172 MODERN MONETARY SYSTEMS 
hesitate to support this idea; a producer of gold may be 
aware that he enjoys a privilege which is now unique,! 
namely, of selling his produce at a fixed price; for having 
estimated his cost of production in money he receives a fixed 
sum in money for his bullion, either in the form of coin 
struck from it or in the form of any legal tender currency. 
So when either by custom or by law a metal can be 
transformed at will into money and virtually exist as 
money either in virtue of the system of free coinage or 
because it is accepted by weight,? the State, although it 
apparently withholds any interference, creates a very 
special position for this metal which decisively influences 
its exchange value; for instead of being subject to the 
action of supply and demand as on an ordinary market, 
it enjoys the advantage of a quite special market where it 
will be accepted in unlimited quantities in return for a constant 
number of monetary units.3 
The significance of this last observation has been con- 
tested by certain economists as being more apparent than 
real. As the value of a currency can only be ascertained 
by taking its average exchange rate in relation to all com- 
modities, it matters little in their view whether an amount 
of bullion of a certain weight can always be exchanged for 
the same number of pounds sterling, dollars or francs; 
1 This privilege is not nowadays without disadvantages as will be seen 
later, see p. 173 
2 It should be remembered that the system of weighing money is still 
used in China. 
3 The general suppression of the free coinage of silver in countries 
which were formerly bimetallist reinforces our theory; for we have seen 
that the rate of silver, once it is no longer tied up with the rate of the 
currency, fluctuates like any other commodity, Governments themselves 
buying it thereafter through the ordinary process of bargaining—and that 
it may fall so far as its cost of production allows. The rate of gold, on the 
other hand, which is still used for currency, may continue to fluctuate, in 
relation to the mass of goods for which it is exchanged, but these fluctu- 
ations will be independent of its cost of production. 
It should be added that the industrial consumption of precious metals, 
although it is considerable, cannot directly influence the value of a metal 
which is accepted for free coinage, since it is always open to the seller to 
have it minted and the purchaser can in fact melt down coin in order to 
obtain the metal he requires.