The Supply of Money in a State
The amount of hard currency circulating in a state can be increased by working the mines to produce it, or buy trading goods to foreign markets to bring it into the domestic market.
In the author's time, it was apparent that states that have the infrastructure for commerce, namely cargo ships, have increased their wealth dramatically - in some instances (England) by being able to trade domestic goods to foreign markets, yet in others (Holland) the ability to trade goods produced in one foreign market to another foreign market.
However, this cannot continue without limit: the import of currency increases the money supply in a country, which as explained in the previous chapter, serves to increase the price of domestic goods. In time, this makes foreign goods more affordable, and the money that entered the market from abroad is then sent back out to fetch goods that are by comparison cheap.
Unfortunately, this also degrades domestic production. If foreign wheat is far less expensive that domestic, and customers purchase from foreign providers, domestic providers will sow less wheat. This leaves the nation in a vulnerable position if the foreign supply is cut off. It takes but a few days to effect an embargo to stop the importation of food, but months to restore domestic production, which famine in the interim.
It is likewise problematic if the wealthy individuals in a nation purchase luxury items from abroad, sending out currency in exchange for art, silk, gems, and other rare objects. As currency in the domestic market is diminished, its value in trade increases, such that the price of goods - even everyday needful items - rises for all of the market.
Therefore it is in the interest of a state not to seek to amass currency, but to maintain a reasonable balance of trade, selling abroad that which is produced in excess of domestic demand, and taking care that the goods imported from foreign nations do not diminish domestic productivity.
Foreign trade is not the only means by which currency can be increased or diminished in an economy: consider that the state or even individuals can amass a hoard of currency or spend out amassed savings, which decreases and increases the supply of money to the market, and has the inverse effect on the price of things.
The historical record shows the fluctuations in the prosperity of states, which rise from poverty to wealth, then fall back from wealth to poverty. While it is simple to recognize in history, it is difficult to determine at the present time whether the amount of money is more or less abundant than it ought to be for the productivity and prosperity of the people. And princes and heads of state "do not concern themselves much with this sort of knowledge."
Given that money is divided among many people and stashed in many places, it is not feasible merely to count the money in a country, but the author reckons the rent of property that is paid in money rather than goods reflects the scarcity of money. For example, an acre of vineyard in Mantes, not far from Paris, rented for 200 livres in 1660 but only 100 livres in 1700 - suggesting that the amount of silver decreased by half during that period. Naturally this is a broad assumption that fails to take into account other factors, such as the demand of wine (which drives the rent of vineyards) - it consumption of wines decreased to the supply of wines increased, it would also affect the amount of rent that could be offered for an acre of vineyard.
It is considered that a state that has more money in circulation has an advantage over a neighbor with less. Where money is plentiful and domestic labor is expensive, the nation has the ability to import goods cheaply - which is to say domestic laborers spend less time to earn money and purchase correspondingly more labor from foreign sources. It also gives the state greater ability to vie for scarce resources of other nations - simply put, when a given good is in short supply, citizens of a nation with more money have greater capacity to gain the good by their ability to offer more to a seller.
In terms of warfare, countries that have an abundance of money are better able to obtain materiel and soldiers than those without. Especially when a nation is in conflict, promises of land may be nullified or revoked. The author asserts that merchandise is not valuable because it is easily recognized - but ore importantly, it must be goods of a nature that are appealing to its suppliers.
Another method of money movement is the lending of money between states. This creates a temporary shift in currency as a large amount is moved from one state to another, and then returned incrementally - and since lending aboard is done at considerable interest, then considerably more money moves back than was temporarily transferred in. The interest may well be affordable if the borrowed money is used to establish productive enterprises, whose profit covers the interest and whose productivity remains after the loan has been repaid.
However, it is often not the practice that these loans are repaid in full. A debtor consumes what was borrowed rather than putting it to productive use, then has the need to borrow more. Eventually, a debtor state is overburdened by interest and has not the means to repay it, nor the reputation to borrow further, and this bankruptcy or warfare ensues. It is not much different in this regard to men who borrow money, but that a state seems to be more inclined toward prodigality than production.
States may also increase their capital by means of accidents: a highly productive harvest among all its farmers, or the discovery of a new mine right with precious ore, can grant to states a windfall. This is unpredictable and cannot be counted upon - besides which fact the disposal of the windfall may be consumption or an improvement to productive capability at the whim of the sovereign and the people.
The last method for increasing a state's monetary resource is by violence - simply using its military to take the wealth of other nations. The author does not care to examine the way this has been done, but does remark that every nation that has gained wealthy by pillaging others has never failed to decline very rapidly - either by the retaliation of its victims or simply running out of places that could be profitably pillaged.
The author considers the history of Rome, whose empire was very prosperous and stable, so long as it was able to grow by means of producing. In tis golden age Rome did not loot and destroy its neighbors, but annexed provinces, developed their productive capability, and traded with them. The empire's decline began with Tiberius, who horded money and extorted tribute in excess of production and who used conquest to loot rather than develop new provinces, then spent the treasures on decadent consumption rather than developing the productive capability of the empire. "The Roman Empire fell into decline through the loss of its money before losing any of its estates."