the other metal becomes little more than a distinction in name. This remains true as long as the fixed ratio stays in place.

In consequence of any change, however, in this regulated proportion, this distinction becomes, or at least seems to become, something more than nominal again. If the regulated value of a guinea, for example, was either reduced to twenty, or raised to two-and-twenty shillings, all accounts being kept, and almost all obligations for debt being expressed, in silver money, the greater part of payments could in either case be made with the same quantity of silver money as before; but would require very different quantities of gold money; a greater in the one case, and a smaller in the other. Silver would appear to be more invariable in its value than gold. Silver would appear to measure the value of gold, and gold would not appear to measure the value of silver. The value of gold would seem to depend upon the quantity of silver which it would exchange for, and the value of silver would not seem to depend upon the quantity of gold which it would exchange for. This difference, however, would be altogether owing to the custom of keeping accounts, and of expressing the amount of all great and small sums rather in silver than in gold money. One of Mr Drummond’s notes for five-and-twenty or fifty guineas would, after an alteration of this kind, be still payable with five-and-twenty or fifty guineas, in the same manner as before. It would, after such an alteration, be payable with the same quantity of gold as before, but with very different quantities of silver. In the payment of such a note, gold would appear to be more invariable in its value than silver. Gold would appear to measure the value of silver, and silver would not appear to measure the value of gold. If the custom of keeping accounts, and of expressing promissory-notes and other obligations for money, in this manner should ever become general, gold, and not silver, would be considered as the metal which was peculiarly the standard or measure of value.

A change in this regulated ratio, however, makes this distinction more than nominal again, or at least makes it seem so. Suppose, for example, that the regulated value of a guinea were lowered to twenty shillings or raised to twenty-two. All accounts are kept in silver money, and almost all debts are expressed in it. So in either case, most payments could be made with the same amount of silver money as before. But they would require very different amounts of gold money: more if the value were lowered, and less if it were raised. Silver would appear to be more stable in value than gold. Silver would appear to measure the value of gold, while gold would not appear to measure the value of silver. The value of gold would seem to depend on how much silver it could be exchanged for. But the value of silver would not seem to depend on how much gold it could be exchanged for. This difference, however, would be entirely due to custom. Accounts are kept, and all sums, large and small, are expressed, in silver money rather than gold. One of Mr Drummond’s notes for twenty-five or fifty guineas would still be payable with twenty-five or fifty guineas after such a change, just as before. It would be payable with the same amount of gold as before, but with a very different amount of silver. In the payment of such a note, gold would appear to be more stable in value than silver. Gold would appear to measure the value of silver, while silver would not appear to measure the value of gold. Suppose it ever became general practice to keep accounts and express promissory notes and other money obligations in this way. Then gold, not silver, would be regarded as the metal that was specifically the standard or measure of value.

In reality, during the continuance of any one regulated proportion between the respective values of the different metals in coin, the value of the most precious metal regulates the value of the whole coin. Twelve copper pence contain half a pound avoirdupois of copper, of not the best quality, which, before it is coined, is seldom worth seven-pence in silver. But as, by the regulation, twelve such pence are ordered to exchange for a shilling, they are in the market considered as worth a shilling, and a shilling can at any time be had for them. Even before the late reformation of the gold coin of Great Britain, the gold, that part of it at least which circulated in London and its neighbourhood, was in general less degraded below its standard weight than the greater part of the silver. One-and-twenty worn and defaced shillings, however, were considered as equivalent to a guinea, which, perhaps, indeed, was worn and defaced too, but seldom so much so. The late regulations have brought the gold coin as near, perhaps, to its standard weight as it is possible to bring the current coin of any nation; and the order to receive no gold at the public offices but by weight, is likely to preserve it so, as long as that order is enforced. The silver coin still continues in the same worn and degraded state as before the reformation of the cold coin. In the market, however, one-and-twenty shillings of this degraded silver coin are still considered as worth a guinea of this excellent gold coin.

In fact, as long as any fixed ratio governs the values of the different metals in coins, the most precious metal determines the value of all the coins. Twelve copper pennies contain half a pound avoirdupois of copper, and not of the best quality. Before it is coined, this copper is seldom worth seven pence in silver. But the regulation requires twelve such pennies to be exchanged for a shilling. In the market, they are therefore treated as worth a shilling, and a shilling can always be obtained for them. Even before the recent reform of Great Britain’s gold coinage, its gold coins were generally less worn below their standard weight than most silver coins. This was true at least of the gold coins circulating in London and its neighbourhood. Yet twenty-one worn and damaged shillings were treated as equal to a guinea. The guinea might also have been worn and damaged, but seldom as much. The recent regulations have brought gold coins close to their standard weight, perhaps as close as any nation’s circulating coins can be. Public offices are now ordered to accept gold only by weight. This order is likely to keep the coins close to their standard weight for as long as it is enforced. Silver coins remain as worn and degraded as they were before the reform of the gold coinage. Yet in the market, twenty-one shillings of this degraded silver coinage are still treated as worth a guinea of this excellent gold coinage.

