Ideal [Nominal] Money

by Montesquieu

THERE is both real and ideal money.

Civilized nations generally only use ideal money, because they have converted their real money into ideal.

Their real money was initially some metal of a certain weight and standard. But soon dishonesty or lack made them reduce that metal from money, but money retained the same name.

For example, they removed a half of the silver from a livre at a pound weight, but still called it a livre. A livre is supposed to have 5% a pound of silver.

They continued to call a sou, though it is no more 5% of this pound of silver.

This means that:

• the livre is an ‘ideal’ livre, not a real livre
• the sou an ideal sou, not a real sou

It may even happen, that we have no piece of money of the precise value of a livre, nor any piece exactly with a sou. Then the livre and the sou will be purely ideal.

They may give to any money the denomination of as many livres and sous as they please. But the variation may be continuous because it is as easy to give another name to a thing, as it is difficult to change the thing itself.

To take away the source of this abuse, it would be an excellent law for all countries who want commerce to flourish, to:

• ordain, that only real money should be current; and
• prevent any methods to render it ideal.

Nothing should so exempt from variation, as that which is the common measure of all.

Trade is in its own nature extremely uncertain. It is a great evil to add a new uncertainty to that which is founded on the nature of the thing.

Chapter 4-5

WHILE civilized nations are the mistresses of the world, gold and silver increases everyday, whether they draw it from themselves or get it from the mines. On the contrary, it diminishes when barbarous nations prevail.

We know how great was the scarcity of these metals, when the Goths and Vandals on the one side, and on the other the Saracens and Tartars, broke in like a torrent on the civilized world.

THE bullion drawn from the American mines, imported into Europe, and from thence sent to the east, has greatly promoted the navigation of the European nations.

for it is a merchandize which Europe receives in exchange from America, and which she sends in exchange to the Indies. A prodigious quantity of gold and silver is therefore an advantage, when we consider these metals as a merchandize; but it is otherwise, when we consider them as a sign; because their abundance gives an allay to their quality as a sign, which is chiefly founded on their scarcity.

Before the first Punic war, copper was 960 to 1 silver. This supposes a mark or 8 ounces of silver to be worth 49 livres, and copper 20 sols per pound.

It is at present nearly as 73 and a half to 1. When the proportion shall be as it was formerly, silver will better perform its office as a sign.