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As land produces more or less corn according to its fertility and the labour spent upon it, so the mines of iron, lead, tin, gold, silver, etc. produce more or less of these metals according to the richness of the mines and the quantity and quality of the labour spent upon them, in digging, draining, smelting, refining, etc. Work in silver mines is dear on account of the mortality in causes, since rarely more than five or six years are spent in that labour. The real or intrinsic value of metals is like everything else proportionable to the land and labour that enters into their production. The outlay on the land for this production is considerable only so far as the owner of the mine can obtain a profit from the work of the miners when the veins are unusually rich. The land needed for the subsistence of the miners and workers, that is the mining labour, is often the principal expense and the ruin of the proprietor. The market value of metals, as of other merchandise or produce, is sometimes above, sometimes below, the intrinsic value, and varies with their plenty or scarcity according to the demand. If the proprietors of land and the lower orders in a state who imitate them, rejected the use of time and copper, wrongly supposing that they are injurious to health, and if they all made use of dishes and utensils of earthenware, these metals would be at a very low price in the markets and the work that was carried on to extract them from the mine would be discontinued. But as these metals are found useful, and are employed in the service of life, they will always have a market value corresponding to their plenty or rarity and the demand for them; and they will always be mined to replace what is lost by daily use. Iron is not merely serviceable for the daily use of common life but may be said to be in a certain sense necessarily; and if the Americans, who did not make use of it before the discovery of their continent, had found mines of it and known how to use it, they would doubtless have laboured to produce it at any cost. Gold and silver are capable of serving not only the same purpose as tin and copper but most of the purposes of lead and iron. They have this further advantage over other metals that they are not consumed by fire and are so durable that they may be esteemed permanent bodies. It is not surprising, therefore, that men who found the other metals useful should have esteemed gold and silver even before they are used in exchange. The Romans prized them from the foundation of Rome and yet only used them as money 500 years later. Perhaps all other nations did the like and only adopted these metals as money long after using them for other purposes. However we find from the oldest historians that from time immemorial gold and silver were used as money in Egypt and Asia, and we learn in the Book of Genesis that silver monies were made in the time of Abraham. Let us suppose that silver was first found in a mine of Mount Niphates in Mesopotamia. It is natural to think that one or more proprietors of land, finding this metal beautiful and useful, were the first to use it, and willingly encouraged the miner or undertaker to extract more of it from the mine, giving him in return for his work and that of his assistants so much of the produce of the land as they needed for their maintenance. This metal becoming more and more esteemed in Mesopotamia, if the large landowners bought ewers of silver, the lower classes, according to their means or savings, might buy silver cups; and the undertaker of the mine, seeing a constant demand for his merchandise, gave it without doubt a value proportionable to it quality or weight against the other products or merchandise which he took in exchange. While everybody looked on this metal as a precious and durable object and strove to own a few pieces of it, the undertaker, who alone could supply it, was in a manner master to demand in exchange an arbitrary quantity of other produce and merchandise. Suppose now that on the further side of the River Tigris, and therefore outside Mesopotamia, a new silver mine is discovered, of which the veins are incomparably richer and larger than those of Mount Niphates, and that the working of this new Mine which was easily drained was less laborious than that of the first. The undertaker of this new mine was naturally in a position to supply silver much cheaper than the undertaker of Mount Niphates, and the people of Mesopotamia who wished to have pieces and objects of silver would find it more advantageous to export their merchandise and give it to the undertaker of the new mine in exchange for silver than to take it from the original undertaker. This last, finding a smaller demand, would of necessity reduce his price; but the new undertaker lowering his price in proportion the first adventurer would be obliged to stop his output, and then the price of silver in exchange for other merchandise and produce would be necessarily fixed by that which was put upon it at the new mine. Silver then cost less to the people beyond Tigris than to those of Mesopotamia who had to bear the cost of a long carriage of their merchandise and produce to obtain silver. It is easy to perceive that when several silver mines were found and the proprietors of land had taken a fancy to this metal, they were imitated by the other classes, and that the pieces and fragments of silver, even when not worked up, were sought after eagerly, because nothing was easier than to make such articles from them as were desired, according to their quantity and weight. As this metal was esteemed as its cost value, at least, a few people who possessed some of it, finding themselves in need, could pawn it to borrow the things they wanted, and even to sell it later outright. Thence arose the custom of fixing its value in proportion to its quantity or weight as against all products and merchandise. But as silver can be combined with iron, lead, tin, copper, etc. which are not such scarce metals and are minded at less expense, the exchange of silver was subject to much fraud, and this caused several kingdoms