The Turgot Collection

Letter to l’Abbé de Cicé, since then
Bishop of Auxerre, on the
Replacing of Money by Paper.

Also Known as the “Letter on Paper-Money”

Turgot responds to a defense of John Law’s system against the argument that it is all right for the state to go into debt, because merchants’ expenses very often exceed their capital, Turgot responds that merchants earn a profit on their expenses; from this profit, they are able to repay their debt. The state, by contrast, engages in no productive activities and its debt is a drain on the population. When the state goes into debt, it will often issue paper money. This serves no purpose. Any amount of gold or silver is adequate for all the transactions in the economy, because prices adjust in accord with the total amount of the monetary commodity. If the state tries to introduce paper money de novo to replace a commodity standard, it will be unsuccessful, because there will be no means for people to know how goods should be priced in the new money. Paper money can only be successful if it can be compared with existing commodity money.