INFERENCES
DERIVED FROM THE THEORY

continued

Essay on Money V

As a Medium of Commerce;
With Remarks on the Advantages and Disadvantages
of Paper Admitted into General Circulation.

by John Witherspoon

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Commerce founded upon Contract

Let us examine this matter a little more fully. Money is the medium of commercial transactions. Money is itself a commodity. Therefore every transaction in which money is concerned, by being given or promised, is strictly and properly speaking a bargain, or as it is well called in some language, an agreement. To give, therefore, authority or nominal value by law to any money, is interposing by law in commerce, and is precisely the same thing which, in their full extent, we had sufficient experience during the war.

Now nothing can be more radically unjust, or more imminently absurd, than laws of that nature. Among all civilians, the transactions of commerce are ranged under the head of contracts. Without entering into the nicer distinctions of writers upon this subject, it is sufficient for me to say, that commerce, or buying and selling, is founded upon that species of contracts that is most formal and complete. They are called in the technical language, Onerous contracts, where the proper and just value is supposed to be given or promised on both sides. That is to say, the person who offers any thing for sale, does it because he has it to spare, and he thinks it would be better for him to have the money, or some other commodity, than what he parts with; and he who buys, in like manner, thinks it would be better for him to receive the commodity, than to retain the money.

There may be mistakes or fraud in many transactions; but these do not affect the argument in the least. A fair and just value is always supposed or professed to be given on both sides. (30.9)

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Essential condition of lawful contract is that it be free and mutual

Well! Is it agreed that all commerce is founded on a complete contract? Let then any person who will open as many books as he pleases written upon the subject, and tell me whether he does not always find there that one of the essential conditions of a lawful contract, and indeed the first of them, is that it be free and mutual. Without this it may be something else, and have some other binding force, but it is not a contract. To make laws therefore, regulating the prices of commodities, or giving nominal value to that which had no value before the law was made, is altering the nature of the transaction altogether.

Perhaps a comparison of this with other transactions of a different kind might set this matter in a clear light. Suppose a man were to say to one of our lawgivers upon this subject as follows: When you make a law laying on a tax, and telling me I must pay so much to the public and common expenses of the state, I understand this very well. It falls under the head of authority. You may lay on an improper or injudicious tax that will operate unequally, or not be productive of what you expect; but still this is within your line, and if I have any complaint, I can only wish that at the next election we may get wiser men.

Again, a Justice of Peace in time of war may give a press-warrant, and take my horses and wagons to transport provisions of baggage for an army. I understand this also; writers and reasoners tell me that it falls under the head of what they call the rights of necessity. The meaning of this is, that no civil constitution can be so perfect but that some cases will occur, in which the property of individuals must give way to the urgent call of common utility or general danger. Thus we know that in cities, in case of a fire, sometimes a house, without the consent of its owner, will be destroyed to prevent the whole from being consumed.

But if you make a law that I shall be obliged to sell them at all; you take them from me. You are both buyer and seller, and I am the sufferer only. (32.4)

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An Attempt to apply authority to that which is not its proper object

I cannot help observing, that laws of this kind have an inherent weakness in them; they are not only unjust and unwise, but for the most part impracticable. They are an attempt to apply authority to that which is not its proper object, or to extend it beyond its natural bounds; in both which we shall be sure to fail. The production of commodities must be the effect of industry, inclination, hope, and interest. The first of these is very imperfectly reached by authority, and the other three cannot be reached by it at all. Perhaps I ought rather to have said, that they cannot be directed by it, but they may be greatly counteracted; as people have naturally a strong disposition to resist force, and to escape from constraint.

Accordingly we found in this country, and every other society who ever tried such measures found, that they produced an effect directly contrary to what was expected from them. Instead of producing moderation and plenty, they uniformly produced dearness and scarcity.