to establish mints in order to certify by a public coinage the true quantity of silver that each coin contains and to return to individuals who bring bars or ingots of silver to it the same quantity in coins bearing a stamp or certificate of the true quantity of silver they contain. The costs of these certificates or coinage are sometimes paid by the public, or by the prince, -- the method followed in ancient times at Rome and today in England; sometimes those who take silver to be coined pay for minting as in the custom in France. Pure silver is hardly ever found in the mines. The ancients did not know the art of refining to perfection. They always made their silver coins of fince silver, and yet those which remain to us of the Greeks, Romans, Jews and Asiatics are never perfectly pure. Today there is more skill, the secret of making silver pur has been discovered. The different methods of refining it are not part of my subject. Many authors have treated of it, Mr Boizard among others. I will only observe that there is a good deal of expense in refining silver and for this reason an ounce of fine silver is generally preferred to two ounces which contain one half of copper or other alloy. It is expensive to separate the alloy and extract the one ounce of pure silver which is in these two ounces, while by simple melting any other metal can be combined with silver in any proportion desired. If copper is sometimes used as an alloy to fine silver it is only to render it more malleable and more suitable for the objects made of it. But in the valuation of all silver the copper or alloy is reckoned at nothing and only the amount of fine pure silver is considered. For this reason an assay is always made to ascertain the amount of pure silver. Assaying is merely refining a little piece of a bar of silver, for example, to find how much pure silver it contains and to judge the whole bar by this small sample. A small portion of the bar, 12 grains for example, is cut off and nicely weighed in balances which are so accurate that a thousandth part of a grain will sometimes turn the scale. Then the sample is refined by aquafortis or by fire and the copper or alloy separated. When the silver is pur it is weighed again in the same balance and if it then weighs 11 grains instead of 12 the assayer says that the bar is 11 parts fine, i.e. it contains 11 parts of pure silver and 1 of copper or alloy. This will be more easily understood by those who have the curiosity to see assays carried out. There is nothing mysterious about it. Gold is assayed in the same way, with this difference only that the degrees of fineness of gold are divided into 24 parts called carats, since gold is more precious; and these carats are divided into 32 parts, while the degrees of fineness of silver are only divided into twelfths, called deniers, and these are divided into 24 grains apiece. Usage has conferred upon gold and silver the title intrinsic value, to designate and signify the quantity of true gold or silver contained in a bar; but in this essay I have always used the term intrinsic value to signify the amount of land and labour which enter into production, not having found any term more suitable to express my meaning. I mention this only to avoid misunderstanding. When gold and silver are not in question the term will always hold good without any confusion. We have seen that the metals such as gold, silver, iron, etc. serve several purposes and have a value proportionable to the land and labour which enter into their production. We shall see in part II of this essay that men have been forced of necessity to employ a common measure to find in their dealings the proportion and the value of the products and merchandise they wished to exchange. The only question is what product or merchandise would be most suitable for this common measure, and whether it has not been necessity rather that fancy which has given this preference to gold, silver and copper which are generally in use today for this purpose. Ordinary products like corn, wine, meat, etc. have a real value and serve the needs of life, but they are all perishable and difficult to be transported, and therefore hardly suitable to serve as a common measure. Merchandise such as cloth, linen, leather, etc. is persishable also and cannot be subdivided without in some sort changing their value for the service of man. Like raw produce they cost a good deal for carriage; they even cause expense for storage, and consequently are unsuitable for a common measure. Diamonds and other precious stones, even if they had no instrinsic value and were esteemed only from fancy, would be suitable for a common measure if they were not susceptible of imitation and if they could be divided without loss. With these defects and that of being unserviceable in use they cannot serve as a common measure. Iron, which is always useful and fairly durable would not serve badly in default of a better. It is consumed by fire, and is too bulky owing to its quantity. It was used from the time of Lycurgus till the Peloponnesian War; but as its value was necessarily based instrinsically, or in proportion to the land and labour which entered into its production, a great quantity of it was needed for small value. It is curious that its quality was spoiled by vinegar to make it useless for service and to keep it for exchange only. Thus it could serve the austere Spartans alone, and could not continue to do so even with them as soon as they extended their communication with other countries. To ruin the spartans it needed only to find rich iron mines, to make money like theirs, and to draw in exchange their products and merchandise whilst they could get nothing from abroad for their spoiled iron. At that time they did not concern themselves with any foreign trade, but only with war. Lead and tin have the same disadvantage of bulk as iron and are consumable by fire, but in case of need they would not do badly for exchange if copper were not more suitable and durable. Copper alone served as money to the Romans until 484 years after the founding of Rome, and in Sweden it is still used even in large payments: