NOTES:
1。Montesquieu，EspritdesLois，liv。xxii，ch。8。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter8
OftheValueofMoney，asDependentonDemandandSupply
1。Itisunfortunatethatintheveryoutsetofthesubject
wehavetoclearfromourpathaformidableambiguityof
language。TheValueofMoneyistoappearanceanexpressionas
precise，asfreefrompossibilityofmisunderstanding，asanyin
science。Thevalueofathing，iswhatitwillexchangefor:the
valueofmoney，iswhatmoneywillexchangefor;thepurchasing
powerofmoney。Ifpricesarelow，moneywillbuymuchofother
things，andisofhighvalue;ifpricesarehigh，itwillbuy
littleofotherthings，andisoflowvalue。Thevalueofmoney
isinverselyasgeneralprices:fallingastheyrise，andrising
astheyfall。
Butunhappilythesamephraseisalsoemployed，inthe
currentlanguageofcommerce，inaverydifferentsense。Money，
whichissocommonlyunderstoodasthesynonymeofwealth，is
moreespeciallytheterminusetodenoteitwhenitisthe
subjectofborrowing。Whenonepersonlendstoanother，aswell
aswhenhepayswagesorrenttoanother，whathetransfersis
notthemeremoney，butarighttoacertainvalueoftheproduce
ofthecountry，tobeselectedatpleasure;thelenderhaving
firstboughtthisright，bygivingforitaportionofhis
capital。Whathereallylendsissomuchcapital;themoneyis
themereinstrumentoftransfer。Butthecapitalusuallypasses
fromthelendertothereceiverthroughthemeanseitherof
money，orofanordertoreceivemoney，andatanyrateitisin
moneythatthecapitaliscomputedandestimated。Hence，
borrowingcapitalisuniversallycalledborrowingmoney;theloan
marketiscalledthemoneymarket:thosewhohavetheircapital
disposableforinvestmentonloanarecalledthemoniedclass:
andtheequivalentgivenfortheuseofcapital，orinother
words，interest，isnotonlycalledtheinterestofmoney，but，
byagrosserperversionofterms，thevalueofmoney。This
misapplicationoflanguage，assistedbysomefallacious
appearanceswhichweshallnoticeandclearuphereafter，（1*）has
createdageneralnotionamongpersonsinbusiness，thatthe
ValueofMoney，meaningtherateofinterest，hasanintimate
connexionwiththeValueofMoneyinitspropersense，thevalue
orpurchasingpowerofthecirculatingmedium。Weshallreturnto
thissubjectbeforelong:atpresentitisenoughtosay，thatby
ValueIshallalwaysmeanExchangeValue，andbymoneythemedium
ofexchange，notthecapitalwhichispassedfromhandtohand
throughthatmedium。
2。Thevalueorpurchasingpowerofmoneydepends，inthe
firstinstance，ondemandandsupply。Butdemandandsupply，in
relationtomoney，presentthemselvesinasomewhatdifferent
shapefromthedemandandsupplyofotherthings。
Thesupplyofacommoditymeansthequantityofferedfor
sale。Butitisnotusualtospeakofofferingmoneyforsale。
Peoplearenotusuallysaidtobuyorsellmoney。This，however，
ismerelyanaccidentoflanguage。Inpointoffact，moneyis
boughtandsoldlikeotherthings，wheneverotherthingsare
boughtandsoldformoney。Whoeversellscorn，ortallow，or
cotton，buysmoney。Whoeverbuysbread，orwine，orclothes，
sellsmoneytothedealerinthosearticles。Themoneywithwhich
peopleareofferingtobuy，ismoneyofferedforsale。Thesupply
ofmoney，then，isthequantityofitwhichpeoplearewantingto
layout;thatis，allthemoneytheyhaveintheirpossession，
exceptwhattheyarehoarding，oratleastkeepingbythemasa
reserveforfuturecontingencies。Thesupplyofmoney，inshort，
isallthemoneyincirculationatthetime。
Thedemandformoney，again，consistsofallthegoods
offeredforsale。Everysellerofgoodsisabuyerofmoney，and
thegoodshebringswithhimconstitutehisdemand。Thedemand
formoneydiffersfromthedemandforotherthingsinthis，that
itislimitedonlybythemeansofthepurchaser。Thedemandfor
otherthingsisforsomuchandnomore;butthereisalwaysa
demandforasmuchmoneyascanbegot。Personsmayindeedrefuse
tosell，andwithdrawtheirgoodsfromthemarket，iftheycannot
getforthemwhattheyconsiderasufficientprice。Butthisis
onlywhentheythinkthatthepricewillrise，andthatthey
shallgetmoremoneybywaiting。Iftheythoughtthelowprice
likelytobepermanent，theywouldtakewhattheycouldget。It
isalwaysasinequanonwithadealertodisposeofhisgoods。
Asthewholeofthegoodsinthemarketcomposethedemand
formoney，sothewholeofthemoneyconstitutesthedemandfor
goods。Themoneyandthegoodsareseekingeachotherforthe
purposeofbeingexchanged。Theyarereciprocallysupplyand
demandtooneanother。Itisindifferentwhether，in
characterizingthephenomena，wespeakofthedemandandsupply
ofgoods，orthesupplyandthedemandofmoney。Theyare
equivalentexpressions。
Weshallproceedtoillustratethispropositionmorefully。
Andindoingthis，thereaderwillremarkagreatdifference
betweentheclassofquestionswhichnowoccupyus，andthose
whichwepreviouslyhadunderdiscussionrespectingValues。In
consideringValue，wewereonlyconcernedwithcauseswhichacted
uponparticularcommoditiesapartfromtherest。Causeswhich
affectallcommoditiesalike，donotactuponvalues。Butin
consideringtherelationbetweengoodsandmoney，itiswiththe
causesthatoperateuponallgoodswhatever，thatweare
speciallyconcerned。Wearecomparinggoodsofallsortsonone
side，withmoneyontheotherside，asthingstobeexchanged
againsteachother。
Suppose，everythingelsebeingthesame，thatthereisan
increaseinthequantityofmoney，saybythearrivalofa
foreignerinaplace，withatreasureofgoldandsilver。Whenhe
commencesexpendingit（forthisquestionitmattersnotwhether
