1.21 The Nature and Uses of Money
Money is often mistaken for the source and embodiment of wealth in a nation, and as such it merits closer consideration. It is, in fact, merely a vehicle of trade.
The wealth of a nation derives from the happiness and prosperity of the people. In an economic sense, this is delivered by the things that deliver the necessities and conveniences of life. A nation of men without any money at all may be as fortunate, or more fortunate, if each of them can get these things without money: each man produces everything he wants and needs, and the more productive he is, the more he can produce for his own consumption, and the happier he will be in the enjoyment of the fruits of his own good work.
More commonly, men apply themselves to the production of one good, that which they can produce most efficiently, and trade it to others in their community who produce other goods. The more productive he is, the more goods he has to trade, and the more goods of others he can obtain for his own enjoyment.
Perhaps the reason that commerce has received undue attention is because of its visibility. Where a family can produce all that it needs, such as in certain backcountry settlements in the United States, society may be wholly unaware of it. It is only when they bring products to town for trade that anyone is aware of how much they have produced.
Money facilitates trade in larger societies in which there are too many producers and consumers of goods for direct barter to be efficient. "The hungry cutler must offer the baker his knives for bread; perhaps, the baker has knives enough, but wants a coat; he is willing to purchase one of the tailor with his bread, but the tailor wants not bread, but butcher's meat; and so on to infinity."
In such a system, money creates a commodity for which all are willing to trade, simply because of its function as a medium of exchange. The cutler sells his knives for money not because he wants to have money, but because he can then exchange the money for bread or any other article he may wish for.
In addition to universal acceptance in exchange, a second value of money is in divisibility. The cutler sells a knife for a sum of money, then spends part of that money on bread, another part on meat, and another part on something else. It is especially useful for the producers of durable goods to be able to do so, as a baker may need one knife in a decade, whereas the cutler needs bread every day.
This also supports a division of labor. To keep to cutlery, one man may be good at making blades but hopeless at fashioning handles, and another may be the opposite. The existence of money enables them to subdivide the task, each being paid in measure for his contribution to a finished good that is of a level of quality he would not achieved if he made it entirely.
As such, the more advanced a civilization in terms of the specialization and division of labor, the greater its need for money. Money does not exist in primitive societies, and they seem scarcely able to fathom the notion.
It is also of importance to recall that money is established by the market, not the government. Merchants adopted the custom of trading in coin and ingot long before the government became involved. And whereas government does much to ensure the standardization of money (ascertaining the alloy and weight of coins and discouraging forgery), it is not the historical originator of money nor is it indispensible.
That is, the people who are engaged in a trade agree to the medium in which they will conduct trade: by direct barter of goods or trade of goods for any commodity that functions as money. It has been seen in practice where governments and monetary systems fail, and trade continues - it is frustrated for the lack of an established currency, but production and trade does not cease.
With these basics considered, Say will now seek to consider the "essential properties of money and the principal contingences it is subject to" as well as to the unnatural situations that arise from "human folly or misfortune."
The Material of Money
While Say will consider the material of money, he suggests it is a manner of very little consequence. People use money as a medium of trade - they gain it only to spend it, and hold it but a short time, and as such it substance should make little difference.
Consider some of the following:
- The ancient Greeks often used oxen as a medium of exchange: Diomede's armor cost him nine oxen. This could be a problem if the cost of an item is half an ox - as cutting an ox in half is not to pay half an ox, but some quantity of bad meat.
- Smith mentioned the use of nails as currency in some towns in Scotland. The problem is that nails are not uniform in size and quality.
- In Rome and Abyssinia, salt was used for money. This points to the problem with using a commodity with little value for weight, as it would take several cart-loads of salt to purchase a horse.
- In Newfoundland, dried cod was used for money. It rots more slowly than other food items, but it still rots.
- In some parts of India and Africa, shells were used for money. Say suggests it may have been perfectly serviceable as local currency, but given that the shells have no intrinsic value, it would not do for international trade.
It is of little surprise that most of the commercialized nations of the world eventually arrived at the use of precious metals for use as money, in that it overcomes many of the limitations mentioned above:
- Metal can be divided into extremely minute portions and re-combined into larger pieces without reducing its value
- Metal has a sameness of quality in all markets: silver in China is the same as silver in Europe.