but it is too bulky for very considerable payments, and the Swedes themselves prefer payment in gold or silver rather than in copper. In the American Colonies tobacco, sugar, and cocoa have been used as money: but these commodities are too bulky, perishable, and of unequal quality: they are therefore hardly suitable to serve as money or a common measure of value. Gold and silver alone are of small volume, equal goodness, easily transported, divisible without loss, convenient to keep, beautiful and brilliant in the articles made of them and durable almost to eternity. All who have used other articles as money return to these as soon as they can get enough of them for exchange. It is only in the smallest purchases that gold and silver are unsuitable. Gold or even silver coins of the value of a liard or a denier would be too small to be handled easily. It is said that the Chinese, in small transactions, cut off little pieces with scissors from their plates of silver, and weighed the pieces. But since their trade with Europe they have begun to use copper for such occasions. It is then not surprising that all countries have arrived at using gold and silver as money or a common measure of value and copper for small payments. Utility and need have decided them, and not fancy or consent. Silver requires much labour and dear labour for its production. Silver miners are highly paid because they rarely live more than five or six years at this work, which causes a high mortality: and so a little silver coin corresponds to as much land and labour as a large copper coin. Money or the common measure of value must correspond in fact and reality in terms of land and labour to the articles exchanged for it. Otherwise it would have only an imaginary value. If for example a prince or a republic gave currency in the state to something which had not such a real and instrinsic value, not only would the other states refuse to accept it on that footing but the inhabitants themselves would reject it when they perceived its lack of real value. When towards the end of the first Punic War the Romans wished to give the copper as, weighing two ounces, the same value as the as of 1 pound or 12 ounces had before, it could not long be maintained in exchange. The history of all times shews that when princes have debased their money, keeping it at the same nominal value, all raw produce and manufacturers have gone up in price in proportion to the debasement of the coinage. Mr Locke says that the consent of mankind has given its value to gold and silver. This cannot be doubted since absolute necessity had no share in it. It is the same consent which has given and does give every day a value to lace, line, fine cloths, copper, and other metals. Man could subsist without any of these things, but it must not be concluded that they have but an imaginary value. They have a value proportionable to the land and labour which enter into their production. Gold and silver, like other merchandise and raw produce, can only be produced at costs roughly proportionable to the value set upon them, and whatever man produces by labour, this labour must furnish his maintenance. It is the great principle that one hears every day from the mouths of the humble classes who have no part in our speculations, and who live by their labour or their undertakings. "Everybody must live."

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In Part I an attempt was made to prive that the real value of everything used by manis proportionate tothe quantity of Land used for its production and for the upkeep of those who have fashioned it. In this second part, after summing up the different degrees of fertility of the land in several countires and the different kinds of produce itcan bring forth with greater abundance according to its intrinsic quality, and assuming the establishment of towns and their markets to facilitate the sale of these products,it will be shewn by comparing exchanges which may be made, wine for cloth, corn for shoes, hats, etc. and by the difficulty which the transport of these different products or merchandises would involve, that it was impossible to fix their respective intrinsic value, and there was absolute necessity for man to find a substance easily transportable, not perishable, and having by weight a proportion or value equal to the different products and merchandises, necessary or convenient. Thence arose the choice of gold and silver for large business and of copper for small traffic. These metals are not only durable and easily transported but correspond to the employment of a large area of land for their production, which gives them the real value desirable in exchange. Mr Locke who, like all the English writers on this subject, has looked only to market prices, lays down that the value of all things in proportionable to their abundance or scarcity, and the abundance or scarcity of the silver for which they are exchanged. It is generally known that the prices of produce and merchandise have been raised in Europe since so great a quantity of silver has been brought thither from the West Indies. But I consider that we must not suppose as a general rule that the market prices of things should be proportionable to their quantity and to that of the silver actually circulating in one place, because the products and merchandise sent away to be sold elsewhere do not influence the price of those which remain. If, for example, in a market town where there is twice as much corn as is consumed there, we compared the whole quantity of corn to that of silver, the corn would be more abundant of corn to that of silver, the corn would be more abundant in proportion than the silver destined for its purchase; the market price, however, will be maintained just as if there were only half the quantity of corn, since the other half can be and even must be, sent into the city, and the cost of transport will be included in the city price which is always higher than that of the town. But apart from the case of hoping to sell in another market, I consider that Mr Locke's idea is correct in the sense of the following chapter, and not otherwise.

