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Money, as a currency, has an additional value by so much time and labor as it saves in the exchange of commodities.
If, as a currency, it saves one fourth part of the time and labor of a country; it has, on that account, one fourth added to its original value.
When there is no money in a country, all commerce must be by exchange.* Now, if it takes one fourth part of the time and labor of a country, to exchange or get their commodities exchanged; then, in computing their value, that labor of exchanging must be added to the labor of manufacturing those commodities. But if that time or labor is saved by introducing money sufficient, then the additional value on account of the labor of exchanging may be abated, and things sold for only the value of the labor in making them; because the people may now in the same time make one fourth more in quantity of manufactures than they could before.
From these considerations it may be gathered, that m all the degrees between having no money in a country, and money sufficient for the trade, it will rise and fall in value as a currency, in proportion to the decrease or increase of its quantity. And if there may be at some time more than enough, the overplus will have no effect towards making the currency, as a currency, of less value than when there was but enough; because such overplus wiU not be used in trade, but be some other way disposed of.
If we inquire, how much per cent interest ought to be required upon the loan of these bills, we must consider what is the natural standard of usury. And this appears to be, where the security is undoubted, at least the rent of so much land as the money lent will buy. For it cannot be expected, that any man will lend his money for less than it would fetch him in as rent if he laid it out in land, which is the most secure property in the world. But if the security is casual, then a kind of insurance must be interwoven with the simple natural interest, which may advance the usury very conscionably to any height below the principal itself. Now, among us, if the value of land is twenty years' purchase, five per cent is the just rate of interest for money lent on undoubted security. Yet, if money grows scarce in a country, it becomes more difficult for people to make punctual payments of what they borrow, money being hard to be raised; likewise, trade being discouraged and business impeded for want of a currency, abundance of people must be in declining circumstances, and by these means security is more precarious than where money is plenty. On such accounts it is no wonder if people ask a greater interest for their money than the natural interest; and what is above is to be looked upon as a kind of premium for the insurance of those uncertainties, as they are greater or less. Thus we always see, that where money is scarce, interest is high, and low where it is plenty.*
* All commerce is by exchange, or rather is exchange, whether a trade involves money or not . The kind of trade intended by the author is in technical as well as in common language known by the name of barter. — W. Phillips.
• Here is the error mentioned in a previous note ; the author confounds circulating medium with loanable capital. Thus, by the common phrase scarcity of money, we always mean scarcity of money or capital to be loaned, which is quite a different thing; from insufficiency of the quantity of the circulating medium for the purposes of trade. The two may be contemporaneous, but they are different tilings. It may readily be imagined that trade, and production, and investments generally, may be so profitable, that people would prefer to invest or employ their capital themselves, rather than loan it to others to be invested or employed. This state of things has no necessary connexion with the sufficiency of the quantity of circulating medium. Money in this sense may be plenty, when in the other it is scarce. This is a state of things, which does in fact often happen. — W. Phillips.
Now it is certainly the advantage of a country to make interest as low as possible, as I have already shown; and this can be done no other way than by making money plentiful. And since, in emitting paper money among us, the office has the best of security, the titles to the land being all skilfully and strictly examined and ascertained; and as it is only permitting the people by law to coin their own land, which costs the government nothing, the interest being more than enough to pay the charges of printing, officers' fees, &c., I cannot see any good reason why four per cent to the loan-office should not be thought fully sufficient. As a low interest may incline more to take money out, it will become more plentiful in trade; and this may bring down the common usury, in which security is more dubious, to the pitch it is determined at by law.
If it should be objected, that emitting it at so low an interest, and on such easy terms, will occasion more to be taken out than the trade of the country really requires; it may be answered, that, as has already been shown, there can never be so much of it emitted as to make it fall below the land it is founded on; because no man in his senses will mortgage his estate for what is of no more value to him than that he has mortgaged, especially if the possession of what he receives is more precarious than of what he mortgages, as that of paper money is when compared to land.* And if it should ever become so plenty by indiscreet persons continuing to take out a large overplus, above what is necessary in trade, so as to make people imagine it would become by that means of less value than their mortgaged lands, they would immediately of course begin to pay it in again to the office to redeem their land, and continue to do so till there was no more left in trade than was absolutely necessary.* And thus the proportion would find itself (though there were a million too much in the office to be let out), without giving any one the trouble of calculation.
• This passage is obscure, a fault with which Franklin's writings are rarely chargeable. It is so far from being true that no man in his senses will mortgage his land fur what is of no more value to him than that which he mortgages, that it is the most common practice to mortgage lands and personal property for what is not of half the value of either. The lender often demands security exceeding the value loaned. Perhaps the meaning is, that the money must be of more convenience or use to the borrower than the land mortgaged for it, or he would not borrow; and that it could not be of such convenience and use to him if an excess
Vol. ii. 35
It may, perhaps, be objected to what I have written concerning the advantages of a large addition to our currency, that, if the people of this province increase, and husbandry is more followed, we shall overstock the markets with our produce of flour, $*ct To this it may be answered, that we can never have too many people (nor too much money.) For, when one branch of trade or business is overstocked with hands, there are the more to spare to be employed in another. So, if raising wheat proves dull, more may (if there is money to support and carry on new manufactures) proceed to the raising and manufacturing of hemp, silk, iron, and many other things the country is very capable of, for which we only want people to work, and money to pay them with.
had been issued, whereby its value and utility would be diminished. — W. Phillips.
* But there was another view of the case presented by the opposere of paper currency, which Franklin omits. If a man has mortgaged his land for a hundred pounds, and invested the money in the purchase of other land, and two years afterwards, when the money has depreciated in value fifty per cent, sells half of the land he purchased for a hundred pounds and pays off his debt, though the land may not have risen at all in the mean time, he makes a very good operation, at the expense of those through whose hands the money has been passing in the mean time. This was the operation of the paper-money system, to which the opposers of that system objected. — W. Phillips.
t The author passes this objection with a very slight consideration, and on the whole rather disingenuously and like a partisan, as he and every other man in the province were, at the time, on one side or the other of the question. He had immediately before said, that, in case of excess, the surplus would be returned, and of course there could not be a lasting excess if this was the case. But here he supposes there may be a surplus until the increase of business shall absorb it, and that such increase will be sufficient for the purpose. Now the first supposition is palpably not well founded, in regard to a money redeemable at some future day, as was the provincial paper money generally. As to the second supposition, that any quantity of such paper that can be issued, will be used and eventually needed, there are abundant examples to the contrary. — W. Phillips.
Upon the whole it may be observed, that it is the highest interest of a trading country in general to make money plentiful; and that it can be a disadvantage to none that have honest designs. It cannot hurt even the usurers, though it should sink what they receive as interest; because they will be proportionably more secure in what they lend; or they will have an opportunity of employing their money to greater advantage, to themselves as well as to the country. Neither can it hurt those merchants, who have great sums outstanding in debts in the country, and seem on that account to have the most plausible reason to fear it; to wit, because a large addition being made to our currency will increase the demand of our exporting produce, and by that means raise the price of it, so that they will not be able to purchase so much bread or flour with one hundred pounds when they shall receive it after such an addition, as they now can, and may if there is no addition. I say it cannot hurt even such, because they will get in their debts just in exact proportion so much the easier and sooner as the money becomes plentier; and therefore, considering the interest and trouble saved, they will not be losers; because it only sinks in value as a currency, proportionally as it becomes more plenty. It cannot hurt the interest of Great Britain, as has been