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Cato's Letter No. 88

The Reasonableness and Advantage of allowing the Exportation of Gold and Silver, with the Impossibility of preventing the same.

John Trenchard (Saturday, August 4, 1722)

SIR, Having in my last letter considered silver and gold as the only certain durable, and universal riches; and since the attaining them is the chief view and design of all mankind; I shall in this consider a question which puzzles the greatest part of the world, and which, as I think, they for the most part determine wrongly; namely, when a nation is once possessed of them, whether it is their interest to let them be exported again? In this I have the opinion of most states against me, who prohibit the carrying them out under the severest penalties, sometimes before, and sometimes after they are converted into their current coin; and to me nothing seems more injurious, impertinent, and impotent, than to make such laws.

No soil or climate produces all commodities, and no nation works all sorts of manufactures, which are of common and necessary use; nor can any man by his own skill and labour, make or acquire any considerable part of such things as he wants or desires; and consequently he can have no means of attaining them, but by exchanging what he does not want for what he does. But since it does and will most commonly happen, that the person who is possessed of the commodity which one man desires, does not want what he has to give in lieu of it, or not enough of it to answer the value of what he parts with; therefore something else must be found out to make the account even.

From hence mankind have found themselves under a necessity to agree upon some universal commodity which shall measure the value of all the rest, and balance all accounts at last. Hitherto nothing has been discovered which will answer that purpose so effectually as silver and gold: Their contexture hinders them from being perishable, their divisibility qualifies them to answer all occasions, their scarcity enhances their price, so as to make a great value lie in a narrow compass, and easily portable; and the more regular and equal supplies of them than of other commodities, render them proper standards for the valuation of other things. These therefore being, by general and almost universal agreement, the mediums of commerce, the balance of all traffick, and the ultimate view and chief advantage proposed by it; we are to consider how far those ends and advantages can be answered by exporting them again.

Now it is certain, that many commodities of absolute and indispensable use are in the possession of nations who do not want those which we have to give in exchange for them; or, knowing our necessities will not part with them but for silver and gold; and therefore we must have them upon their terms, or not have them at all. Some of them are the materials of our manufactures, which will return to us again many times the money which we advance in procuring them; and very often they are necessary to carry on trade in general, and enabling the merchants to make assortments of goods proper for particular markets; or are the materials of navigation, or magazines for war and common defence.

No country wants always the same supplies, or has the same growth and quantity of manufactures to purchase them; nor can any merchant have a clear view of the whole commerce of the country which he deals with; nor do the commodities always bear the same price: so that the balance will often vary, and must be paid at last in those universal commodities. No nation or private man will deal with another, who will not pay his debts; and if he has not other commodities to pay them with, or if those which he has are not wanted, or will not be accepted in payment, he must pay them in such as will; and, whatever it costs him, must deliver them into the custody, or to the order and satisfaction, of his creditor.

It is foolish to imagine, that any precautions, or the greatest penalties, will keep money in any country, where it is the interest of numbers to carry it out: The experience of every nation may convince us of this truth; gold and silver lie in so little compass, are so easily concealed, and there are so many conveniences, and opportunities to carry them off, that small encouragements will always find adventurers, and those adventurers will almost always succeed. There is no way in nature to hinder money from being exported, but by hindering the occasions of it; that is, by hindering the use and consumption of those things which it is sent out to buy; for when they are bought they must be paid for, or all traffick is at an end.

These propositions being, as I conceive, self-evident, it is next to be discussed, whether it be the interest of a state to permit their money to go out freely; or, by annexing penalties to the exporting it, enhance the difficulty, and raise the price of carrying it out, by obliging the exporter to pay himself largely for his own hazard, as well as the hazard of the seas: And I think nothing is more demonstrable, than that the greater the obstacle that is laid in his way, and the greater hazard which he runs, the more he will be obliged to export; for whatever he has agreed to pay beyond sea, must be discharged, whatever it costs him to get it thither, and he is to be paid besides all the charges of getting it thither.

Bills of exchange only serve the purpose, and save the expence of paying the carrier; for if one man has money due to him abroad, and the other wants the same sum here, they will both save the charges of carriage, by oneís paying it where he does not want it, and the otherís receiving it where he does: But if there be more demands by the merchants of one country upon their correspondents in another, than the others can pay by the produce of their effects, or from debts due to them elsewhere, which will be accepted as payment; the surplus must be returned in silver and gold, and they must pay too the persons who carry it; and other merchants seeing their necessity, will take advantage of it, and receive premiums for as much as they can return in bills, in proportion to the charge which it will cost to send it in specie, and the haste which their creditors are in to receive it: But herein they will not have regard only to the commerce between those particular nations, but to the course and balance of general trade; for bills often travel from country to country, and take a large circuit, before they center, and the account is finally made up at home. And this I take to be the whole mystery of exchange, which is either paying, or saving the charge of paying, the carrier; and if you do not do it yourself, others who do it for you, will reap advantage from it.