- Metal does not rot or decay, but maintain their value over time and are not significantly damaged by handling.
- Metal has a high value per unit of weight, and can be alloyed with lesser metals to create a piece that carries less value but is not so small as to be inconvenient to handle (or convenient to lose)
- Metal metals are rare enough to be precious, but not so rare as to be entirely unavailable.
- Metal can be minted into coins and ingots that can bear a indication of their weight and the purity of their alloy.
As such, metal has many properties that make it a good choice for use as a commodity that functions as money - but other commodities can be employed.
He reiterates: money does not have value due to the authority of the government, but to its being a commodity bearing an intrinsic value that is recognized by the seller.
(EN: This seems sensible enough, but likely that the exchange value is more important than the intrinsic value. Those societies that traded in beads or shells or other such items, as well as the present-day use of fiat money, suggests that a token with no intrinsic value can function as money so long as the seller expects to be able to trade it for other things.)
Value Increases for a Commodity Used as Money
It has been observed that when a given commodity is adopted to serve as money, its value rises above its intrinsic value. For example, the value of a silver ring is less than that of a coin made of the exact same amount of silver.
For a normal commodity, it would be worth more because the raw material is of less value than the finished good (the value of labor being added to the material cost). But as a money commodity, its primary function is as a token of exchange and any other uses are secondary: hence the labor is necessary to transform the ring into a coin for use in exchange.
Another factor that increases a commodity's value is the amount of a commodity in circulation or storage as money is subtracted from the whole amount available for other purposes, decreasing its supply. For example, if a market's stock of silver is ten tons and nine tons are in use or storage as coinage, only one ton remains for any other purpose (jewelry, plate, etc.) making it harder to obtain for those purposes, hence more costly.
Say observes that, in a general, nations where metal is used as money tend to make lesser use of it for other purposes. The Aztec tribes of the new world fashioned many everyday items of pure gold because they had no other use of it. In Europe, gold ornamentation tends to be very small - rings, brooches, pins and the line - and use alloys rather than the pure metal, or gilt (a very thin veneer of gold over a based metal) because its value in commerce is greater than its value in ornamentation. The increase in the value of metals makes articles of that metal unaffordable to many individuals, and those that can afford then generally have the sense to recognize it as a waste.
In international commerce, the effect ripples outward: if silver is used as currency in Europe, the price of silver rises in any country with which Europe conducts trade, as European traders will pay a higher price for the metal than it commands in the domestic market. If Europe were to abandon silver as a money commodity and demand less of it, the value of silver would likewise fall in any market with which Europe trades.
Neither does the use of metal as money stabilize its value: it is subject to supply and demand, just as any other commodity does, in relation to the other goods for which it is traded. If there is a surplus of silver coin in a market, the price of products will seem to rise because the coin is easier to come by, therefore worth less.
The use of a medium such as paper or lesser metals to create tokens of exchange that are worth a nominal amount of precious metal has been used in some instances to substitute for the physical metal itself in trade.
Say does not subscribe to the notion that paper money derives its value from being exchangeable for metal in a certain quantity. The amount of paper in circulation in European markets exceeds the amount of metal that is available to redeem it, and governments have at times suspended the redemption of their paper money for metals, yet the money remained in use in the markets.
(EN: Whether money must be redeemable seems a bone of contention among economists. My sense is that the modern use of fiat money that is not redeemable at all seems to settle the matter. People do not value money because it can be redeemed for metal, but because it can be used to purchase goods. So long as a seller will accept the money, the prospect of redemption is not even considered.)
Neither is the value of exchange limited to money, but is true of all commodities. If you consider the perspective of the merchant or manufacturer, he is not concerned about the intrinsic value of a store-house full of indigo - as indigo increases the value of dyed cloth, but satisfies no want in its present state. Instead, he concerns himself with exchanging his store of indigo for other things he values more. This is essentially the same for any commodity, including money.
The Unity of Coinage and the Charge of its Execution
A money commodity is constantly passed from one person to another in the daily course of buying and selling in markets. Where gold and silver are used, this would require each transaction to include a ritual in which the alloy and weight of the buyer's coin are assessed in some way. Coinage eliminates this necessity by standardizing the metal into pieces whose value is accepted.