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Chapter Two Of Market Prices

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Suppose the butchers on one side and the buyers on the other. The price of meat will be settled after some altercations, and a pound of beef will be in value to a piece of silver pretty nearly as the whole beef offered for sale in the market is to all the silver brought there to buy beef. This proportion is come at by bargaining. The butcher keeps up his price according to the number of buyers he sees; the buyers, on their side, offer less according as they think the butcher will have less sale: the price set by some is usually followed by others. Some are more clever in puffing up their wares, other in running them down. Though this method of fixing market prices has no exact or geometrical foundation, since it often depends upon the eagerness or easy temperament of a few buyers or sellers, it does not seem that it could be done in any more convenient way. It is clear that the quantity of produce or of merchandise offered for sale, in proportion to the demand or number of buyers, is the basis on which is fixed or always supposed to be fixed the actual market prices; and that in general these prices do not vary much from the intrinsic value. Let us take another case. Several ma顃re d'h魌els have been told to buy green peas when they first come in. One master has ordered the purchase of 10 litrons for 60 livres, another 10 litrons for 50 livres, a third 10 for 40 livres and a fourth 10 livres for 30 livres. If these orders are to be carried out there must be 40 litrons of green peas in the market. Suppose there are only 20. The vendors, seeing many buyers, will keep up their prices, and the buyers will come up to the prices prescribed to them: so that those who offer 60 livres for 10 litrons will be the first served. The sellers, seeing later that no one will go above 50, will let the other 10 litrons go at that price. Those who had orders not to exceed 40 and 30 livres will go away empty. If instead of 40 litrons there were 400, not only would the ma顃re d'h魌els get the new peas much below the sums laid down for them, but the sellers in order to be preferred one to the other by the few buyers will lower their new peas almost to their intrinsic value, and in that case many ma顃res d'h魌els who had no orders will buy some. It often happens that sellers who are too obstinate in keeping up their price in the market, miss the opportunity of selling their produce or merchandise to advantage and are losers thereby. It also happens that by sticking to their prices they may be able to sell more profitably another day. Distant markets may always effect the prices of the market where one is: if corn is extremely dear in France it will go up in England and in other neighbouring countries.