productivelyorunproductively），headdstothesupplyofmoney，
andbythesameact，tothedemandforgoods。Doubtlessheadds，
inthefirstinstance，tothedemandonlyforcertainkindsof
goods，namely，thosewhichheselectsforpurchase;hewill
immediatelyraisethepriceofthose，andsofarasheis
individuallyconcerned，ofthoseonly。Ifhespendshisfundsin
givingentertainments，hewillraisethepricesoffoodandwine。
Ifheexpendstheminestablishingamanufactory，hewillraise
thepricesoflabourandmaterials。Butatthehigherprices，
moremoneywillpassintothehandsofthesellersofthese
differentarticles;andthey，whetherlabourersordealers，
havingmoremoneytolayout，willcreateanincreaseddemandfor
allthethingswhichtheyareaccustomedtopurchase:these
accordinglywillriseinprice，andsoonuntiltherisehas
reachedeverything。Isayeverything，thoughitisofcourse
possiblethattheinfluxofmoneymighttakeplacethroughthe
mediumofsomenewclassofconsumers，orinsuchamannerasto
altertheproportionsofdifferentclassesofconsumerstoone
another，sothatagreatershareofthenationalincomethan
beforewouldthenceforthbeexpendedinsomearticles，anda
smallerinothers;exactlyasifachangehadtakenplaceinthe
tastesandwantsofthecommunity。Ifthiswerethecase，then
untilproductionhadaccommodateditselftothischangeinthe
comparativedemandfordifferentthings，therewouldbeareal
alterationinvalues，andsomethingswouldriseinpricemore
thanothers，whilesomeperhapswouldnotriseatall。These
effects，however，wouldevidentlyproceed，notfromthemere
increaseofmoney，butfromaccessorycircumstancesattendingit。
Wearenowonlycalledupontoconsiderwhatwouldbetheeffect
ofanincreaseofmoney，consideredbyitself。Supposingthe
moneyinthehandsofindividualstobeincreased，thewantsand
inclinationsofthecommunitycollectivelyinrespectto
consumptionremainingexactlythesame;theincreaseofdemand
wouldreachallthingsequally，andtherewouldbeanuniversal
riseofprices。Wemightsuppose，withHume，thatsomemorning，
everypersoninthenationshouldwakeandfindagoldcoinin
hispocket:thisexample，however，wouldinvolveanalterationof
theproportionsinthedemandfordifferentcommodities;the
luxuriesofthepoorwould，inthefirstinstanceberaisedin
price，inamuchgreaterdegreethanotherthings。Letusrather
suppose，therefore，thattoeverypound，orshilling，orpenny，
inthepossessionofanyone，anotherpound，shilling，orpenny，
weresuddenlyadded。Therewouldbeanincreasedmoneydemand，
andconsequentlyanincreasedmoneyvalue，orprice，forthings
ofallsorts。Thisincreasedvaluewoulddonogoodtoanyone;
wouldmakenodifference，exceptthatofhavingtoreckonpounds，
shillings，andpence，inhighernumbers。Itwouldbeanincrease
ofvaluesonlyasestimatedinmoney，athingonlywantedtobuy
otherthingswith;andwouldnotenableanyonetobuymoreof
themthanbefore。Priceswouldhaveriseninacertainratio，and
thevalueofmoneywouldhavefalleninthesameratio。
Itistoberemarkedthatthisratiowouldbepreciselythat
inwhichthequantityofmoneyhadbeenincreased。Ifthewhole
moneyincirculationwasdoubled，priceswouldbedoubled。Ifit
wasonlyincreasedone—fourth，priceswouldriseone—fourth。
Therewouldbeone—fourthmoremoney，allofwhichwouldbeused
topurchasegoodsofsomedescription。Whentherehadbeentime
fortheincreasedsupplyofmoneytoreachallmarkets，or
（accordingtotheconventionalmetaphor）topermeateallthe
channelsofcirculation，allpriceswouldhaverisenone—fourth。
Butthegeneralriseofpriceisindependentofthisdiffusing
andequalizingprocess。Evenifsomepriceswereraisedmore，and
othersless，theaveragerisewouldbeone—fourth。Thisisa
necessaryconsequenceofthefact，thatafourthmoremoneywould
havebeengivenforonlythesamequantityofgoods。General
prices，therefore，wouldinanycasebeafourthhigher。
Theverysameeffectwouldbeproducedonpricesifwe
supposethegoodsdiminished，insteadofthemoneyincreased:and
thecontraryeffectifthegoodswereincreasedorthemoney
diminished。Iftherewerelessmoneyinthehandsofthe
community，andthesameamountofgoodstobesold，lessmoney
altogetherwouldbegivenforthem，andtheywouldbesoldat
lowerprices;lower，too，inthepreciseratioinwhichthemoney
wasdiminished。Sothatthevalueofmoney，otherthingsbeing
thesame，variesinverselyasitsquantity;everyincreaseof
quantityloweringthevalue，andeverydiminutionraisingit，in
aratioexactlyequivalent。
This，itmustbeobserved，isapropertypeculiartomoney。
Wedidnotfindittobetrueofcommoditiesgenerally，that
everydiminutionofsupplyraisedthevalueexactlyinproportion
tothedeficiency，orthateveryincreaselowereditinthe
preciseratiooftheexcess。Somethingsareusuallyaffectedin
agreaterratiothanthatoftheexcessordeficiency，others
usuallyinaless:because，inordinarycasesofdemand，the
desire，beingforthethingitself，maybestrongerorweaker:
andtheamountofwhatpeoplearewillingtoexpendonit，being
inanycasealimitedquantity，maybeaffectedinveryunequal
degreesbydifficultyorfacilityofattainment。Butinthecase
ofmoney，whichisdesiredasthemeansofuniversalpurchase，
thedemandconsistsofeverythingwhichpeoplehavetosell;and
theonlylimittowhattheyarewillingtogive，isthelimitset
bytheirhavingnothingmoretooffer。Thewholeofthegoods
beinginanycaseexchangedforthewholeofthemoneywhich
comesintothemarkettobelaidout，theywillsellforlessor
moreofit，exactlyaccordingaslessormoreisbrought。
3。Fromwhatprecedes，itmightforamomentbesupposed，