Since then money or bullion must be exported, when debts are contracted abroad, I think it is eligible to send out the first rather than the latter, or at least to leave the people at liberty to export which they please. Indeed they are the same thing; for all money is bullion, and all bullion is easily converted into money; and all that is not otherwise manufactured, would be converted into it, if there were no disadvantage in doing so. The advantages are obvious, and the charge to the proprietors nothing; for the stamp of authority ascertains the weight and the fineness; and the dividing it into small parcels, makes it more useful for commerce, which renders it more valuable abroad as well as at home; and consequently foreigners will be contented to pay part, if not the whole, of the charge of coining it. It could in no circumstance be of less value, if it were not denied a privilege and advantage which it had before it was coined; which is the liberty of exportation, and being used in foreign as well as domestick trade: for, whilst free liberty of exportation is allowed to one, and denied to the other, and yet there are frequent and necessary occasions of exporting one or the other, it must happen that either money will be melted into bullion, and so the manufacture be lost, or bullion must be bought by money at a price answerable to the necessity or the hazard of carrying it in specie abroad, or of melting it down at home, and the expence of conscience afterwards in swearing it to be foreign bullion; which sometimes has raised the price 8 or 10 per cent.

Now it must be obvious to any one, who the least considers this question, how much such prohibitions must affect our general trade, they being equivalent to the putting an equal duty upon the exportation of our own commodities, which all wise nations encourage by all ways that they can, and often by giving premiums to the exporter. They give other nations the means and opportunity to trade so much per cent cheaper than we can; which must certainly carry away from us many valuable trades: They enhance the value of all foreign materials which we use in our manufactures, that are bought with bullion or money, as many of them are; which must in consequence raise the price of these manufactures, and hinder their sail; and above all, make the materials of navigation dear to us, upon which all trade in a great measure depends, and the carriage-trade wholly.

But not only those trades, which are altogether, or partly carried on by bullion or money, will be affected by them, but all trade whatsoever: For, as I have before shewn, that bullion, being the medium of the value of all commodities between nation and nation, as money is between people of the same nation; if the latter be of equal weight and fineness with the former, and yet less valuable; then of necessary consequence home commodities must be sold cheaper in foreign countries, and theirs must sell dearer here; which must alter the balance proportionably to our disadvantage: for we sell at home for our own money and buy abroad with bullion; which are equally valuable in themselves, the coinage excepted, and will be equally bought in foreign markets for the same quantity of commodities.

Suppose for example, that corn bore the same price in respect of silver and gold here as in Holland, and yet we must give more for it when that silver and gold is converted into money than they do, who get the difference by importing their silver; then it is evident that they can afford to buy it of us, and sell it again to foreign markets cheaper than we can, and sometimes to ourselves; and consequently must carry away that trade from us. These events are inevitable, unless we let our money be exported, or turn all our coin into bullion, and make that the medium of domestick as well as foreign commerce; which must soon be our case, and every day grows more and more so: for who will give himself the trouble of carrying his bullion to the mint, to have it made less valuable than before? Whereas if money had the same liberty of exportation as bullion has, all the silver not otherwise manufactured would immediately be carried thither and coined, and less of it be carried out afterwards for the reasons before given.

But whilst it remains upon the present foot, whatever contracts are made for English goods in English money, will be paid for with less bullion than will coin into the same quantity of money; and whatever are bought abroad will cost us more money than the same is worth in bullion: So that foreigners will choose to carry off our money, rather than our bullion or goods, and will afterwards melt it down, and find their account in returning it upon us again for more money; and so on till they have got all that we have; which can be prevented alone by putting coined and uncoined silver upon the same foot, and giving them equal advantages, the coinage excepted.

Till this be done, we must suffer in our exchange with most, if not all the countries in the world: For whilst our coin in quantity is less valuable than bullion, and theirs equal or more valuable, every thing that we buy or sell must be affected by it; and we must pay our debts with more silver, and receive them in less than they do; which must make a vast difference in the return of our whole trade.

This is so much the interest of every party, and almost every man in every party, that I have often wondered how so many able patriots that have sat at the helm should never once think of doing their country this great service. I cannot doubt but men of their great abilities must understand this plain proposition; and methinks they should sometimes find it their interest and duty to save a little money for their countrymen, and not always to be taking from them, especially when they themselves lose nothing by doing so much good to others; and though some people, who do not understand the benefit of such a law, may be at first distasted by it, yet I could wish to see that those who have had no regard to their opinions when they were doing mischief to them, would not be so over-scrupulous of offending them in once doing them and their country this great and general benefit.

T I am, &c.

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