Chapter Three Of the Circulation of Money

It is the general opinion in England that a farmer must make three rents. (1) The principal and true rent which he pays to the proprietor, supposed equal in value to the produce of one third of his farm, a second rent for his maintenance and that of the men and horses he employs to cultivate the farm, and a third which ought to remain with him to make his undertaking profitable. The same idea obtains generally in the other countries of Europe, though in some, like the Milanese state, the farmer gives the landlord half the produce instead of a third, and many landlords in all countries try to let their farms at the highest rent they can; but when this is above a third of the produce the farmers are generally very poor. I doubt not that the Chinese landowner extracts from his farmer more than three fourths of the produce. However when a farmer has some capital to carry on the management of this farm the proprietor who lets him the farm for a third of the produce will be sure of payment and will be better off by such a bargain than if he let his land at a higher rate to a beggarly farmer at the risk of losing all his rent. The larger the farm the better off the farmer will be. This is seen in England where the farmers are generally more prosperous than in other countries where the farms are small. The assumption I shall make in this enquiry as to the circulation of money is that farmers earn three rents and spend the third rent on living more comfortably instead of saving it. It is in fact the case with the greatest number of farmers in all countries. All the produce of the country comes directly or indirectly from the hands of the farmers as well as all the materials from which commodities are made. It is the land which produces everything but fish, and even then the fishermen who catch the fish must be maintained on the produce of the land. The three rents of the farmer must therefore be considered as the principal sources or so to speak the mainspring of circulation in the state. The first rent must be paid to the landowner in ready money: for the second and third rents ready money is needed for the iron, tin, copper, salt, sugar, cloth and generally all the merchandise of the city consumed in the country; but all that hardly exceeds the sixth part of the total or three rents. As for the food and drink of the country folk ready money is not necessarily to obtain it. The farmer may brew his beer or make his wine without spending cash, he can make his bread, kill the oxen, sheep, pigs, etc. that are eaten in the country: he can pay in corn, meat and drink most of his assistants -- not only labourers but country artisans, valuing the produce at the prices of the nearest markets and labour at the ordinary price of the locality. The things necessary to life are food, cloths, and lodging. There is no need of cash to obtain food in the country, as I have just explained. If coarse linen and cloths are made there, if houses are built there, as is often done, the labour for all this may be paid in barter by valuation without cash being needed. The only cash needed in the country is that for the principal rent of the landlord and for the manufactures which the country necessarily draws from the city, such as knives, scissors, pins, needles, cloths for some farmers or other well-to-do people, the kitchen utensils, plates, and generally all that is got from the city. I have already observed that it is reckoned that half the inhabitants of a state live in the cities, and consequently the citizens spend more than half the produce of the land. Cash is therefore necessary, not only for the rent of the landlord, corresponding to one third of the produce, but also for the city merchandise consumed in the country, which may amount to something more than one sixth of the produce of the soil. But one third and one sixth amount to half the produce. The cash circulating in the country must therefore be equal to at least one half the produce of the land, by which means the other half or somewhat less may be consumed in the country without need of cash. The circulation of this money takes place when the landlords spend in detail in the city the rents which the farmers have paid them in lump sums, and when the undertakers of the cities, butchers, bakers, brewers, etc. collect little by little this same money to buy from the farmers in lump sums cattle, wheat, barley, etc. In this way all the large sums of money are distributed in small amounts, and all the small amounts are then collected to make payments in large amounts, directly or indirectly, to the farmers, and this money large or small always passes in return for services. When I stated that for the country circulation there is needed a quantity of money often equal in value to half the produce of the land, this is the minimum; and in order that the country circulation should be easily conducted I will suppose that the ready cash which conducts the circulation of the three rents, is equal in value to two of these rents, or two thirds of the produce of the land. It will be seen later that this supposition is not far from the truth. Let us now imagine that the money which conducts the whole circulation of a little state is equal to 10,000 ounces of silver, and that all the payments made with this money, country to city, and city to country, are made once a year; and that these 10,000 ounces of silver are equal in value to two of the rents of the farmers or two thirds of the produce of the land. The rents of the landlords will correspond to 5000 ounces, and the whole circulation of the remaining silver between the country people and the citizens, made by annual payments, will correspond also to 5000 ounces. But if the landlords stipulate with their farmers for half yearly instead of yearly payments, and if the debtors of the two other rents also make their payments every six months, this will alter the rapidity of circulation: and whereas 10,000 ounces were needed to make the annual payments, only 5000 will now be required, since 5000 ounces paid twice over will have the same effect as 10,000 ounces paid once. Further if the landlords