An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader with highlighter txt) 📖

cases, take away altogether, and will

in all cases diminish, the profit of melting down the new coin.

This profit always arises from the difference between the

quantity of bullion which the common currency ought to contain

and that which it actually does contain. If this difference is

less than the seignorage, there will be loss instead of profit.

If it is equal to the seignorage, there will be neither profit

nor loss. If it is greater than the seignorage, there will,

indeed, be some profit, but less than if there was no seignorage.

If, before the late reformation of the gold coin, for example,

there had been a seignorage of five per cent. upon the coinage,

there would have been a loss of three per cent. upon the melting

down of the gold coin. If the seignorage had been two per cent.,

there would have been neither profit nor loss. If the seignorage

had been one per cent., there would have been a profit but of one

per cent. only, instead of two per cent. Wherever money is

received by tale, therefore, and not by weight, a seignorage is

the most effectual preventive of the melting down of the coin,

and, for the same reason, of its exportaticn. It is the best and

heaviest pieces that are commonly either melted down or exported,

because it is upon such that the largest profits are made.

 

The law for the encouragement of the coinage, by rendering it

duty-free, was first enacted during the reign of Charles II. for

a limited time, and afterwards continued, by different

prolongations, till 1769, when it was rendered perpetual. The

bank of England, in order to replenish their coffers with money,

are frequently obliged to carry bullion to the mint ; and it was

more for their interest, they probably imagined, that the coinage

should be at the expense of the government than at their own. It

was probably out of complaisance to this great company, that the

government agreed to render this law perpetual. Should the custom

of weighing gold, however, come to be disused, as it is very

likely to be on account of its inconveniency ; should the gold

coin of England come to be received by tale, as it was before the

late recoinage this great company may, perhaps, find that they

have, upon this, as upon some other occasions, mistaken their own

interest not a little.

 

Before the late recoinage, when the gold currency of England was

two per cent. below its standard weight, as there was no

seignorage, it was two per cent. below the value of that quantity

of standard gold bullion which it ought to have contained. When

this great company, therefore, bought gold bullion in order to

have it coined, they were obliged to pay for it two per cent.

more than it was worth after the coinage. But if there had been a

seignorage of two per cent. upon the coinage, the common gold

currency, though two per cent. below its standard weight, would,

notwithstanding, have been equal in value to the quantity of

standard gold which it ought to have contained ; the value of the

fashion compensating in this case the diminution of the weight.

They would, indeed, have had the seignorage to pay, which being

two per cent., their loss upon the whole transaction would have

been two per cent., exactly the same, but no greater than it

actually was.

 

If the seignorage had been five per cent. and the gold currency

only two per cent. below its standard weight, the bank would, in

this case, have gained three per cent. upon the price of the

bullion ; but as they would have had a seignorage of five per

cent. to pay upon the coinage, their loss upon the whole

transaction would, in the same manner, have been exactly two per

cent.

 

If the seignorage had been only one per cent., and the gold

currency two per cent. below its standard weight, the bank would,

in this case, have lost only one per cent. upon the price of the

bullion; but as they would likewise have had a seignorage of one

per cent. to pay, their loss upon the whole transaction would

have been exactly two per cent., in the same manner as in all

other cases.

 

If there was a reasonable seignorage, while at the same time the

coin contained its full standard weight, as it has done very

nearly since the late recoinage, whatever the bank might lose by

the seignorage, they would gain upon the price of the bullion;

and whatever they might gain upon the price of the bullion, they

would lose by the seignorage. They would neither lose nor gain,

therefore, upon the whole transaction, and they would in this, as

in all the foregoing cases, be exactly in the same situation as

if there was no seignorage.

 

When the tax upon a commodity is so moderate as not to encourage

smuggling, the merchant who deals in it, though he advances, does

not properly pay the tax, as he gets it back in the price of the

commodity. The tax is finally paid by the last purchaser or

consumer. But money is a commodity, with regard to which every

man is a merchant. Nobody buys it but in order to sell it again;

and with regard to it there is, in ordinary cases, no last

purchaser or consumer. When the tax upon coinage, therefore, is

so moderate as not to encourage false coining, though every body

advances the tax, nobody finally pays it; because every body gets

it back in the advanced value of the coin.

 

A moderate seignorage, therefore, would not, in any case, augment

the expense of the bank, or of any other private persons who

carry their bullion to the mint in order to be coined; and the

want of a moderate seignonage does not in any case diminish it.

