m There is much specie in a place there is little when there is more paper when there is more specie than paper; than specie.
THE SPIRIT OF LAWS 383 that the exchange should rise, and that they give for my crown more than fifty-four gros; otherwise I will not part with it; and vice versa.
Thus the various turns in the course of exchange form an account of debtor and creditor, which must be frequently set- tled, and which the state in debt can no more discharge by exchange than an individual can pay a debt by giving change for a piece of silver.
We will suppose that there are but three states in the world, France, Spain, and Holland; that several individuals in Spain are indebted to France, to the value of one hundred thousand marks of silver; and that several individuals of France owe in Spain one hundred and ten thousand marks: now, if some cir- cumstance both in Spain and France should cause each to with- draw his specie, what will then be the course of exchange? These two nations will reciprocally acquit each other of a hun- dred thousand marks: but France will still owe ten thousand marks in Spain, and the Spaniards will still have bills upon France, to the value of ten thousand marks; while France will have none at all upon Spain.
But if Holland was in a contrary situation with respect to France, and in order to balance the account must pay her ten thousand marks, the French would have two ways of paying the Spaniards; either by giving their creditors in Spain bills for ten thousand marks upon their debtors in Holland, or else by sending specie to the value of ten thousand marks to Spain.
Hence it follows that when a state has occasion to remit a sum of money to another country, it is indifferent, in the nature of the thing, whether specie be conveyed thither or they take bills of exchange. The advantage or disadvantage of these two methods solely depends on actual circumstances. We must inquire which will yield most gros in Holland — money carried thither in specie, or a bill upon Holland for the like sum.w When money of the same standard and weight in France yields money of the same standard and weight in Holland, we say that the exchange is at par. In the actual state of specie 0 the par is nearly at fifty-four gros to the crown. When the ex- change is above fifty-four gros, we say it is high; when be- neath, we say it is low.
n With the expenses of carriage and insurance deducted. o In 1744.
384 MONTESQUIEU In order to know the loss and gain of a state in a particular situation of exchange, it must be considered as debtor and cred- itor, as buyer and seller. When the exchange is below par, it loses as a debtor, and gains as a creditor; it loses as a buyer and gains as a seller. It is obvious it loses as debtor; suppose, for example, France owes Holland a certain number of gros, the fewer gros there are in a crown the more crowns she has to pay. On the contrary, if France is creditor for a certain num- ber of gros, the less number of gros there are in a crown the more crowns she will receive. The state loses also as buyer, for there must be the same number of gros to purchase the same quantity of merchandise; and while the exchange is low, every French crown is worth fewer gros. For the same reason the state gains as a seller. I sell my merchandise in Holland for a certain number of gros; I receive then more crowns in France, when for every fifty gros I receive a crown, than I should do if I received only the same crown for every fifty-four. The con- trary to this takes place in the other state. If the Dutch are indebted a certain number of crowns to France, they will gain; if this money is owing to them, they will lose; if they sell, they lose; and if they buy, they gain.
It is proper to pursue this somewhat further. When the ex- change is below par; for example, if it be at fifty instead of fifty-four, it should follow that France, on sending bills of ex- change to Holland for fifty-four thousand crowns, could buy merchandise only to the value of fifty thousand; and that on the other hand, the Dutch sending the value of fifty thousand crowns to France might buy fifty-four thousand, which makes a difference of /:f, that is, a loss to France of more than one- seventh; so that France would be obliged to send to Holland one-seventh more in specie or merchandise than she would do were the exchange at par. And as the mischief must constantly increase, because a debt of this kind would bring the exchange still lower, France would in the end be ruined. It seems, I say, as if this should certainly follow; and yet it does not, because of the principle which I have elsewhere established; P which is, that states constantly lean towards a balance, in order to pre- serve their independency. Thus they borrow only in propor- tion to their ability to pay, and measure their buying by what p See book XX. chap. xxi.
THE SPIRIT OF LAWS 385 they sell; and taking the example from above, if the exchange falls in France from fifty-four to fifty, the Dutch who buy mer- chandise in France to the value of a thousand crowns, for which they used to pay fifty-four thousand gros, would now pay only fifty thousand, if the French would consent to it. But the merchandise of France will rise insensibly, and the profit will be shared between the French and the Dutch; for when a merchant can gain, he easily shares his profit; there arises then a communication of profit between the French and the Dutch. In the same manner the French, who bought mer- chandise of Holland for fifty-four thousand gros, and who, when the exchange was at fifty-four, paid for them a thousand crowns, will be obliged to add one-seventh more in French crowns to buy the same merchandise. But the French mer- chant, being sensible of the loss he suflfers, will take up less of the merchandise of Holland. The French and the Dutch mer- chant will then both be losers, the state will insensibly fall into a balance, and the lowering of the exchange will not be at- tended with all those inconveniences which we had reason to fear.