stipulate with their farmers for quarterly payments, or if they are satisfied to receive their rents from the farmers according as the four seasons of the year enable them to sell their produce, and if all other payments are made quarterly, only 2500 ounces will be needed for the same circulation which would have been conducted by 10,000 ounces paid once a year. Therefore, supposing all payments made quarterly in the little state in question, the proportion of the value of the money needed for the circulation is to the annual produce of the soil (or the three rents), as 2500 livres is to 15,000 livres, or as 1 to 6, so that the money would correspond to the sixth part of the annual produce. But seeing that each branch of the circulation in the cities is carried out by undertakers, that the consumption of food is met by daily, weekly or monthly payments, and that payment for the clothing purchased once or twice a year by families is made at different times by different people; and whereas the expenditure on drink is usually made daily, that on small beer, coal, and a thousand other articles of consumption is very prompt, it would seem that the proportion we have established for quarterly payments would be too high and that the circulation of a land produce of 15,000 ounces of silver in value could be conducted with much less than 2500 ounces of silver in ready money. As however the farmers have to make large payments to the landlords at least every quarter and the taxes which the prince or the state collects upon consumption are accumulated by the collectors to make large payments to the Receivers-General, there must be enough ready cash in circulation to make these large payments without difficulty, without hindering the circulation of currency for the food and clothing of the people. It will be seen from this that the proportion of the amount of money needed for circulation in a state is not incomprehensible, and that this amount may be greater or less in a state according to the mode of living and the rapidity of payments. But it is very difficult to lay down anything definite as regards this quantity in general, as the proportion may differ in different countries, and it is only conjectural when I say that "the real cash or money necessary to carry on the circulation and exchange in a state is about equal in value to one third of all the annual rents of the proprietors of the said state." Supposing the money in circulation equal to the third of all the rents of the landowners and these rents equal to the third of the annual produce of the land, it follows that "the money circulating in a state is equal in value to the ninth part of all the annual produce of the soil." Sir William Petty, in a manuscript of 1685, supposes frequently that the money in circulation is equal to one tenth of the produce of the soil. He gives no reason. I suppose it is an opinion which he formed from experience and from his practical knowledge both of the money circulating in Ireland (a great part of the land of which country he had measured as a surveyor) and of the produce which he estimated roughly from observation. I am not far removed from his conclusion to the landlords' rents which are ordinarily paid in money and easily ascertainable by a uniform land tax, rather than to the products of the soil, the prices of which vary daily in the markets, and a large part of which is consumed without entering into the market. In the next chapter I shall give several reasons, supported by examples, to confirm my conclusion. I think it useful, even if not mathematically exact in each country. It is enough if it is near the truth and if it prevents the governors of states from forming extravagant ideas of the amount of money in circulation. There is no branch of knowledge in which one is more subject to error than statistics when they are left to imagination, and none more demonstrable when they are based upon detailed facts. Some cities and states which have no land belonging to them subsist by exchanging their labour or manufactures for the produce of the land of others. Such are Hamburg, Dantzig, several other cities of the Empire, and even part of Holland. In these states it seems more difficult to estimate the circulation. But if we could estimate the amount of foreign land which furnishes their subsistence, the calculation would probably not differ from that I have made for the other states which live chiefly on their own produce and are the subject of this essay. As to the cash needed to carry on foreign trade it seems that no more is required than what is in circulation in the state when the balance of foreign trade is equal, that is when the products and merchandise sent abroad are equal in value to those imported. If France sends cloth to Holland and receives from her spices, of equal value, the landowner who consumes these spices pays the value of them to the grocer, who pays the same amount to the clothmaker, to whom it is due in Holland for the cloth he has sent there. This is done by bills of exchange which will be explained later. These two money payments take place in France apart from the rent of the landowner, and no money leaves France on that account. All other classes of society who consume Dutch spices, similarly pay the grocer, viz. those who live on the first rent, that is the landowners, pay from this rent, and those who live on the other two rents in country or in city pay the grocer directly or indirectly out of the money which conducts the circulation of these rents. The grocer again pays this money to the manufacturer for his bill upon Holland, and no increase of money is needed for circulation in the state because of foreign trade when the balance is equal. But if it is not equal, if more merchandise is sold to Holland than is bought back, or vice versa, money is needed for the surplus which Holland must send to France or France to Holland. This will increase or diminish the amount of money circulating in France. It may even occur that when the balance with the foreigner is equal to the trade with him may retard the circulation of ready money and therefore require a greater quantity of money by reason of this