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TO

THE RIGHT HONORABLE

W. W. POLE, M. P.

MASTER OF HIS MAJESTY'S MINT,

&c. &c. &c.

THE continued disappearance of the gold coin immediately on issuing from the bank, has been assigned to various causes, and has occasioned the suggestion of different plans to prevent it. Amongst these plans a seignorage has not unfrequently been mentioned. But the insufficiency of a seignorage for the purpose proposed, is perhaps capable of being proved by decisive arguments. As you have, Sir, in the late gold and silver coinage, displayed eminent judgment and ability, I am anxious to submit to your consideration the opinion I have formed on this very interesting and important subject,

The reason why a seignorage has been mentioned on the present occasion, is of course because it is conceived that by means of a seignorage the precious metals in coin may be rendered more valuable than the same metals in bullion. But it will appear in the course of my letter, that with the standard coin this cannot be effected. With out however immediately adverting to that circumstance, let it be supposed, that the attempt is made in the first place, by diminishing, by way of seignorage, the present standard coin. This would be no remedy for the evil in question; because the present disappearance of the standard coin can of course be occasioned only by such a difference in the value of bank notes, and the gold, contained in standard coins, that a profit may be derived from purchasing the latter with the former, in order to melt them down, or export them. Now the value of a bank note depends on the value of

the standard coin into which it is convertible :' and the value of the present standard coin is directly as the quantity of gold it contains. If then the value of that standard coin be diminished, by decreasing the quantity of gold contained in it, or indeed by any other means, the value of the bank note which is referred to, and regu lated by the value of such standard coin, will be diminished exactly in the same proportion; consequently, if the sovereign or standard coin were diminished to any extent whatever, there would still exist the same proportionate difference in value between a bank note and a sovereign, from whatever cause it might arise, as there does at present; and therefore there would still be the same inducement as at present, to purchase the latter with the former, in order to melt it down or export it. Consequently a seignorage of this kind would be no remedy for the evil complained of, whilst a direct injustice would be committed towards all those who are either public creditors, or creditors of individuals, all whose incomes proceed from annuities or fixed salaries; and in short, all whose property consists of money. For by diminishing the value or the quantity of the commodity by which their property is regulated or estimated, or in fact of which it consists, we diminish the property itself. This would be evinced in the smaller quantity of commodities such property would then be capable of commanding, since the price of all articles would be increased exactly in proportion as the value of the standard coin might be diminished. At the same time, every dealer in bullion would increase his price: every person who might (for instance) bring an ounce of bullion to the bank for sale, would demand for it a greater number of the then diminished sovereigns than he does of the present sovereigns, or a greater number of bank notes, which would then possess a value only corre spondent to the value of such diminished sovereigns. The price, then, or nominal value of bullion, is inversely as the value of the standard coin, and consequently will increase as the standard coin is deteriorated; but its real value, compared with the real value of the standard coin, will remain the same. To diminish therefore the standard coin by way of seignorage, will not cause any change in the relative values of gold in coin and gold in bullion.

The fact is indisputable, that, as bullion, the gold contained in a sovereign is worth more than a one pound bank note, and that the profit to be derived from purchasing the sovereign with the one pound note, in order to employ it as bullion, is the immediate cause of the disappearance of the gold coin: that circumstance has therefore been first assumed to exemplify the insufficiency of a seignorage for the purpose proposed. A more general position might

See the Appendix.

however have been taken, and still still the same conclusion would have followed. This will be evident in a very few words. The present disappearance of the standard coin might have been stated to arise from such a difference between the market price of gold in bullion and the mint price, that a profit may be derived from melting down or exporting the standard coin. Now the market price of bullion, as well as of every other commodity, is inversely as the value of the currency; and the value of the currency is directly as the value of the standard coin: the value also of the standard coin is directly as the quantity of the precious metal it contains. Diminish then the value of the present British standard coin, by decreasing the quantity of gold contained in it, and the value of the currency will be diminished in the sanie proportion. Consequently, since the price of bullion is inversely as the value of the currency, the price of bullion will be increased as the value of the currency is diminished. Increase then the mint price of gold by coining an ounce of gold into a greater number of sovereigns than at present, and the market price of gold will be increased exactly in the same proportion there would therefore still exist a difference between the market and the mint price of gold in the same proportion as at present. Consequently to diminish by way of seignorage, the present standard coin, would not be a remedy for its disappearance.

A seignorage of this kind may have the effect proposed, when applied to the silver or copper coin, which, not being standard coin, may be considered as mere tokens, and to possess a value, like -bank notes, correspondent to the value of the standard coin, into which they may be exchanged. But then there is, or should be, no cumpulsion to take them, except in such small sums as could not be paid in the standard coin. Silver is indeed made a legal tender to the amount of two pounds. It would perhaps have been better if it had been made so for sums only under 20s. however, as it is not a legal tender for more than 27., the smallness of the sum may possibly render it a matter of little consequence. With respect then to coins of the description of silver, which are not the standard coin, but may be considered as tokens, or in the same light in many repects, as bank notes, a seignorage may be useful, because not being standard coin, yet possessing intrinsic value, it might happen by a change in the relative values of gold and silver, that the value of silver, compared with that of gold, might become in such proportion as to make it profitable to melt down the silver coinage, and dispose of in that shape. But now that it is made to pass current, at a price considerably beyond the proportion it usually bears to gold, there is no great chance that such an increase in its proportionate value will take place. In thus diminishing, however, the quantity of silver in the silver coin, it is requisite that it should be effected in the true

spirit of a seignorage; otherwise it will cause the gold coin to be exported this circumstance will, however, be more fully adverted to hereafter.

