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 MONEY 
 
 . AND . 
 
 THE MECHANISM OF EXCHANGE 
 
 BY 
 
 Wj STANLEY JEVONS 
 
 PART I 
 
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 THE FABIAN ESSAYS. 
 
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 MONEY 
 
 AND 
 
 THE MECHANISM OF EXCHANGE. 
 BY W. STANLEY JEVONS, M.A., F.R.S.. 
 
 P*OFES30R OF LOGIC AND POLITICAL ECONOMY IN THE OWENS COLLEGE, MANCHESTER. 
 
 IN TWO PARTS PART ONE. 
 
 PREFACE. 
 
 In preparing this volume, I have attempted 
 to write a descriptive essay on the past and 
 pr*eent monetary systems of the world, the 
 materials employed to make money, the 
 regulations under which the coins are struck 
 and issued, the natural laws which govern 
 their circulation, the several modes in which 
 they may be replaced by the use of paper 
 documents, and finally, the method in which 
 the use of money is immensely economized 
 by the cheque and clearing system now being 
 extended and perfected. 
 
 This is not a book upon the currency 
 question, as that question is so often dis- 
 cussed in England. I have only a little to 
 say about the Bank Charter Act, and upon 
 that, and other mysteries "of the money 
 market, I refer my readers to the admirable 
 essay of Mr. Bagehot on " Lombard Street," 
 to which this book may perhaps serve as an 
 introduction. 
 
 There is much to be learnt about money 
 before entering upon those abstruse ques- 
 tions, which barely admit of decided answers. 
 In studying a language, we begin with the 
 grammar before we try to read or write. In 
 mathematics, we practice ourselves in simple 
 
 arithmetic before we proceed to the subtle, 
 ties of algebra and the differential calculus. 
 But it is the grave misfortune of the moral 
 and political sciences, as well shown by Mr. 
 Herbert Spencer, in his "Study of Sociology," 
 that they are continually discussed by those 
 who have never labored at the elementary 
 grammar or the simple arithmetic of the sub- 
 ject. Hence the extraordinary schemes and 
 fallacies every now and then put forth. 
 
 Currency is to 'the science of economy 
 what the squaring of the circle is to geometry, 
 or perpetual motion to mechanics. If there 
 were a writer on Currency possessing some 
 of the humor and learning of the late Pro- 
 fessor De Morgan, he could easily produce a 
 Budget of Currency Paradoxes more than 
 rivaling De Morgan's Circle-Squaring Para- 
 doxes. There are men who spend their time 
 and fortunes in endeavoring to convince a 
 dull world that poverty can be abolished by 
 the issue of printed bits of paper. I know 
 one gentleman who holds that exchequer 
 bills are the panacea for the evils of humanity. 
 Other philanthropists wish to make us all 
 rich by coining the national debt, or coining 
 the lands of the country, or coining every- 
 hing. Another class of persons have long- 
 been indignant that, in this stage of free trade, 
 the Mint price of gold should still remain 
 
 205692 
 
2 [50] 
 
 MONEY AND THE MECHANISM OF EXCHANGE, 
 
 arbitrarily fixed by statute. A member of I 
 Parliament lately discovered a new grievance, j 
 and made his reputation by agitating against I 
 Ihe oppressive restrictions on the coinage of i 
 silver at the Mint. No wonder so many I 
 people are paupers when there is a deficiency | 
 of shillings and sixpences, and when the 
 amount merely of the rates and taxes paid in j 
 a year exceeds the whole sum of money cir- : 
 culating in the kingdom. 
 
 The subject of money as a whole is a very j 
 extensive one, and the literature of it would ) 
 fill a very great library. Many changes are ; 
 now taking place in the currencies of the ! 
 world, and important inquiries have been ! 
 lately instituted concerning the best mode of I 
 ^constituting the circulating medium. The 
 information on the subject stored up in evi- 
 dence given before Government Commis- 
 sions, in reports of International Confer- 
 ences, or in researches and writings of pri- 
 vate individuals, is quite appalling in ex- 
 tent. It has been my purpose to extract 
 from this mass of literature just such facts 
 as seem to be generally interesting and use- 
 ful in enabling the public to come to some 
 conclusion upon many currency questions 
 which press for solution. Shall we count in 
 pounds, or dollars, or francs, or marks ? 
 Shall we have gold or silver, or gold and 
 silver, as the ^measure of value ? Shall we 
 employ a paper currency or a metallic one ? 
 How long shall we in England allow our 
 gold coinage to degenerate in weight ? Shall 
 we recoin it at the expense of the State or 
 of the unlucky individuals who happen to 
 hold light sovereigns ? 
 
 In America the questions are still more 
 important and pressing, involving the return 
 to specie payments, the future regulation of 
 the paper currency, its partial replacement 
 by coin, and the exact size and character of 
 the American dollar, regarded in relation to 
 international currency. Germany is in the 
 midst of a great, and probably a sound and 
 successful, reorganization of the currency, 
 both metallic and paper. In France the 
 great debate upon the double versris the 
 single standard is hardly yet terminated, 
 and active measures are being taken to place 
 the paper issues on a convertible basis. 
 Among the other countries of Europe Italy, 
 Austria, Holland, Belgium, Switzerland, 
 the Scandinavian kingdoms and Russia 
 there is hardly one which is not at present 
 reforming its currency, or has lately done so, 
 or is discussing the proper method of at- 
 tempting the task. As regards all such 
 changes, we should remember that in the 
 preseet we are ever molding the future, 
 and that a world-wide system of interna- 
 tional money, though it may seem impracti- 
 cable at the moment, is an object at which 
 all those should aim who wish to leave the 
 world better than they found it. 
 
 I wish to acknowledge the assistance 
 have derived from the works of Mr. 
 
 Seyd, especially his treatise on " Bullion and 
 the Foreign Exchanges," from Profesao? 
 Sumner's "History of the American Currea- 
 cy," M. Chevalier's work "La Monnaie," 
 M. Wolowski's various important publication 
 upon money, and many valuable articles in 
 the Journal dcs Economistes. I must ex- 
 press my thanks to many bankers and gen- 
 tlemen for information and assistance kind- 
 ly rendered to me, especially to Mr. John 
 Mills, Mr. T. R. Wilkinson, Mr. Roberts, 
 the chemist of the Royal Mint, and Mr. E. 
 Helm. 
 
 I should also like to take this opportunity 
 of thanking those gentlemen who have from 
 time to time sent me documents and publi- 
 cations bearing upon the subject of money, 
 which have proved very valuable. I may 
 mention especially a series of reports and 
 documents concerning the American Mint 
 and currency received through the kindness 
 of the Director of the Mint, and of Mr. Wal- 
 ker and Mr. E. Dubois. 
 
 I am much indebted to Mr. W. H. Brew~ 
 er, M.A., for carefully reading the whole of 
 the proofs, and to Professor T. E. Qiffe 
 Leslie, Mr. R. H. Inglis Palgrave, and Mr. 
 Frederick Hendriks, for examining particular 
 portions. 
 
 CHAPTER I. 
 
 BARTER 
 
 Some years since, Mademoiselle Zeiie, a 
 singer of the Theitre Lyrique at Paris, made 
 a professional tour round the world, and gave 
 a concert in the Society Islands. In ex- 
 change for an air from Norma and a fevr 
 other songs, she was to receive a third part 
 of the receipts. When counted, her share 
 was found to consist of three pigs, twenty- 
 three turkeys, forty-four chickens, five 
 thousand cocoanuts, besides considerable 
 quantities of bananas, lemons and oranges. 
 At the Halle in Paris, as the prima donna 
 remarks in her lively letter, printed by M. 
 Wolowski, this amount of live stock and 
 vegetables might have brought four thousand 
 francs, which would have been good remu- 
 neration for five songs. In the Society Is- 
 lands, however, pieces of money were very 
 scarce; and as Mademoiselle could not con- 
 sume any considerable portion of the re- 
 ceipts herself, it became necessary in the 
 meantime to feed the pigs and poultry with 
 the fruit. 
 
 When Mr. Wallace was traveling in the 
 Malay Archipelago, he seems to have suf- 
 fered rather from the scarcity than the super- 
 abundance of provisions. In his most in- 
 teresting account of his travels, he tells us 
 that in some of the islands, where there was 
 no proper currency, he could not procure 
 
MONEY AND Til 1C MECHANISM OF EXCHANGE. 
 
 [51] 3 
 
 supplies for dinner without a special bargain, 
 and muck chaffering upon each occasion. If 
 the vendor of fish or other coveted eatables 
 did not meet with the sort of exchange de- 
 sired, he would pass on, and Mr. Wallace 
 and his party had to go without their din- 
 ner. It therefore became very desirable to 
 keep on hand a supply of articles, such as 
 knives, pieces of cloth, arrack, or sago cakes, 
 to multiply the chance that one or other 
 article would suit the itinerant merchant. 
 
 In modern civilized society, the inconven- 
 iences of the primitive method of exchange 
 are wholly unknown, and might almost seem 
 to be imaginary. Accustomed from our 
 earliest years to the use of money, we are 
 unconscious of the inestimable benefits 
 which it confers upon us; and only when we 
 recur to altogether different states of society 
 can we realize the difficulties which arise in 
 its absence. It is even surprising to be re- 
 minded that barter is actually the sole method 
 of commerce among many uncivilized races. 
 There is something absurdly incongruous 
 in the fact that a joint-stock company, 
 called "The African Barter Company, Lim- 
 ited," exists in London, which carries on its 
 transactions upon the West Coast of Africa, 
 entirely by bartering European manufactures 
 for palm oil, gold dust, ivory, cotton, coffee, 
 gum, and other raw produce. 
 
 The earliest form of exchange must have 
 consisted in giving what was not wanted di- 
 rectly for that which was wanted. This simple 
 traffic we call barter or truck t the French troc, 
 and distinguish it from sale and purchase in 
 which one of the articles exchanged is in- 
 tended to be held only for a short time, until 
 it is parted with in a second act of exchange. 
 The object which thus temporarily intervenes 
 in sale and purchase is money. At first sight 
 it might seem that the use of money only 
 doubles the trouble, by making two exchanges 
 necessary where one was sufficient; but a 
 slight analysis of the difficulties inherent in 
 simple barter shows that the balance of trou- 
 ble lies quite in the opposite direction. Only 
 by such an analysis can we become aware 
 that money performs not merely one service 
 to us, but several different services, each in- 
 dispensable. Modern society could not exist 
 in its present complex form without the means 
 which money constitutes of valuing, distrib- 
 uting, and contracting for commodities of 
 various kinds. 
 
 WANT OF COINCIDENCE IN BARTER. 
 
 The first difficulty in barter is to find two 
 persons whose disposable possessions mutu- 
 ally suit each other's wants. There may be 
 many people wanting, and many possessing 
 those things wanted; but to allow of an act 
 of barter, there must be a double coincidence, 
 which will rarely happen. A hunter having 
 returned from a successful chase has plenty 
 of game, and may want arms and ammunition 
 to renew the chase. But those who have 
 
 arms may happen to be well supplied with 
 game, so that no direct exchange is possible. 
 In civilized society the owner of a house majf 
 find it unsuitable, and may have his eye upon 
 another house exactly fitted to his needs. But 
 even if the owner of this second housf* 
 wishes to part with it at all, it is exceedingly 
 unlikely that he will exactly reciprocate thr 
 feelings of the first owner, and wish to bar. 
 ter houses. Sellers and purchasers can only 
 be made to fit by the use of some commodity, 
 some marchandise bauale, as the French car*, 
 it, which all are willing to receive for a time, 
 so that what is obtained by sale in one case, 
 may be used in purchase in another. This 
 common commodity is called a medium of 
 exchange, because it forms a third or imme- 
 diate term in all acts of commerce. 
 
 Within the last few years a curious attempt 
 has been made to revive the practice of barter 
 by the circulation^ of advertisements. Tht 
 Exchange and Mart is a newspaper which 
 devotes itself to making known all thft 
 odd property which its advertisers ar* 
 willing to give for some coveted arti- 
 cle. One person has some old coins and 
 a bicycle, and wants to barter them for a 
 good concertina. A young lady desires to. 
 possess " Middlemarch," and offers a variety 
 of old songs, of which she has become tired. 
 Judging from the size and circulation of the 
 paper, and the way in which its scheme has 
 been imitated by some other weekly papers, 
 we must assume that the offers are sometimes 
 accepted, and that the printing press can 
 bring about, in some degree, the double 
 coincidence necessary to an act of bartar. 
 
 WANT OF A MEASURE OF VALUE. 
 
 A second difficulty arises in barter. At 
 what rate is any exchange to be made ? If a 
 certain quantity of beef be given for a cer- 
 tain quantity of corn, and in like manner 
 corn be exchanged for cheese, and cheese 
 for eggs, and eggs for flax, and so on, still 
 the question will arise How much beef for 
 how much flax, or how much of any one 
 commodity for a given quantity of another ? 
 In a state of barter the price- current list 
 would be a most complicated document, for 
 each commodity would have to be quoted in 
 terms of every other commodity, or else 
 complicated rule-of-three sums would become 
 necessary. Between one hundred articles 
 there must exist no less than four thousand 
 nine hundred and fifty possible ratios of ex- 
 change, and all these ratios must be care- 
 fully adjusted so as to be consistent with 
 each other, else the acute trader will be able 
 to profit by buying from some and selling to 
 others. 
 
 All such trouble is avoided if any on< 
 commodity be chosen, and its ratio of ex. 
 change with each other commodity bt. 
 quoted. Knowing how much corn is to be 
 bought for a pound of silver, and also how 
 much flax for the same quantity of silver, wo 
 
1 [52] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 Jearn without further trouble how much corn 
 exchanges for so much flax. The chosen 
 commodity becomes a common denominator 
 or common measure of value, in terms 
 of which we estimate the values of all other 
 goods, so that their values become capable 
 of the most easy comparison. 
 
 WANT OF MEANS OF SUBDIVISION. 
 
 A third but it may be a minor inconven- 
 ience of barter arises from the impossibility 
 of dividing many kinds of goods. A store 
 of corn, a bag of gold dust, a carcase of 
 meat, may be portioned out, and more or 
 less may be given in exchange for what is 
 wanted. But the tailor, as we are reminded 
 in several treatises on political economy, 
 may have a coat ready to exchange, but it 
 much exceeds in value the bread which he 
 wishes to get from the baker, or the meat 
 from the butcher. He cannot cut the coat 
 up without destroying the value of his handi- 
 work. It is obvious that he needs some 
 medium of exchange, into which he can 
 temporarily convert the coat, so that he may 
 give a part of its value for bread, and other 
 parts for meat, fuel, and daily necessaries, 
 retaining perhaps a portion for future use. 
 Further illustration is needless ; for it is 
 obvious that we need a means of dividing 
 and distributing value according to our va- 
 rying requirements. 
 
 In the present day barter still goes on in 
 some cases, even in the most advanced com- 
 mercial countries, but only when its incon- 
 veniences are not experienced. Domestic 
 servants receive part of their wages in board 
 and lodging ; the farm laborer may partially 
 receive payment in cider, or barley, or the 
 use of a piece of land. It has always been 
 usual for the miller to be paid by a portion 
 of the corn which he grinds. The trtick or 
 barter system, by which workmen took their 
 wages in kind, has hardly yet been extin- 
 guished in some parts of England. Pieces of 
 land are occasionally exchanged by adjoining 
 landowners ; but all these are comparatively 
 trifling cases. In almost all acts of ex- 
 change money now intervenes in one way or 
 other, and even when it does not pass from 
 hand to hand, it serves as the measure by 
 which the amounts given and received are 
 estimated. Commerce begins with barter, 
 and in a certain sense it returns to barter; 
 but the last form of barter, as we shall see, 
 is very different from the first form. By far 
 the greater part of commercial payments are 
 made at the present day in England appar- 
 ently without the aid of metallic money; 
 but they are readily adjusted, because money 
 acts as the common denominator, and what 
 is bought in one direction is balanced off 
 Against what is sold in another direction. 
 
 CHAPTER II. 
 
 EXCHANGE. 
 
 Money is the measure and standard of 
 value and the medium of exchange, yet it is 
 not necessary that I should enter upon more 
 than a very brief discussion concerning the 
 nature of value, and the advantage of ex- 
 change. Every one must allow that the 
 exchange of commodities depends upon the 
 obvious principle that each of our wants 
 taken separately requires a limited quantity of 
 some article to produce satisfaction. Hence 
 as each want becomes fully satiated, our de- 
 sire, as Senior so well remarked, is for varie- 
 ty, that is, for the satisfaction of some other 
 want. The man who is supplied daily with 
 three pounds of bread, will not desire more 
 bread; but he will have a strong inclination 
 for beef, and tea, and alcohol. If he happen 
 to meet with a person who has plenty of beef 
 but no bread, each will give that which is 
 less desired for that which is more desired. 
 Exchange has been called the barter of the 
 superfluous for the necessary. 
 