It is worth while to observe, that some of our legislatures saw so far into these matters as to perceive that they could not regulate the price of commodities without regulating the price of the industry that produces them. Therefore they regulated the price of day-laborers. This however, though but one species of industry, was found to be wholly out their power. (33.3)

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Privilege, license, and voluntary engagement

There were some instances mentioned at the time when these measures were in vogue, which superficial reasoners supposed to be examples of regulation of the prices of chairs, hackney coaches, and ticket porters in cities, public ferries and some others. But this was quite mistaking the nature of the thing. These instances have not the least connection with law regulating prices in voluntary commerce. In all these cases the persons who are employed solicit the privilege, obtain a licence, and come under voluntary engagements to ask no higher prices; so that there is as complete a free contract as in buying and selling in open shops.

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Counter-ProductiveLaws

I am so fully convinced of the truth and justice of the above principles, that I think, were it proper at this time, I could show, that even in the most enlightened nations of Europe there are still laws subsisting which work in direct opposition to the intention of their makers. Of this kind in general are the laws against forestalling and *regrating. They are indeed most of them asleep and what the lawyers call in desuetude; but so far as they are executed, they have the most powerful tendency to prevent, instead of promoting, full and reasonable markets.

As an example of our own skill in that branch, a law was past in Pennsylvania in time of the war precisely upon that principle. It ordained that in all imported articles there should be but one step between the importer and consumer, and therefore that none but those who bought from the ship should be allowed to sell again. I cite this instance by memory, but am certain that such was the spirit of the law.

The makers of it considered that every hand through which a commodity passed must have a profit upon it, which would therefore greatly augment the cost to the consumer at last. But could any thing in the world be more absurd? How could a family at one hundred miles distance from the seaport be supplied with what they wanted? In opposition to this principle it may be safely affirmed, that the more merchants the cheaper the goods, and that no carriage is so cheap, nor any distribution so equal of so plentiful as that which is made by those who have an interest in it, and expect a profit from it.(34.7)

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Tender laws contradict the very first principles of commerce

I have gone into this detail in order to show that tender laws, arming paper or any thing not valuable in itself with authority, are directly contrary to the very first principles of commerce. This was certainly the more necessary, because many of the advocates of such laws, and many of those who are instrumental in enacting them, do it from pure ignorance, with out any bad intention.

It may probably have some effect in opening their eyes to observe that no paper whatever is a tender in any nation in Europe. Even the notes of the Bank of England, which are as good as gold, and those of the bank of Holland, which are considerably better, 6 are not armed with any such sanction, and are not a legal tender in the proper sense of that word. That is to say, though I suppose both or them, or any other paper circulating in full credit may be a tender in equity, so far as that the person offering them without suspicion of their being refused, could not be condemned in any penalty or forfeiture; yet if the person who was to receive the money should say, I am going abroad, I want gold or silver; it would lie upon the debtor and not the creditor to go and get them exchanged.

Some may perhaps even say more, vis. that the coinage of gold and silver in any country is not a certain value, as to ascertain them that it is of the value stamped upon it. Without this, ignorant persons would be continually at a loss to know the fineness and the weight of pieces offered to them. This will appear from the two following remarks.

1. If by any accident in the coinage, or fraud in the officers of the mint, some of the pieces had not the full quality, or were not of sufficient fineness, though the stamp were ever so genuine, if I could discover the defect, I should be justified in refusing it.

2. There is sometimes a fluctuation in the comparative value of gold and silver, and in these cases, though no doubt a debtor, till the error that has crept in be rectified by the authority, has a right to pay in any lawful money; yet if I were selling goods, and gold had fallen in its value, I might safely say to the customer, in what coin are you to pay me? I will give you a yard of this silk for twenty-one sterling silver shillings, but if you give me a guinea I must have another shilling before I will part with it. The whole of this serves to show that nothing short of real money, which is of standard value, ought to be enforced by law in a well regulated society. (36.8)

Continue to Essay on Money VI to discover the Proper Use of Paper.

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