thatallthegoodsonsaleinacountryatanyonetime，are
exchangedforallthemoneyexistingandincirculationatthat
sametime:orinotherwords，thatthereisalwaysincirculation
inacountry，aquantityofmoneyequalinvaluetothewholeof
thegoodsthenandthereonsale。Butthiswouldbeacomplete
misapprehension。Themoneylaidoutisequalinvaluetothe
goodsitpurchases;butthequantityofmoneylaidoutisnotthe
samethingwiththequantityincirculation。Asthemoneypasses
fromhandtohand，thesamepieceofmoneyislaidoutmany
times，beforeallthethingsonsaleatonetimearepurchased
andfinallyremovedfromthemarket:andeachpoundordollar
mustbecountedforasmanypoundsordollars，asthenumberof
timesitchangeshandsinordertoeffectthisobject。The
greaterpartofthegoodsmustalsobecountedmorethanonce，
notonlybecausemostthingspassthroughthehandsofseveral
setsofmanufacturersanddealersbeforetheyassumetheformin
whichtheyarefinallyconsumed，butbecauseintimesof
speculation（andalltimesareso，moreorless）thesamegoods
areoftenboughtrepeatedly，toberesoldforaprofit，before
theyareboughtforthepurposeofconsumptionatall。
Ifweassumethequantityofgoodsonsale，andthenumberof
timesthosegoodsareresold，tobefixedquantities，thevalue
ofmoneywilldependuponitsquantity，togetherwiththeaverage
numberoftimesthateachpiecechangeshandsintheprocess。The
wholeofthegoodssold（countingeachresaleofthesamegoods
assomuchaddedtothegoods）havebeenexchangedforthewhole
ofthemoney，multipliedbythenumberofpurchasesmadeonthe
averagebyeachpiece。Consequently，theamountofgoodsandof
transactionsbeingthesame，thevalueofmoneyisinverselyas
itsquantitymultipliedbywhatiscalledtherapidityof
circulation。Andthequantityofmoneyincirculation，isequal
tothemoneyvalueofallthegoodssold，dividedbythenumber
whichexpressestherapidityofcirculation。
Thephrase，rapidityofcirculation，requiressomecomment。
Itmustnotbeunderstoodtomean，thenumberofpurchasesmade
byeachpieceofmoneyinagiventime。Timeisnotthethingto
beconsidered。Thestateofsocietymayhesuch，thateachpiece
ofmoneyhardlyperformsmorethanonepurchaseinayear;butif
thisarisesfromthesmallnumberoftransactions—fromthesmall
amountofbusinessdone，thewantofactivityintraffic，or
becausewhattrafficthereis，mostlytakesplacebybarter——it
constitutesnoreasonwhypricesshouldbelower，orthevalueof
moneyhigher。Theessentialpointis，nothowoftenthesame
moneychangeshandsinagiventime，buthowoftenitchanges
handsinordertoperformagivenamountoftraffic。Wemust
comparethenumberofpurchasesmadebythemoneyinagiven
time，notwiththetimeitself，butwiththegoodssoldinthat
sametime。Ifeachpieceofmoneychangeshandsonanaverageten
timeswhilegoodsaresoldtothevalueofamillionsterling，it
isevidentthatthemoneyrequiredtocirculatethosegoodsis
100，000l。Andconversely，ifthemoneyincirculationis
100，000l。，andeachpiecechangeshandsbythepurchaseofgoods
tentimesinamonth，thesalesofgoodsformoneywhichtake
placeeverymonthmustamountontheaverageto1，000，000l。
Rapidityofcirculationbeingaphrasesoilladaptedto
expresstheonlythingwhichitisofanyimportancetoexpress
byit，andhavingatendencytoconfusethesubjectbysuggesting
ameaningextremelydifferentfromtheoneintended，itwouldbe
agoodthingifthephrasecouldbegotridof，andanother
substituted，moredirectlysignificantoftheideameanttobe
conveyed。Somesuchexpressionas"theefficiencyofmoney，"
thoughnotunexceptionable，woulddobetter;asitwouldpoint
attentiontothequantityofworkdone，withoutsuggestingthe
ideaofestimatingitbytime。Untilanappropriatetermcanbe
devised，wemustbecontentwhenambiguityistobeapprehended，
toexpresstheideabythecircumlocutionwhichaloneconveysit
adequately，namely，theaveragenumberofpurchasesmadebyeach
pieceinordertoeffectagivenpecuniaryamountof
transactions。
4。Thepropositionwhichwehavelaiddownrespectingthe
dependenceofgeneralpricesuponthequantityofmoneyin
circulation，mustbeunderstoodasapplyingonlytoastateof
thingsinwhichmoney，thatis，goldorsilver，istheexclusive
instrumentofexchange，andactuallypassesfromhandtohandat
everypurchase，creditinanyofitsshapesbeingunknown。When
creditcomesintoplayasameansofpurchasing，distinctfrom
moneyinhand，weshallhereafterfindthattheconnexionbetween
pricesandtheamountofthecirculatingmediumismuchless
directandintimate，andthatsuchconnexionasdoesexist，no
longeradmitsofsosimpleamodeofexpression。Butonasubject
sofullofcomplexityasthatofcurrencyandprices，itis
necessarytolaythefoundationofourtheoryinathorough
understandingofthemostsimplecases，whichweshallalways
findlyingasagroundworkorsubstratumunderthosewhicharise
inpractice。Thatanincreaseofthequantityofmoneyraises
prices，andadiminutionlowersthem，isthemostelementary
propositioninthetheoryofcurrency，andwithoutitweshould
havenokeytoanyoftheothers。Inanystateofthings，
however，exceptthesimpleandprimitiveonewhichwehave
supposed，thepropositionisonlytrueotherthingsbeingthe
same:andwhatthoseotherthingsare，whichmustbethesame，we
arenotyetreadytopronounce。Wecan，however，pointout，even
now，oneortwoofthecautionswithwhichtheprinciplemustbe
guardedinattemptingtomakeuseofitforthepractical
explanationofphenomena;cautionsthemoreindispensable，asthe
doctrine，thoughascientifictruth，hasoflateyearsbeenthe
foundationofagreatermassoffalsetheory，anderroneous