A merchant may send his stock into a foreign country when the exchange is below par without injuring his fortune, be- cause, when it returns, he recovers what he had lost; but a prince who sends only specie into a foreign country which never can return, is always a loser.
When the merchants have great dealings in any country, the exchange there infallibly rises. This proceeds from their entering into many engagements, buying great quantities of merchandise, and drawing upon foreign countries to pay for them.
A prince may amass great wealth in his dominions, and yet specie may be really scarce, and relatively common; for in- stance, if the state is indebted for much merchandise to a for- eign country, the exchange will be low, though specie be scarce.
The exchange of all places constantly tends to a certain pro- portion, and that in the very nature of things. If the course of exchange from Ireland to England is below par, and that of England to Holland is also under par, that of Ireland to Hol- land will be still lower; that is, in the compound ratio of that of Ireland to England, and that of England to Holland; for a 386 MONTESQUIEU 386 MONTESQUIEU Dutch merchant who can have his specie indirectly from Ire- land, by way of England, will not choose to pay dearer by hav- ing it in the direct way. This, I say, ought naturally to be the case; but, however, it is not exactly so. There are always cir- cumstances which vary these things; and the different profit of drawing by one place, or of drawing by another, constitutes the particular art and dexterity of the bankers, which does not belong to the present subject.
When a state raises its specie, for instance, when it gives the name of six livres, or two crowns, to what was before called three livres, or one crown, this new denomination, which adds nothing real to the crown, ought not to procure a single gros more by the exchange. We ought only to have for the two new crowns the same number of gros which we before received for the old one. If this does not happen, it must not be imputed as an effect of the regulation itself, but to the nov- elty and suddenness of the affair. The exchange adheres to what is already established, and is not altered till after a cer- tain time.
When a state, instead of only raising the specie by a law, calls it in in order to diminish its size, it frequently happens that during the time taken up in passing again through the mint there are two kinds of money — the large, which is the old, and the small, which is the new; and as the large is cried down as not to be received as money, and bills of exchange must consequently be paid in the new, one would imagine then that the exchange should be regulated by the new. If, for example, in France, the ancient crown of three livres, be- ing worth in Holland sixty gros, was reduced one-half, the new crown ought to be valued only at thirty. On the other hand, it seems as if the exchange ought to be regulated by the old coin; because the banker who has specie, and receives bills, is obliged to carry the old coin to the mint in order to change it for the new, by which he must be a loser. The ex- change then ought to be fixed between the value of the old coin and that of the new. The value of the old Is decreased, if we may call it so, both because there is already some of the new in trade, and because the bankers cannot keep up to the rigor of the law, having an interest in letting loose the old coin from their chests, and being sometimes obliged to make THE SPIRIT OF LAWS 387 payments with it. Again, the value of the new specie must rise, because the banker having this finds himself in a situa- tion in which, as we shall immediately prove, he will reap great advantage by procuring the old. The exchange should then be fixed, as I have already said, between the new and the old coin. For then the bankers find it their interest to send the old out of the kingdom, because by this method they procure the same advantage as they could receive from a regular ex- change of the old specie, that is, a great many gros in Holland; and in return, a regular exchange a little lower, between the old and the new specie, which would bring many crowns to France.
Suppose that three livres of the old coin yield by the actual exchange forty-five gros, and that by sending this same crown to Holland they receive sixty, but with a bill of forty-five gros, they procure a crown of three livres in France, which being sent in the old specie to Holland, still yields sixty gros; thus all the old specie would be sent out of the kingdom, and the bankers would run away with the whole profit.
To remedy this, new measures must be taken. The state which coined the new specie would itself be obliged to send great quantities of the old to the nation which regulates the exchange, and, by thus gaining credit there, raise the exchange pretty nearly to as many gros for a crown of three livres out of the country. I say to nearly the same, for while the profits are small the bankers will not be tempted to send it abroad, because of the expense of carriage and the danger of confisca- tion.
It is fit that we should give a very clear idea of this. Mr. Bernard, or any other banker employed by the state, proposes bills upon Holland, and gives them at one, two, or three gros higher than the actual exchange; he has made a provision in a foreign country, by means of the old specie, which he has continually been sending thither; and thus he has raised the exchange to the point we have just mentioned. In the mean- time, by disposing of his bills, he seizes on all the new specie, and obliges the other bankers, who have payments to make, to carry their old specie to the mint; and, as he insensibly ob- tains all the specie, he obliges the other bankers to give him bills of exchange at a very high price. By this means his 388 MONTESQUIEU 388 MONTESQUIEU profit in the end compensates in a great measure for the loss he suffered at the beginning.
