A seignorage will, in many cases, take
away altogether, and will in all cases diminish,
the profit of melting down the new coin.
This profit always arises from the difference
between the quantity of bullion which the
common currency ought to contain and that
which it actually does contain. If this difference
is less than the seignorage, there will
be loss instead of profit. If it is equal to the
seignorage, there will be neither profit nor
loss. If it is greater than the seignorage, there
will, indeed, be some profit, but less than if
there was no seignorage. If, before the late
reformation of the gold coin, for example,
there had been a seignorage of five per cent.
upon the coinage, there would have been a
loss of three per cent. upon the melting down
of the gold coin. If the seignorage had been
two per cent, there would have been neither
profit nor loss. If the seignorage had been
one per cent., there would have been a profit
but of one per cent. only, instead of two per
cent. Wherever money is received by tale,
therefore, and not by weight, a seignorage is
the most effectual preventive of the melting
down of the coin, and, for the same reason, of its
exportation. It is the best and heaviest pieces
that are commonly either melted down or exported,
because it is upon such that the largest
profits are made.
The law for the encouragement of the coinage,
by rendering it duty-free, was first enacted
during the reign of Charles II. for a
limited time, and afterwards continued, by
different prolongations, till 1769, when it was
rendered perpetual. The bank of England,
in order to replenish their coffers with money,
are frequently obliged to carry bullion to the
mint; and it was more for their interest, they
probably imagined, that the coinage should
be at the expense of the government than at
their own. It was probably out of complaisance
to this great company, that the government
agreed to render this law perpetual.
Should the custom of weighing gold, however,
come to be disused, as it is very likely
to be on account of its inconveniency; should
the gold coin of England come to be received
by tale, as it was before the late recoinage,
this great company may, perhaps, find that
they have, upon this, as upon some other occasions,
mistaken their own interest not a
little.
Before the late recoinage, when the gold
currency of England was two per cent. below
its standard weight, as there was no seignorage,
it was two per cent. below the value of
that quantity of standard gold bullion which
it ought to have contained. When this great
company, therefore, bought gold bullion in
order to have it coined, they were obliged to
pay for it two per cent. more than it was
worth after the coinage. But if there had
been a seignorage of two per cent upon the
coinage, the common gold currency, though
two per cent. below its standard weight,
would, notwithstanding, have been equal in
value to the quantity of standard gold which
it ought to have contained; the value of the
fashion compensating in this case the diminuation
of the weight. They would, indeed,
have had the seignorage to pay, which being
two per cent., their loss upon the whole transaction
would have been two per cent., exactly
the same, but no greater than it actually
was.
If the seignorage had been five per cent.,
and the gold currency only two per cent. below
its standard weight, the bank would, in
this case, have gained three per cent. upon the
price of the bullion; but as they would have
had a seignorage of five per cent. to pay upon
the coinage, their loss upon the whole transaction
would, in the same manner, have been
exactly two per cent.
If the seignorage had been only one per
cent., and the gold currency two per cent.
below its standard weight, the bank would, in
this case, have lost only one per cent. upon
the price of the bullion; but as they would
likewise have had a seignorage of one per
cent. to pay, their loss upon the whole transaction
would have been exactly two per cent.,
in the same manner as in all other cases.
If there was a reasonable seignorage, while
at the same time the coin contained its full
standard weight, as it has done very nearly
since the late recoinage, whatever the bank
might lose by the seignorage, they would gain
upon the price of the bullion; and whatever
they might gain upon the price of the bullion,
they would lose by the seignorage.
They would neither lose nor gain, therefore,
upon the whole transaction, and they would,
in this, as in all the foregoing cases, be exactly
in the same situation as if there was no
seignorage.
When the tax upon a commodity is so moderate
as not to encourage smuggling, the
merchant who deals in it, though he advances,
does not properly pay the tax, as he gets it
back in the price of the commodity. The tax
is finally paid by the last purchaser or consumer.
But money is a commodity, with regard
to which every man is a merchant. Nobody
buys it but in order to sell it again;
and with regard to it there is, in ordinary
cases, no last purchaser or consumer. When
the tax upon coinage, therefore, is so moderate
as not to encourage false coining, though
every body advances the tax, nobody finally
pays it; because every body gets it back in
the advanced value of the coin.
A moderate seignorage, therefore, would
not, in any case, augment the expense of the
bank, or of any other private persons who
carry their bullion to the mint in order to be
coined; and the want of a moderate seignorage
does not in any case diminish it. Whether
there is or is not a seignorage, if the currency