The reformation of the gold coin has evidently raised the value of the silver coin which can be exchanged for it.

Reforming the gold coinage has clearly raised the value of the silver coins that can be exchanged for gold coins.

In the English mint, a pound weight of gold is coined into forty-four guineas and a half, which at one-and-twenty shillings the guinea, is equal to forty-six pounds fourteen shillings and sixpence. An ounce of such gold coin, therefore, is worth £ 3:17:10½ in silver. In England, no duty or seignorage is paid upon the coinage, and he who carries a pound weight or an ounce weight of standard gold bullion to the mint, gets back a pound weight or an ounce weight of gold in coin, without any deduction. Three pounds seventeen shillings and tenpence halfpenny an ounce, therefore, is said to be the mint price of gold in England, or the quantity of gold coin which the mint gives in return for standard gold bullion.

At the English mint, one pound of gold is made into forty-four and a half guineas. At twenty-one shillings per guinea, that equals forty-six pounds, fourteen shillings, and sixpence. An ounce of this gold coin is therefore worth £3:17:10½ in silver. In England, no duty or seignorage is charged for making coins. Anyone who brings a pound or an ounce of standard gold bullion to the mint receives the same weight in gold coin, with nothing deducted. Therefore, three pounds, seventeen shillings, and tenpence halfpenny per ounce is called the mint price of gold in England. This is the amount of gold coin the mint gives in return for standard gold bullion.

Before the reformation of the gold coin, the price of standard gold bullion in the market had, for many years, been upwards of £3:18s. sometimes £ 3:19s, and very frequently £4 an ounce; that sum, it is probable, in the worn and degraded gold coin, seldom containing more than an ounce of standard gold. Since the reformation of the gold coin, the market price of standard gold bullion seldom exceeds £ 3:17:7 an ounce. Before the reformation of the gold coin, the market price was always more or less above the mint price. Since that reformation, the market price has been constantly below the mint price. But that market price is the same whether it is paid in gold or in silver coin. The late reformation of the gold coin, therefore, has raised not only the value of the gold coin, but likewise that of the silver coin in proportion to gold bullion, and probably, too, in proportion to all other commodities; though the price of the greater part of other commodities being influenced by so many other causes, the rise in the value of either gold or silver coin in proportion to them may not be so distinct and sensible.

Before the gold coinage was reformed, the market price of standard gold bullion had been above £3:18s. an ounce for many years. It was sometimes £3:19s. and very often £4 an ounce. In the worn and degraded gold coins, that sum probably seldom contained more than an ounce of standard gold. Since the reform, the market price of standard gold bullion seldom exceeds £3:17:7 an ounce. Before the reform, the market price was always somewhat above the mint price. Since the reform, the market price has remained below the mint price. But the market price is the same whether it is paid in gold or silver coins. The recent reform of the gold coinage has therefore raised the value of both gold and silver coins compared with gold bullion. It has probably also raised their value compared with all other commodities. But many other causes affect the prices of most commodities. So the rise in the value of gold or silver coins compared with those commodities may not be as clear or noticeable.

In the English mint, a pound weight of standard silver bullion is coined into sixty-two shillings, containing, in the same manner, a pound weight of standard silver. Five shillings and twopence an ounce, therefore, is said to be the mint price of silver in England, or the quantity of silver coin which the mint gives in return for standard silver bullion. Before the reformation of the gold coin, the market price of standard silver bullion was, upon different occasions, five shillings and fourpence, five shillings and fivepence, five shillings and sixpence, five shillings and sevenpence, and very often five shillings and eightpence an ounce. Five shillings and sevenpence, however, seems to have been the most common price. Since the reformation of the gold coin, the market price of standard silver bullion has fallen occasionally to five shillings and threepence, five shillings and fourpence, and five shillings and fivepence an ounce, which last price it has scarce ever exceeded. Though the market price of silver bullion has fallen considerably since the reformation of the gold coin, it has not fallen so low as the mint price.