It is evident that during these transactions the state must be in a dangerous crisis. Specie must become extremely scarce — I, because much the greatest part is cried down; 2, because a part will be sent into foreign countries; 3, because every one will lay it up, as not being willing to give that profit to the prince which he hopes to receive himself. It is dangerous to do it slowly; and dangerous also to do it in too much haste. If the supposed gain be immoderate, the inconveniences in- crease in proportion.
We see, from what has been already said, that when the exchange is lower than the specie, a profit may be made by sending it abroad; for the same reason, when it is higher than the specie, there is profit in causing it to return.
But there is a case in which profit may be made by sending the specie out of the kingdom, when the exchange is at par; that is, by sending it into a foreign country to be coined over again. When it returns, an advantage may be made of it, whether it be circulated in the country or paid for foreign bills.
If a company has been erected in a state with an immense number of shares, and these shares have in a few months risen twenty or twenty-five times above the original purchase value; if, again, the same state established a bank, whose bills were to perform the office of money, while the legal value of these bills was prodigious, in order to answer to the legal value of the shares (this is Mr. Law's System), it would follow, from the nature of things, that these shares and these bills would vanish in the same manner as they arose. Stocks cannot suddenly be raised twenty or twenty-five times above their original value without giving a number of people the means of procuring immense riches in paper: every one would endeavor to make his fortune; and as the exchange offers the most easy way of removing it from home, or conveying it whither one pleases, people would incessantly remit a part of their effects to the nation that regulates the exchange. A continual process of remittarices into a foreign country must lower the exchange. Let us suppose that at the time of the System, in proportion to the standard and weight of the silver coin, the exchange was fixed at forty gros to the crown; when a vast quantity of paper THE SPIRIT OF LAWS 389 became money, they were unwilling to give more than thirty- nine gros for a crown, and afterwards thirty-eight, thirty-seven, etc. This proceeded so far, that- after a while they would give but eight gros, and at last there was no exchange at all.
The exchange ought in this case to have regulated the pro- portion between the specie and the paper of France. I sup- pose that, by the weight and standard of the silver, the crown of three livres in silver was worth forty gros, and that the ex- change being made in paper, the crown of three livres in paper was worth only eight gros, the difference was four-fifths. The crown of three livres in paper was then worth (our-fifths less than the crown of three livres in silver.
II. — Of the Proceedings of the Romans with respect to Money How great soever the exertion of authority had been in our times, with respect to the specie of France, during the admin- istration of two successive ministers, still it was vastly exceeded by the Romans; not at the time when corruption had crept into their republic, nor when they were in a state of anarchy, but when they were as much by their wisdom as their courage in the full vigor of the constitution, after having conquered the cities of Italy, and at the very time that they disputed for em- pire with the Carthaginians.
And here I am pleased that I have an opportunity of examin- ing more closely into this matter, that no example may be taken from what can never justly be called one.
In the first Punic war the as,9 which ought to be twelve ounces of copper, weighed only two, and in the second it was no more than one. This retrenchment answers to what we now call the raising of coin. To take half the silver from a crown of six livres, in order to make two crowns, or to raise it to the value of twelve livres, is precisely the same thing.
They have left us no monument of the manner in which the Romans conducted this afifair in the first Punic war; but what they did in the second is a proof of the most consummate wis- dom. The republic found herself under an impossibility of paying her debts: the as weighed two ounces of copper, and the denarius, valued at ten ases, weighed twenty ounces of g Pliny's "Natural History," lib. XXXIII. art. 13.
39© MONTESQUIEU copper. The republic, being willing to gain half on her credi- tors, made the as of an ounce of copper,*- and by this means paid the value of a denarius with ten ounces. This proceeding must have given a great shock to the state; they were obliged therefore to break the force of it as well as they could. It was in itself unjust, and it was necessary to render it as little so as possible. They had in view the deliverance of the republic with respect to the citizens; they were not, therefore, obliged to direct their view to the deliverance of the citizens with respect to each other. This made a second step necessary. It was ordained that the denarius, which hitherto contained but ten ases, should contain sixteen. The result of this double opera- tion was, that while the creditors of the republic lost one-half,^ those of individuals lost only a fifth; t the price of merchandise was increased only a fifth; the real change of the money was only a fifth. The other consequences are obvious.