(EN: Occurs to me that the same is true of any commodity. If you purchase wine or a hen, the customer must perform some test or inspection that requires him to have expertise in making an assessment of quality. In the present age, products are also largely standardized, which also facilitates commerce.)
Coinage can be privately minted, but maintaining the trust in the value of coinage ultimately falls to government, which must react in instances of fraud and forgery. As such, the government of each state typically reserves to itself the exclusive manufacture of coins and other tokens of exchange with an eye toward complete monopolization. This enables the government to fix the standard of currency, and for all buyers and sellers in a market to use the same standard.
Creating coinage as a productive business requires the producer to provide coin that is worth less than the metal exchanged for it, to defray the cost of coinage and provide his profit. This is also true when government produces coin, the alternative to which would be to use taxation to cover the costs of production and provide ounce-for-ounce conversion to those who want money.
Say considers the case of England, which uses taxes to cover the cost of coining money, which made the coin attractive to foreign traders - and found that a British coin became preferred to gold specie, as it had been weighed and certified. Hence, foreign merchants valued the coin and had little interest in returning it in trade, given that converting their bullion into certified coin in other nations was an expense. In effect, England was offering, at the tax expense of its own citizens, free smelting and certification services to all the merchants of the world.
The consequence was that English mints were so overburdened with business that a person who provided metal would need to wait weeks, even months, to receive his coin. For merchants, this delay was a loss (as they were unable to conduct business without coin in hand) that offset the convenience of having coined money.
(EN: Say does not mention the problem of bimetallic currency systems, where the fluctuations between silver and gold lead to a coin being worth more as metal than its face value as a coin, so coins are privately melted down into ingots, bought back as coin, re-melted, and so on. This is likely a digression, but significant to the point that funding the national mint out of general taxes is a bad idea.)
In contrast, other governments of Europe, as well as private mints, charge a seignorage fee for exchanging metal for coin to cover the cost of production. The value the customer of a mint obtains for this fee is the convenience of having an object that can be readily exchanged, in place of one with slightly higher value whose value must be assessed with each act of exchange.
A side effect of seignorage is that coin becomes more valuable than the metal it contains, by the exact ratio: if the fee is 5%, then 19 coins containing an ounce of metal are worth 20 ounces of un-coined metal. Thus seems to nullify arguments over the rate of seignorage, as it is zero-sum. Further, the preference of coin over metal is maintained only if the rate charged is seen as reasonable - otherwise, people would keep and trade in metal.
(EN: This brings to mind the instances in the twentieth century in which the US government, in the course of dickering with the monetary system, declared it illegal for private citizens to own gold, demanded it be redeemed for currency, and seized private stores that were withheld. And further, to insist that all public and private debts be conducted with the national currency. Aside of the inherent injustice, this also prevents the citizens from refusing to support government currency by any means short of revolt.)
Where seignorage exists, it is of no consequence to the state whether its coins are kept in the domestic market or carried abroad, or if the coins are melted down repeatedly. Since seignorage covers the cost of production, and provides a revenue, the volume of demand on the mint is no burden to the taxpayer.
An example given is the Spanish dollar, coined of gold, and accepted the world over as a dependable currency. A particular testament to its value is that when the United States adopted the dollar as its currency, and saw fit merely to re-stamp Spanish coins with its own imprint, the coin had little demand outside of America. Its various attempts to promote confidence an acceptance of its coin in international trade failed miserably, to the detriment of its domestic production and trade.
A drawback to government-backed money is its insistence on paying its own suppliers in its own coin - which, in instances in which the seller is not pleased to accept the coin, is the equivalent of the seizure of the merchant's property.
And while it has been concluded that the intrinsic value of money is of less importance than its exchange value, a money that has intrinsic value prevents government from debasing its currency: if a government must pay in gold, it must have the gold to make payment. If the currency is a token without intrinsic value, the government may mint coins of base metal or issue paper bills at will, increasing the amount of money without increasing the amount of value, hence the currency becomes debased. (EN: Said another way, a government that issues fiat money reserves to itself the right of forgery.)
From here, Say recaps some of the previous points and provides some narrative in support of the hypotheses, but offers nothing additional.