interpretationoffacts，thananyotherpropositionrelatingto
interchange。Fromthetimeoftheresumptionofcashpaymentsby
theActof1819，andespeciallysincethecommercialcrisisof
1825，thefavouriteexplanationofeveryriseorfallofprices
hasbeen"thecurrency;"andlikemostpopulartheories，the
doctrinehasbeenappliedwithlittleregardtotheconditions
necessaryformakingitcorrect。
Forexample，itishabituallyassumedthatwheneverthereis
agreateramountofmoneyinthecountry，orinexistence，arise
ofpricesmustnecessityfollow。Butthisisbynomeansan
inevitableconsequence。Innocommodityisitthequantityin
existence，butthequantityofferedforsale，thatdeterminesthe
value。Whatevermaybethequantityofmoneyinthecountry，only
thatpartofitwillaffectprices，whichgoesintothemarketof
commodities，andisthereactuallyexchangedagainstgoods。
Whateverincreasestheamountofthisportionofthemoneyinthe
country，tendstoraiseprices。Butmoneyhoardeddoesnotacton
prices。Moneykeptinreservebyindividualstomeet
contingencieswhichdonotoccur，doesnotactonprices。The
moneyinthecoffersoftheBank，orretainedasareserveby
privatebankers，doesnotactonpricesuntildrawnout，noreven
thenunlessdrawnouttobeexpendedincommodities。
Itfrequentlyhappensthatmoney，toaconsiderableamount，
isbroughtintothecountry，isthereactuallyinvestedas
capital，andagainflowsout，withouthavingeveronceactedupon
themarketsofcommodities，butonlyuponthemarketof
securities，or，asitiscommonlythoughimproperlycalled，the
moneymarket。Letusreturntothecasealreadyputfor
illustration，thatofaforeignerlandinginthecountrywitha
treasure。Wesupposedhimtoemployhistreasureinthepurchase
ofgoodsforhisownuse，orinsettingupamanufactoryand
employinglabourers;andineithercasehewould，caeteris
paribus，raiseprices。Butinsteadofdoingeitherofthese
things，hemightveryprobablyprefertoinvesthisfortuneat
interest;whichweshallsupposehimtodointhemostobvious
way，bybecomingacompetitorforaportionofthestock，
exchequerbills，railwaydebentures，mercantilebills，mortgages，
&c。，whichareatalltimesinthehandsofthepublic。Bydoing
thishewouldraisethepricesofthosedifferentsecurities，or
inotherwordswouldlowertherateofinterest;andsincethis
woulddisturbtherelationpreviouslyexistingbetweentherate
ofinterestoncapitalinthecountryitself，andthatinforeign
countries，itwouldprobablyinducesomeofthosewhohad
floatingcapitalseekingemployment，tosenditabroadfor
foreigninvestmentratherthanbuysecuritiesathomeatthe
advancedprice。Asmuchmoneymightthusgooutashadpreviously
comein，whilethepricesofcommoditieswouldhaveshownno
traceofitstemporarypresence。Thisisacasehighlydeserving
ofattention:anditisafactnowbeginningtoberecognised，
thatthepassageofthepreciousmetalsfromcountrytocountry
isdeterminedmuchmorethanwasformerlysupposed，bythestate
oftheloanmarketindifferentcountries，andmuchlessbythe
stateofprices。
Anotherpointmustbeadvertedto，inordertoavoidserious
errorintheinterpretationofmercantilephenomena。Iftherebe，
atanytime，anincreaseinthenumberofmoneytransactions，a
thingcontinuallyliabletohappenfromdifferencesinthe
activityofspeculation，andeveninthetimeofyear（since
certainkindsofbusinessaretransactedonlyatparticular
seasons）;anincreaseofthecurrencywhichisonlyproportional
tothisincreaseoftransactions，andisofnolongerduration，
hasnotendencytoraiseprices。Atthequarterlyperiodswhen
thepublicdividendsarepaidattheBank，asuddenincrease
takesplaceofthemoneyinthehandsofthepublic;anincrease
estimatedatfromafifthtotwo—fifthsofthewholeissuesof
theBankofEngland。Yetthisneverhasanyeffectonprices;and
inaveryfewweeks，thecurrencyhasagainshrunkintoitsusual
dimensions，byamerereductioninthedemandsofthepublic
（aftersocopiousasupplyofreadymoney）foraccommodationfrom
theBankinthewayofdiscountorloan。Inlikemannerthe
currencyoftheagriculturaldistrictsfluctuatesinamountat
differentseasonsoftheyear。ItisalwayslowestinAugust:"it
risesgenerallytowardsChristmas，andobtainsitsgreatest
elevationaboutLady—day，whenthefarmercommonlylaysinhis
stock，andhastopayhisrentandsummertaxes，"andwhenhe
thereforemakeshisprincipalapplicationstocountrybankersfor
loans。"Thosevariationsoccurwiththesameregularityasthe
season，andwithjustaslittledisturbanceofthemarketsasthe
quarterlyfluctuationsofthenotesoftheBankofEngland。As
soonastheextrapaymentshavebeencompleted，thesuperfluous"
currency，whichisestimatedathalfamillion，"ascertainlyand
immediatelyisreabsorbedanddisappears。"（2*）
Ifextracurrencywerenotforthcomingtomaketheseextra
payments，oneofthreethingsmusthappen。Eitherthepayments
mustbemadewithoutmoney，byaresorttosomeofthose
contrivancesbywhichitsuseisdispensedwith;ortheremustbe
anincreaseintherapidityofcirculation，thesamesumofmoney
beingmadetoperformmorepayments;orifneitherofthese
thingstookplace，moneytomaketheextrapaymentsmustbe
withdrawnfromthemarketforcommodities，andprices，
consequently，mustfall。Anincreaseofthecirculatingmedium，
conformableinextentanddurationtothetemporarystressof
business，doesnotraiseprices，butmerelypreventsthisfall。
Thesequelofourinvestigationwillpointoutmanyother
qualificationswithwhichthepropositionmustbereceived，that
thevalueofthecirculatingmediumdependsonthedemandand