 It is impossible, indeed, to decide exactly 
 how much bread, or beef, or tea, or how many 
 coats and hats a person needs. There is no 
 precise limit to our desires, and we can only 
 say, that as we have a larger supply of a sub- 
 stance, the urgency of our need for more is 
 in some proportion weakened. A cup of 
 water in the desert, or upon the field of bat- 
 tle, may save life, and become infinitely use- 
 ful. Two or three pints per day for each 
 person are needful for drinking and cooking 
 purposes. A gallon or two per day are 
 highly requisite for cleanliness; but we soon 
 reach a point at which further supplies of 
 water are of very minor importance. A 
 modern town population is found to be satis- 
 fied with about twenty-five gallons per head 
 per day for all purposes, and a further supply 
 would possess little utility. Water, indeed, 
 may be the reverse of useful, as in the case 
 of a flood, or a damp house, or a wet mine. 
 
 UTILITY AND VALUE ARE NOT^ INTRINSIC. 
 
 It is only, then, when supplied in moderate 
 quantities, and at the right time, that a thing 
 can be said to be useful: Utility is not a 
 quality intrinsic in a substance, for if it were, 
 additional quantities of the same substance 
 would always be desired, however much we 
 previously possessed. We must not confuse 
 the usefulness of a thing with the physical 
 qualities upon which the usefulness depends. 
 Utility and value are only accidents of a thing 
 arising from the fact that some one wants it, 
 and the degree of the utility and the amouut 
 of resulting value will depend upon the extent 
 to which the desire for it has been previously 
 gratified. 
 
 Regarding utility, then, as constantly vary- 
 ing in degree, and as variable even for each 
 
MONEY AND THE MKCIIANISM OF KXCHANCK. 
 
 [53] 5 
 
 different portion of commodity, it is not dif- 
 ficult to see that we exchange those parts of 
 our stock which have a low degree of utility 
 to us, for articles which, being of low utility 
 to others, are much desired by us. This ex- 
 change is continued up to the point at which 
 the next portion given would be equally use- 
 ful to us with that received, so that there is 
 no gain of utility; there would be a loss in 
 carrying the exchange further. Upon these 
 considerations it is easy to construct a theory 
 of the nature of exchange and value, which 
 has been explained in my book,* called "The 
 Theory of Political Economy." It is there 
 shown that the well-known laws of supply 
 and demand follow from this view of utility, 
 and thus yield a verification of the theory. 
 Since the publication of the work named, M'. 
 Leon Walras, the ingenious professor of polit- 
 ical economy at Lausanne, has independent- 
 ly arrived at the same theory of exchange, f 
 a remarkable confirmation of its truth. 
 
 VALUE EXPRESSES RATIO OF EXCHANGE. 
 
 We must now fix our attention upon the 
 fact that, in every act of exchange, a definite 
 quantity of one substance is exchanged for a 
 definite quantity of another. The things 
 bartered may be most various in character, 
 and may be variously measured. We may 
 give a weight of silver for a length of rope, 
 or a superficial extent of carpet, or a num- 
 ber of gallons of wine, or a certain horse- 
 power of force, or conveyance over a certain 
 distance. The quantities to be measured 
 may be expressed in terms of space, time, 
 mass, force, energy, heat, or any other phy- 
 sical units. Yet each exchange will consist 
 in giving so many units of one thing for so 
 many units of another, each measured in its 
 appropriate way. 
 
 Every act of exchange thus presents itself 
 to us in the form of a ratio between two mem- 
 bers. The word value is commonly used, 
 and if, at current rates, one ton of copper 
 exchanges for ten tons of bar iron, it is usual 
 to say that the value of copper is ten times 
 that of the iron, weight for weight. For our 
 purpose, at least, this use of the word value 
 is only an indirect mode of expressing a 
 ratio. When we say that gold is more valu- 
 able than silver, we mean that, as commonly 
 exchanged, the weight of silver exceeds that 
 of the gold given for it. If the value of 
 gold rises compared with that of silver, then 
 still more silver is given for the same quan- 
 tity of gold. But value like utility is no in- 
 trinsic quality of a thing ; it is an extrinsic 
 accident or relation. We should never speak 
 of the value of a thing at all without having 
 in our minds the other thing in regard to 
 which it is valued. The very same sub- 
 stance may rise and fall in value at the same 
 
 * ** The Theory of Political Economy," 8vo. 1871. 
 (Macraillan). 
 
 t Walras, Elements d' Economic politique pure. 
 --" -^e, Paris. (Oaillaumin), 1874. 
 
 time. If, in exchange for a given weight of 
 gold, I can get more silver, but less copper, 
 than I used to do, the value of gold has 
 risen with respect to silver, but fallen with 
 respect to copper. It is evident that an in- 
 trinsic property of a thing cannot both in- 
 crease and decrease at the same time; there- 
 fore value must be a mere relation or accident 
 of a thing as regards other things and tho 
 persons needing them. 
 
 CHAPTER III. 
 
 THE FUNCTIONS OF MONEY. 
 
 We have seen that three inconveniences 
 attach to the practice of simple barter, name- 
 ly, the'improbability of coincidence between 
 persons wanting and persons possessing; the 
 complexity of exchanges, which are not 
 made in terms of one single substance; and 
 the need of some means of dividing and dis- 
 tributing valuable articles. Money remedies 
 these inconveniences, and thereby performs 
 two distinct functions of high importance, 
 acting as 
 
 1) A medium of exchange. 
 
 2) A common measure of value. 
 
 In its first form money is simply any com- 
 modity esteemed by all persons, any article 
 of food, clothing, or ornament uhich any 
 person will readily receive, and which, there- 
 fore, every person desires to have by him in 
 greater or less quantity, in order that he may 
 have the means of procuring necessaries of 
 life at any time. Although many commod- 
 ities may be capable of performing this 
 function of a medium more or less perfectly, 
 some one article will usually be selected, as 
 money par excellence, by custom or the force 
 of circumstances. This article will then be- 
 gin to be used as a measure of value. Being 
 accustomed to exchange things frequently for 
 sums of money, people learn the value of 
 other articles in terms of money, so that all 
 exchanges will most readily be calculated and 
 adjusted by comparison of the money values 
 of the things exchanged. 
 
 A STANDARD OF VALUE. 
 
 A third function of money soon develops 
 itself. Commerce cannot advance far before 
 people begin to borrow and lend, and debts 
 of various origin are contracted. It is in 
 some cases usual, indeed, to restore the very 
 same article which was borrowed, and in al- 
 most every case it would be possible to pay 
 back in the same kind of commodity. If 
 corn be borrowed, corn might be paid back, 
 with interest in corn; but the lender will 
 often not wish to have things returned to him 
 at an uncertain time, when he does not much 
 need them, or when their value is unusually 
 low. A borrower, too, may need several dif- 
 ferent kinds of articles, which he is not likely 
 
6 [54] 
 
 MONEY AND THE MECHANISM OF r.XCHANGE. 
 
 to obtain from one person; hence arises the 
 convenience of borrowing and lending in one 
 generally recognized commodity, of which 
 the value varies little. EvexjLpers^mnaking 
 a contract by which he will receive something 
 at a future day, will prefer to secure the re- 
 ceipt of a commodity likely to be as valuable 
 then as now. This commodity will usually 
 be the current money, and it will thus come 
 to perform the f unction of a standard ofvahie. 
 We must not suppose that the substance serv- 
 ing as a standard of value is really invaria- 
 ble in value, but merely that it is chosen as 
 that measure by which the value of future 
 payments is to be regulated. Bearing in 
 mind that value is only the ratio of quantities 
 exchanged, it is certain that no substance 
 permanently bears exactly the same value 
 relatively to another commodity; but it will, 
 of course, be desirable to select as the stand- 
 ard of value that which appears likely to con- 
 tinue to exchange for many other commod- 
 ities in nearly unchanged ratios. 
 
 A STORE OF VALUE. 
 
 It is worthy of inquiry whether money 
 does not also serve a fourth distinct purpose 
 that of embodying value in a convenient 
 form for conveyance to distant places. 
 Money, when acting as a medium of ex- 
 change, circulates backward and forward 
 near the same spot, and may sometimes 
 return to the same hands again and again. 
 It subdivides and distributes property, and 
 lubricates the action of exchange. But at 
 times a person needs to condense his property 
 into the smallest compass, so that he may 
 hoard it away for a time, or carry it with 
 him on a long journey, or transmit it to a 
 friend in a distant country. Something 
 which is very valuable, although of little 
 bulk and weight, and which will be recog- 
 nized as very valuable in every part of the 
 world, is necessary for this purpose. The 
 current money of a country is perhaps more 
 likely to fulfill these conditions than anything 
 else, although diamonds and other precious 
 stones, and articles of exceptional beauty 
 and rarity, might occasionally be employed. 
 
 The use of esteemed articles as a store or 
 medium for conveying value may in some 
 cases precede their employment as currency. 
 Mr. Gladstone states that in the Homeric 
 poems gold is mentioned as being hoarded 
 and treasured up. and as being occasionally 
 used in f he payment of services, before it 
 became the common measure of value, oxen 
 being then used for the latter purpose. His- 
 torically speaking, such a generally esteemed 
 substance as gold seems to have served, 
 firstly, as a commodity valuable for orna- 
 mental purposes ; secondly, as stored wealth ; 
 thirdly, as a medium of exchange ; and, last- 
 ly, as a measure of value. 
 
 SEPARATION OF FUNCTIONS. 
 
 It is in the highest degree important that 
 
 the reader should discriminate carefullj and 
 constantly between the four functions which 
 money fulfills, at least in modern societies. 
 We are so accustomed to use the one same 
 substance in ail the four different ways, that 
 they tend to become confused together in 
 thought. We come to regard as almost nec- 
 essary that union of functions which is, at 
 the most, a matter of convenience, and may 
 not always be desirable. We might certain- 
 ly employ one substance as a medium of 
 exchange, a second as a measure of value, 
 a third as a standard of value, and 
 a fourth as a store of value. In buying 
 and selling we might transfer portions of 
 gold ; in expressing and calculating prices 
 we might speak in terms of silver ; when we 
 wanted to make long leases we might define 
 the rent in terms of wheat, and -when we 
 wished to carry our riches away we might 
 condense it into the form of precious stones. 
 This use of different commodities for each 
 of the functions of money has in fact been 
 partially carried out. In Queen Elizabeth's 
 reign silver was the common measure of 
 value ; gold was employed in large payments 
 in quantities depending upon its current 
 value in silver, while corn was required by 
 the Act i8th Elizabeth, c. VI. (1576), to be 
 the standard of value in drawing the leases 
 of certain college lands. 
 
 There is evident convenience in selecting, 
 if possible, one single substance which can 
 serve all the functions of money. It will 
 save trouble if we can pay in the same money 
 in which the prices of things are calculated. 
 As few people have the time or patience to 
 investigate closely the history of prices, they 
 will probably assume that the money in 
 which they make all minor and temporary 
 bargains, is also the best standard in which 
 to register debts and contracts extending 
 over many years. A great mass of payments 
 too are invariably fixed by law, such as tolls, 
 fees, and tariffs of charges ; many other pay- 
 ments are fixed by custom. Accordingly, 
 even if the medium of exchange varied con- 
 siderably in value, people would go on mak- 
 ing their payments in terms of it, as if there 
 had been no variation, some gaining at the 
 expense of others. 
 
 One of our chief tasks in this book will be 
 to consider the various materials \vhich have 
 been employed as money, or have been, or 
 may be, suggested for the purpose. It must 
 be our endeavor, if possible, to discover some 
 substance which will in the highest degree 
 combine the characters requisite for all the 
 different functions of money, but we must 
 bear in mind that a partition of these func- 
 tions among different substances is practi- 
 cable. We will first proceed to a brief review 
 of the very various ways in which the need 
 of currency has been supplied from the ear- 
 liest ages, and we will afterward analyze the 
 physical qualities and circumstances which 
 render the substances employed more o less 
 

 111. MKC1IAM.-.M OF 1-:XCHA> 
 
 [55] 7 
 
 suited to the purpose to which they were 
 applied. We may thus arrive at some decis- 
 ion as to the exact nature of the commodity 
 which is best adapted to meet our needs in 
 the present day. 
 
 CIIAI'TF.R IV. 
 
 EARLY HISTORY OK MONEY. 
 
 Living in civilized communities, and ac- 
 customed to the use of coined metallic mon- 
 ey, we learn to identify money with gold and 
 silver ; hence spring hurtful and insidious 
 fallacies. It is always useful, therefore, to 
 be reminded of the truth, so well stated by 
 Turgot, that every kind of merchandise has 
 the two properties of measuring value and 
 transferring value. It is entirely a question 
 of degree what commodities will in any given 
 state of society form the most convenient 
 currency, and this truth will be best impressed 
 upon us by a brief consideration of the very 
 numerous things which have at one time or 
 other been employed as money. Though 
 there are many numismatists and many polit- 
 ical economists, the natural history of money 
 is almost a virgin subject, upon which I 
 should like to dilate ; but the narrow limits 
 of my space forbid me from attempting more 
 than a brief sketch of the many interesting 
 facts which may be collected. 
 
 CURRENCY IN THE HUNTING STATE. 
 
 Perhaps the most rudimentary state of in- 
 dustry is that in which subsistence is gained 
 by hunting wild animals. The proceeds of 
 the chase would, in such a state, be the prop- 
 erty of most generally recognized value. The 
 meat of the animals captured would, indeed, 
 be too perishable in nature to be hoarded or 
 often exchanged ; but it is otherwise with the 
 skins, which, being preserved and valued for 
 clothing, became one of the earliest materi- 
 als of currency. Accordingly, there is abun- 
 dant evidence that furs or skins were em- 
 ployed as money in many ancient nations. 
 They serve this purpose to the present day 
 in some parts of the world. 
 
 In the book of Job (ii. 4) we read, " Skin 
 for skin, yea, all that a man hath will he give 
 for his life ; " a statement clearly implying 
 that skins were taken as the representative 
 of value among the ancient Oriental nations. 
 Etymological research shows that the same 
 may be said of the northern nations from the 
 earliest times. In the Esthonian language 
 the word rdha generally signifies money, but 
 its equivalent in the kindred Lappish tongue 
 has not yet altogether lost the original mean 
 ing of skin or fur. Leather money is said 
 to have circulated in Russia as late as the 
 reign of Peter the Great, and it is worthy of 
 notice, that classical writers have recorded 
 traditions to the effect that the earliest cur- 
 
 rency used at Rome, Lacedocmon, and Car- 
 thage, was formed of leather. 
 
 We need not go back, however, to such 
 early times to study the use of rude curren- 
 cies. In the traffic of the Hudson Bay Com- 
 pany with the North American Indians, furs, 
 in spite of their differences of quality and 
 size, long formed the medium of exchange. 
 It is very instructive, and corroborative of the 
 previous evidence to find that, even after the 
 use of coin had become common among the 
 Indians the skin was still commonly used as 
 the money of account. Thus Whymper says,* 
 ''a gun, nominally worth about forty shil- 
 lings, brought twenty 'skins.' This term is 
 the old one employed by the company. One 
 skin (beaver) is supposed to be worth two 
 shillings, and it represents two marten, and 
 so on. You heard agreat deal about 'skins' 
 at Fort Yukon, as the workmen were also 
 charged for clothing, etc., in this way." 
 
 CURRENCY IN THE PASTORAL STATE. 
 
 In the next higher stage of civilization, the 
 pastoral state, sheep and cattle naturally form 
 the most valuable and negotiable kind of 
 property. They are easily transferable, con- 
 vey themselves about, and can be kept for 
 many years, so that they readily perform 
 some of the functions of money. 
 
 We have abundance of evidence, tradi- 
 tional, written, and etymological, to show 
 i this. In the Homeric poems oxen are dis- 
 tinctly and repeatedly mentioned as the com- 
 modity in terms of which other objects are 
 valued. The arms of Dicmed are stated to 
 be worth nine oxen, and are compared with 
 those of Glaucos, worth one hundred. The tri- 
 pod, the first prize for wrestlers in the twenty- 
 third Iliad, was valued at twelve oxen, and a 
 woman captive, skilled in industry, at four.f 
 It is peculiarly interesting to find oxen thus 
 used as the common measure of value, because 
 from other passages \\. is probable, as already 
 mentioned, that the precious metals, though 
 as yet uncoined, were used as a store of value, 
 and occasionally as a medium of exchange. The 
 several functions of money were thus clearly 
 performed by different commodities at this 
 early period. 
 