Altering the Standard of Money
Recall that the determination of the commodity to be used as money is entirely arbitrary: it can be silver, salt, or shells so long as it is accepted in commerce. Where government dictates the commodity that will serve as money, it remains an arbitrary choice that the market may accept or reject. Some may be compelled to accept it, but in private transactions cannot be forced to value it, so it will command less and less goods until it is deemed worthless.
Historical example: King Numa of the Romans was the first to issue state currency in the form of copper coins, which was the most proper metal for the purpose at the time, as Romans previously used copper bars for trade, gold and silver being too rare for the purpose. The error he made was in assuming that he could control the value of money by raising or lowering the value of coins at a whim - but his degrees did not change the behavior of traders in the marketplace, who did not adjust their prices or assessment of the value of copper by his decree, but continued to assess the weight and purity of the metal, whose value was set by supply and demand in the market.
Skip forward to Philip I of France, who literally debased the currency by reducing the size of coins and allowing them with base metals: at the beginning of his reign, a livre contained 12 ounces of fine silver, and at the end, it contained only 8. The prices of most goods in the market rose 33% doing the same time (costing the exact same amount of silver). Say's clever analogy is this was as foolish as attempting to use conjuration to transmute eight ounces of silver into twelve.
It's also noted that the kings that followed further debased the livre, from 8 to 6 to 4 to 2. And by the French revolution, the livre represented 1/6 of an ounce of silver. In the market, it was accepted for the value of silver it represented, ever decreasing, such that prices constantly increased and the economy was not improved - though it did severly decay the wealth of the aristocracy, who depended on rent of their lands, and whose long-term contracts with tenants prevented them from adjusting their income to account for the decreased value of coin.
The motive of the state in debasing currency is clear enough: "it is extremely convenient to pay one's debts with less money than one borrowed." But aside of cheating creditors, a government must then collect taxes, pay (more) for goods, and accept less of its own debtors in the same debased currency. And while currency can be forced on the domestic market, it is not possible to compel foreign traders to accept less in payment - and when the debasement of currency harms domestic producers, the dependency on foreign goods is more critical.
Recognizing that debasement harms the value of currency did not dissuade "counterfeiters armed with public authority" from the practice. Instead, they attempted top do so covertly, with various tactics used to conceal the debasement. This ultimately did more harm than good: where creditors and merchants are fully aware of the degree to which a coin is debased, interest rates and prices adjust with precision. Where there is uncertainty or doubt, their uncertainty leads them to overcompensate. In some instances, the use of an official coin was altogether abandoned, especially by foreign merchants who flatly refused to accept it and reverting to the inconvenient task of weighing and assessing the alloy of payments.
No government should imagine, or expect anyone else to accept, that defrauding their subjects is a means to promote prosperity. "A system of swindling can never be long-lived," and individuals will inevitably discover the true value of currency when they attempt to use it in their own trade. The net result is undoing the sole benefit of government-certified money: the trust that people have that it has a given value. The side effects are damage to the trust of the people for their leaders and disgrace in the international community.
In general, debasing the currency is in fact an act of fraud in which the state seeks to gain advantage by paying less than it has agreed in terms of the actual value (metal) promised. This may accomplish the short-terms goals of the state - in clearing from its books the debt it owes by short-changing its creditors - but creates a greater long-term problem, in that a creditor is not likely to extend additional credit to a debtor who has swindled them in the past.
In some instances, debasement is done by a government in desperation, whose treasury has run dry and debasement is seen as a method of staving off public bankruptcy. In practice, there is little difference between the two. Whether government declares its bankruptcy and refuses to pay its creditors at all, or refuses to make such a declaration and pays instead with debased coin, the creditors absorb the same loss. Whether government levies new taxes or devalues the money its citizens possess, they also take the same loss. Arguably, it is less disgraced by admitting its mismanagement of funds than to have it incrementally discovered, as in the former case, those who trade with government suffer the same loss but do not have the sense they have been deceived, and may be deceived further in future.
A loose thread: the misconduct of government degrades the national morality. Where men who are regarded as noble and trustworthy engage in scandalous behavior, the values of their people are called into question: when the ruling class swindles and cheats, then swindling and cheating must be acceptable - or at the very least, dishonesty becomes a means of leveling the playing field when dealing with others, whom one expects to be dishonest.
Why Money is Neither a Sign Nor a Measure
Government may certify the value of money, but the value of money is not created by government. That is to say that a coin is accepted because it contains a given amount of metal: if a government were to issue coins made of tin or pewter, they would not be accepted as being equal in value to those made of silver even if they were declared by law to be of equal value.