commerce. For example, if the French ladies who wear French stuffs wish to wear Dutch velvets, which are paid for by the cloth sent to Holland, they will pay for these velvets to the merchants who imported them from Holland, and these merchants will pay the manufacturers of cloth. The money thus passes through more hands than if these ladies took their money to the manufacturers of cloth and contented themselves with the fabrics of France. When the same money passes through the hands of several undertakers the rapidity of circulation is slowed down. But it is difficult to make an exact estimate of this sort of delay which depends upon various circumstances. Thus, in our present example, if the ladies pay the merchant for the velvet today, and the merchant pay the manufacturer tomorrow for his bill on Holland, if the manufacturer pay the wool merchant the next day and this last pay the farmer the day after, it is possible that the farmer will keep the money in hand more than two months to make up the quarter's rent which he must pay his landlord. This money might in two months have circulated through the hands of a hundred undertakers without locking up the circulating medium needed by the state. After all, the principle rent of the landowner must be considered to be the most necessary and considerable branch of the money in regard to circulation. If he lives in the city and the farmer sells in the same city all his produce and buys there all the merchandise necessary for country use, the ready money may always remain in the city. The farmer will sell there produce exceeding half the output of his farm; he will pay his landlord in the same city the money value of one third of his produce and the rest to merchants or undertakers for merchandise to be consumed in the country. Even here, however, as the farmer sells his produce for lump sums, which are subsequently distributed in retail purchases, and are again collected to serve for lump payments to the farmers, the circulation has always the same effect (subject to its rapidity) as if the farmer took to the country the money received for his produce and sent it back again to the city. The circulation consists always of this, that the large sums which the farmer receives on the sale of his produce are split up in detail and then brought together again to make large payments. Whether this money go partly out of the city or remain there entirely it may be regarded as the circulating medium between city and country. All the circulation takes place between the inhabitants of the state, and they are all fed and maintained in every way from the produce of the soil and raw materials of the country. It is true that the wool, for example, which is brought from the country, when made up into cloth in the city is worth four times its former value. But this increase of value, which is the price of the labour of the workmen and manufactures in the city, is exchanged for the country produce which serves for their maintenance.

Chapter Four Further Reflection on the Rapidity or Slowness of the Circulation of Money in Exchange

Let us suppose that the farmer pays 1300 ounces of silver a quarter to his landlord, who pays out of it every week 100 ounces to the baker, butcher, etc. and that these every week pay the farmer these hundred ounces, so that the farmer collects every week as much money as the landlord spends. In this case there will be only 100 ounces in constant circulation, the other 1200 ounces will remain in hand partly with the landlord and partly with the farmer. But it rarely happens that the landlords spend their rents in a fixed and regular proportion. In London as soon as a landlord receives his rent he puts most of it into the hands of a goldsmith or banker, who lends it at interest, so that this part is in circulation. Or else the landlord spends a good part of it upon various things needful for his household, and before he gets his next quarter's rent he will perhaps borrow money. Thus the money of the first quarter's rent will circulate in a thousand ways before it can be brought together again and replaced in the hands of the farmer to serve to pay his second quarter. When the time for paying this second quarter has come the farmer will sell his produce in large amounts, and those who buy his cattle, corn, hay, etc. will already have collected in detail the price of them. The money of the first quarter will thus have circulated in the rivulets of small traffic for nearly three months, before being collected by the retail dealers, and these will give it to the farmer who will pay his second quarter therewith. It would seem from this that less ready money than we have supposed would suffice for the circulation of a state. Barters made by evaluation do not all call for much ready cash. If a brewer supplies a clothier with the beer for his family, and if the clothier in turn supplies the brewer with the clothes he needs, both at the market price current on the day of delivery, the only ready money needed between these two traders is the amount of the difference between the two transactions. If a merchant in a market town sends to a correspondent in the city country produce for sale, and if the latter sends back to the former the city merchandise consumed in the country, the business lasting the whole year between these two dealers, and mutual confidence leading them to place to their accounts their produce and merchandise at their respective market prices, the only real money needed for this commerce will be the balance which one owes to the other at the end of the year. Even then this balance may be carried forward to the next year, without the actual payment of any money. All the undertakers of a city, who have continually business with each other, may practise this method. And these exchanges by valuation seem to economise much cash in circulation, or at least to accelerate its movement by making it unnecessary in several hands through which it would need to pass without this confidence and this method of exchange by valuation. It is not without reason that it is commonly said commercial credit makes money less scarce. The goldsmiths and public bankers, whose