 In several languages the name for money- 
 is identical with that of some kind of cattle 
 or domesticated animal. It is generally al- 
 lowed that pecunia, the Latin word for 
 money, is derived from pecus, cattle. From 
 the Agamemnon of /Eschylus we learn that 
 the figure of an ox was the sign first im- 
 pressed upon coins, and the same is said to have 
 been the case with the earliest issues of the 
 Roman As. Numismatic researches fail to 
 bear out these traditions, which were proba- 
 bly invented to explain the connection be- 
 tween the name of the coin and the animaL 
 
 * " Travels in Alaska," etc., by F. Whymper, page 
 25 , ^ 
 t Gladstone, " Juventus Mundi," page 534. 
 
* [56] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 A corresponding connection between these 
 notions may be detected in much more mod- 
 ern languages. Our common expression for 
 the payment of a sum of money is/*?, which 
 is nothing but the Anglo-Saxon feoh, mean- 
 ing alike money and cattle, a word cognate 
 with the German vieh, which still bears only 
 the original meaning of cattle. As I am in- 
 formed by my friend, Professor Theodores, 
 the same connection of ideas is manifested 
 in the Greek word for property, ktema, 
 which means alike possession, flock, or cat- 
 tle, and is referred by Grimm to an original 
 verb keto or ketuo, to feed cattle. It is 
 even supposed by Grimm that the same root 
 reappears in the Teutonic and Scandinavian 
 languages, in the Gothic, skatts, the modern 
 High German, schatz, the Anglo-Saxon, scat, 
 or sceat, the ancient Norsk skat, all meaning 
 wealth, property, treasure, tax, or tribute, 
 especially in the shape of cattle. This theory 
 
 is confirmed by the 
 equivalent, skct, has 
 
 fact that the Frisian 
 retained the original 
 
 meaning of cattle to the present day. In the 
 Norsk, Anglo-Saxon, and English, scat or 
 scot has been specialized to denote tax or 
 tribute. 
 
 In the ancient German codes of law, fines 
 and penalties are actually defined in terms of 
 live-stock. In the Zend Avesta, as Professor 
 Theodores further informs me, the scale of 
 rewards to be paid to physicians is carefully 
 stated, and in every case the fee consists in 
 some sort of cattle. The fifth and sixth 
 lectures in Sir H. S. Maine's most interesting 
 
 made of the ends of black and white shells, 
 rubbed down and polished, and then strung 
 into belts or necklaces, which were valued ac- 
 cording to their length, and also according 
 to their color and luster, a foot of black peag 
 being worth two feet of white peag. If was 
 so well established as currency among the 
 natives that the Court of Massachusetts ord- 
 ered in 1649, tna t it should be received in 
 the payment ot debts among settlers to the 
 amount of forty shillings. It is curious to 
 learn, too, that just as European misers 
 hoard up gold and silver coins, the richer 
 Indian chiefs secrete piles of wampum beads, 
 having no better means of investing their 
 superfluous wealth. 
 
 Exactly analagous to this North American 
 currency, is that of the cowry shells, which, 
 under one name or another chamgos, zim- 
 bis, bouges, porcelanes, etc. have long been 
 used in the East Indies as small money. In 
 British India, Siam, the West Coast of 
 Africa, and elsewhere on the tropical coasts, 
 they are still used as small change, being col- 
 lected on the shores of the Maldive and Lac- 
 cadive Islands, and exported for the purpose. 
 Their value varies somewhat, according to 
 the abundance of the yield, but in India the 
 current rate used to be about 5,000 shells for 
 one rupee, at which rate each shell is worth 
 about the two-hundredth part of a penny. 
 Among our interesting fellow-subjects, the 
 Fijians, whale's teeth served in the place of 
 cowries, and white teeth were exchanged for 
 red teeth somewhat in the ratio of shillings 
 
 work on "The Early History of Institutions," I to sovereigns. 
 
 are full of curious information showing the I Among other articles of ornament or of 
 
 importance of live-stock in a primitive state special value used as currency, maybe men- 
 
 of society. Being counted by the head, the tioned yellow amber, engraved stones, such 
 
 kine was called capitate, whence the econom- as the Egyptian scarabcei, and tusks of ivory. 
 
 ical term capital, the law term chattel, and 
 
 our common name cattle. 
 
 In countries where slaves form one of the 
 most common and valuable possessions, it is 
 
 quite natural that they should serve as the 
 medium of exchange like cattle. Pausanias 
 mentions their use in this way, and in Cen- 
 tral Africa and some other places where slav- 
 ery still flourishes, they are the medium of 
 exchange along with cattle and ivory tusks. 
 According to Earl's account of New Guinea, 
 there is in that island a large traffic in slaves, 
 and a slave forms the unit of value. Even 
 in England slaves are believed to have been 
 exchanged at one time in the manner of 
 money. 
 
 ARTICLES OF ORNAMENT AS CURRENCY. 
 
 A passion for personal adornment is one 
 of the most primitive and powerful instincts 
 of the human race, and as articles used for 
 such purposes would be durable, universally 
 esteemed, 'and easily transferable, it is natu- 
 ral that they should be circulated as money. 
 The wampumpeag of the North American 
 Indians is a case in point, as it certainly 
 served as jewelry. It consisted of beads 
 
 CURRENCY IN THE AGRICULTURAL STATE. 
 
 Many vegetable productions are at least 
 as weil suited for circulation as some of the 
 
 articles which have been mentioned. It is 
 not . surprising to find, then, that among a 
 people supporting themselves by agriculture, 
 the more durable products were thus used. 
 Corn has been the medium of exchange in 
 remote parts of Europe from the time of the 
 ancient Greeks to the present day. In Nor- 
 way corn is even deposited in banks, and 
 lent and borrowed. What wheat, barley, 
 and oats are to Europe, such is maize in 
 parts of Central America, especially Mex- 
 ico, where it formerly circulated. In many 
 of the countries surrounding the Mediter- 
 ranean, olive oil is one of the commonest 
 articles of produce and consumption ; being, 
 moreover, pretty uniform in quality, durable, 
 and easily divisible, it has long served as 
 currency in the Ionian Islands, Mytilene, 
 some towns of Asia Minor, and elsewhere in 
 the Levant, 
 
 Just as cowries circulate in the East Indies, 
 so cacao nuts, in Central America and Yu- 
 catan, form a perfectly recognized and prob- 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 |/>7J 3 
 
 ably an ancient fractional money. Trav- 
 el*rs have published many distinct state- 
 ments as to their value, but it is impossible 
 to reconcile these statements without sup- 
 posing great changes of value either in the 
 nuts or in the coins with which they are com- 
 pared. In 1521, at Caracas, about thirty 
 cacao nuts were worth one penny English, 
 whereas recently ten beans would go to a 
 penny, according to Squier's statements. In 
 the European countries, where almonds are 
 commonly grown, they have circulated to 
 some extent like the cacao nuts, but are vari- 
 able in value according to the success of the 
 harvest. 
 
 It is not only, however, as a minor cur- 
 rency that vegetable products have been 
 used in modern times. In the American 
 settlements and the West India Islands, in 
 former days, specie used to become incon- 
 veniently scarce, and the legislators fell back 
 upon the device of obliging creditors to re- 
 ceive payment in produce at stated rates. In 
 1618, the Governor of the Plantations of ! 
 Virginia ordered that tobacco should be re- ; 
 ceived at the rate of three shillings for the j 
 pound weight, under the penalty of three | 
 years' hard labor. We are told that, when 
 the Virginia Company imported young i 
 women as wives for the settlers, the price j 
 per head was one hundred pounds of to- 
 bacco, subsequently raised to one hundred 
 and fifty. As late as 1732, the legislature of 
 .nd made tobacco and Indian corn 
 legal tenders ; and in 1641 there were similar [ 
 laws concerning corn in Massachusetts. The I 
 governments of some of the West India j 
 Islands seem to have made attempts to imi- 
 tate these peculiar currency laws, and it was ! 
 provided that the successful plaintiff in a ; 
 lawsuit should be obliged to accept various 
 kinds of raw produce, such as sugar, rum, j 
 molasses, ginger, indigo, or tobacco.* Such j 
 endeavors to establish a kind of multiple cur- I 
 rency will be found to possess considerable 
 interest for us in a later chapter. 
 
 The perishable nature of most kinds of 
 animal food prevents them from being much 
 used as money ; but eggs are said to have 
 circulated in the Alpine villages of Switzer- 
 land, and dried codfish have certainly acted 
 as currency in the colony of Newfoundland. 
 
 somewhat similar pieces circulated in Abys- 
 sinia, the Soulou Archipelago, Sumatra, 
 Mexico, Peru, Siberia, and among the Ved- 
 dahs. It is less easy to understand the ori- 
 gin of the curious straw money which circu- 
 lated until 1694 in the Portuguese possessions 
 in Angola, and which consisted of small 
 mats, called libongos, woven out of rice 
 straw, and worth about one and a-half pennies 
 each. These mats must have had, at least 
 originally, some purpose apart from their use 
 as currency, and were perhaps analogous to 
 the fine woven mats so much valued by the 
 Samoans, and also treated by them as a me- 
 dium of exchange. 
 
 Salt has been circulated not only in Abys- 
 sinia, but in Sumatra, Mexico, and elsewhere. 
 Cubes of benzoin gum or beeswax in Suma- 
 tra, red feathers in the Islands of the Pacific 
 Ocean, cubes of tea in Tartary, iron shovels 
 or hoes among the Malagasy, are other pecu- 
 liar forms of currency. The remarks of 
 Adam Smith concerning the use of hand- 
 made nails as money in some Scotch villages 
 will be remembered by many readers, and 
 need not be repeated. M. Chevalier has 
 adduced an exactly corresponding case from 
 one of the French coalfields. 
 
 Were space available it would be interest- 
 ing to discuss the not improbable suggestion 
 of Boucher de Perthes, that, perhaps, after 
 all, the finely worked stone implements now 
 so frequently discovered were among the 
 earliest mediums of exchange. Some of 
 them are certainly made of jade, nephrite, or 
 other hard stones, only found in distant 
 countries, so that an active traffic in such 
 implements must have existed in times of 
 which we have no records whatever. 
 
 There are some obscure allusions in classi- 
 cal authors to a wooden money circulating 
 among the Byzantines, and to a wooden 
 talent used at Antioch and Alexandria, but 
 in the absence of fuller information as to 
 their nature, it is impossible to do more than 
 mention them. 
 
 CHAPTER V, 
 
 QUALITIES OF THE MATERIAL OF MONEY. 
 
 MANUFACTURED AND MISCELLANEOUS ARTI- 
 CLES AS CURRENCY. 
 
 The enumeration of articles which have 
 served as money may already seem long 
 enough for the purposes in view. I will, 
 therefore, only add briefly that a great num- 
 ber of manufactured commodities have been 
 used as a medium of exchange in various 
 times and places. Such are the pieces of 
 cotton cloth, called Guinea pieces, used for 
 traffic upon the banks of the Senegal, or the 
 
 * See a scarce tract, entitled " Two Letters to Mr. 
 Wood on the Coin and Currency in the Leeward 
 lilamds," p. 34. London, 1740. 
 
 Many recent writer!? such as Huskissou, 
 MacCulloch, James Mill, Gamier, Chevalier, 
 and Walras, have satisfactorily described the 
 qualities which should be possessed by the 
 material of money. Earlier writers seem, 
 however, to have understood the subject 
 almost as well. Harris explained these qual- 
 ities with remarkable clearness in his "Essay 
 upon Money and Coins," published in 1757, a 
 work which appeared before the ' ' Wealth of 
 Nations," yet gave an exposition of the prin- 
 ciples of money which can hardly be im- 
 proved at the present day. Eigkty years 
 ; before, however, Rice Vaughan, in his excel- 
 
10 [58 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 lent little "Treatise of Money," had written 
 a brief but satisfactory statement of the 
 qualities requisite in money. We even find 
 that William Stafford, the author of that re- 
 markable dialogue of the Elizabethan age 
 (1581), called "A Brief Conceipte of Eng- 
 lish Policy," showed perfect insight into the 
 subject. Of all writers, M. Chevalier, how- 
 ever, probably gives the most accurate and 
 full account of the properties which money 
 should possess, and I shall in many points 
 follow his views. 
 
 The prevailing defect in the treatment of 
 the subject is the failure to observe that 
 money requires different properties as regards 
 different functions. To decide upon the 
 best material for money is thus a problem of 
 great complexity, because we must take into 
 account at once the relative importance of 
 the several functions of money, the degree in 
 which money is employed for each function, 
 and the importance of each of the physical 
 qualities of the substance with respect to 
 each function. In a simple state of industry 
 money is chiefly required to pass about 
 between buyers and sellers. It should, then, 
 be conveniently portable, divisible into pieces 
 of various size, so that any sum may readily 
 be made up, and easily distinguishable by 
 its appearance, or by the design impressed 
 upoff. it. When money, however, comes to 
 serve, as it will at some future time, almost 
 exclusively as a measure and standard of 
 value, the system of. exchange being one of 
 perfected barter, such properties become a 
 matter of comparative indifference, and sta- 
 bility of value, joined perhaps to portability, 
 is the most important quality. Before ven- 
 turing, however, to discuss such complex 
 questions, we must proceed to a preliminary 
 discussion of the properties in question, 
 which may thus perhaps be enumerated in 
 the order of their importance : 
 
 1. Utility and value. 5. Divisibility. 
 
 2. Portability. 6. Stability of value. 
 
 3. Indestructibility. 7. Cognizability. 
 
 4. Homogeneity. 
 
 I. UTILITY AND VALUE. 
 
 Since mcney has to be exchanged for val- 
 uable goods, it should itself possess value, 
 and it must therefore have utility as the basis 
 of value. Money, when once in full cur- 
 rency, is only received in order to be passed 
 on, so that if all people could be induced to 
 take worthless bits of material at a fixed rate 
 of valuation, it might seem that money does 
 not really require to have substantial value. 
 Something like this does frequently happen 
 in the history of currencies, and apparently 
 valueless shells, bits of leather, or scraps of 
 paper, are actually received in exchange 
 for costly commodities. This strange phe- 
 nomenon is, however, in most cases capable 
 of easy explanation, and if we were ac- 
 quainted with the history of every kind of 
 money the like explanation would no doubt 
 
 be possible in other cases. The essential 
 point is that people should be induced to re- 
 ceive money, and pass it on freely at steady 
 ratios of exchange for other objects ; but 
 there must always be some sufficient reason 
 first inducing people to accept the money. 
 The force of habit, convention, or legal 
 enactment may do much to maintain money 
 in circulation when once it is afloat, but it is 
 doubtful whether the most powerful govern- 
 ment could oblige its subjects to accept and 
 circulate as money a worthless substance 
 which they had no other motive for receiving. 
 
 Certainly, in the early stages of society, 
 the use of money was not based on legal 
 regulations, so that the utility of the sub- 
 stance for other purposes must have been the 
 prior condition of its employment as money. 
 Thus the singular peag currency, or warn- 
 pumpeag, which was found in circulation 
 among the North American Indians by the 
 early explorers, was esteemed for the purpose 
 of adornment, as already mentioned, (Chapter 
 IV). The cowry shells so widely used, as a 
 small currency in the East, are valued for 
 ornamental purposes on the West Coast of 
 Africa, and were in all probability employed 
 as ornaments before they were employed as 
 money. All the other articles mentioned in 
 Chapter IV., such as oxen, corn, skins, to- 
 bacco, salt, cacao nuts, etc,, which have per- 
 formed the functions of money in one place 
 or other, possessed independent utility and 
 value. If there are any apparent exceptions 
 at all to this rule, they would doubtless ad- 
 mit of explanation by fuller knowledge. We 
 may, therefore, agree with Storch when he 
 says: "It is impossible that a substance 
 which has no direct value should be intro- 
 duced as money, however suitable it may be 
 in other respects for this use." 
 
 When once a substance is widely employed 
 as money, it is conceivable that its utility 
 will come to depend mainly upon the services 
 which it thus confers upon the community. 
 Gold, for instance, is far more important as 
 material of money than in the production of 
 plate, jewelry, watches, gold-leaf, etc. A 
 substance originally used for many purposes 
 may eventually serve only as money, and yet, 
 by the demand for currency and the force of 
 habit, may maintain its value. The cowry 
 circulation of the Indian coasts is probably 
 a case in point. The importance of habit, 
 personal or hereditary, is at least as great in 
 monetary science as it is, according to Mr. 
 Herbert Spencer, in moral and sociological 
 phenomena generally. 
 