(EN: In the US, the adoption of clad coinage calls this into question. A 1964 quarter-dollar piece was made of silver, in 1965 it was tin and copper, and was accepted as being worth the same amount in trade. The two continued to trade in the market as equal in value until the price of silver rose and people began to seek out the silver coins to horde or melt.)
A bank-note that can be redeemed for a certain weight of metal is a sign of the silver for which it can be redeemed. A coin that contains a certain weight of metal is not a sign, but is in its physical nature the very thing it claims to be.
A rather serious error is made when one considers the money of a country to be the total value of bank notes, bills of credit, and other items that represent a value of the money commodity. While these are accepted in trade, all traders ultimately consider the value of the metal they may receive, even if their intent is to trade the note rather than redeem it for metal.
That is to say, that the amount of money a country has is not measured by the nominal value of various instruments that signify a value, but the actual value of the metal it posses. Notes and bills are not a measure of wealth, but a promise of wealth.
The value of commodity goods rises and falls with supply and demand: if the output of wheat is double what it was in the previous year, its price tends to gravitate toward half what it was; and if the output is halved, the price doubles. The amount of money that changes hands remains static, though the amount of wheat increases or decreases - and the benefit of consuming that wheat increases or decreases.
I has already been remarked that the amount of money in a nation is "but an atom" compared to the amount of all other values; and it has already been considered that a people may be well-supplied of all the necessities and conveniences of life regardless of the amount of money that is in circulation. This given, it seems to make little sense to consider the amount of money to be indicative of the wealth of a nation.
Say considers Montesquieu's claim that the amount of money in circulation determines the price of things - that plentitude or scarcity of money drives prices. This seems somewhat absurd: where two parties enter into an exchange, each considers merely the good he has and the good he wishes to obtain. At most, he considers his entire stock of goods to trade in light of the entire body of goods he wishes to obtain and bargains accordingly. He knows nothing, and cares nothing, of the entire amount available in the nation.
Money may be considered a method of transposing the value of one good to another: a farmer is aware that he has twenty sacks of grain to trade, and expects to make four coins apiece, and can then consider whether eighty coins will be enough to purchase the goods he needs of others. This is easier than attempting to assess the price of other goods in terms of wheat.
When it comes to other forms of measurement, there is consistency. A yard of a foot will represent the very same degree of length from one decade to the next, and in one place to the next. A man who is six feet tall in one place remains just as tall when he enters another.
Money is not so: a fine horse may cost 100 ounces of silver in Paris and 50 ounces in Arabia. The price of wheat bay be 2 coins per bag in summer and 5 in the winter in the same market.
It is even more ludicrous to attempt to apply a monetary value for things that are not offered in trade - as it is in the bargaining process that the price of things are set. I may claim my horse to be worth 100 ounces of silver, but this does not mean anyone will grant that price - or that I would gladly accept it and be deprived of transportation.
The value of most goods, to most people, is the benefit they deliver, rather than the price they would fetch in trade. The famer who sells his grain for silver and trades silver for cloth has greater need of, and value for, the cloth than of either the grain or the silver.
As such, money cannot serve as an independent and constant standard of value: its use is to exchange things that others value more for the things that we value more - and in any free exchange, both parties feel they have gained greater value than they parted with.
All of this confounds a comparison of wealth among different eras or different nations, or even assessing the wealth of a single nation at a single time. It also seems to serve little purpose except as a curiosity in most instances to do so. The only time it would seem to matter is in the decision of whether to trade an item now or later, in one market or another more remote, to fetch a better price in exchange.
Smith looks to labor as a more constant quantity, each man having an equal number of hours in a given year, and able to make more or less productive use of them. But even at that, it is not a constant measure, as different men produce goods in different volumes and qualities given the same amount of labor, and the introduction of technology enables a man to be more productive.
Men prefer to give the least amount of labor to obtain the goods they need and a desired level of luxuries - and in all cases seem to reap the greatest reward for the least effort. And further, to consider certain activities to be less onerous than others regardless of the amount of time they consume.