supply，andisintheinverseratioofthequantity;
qualificationswhich，underacomplexsystemofcreditlikethat
existinginEngland，renderthepropositionanextremely
incorrectexpressionofthefact。
NOTES:
1。Infra，chap。xxiii。
2。FullartonontheRegulationofCurrencies，2ndedit。，pp。
87—9。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter9
OftheValueofMoney，asDependentonCostofProduction
1。Butmoney，nomorethancommoditiesingeneral，hasits
valuedefinitivelydeterminedbydemandandsupply。Theultimate
regulatorofitsvalueisCostofProduction。
Wearesupposing，ofcourse，thatthingsareleftto
themselves。Governmentshavenotalwaysleftthingsto
themselves。Theyhaveundertakentopreventthequantityofmoney
fromadjustingitselfaccordingtospontaneouslaws，andhave
endeavouredtoregulateitattheirpleasure;generallywitha
viewofkeepingagreaterquantityofmoneyinthecountry，than
wouldotherwisehaveremainedthere。Itwas，untillately，the
policyofallgovernmentstointerdicttheexportationandthe
meltingofmoney;while，byencouragingtheexportationand
impedingtheimportationofotherthings，theyendeavouredto
haveastreamofmoneyconstantlyflowingin。Bythiscoursethey
gratifiedtwoprejudices;theydrew，orthoughtthattheydrew，
moremoneyintothecountry，whichtheybelievedtobetantamount
tomorewealth;andtheygave，orthoughtthattheygave，toall
producersanddealers，highprices，which，thoughnoreal
advantage，peoplearealwaysinclinedtosupposetobeone。
Inthisattempttoregulatethevalueofmoneyartificially
bymeansofthesupply，governmentshaveneversucceededinthe
degree，oreveninthemanner，whichtheyintended。Their
prohibitionsagainstexportingormeltingthecoinhavenever
beeneffectual。Acommodityofsuchsmallbulkinproportionto
itsvalueissoeasilysmuggled，andstillmoreeasilymelted，
thatithasbeenimpossiblebythemoststringentmeasuresto
preventtheseoperations。Alltheriskwhichitwasinthepower
ofgovernmentstoattachtothem，wasoutweighedbyavery
moderateprofit。（1*）Inthemoreindirectmodeofaimingatthe
samepurpose，bythrowingdifficultiesinthewayofmakingthe
returnsforexportedgoodsinanyothercommoditythanmoney，
theyhavenotbeenquitesounsuccessful。Theyhavenot，indeed，
succeededinmakingmoneyflowcontinuouslyintothecountry;but
theyhavetoacertainextentbeenabletokeepitatahigher
thanitsnaturallevel;andhave，thusfar，removedthevalueof
moneyfromexclusivedependenceonthecauseswhichfixthevalue
ofthingsnotartificiallyinterferedwith。
Weare，however，tosupposeastate，notofartificial
regulation，butoffreedom。Inthatstate，andassumingnocharge
tobemadeforcoinage，thevalueofmoneywillconformtothe
valueofthebullionofwhichitismade。Apoundweightofgold
orsilverincoin，andthesameweightinaningot，will
preciselyexchangeforoneanother。Onthesuppositionof
freedom，themetalcannotbeworthmoreinthestateofbullion
thanofcoin;forasitcanbemeltedwithoutanylossoftime，
andwithhardlyanyexpense，thiswouldofcoursebedoneuntil
thequantityincirculationwassomuchdiminishedastoequalize
itsvaluewiththatofthesameweightinbullion。Itmaybe
thoughthoweverthatthecoin，thoughitcannotbeofless，may
be，andbeingamanufacturedarticlewillnaturallybe，of
greatervaluethanthebullioncontainedinit，onthesame
principleonwhichlinenclothisofmorevaluethananequal
weightoflinenyarn。Thiswouldbetrue，wereitnotthat
Government，inthiscountry，andinsomeothers，coinsmoney
gratisforanyonewhofurnishesthemetal。Thelabourand
expenseofcoinage，whennotchargedtothepossessor，donot
raisethevalueofthearticle。IfGovernmentopenedanoffice
where，ondeliveryofagivenweightofyarn，itreturnedthe
sameweightofclothtoanyonewhoaskedforit，clothwouldbe
worthnomoreinthemarketthantheyarnitcontained。Assoon
ascoinisworthafractionmorethanthevalueofthebullion，
itbecomestheinterestoftheholdersofbulliontosenditto
becoined。IfGovernment，however，throwstheexpenseofcoinage，
asisreasonable，upontheholder，bymakingachargetocover
theexpense（whichisdonebygivingbackratherlessincoin
thanhasbeenreceivedinbullion，andiscalledlevyinga
seignorage），thecoinwillrise，totheextentoftheseignorage，
abovethevalueofthebullion。IftheMintkeptbackoneper
cent，topaytheexpenseofcoinage，itwouldbeagainstthe
interestoftheholdersofbulliontohaveitcoined，untilthe
coinwasmorevaluablethanthebullionbyatleastthat
fraction。Thecoin，therefore，wouldbekeptonepercenthigher
invalue，whichcouldonlybebykeepingitonepercentlessin
quantity，thanifitscoinageweregratuitous。
TheGovernmentmightattempttoobtainaprofitbythe
transaction，andmightlayonaseignoragecalculatedforthat
purpose;butwhatevertheytookforcoinagebeyonditsexpenses，
wouldbesomuchprofitonprivatecoining。Coining，thoughnot
soeasyanoperationasmelting，isfarfromadifficultone，
and，whenthecoinproducedisoffullweightandstandard
fineness，isverydifficulttodetect。If，therefore，aprofit
couldbemadebycoininggoodmoney，itwouldcertainlybedone:
andtheattempttomakeseignorageasourceofrevenuewouldbe
defeated。Anyattempttokeepthevalueofthecoinatan
artificialelevation，notbyaseignorage，butbyrefusingto
coin，wouldbefrustratedinthesamemanner。（2*）
2。Thevalueofmoney，then，conforms，permanently，and，ina
stateoffreedom，almostimmediately，tothevalueofthemetal
ofwhichitismade;withtheaddition，ornot，oftheexpenses
ofcoinage，accordingasthoseexpensesarebornebythe
