This will be easily accounted for, if we consider, that the alterations in the quantity of money, either on one side or the other, are not immediately attended with proportionable alterations in the price of commodities. There is always an interval before matters be adjusted to their new situation; and this interval is as pernicious to industry, when gold and silver are diminishing, as it is advantageous when these metals are encreasing. The workman has not the same employment from the manufacturer and merchant; though he pays the same price for every thing in the market. The farmer cannot dispose of his corn and cattle; though he must pay the same rent to his landlord. The poverty, and beggary, and sloth, which must ensue, are easily foreseen.
II. The second observation which I proposed to make with regard to money, may be explained after the following manner. There are some kingdoms, and many provinces in EUROPE, (and all of them were once in the same condition) where money is so scarce, that the landlord can get none at all from his tenants; but is obliged to take his rent in kind, and either to consume it himself, or transport it to places where he may find a market. In those countries, the prince can levy few or no taxes, but in the same manner: And as he will receive small benefit from impositions so paid, it is evident that such a kingdom has little force even at home; and cannot maintain fleets and armies to the same extent, as if every part of it abounded in gold and silver. There is surely a greater disproportion between the force of GERMANY, at present, and what it was three centuries ago, than there is in its industry, people, and manufactures. The AUSTRIAN dominions in the empire are in general well peopled and well cultivated, and are of great extent; but have not a proportionable weight in the balance of EUROPE; proceeding, as is commonly supposed, from the scarcity of money. How do all these facts agree with that principle of reason, that the quantity of gold and silver is in itself altogether indifferent? According to that principle wherever a sovereign has numbers of subjects, and these have plenty of commodities, he should of course be great and powerful, and they rich and happy, independent of the greater or lesser abundance of the precious metals. These admit of divisions and subdivisions to a great extent; and where the pieces might become so small as to be in danger of being lost, it is easy to mix the gold or silver with a baser metal, as is practised in some countries of EUROPE; and by that means raise the pieces to a bulk more sensible and convenient. They still serve the same purposes of exchange, whatever their number may be, or whatever colour they may be supposed to have.
To these difficulties I answer, that the effect, here supposed to flow from scarcity of money, really arises from the manners andcustoms of the people; and that we mistake, as is too usual, a collateral effect for a cause. The contradiction is only apparent; but it requires some thought and reflection to discover the principles, by which we can reconcile reason to experience.
It seems a maxim almost self-evident, that the prices of every thing depend on the proportion between commodities and money, and that any considerable alteration on either has the same effect, either of heightening or lowering the price. Encrease the commodities, they become cheaper; encrease the money, they rise in their value. As, on the other hand, a diminution of the former, and that of the latter, have contrary tendencies.
It is also evident, that the prices do not so much depend on the absolute quantity of commodities and that of money, which are in a nation, as on that of the commodities, which come or may come to market, and of the money which circulates. If the coin be locked up in chests, it is the same thing with regard to prices, as if it were annihilated; if the commodities be hoarded in magazines and granaries, a like effect follows. As the money and commodities, in these cases, never meet, they cannot affect each other. Were we, at any time, to form conjectures concerning the price of provisions, the corn, which the farmer must reserve for seed and for the maintenance of himself and family, ought never to enter into the estimation. It is only the overplus, compared to the demand, that determines the value.
To apply these principles, we must consider, that, in the first and more uncultivated ages of any state, ere fancy has confounded her wants with those of nature, men, content with the produce of their own fields, or with those rude improvements which they themselves can work upon them, have little occasion for exchange, at least for money, which, by agreement, is the common measure of exchange. The wool of the farmer's own flock, spun in his own family, and wrought by a neighbouring weaver, who receives his payment in corn or wool, suffices for furniture and cloathing. The carpenter, the smith, the mason, the tailor, are retained by wages of a like nature; and the landlord himself, dwelling in the neighbourhood, is content to receive his rent in the commodities raised by the farmer. The greater part of these he consumes at home, in rustic hospitality: The rest, perhaps, he disposes of for money to the neighbouring town, whence he draws the few materials of his expence and luxury.