The English mint coins a pound of standard silver bullion into sixty-two shillings. These coins also contain a pound of standard silver. The mint price of silver in England is therefore said to be five shillings and twopence an ounce. This is the amount in silver coins that the mint gives in return for standard silver bullion. Before the reform of the gold coinage, the market price of standard silver bullion varied. At different times, it was five shillings and fourpence, fivepence, sixpence, or sevenpence an ounce. Very often it was five shillings and eightpence. Five shillings and sevenpence, however, seems to have been the most common price. Since the reform of the gold coinage, the market price of standard silver bullion has sometimes fallen. It has fallen to five shillings and threepence, fourpence, or fivepence an ounce. The market price has hardly ever exceeded five shillings and fivepence. Although the market price of silver bullion has fallen considerably since the reform, it has not fallen as low as the mint price.

In the proportion between the different metals in the English coin, as copper is rated very much above its real value, so silver is rated somewhat below it. In the market of Europe, in the French coin and in the Dutch coin, an ounce of fine gold exchanges for about fourteen ounces of fine silver. In the English coin, it exchanges for about fifteen ounces, that is, for more silver than it is worth, according to the common estimation of Europe. But as the price of copper in bars is not, even in England, raised by the high price of copper in English coin, so the price of silver in bullion is not sunk by the low rate of silver in English coin. Silver in bullion still preserves its proper proportion to gold, for the same reason that copper in bars preserves its proper proportion to silver.

In English coinage, copper is valued far above its real value, while silver is valued somewhat below its real value. In the European market, and in French and Dutch coinage, one ounce of pure gold exchanges for about fourteen ounces of pure silver. In English coinage, it exchanges for about fifteen ounces. That is more silver than the gold is worth by the common estimate in Europe. But the high value of copper in English coins does not raise the price of copper bars, even in England. Likewise, the low value of silver in English coins does not lower the price of silver bullion. Silver bullion still keeps its proper proportion to gold, for the same reason that copper bars keep their proper proportion to silver.

Upon the reformation of the silver coin, in the reign of William III., the price of silver bullion still continued to be somewhat above the mint price. Mr Locke imputed this high price to the permission of exporting silver bullion, and to the prohibition of exporting silver coin. This permission of exporting, he said, rendered the demand for silver bullion greater than the demand for silver coin. But the number of people who want silver coin for the common uses of buying and selling at home, is surely much greater than that of those who want silver bullion either for the use of exportation or for any other use. There subsists at present a like permission of exporting gold bullion, and a like prohibition of exporting gold coin; and yet the price of gold bullion has fallen below the mint price. But in the English coin, silver was then, in the same manner as now, under-rated in proportion to gold; and the gold coin (which at that time, too, was not supposed to require any reformation) regulated then, as well as now, the real value of the whole coin. As the reformation of the silver coin did not then reduce the price of silver bullion to the mint price, it is not very probable that a like reformation will do so now.

After the silver coinage was reformed during the reign of William III, silver bullion continued to sell for somewhat more than the mint price. Mr Locke attributed this high price to the permission to export silver bullion and the ban on exporting silver coin. He said that permission to export silver bullion created a greater demand for it than for silver coin. But surely many more people need silver coin for ordinary buying and selling at home than need silver bullion for export or any other use. Today, gold bullion may likewise be exported, while gold coin may not. Yet the price of gold bullion has fallen below the mint price. But silver was then, as it is now, undervalued in English coinage relative to gold. Gold coin therefore determined the real value of all the coinage, both then and now. At that time, gold coin was not thought to need any reform either. Reforming the silver coinage did not bring the price of silver bullion down to the mint price then. It is therefore not very likely that a similar reform will do so now.

Were the silver coin brought back as near to its standard weight as the gold, a guinea, it is probable, would, according to the present proportion, exchange for more silver in coin than it would purchase in bullion. The silver coin containing its full standard weight, there would in this case, be a profit in melting it down, in order, first to sell the bullion for gold coin, and afterwards to exchange this gold coin for silver coin, to be melted down in the same manner. Some alteration in the present proportion seems to be the only method of preventing this inconveniency.

If silver coins were restored as close to their standard weight as gold coins, a guinea would probably exchange for more silver in coins than it could buy in bullion, at the current exchange rate. If the silver coins contained their full standard weight, people could profit by melting them down. They could then sell the bullion for gold coins and exchange those gold coins for silver coins, which they could melt down in the same way. Changing the current exchange rate seems to be the only way to prevent this problem.