 There is, however, no reason to suppose 
 that the value of gold and silver is at present 
 due solely to their conventional use as money. 
 These metals are endowed with such singu- 
 larly useful properties that, if we could only 
 get them in sufficient abundance, they would 
 supplant all the other metals in the manu- 
 facture of household utensils, ornaments, 
 fittings of all kinds, and an infinite multitude 
 
MONEY AND THE MECHANISM Ol- EXCHANGE. 
 
 [59J 11 
 
 of small articles, which are now made of 
 brass, copper, bronze, pewter, Geiman silver, 
 or other inferior metals and alloys. 
 
 In order "hat money may perform some of 
 its functions efficiently, especially those of a 
 medium of exchange and a store of value, to 
 be carried about, it is important that it should 
 be made of a substance valued highly in all 
 parts of the world and, if possible, almost 
 equally esteemed by all peoples There is 
 reason to think that gold and silver have 
 been admired and valued by all tribes which 
 have been lucky enough to procure them. 
 The beautiful luster of these metals must 
 have drawn attention and excited admiration 
 as much in the earliest as in the present 
 times. 
 
 2. PORTABILITY. 
 
 The material of money must not only be 
 valuable, but the value must be so related to 
 the weight and bulk of the material, that the 
 money shall not be inconveniently heavy on 
 the one hand, nor inconveniently minute on 
 the other. There was a tradition in Greece 
 that Lycurgus obliged the Lacedaemonians 
 to use iron money, in order that its weight 
 might deter them from overmuch trading. 
 However this may be, it is certain that iron 
 money could not be used in cash payments 
 at the present day, since a penny would 
 weigh about a pound, and instead of a five- 
 pound note, we should have to deliver a ton 
 of iron. During the last century copper was 
 actually used as the chief medium of ex- 
 change in Sweden ; and merchants had to 
 take a wheelbarrow with them when they 
 went to receive payments in copper dalers. 
 Many of the substances used as currency in 
 former times must have been sadly wanting 
 in portability. Oxen and sheep, indeed, 
 would transport themselves on their own 
 legs ; but corn, skins, oil, nuts, almonds, 
 etc., though in several respects forming fair 
 currency, would be intolerably bulky, and 
 troublesome lo transfer. 
 
 The portability of money is an important 
 quality not merely because it enables the 
 owner to carry small sums in the pocket with- 
 out trouble, but because large sums can be 
 transferred from place to place, or from con- 
 tinent to continent, at little cost. The re- 
 sult is to secure an approximate uniformity 
 in the value of money in all parts of the 
 world. A substance which is very heavy 
 and bulky in proportion to value, like corn 
 or coal, may be very scarce in one place and 
 over abundant in another ; yet the supply 
 and demand cannot be equalized without 
 great expense in carriage. The cost of con- 
 veying gold or silver from London to Paris, 
 including insurance, is only about four-tenths 
 of one per cent. ; and between the most dis- 
 tant parts of the world it does not exceed 
 from two to three per cent. 
 
 Substances may be too valuable as well as 
 too cheap, so that for ordinary transactions 
 
 it would be necessary to call in the aid of the 
 microscope and the chemical balance. Dia- 
 monds, apart from other objections, would 
 be far too valuable for small transactions. 
 The value of such stones is aid to vary a> 
 the square of the weight, so that we cannot 
 institute any exact comparison with metals 
 of which the value is simply proportional to 
 the weight. But taking a one-carat diamond 
 (four grains) as worth fifteen pounds, we tind 7 
 it is, weight for weight, four hundred and 
 sixty times as valuable as go;d. There are 
 several rare metals, such as indium and osmi- 
 um, which would likewise be far to valuable . 
 to circulate. Even gold and silver are too 
 costly for small currency. A silver peimy 
 now weighs seven and one-fourth grains, and 
 a gold penny would weigh only half a grain. 
 The pretty octagonal quarter-dollar tokens 
 circulated in California are the smallest gold 
 coins I have seen, weighing less than four 
 grains each, and are so thin that they can 
 almost be blown away. 
 
 3. INDESTRUCTIBILITY. 
 
 If it is to be passed about in trade, and 
 kept in reserve, money must not be subject 
 to easy deterioration or loss. It must not 
 evaporate like alcohol, nor putrefy like an- 
 imal substances, nor decay like wood, nor 
 rust like iron. Destructible articles, such 
 as eggs, dried codfish, cattle, or oil, 
 have certainly been used as currency; but 
 what is treated as money one day must soon 
 afterward be eaten up. Thus a large stock 
 of such perishable commodities cannot be 
 kept on hand, and their value must be very 
 variable. The several kinds of corn are less 
 subject to this objection, since, when well 
 dried at first, they suffer no appreciable de- 
 terioration for several years. 
 
 4. HOMOGENEITY. 
 
 All portions or specimens of the substance 
 used as money should be homogeneous, that 
 is, of the same quality, so that equal weights 
 I will have exactly the same value. In order 
 I that we may correctly count in terms of any 
 unit, the units must be equal and similar, so 
 that twice two will always make four. If we 
 j were to count in precious stones, it would 
 i seldom happen that four stones would be 
 i just twice as valuable as two stones. Even 
 I the precious metals, as found in the native 
 | state, are not perfectly homogeneous, being 
 , mixed together in almost all proportions; but 
 this produces little inconvenience, because 
 the assayer readily determines the quantity 
 of each pure metal present in any ingot. In 
 the processes of refining and coining, the 
 metals are afterward reduced to almost ex- 
 actly uniform degrees of fineness, so that 
 equal weights are then of exactly equal value. 
 
 5. DIVISIBILITY. 
 
 Closely connected with the last property 
 is that of divisibility. Every material is, io 
 
12 (60] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 deed, mechanically divisible, almost without 
 limit. The hardest gems can be broken, 
 and steel can be cut by harder steel. But 
 the material of money should be not merely 
 capable of division, but the aggregate value 
 of the mass after division should be almost 
 exactly the same as before division. If we 
 cut up a skin or fur, the pieces will, as a 
 general rule, be far less valuable than the 
 whole skin or fur, except for a special in- 
 tended purpose; and the same is the case 
 with timber, stone, and most other materials 
 in which reunion is impossible. But portions 
 of metals can be melted together again when- 
 ever it is desirable, and the cost of doing 
 this, including the metal lost, is in the case 
 of precious metals very inconsiderable, vary- 
 ing from one-fourth to one-half penny per 
 ounce. Thus, approximately speaking, the 
 value of any piece of gold or silver is simply 
 proportional to the weight of fine metal which 
 it contains. 
 
 6. STABILITY OF VALUE. 
 
 It is evidently desirable that the currency 
 should not be subject to fluctuations of value. 
 The ratios in which money exchanges for 
 other commodities should be maintained as 
 neariy as possible invariable on the average. 
 This would be a matter of comparatively 
 minor importance were money used only as a 
 measure of values 'at any one moment, and as 
 a medium of exchange. If all prices were 
 altered in like proportion as soon as money 
 varied in value, no one would lose or gain, 
 except as regards the coin which he hap- 
 pened to have in his pocket, safe, or bank 
 balance. But, practically speaking, as we 
 have seen, people do employ money as a 
 standard of value for long contracts; and 
 they often maintain payments at the same 
 invariable rate, by custom or law, even when 
 the real value of the payment is much al- 
 tered. Hence every change in the value of 
 money doe? some injury to society. 
 
 It might be plausibly said, indeed, that the 
 debtor gains as much as the creditor loses, or 
 vice versa, so that on the whole the commu- 
 nity is as rich as before; but this is not really 
 true. A mathematical analysis of the subject 
 shows that to take any sum of money from 
 one and give it to another will, on the av- 
 erage of cases, injure the loser more than it 
 benefits the receiver. A person with an in- 
 come of one hundred pounds a year would 
 suffer more by losing *en pounds than he 
 would gain by an addition of ten pounds, be- 
 cause the degree of utility c f money to .him 
 is considerably higher at ninety pounds than 
 it is at one hundred and ten. OP the same 
 principle, all gaming, betting, pure specula- 
 tion, or other accidental modes- of tr^nsfer- 
 xiug property involve, on the average, a dead 
 loss of utility. The whole incitement to ip- 
 dustry and commerce and the accumulation 
 of capital depends upon the expectation of 
 enjoyment thence arising, and every varia- 
 
 tion of the currency tends in some degree to 
 frustrate such expectation and to lessen the 
 motives for exertion. 
 
 7. COGNIZABILITY. 
 
 By this name we may denote the capabil- 
 ity of a substance for being easily recognized 
 and distinguished from all other substances. 
 As a medium of exchange, money has to be con- 
 tinually handed about, and it will occasion 
 great trouble if every person receiving currency 
 has to scrutinize, weigh, and test it. If it re- 
 quires any skill to discriminate good money 
 from bad, poor ignorant people are sure to 
 be imposed upon. Hence the medium of 
 exchange should have certain distinct marks 
 which nobody can mistake. Precious stones, 
 even if in other respects good as money, 
 could not be so used, because only a skilled 
 lapidary can surely distinguish between true 
 and imitation gems. 
 
 Under cognizability^ we may properly in- 
 clude what has been aptly called impressibil- 
 ity, namely, the capability of a substance to 
 receive such an impression, seal, or design, 
 as shall establish its character as current 
 money of certain value. We might more 
 simply say, that the material of money should 
 be coinable, so that a portion, being once is- 
 sued according to proper regulations with 
 the impress of the State, may be known to 
 all as good and legal currency, equal in 
 weight, size, and value to all similarly marked 
 currency. We shall afterward consider more 
 minutely what is involved in the manufacture 
 of a good coin. 
 
 /CHAPTER VI. 
 
 THE METALS AS MONEY. 
 
 It need not be pointed out in detail that, 
 though the numerous commodities mentioned 
 in Chapter IV. possess, in a greater or less 
 degree, the qualities essential to the material 
 of money, they cannot for a moment compare 
 in this respect with many of the metals. Some 
 of the metals seem to be marked out by na- 
 ture as most fit of aU substances for employ- 
 ment as money, at least when acting as a 
 medium of exchange and a store of value. 
 Accordingly, we find that gold, silver, cop- 
 per, tin, lead, and iron have been more or 
 less extensively in circulation in all historical 
 ages. So closely have silver and copper be- 
 come associated in people's minds with their 
 use as money, that we find their names 
 adapted as the names of money. In Greek, 
 arguros means equally silver, silver coin, 
 and money generally ; in Latin, aes is cop- 
 per, brcnze, or brass, and also money and 
 wages', in French, urgent is both silver and 
 money. The satp^ association of meanings 
 could be pointed oui in many other languages 
 including our own. 1 hough out pence are 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 13 
 
 now made of bronze, we still speak of them 
 
 *s coppers. 
 
 With the exception of iron, the principal 
 metals are peculiarly indestructible, and un- 
 dergo little or no deterioration when hoarded 
 up or handed about. Each kind of metal is 
 approximately homogeneous, piece differing 
 from piece in nothing but weight, the differ- 
 ences of fineness being ascertained and al- 
 lowed for in the case of gold and silver. The 
 metals are also perfectly divisible, either by 
 the chisel or the crucible, and yet a second 
 melting will always reunite the pieces again 
 with little cost or loss of material. Most of 
 them possess the properties of cognizability 
 and impressibility in the highest degree. 
 Each metal has its characteristic color, den- 
 sity, and hardness, so that it is easy for a 
 person with very slight experience to dis- 
 tinguish one metal from another. Their 
 malleability enables us to roll, cut, and ham- 
 mer them into any required form, and to im- 
 press a permanent design by means of dies. 
 With the exception of porftelain coins, which 
 have been used in Siam, I am not aware 
 that coins have ever been made of any sub- 
 stance except metal. 
 
 In respect to steadiness of value the metals 
 are probably less satisfactory, regarded as a 
 standard of value, than many other commodi- 
 ties, such as corn. From the earliest ages 
 metals must have been most highly valued, as 
 we may learn from the way in which they are 
 esteemed by savages in the present day. But 
 their value has suffered and is suffering an 
 almost continuous decline, owing to the pro- 
 gress of industry, and the discovery of new 
 mechanical and chemical means for their ex- 
 traction. Even the order of their values be- 
 comes changed. According to Mr. Glad- 
 stone, iron was, in the Homeric age, much 
 more valued than chalkos, or copper, which 
 latter was then the most common and useful 
 metal. Lead was little known or valued, but 
 gold, silver, and tin held the same places at 
 the head of the list, which they hold at the 
 present day. 
 
 IRON. 
 
 Proceeding to consider briefly each of the 
 more important metals, the statements of 
 Aristotle, Pollux, and other writers prove 
 that iron was extensively employed as money 
 in early times. Not a single specimen of such 
 money is now known to exist, but this is 
 easily accounted for by the rapidity with 
 which the metal rusts. In the absence of 
 specimens, we do not know the form and size 
 of the money, but it is probable that it con- 
 sisted of small bars, ingots, or spikes, some- 
 what similar to the small bars of iron which 
 are still used in trading with the natives of 
 Central Africa. Iron money is still, or was 
 not long since, used in Japan for small 
 values; but its issue from the mint has been 
 discontinued. 
 
 The use of pure iron coins in civilized 
 
 countries at the present day is out of the 
 question, both because of the cheapness of 
 the metal, and because the coins would soon 
 lose the sharpness of their impressions by 
 rusting, and become dirty and easily counter- 
 feited. But it is quite possible that iron or 
 steel might still be alloyed with other metals 
 for the coining of pence. 
 
 LEAD. 
 
 Lead has often been used as currency, and 
 is occasionally so mentioned by the ancient 
 Greek and Latin poets. In 1635 leaden 
 bullets were used for change at the rate of a 
 farthing a piece in Massachusetts. At the 
 present day lead is still current in Burmah. 
 being passed by weight for small payments. 
 The extreme softness of the metal obviously 
 renders it quite unfit for coining in the pure 
 state. It is one of the components of pewter, 
 which has frequently been coined. 
 
 TIN. 
 
 Tin has also been employed as money at 
 various times. Dionysius -of Syracuse is- 
 sued the earliest tin coinage of which any- 
 thing is certainly known; but as tin was in 
 early times procured from Cornwall, it can 
 hardly be doubted that the first British cur- 
 rency was composed of tin. In innumerable 
 cabinets may be found series of tin coins is 
 sued by the Roman emperors; the kings of 
 England also often coined tin. In 1680 tin 
 farthings were struck by Charles II., a stud 
 of copper being inserted in the middle of the 
 coin to render counterfeiting more difficult. 
 Tin halfpence and farthings were also issued 
 in considerable quantities in the reign of 
 William and Mary (1690 to 1691). Tin coins 
 were formerly employed among the Javanese, 
 Mexicans, and many other peoples, and the 
 metal is said to be still current by weight in 
 the Straits of Malacca. 
 
 Tin would be in many respects admirably 
 suited for making pence, possessing a fine 
 white color, perfect freedom from corrosion, 
 and a much higher value than copper. Un- 
 fortunately, its softness and tendency to bend 
 and break when pure are insuperable obsta- 
 cles to its employment as money. 
 
 COPPER. 
 
 This metal is in many respects well suited 
 for coining. It does not suffer from expo- 
 sure to dry air, possesses a fine distinct red 
 color, and takes a good impression from the 
 dies, which impression it retains better 
 than the majority of other metals. Accord- 
 ingly, we find that it has been continually 
 employed as currency, either alone or in sub- 
 ordination to gold and silver. The earliest 
 Hebrew coins were composed chiefly of cop- 
 per, and the metallic currency of Rome con- 
 sisted of the impure copper, called aes, until 
 B. c. 269, when silver was first coined. la 
 later times copper has not only been gener- 
 ally used for coins of minor value, but, in 
 
14 [62] 
 
 MONEY AND XHE MECHANISM OF EXCHANGE. 
 
 ^Russia and in Sweden, a hundred years ago, 
 ait formed the principal mass of the currency. 
 Its low value now stands in the way of its 
 wse. A penny, if made so as to contain 
 metal equivalent to its nominal value, would 
 Weigh eight hundred and seventy grains, or 
 more than an ounce and three quarters troy. 
 Its value is also subject to considerable fluc- 
 tuations. Moreover, it is unlikely that cop- 
 per in a pure state will be coined for the 
 future, since bronze is now known to be so 
 much more suitable for coinage. 
 