The Romans then conducted themselves with greater pru- dence than we, who in our transactions involved both the pub- lic treasure and the fortunes of individuals. But this is not all: their business was carried on amidst more favorable circum- stances than ours.
12. — The Circumstances in which the Romans changed the Value of their Specie There was formerly very little gold and silver in Italy. This country has few or no mines of gold or silver. When Rome was taken by the Gauls, they found only a thousand-weight of gold.w And yet the Romans had sacked many powerful cities, and brought home their wealth. For a long time they made use of none but copper money; and it was not till after the peace with Pyrrhus that they had silver enough to coin money: v they made denarii of this metal of the value of ten ases,w or ten pounds of copper. At that time the proportion of silver was to that of copper as i to 960. For as the Roman denarius was valued at ten ases, or ten pounds of copper, it was worth one hundred and twenty ounces of copper; and as the same denarius r Pliny's " Natural History," lib. u Pliny, lib. XXXIII. art. 5.
XXXIII. art. 13. V Freinshemius, lib. V. of the 2d 5 They received ten ounces of copper decad.
for twenty. w Ibid. They struck also, says the t They received sixteen ounces of cop- same author, half-denarii, called quinaper for twenty. rii; and quarters, called sesterces.
THE SPIRIT OF LAWS 391 was valued only at one-eighth of an ounce of silver,^ this pro- duced the above proportion.
When Rome became mistress of that part of Italy which is nearest to Greece and Sicily, by degrees she found herself between two rich nations — the Greeks and the Carthaginians. Silver increased at Rome; and as the proportion of i to 960 between silver and copper could be no longer supported, she made several regulations with respect to money, which to us are unknown. However, at the beginning of the second Punic war the Roman denarius was worth no more than twenty ounces of copper; y and thus the proportion between silver and copper was no longer but as i to 160. The reduction was very considerable, since the republic gained five-sixths upon all copper money. But she did only what was necessary in the nature of things, by establishing the proportion between the metals made use of as money.
The peace which terminated the first Punic war left the Romans masters of Sicily. They soon entered Sardinia; after- wards they began to know Spain; and thus the quantity of silver increased at Rome. They took measures to reduce the denarius from twenty ounces to sixteen,^ which had the effect of putting a nearer proportion between the silver and copper; thus the proportion, which was before as i to 160, was now made as i to 128.
If we examine into the conduct of the Romans, we shall never find them so great as in choosing a proper conjuncture for performing any extraordinary operation.
13. — Proceedings with respect to Money in the Time of the Emperors In the changes made in the specie during the time of the re- public, they proceeded by diminishing it: in its wants, the state intrusted the knowledge to the people, and did not pre- tend to deceive them. Under the emperors, they proceeded by way of alloy. These princes, reduced to despair even by their liberalities, found themselves obliged to degrade the specie; an indirect method, which diminished the evil without seeming to touch it. They withheld a part of the gift and yet concealed X An eighth, according to Budseus; y Pliny's " Nat. Hist." lib. XXXIII.
according to other authors, a seventh. art. 13. e Ibid.
392 MONTESQUIEU the hand that did it; and, without speaking of the diminution of the pay, or of the gratuity, it was found diminished.
We even still see in cabinets a kind of medals which are called plated, and are only pieces of copper covered with a thin plate of silver.^ This money is mentioned in a fragment of the 77th book of Dio.b Didius Julian first began to debase it. We find that the coin of Caracalla c had an alloy of more than half; that of Alexander Severus of two-thirds; d the debasing still increased, till in the time of Gallienus nothing was to be seen but copper silvered over.^ It is evident that such violent proceedings could not take place in the present age; a prince might deceive himself, but he could deceive nobody else. The exchange has taught the banker to draw a comparison between all the money in the world, and to estabHsh its just value. The standard of money can be no longer a secret. Were the prince to begin to alloy his silver, everybody else would continue it, and do it for him; the specie of the true standard would go abroad first, and nothing would be sent back but base metal. If, like the Roman Emperors, he debased the silver without debasing the gold, the gold would suddenly disappear, and he would be reduced to his bad silver. The exchange, as I have said in the preceding book,/" has deprived princes of the opportunity of showing great exertions of authority, or at least has rendered them ineffectual.
14. — How the Exchange is a Constraint on despotic Power Russia would have descended from its despotic power, but could not. The establishment of commerce depended on that of the exchange, and the transactions were inconsistent with all its laws.