Add to this the fact that most men sell their labor rather than apply it to creating goods for trade, and the value of labor fluctuates by their competence as well as the number of others who are capable of supplying similar labor to the market of prospective buyers. Consider how cheaply labor can be hand in India or China, where there is a great abundance of men and little work to be done, and how dear it is in America where the situation is reversed.
As such, labor does not supply a constant by which wealth can be assessed.
considers, for a time, leveraging grain as a potential standard of value across locations and ages, but even that is not dependable as a standard of value. He can think of nothing that would suffice in this regard.
For the common purposes of life, and for the vast majority of men, only two things matter: what I want to have, and what I have to offer in exchange. The broader view of economists in considering mankind in the aggregate has no bearing on the actual activity they seek to measure.
Estimating the Sums Mentioned in History
It should be plain that those who engage in exchange in present-day markets have little interest in anything other than their present situation. However, historians have shown some interest in considering the sums mentioned in historical accounts - it seems an entirely academic pursuit, but Say feels the need to weigh in:
To rely on the value of precious metals over great expanses of time is the common practice, but likely inaccurate: no-one can give a correct impression of the value of metal at any given time, though it does stand to reason that in most locations, it was far more rare than it is in the present day.
(EN: The calculations go on for quite a while, and aside of being pointless, the exercise of following Say through them is tedious. I skimmed the rest of this section and found nothing worth preserving.)
The Comparative Value of Metal
Further difficulty exists in markets where multiple metals are in circulation, and copper, silver, and gold coins are struck in an arbitrary denomination that attempts to fix the value of one metal against another: a gold coin is said to be worth sixteen silver, each of which are said to be worth twenty copper. Such rations can be set at the time they are declared, but quickly become disjointed as the market values of the metal fluctuate independently.
The various attempts of governments to maintain a fixe ratio have been "vain and impotent," not to mention quite wasteful and confusing to the markets. Where the price of gold increases, the weight of gold coin can be decreased to make it worth the same amount in silver, but he older gold coins remain in circulation. Then when the price of silver increases, the gold coin must be made larger. Chaos ensues both at the mint and the market until those involved in exchange return to the use of scales, and denominate prices in a specific metal.
Say gives a few accounts of the absurd efforts made by a few governments to fix the price of metals in relation to one another, or constantly adjust their coinage. Ultimately, the only benefit was to those who worked the fluctuations by melting coins to take advantage of adjustment.
Ultimately, the author considers it a pointless exercise, as the supply and demand for precious metals fluctuates constantly and "must be left to find their own mutual level" and those who create and trade in coins seek to use whatever material is most available and serviceable at any given time.
Money as it Ought to Be
From his considerations thus far, Say arrives at an opinion of what money ought to be.
Precious metals are so well suited to the needs of trade, and so well established, that he sees no reason to suggest anything else. In practice, it makes very little difference as to which metal is used, or if another commodity is substituted, but he feels the reasons men have come to prefer metal to be entirely sound and sustainable.
Government should refrain from meddling in the business of money. It is powerless to command that a value of a piece of silver should be anything but that which parties involved in an exchange consider it to be. Certifying the alloy and weight of pieces of money for use in domestic trade is a useful function, but attempting to uphold a value based on anything other than alloy and weight is at best pointless and at worst detrimental.
Aside of defending the market against counterfeit coin, the government must also maintain through its courts that a debt incurred in a specific metal was to be repaid in that metal, if the creditor so demanded. Just as one cannot borrow a horse and return a hog, neither should one expect to borrow gold and repay in silver.
Should a government decide to involve itself in the coining of money, it should do so at the expense of those who receive the service, and the expenses of the mint should not be paid out of taxes upon the public. The state should be responsive to demand in pricing its services, and should not use its power to guarantee itself a monopoly, though if it is more honest and fair in its affairs, it may obtain a monopoly by earning public trust.
In terms of weight, he feels that the various nations inventing their own standards of measurement to be foolish. A ducat, a dollar, a florin, a shilling, and a franc all represent different weights of metal, and it seems confounding. For any other commodity, weights are fixed: a pound of bread or chocolate or wax is measured by the same weight wherever it is traded - so why not metal? Instead of coining a "franc" or a "shilling," it would make better sense for governments to denominate their currency by weight, such that any government would produce a ten-gram coin and it would be instantly interchangeable for the coinage of other nations.