Whether there is or is not a seignorage, if the currency contains

its full standard weight, the coinage costs nothing to anybody ;

and if it is short of that weight, the coinage must always cost

the difference between the quantity of bullion which ought to be

contained in it, and that which actually is contained in it.

 

The government, therefore, when it defrays the expense of

coinage, not only incurs some small expense, but loses some small

revenue which it might get by a proper duty; and neither the

bank, nor any other private persons, are in the smallest degree

benefited by this useless piece of public generosity.

 

The directors of the bank, however, would probably be unwilling

to agree to the impositon of a seignorage upon the authority of a

speculation which promises them no gain, but only pretends to

insure them from any loss. In the present state of the gold coin,

and as long as it continues to be received by weight, they

certainly would gain nothing by such a change. But if the custom

of weighing the gold coin should ever go into disuse, as it is

very likely to do, and if the gold coin should ever fall into the

same state of degradation in which it was before the late

recoinage, the gain, or more properly the savings, of the bank,

inconsequence of the imposition of a seignorage, would probably

be very considerable. The bank of England is the only company

which sends any considerable quantity of bullion to the mint, and

the burden of the annual coinage falls entirely, or almost

entirely, upon it. If this annual coinage had nothing to do but

to repair the unavoidable losses and necessary wear and tear of

the coin, it could seldom exceed fifty thousand, or at most a

hundred thousand pounds. But when the coin is degraded below its

standard weight, the annual coinage must, besides this, fill up

the large vacuities which exportation and the melting pot are

continually making in the current coin. It was upon this account,

that during the ten or twelve years immediately preceding the

late reformation of the gold coin, the annual coinage amounted,

at an average, to more than �850,000. But if there had been a

seignorage of four or five per cent. upon the gold coin, it would

probably, even in the state in which things then were, have put

an effectual stop to the business both of exportation and of the

melting pot. The bank, instead of losing every year about two and

a half per cent. upon the bullion which was to be coined into

more than eight hundred and fifty thousand pounds, or incurring

an annual loss of more than �21,250 pounds, would not probably

have incurred the tenth part of that loss.

 

The revenue allotted by parliament for defraying the expense of

the coinage is but fourteen thousand pounds a-year; and the real

expense which it costs the government, or the fees of the

officers of the mint, do not, upon ordinary occasions, I am

assured, exceed the half of that sum. The saving of so very small

a sum, or even the gaining of another, which could not well be

much larger, are objects too inconsiderable, it may be thought,

to deserve the serious attention of government. But the saving of

eighteen or twenty thousand pounds a-year, in case of an event

which is not improbable, which has frequently happened before,

and which is very likely to happen again, is surely an object

which well deserves the serious attention, even of so great a

company as the bank of England.

 

Some of the foregoing reasonings and observations might, perhaps,

have been more properly placed in those chapters of the first

book which treat of the origin and use of money, and of the

difference between the real and the nominal price of commodities.

But as the law for the encouragement of coinage derives its

origin from those vulgar prejudices which have been introduced by

the mercantile system, I judged it more proper to reserve them

for this chapter. Nothing could be more agreeable to the spirit

of that system than a sort of bounty upon the production of

money, the very thing which, it supposes, constitutes the wealth

of every nation. It is one of its many admirable expedients for

enriching the country.

 

CHAPTER VII.

 

OF COLONIES.

 

PART I.

 

Of the Motives for Establishing New Colonies.

 

The interest which occasioned the first settlement of the

different European colonies in America and the West Indies, was

not altogether so plain and distinct as that which directed the

establishment of those of ancient Greece and Rome.

 

All the different states of ancient Greece possessed, each of

them, but a very small territory; and when the people in anyone

of them multiplied beyond what that territory could easily

maintain, a part of them were sent in quest of a new habitation,

in some remote and distant part of the world ; the warlike

neighbours who surrounded them on all sides, rendering it

difficult for any of them to enlarge very much its territory at

home. The colonies of the Dorians resorted chiefly to Italy and

Sicily, which, in the times preceding the foundation of Rome,

were inhabited by barbarous and uncivilized nations; those of the

Ionians and Aeolians, the two other great tribes of the Greeks,

to Asia Minor and the islands of the Aegean sea, of which the

inhabitants sewn at that time to have been pretty much in the

same state as those of Sicily and Italy. The mother city, though

she considered the colony as a child, at all times entitled to

great favour and assistance, and owing in return much gratitude

and respect, yet considered it as an emancipated child, over whom

she pretended to claim no direct authority or jurisdiction. The

colony settled its own form of