But to diminish the standard coin by way of seignorage, is completely useless for the purpose proposed, because there is no other standard to which it can be referred; but it regulates itself the price of every thing else, according to the weight and fineness of the precious metals which it contains. In other words, the quantity of commodities to be procured for a given sum or number of the standard coin, depends entirely on the weight and fineness of that standard coin. Hence to diminish the gold coin for the purpose of a seignorage, would have the effect merely to raise the price or nominal value of bullion in the same manner as that of all other commodities, but it would not have the effect to create any difference in the relative values of gold in coin and gold in bullion.

As it is then evident, that to diminish the quantity of gold contained in a sovereign, by way of seignorage, would be useless as a remedy for the evil complained of, and at the same time unjust to the community, another plan might perhaps be recommended, that is, not to diminish the quantity of gold at present contained in a sovereign, but to oblige whoever brings bullion to the mint to be coined, to pay a small seignorage for the coining. For it may be urged, that the value of every commodity is increased when any expense has been incurred, in converting it into a new and more useful form, and that therefore this charge of a small seignorage, would make the gold in coin more valuable than the same quantity of gold in bullion. But it is obvious that gold, on being converted into coin, does not undergo a change at all analagous to that which it would do in case it were converted into any useful or ornamental piece of furniture, or dress, or adapted to any other useful purpose, foreign to its nature, as a commodity which is marketable on account of its own intrinsic value; for in that case the expense necessarily attending such conversion, if it rendered it more useful, would undoubtedly enhance its value. But gold, after it has been converted into coin, still continues to be used, merely as a marketable commodity, on account of its own intrinsic value, with this only difference, that its value may now be ascertained by mere inspection, without the necessity of weighing it, or submitting it to any process, to ascertain its fineness and quantity. But being such a universally marketable commodity, this convenience can influence it only in a very limited sphere, compared with its almost universal reception as an article of commerce, consequently can have no effect in increasing its exchangeable value, because from its universal currency, the bullion merchant could as readily dispose of it in the

shape of bullion as in that of coin; he would therefore give no more for it in the one form than in the other: the value then of the standard coin cannot be so increased as to purchase a greater quantity of gold in bullion than the quantity of gold contained in itself. Suppose, for instance, that a pound of gold were coined as at present, into nearly 47 sovereigns, but, to avoid fractions, say 47 sovereigns exactly, and that the bank, upon sending to the mint a pound of gold to be coined, were obliged to pay 6d. as a seignorage upon each sovereign: this upon a pound of gold would amount to il. 3s. 6d. Forty-seven sovereigns should therefore be worth 17. 3s. 6d. more than a pound of gold in bullion; and the bank, upon purchasing bullion, in order to idemnify themselves, and to preserve the value of coin beyond that of bullion, equal to the amount of the seignorage, should give no more than 45l. 16s. 6d. for a pound of gold: but the bullion merchant, upon exporting his bullion, would be paid for it by bills, in which the sovereign would be valued at the rate of 47 to each pound of gold, because in foreign countries, the sovereign would be valued only according to the quantity of gold it contained, and not on account of any adventitious charge 'which might attend the coinage, since in foreign countries this could be of no use. By exportation, therefore, the dealer in bullion would receive 47 sovereigns, or pounds sterling, for each pound of gold, instead of 45l. 16s. 6d. at the bank: that is, he would make a profit of 6d. on each sovereign. It may perhaps be said, that so small a profit would not induce the exportation of bullion, and that the possessor of bullion would sooner sell it to the bank, and forego this trifling advantage, than be at the risk and trouble of exporting it. But experience proves the contrary; for when the bank lately commenced a partial issue of gold coin, no greater profit than sixpence on each sovereign could be made, and yet they all disappeared. If then gold, after being coined, and consequently rendered more useful, as a home commodity, has been exported for so small a profit as 6d. on each sovereign, much more will gold in bullion be exported under similar circumstances. The consequence therefore would be, that the bank could procure no more gold for coinage, unless they would consent in purchasing bullion, to pay the standard coin, according to its value as gold in the general bullion market of the country, without any regard to the seignorage. But this compliance on their part, would do away altogether the intention of the seignorage, which was to establish a difference between the value of the gold in coin and that in bullion; and whether the expense of coining were paid by the bank or the mint would then be immaterial. For whether this expense were defrayed by the one or the other, it would then have ceased to increase the value of gold in coin, when compared with gold in bul

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