He also notes that he has no issue with using coins that are alloyed with based metals - the cost of refining pure gold and pure silver are expensive, and the durability of pure gold, especially, is less than gold in an alloyed state. So long as the denomination accurately certifies the portion of an alloy that consists of precious metal, it should not matter.
It's also important that deals be denominated in terms of a specific weight of a specific metal: if a barrel of wine costs twenty grams of silver one day, it would likely cost the same the next day, as the standard of exchange would remain fixed, except in rare instances where the value of metal fluctuates due to supply and demand. The stabilization of prices would be a boon to all involved in production and trade, and particularly so to those engaged in large-volume trades and long-term contracts.
Stability and standardization would also be an impediment to those who seek to defraud customers by taking advantage of the complexity of the monetary system. Creating counterfeit coins would be the sole method of commercial fraud, and it requires such skill, effort, and equipment to do so that those who learned the skills of metallurgy to create passable forgeries would likely find it more valuable to ply their talents in honest endeavors.
In terms of weight, Say extols the value of "the new metrical system" for its use of base-ten mathematics - not merely for the weight of metal, but the measure of all things in length and volume.
Money should be left to find its own value. Those who trade goods will negotiate a fair price in each exchange, and the value of money will be determined in the process. Where multiple metals are used in commerce, each will find its own value, and there's little point in attempting to fix a standard of exchange.
Say admits it would be difficult to estimate the advantage that would accrue to industry and to the customer from a simple arrangement, but some notion of it may be had by witnessing the historical problems, from inconveniences to disasters, where some attempt was made to avoid these simple principles.
To transition to such a system, it would require only one nation to adopt it. Much as the Spanish dollar once became the common currency of international commerce, so could a single nation, by creating a stable and reliable currency, set the standard and encourage other nations to adopt the same practices.
Aside of the morality of the act and the benefit to its own citizens, a nation that set and maintained a currency in this matter would benefit from the misconduct of other nations. Where currencies collapsed, its own would remain in demand. Where currencies were debased, its own would gain value in trade. The benefits would be to the welfare of consumers and producers in a nation that had currency that was in great demand elsewhere.
He offers a few historical proofs of his claim - the benefits gained by Charlemagne from having a single, stable currency as well as the commercial power of present-day England - both of which tied the value of their monetary system to the a fixed weight of silver: the British pound and Charlemagne's lire remain worth a pound of silver, and have never been valued as more or less by fiat.
Neither does this preclude the use of paper money or credit money, whose value relies on its ability to be redeemed for metal of a given weight. While it is possible, and common, for paper money to remain in circulation for quite some time, seemingly never to be redeemed, but its value is accepted only because of the possibility that it could be redeemed.
Copper and Base Metal Coinage
In the author's time, there were copper and base metal coins in circulation, but it was not money in a strict sense. Any base metal coin is not valued for the metal it contains, but as a token of a given value in gold or silver, which is the real money of almost all commercial nations. It is used for very small transactions or to represent a fractional value that is too minute to be coined.
When a person accumulates copper coins, he seeks to be rid of them. In France, it was common for money-changers to charge a fee of 1/40 to exchange copper or brass coins for silver ones, and merchants therefore charged the same premium to customers who wished to pay in low-denomination coin.
He observes that commerce as a whole seems little affected by this, though the ability to deal with very small amounts has been beneficial to individual consumers and small merchants who deal in small amounts, such that the smallest silver coin would be too much for a transaction. Larger operations that deal in large volumes of small transactions have likewise benefitted, as have any who have commissions or surcharges based on percentages.
(EN: This seems to address the argument that nothing can be cheaper than the smallest denomination of coin: when articles cost less than the smallest gold coin, people use silver; when articles cost less than the smallest silver, people use copper; etc. Given that monetary policy causes prices to inflate, the trend has been in the opposite direction, and Say elsewhere has suggested that if gold is not sufficient, people would trade in platinum. That is, they avail themselves of whatever is necessary to deal in sums of their choosing.)
The acceptance of copper and base metal coins is based on the same principle as that of paper money: it is deemed to have value because it has the potential to be exchanged for a given amount of precious metal. And like paper money, it is likely not to be redeemed but remain in circulation as a token of exchange.