In 1745 the Czarina g made a law to expel the Jews, because they remitted into foreign countries the specie of those who were banished into Siberia, as well as that of the foreigners entertained in her service. As all the subjects of the empire are slaves, they can neither go abroad themselves nor send 0 See Father Joubert's " Science of 28th of July, on a discovery of fifty thou- Medals," Paris edit, of 1739, p. 59. sand medals.
b " Extract of Virtues and Vices." d See " Savote," ibid.
c See " Savote," part II. chap, xii., e Ibid.
and " Le Journal des Savants " of the f Chap. 16.
g Elizabeth, daughter of Peter I. — Ed.
THE SPIRIT OF LAWS 393 away their effects without permission. The exchange which gives them the means of remitting their specie from one coun- try to another is, therefore, entirely incompatible with the laws of Russia.
Commerce itself is inconsistent with the Russian laws. The people are composed only of slaves employed in agriculture, and of slaves called ecclesiastics or gentlemen, who are the lords of those slaves; there is then nobody left for the third estate, which ought to be composed of mechanics and mer- chants.
15. — The Practice of some Countries in Italy They have made laws in some part of Italy to prevent sub- jects from selling their lands, in order to remove their specie into foreign countries. These laws may be good, when the riches of a state are so connected with the country itself that there would be great difficulty in transferring them to another. But since, by the course of exchange, riches are in some degree independent of any particular state, and since they may with so much ease be conveyed from one country to another, that must be a bad law which will not permit persons for their own interest to dispose of their lands, while they can dispose of their money. It is a bad law, because it gives an advantage to mov- able effects, in prejudice to the land; because it deters strang- ers from settling in the country; and, in short, because it may be eluded.
16. — The Assistance a State may derive from Bankers The banker's business is to change, not to lend, money./* If the prince makes use of them to change his specie, as he never does it but in great affairs, the least profit he can give for the remittance becomes considerable; and if they demand large profits, we may be certain that there is a fault in the ad- ministration. On the contrary, when they are employed to advance specie, their art consists in procuring the greatest profit for the use of it, without being liable to be charged with usury.
h The mistake here is apparent, bankers and money-changers being by no means identical.— Ed.
394 MONTESQUIEU 17.— 0/ Public Debts Some have imagined that it was for the advantage of a state to be indebted to itself: they thought that this multiplied riches by increasing the circulation.
Those who are of this opinion have, I believe, confounded a circulating paper which represents money, or a circulating paper which is the sign of the profits that a company has or will make by commerce, with a paper which represents a debt. The first two are extremely advantageous to the state: the last can never be so; and all that we can expect from it is, that individuals have a good security from the government for their money. But let us see the inconveniences which result from it.
1. If foreigners possess much paper which represents a debt, they annually draw out of the nation a considerable sum for interest.
2. In a nation that is thus perpetually in debt the exchange must be very low.
3. The taxes raised for the payment of the interest of the debt are an injury to the manufactures, by raising the price of the artificer's labor.
4. It takes the true revenue of the state from those who have activity and industry, to convey it to the indolent; that is, it gives facilities for labor to those who do not work, and clogs with difficulties those who do work.
These are its inconveniences: I know of no advantages. Ten persons have each a yearly income of a thousand crowns, either in land or trade; this raises to the nation, at five per cent., a capital of two hundred thousand crowns. If these ten persons employed one-half of their. income, that is, five thousand crowns, in paying the interest of a hundred thousand crowns, which they had borrowed of others, that still would be only to the state as two hundred thousand crowns; that is, in the language of the algebraists, 200,000 crowns — 100,000 crowns People are thrown perhaps into this error by reflecting that the paper which represents the debt of a nation is the sign of riches; for none but a rich state can support such paper with- out falling into decay. And if it does not fall, it is a proof that the state has other riches besides. They say that it is not an THE SPIRIT OF LAWS 395 evil, because there are resources against it; and that it is an advantage, since these resources surpass the evil.
18. — Of the Payment of Public Debts It is necessary that there should be a proportion between the state as creditor and the state as debtor. The state may be a creditor to infinity, but it can only be a debtor to a certain degree, and when it surpasses that degree the title of creditor vanishes.
If the credit of the state has never received the least blemish, it may do what has been so happily practised in one of the kingdoms of Europe; i that is, it may require a great quantity of specie, and oflfer to reimburse every individual, at least if they will not reduce their interest. When the state borrows, the individuals fix the interest; when it pays, the interest for the future is fixed by the state.
It is not sufficient to reduce the interest: it is necessary to erect a sinking-fund from the advantage of the reduction, in order to pay every year a part of the capital: a proceeding so happy that its success increases every day.
When the credit of the state is not entire, there is a new rea- son for endeavoring to form a sinking-fund, because this fund being once established will soon procure the public confidence.