individualorbythestate。Thissimplifiesextremelythe
questionwhichwehaveheretoconsider:sincegoldandsilver
bullionarecommoditieslikeanyothers，andtheirvaluedepends，
likethatofotherthings，ontheircostofproduction。
Tothemajorityofcivilizedcountries，goldandsilverare
foreignproducts:andthecircumstanceswhichgovernthevalues
offoreignproducts，presentsomequestionswhichwearenotyet
readytoexamine。Forthepresent，therefore，wemustsupposethe
countrywhichisthesubjectofourinquiries，tobesupplied
withgoldandsilverbyitsownmines，reservingforfuture
considerationhowfarourconclusionsrequiremodificationto
adaptthemtothemoreusualcase。
Ofthethreeclassesintowhichcommoditiesaredivided——
thoseabsolutelylimitedinsupply，thosewhichmaybehadin
unlimitedquantityatagivencostofproduction，andthosewhich
maybehadinunlimitedquantity，butatanincreasingcostof
production——thepreciousmetals，beingtheproduceofmines，
belongtothethirdclass。Theirnaturalvalue，therefore，isin
thelongrunproportionaltotheircostofproductioninthemost
unfavourableexistingcircumstances，thatis，attheworstmine
whichitisnecessarytoworkinordertoobtaintherequired
supply。Apoundweightofgoldwill，inthegold—producing
countries，ultimatelytendtoexchangeforasmuchofeveryother
commodity，asisproducedatacostequaltoitsown;meaningby
itsowncostthecostinlabourandexpense，attheleast
productivesourcesofsupplywhichthethenexistingdemandmakes
itnecessarytowork。Theaveragevalueofgoldismadeto
conformtoitsnaturalvalue，inthesamemannerasthevaluesof
otherthingsaremadetoconformtotheirnaturalvalue。Suppose
thatitweresellingaboveitsnaturalvalue;thatis，abovethe
valuewhichisanequivalentforthelabourandexpenseof
mining，andfortherisksattendingabranchofindustryinwhich
nineoutoftenexperimentshaveusuallybeenfailures。Apartof
themassoffloatingcapitalwhichisonthelookoutfor
investment，wouldtakethedirectionofminingenterprise;the
supplywouldthusbeincreased，andthevaluewouldfall。If，on
thecontrary，itweresellingbelowitsnaturalvalue，miners
wouldnotbeobtainingtheordinaryprofit;theywouldslacken
theirworks;ifthedepreciationwasgreat，someoftheinferior
mineswouldperhapsstopworkingaltogether:andafallingoffin
theannualsupply，preventingtheannualwearandtearfrombeing
completelycompensated，wouldbydegreesreducethequantity，and
restorethevalue。
Whenexaminedmoreclosely，thefollowingarethedetailsof
theprocess。Ifgoldisaboveitsnaturalorcostvalue——the
coin，aswehaveseen，conforminginitsvaluetothe
bullion—moneywillbeofhighvalue，andthepricesofall
things，labourincluded，willbelow。Theselowpriceswilllower
theexpensesofallproducers;butastheirreturnswillalsobe
lowered，noadvantagewillbeobtainedbyanyproducer，except
theproducerofgold:whosereturnsfromhismine，notdepending
onprice，willbethesameasbefore，andhisexpensesbeing
less，hewillobtainextraprofits，andwillbestimulatedto
increasehisproduction。Econversoifthemetalisbelowits
naturalvalue:sincethisisasmuchastosaythatpricesare
high，andthemoneyexpensesofallproducersunusuallygreat:
forthis，however，allotherproducerswillbecompensatedby
increasedmoneyreturns:themineralonewillextractfromhis
minenomoremetalthanbefore，whilehisexpenseswillbe
greater:hisprofitsthereforebeingdiminishedorannihilated，
hewilldiminishhisproduction，ifnotabandonhisemployment。
Inthismanneritisthatthevalueofmoneyismadeto
conformtothecostofproductionofthemetalofwhichitis
made。Itmaybewell，however，torepeat（whathasbeensaid
before）thattheadjustmenttakesalongtimetoeffect，inthe
caseofacommoditysogenerallydesiredandatthesametimeso
durableasthepreciousmetals。Beingsolargelyusednotonlyas
moneybutforplateandornament，thereisatalltimesavery
largequantityofthesemetalsinexistence:whiletheyareso
slowlywornout，thatacomparativelysmallannualproductionis
sufficienttokeepupthesupply，andtomakeanyadditiontoit
whichmayberequiredbytheincreaseofgoodstobecirculated，
orbytheincreaseddemandforgoldandsilverarticlesby
wealthyconsumers。Evenifthissmallannualsupplywerestopt
entirely，itwouldrequiremanyyearstoreducethequantityso
muchastomakeanyverymaterialdifferenceinprices。The
quantitymaybeincreased，muchmorerapidlythanitcanbe
diminished;buttheincreasemustbeverygreatbeforeitcan
makeitselfmuchfeltoversuchamassofthepreciousmetalsas
existsinthewholecommercialworld。Andhencetheeffectsof
allchangesintheconditionsofproductionoftheprecious
metalsareatfirst，andcontinuetobeformanyyears，questions
ofquantityonly，withlittlereferencetocostofproduction。
Moreespeciallyisthisthecasewhen，asatthepresenttime，
manynewsourcesofsupplyhavebeensimultaneouslyopened，most
ofthempracticablebylabouralone，withoutanycapitalin
advancebeyondapickaxeandaweek’sfood;andwhenthe
operationsareasyetwhollyexperimental，thecomparative
permanentproductivenessofthedifferentsourcesbeingentirely
unascertained。
3。Since，however，thevalueofmoneyreallyconforms，like
thatofotherthings，thoughmoreslowly，toitscostof
production，somepoliticaleconomistshaveobjectedaltogetherto
thestatementthatthevalueofmoneydependsonitsquantity
combinedwiththerapidityofcirculation;which，theythink，is
assuringalawformoneythatdoesnotexistforanyother
commodity，whenthetruthisthatitisgovernedbytheverysame