The inconveniency, perhaps, would be less, if silver was rated in the coin as much above its proper proportion to gold as it is at present rated below it, provided it was at the same time enacted, that silver should not be a legal tender for more than the change of a guinea, in the same manner as copper is not a legal tender for more than the change of a shilling. No creditor could, in this case, be cheated in consequence of the high valuation of silver in coin; as no creditor can at present be cheated in consequence of the high valuation of copper. The bankers only would suffer by this regulation. When a run comes upon them, they sometimes endeavour to gain time, by paying in sixpences, and they would be precluded by this regulation from this discreditable method of evading immediate payment. They would be obliged, in consequence, to keep at all times in their coffers a greater quantity of cash than at present; and though this might, no doubt, be a considerable inconveniency to them, it would, at the same time, be a considerable security to their creditors.

The inconvenience might be less if silver coins were valued as much above their proper proportion to gold as they are now valued below it. But this would require a law limiting silver as legal tender to the amount needed to make change for a guinea. Copper is similarly not legal tender for more than the change of a shilling. In that case, no creditor could be cheated because of the high valuation of silver coins. Likewise, no creditor can now be cheated because of the high valuation of copper. Only bankers would suffer from this rule. When customers rush to withdraw their money, bankers sometimes try to gain time by paying in sixpences. This rule would prevent them from using that discreditable method of avoiding immediate payment. As a result, they would have to keep more cash in their vaults at all times than they do now. This might no doubt be a considerable inconvenience to them, but it would also provide considerable security for their creditors.

Three pounds seventeen shillings and tenpence halfpenny (the mint price of gold) certainly does not contain, even in our present excellent gold coin, more than an ounce of standard gold, and it may be thought, therefore, should not purchase more standard bullion. But gold in coin is more convenient than gold in bullion; and though, in England, the coinage is free, yet the gold which is carried in bullion to the mint, can seldom be returned in coin to the owner till after a delay of several weeks. In the present hurry of the mint, it could not be returned till after a delay of several months. This delay is equivalent to a small duty, and renders gold in coin somewhat more valuable than an equal quantity of gold in bullion. If, in the English coin, silver was rated according to its proper proportion to gold, the price of silver bullion would probably fall below the mint price, even without any reformation of the silver coin; the value even of the present worn and defaced silver coin being regulated by the value of the excellent gold coin for which it can be changed.

Three pounds, seventeen shillings and tenpence halfpenny is the mint price of gold. Even in our present excellent gold coins, that sum certainly contains no more than an ounce of standard gold. One might therefore think it should buy no more than an ounce of standard gold bullion. But gold coins are more convenient than gold bullion. In England, the mint charges nothing to make bullion into coins. Even so, owners who bring gold bullion to the mint seldom get it back in coins for several weeks. With the mint as busy as it is now, the delay would be several months. This delay has the same effect as a small duty. It makes gold coins somewhat more valuable than an equal quantity of gold bullion. If English coins valued silver in its proper proportion to gold, silver bullion would probably sell below the mint price. This would probably happen even without any reform of the silver coins. The value of the present worn and defaced silver coins is determined by that of the excellent gold coins for which they can be exchanged.

A small seignorage or duty upon the coinage of both gold and silver, would probably increase still more the superiority of those metals in coin above an equal quantity of either of them in bullion. The coinage would, in this case, increase the value of the metal coined in proportion to the extent of this small duty, for the same reason that the fashion increases the value of plate in proportion to the price of that fashion. The superiority of coin above bullion would prevent the melting down of the coin, and would discourage its exportation. If, upon any public exigency, it should become necessary to export the coin, the greater part of it would soon return again, of its own accord. Abroad, it could sell only for its weight in bullion. At home, it would buy more than that weight. There would be a profit, therefore, in bringing it home again. In France, a seignorage of about eight per cent. is imposed upon the coinage, and the French coin, when exported, is said to return home again, of its own accord.

A small seignorage, or tax on minting gold and silver coins, would probably increase their value over an equal weight of bullion even more. The minting would increase the value of the metal by the amount of the small tax. In the same way, the workmanship on silverware increases its value by the cost of that work. Because coins would be worth more than bullion, people would not melt them down and would be less likely to export them. If a public emergency made it necessary to export coins, most would soon return on their own. Abroad, they could sell only for the value of their weight in bullion. At home, they would buy more than that weight in bullion. There would therefore be a profit in bringing them home again. In France, a seignorage of about eight percent is charged on minting coins. French coins, when exported, are said to return home on their own.

