CHAPTER XIX. 3) THE DISTRIBUTION OF THE PRECIOUS METALS THROUGHOUT THE METALLIC currency, or money properly so called, it was shown in the last chapter, is a safe, but a costly, means of effecting exchanges. It is safe, because it is not subject to such ruinous fluctuations of value as took place in the paper currency of this country between 1836 and 1843. It is costly, because the expense of keeping it in repair, and the loss of profits on so large an amount of what may be called "dead capital," amount, in this country, to at least eleven per cent. It then becomes important to know what are the substitutes for its use, substitutes which we may expect to find less safe, but also far less expensive, than metallic money. And as a preliminary to this inquiry, we wish to know how much currency is needed in each country, or rather, since its numerical amount cannot be ascertained with any precision, how the quantity needed is affected by the growth of the population, the extension of commerce, the progress of opulence, and the general state of civilization; and also, by what law the whole quantity now in existence is distributed among the various nations of the earth, and in what way it preserves its equilibrium among them. To these inquiries the present chapter will be devoted. In every exchange, the two values which are exchanged for each other are supposed to be equal. Every exchange is a barter of a quantity of merchandise for a certain sum of money which is its equivalent. But it does not follow that there must be in the community as much money as there is merchandise; for as the money is not consumed by effecting this exchange, it is ready immediately to effect another purchase. The same piece of money may be exchanged successively for any number of articles of merchandise of the same value; or, in other words, any sum of money can purchase successively a quantity of merchandise worth an infinitely larger sum. The circulation of money and of merchandise bears some analogy to the momentum spoken of in physical science, which is composed of the velocity multiplied by the mass; the momenta are equal, though the velocity should be increased tenfold, provided that the mass is but one tenth part as great. So, also, the momentum of wealth is its value multiplied by the rapidity of its circulation. As money circulates far more rapidly than merchandise, it is evident that (the number of exchanges on both sides being equal) there must necessarily be less value in the money than in the merchandise, and as much less as the circulation of the money is more rapid than that of the merchandise. If the value of the merchandise which changes hands in a country in the course of a year amounts to a thousand millions, and the circulation of the money is ten times as quick as that of the merchandise, a hundred millions of money will effect all the exchanges. Let the quickness of the money circulation be doubled, and fifty millions will suffice. Mr. J. S. Mill has stated this point very clearly. "If we assume the quantity of goods on sale, and the number of times those goods are resold, to be fixed quantities, the value of money will depend upon its quantity, together with the average number of times that each piece changes hands in the process. The whole of the goods sold (counting each resale of the same goods as so much added to the goods) have been exchanged for the whole of the money, multiplied by the number of purchases made on the average by each piece. Consequently, the amount of goods and of transactions being the same, the value of money is inversely as its quantity multiplied by what is called the rapidity of circulation. And the quantity of money in circulation is equal to the money value of all the goods sold [including all the resales as additional goods], divided by the number which expresses the rapidity of circulation." Stating the matter algebraically, we have gs=mr; where gquantity of goods on sale; s = number of times the goods are resold; m= quantity of money in circulation; r = number of purchases effected by each piece of money. Of course, any three of these quantities being given, the fourth can be deduced from them. Thus, which is the principle just enunciated. It is also evident, that the value of money will be inversely as its quantity; for if we suppose the quantity of money to be doubled, we still have that is, 2 m is worth only the same value which was formerly represented by m. This calculation, however, excludes all exchanges that are directly effected by barter, or into which money does not enter; and these, as we shall afterwards see, really constitute a large part of mercantile transactions. The formula represents only money purchases. Direct exchange of one commodity for another, by the process vulgarly called "swopping," is evidently not affected by any valuation, however arbitrary, of those commodities in money; though the two are usually represented in money, at the current market price, for convenience of calculation and intermixture with other accounts. "The phrase, 'rapidity of circulation,'" continues Mr. Mill, 'requires some comment. It must not be understood to mean, the number of purchases made by each piece of money in a given time. Time is not the thing to be considered. The state of society may be such, that each piece of money hardly performs more than one purchase in a