laws。Tothiswemayanswer，inthefirstplace，thatthe
statementinquestionassumesnopeculiarlaw。Itissimplythe
lawofdemandandsupply，whichisacknowledgedtobeapplicable
toallcommodities，andwhich，inthecaseofmoneyasofmost
otherthings，iscontrolled，butnotsetaside，bythelawof
costofproduction，sincecostofproductionwouldhavenoeffect
onvalueifitcouldhavenoneonsupply。But，secondly，there
reallyis，inonerespect，acloserconnexionbetweenthevalue
ofmoneyanditsquantity，thanbetweenthevaluesofother
thingsandtheirquantity。Thevalueofotherthingsconformsto
thechangesinthecostofproduction，withoutrequiring，asa
condition，thatthereshouldbeanyactualalterationofthe
supply:thepotentialalterationissufficient;andifthereeven
beanactualalteration，itisbutatemporaryone，exceptinso
farasthealteredvaluemaymakeadifferenceinthedemand，and
sorequireanincreaseordiminutionofsupply，asaconsequence，
notacause，ofthealterationinvalue。Nowthisisalsotrueof
goldandsilver，consideredasarticlesofexpenditurefor
ornamentandluxury;butitisnottrueofmoney。Ifthe
permanentcostofproductionofgoldwerereducedone—fourth，it
mighthappenthattherewouldnotbemoreofitboughtforplate，
gilding，orjewellery，thanbefore;andifso，thoughthevalue
wouldfall，thequantityextractedfromtheminesforthese
purposeswouldbenogreaterthanpreviously。Notsowiththe
portionusedasmoney;thatportioncouldnotfallinvalue
one—fourth，unlessactuallyincreasedone—fourth;for，atprices
one—fourthhigher，one—fourthmoremoneywouldberequiredto
maketheaccustomedpurchases;andifthiswerenotforthcoming，
someofthecommoditieswouldbewithoutpurchasers，andprices
couldnotbekeptup。Alterations，therefore，inthecostof
productionofthepreciousmetals，donotactuponthevalueof
moneyexceptjustinproportionastheyincreaseordiminishits
quantity;whichcannotbesaidofanyothercommodity。Itwould
therefore，Iconceive，beanerrorbothscientificallyand
practically，todiscardthepropositionwhichassertsaconnexion
betweenthevalueofmoneyanditsquantity。
Itisevident，however，thatthecostofproduction，inthe
longrun，regulatesthequantity;andthateverycountry
（temporaryfluctuationsexcepted）willpossess，andhavein
circulation，justthatquantityofmoney，whichwillperformall
theexchangesrequiredofit，consistentlywithmaintaininga
valueconformabletoitscostofproduction。Thepricesofthings
will，ontheaverage，besuchthatmoneywillexchangeforits
owncostinallothergoods:and，preciselybecausethequantity
cannotbepreventedfromaffectingthevalue，thequantityitself
will（byasortofself—actingmachinery）bekeptattheamount
consistentwiththatstandardofprices—attheamountnecessary
forperforming，atthoseprices，allthebusinessrequiredofit。
"Thequantitywantedwilldependpartlyonthecostof
producinggold，andpartlyontherapidityofitscirculation。
Therapidityofcirculationbeinggiven，itwoulddependonthe
costofproduction:andthecostofproductionbeinggiven，the
quantityofmoneywoulddependontherapidityofits
circulation。"（3*）Afterwhathasbeenalreadysaid，Ihopethat
neitherofthesepropositionsstandsinneedofanyfurther
illustration。
Money，then，likecommoditiesingeneral，havingavalue
dependenton，andproportionalto，itscostofproduction;the
theoryofmoneyis，bytheadmissionofthisprinciple，striptof
agreatpartofthemysterywhichapparentlysurroundedit。We
mustnotforget，however，thatthisdoctrineonlyappliestothe
placesinwhichthepreciousmetalsareactuallyproduced;and
thatwehaveyettoenquirewhetherthelawofthedependenceof
valueoncostofproductionappliestotheexchangeofthings
producedatdistantplaces。Buthoweverthismaybe，our
propositionswithrespecttovaluewillrequirenoother
alteration，wheremoneyisanimportedcommodity，thanthatof
substitutingforthecostofitsproduction，thecostof
obtainingitinthecountry。Everyforeigncommodityisboughtby
givingforitsomedomesticproduction;andthelabourand
capitalwhichaforeigncommoditycoststous，isthelabourand
capitalexpendedinproducingthequantityofourowngoodswhich
wegiveinexchangeforit。Whatthisquantitydependsupon，——
whatdeterminestheproportionsofinterchangebetweenthe
productionsofonecountryandthoseofanother，——isindeeda
questionofsomewhatgreatercomplexitythanthosewehave
hithertoconsidered。Butthisatleastisindisputable，that
withinthecountryitselfthevalueofimportedcommoditiesis
determinedbythevalue，andconsequentlybythecostof
production，oftheequivalentgivenforthem;andmoney，whereit
isanimportedcommodity，issubjecttothesamelaw。
NOTES:
1。Theeffectoftheprohibitioncannot，however，havebeenso
entirelyinsignificantasithasbeensupposedtobebywriters
onthesubject。ThefactsadducedbyMrFullerton，inthenoteto
page7ofhisworkontheRegulationofCurrencies，showthatit
requiredagreaterpercentageofdifferenceinvaluebetweencoin
andbullionthathascommonlybeenimagined，tobringthecointo
themeltingpot。
2。InEngland，thoughthereisnoseignorageongoldcoin，（the
Mintreturningincointhesameweightofpuremetalwhichit
receivesinbullion）thereisadelayofafewweeksafterthe
bullionisdeposited，beforethecoincanbeobtained，
occasioningalossofinterest，which，totheholder，is
equivalenttoatriflingseignorage。Fromthiscause，thevalue
ofcoinisingeneralslightlyabovethatofthebullionit
contains。Anounceofgold，accordingtothequantityofmetalin
asovereign，shouldbeworth3l。17s。101/2d。;butitwas
