Further Reflection on the Rapidity or Slowness of the Circulation of Money in Exchange Let us suppose that the farmer pays 1300 ounces of silver a quarter to his landlord, who pays out of it every week 100 ounces to the baker, butcher, etc. and that these every week pay the farmer these hundred ounces, so that the farmer collects every week as much money as the landlord spends. In this case there will be only 100 ounces in constant circulation, the other 1200 ounces will remain in hand partly with the landlord and partly with the farmer.
But it rarely happens that the landlords spend their rents in a fixed and regular proportion. In London as soon as a landlord receives his rent he puts most of it into the hands of a goldsmith or banker, who lends it at interest, so that this part is in circulation. Or else the landlord spends a good part of it upon various things needful for his household, and before he gets his next quarter's rent he will perhaps borrow money. Thus the money of the first quarter's rent will circulate in a thousand ways before it can be brought together again and replaced in the hands of the farmer to serve to pay his second quarter.
When the time for paying this second quarter has come the farmer will sell his produce in large amounts, and those who buy his cattle, corn, hay, etc. will already have collected in detail the price of them. The money of the first quarter will thus have circulated in the rivulets of small traffic for nearly three months, before being collected by the retail dealers, and these will give it to the farmer who will pay his second quarter therewith. It would seem from this that less ready money than we have supposed would suffice for the circulation of a state.
Barters made by evaluation do not all call for much ready cash. If a brewer supplies a clothier with the beer for his family, and if the clothier in turn supplies the brewer with the clothes he needs, both at the market price current on the day of delivery, the only ready money needed between these two traders is the amount of the difference between the two transactions.
If a merchant in a market town sends to a correspondent in the city country produce for sale, and if the latter sends back to the former the city merchandise consumed in the country, the business lasting the whole year between these two dealers, and mutual confidence leading them to place to their accounts their produce and merchandise at their respective market prices, the only real money needed for this commerce will be the balance which one owes to the other at the end of the year. Even then this balance may be carried forward to the next year, without the actual payment of any money. All the undertakers of a city, who have continually business with each other, may practise this method. And these exchanges by valuation seem to economise much cash in circulation, or at least to accelerate its movement by making it unnecessary in several hands through which it would need to pass without this confidence and this method of exchange by valuation. It is not without reason that it is commonly said commercial credit makes money less scarce.
The goldsmiths and public bankers, whose notes pass current in payment like ready money, contribute also to the speed of circulation, which would be retarded if money were needed in all the payments for which these notes suffice: and although these goldsmiths and bankers always keep in hand a good part of the actual money they have received for their notes, they also put into circulation a considerable amount of this actual money as I shall explain later in dealing with public banks.
All these reflections seem to prove that the circulation of a state could be conducted with much less actual money than I have supposed necessary; but the following inductions appear to counterbalance them and to contribute to the slowing down of the circulation.
