If it is equal to the seignorage, there will neither be 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 preventative 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 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 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 diminution 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 last 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 everybody advances the tax, nobody finally pays it;because everybody 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 contains its full standard weight, the coinage costs nothing to anybody, and if it is short of that weight, the coinage must always cost the difference between the quantity of bullion which ought to be contained in it, and that which actually is contained in it.
The government, therefore, when it defrays the expense of coinage, not only incurs some small expense, but loses some small revenue which it might get by a proper duty; and neither the bank nor any other private persons are in the smallest degree benefited by this useless piece of public generosity.