usuallyquotedat3l。17s。6d。，untiltheBankCharterActof
1844madeitimperativeontheBanktogiveitsnotesforall
bullionofferedtoitattherateof3l。17s。9d。
3。Fromsomeprinted，butnotpublished，LecturesofMrSenior:
inwhichthegreatdifferencesinthebusinessdonebymoney，as
wellasintherapidityofitscirculation，indifferentstates
ofsocietyandcivilization，areinterestinglyillustrated。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter10
OfaDoubleStandard，andSubsidiaryCoins
1。Thoughthequalitiesnecessarytofitanycommodityfor
beingusedasmoneyarerarelyunitedinanyconsiderable
perfection，therearetwocommoditieswhichpossesstheminan
eminent，andnearlyanequaldegree;thetwopreciousmetals，as
theyarecalled;goldandsilver。Somenationshaveaccordingly
attemptedtocomposetheircirculatingmediumofthesetwometals
indiscriminately。Thereisanobviousconvenienceinmakinguse
ofthemorecostlymetalforlargerpayments，andthecheaperone
forsmaller;andtheonlyquestionrelatestothemodeinwhich
thiscanbestbedone。Themodemostfrequentlyadoptedhasbeen
toestablishbetweenthetwometalsafixedproportion;to
decide，forexample，thatagoldcoincalledasovereignshould
beequivalenttotwentyofthesilvercoinscalledshillings:
boththeoneandtheotherbeingcalled，intheordinarymoneyof
accountofthecountry，bythesamedenomination，apound:andit
beingleftfreetoeveryonewhohasapoundtopay，eitherto
payitintheonemetalorintheother。
Atthetimewhenthevaluationofthetwometalsrelatively
toeachother，saytwentyshillingstothesovereign，or
twenty—oneshillingstotheguinea，wasfirstmade，the
proportionprobablycorresponded，asnearlyasitcouldbemade
todo，withtheordinaryrelativevaluesofthetwometals
groundedontheircostofproduction:andifthosenaturalor
costvaluesalwayscontinuedtobearthesameratiotoone
another，thearrangementwouldbeunobjectionable。This，however，
isfarfrombeingthefact。Goldandsilver，thoughtheleast
variableinvalueofallcommodities，arenotinvariable，anddo
notalwaysvarysimultaneously。Silver，forexample，waslowered
inpermanentvaluemorethangold，bythediscoveryofthe
Americanmines;andthosesmal1variationsofvaluewhichtake
placeoccasionally，donotaffectbothmetalsalike。Supposesuch
avariationtotakeplace:thevalueofthetwometalsrelatively
tooneanothernolongeragreeingwiththeirratedproportion，
oneorotherofthemwillnowberatedbelowitsbullionvalue，
andtherewillbeaprofittobemadebymeltingit。
Suppose，forexample，thatgoldrisesinvaluerelativelyto
silver，sothatthequantityofgoldinasovereignisnowworth
morethanthequantityofsilverintwentyshillings。Two
consequenceswillensue。Nodebtorwillanylongerfindithis
interesttopayingold。Hewillalwayspayinsilver，because
twentyshillingsarealegaltenderforadebtofonepound，and
hecanprocuresilverconvertibleintotwentyshillingsforless
goldthanthatcontainedinasovereign。Theotherconsequence
willbe，thatunlessasovereigncanbesoldformorethantwenty
shillings，allthesovereignswillbemelted，sinceasbullion
theywillpurchaseagreaternumberofshillingsthanthey
exchangeforascoin。Theconverseofallthiswouldhappenif
silver，insteadofgold，werethemetalwhichhadrisenin
comparativevalue。Asovereignwouldnotnowbeworthsomuchas
twentyshillings，andwhoeverhadapoundtopaywouldprefer
payingitbyasovereign;whilethesilvercoinswouldbe
collectedforthepurposeofbeingmelted，andsoldasbullion
forgoldattheirrealvalue，thatis，abovethelegalvaluation。
Themoneyofthecommunity，therefore，wouldneverreallyconsist
ofbothmetals，butoftheoneonlywhich，attheparticular
time，bestsuitedtheinterestofdebtors;andthestandardof
thecurrencywouldbeconstantlyliabletochangefromtheone
metaltotheother，ataloss，oneachchange，oftheexpenseof
coinageonthemetalwhichfelloutofuse。
Itappears，therefore，thatthevalueofmoneyisliableto
morefrequentfluctuationswhenbothmetalsarealegaltenderat
afixedvaluation，thanwhentheexclusivestandardofthe
currencyiseithergoldorsilver。Insteadofbeingonlyaffected
byvariationsinthecostofproductionofonemetal，itis
subjecttoderangementfromthoseoftwo。Theparticularkindof
variationtowhichacurrencyisrenderedmoreliablebyhaving
twolegalstandards，isafallofvalue，orwhatiscommonly
calledadepreciation;sincepracticallythatoneofthetwo
metalswillalwaysbethestandard，ofwhichtherealhasfallen
belowtheratedvalue。Ifthetendencyofthemetalsbetorise
invalue，allpaymentswillbemadeintheonewhichhasrisen
least;andiftofall，theninthatwhichhasfallenmost。
2。Theplanofadoublestandardisstilloccasionally
broughtforwardbyhereandthereawriterororatorasagreat
improvementincurrency。Itisprobablethat，withmostofits
adherents，itschiefmeritisitstendencytoasortof
depreciation，therebeingatalltimesabundanceofsupporters
foranymode，eitheropenorcovert，ofloweringthestandard。
Some，however，areinfluencedbyanexaggeratedestimateofan
advantagewhichtoacertainextentisreal，thatofbeingable
tohaverecourse，forreplenishingthecirculation，totheunited
stockofgoldandsilverinthecommercialworld，insteadof
beingconfinedtooneofthem，which，fromaccidentalabsorption，
maynotbeobtainablewithsufficientrapidity。Theadvantage
withoutthedisadvantagesofadoublestandard，seemstobebest
obtainedbythosenationswithwhomoneonlyofthetwometalsis
alegaltender，buttheotheralsoiscoined，andallowedtopass
forwhatevervaluethemarketassignstoit。