The occasional fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. The frequent loss of those metals from various accidents by sea and by land, the continual waste of them in gilding and plating, in lace and embroidery, in the wear and tear of coin, and in that of plate, require, in all countries which possess no mines of their own, a continual importation, in order to repair this loss and this waste. The merchant importers, like all other merchants, we may believe, endeavour, as well as they can, to suit their occasional importations to what they judge is likely to be the immediate demand. With all their attention, however, they sometimes overdo the business, and sometimes underdo it. When they import more bullion than is wanted, rather than incur the risk and trouble of exporting it again, they are sometimes willing to sell a part of it for something less than the ordinary or average price. When, on the other hand, they import less than is wanted, they get something more than this price. But when, under all those occasional fluctuations, the market price either of gold or silver bullion continues for several years together steadily and constantly, either more or less above, or more or less below the mint price, we may be assured that this steady and constant, either superiority or inferiority of price, is the effect of something in the state of the coin, which, at that time, renders a certain quantity of coin either of more value or of less value than the precise quantity of bullion which it ought to contain. The constancy and steadiness of the effect supposes a proportionable constancy and steadiness in the cause.

Occasional changes in the market price of gold and silver bullion arise from the same causes as changes in other commodities’ prices. Accidents at sea and on land often cause losses of these metals. They are also continually used up in gilding and plating, lace and embroidery, and through wear on coins and silverware. All countries without mines of their own must therefore import them continually to replace these losses. Like other merchants, importers presumably try their best to match each shipment to the demand they expect at the time. Despite their care, however, they sometimes import too much and sometimes too little. When they import more bullion than is needed, they sometimes sell part of it for less than the usual or average price. They do this rather than risk the trouble of exporting it again. When they import less than is needed, they get more than the usual price. But despite these occasional changes, the market price of gold or silver bullion may remain above or below the mint price for several years. The difference may be large or small, but it is steady and continuous. When this happens, we can be sure that the cause lies in the condition of the coinage at that time. Its condition makes a given quantity of coin worth either more or less than the exact quantity of bullion it ought to contain. A steady and continuous effect implies a cause that is correspondingly steady and continuous.

The money of any particular country is, at any particular time and place, more or less an accurate measure or value, according as the current coin is more or less exactly agreeable to its standard, or contains more or less exactly the precise quantity of pure gold or pure silver which it ought to contain. If in England, for example, forty-four guineas and a half contained exactly a pound weight of standard gold, or eleven ounces of fine gold, and one ounce of alloy, the gold coin of England would be as accurate a measure of the actual value of goods at any particular time and place as the nature of the thing would admit. But if, by rubbing and wearing, forty-four guineas and a half generally contain less than a pound weight of standard gold, the diminution, however, being greater in some pieces than in others, the measure of value comes to be liable to the same sort of uncertainty to which all other weights and measures are commonly exposed. As it rarely happens that these are exactly agreeable to their standard, the merchant adjusts the price of his goods as well as he can, not to what those weights and measures ought to be, but to what, upon an average, he finds, by experience, they actually are. In consequence of a like disorder in the coin, the price of goods comes, in the same manner, to be adjusted, not to the quantity of pure gold or silver which the coin ought to contain, but to that which, upon an average, it is found, by experience, it actually does contain.

A country’s money is a more or less accurate measure of value at any particular time and place. Its accuracy depends on how closely the coins in circulation meet their standard. That is, it depends on how nearly they contain the precise quantity of pure gold or silver they should contain. In England, for example, suppose forty-four and a half guineas contained exactly one pound of standard gold. That would be eleven ounces of pure gold and one ounce of alloy. English gold coins would then measure the actual value of goods at any particular time and place as accurately as possible. But suppose that wear generally reduces the gold in forty-four and a half guineas to less than one pound of standard gold. Some coins would lose more gold than others. The measure of value would then be subject to the same kind of uncertainty as other weights and measures. These rarely meet their standards exactly. So merchants adjust their prices as best they can, not to what the weights and measures should be, but to what experience shows they actually are on average. When coins suffer from a similar defect, prices are adjusted in the same way. They reflect not the quantity of pure gold or silver the coins should contain, but the quantity experience shows they actually contain on average.

By the money price of goods, it is to be observed, I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin. Six shillings and eight pence, for example, in the time of Edward I., I consider as the same money price with a pound sterling in the present times, because it contained, as nearly as we can judge, the same quantity of pure silver.

By the money price of goods, I always mean the quantity of pure gold or silver they sell for. I do not mean the value stated on the coin. For example, I consider six shillings and eight pence in the time of Edward I. equivalent to a pound sterling today. As nearly as we can judge, both contained the same quantity of pure silver.