notes pass current in payment like ready money, contribute also to the speed of circulation, which would be retarded if money were needed in all the payments for which these notes suffice: and although these goldsmiths and bankers always keep in hand a good part of the actual money they have received for their notes, they also put into circulation a considerable amount of this actual money as I shall explain later in dealing with public banks. All these reflections seem to prove that the circulation of a state could be conducted with much less actual money than I have supposed necessary; but the following inductions appear to counterbalance them and to contribute to the slowing down of the circulation. I will first observe that all country produce is furnished by labour which may possibly, as already often suggested, be carried on with little or no actual money. But all merchandise is made in cities or market towns by the labour of men who must be paid in actual money. If a house has cost 100,000 ounces of silver to build, all this sum or the greatest part of it, must have been paid every week in small amounts to the brickmaker, masons, carpenters, etc. directly or indirectly. The expense of the humble families, who are always the most in number in a city, is necessarily made with actual money. In these small exchanges credit, book debts, and bills cannot have a place. The merchants or retailers demand cash for the things they supply: or if they give credit to a family for a few days or months they require a substantial money payment. A carriage builder who sells a carriage for 400 ounces of silver in notes, will have to change them into actual money to pay for all the materials and the men who have worked on his carriage if they have worked on credit, or, if he has paid them already, to start a new one. The sale of the carriage will leave his profit and he will spend this to maintain his family. He could not be satisfied with notes unless he can put something aside or lay it out at interest. The consumption of the inhabitants of a state is, in a sense, entirely for food. Lodging, clothing, furniture, etc. correspond to the food of the men who have worked upon them; and in the cities all drink and food are of necessity paid for in hard cash. In the families of landowners in the city food is paid for every day or every week: wine in their families is paid for every week or every month; hats, stockings, shoes, etc. are ordinarily paid for in actual money, at least the payments correspond to cash for the men who have worked upon them. All the sums which serve to pay large amounts are divided, distributed, and spread in small payments corresponding to the maintenance of the workmen, manservants, etc. and all these sums are necessarily collected and reunited by the undertakers and retailers who are employed on the subsistence of the inhabitants to make large payments when they buy the products of the farmers. An alehouse keeper collects by sols and livres the sums he pays to the brewer, who uses them to pay for all the grain and materials he buys from the country. One cannot imagine anything is bought for ready money in a state, like furniture, merchandise, etc. the value of which does not correspond to the maintenance of those who have worked upon it. Circulation in the cities is carried out by undertakers and always corresponds directly or indirectly to the subsistence of the menservants, workmen, etc. It is not conceivable that it can be effected in small detail without cash. Notes may serve as counters in large payments for a certain time; but when the large sums come to be distributed and spread into small transactions, as is always the case sooner or later in the course of circulation in a city, notes cannot serve the purpose and cash is needed. All this being presupposed, all the classes in a state who practice some economy, save and keep out of circulation small amounts of cash till they have enough to invest at interest or profit. Many miserly and timid people bury and hoard cash for considerable periods. Many landowners, undertakers and others, always keep some cash in their pockets or safes against unforeseen emergencies and not to be run out of money. If a gentleman makes it his remark that he never had less than 20 louis in his pocket throughout the whole year, it may be said that this pocket has kept 20 louis out of circulation for a year. One does not like to spend up to the last sou, one is glad not be completely denuded, and to receive a new instalment before paying even a debt with the money one has. The capital of minors and of suitors is often deposited in cash and kept out of circulation. Beside the large payments which pass through the hands of the farmers in the quarterly terms of the year there are many others from one undertaker to another in the same terms, and others at different times from borrowers to lenders of money. All these sums are collected in retail trade, are spread abroad anew and come back sooner or later to the farmer: but they seem to require a more considerable amount of cash for circulation than if these large payments were made in different times from those when the farmers are paid for their produce. In fine there is so great a variety in the different orders of the inhabitants of the state and in the corresponding circulation of actual money, that it seems impossible to lay down anything precise or exact as to the proportion of money sufficient for the circulation. I have adduced so many examples and inductions only to make it clear that I am not far out of the truth in my conclusion "that the actual money necessary for the circulation of the state corresponds nearly to the value of the third of all the annual rents of the landlords." When the landlords have a rent which amounts to half the produce or more than a third, a greater quantity of actual money is needed for circulation, other things being equal. When there is great confidence in the banks and in book credits less money will suffice, as also when the rapidity of circulation is accelerated in any other way. But I shall show later that public banks do not afford so many advantages as is usually supposed.