 I need hardly say that silver is distin- 
 ffuished by its exquisite white luster, which 
 is not rivalled by that of any other pure 
 metal. Certain alloys, indeed, such as spec- 
 ulum metal, or Britannia metal, have been 
 made of almost equal luster, but they are 
 either brittle, or so soft as not to give the 
 metallic ring of silver. When much exposed 
 to the air silver tarnishes by the formation of 
 a black film of silver sulphide; but this forms 
 no obstacle to its use as currency, since the 
 film is always very thin, and its peculiar 
 black color even assists in distinguishing the 
 pure metal from the counterfeit. When 
 suitably alloyed, silver is sufficiently hard to 
 stand much wear, and next after gold it is 
 the most malleable and impressible of all the 
 metals. 
 
 A coin or other object made of silver may 
 be known by the following marks (i) a fine 
 pure white luster, where newly rubbed or 
 scraped; (2) a blackish tint where the surface 
 has long been exposed to the air; (3) a mod- 
 erate specific gravity; (4) a good metallic 
 ring when thrown down; (5) considerable 
 hardness ; (6) strong nitric acid dissolves sil- 
 ver, and the solution turns black if exposed 
 to light. 
 
 Silver has been coined, it need hardly be 
 said, in all ages since the first invention of 
 the art, and its value relatively to gold and 
 copper fits it for taking the middle place in 
 a monetary system. Its value too remains 
 very stable for periods of fifty or a hundred 
 years, because a vast stock of the metal is 
 kept in the form of plate, watches, jewelry, 
 and ornaments of various kinds, in addition 
 to money, so that a variation in the supply 
 for a few years cannot make any appreciable 
 change in the total stock. Productive silver 
 mines exist in almost all parts of the world ; 
 and wherever lead is produced, a small but 
 Steady yield of silver is obtained from it by 
 the Pattinson method of extraction. 
 
 Silver is beautiful, yet gold is even more 
 beautiful, and presents indeed a combination 
 of useful and striking properties quite with- 
 out parallel among known substances. To a 
 rich and brilliant yellow color, which can only 
 be adequately described as golden, it joins 
 astonishing malleability and a very high spe- 
 
 cific gravity, exceeded only by that of plati- 
 num and a few of the rarest or almost un- 
 known metals. We can usually ascertain 
 whether a coin consists of gold or not, by 
 looking for three characteristic marks : (i) 
 the brilliant yellow color ; (2) the high specific 
 gravity ; (3) the metallic ring of the coin when 
 thrown down, which will prove the absence 
 of lead or platinum in the interior of the 
 coin. 
 
 *- If there remain any doubt about a metal 
 being gold, we have only to appeal to its sol- 
 ubility. Gold is remarkable for its freedom 
 trom corrosion or solution, being quite unaf- 
 fected and untarnished after exposure of any 
 length of time to dry, or moist, or impure 
 air, and being also insoluble in all the simple 
 acids. Strong nitric acid will rapidly attack 
 any colored counterfeit metal, but will not 
 touch standard gold, or will, at the most, 
 feebly dissolve the copper and silver alloyed 
 with it. 
 
 In almost all respects gold is perfectly suit- 
 ed for coining. When quite pure, indeed, 
 it is almost as soft as tin, but when alloyed 
 with one-tenth or one-twelfth part of copper, 
 becomes sufficiently hard to resist wear and 
 tear, and to give a good metallic ring ; yet it 
 remains perfectly malleable and takes a fine 
 impression. Its melting point is moderately 
 high, and yet there is no perceptible oxidiza- 
 tion or volatilization of the metal at the high- 
 est temperature which can be produced in a 
 furnace. Thus old coin and fragments of 
 the metal can be melted into bullion at a very 
 slight loss, and at a cost of not more than 
 one half-penny per ounce troy, or little more 
 than one-twentieth of one per cent. 
 
 PLATINUM. 
 
 This is one of those comparatively rare 
 metals which have been known only in recent 
 times. Its extremely high melting-point, and 
 low affinity for oxygen, render it one of the 
 most indestructible of all substances, whilst 
 its white color, joined to its excessively high 
 specific gravity, are marks which cannot be 
 mistaken. As it seemed in these respects 
 well suited for currency, the Russian govern- 
 ment, which owns the principal platinum 
 mines in the Ural Mountains, commenced to 
 coin it in 1828, into pieces intended to have 
 the values of twelve, six, and three roubles. 
 Several objections to this use of the metal 
 soon presented themselves. The appearance 
 of platinum being inferior to that of silver or 
 gold, it is seldom or never employed for pur- 
 poses of ornament, and its only extensive use 
 is in the construction of chemical apparatus. 
 Hence there is no large stock of the metal 
 kept on hand, and the localities where it is 
 found being few, the supply is incapable of 
 being much increased, so that any variation 
 of demand is sure to cause a great change in 
 its value. Moreover, the cost of making the 
 coins was very great, owing to the extreme 
 difficulty of melting platinum, and the wora 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 J63] 15 
 
 coins could not be withdrawn and recoined 
 without much additional cost. Platinum be- 
 ing thus found to be quite unfitted for cur- 
 rency, the scheme was abandoned in 1845, 
 and the existing coins withdrawn from circu- 
 lation. 
 
 Great improvements having been lately 
 made in the modes of working platinum, it 
 was proposed by M. de Jacobi, the represent- 
 ative of Russia at the International Mone- 
 tary Conference held at Paris, in 1867, that 
 platinum should be employed for the coinage 
 of five-franc pieces. It is not likely that 
 such a suggestion will be adopted. 
 
 NICKEL. 
 
 This metal was formerly regarded as the 
 bane of the metallurgist, but has recently 
 assumed an important place in manufactur- 
 ing industry, and even in monetary science. 
 It is used only in alloy with other metals, 
 and for the purposes of coinage it is usual 
 to melt up one part of nickel with three of 
 copper. Some of the coins of Belgium, and 
 the one-cent pieces of the United States 
 have been made of this material and seem to 
 be very convenient. In 1869 and 1870-1, 
 pence and halfpence, to the value of ^"3,000, 
 were executed in the same alloy, at the En- 
 glish mint for the colony of Jamaica. These 
 are some of the most beautiful coins which 
 have ever been issued from Tower Hill, and 
 are in most respects admirably suited for cir- 
 culation. But they were unfortunately made 
 much too large and heavy ; not only were 
 they thus rendered less convenient, but when, 
 in 1873, the Deputy Master of the Mint was 
 requested to supply a further quantity of the 
 same coins, he found that the price of nickel 
 had risen very much, so that the materials 
 for the coinage alone would cost more than 
 the nominal value of the coins to be produced. 
 This rise in prices was due partly to the 
 small number of nickel mines yet worked, 
 and partly to the great demand for the metal 
 occasioned by the German government, 
 which has chosen the same alloy for the ten 
 and five-pfennig pieces of its new monetary 
 system. These coins, which are now being is- 
 sued, are of a convenient size, rather less than 
 a shilling and sixpence respectively, and ap- 
 pear to be in every way admirably suited to 
 their purpose. The German empire will soon 
 possess the best instead of the worst fractional 
 currency in the world. The variableness in 
 the price of nickel, which is at present a 
 cause of embarrassment, may after a time be- 
 come less serious, when the stock in use and 
 the annual produce become larger. 
 
 OTHER METALS. 
 
 The metals yet mentioned are but a small 
 number of those now known by chemists to 
 exist, and it would be unwise to assume as 
 certain that money must always be made in 
 the future of the same materials as in the 
 past. It is just conceivable, on the one hand, 
 
 that in the course of time some metal still 
 more valuable than gold may be introduced. 
 Roughly speaking, the order in which the 
 metals have hitherto acted, as the principal 
 medium of exchange, is (i) copper, (2) silver, 
 (3) gold ; as a general decline in the values 
 of the meta!s took place, the more valuable 
 replaced the less valuable, and the more port- 
 able gold is now rapidly taking the place of 
 silver. Some still more valuable metal, such 
 as the scarce and intractable iridium or os- 
 mium, or the remarkable metal palladium, 
 might possibly take the place of gold. This' 
 however, is barely more than a matter of sci- 
 entific fancy. 
 
 On the other hand, many metals exist which 
 might be produced more cheaply than silver, 
 such as aluminium or manganese. It may be 
 well worthy of inquiry whether in such metals 
 may not be found the best solution of the 
 fractional currency difficulty, to be afterward 
 more fully discussed (Chapter XI). 
 
 ALLOYS OF METALS. 
 
 At one time or another an immense num- 
 ber of different alloys or mixtures of metals 
 have been coined. It would be strictly cor- 
 rect to say, indeed, that metals have seldom 
 been issued except in the state of alloy. Even 
 gold and silver, as usually coined, are either 
 alloyed with each other or with copper. The 
 latter metal, too, has generally been employed 
 in union with other metals. The Roman as 
 consisted, not of pure copper, but of the 
 mixed metal aes, an alloy of copper and tin, 
 partially resembling the bronze which has 
 quite recently been introduced for small mon- 
 ey in France, England, and other countries. 
 Brass was largely coined by some of the Ro- 
 man emperors. In many cases, no doubt, 
 the early metallurgists in smelting an ore 
 obtained a natural alloy of all the metals con- 
 tained therein, and being unable to separate 
 them, were obliged to use the mixture. Thus 
 we may explain the curious metal containing 
 from sixty to seventy parts of copper, twenty 
 to twenty-five of zinc, five to eleven of silver, 
 with small quantities of gold, lead, and tin, 
 which was employed to make the stycas, or 
 small money, of the early kings of Northum- 
 bria. 
 
 Monarchs or States in difficulty have often 
 coined the metal which they could most easily 
 obtain. The Irish money issued by James 
 II. was said to have been coined from a mix- 
 ture of old guns, broken bells, waste copper, 
 brass, and pewter, old kitchen furniture; and 
 in fact any refuse metal which his officers 
 could lay their hands upon He attempted 
 to make pewter crowns ciww Ve for the ralov 
 of silver ones. 
 
16 [64] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 CHAPTER VII. 
 
 COINS. 
 
 It is clear that the metals far surpass all 
 other substances in suitability for the purpose 
 of circulation, and it is almost equally clear 
 that certain metals surpass all the other met- 
 als in this respect. Of gold and silver espe- 
 cially we may say, with Turgot, that, by the 
 nature of things, they are constituted the uni- 
 versal money independently of all convention 
 and law. Even if the art of coining had 
 never been invented, gold and silver would 
 probably have formed the currency of the 
 world; but we have now to consider how, by 
 shaping weighed pieces of these metals into 
 coins, we can make use of their valuable 
 properties to the greatest advantage. 
 
 The primitive mode of circulating the met- 
 als, indeed, was simply that of buying and 
 selling them against other commodities, the 
 weights or portions being rudely estimated. 
 Some of the earliest specimens of money con- 
 sist of the aes rude, or rough, shapeless lumps 
 of native copper employed as money by the 
 ancient Etruscans. In the Museum of the 
 Archiginnasio at Bologna may be seen the 
 skeleton of an Etruscan, half embedded in 
 earth, with the piece of rough copper yet 
 within the grasp of the bony hand, placed there 
 to meet the demands of Charon. Pliny, more- 
 over, tells us that, before the time of Servius 
 Tullius, copper was circulated in the rude state. 
 Afterward copper, brass, or iron were, it is 
 probable, employed in the form of small bars 
 or spikes, and the name of the Greek unit of 
 value, drachma, is supposed to have been de- 
 rived from the fact that six of these metal 
 spikes could be grasped in the hand, each 
 piece being called an obolus. Such is sup- 
 posed to have been the first system of money 
 which was passed purely by tale, or number of 
 pieces. 
 
 Gold is most readily obtained from alluvial 
 deposits, and then has the form of grains or 
 dust. Hence *this is the primitive form of 
 gold money. The ancient Peruvians enclosed 
 the gold dust for the sake of security in quills, 
 and thus passed it about more conveniently. 
 
 At the gold diggings of California, Aus- 
 tralia, or New Zealand, gold dust is to the 
 present day sold directly against other goods 
 by the aid of scales. The art of melting gold 
 and silver and fashioning them by the ham- 
 mer into various shapes was early invented. 
 Even in the present day, the poor Hindoo, 
 who has saved up a few rupees, employs a 
 silversmith to melt them up and beat them 
 into a simple bracelet, which he wears in the 
 double character of an ornament and a hoard of 
 wealth. 
 
 Similarly, the ancient Goths and Celts 
 were accustomed to fashion gold into thick 
 wires, which they rolled up into spiral rings 
 and probably wore upon their fingers until 
 
 the metal was wanted for trading purposes. 
 There can be little doubt that this ring 
 money, of which abundant specimens have 
 been found in various parts of Europe and 
 Asia, formed the first approximation to a 
 coinage. In some cases the rings may have 
 been intentionally made of equal weight; 
 for Caesar speaks of the Britons as having 
 iron rings, adjusted to a certain weight, to 
 serve as money. In other cases the rings, or 
 amulets, were bought and sold by aid of the 
 balance ; and in certain Egyptian paintings 
 men are represented as in the act of weighing 
 rings. It is probable that the necessity for 
 frequent weighings was avoided by making 
 up sealed bags containing a certain weight of 
 rings, and such perhaps are the bags of silver 
 given by Naaman to Gehazi in the Second 
 Book of Kings (v. 23). Ring money is said 
 to be still current in Nubia. 
 
 Gold and silver have been fashioned into 
 various other forms to serve as money. 
 Thus the Siamese money consists of very 
 small ingots or bars bent double in a peculiar 
 manner. In Pondicherry and elsewhere 
 gold is circulated in the form of small grains 
 or buttons. 
 
 THE INVENTION OF COINING. 
 
 The date of the invention of coining can 
 be assigned with some degree of probability. 
 Coined money was clearly unknown in the 
 Homeric times, and it was known in the 
 time of Lycurgus. We might therefore as- 
 sume, with various authorities, that it wa*s 
 invented in the mean time, or about goo B.C. 
 There is a tradition, moreover, that Phei- 
 don, King of Argos, first struck silver money 
 in the island of yEgina about 895 B. c. , and 
 the tradition is supported by the existence of 
 small stamped ingots of silver which have 
 been found in ^Egina. Later inquiries, how- 
 ever, lead to the conclusion that Pheidon 
 lived in the middle of the eighth century B.C., 
 and Grote has shown good reasons for be- 
 lieving that what he did accomplish was done 
 in Argos, and not in /Egina. 
 
 The mode in which the invention hap- 
 pened is sufficiently evident. Seals were 
 familiarly employed in very early times, as 
 we learn from the Egyptian paintings or the 
 stamped bricks of Nineveh. Being em- 
 ployed to signify possession, or to ratify con- 
 tracts, they came to indicate authority. When 
 a ruler first undertook to certify the weights 
 of pieces of metal, he naturally employed his 
 seal to make the fact known, just as, at 
 Goldsmiths Hall, a small punch is used to 
 certify the fineness of plate. In the earliest 
 forms of coinage there were no attempts at 
 so fashioning the metal that its weight could 
 not be altered without destroying the stamp 
 or design. The earliest coins struck, both 
 in Lydia and in the Peloponnesus, wer~ 
 stamped on one side only. The Persian 
 money, called the larin, consists of a round 
 silver wire, about six centimeters long, bent 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [65] 17 
 
 in two, and stamped on one part which is 
 flattened for the purpose. It is probably a 
 relic of ring money. The present circulation 
 of China is composed to a considerable ex- 
 tent of the so-called Sycee silver, which con- 
 sists of small shoe-shaped ingots, assayed 
 and stamped, according to some accounts, 
 by the government. 
 
 ^VHAT IS A COIN? 
 
 Although in rings, or stamped ingots, we 
 have an approximation to what we call coin, 
 it is plain that we must do something more 
 to make convenient money. The stamp must 
 be so impressed as to certify, not only the 
 fineness and the original weight, but also the 
 absence of any subsequent alteration. To 
 coin metal, as we now understand the art, is 
 to form it into flat pieces of a circular, oval, 
 square, hexagonal, octagonal, or other regu- 
 lar outline, and then to impress designs from 
 engraved dies upon both sides, and some- 
 times upon the edges. Not only is it very 
 costly and difficult to counterfeit coins well 
 executed in this manner, but the integrity of 
 the design assures us that no owner of the 
 coin has tampered with it. Even the amount 
 of ordinary wear and tear, which the coin 
 has suffered, may be rudely inferred from the 
 sharpness or partial effacement of the de- 
 signs, and the roundness of the edges. 
 "Pieces of money," says M. Chevalier, "are 
 ingots of which the weight and the fineness 
 are certified." There is nothing in this defi- 
 nition to distinguish coins from Sycee silver, 
 or from the ordinary stamped bars and ingots 
 of bullion. I should prefer, therefore, to 
 say, coins are ingots of which the -weight and 
 fineness are certified by the integrity of designs 
 impressed upon the surfaces of the metal. 
 