year; but if this arises from the small number of transactions, from the small amount of business done, the want of activity in traffic, or because what traffic there is mostly takes place by barter, -it constitutes no reason why prices should be lower, or the value of money higher. The essential point is, not how often the same money changes hands in a given time, but how often it changes hands in order to perform a given amount of traffic. We must compare the number of purchases made by the money in a given time, not with the time itself, but with the goods sold in that same time. If each piece of money changes hands on an average ten times while goods are sold to the value of a million sterling, it is evident that the money required to circulate those goods is £100,000. And conversely, if the money in circulation is £100,000, and each piece changes hands by the purchase of goods ten times in a month, the sales of goods. for money which take place every month must amount on the average to £1,000,000. "Rapidity of circulation being a phrase so ill adapted to express the only thing which it is of any importance to express by it, and having a tendency to confuse the subject by suggesting a meaning extremely different from the one intended, it would be a good thing if the phrase could be got rid of, and another substituted, more directly significant of the idea meant to be conveyed. Some such expression as 'the efficiency of money,' though not unexceptionable, would do better; as it would point attention to the quantity of work done, without suggesting the idea of estimating it by time. Until an appropriate term can be devised, we must be content to express the idea by the circumlocution which alone conveys it adequately, namely, the average number of purchases made by each piece in order to effect a given pecuniary amount of transactions." As a nation increases in opulence, the value of the merchandise it circulates also increases; and consequently it has need of more money. But this need does not increase in the same proportion with its wealth. In rich countries, the activity of the circulation enables the people to effect their exchanges with a smaller quantity of money. A given sum will suffice for ten exchanges, when in a poor country it might have effected but one. Besides, it is in wealthy countries that credit most easily takes the place of money. Not only bankbills, but all sorts of private obligations, — drafts, bills of exchange, sales on credit, and clearances, (terms which will afterwards be explained,) — all become substitutes for money. But confining ourselves for the present to the distribution of coined money among the various nations of the earth, I observe, that the amount which is needed by any country, and which actually circulates among its inhabitants, does not depend in the least upon the quantity which the government of that country sees fit to coin, or upon the activity of its mint. International exchanges bring the coin of one country to circu late in another; sometimes it is melted up and coined over again for this purpose, sometimes it circulates, or is held in reserve, under its original stamp. Often the larger portion of the specie reserves held by our banks consists of English sovereigns. During the sixteenth and seventeenth centuries, Spain and the Spanish colonies had the first coinage of nearly all the precious metals which found their way into circulation in Europe, simply because Spain owned the most productive silver and gold mines. The value of the money annually coined in our own United States mints, from 1841 to 1846, varied from two millions to eleven millions. In 1847, it rose to nearly twenty-three millions, much English coin and bullion being brought hither in payment for the immense quantity of bread-stuffs which we exported that year, because the crops in Europe were deficient; in the following year, it fell again to about six millions. From 1850 to 1854, the influx of Californian gold raised it to an average of fifty or sixty millions annually. Of course, the quantity actually in circulation could not have varied thus rapidly and largely. The fact is, — and I crave attention to the statement as an important and pregnant one, that the quantity of the precious metals retained in circulation as coin, for the whole world, regulates itself through the aggregate amount of money actually needed by all mankind to effect their exchanges, regulates itself wholly irrespective of the efforts made by one government, or by all governments, to increase or diminish its amount. If more money is coined than is thus needed to supply the aggregate want, it will infallibly be melted up again; if the mints are not active enough to supply this want, a pressure will be felt somewhere, which will compel them to quicken their action, or private coiners will somewhere take the business out of their hands. And it is just so with the distribution of this aggregate amount of coin among various countries. No one nation can, either by the efforts of its government, by its laws, or by concert among its individual members, increase or diminish the quantity of money that circulates among them;— by no efforts directly looking towards this end, I should say; for, unquestionably, a tyrannical or foolish government, or an unwise course of legislation, may paralyze the energies of commerce, |