Because base-metal coins represent very small amounts, the likelihood they will be redeemed is significantly decreased: a person would need to be engaged in many transactions to accumulate sufficient small change to redeem it - an individual may accumulate small coin over a long period of time, or a merchant may amass it from daily transactions.
Also because of the small value, forgery and counterfeiting of copper coins is largely unheard of. Concern over foreign forgery of small coin has largely ben addressed by making it difficult to forge - the example given of England in 1799, which created a half-penny coin with a very fine impression so as to foil attempts at forgery.
A few historical incidents are mentioned, in Sardinia and Prussia, where attempting to withdraw small coin from circulation caused various issues: an uproar among peasants who needed small coin, or an expense of the state which received far more coins than it expected.
The Preferable Form of Coined Money
Coin becomes worn over time by constant handling, and Say muses a bit about how money can be coined in a way that reduces this. (EN: which seems of little impact to economics, so I will likely skim.)
He considers the use of certain shapes: a sphere has the lease surface-to-mass ratio, but is inconvenient to handle. A cylinder is the next best geometric shape, and it can be seen that in most systems, the shape of a coin is a very flat cylinder - though from a perspective of physics, the thicker the better.
Some concerns for the impression: it should specify the weight and quality of the metal; the denomination should be distinct at a glance; and the impressions should resist wear. It is also of value for the impression to be executed with "attention and perfection" as a means to make forgery or alteration (clipping) more difficult. Other considerations are that an impression too deep into the metal may weaken the coin, and an impression too far above the surface may be worn down and frustrates attempts to stack coins.
On size, a coin should be as large as "convenience will admit." Too large a coin, whether by its weight in precious metal or alloy, is inconvenient to carry; to small a coin is easily lost or fumbled in handling.
On denomination, consider that the most common use of coin is the daily purchases of goods for an individual or household, the next most common is the payment of daily or weekly wages, and finally exchanges among merchants or producers. Coins thus denominated will be of greatest use, and coins more frequently handled will sustain the most wear.
The Loss of Value by Wear
Another trifling issue Say pauses to consider is that the friction and wear upon a coin will over time decrease its weight and erode its imprint, to the point that the coin itself is unacceptable in exchanges. The question becomes: who should bear that cost?
With most goods, the cost is absorbed by the party who received a benefit from having used it: a man who has worn a coat may sell it, but receive less than he paid for it when it was new. It would seem to follow thus that whomever uses a coin should bear the cost of any wear he has done to it, though that may not be sufficient because the wear on a coin is the work of many hands over time.
There's also the fact that anyone who possesses a coin has gotten it from someone else, and accepted its value in spite of its wear, and accepts the risk that others may refuse to accept it in its present condition. Moreover , the right of an individual to refuse to accept a particular coin is to be upheld, as a means of defense against counterfeiting and tampering, even if this means he may at times reject a valid coin that is merely worn.
In most instances, which is to say for consumers, the wear on a coin is so negligible that it's hardly worth niggling over the condition of a single coin, and most are content to accept coins with a reasonable amount of wear. But strictly speaking, a coin in circulation for a long period of time may be worn flat and its weight significantly reduced, which may be of greater interest in merchant exchanges. To reduce a single coin by five percent of its metal is of little importance in a purchase involving two coins, but of greater concern to a wholesaler who is selling a good for a thousand coins and finds himself fifty coins' worth of metal short.
Say mulls this over a bit further, and eventually concludes that a coin that is worn down by many hands is likened to a road that has been tread by many feet, the maintenance of which falls on the public purse, it being unfeasible to tax each individual for the minute degree of wear for which he is responsible - so long as it is normal wear rather than an intentional act that reduces the value of a coin for the purpose of fraud (such as clipping or shaving coins).
While he generally opposes taxation to support the manufacture of currency, it should be that a mint turns sufficient profit by seignorage to cover the loss it sustains in supporting the exchange of old coin for new, which should in most instances be negligible. Besides, the durability of a coin is entirely the responsibility of the mint that manufactured it, their choice of alloy, shape, denomination, and impression making their product more or less susceptible to wear. However, the mint retains the same right as an individual to refuse a coin that is "palpably deficient" and forgery or tampering is suspect.
If coinage is well-designed to resist wear and traders are balanced in their vigilance (willing to accept slightly worn coins yet unwilling to accept significantly worn ones), the loss due to wear should remain negligible.