 VARIOUS FORMS OF COINS. 
 
 From time to time coins have been manu- 
 factured in very many forms, although circu- 
 lar coins vastly predominate in number. 
 Among the innumerable issues of the Ger- 
 man States maybe found octagonal and hex- 
 agonal coins. A singular square coin, with 
 a circular impress in the center, was issued 
 from Salzburg by Rudbert in 1513. Siege- 
 pieces have been issued in England and else- 
 where in the form of squares, lozenges, etc. 
 Some of the most extraordinary specimens 
 of money ever used are the large plates of 
 pure copper which circulated in Sweden in 
 the eighteenth century. These were about 
 three-eights of an inch in thickness, and va- 
 ried in size, the half-daler being three and 
 a-half inches square, and the two daler piece 
 as much as seven and a-half inches square, 
 and three and a-half pounds in weight. As 
 the whole surface could not be covered with 
 a design, a circular impress was struck near 
 to each corner, and one in the center, so as 
 to render alteration as difficult as possible. 
 
 Among Oriental nations the shapes of 
 coins are still more curious. In Japan, the 
 
 principal part of the circulation consists of 
 silver itzibus, which are oblong, flat pieces of 
 silver, covered on both sides with designs and 
 legends, the characters being partly in relief 
 and partly incised. The smaller silver coins 
 have a similar form. Among the minor 
 Japanese coins are found large oval, molded 
 pieces of copper or mixed metal, each with 
 a square hole in the center. The Chinese 
 cash are well known to be round disks of a 
 kind of brass, with a square hole iu the cen- 
 ter to allow of their being strung together. 
 The coins of Formosa are similar, except 
 that they are much larger and thicker. All 
 the copper and base metal coins of China, 
 Japan, and Formosa are distinguished by 
 a broad flat rim, and they have characters in 
 relief upon a sunk ground, somewhat in the 
 manner of Boulton and Watt's copper pence. 
 They are manufactured by molding the 
 metal, and then filing the protuberant parts 
 smooth. Such coins stand wear, and pre- 
 serve their design better than European 
 coins, but they are easily counterfeited. 
 
 The most singular of all coins are the 
 scimitar-shaped pieces formerly circulated in 
 Persia. 
 
 THF. BEST FORM E>R COINS. 
 
 It is a matter of considerable importance 
 to devise the best possible fonn for coins, 
 and the best mode of striking them. The 
 use of money creates, as it were, an artificial 
 crime of false coining, snd so great is the 
 temptation to engage in this illicit art that 
 no penalty is sufficient to repress it, as the 
 experience of two thousand years sufficiently 
 proves. Thousands of persons have suffered 
 death, and all the penalties of treason have 
 been enforced without effect. Ruding is 
 then unquestionably right in saying, that our 
 efforts should be directed not so much to the 
 punishment of the crime, as to its prevention 
 by improvements in the art of coining. We 
 must strike our coins so perfectly that suc- 
 cessful imitation or alteration shall be out of 
 the question. 
 
 There are four principal objects at which 
 we should aim in deciding upon the exact 
 design for a coin. 
 
 1. To prevent counterfeiting. 
 
 2. To prevent the fraudulent removal of 
 metal from the coin. 
 
 3. To reduce the loss of metal by legiti- 
 mate wear and tear. 
 
 4. To make the coin an artistic and histo- 
 rical monument of the State issuing it, and 
 the people using it. 
 
 For the prevention of counterfeiting, our 
 principal resource is to render the mechani- 
 cal execution of the piece as perfect as pos- 
 sible, and to strike it in a way which can 
 only be accomplished with the aid of elabo- 
 rate machinery. When all coins are made by 
 casting, the false coiner ;."-: id work almost 
 as skillfully as the moneyer. Hence, in the 
 Roman empire, it was difficult to distinguish 
 
18 [66] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 between true and false coin. Hammered 
 money was a great improvement on molded 
 money, and milled money on hammered 
 money. The introduction of the steam coin- 
 ing press by Boulton and Watt was the next 
 great improvement ; and the knee-joint press 
 of Ulhorn and Thonnelier, now used in 
 nearly all mints, except that on Tower Hill, 
 forms the last advance in the mechanism for 
 striking coin. 
 
 The utmost attention ought to be paid to 
 the perfect execution of the milling, legend, 
 ^or other design, impressed upon the edge of 
 modern coins. This serves at once to pre- 
 vent clipping or tampering with the coin, and 
 to baffle the skill of the counterfeiter. The 
 coins of ancieut nations were issued with 
 rough, unstamped edges, and the first coin 
 marked with a legend on the edge was a sil- 
 ver coin of Charles IX. of France, issued in 
 the year 1573. The English coinage was 
 first grained or marked on the edge in 1658 
 or 1662, when the use of the mill and screw 
 was finally established in the mint. All the 
 larger coins now issued from the English, 
 and, indeed, from most other mints, bear a 
 milled or serrated edge, produced by ridges 
 on the internal surface of the collar which 
 holds the coin when being struck between the 
 two dies. These collars are difficult to make, 
 and useless when made except in the coinage- 
 press, and the counterfeiter cannot imitate 
 the milling by hand work, it being almost 
 impossible to use a file with sufficient regu- 
 larity. 
 
 The French five-franc pieces bear a legend 
 on the edge in raised letters, the words being 
 " Dieu protege la France." Such raised let- 
 ters are quite beyond the art of the counter- 
 feiter. The English crown has a legend, 
 " Decus et Tutamen," and the year of the 
 reign in incised letters, which could obvious- 
 ly be imitated by the use of punches. The 
 new German gold coins are issued with 
 smooth edges, the ten-mark piece having 
 only a few slight incised marks, and the 
 twenty -mark piece bearing the legend, " Gott 
 mit uns," in faint letters; this is surely a far 
 less satisfactory protection than the milled 
 edge adopted in most other mints. It may 
 ibe worthy of inquiry, whether the milled 
 edge might not be combined with a legend 
 or other design in relief, so as to render imi- 
 tation still more difficult. One or two cen- 
 turies ago, silver coins used to have a kind of 
 ornamental beading on the edge. Elaborate 
 patterns, produced by machinery with per- 
 fect regularity, and altogether u. capable of 
 imitation by haad, might now be substituted. 
 
 COINS AS WORKS. OF ART. 
 
 I have in the previous section considered 
 the best form of a coin as regards the pre- 
 vention of counterfeiting. The falsification 
 of coins, the loss which they undergo by ab- 
 Tasion, and the best means of avoiding these 
 vils will be treated in Chapter XIII. Of the 
 
 use of coins as artistic medals it would not be 
 appropriate to speak at any length. I must 
 however remark that many of the coins still 
 issued from the English mint are monuments 
 of bad taste. It is difficult to imagine poorer 
 designs than those upon the shilling and six- 
 pence, descending from a time when art in 
 many branches was at its apogee in England. 
 As our architecture and art manufactures of 
 many kinds are regenerated by the efforts of 
 private persons, is it too much to hope that a 
 government department will follow ? The 
 florin is indeed an immense advance upon the 
 shilling, being in some respects a reversion 
 to the style of old English money. A very 
 beautiful pattern crown piece was produced 
 in 1847, in a somewhat similar style, but never 
 issued. Mr. Lowe, when Master of the Mint, 
 gave us back the old George and Dragon 
 sovereign, which is much superior to the 
 shield and wreaths. I think, however, that 
 the time has come for a general improvement 
 in our coins. 
 
 HISTORICAL COINS. 
 
 Some states have utilized their coins as 
 monuments of important events, such as con- 
 quests, jubilees, the accession of monarchs, 
 etc. The German states, especially Prussia, 
 have struck a long series of beautiful coins 
 down to the Kronung's Thaler of 1861, and 
 the Sieges Thaler of 1871. Some of these 
 coins are at once treasured up in cabinets in 
 the manner of medals. If it is possible to 
 conceive literature destroyed, and modern 
 cities and their monuments in ruins and de- 
 cay, such medallic coins would become the 
 most durable memorials, and the history of 
 the kings of Prussia would be traced out by 
 future numismatists as that of the great dy- 
 nasties of Bactria has lately been recovered. 
 
 In 1842%!. Antenor Joly brought before 
 the French legislative chambers a scheme 
 for a system of historical money, and he re- 
 newed his proposal in 1852. M. Ernest 
 Dumas has also suggested the issue of twen- 
 ty-centime bronze pieces, which should serve 
 either as money or as historical medals. Such 
 schemes have not been carried out in France, 
 and in England no coins of the sort have 
 been struck. Except the mere expense of a 
 new set of dies, I see no objection to the 
 issue of historical money. 
 
 THE ROYAL ATTRIBUTE OF COINING. 
 Every civilized community requires a sup- 
 ply of well-executed coins, and there arises 
 the question, How shall this money be pro- 
 vided? The coins of each denomination 
 must contain exactly equal weights of fine 
 metal, and must bear an impress proving that 
 they do so. Can we trust to the ordinary 
 competition of manufacturers and traders to 
 keep up a sufficient supply of such coins, just 
 as they supply buttons, or pins and needles ? 
 Or must we establish a government depart- 
 ment, under strict legislative control, to se- 
 cure good coinage ? 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [67 19 
 
 As almost every opinion finds some advo- 
 cate, there are not wanting a few who believe 
 that coinage should be left to the free action 
 of competition. Mr. Herbert Spencer es- 
 pecially, in his "Social Statics," advanced 
 the doctrine that, as we trust the grocer to 
 furnish us with pounds of tea, and the baker 
 to send us loaves of bread, so we might trust 
 II ea ton and Sons, or some of the other en- 
 terprising firms of Birmingham, to supply 
 us with sovereigns and shillings at their own 
 risk and profit. He held that just as people 
 ^o by preference to the grocer who sells good 
 tea, and to the baker whose loaves are sound 
 and of full weight, so the honest and suc- 
 cessful coiner would' gain possession of the 
 market, and his money would drive out in- 
 ferior productions. 
 
 Though I must always deeply respect the 
 opinions of so profound a thinker as Mr. 
 Spencer, I hold that in this instance he has 
 pushed a general principle into an exceptional 
 case, where it quite fails. He has overlooked 
 the important law of Gresham (to be explained 
 in the next chapter), that better money can- 
 not drive out worse. In matters of currency 
 self-interest acts in the opposite direction to 
 what it does in other affairs, as will be ex- 
 plained, and if coining were left free, those 
 who sold light coins at reduced prices would 
 drive the best trade. 
 
 This conclusion is amply confirmed by ex- 
 perience ; for at many times and places coins 
 have been issued by private manufacturers, 
 and always with the result of debasing the cur- 
 rency. For a lor.g time the copper currency 
 of England consisted mainly of tradesmen's 
 tokens, which were issued very light in weight 
 and excessive in number. In Mr. Smiles's 
 "Lives of Boulton and Watt " (page 391), 
 there is printed an interesting letter, in 
 which Mr. Boulton complains that in his 
 journeys he received on an average at the 
 toll-gates two counterfeit pennies for one 
 true one. The lower class of manufactur- 
 ers, he says, purchased copper coin to 
 the nominal value of thirty-six shillings for 
 twenty shillings in silver, and distributed 
 it to their work-people in wages, so as to 
 make a considerable profit. The multitude 
 of these depreciated pieces in circulation 
 was so great, that the magistrates and in- 
 habitants of Stockport held a public meet- 
 ing, and resolved to take no halfpence in fu- 
 ture but those of the Anglesey Company, 
 which were of full weight. This shows, if 
 proof were needed, that the separate action of 
 self-interest was inoperative in keeping bad 
 coin out of circulation, and it is not to be 
 supposed that the public meeting could have 
 had any sufficient effect. In China the cur- 
 rent small money called cash or /e, is com- 
 monly manufactured by private coiners, and 
 the consequence is that the size, quality, and 
 value of the coins have fallen very much. 
 
 In my opinion there is nothing less fit to 
 be left to the action of competition than 
 
 money. In constitutional law the right of 
 coining has always been held to be one of the 
 peculiar prerogatives of the Crown, and it is 
 a maxim of the civil law, that monetandi jus 
 principum ossibus inhosret. To the executive 
 government and its scientific advisers, who 
 have minutely inquired into the intricacies of 
 the subject of currency and coinage, the mat- 
 ter had better be left. It should as far as 
 possible be removed from the sphere of party 
 struggles or public opinion, and confided to 
 the decision of experts. No doubt, in times 
 past, kings have been the most notorious 
 false coiners and depreciators of the currency, 
 but there is no danger of the like being done 
 in modern times. The danger lies quite in. 
 the opposite direction, that popular govern- 
 ments will not venture upon the most obvious 
 and necessary improvement of the monetary 
 system without obtaining a concurrence of 
 popular opinion in its favor, while the peo- 
 ple, influenced by habit, and with little 
 knowledge of the subject, will never be able 
 to agree upon the best scheme. 
 
 
 CHAPTER VIII. 
 
 THE PRINCIPLES OF CIRCULATION. 
 
 Before proceeding to consider the actual 
 monetary systems adopted by modern or 
 ancient nations, it is desirable to dwell for a 
 short time upon the different meanings which 
 may be attributed to the word money, and 
 upon the natural principles which govern the 
 use and circulation of coins. We must, in 
 the first place, distinguish three things 
 which, in the practical working of a currency 
 system, are often separate, namely, the actual 
 coins employed, the numbers by which they 
 are expressed, and the relation of those num- 
 bers to the assumed unit of value. We must 
 further distinguish coins according as their 
 values depend upon the metal they contain, 
 the metal for which they can be exchanged, 
 or the other coins for which they are the 
 legal equivalent. 
 
 THE STANDARD UNIT OF VALUF- 
 
 It is essential, in the first place, to decide 
 clearly what we mean by a standard unit of 
 value. This must consist of a fixed quantity 
 of some concrete substance, defined by refer- 
 ence to the units of weight or space. Value 
 may seem to some people to be a purely 
 mental phenomenon, and a pound would 
 then have to be defined, as Lord Castlereagh 
 asserted, by a sense of value. But we might 
 as well define a yard by a sense of length, or 
 a grain by a sense of weight. Just as every 
 quantity in physical science is defined by 
 reference to some concrete standard speci- 
 men, so if we are to measure and express; 
 value at all, we must fix upon definite 
 
20 68] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 tities of one or more definite and unchange- 
 able commodities for the purpose. 
 
 The expression, standard unit of value, 
 will indeed be almost inevitably misunder- 
 stood as implying 1 the existence of something 
 of fixed value. As we have seen, however, 
 (Chapter I.), value merely expresses the essen- 
 tially variable ratio in which two commodities 
 exchange, so that there is no reason to sup- 
 pose that any substance does for two days 
 together retain the same value. All that a 
 standaul of value means is, that some uni- 
 form unchangeable substance is chosen, in 
 terms of which all ratios of exchange may be 
 expressed and calculated, without any regard 
 whatever to the feelings or mental phe- 
 nomena which the commodities produce in 
 men. For reasons already stated, one or the 
 other of the metals, gold, silver, or copper, 
 has usually been considered most suitable 
 for constituting the standard substance. 
 
 The absolute weight or magnitude of the 
 unit of money is a matter of little or no im- 
 portance, provided that all people agree upon 
 the same unit, and that it be permanently and 
 exactly defined, and afterward adhered to. 
 Before the English yard was fixed, it would 
 not have mattered whether it was a few 
 inches longer or shorter; it does not matter, 
 indeed, whether the inch, the foot, the fur- 
 long, or the mile is the unit, provided that 
 one of them is definitely fixed, and the others 
 referred to it by known ratios. So, it is 
 really indifferent whether we regard the 
 pound troy of standard gold, or the ounce, 
 or the fixed number of grains in the sover- 
 eign as our standard. It is only requisite 
 that every contract expressed in money shall 
 enable us to ascertain exactly how much stand- 
 ard gold is due from one person to another. 
 
 M. Chevalier and some other continental 
 economists have argued elaborately in favor of 
 a universal standard unit of value, coinciding 
 with the metric system of weights. They wish 
 the unit of value to be ten grains of gold 
 exactly, and seem to think that there is some 
 magical efficacy in the correspondence of 
 money and weights. This correspondence 
 might perhaps be a slight convenience to 
 those bullion dealers who have to calculate 
 the metallic value of coins before melting or 
 exporting them, or to those mint officials 
 who have to adjust and test the weights of 
 coins ; to all other persons it would be a 
 matter of complete indifference. Those who 
 use coins in ordinary business need never 
 inquire how much metal they contain. Pro- 
 bably not one person in ten thousand in this 
 kingdom knows, or need know, that a sov- 
 ereign should contain 123.27447 grains of 
 standard gold. Besides, if we agree to ac- 
 cept a precise metrical quantity of one metal 
 as our standard, the weights of the coins 
 composed of other metals will be complicated 
 fractional amounts, to be determined with 
 reference to the accidental market value of 
 the metals. 
 
 All we can say, then, is that the standard 
 unit of value is some entirely arbitrary weight 
 of the standard metal, the exact amount of 
 which, being a matter of indifference on gen- 
 eral grounds, should be fixed as seems most 
 convenient in reference to the habits of na- 
 tions or other accidental circumstances. 
 
 COIN, MONEY OF ACCOUNT, AND UNIT OF 
 VALUE. 
 
 It is desirable to distinguish clearly be- 
 tween three things which, although definitely 
 related to each other, need not be identical. 
 The unit of value, or standard weight of the 
 selected metal, is not necessarily made into a 
 coin. It may be a quantity too great or too 
 small for coining. All that is requisite is 
 that the current coins shall be multiples or 
 submultiples of the unit, or easily expressible 
 in terms of the unit. Nor is it even re- 
 quisite that the numbers in which we express 
 value should be numbers of coins, or num- 
 bers of units of value. The money of ac- 
 ount, as it is called, may differ both from 
 the current money and the standard money. 
 This is well illustrated in the Anglo-Saxon 
 system of currency. The unit of value was 
 the Saxon pound of standard silver, which 
 was far too large to be coined. The only 
 coins issued in any considerable quantity by 
 the Anglo-Saxon kings, were silver pennies 
 and a few halfpennies ; yet the usual money 
 of account was the shilling, which, after 
 varying from four to five pence, was fixed 
 
 William I. at twelve pence, as it has ever 
 since continued. No coin called a shilling 
 was issued before the reign of Henry VII. 
 Though the shilling has survived, other 
 moneys of account have been forgotten, as, 
 [or instance, the mancus, which was equal to 
 :hirty pennies, or six shillings of five pence 
 each. The mark, the ora, and the thrimsa 
 were other moneys of account used by the 
 Anglo-Saxons. 
 
 In our present English system the three 
 moneys happen to coincide, which is doubt- 
 ess a matter of some convenience. The 
 sovereign is at once the principal coin, the 
 unit of value, and the money of account in 
 all the larger transactions, although in the 
 expression of smaller sums the shilling is 
 yet preferred. In France at the present 
 ime the money of account and the unit of 
 value is the franc in gold ; but as this weighs 
 only 0.3226 grams, or about five grains, it is 
 coined only in five, ten, and twenty-franc 
 jold pieces, with subsidiary silver coins. In 
 Russia, before the time of Peter the Great, 
 the rouble was an imaginary money of ac- 
 count, consisting of one hundred copper co- 
 pecks. 
 
 When Montesquieu affirmed that the ne- 
 groes on the West Coast of Africa had a 
 purely ideal sign of value called a macute, he 
 misunderstood the nature of money of ac- 
 count. The macute served with the negroes 
 as the name for a definite, though probably 
 
MONEY AND THE MECHANISM JF EXCHANGE. 
 
 [69] 21 
 
 a variable, number of cowry sheik, the num- 
 ber being at one time 2,000. The macuie 
 has also been coined in silver pieces of eight, 
 six, and four macutes, struck by the Portu- 
 guese for use in their colonies, the macute 
 being worth about two and three- fourth pen- 
 nies. 
 
 When the currency of a country undergoes 
 a change, the units of coinage, account and 
 value are likely to become separated. Some- 
 times a new system of accounts is applied to 
 an old coinage, as in Norway at the present 
 time. The Stockholm government is endeav- 
 oring to introduce the Swedish decimal sys- 
 tem of currency, and some merchants are 
 said alreadv to keep their accounts in kro- 
 ner and ore, although the money in cir- 
 culation consists almost wholly of the old 
 skillings and the paper specie-dalers. On 
 the other hand, the coinage is sometimes 
 changed, and yet the old method of ac- 
 count retained, especially as regards for- 
 eign transactions. Thus the rates of for 
 eign exchange between the United States 
 and England were, until last year, quoted 
 in terms of a dollar valued at four shil- 
 lings and sixpence, in accordance with a 
 law of 1789. This rate seems to have been 
 the traditional par of exchange of the Mexi- 
 can dollar, and it was still retained even 
 when the American dollar had been coined 
 so as to be worth only 49*316 English pence. 
 
 There are two causes which have often led 
 to a difference between coinage and money 
 of account. The coins may, by legitimate 
 abrasion, or by fraudulent clipping and 
 sweating, become much reduced below their 
 proper weights, yet an agio, or allowance, 
 being made for the average depreciation, the 
 old standard of value and money of ac- 
 count may be retained, as was the case 
 in Amsterdam, Hamburg, and other towns. 
 When a depreciated currency is issued in a 
 country, the money of account may either 
 change with it or remain as before; and it is 
 an exceedingly difficult, if not insoluble, 
 problem to decide whether, in particular pe- 
 riods of English history, prices were ex- 
 pressed in the new depreciated or the old 
 good money. Professor J. E. T. Rogers 
 has pointed out, in his admirable " History 
 of Agriculture and Prices in England," 
 printed by the Clarendon Press (vol. i., p. 
 175), that, in the fourteenth century, the 
 coinage, though apparently passed by tale, 
 was often weighed. In the ancient college 
 accounts which he has investigated, he finds 
 charges entered both for the cost of scales 
 to make the weighings, and for the deficiency 
 of weight of the coins. 
 
 In many countries, even at the present day, 
 the circulating medium consists not of any 
 one simple and well-connected series of coins, 
 but of a miscellaneous collection of coins of 
 various sizes and values, imported from for- 
 eign states. In such cases the money of ac- 
 count must necessarily differ from the mass 
 
 of the coins, of which the value is usually 
 estimated by a tariff expressed in terms of 
 the money of account. In the German 
 states, a few years ago, French and English 
 i;oid was freely accepted in this manner. In 
 Canada there was in former years an intricate 
 confusion of monetary systems. Many spe- 
 cies of foreign coins, chiefly varieties of the 
 dollar, were in circulation. There were also 
 wo separate moneys of account, namely, the 
 Halifax Currency Pound, divided into twenty 
 shillings of twenty pence each, and defined 
 by the fact that si'xty such pence were equal 
 to one dollar; and, secondly, the Halifax 
 Sterling Currency. The latter is still em- 
 ployed to express the foreign exchanges. 
 The present monetary unit of Canada is the 
 dollar, and the currency consists of bank- 
 notes, with silver coins of 50, 25, ,20, 10, and 
 5 cents; but English sovereigns and half sov- 
 ereigns are also in circulation. 
 
 STANDARD AND TOKEN MONEY. 
 
 We must distinguish between coins ac- 
 cording as they serve for standard money or 
 for token money. A standard coin is one of 
 which the value in exchange depends solely 
 upon the value of the material contained in 
 it. The stamp serves as 4 mere indication 
 and guarantee oC thi quantity of fine metal. 
 We may treat such coins as bullion, and melt 
 them up or export them to countries where 
 they are not legally current; yet the value of 
 the metal, being independent of legislation, 
 will everywhere be recognized. 
 
 Token coins, on the contrary, are defined 
 in value by the fact that they can, by force 
 of law or custom, be exchanged in a certain 
 fixed ratio for standard coins. The metal 
 contained in a token coin has of course a cer- 
 tain value; but it may be less than the legal 
 value in almost any degree. In our English 
 silver coinage the difference is from 9 to 12 
 per cent. , according to the market price of sil- 
 ver; in our bronze coinage the difference is 
 75 per cent. The metal contained in the 
 French bronze coins is in like manner equal 
 in value to little more than one-quarter of the 
 current value. In many cases the difference 
 has been far greater; as, for instance, in 
 some of the old kreutzer pieces lately current 
 in the German states. Woods 's halfpence, 
 which at one time created so much discontent 
 in Ireland, or the small money previously 
 issued by James II. in Ireland, are extreme 
 instances of depreciated token money. 
 
 METALLIC AND NOMINAL VALUES OF COIN. 
 
 It has been usual to call the value of the 
 metal contained in a coin the intrinsic value 
 of the coin; but this use of the word intrinsic 
 is likely to give rise to fallacious notions con- 
 cerning the nature of value; which is never 
 an intrinsic property, or existence, but mere- 
 ly a circumstance, or external relation (see 
 Chapter II.). To avoid any chance of am- 
 biguity, I shall substitute the expression, me- 
 
22 [70] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 tallic value, and I shall distinguish this from 
 the nominal, customary, or legal value, at 
 which a coin actually does, or is by law re- 
 quired to, exchange for other coins. 
 
 There are two ways in which the metallic 
 value of a coin may be reduced below its 
 nominal value, namely, by reducing either 
 the weight or the fineness of the metal. En- 
 glish silver coin is still maintained at the 
 "ancient right standard" of n oz. 2 dwts. 
 in the troy pound, which has existed from 
 time immemorial. By the Act of 1816 the 
 silver coins which had previously been, in 
 theory at least, standard money, were re- 
 duced in weight by 6 per cent. , and thus ren- 
 dered token money, which they still continue 
 to be. In France and other countries be- 
 longing to the Monetary Convention, the 
 smaller silver coins of two francs, one franc, 
 and fifty centimes, have been converted into 
 tokens by reducing the fineness of the silver 
 from 900 to 835 parts in 1000. It does not 
 seem to be a matter of any importance which 
 mode is adopted; but the English mode, so 
 long as it does not render the coins incon- 
 veniently small, is perhaps slightly the bet- 
 ter, because some persons can satisfy them- 
 selves as to the weight of a coin, but none 
 are able to test its fineness, unless they are 
 professional assayers. 
 
 It need hardly be stated that coins which 
 circulate by law in one country as tokens may 
 be accepted in other countries at their me- 
 tallic value. 
 
 LEGAL TENDER. 
 
 Money must further be distinguished ac- 
 cording as it is or is not legal tender, or has or 
 has not what the French call cours /one. By 
 legal tender is denoted such money as a cred- 
 itor is obliged to receive in requital of a 
 debt expressed in terms of money of the realm. 
 One great object of legislation is to prevent 
 uncertainty in the interpretation of contracts, 
 and accordingly the Coinage Act defines pre- 
 cisely what will constitute a legal offer of 
 payment on the part of a debtor, as regards 
 a money debt. If a debtor tender to his 
 creditor the amount of a debt due in legal 
 tender money, and it be refused, the creditor 
 may indeed apply for it or sue for it afterward, 
 but the costs of the action will be thrown 
 upon him. 
 
 But there seems to be no legal necessity 
 that exchanges or contracts shall be made in 
 money of the realm. At common law, con- 
 tracts for he direct barter of two commodi- 
 ties, or for purchase and sale in terms of any 
 kind of money, will be valid, provided it is 
 clear what the terms of the contract mean. 
 Accordingly, the sixth section of the Coin- 
 age Act (33 Viet. c. 10), while enacting that 
 every contract, sale, payment, bill, note, 
 transaction, or matter relating to money, 
 shall be made or done according to the 
 coins which are current and legal tender in 
 pursuance of this Act, yet adds, " unless the 
 
 same be made, executed, entered \\ ^ *ne 
 or had, according to the currency a( ome 
 British possession or some foreign *tate." 
 
 If I understand the matter aright, then, 
 every person is at liberty to buy, sell, or 
 exchange in terms of any money or commod- 
 ity whatsoever which he prefers ; and the 
 fact that certain coins, up to certain limits, 
 are legal tender, only means that the state 
 provides a definite medium of exchange, and 
 defines precisely what that is. The Act 
 requires that English money shall be the 
 money issued by the mint in accordance with 
 the te'rms of the Act. Of course it remains 
 quite open to a creditor to receive payment 
 in coins which are not legal tender, if he like 
 to do so, and I presume there would be 
 nothing to prevent him entering into a con- 
 tract to that effect. If a man contracted to 
 sell goods to the extent of ^100, and to re- 
 ceive payment in bronze pence and half, 
 pence, it would no doubt be a valid contract, 
 although no single quantity of pence exceed- 
 ing twelve pence is a legal tender. 
 
 The exact meaning of the term, legal ten- 
 der, may of course vary from country to coun- 
 try, and the above remarks apply only to 
 countries under the English law. 
 
 THE FORCE OF HABIT IN THE CIRCULA- 
 TION OF MONEY. 
 
 No one can possibly understand many 
 social phenomena unless he constantly bears 
 in mind the force of habit and social conven- 
 tion. This is strikingly true in our subject 
 of money. Over and over again in the course 
 of history, powerful rulers have endeavored 
 to put new coins into circulation or to with- 
 draw old ones ; but the instincts of self- 
 interest or habit in the people have been too 
 strong for laws and penalties. Though in 
 particular instances it may be difficult to ex- 
 plain occurrences which happen in the cir- 
 culation of coins, yet a close analysis of the 
 character of those who handle money, and 
 their motives for holding it or paying it away, 
 will throw much light upon the subject. 
 
 We must notice, in the first place, that the 
 great mass of the population who hold coins 
 have no theories, or general information 
 whatever, upon the subject of money. They 
 are guided entirely by popular report and 
 tradition. The sole question with them on 
 receiving a coin is whether similar coins have 
 been readily accepted by other people. Thus 
 in the remote parts of Norway at the present 
 time, the old paper daler notes are preferred 
 to the beautiful new twenty-kroner gold 
 pieces. By far the greater number of the 
 people possess no means of learning the me- 
 tallic, or even the legal value, of an unfamiliar 
 coin. Few people have scales and weights 
 suitable for weighing a coin, and no one but 
 an assayer or analytical chemist can decide 
 upon its fineness. Many a traveler who has 
 carried good new coin into a country where 
 i t happened to be strange, has had to suffer 
 
MONEY AND THE MECHANISM UF EXCHANGE. 
 
 [71] 23 
 
 a loss in paying it away. When our bronze 
 pence were quite a novel iv, I happened to 
 take some with me into a remote part of 
 North Wales, and they were rejected. 
 
 People in general accept coin simply on 
 the ground of its familiar appearance. So 
 entirely is this the case among very ignorant 
 populations, that it has often been found 
 desirable to maintain unchanged the impress 
 on successive issues of coins. In many cases 
 coins have been struck for this purpose with 
 the date of a long past year, or even the 
 effigy of a dead sovereign. The Maria 
 Theresa dollar is still coined by the Austrian 
 mint, with exactly the same design and date 
 as when first issued in 1780, because it is the 
 favorite coin in some of the states of North 
 Africa, and various parts of the Levant. The 
 British Government, when undertaking the 
 Abyssinian expedition, procured a large 
 stock of these coins for paying the natives. 
 In the same way Mexican dollars are usually 
 worth rather more than silver bullion, be- 
 cause of their easy currency in the East. 
 
 To the supremacy of habit, and the ab- 
 sence of means of estimating the real value 
 of coin, is obviously due the depreciation 
 which currencies have undergone. False 
 coiners and kings alike find that, if they can 
 only make new coins look and feel exactly 
 like old coins, the people will accept depre- 
 ciated money without question. 
 
 The annals of coinage, in this and all 
 other countries, are little more than a monot- 
 onous repetition of depreciated issues both 
 public and private, varied by occasional mer- 
 itorious, but often unsuccessful, efforts, to 
 restore the standard of the currency. A 
 curious instance of successive attempts to 
 beguile a people is found in certain Roman 
 denarii of the Consular times. False coiners 
 having issued plated denarii among the sub 
 ject Germans, the people appeared to have 
 notched them with files to test their genuine- 
 ness. The Germans having thus become 
 accustomed to see genuine notched coins, the 
 Roman government found it desirable to 
 issue new coins notched in a similar manner. 
 But the forgers were not to be beaten. They 
 issued plated denarii with the notches all 
 complete, apparently displaying good metal 
 within; and notched false coins of this kind 
 exist to the present day in numismatic cab- 
 inets. 
 
 GRESHAM'S LAW. 
 
 Though the public generally do not dis- 
 criminate between coins and coins, provided 
 there is an apparent similarity, a small class 
 of money-changers, bullion-dealers, bankers, 
 or goldsmiths make it their business to be 
 acquainted with such differences, and know 
 how to derive a profit from them. These are 
 the people who frequently itncoin money, 
 either by melting it, or by exporting it to coun- 
 tries where it is sooner or later melted. Some 
 coins are sunk in the sea or lost, and some 
 
 are carried abroad by emigrants and travelers 
 who do not look closely to the metallic value 
 of the money. But by far the greatest part 
 of the standard coinage is removed from cir- 
 culation by people who know that they shall 
 gain by choosing for this purpose the new 
 heavy coins most recently issued from the 
 mint. Hence arises the practice, extensively 
 carried on in the present day in England, of 
 picking and culling, or, as another technical 
 expression is, garbling the coinage, devoting 
 the good new coins to the melting-pot, and 
 passing the old worn coins into circulation 
 again on every suitable opportunity. 
 
 From these considerations we readily learn- 
 the truth and importance of a general law or 
 principle concerning the circulation of money, 
 which Mr. Macleod has very appropriately 
 named the Law or Theorem of Gresham, 
 after Sir Thomas Gresham, who clearly per- 
 ceived its truth three centuries ago. This 
 law, briefly expressed, is that bad money drive? 
 out good money, but that good money cannot 
 drive out bad money. At first sight there 
 may seem to be something paradoxical in 
 the fact, that when beautiful new coins of 
 full weight are issued from the mint, the peo- 
 ple still continue to circulate, in preference, 
 the old depreciated ones. Many well inten- 
 tioned efforts to reform a currency have thus 
 been frustrated, to the great cost of states, 
 and the perplexity of statesmen who had not 
 studied the principles of monetary science. 
 
 In all other matters everybody is led by 
 self-interest to choose the better and reject 
 the worse; but in the case of money, it would 
 seem as if they paradoxically retain the worse 
 and get rid of the better. The explanation 
 is very simple. The people, as a general 
 rule, do not reject the better, but pass from 
 hand to hand indifferently the heavy and the 
 light coins, because their only use for the 
 coin is as a medium of exchange. It is those 
 who are going to melt, export, hoard, or dis- 
 solve the coins of the realm, or convert them 
 into jewelry and gold leaf, who carefully se- 
 lect for their purposes the new heavy coins. 
 
 Gresham's law alone furnishes a sufficient 
 refutation of Mr. Herbert Spencer's doctrine, 
 already noticed (Chapter VII), that money 
 ought to be provided by private manufactur- 
 ers. People who want furniture, or books, or 
 clothes, may be trusted to select the best 
 which they can afford, because they are go- 
 ing to keep and use these articles; but with 
 money it is just the opposite. Money is 
 made to go. They want coin, not to keep it 
 in their own pockets, but to pass it off into 
 their neighbors' pockets; and' the worse the 
 money which they can get their neigh- 
 bors to accept, the greater the profit to them- 
 selves. Thu there is a natural tendency to 
 the depreciation of the metallic currency, 
 vihich can only be prevented by the constant 
 supervision of the state. 
 
 From Gresham's law we may infer the ne- 
 cessity of two precantions in the regulation 
 
24 [72] 
 
 MONEV AND THE MECHANISM OF EXCHANGE. 
 
 of the currency. In the first place, the stand- 
 ard coins, as issued from the mint, should be 
 as nearly as possible of the standard weight, 
 otherwise the difference will form a profit for 
 the bullion broker and exporter. In the sec- 
 ond place, adequate measures must be taken 
 for withdrawing from circulation all coins 
 which are worn below the least legal weight, 
 otherwise they will continue to circulate as 
 token cins for an indefinite length of time. 
 All commerce consists in the exchange of 
 commodities of equal value, and the princi- 
 pal money should consist of pieces of metal 
 so nearly equal in metallic contents, that all 
 persons, including bullion dealers, bankers, 
 and other professed dealers in money, will 
 indifferently substitute one coin for another. 
 But it is obvious that these remarks do not 
 ripply to coins intended to serve as tokens, 
 since the current value of tokens exceeds 
 their metallic value, and every one who uses 
 them otherwise than in ordinary circulation 
 will lose the difference. Hence the weight of 
 a token coin is comparatively a matter of in- 
 difference, so long as people will receive 
 it, and the deficiency of weight is not too 
 great a temptation to the false coiner. 
 
 In England at the present day the force of 
 habit, and the absence of means of discrim- 
 ination, lead to the depreciation of our gold 
 standard coinage by abrasion. Only while a 
 sovereign exceeds 122 '5 grains in weight is 
 it legally a sovereign ; but people go on pay- 
 ing and receiving indifferently, in ordinary 
 trade, sovereigns of which the metallic values 
 differ two pence or four pence, and some- 
 times six pence or eight pence. Every 
 standard coin thus tends to degenerate into 
 a token coin, and such a coin can only be 
 "Withdrawn from circulation by the state. 
 
 EXTENSION OF GRESHAM's LAW. 
 
 Gresham's remarks concerning the inabil- 
 ity of good money to drive out bad money, 
 only referred to moneys of one kind of metal, 
 but the same principle applies to the rela- 
 tions of all kinds of money, in the same cir- 
 culation. Gold compared with silver, or 
 silver with copper, or paper compared with 
 gold, are subject to the same law that the 
 relatively cheaper medium of exchange will 
 be retained in circulation and the relatively 
 clearer will disappear. The most extreme 
 instance which has ever occurred was in the 
 case of the Japanese currency. At the time 
 of the treaty of 1858, between Great Britain, 
 the United States, and Japan, which par- 
 tially opened up the last country to European 
 traders, a very curious system of currency 
 existed in Japan. The most valuable Jap- 
 anese coin was the kobang, consisting of a 
 thin oval disk of gold about two inches long, 
 and one and one-fourth inches wide, weighing 
 two hundred grains, and ornamented in a 
 very primitive manner. Tt was passing cur- 
 rent in the towns of Japan for four silver 
 itaebus, but was worth in English money 
 
 about eighteen shillings, five pence, whereas 
 the silver itzebu was equal only to about one 
 shilling, four pence. Thus the Japanese 
 weie estimating their gold money at only 
 about one-third of its value, as estimated ac- 
 cording to the relative values of the metals 
 in other parts of the world. The earliest 
 European traders enjoyed a rare opportunity 
 for making profit By buying up the ko- 
 bangs at the native rating they trebled then 
 money, until the natives, perceiving what 
 was being done, withdrew from circulation 
 the remainder of the gold. A complete re- 
 form of the Japanese currency is now being 
 carried out, the English mint at Hong Kong 
 having been purchased by the Japanese gov- 
 ernment. 
 
 What happened in an extreme degree in 
 Japan has often happened in England and 
 other European countries, in a less degree. 
 If the ratio of gold and silver in the coinage, 
 as legally current, differs only one or two 
 percent, from the commercial ratio, it may be- 
 come profitable to export the one metal rather 
 than the other, and in this way, as we shall 
 see, the main part of the currency of France 
 was changed from silver into gold between 
 1849 and 1869. In fact the character of the 
 coinage of most nations has been determined 
 in a similar manner, and England and the 
 United States were thus led to adopt a prin- 
 cipal gold currency. There is every rtason 
 to believe that in ancient Rome, both in the 
 time of the Republic and of the Empire, great 
 difficulties were encountered in regulating the 
 currency of silver alongside of copper, and the 
 perplexity became worse when gold coin was 
 introduced. 
 
 CHAPTER IX. 
 
 SYSTEMS OF METALLIC MONEY. 
 
 We are now in a position to analyse the 
 construction of the various systems of me- 
 tallic money which have existed, or do exist, 
 or which might be conceived to exist. The 
 systems actually brought into operation are 
 more numerous than is commonly supposed, 
 and I have nowhere met with an adequate 
 classification of them. M. Courcelle-Seneuil, 
 indeed, has satisfactorily described some of 
 the principal systems, and MM. Chevalier, 
 Gamier, and other writers, both Continental 
 and English, have given other brief classifi- 
 cations. But we must now take a compre- 
 hensive view of the possible ways in which 
 two, three, or more metals may be employed 
 in the construction of a more or less useful 
 monetary system. 
 
 There seem to be five distinct modes in 
 which a government may deal with metallic 
 money. 
 
 i. It may confine itself to providing a sys- 
 tem of weights and measures, and may then 
 
UNIVERSITY 
 
 o 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 78] g, ' 
 
 allow the precious metals to be passed about 
 frcni hand to hand, like.: other commodities, 
 in terms of the national weights and meas- 
 ures, ami in the form which individuals find 
 to be the most convenient. This we may call 
 the system of currency by weight. 
 
 2. To save the trouble of frequent weigh- 
 .nd the uncertainty of fineness of the 
 
 metal, it may coin one or more metals into 
 pieces of certain specified weights and fine- 
 ness, and may afterward allow the public to 
 make their contracts and sales in one or other 
 kind of coin, as they deem expedient. This 
 may be described as the system of unrestrict- 
 ed currency bv talc. 
 
 3. To prevent misunderstanding, the gov- 
 ernment, while emitting various coins in vari- 
 ous metals, may ordain that all contracts ex- 
 pressed in money of the realm shall, in the 
 absence of express provision to the contrary, 
 betaken to mean money of one kind of metal, 
 specially named, while other coin shall be 
 left to circulate at varying market rates com- 
 pared with this principal kind of coinage. 
 This is the single legal tender system. 
 
 4. The government may emit coins of two 
 or more kinds of metal, and enact that money 
 contracts may be discharged in one or other 
 kind, at certain rates fixed by law. This is 
 the multiple legal tender system, 
 
 5. While maintaining one kind of coin as 
 the principal legal tender, in which all large 
 money contracts must be fulfilled, coins of 
 other kinds of metal may be ordered to be 
 received in limited quantities, as equivalent 
 to the principal coin. For this the name com- 
 posite legal tender system may be proposed. 
 
 4tfM*PC* Iff WEIGHT. 
 
 The order in which I have enumerated the 
 principal systems of metallic money, is not 
 only the logical order, but it is the historical 
 order in which the systems have, for the 
 most part been introduced. There is over- 
 whelming evidence to prove that simple cur- 
 rency by weight is the primitive system. Be- 
 fore the invention of the balance, lumps and 
 grains were no doubt exchanged according to 
 a rude estimation of their bulk or weight; 
 but afterward the balance became a necessary 
 instrument in all important transactions. In 
 the Old Testament we find several statements 
 clearly implying that the ancient Hebrews 
 used to pass money by weight. In Genesis 
 (xxiii. 16) Abraham is represented as weigh- 
 ing out to Ephron "four hundred shekels of 
 silver, current money with the merchant," 
 but the silver in question is believed to have 
 consisted of rough lumps or rings not to be 
 considered coin. In the Book of Job (xxviii. 
 15) we are told that "wisdom cannot be 
 gotten for gold, neither shall silver be weigh- 
 ed for the price thereof." 
 
 Aristotle, in his Politics (Book I., chap, ix), 
 gives an interesting account of his views of 
 the origin of money, and distinctly tells us 
 that the metals were first passed simply by 
 
 weight or size, and Pliny makes a similar as- 
 sertion. That it was so, we may infer from 
 the remarkable fact that, even when no use 
 was made of it, the custom of bringing a pair 
 of scales survived as a legal formality in the 
 sale of slaves at Rome. 
 
 There can be little doubt that every system 
 of coinage was originally identical with a sys- 
 tem of weights, the unit of value being the 
 | unit of weight of some selected metal. The 
 English pound sterling was certainly the Sax- 
 on pound of standard silver, which was too 
 large to be made into a single coin, but was 
 divided into two hundred and forty silver 
 "pennies, each equal to a. penny weight. In the 
 English and Scotch pounds, and the French 
 iivre, we have the vestiges of a uniform in- 
 ternational system of money and weights, 
 the establishment of which is attributed to 
 Charlemagne, but which unfortunately be- 
 came differentiated and destroyed by the 
 various depreciations of the coinage in one 
 country or another. Most of the other prin- 
 cipal units of value were originally units of 
 weight, such as the shekel, the talent, the 
 as, the stater, the libra, the mark, the franc, 
 the lira. 
 
 In the Old Testament the notion of money 
 is expressed three times by the Hebrew word 
 kesitah, which is translated in certain old 
 versions into words meaning lamb. This 
 might seem to be an additional proof of the 
 former use of cattle as a medium of ex- 
 change; but I am informed by my learned 
 friend, Professor Theodores, that this trans- 
 lation probably arises from an accidental 
 blunder, and that the original meaning of 
 the word kesitah, was that of a "certain 
 weight," or "an exact quantity." The cor- 
 responding word in the Arabic, kist, is said 
 to denote a pair of scales. 
 
 Currency by weight still exists amon^ con- 
 siderable portions of the human race. In 
 the Burman empire, for instance, three kinds 
 of metal are current, namely, lead, silver, and 
 gold, and all payments are made by the bal- 
 ance, the unit of 'weight for silver being 
 the tical. In the Chinese empire and Cochin 
 China, there is indeed a legal tender currency 
 of cash or sapeks but gold and silver are usu- 
 ally dealt in by weight, the unit being the 
 tael. A very interesting account of Chinese 
 money, by M. le Comte Rochechouart, will 
 he found in the Journal des Economist's for 
 J.S6Q (vol. xv., page 103). According to this 
 writer, both gold and silver are treated sim- 
 ply as merchandise, and there is not even a 
 recognized stamp, or government guarantee of 
 the fineness of the metal. The traveler must 
 carry these metals with him, as a sufficient 
 quantity of strings of cash would require a 
 wagon for their conveyance. Yet in ex- 
 changing silver or gold he is sure to suffer 
 great losses, both from the falsity of bal- 
 ances and weights, and the uncertain fine- 
 ness of the metal. In buying a tael of gold 
 the traveler may have to give eighteen tacls 
 
26 [74] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 of silver; but in selling it he will often not 
 obtain more than fourteen taels. 
 
 Whatever be the inconveniences of the 
 method, currency by weight is yet the nat- 
 ural and necessary system to which people 
 revert whenever the abrasion of coins, the 
 intermixture of currencies, the fall of a state, 
 or other causes, destroy the public con- 
 fidence in a more highly organized system. 
 Though the silver penny among the Anglo- 
 ^ axons was supposed to correspond with a 
 pennyweight, there was a practice of giving 
 compensatio ad pensum, which really amount- 
 ed to taking the coins by weight, to allow for 
 ab.rasion and inaccurate or false coinage. 
 The as was at first equal in weight to a 
 Roman pound, but it was rapidly lessened, 
 so that at the epoch of the First Punic War, 
 it did not exceed two ounces, and by the 
 time of the Second Punic War it had sunk 
 to one ounce. The Roman people had nat- 
 urally reverted to weighing the metal, and 
 the aes grave was money reckoned by weight 
 instead of by tale. 
 
 In the present day, currency by weight is 
 far more extensively practiced than might 
 be supposed, because, in many parts of the 
 world, the currency consists of a miscel- 
 laneous assortment of old gold, silver, and 
 even copper coins, which have been brought 
 thither from other countries, and have been 
 variously worn, clipped, or depreciated. In 
 such countries, the only means of avoiding 
 loss and fraud is to weigh each coin, and 
 the impress passes for little more than an in- 
 dication of the fineness of the metals. In 
 all large international transactions, again, 
 currency by weight is the sole method. The 
 regulations of a state concerning its legal 
 tender, have no validity beyond its own 
 frontiers; and as all coins are subject to 
 more or less wear and uncertainty of 
 weight, they are received only for the actual 
 weight of metal they are estimated to con- 
 tain. The coin of well-conducted foreign 
 mints is bought and sold by weight without 
 melting; but the coin of minor states, which 
 have occasionally depreciated their money, is 
 melted up and treated simply as bullion. 
 
 UNRESTRICTED CURRENCY BY TALE. 
 
 The simplest way for a state to manage its 
 money, might seem to be to revert to the 
 primitive notion of a coin, and issue pieces of 
 gold, silver, and copper, certified to be equal 
 to units of weight, leaving all persons free to 
 make contracts or sales in terms of any of 
 these metals. These pieces of certified metal 
 would then be so many commodities thrown 
 into the markets and allowed to take their 
 natural relative values. 
 
 Such appears to have been the system in- 
 tended to be established by the French Revo- 
 lutionary Government in terms of the abor- 
 tive law of Thermidor, an III. Disks of 
 ten grams each were to be struck in gold, 
 silver, and copper, and then put in circu- 
 
 lation, without any attempt to regulate their 
 currency. If I understand his meaning con. 
 rectly, M. Gamier has recently brought for- 
 ward a somewhat similar scheme, proposing 
 to make the gram of gold at nine-tenths the 
 unit of value, and to coin pieces of one, two, 
 five, eight, or ten grams concurrently with 
 standard silver pieces, which are in France 
 already multiples of the gram. M. Cheval- 
 ier's proposed system of international money, 
 partially at least, involves the same notion; 
 for he considers that the principal currency 
 should consist of decagrams of gold. But, 
 as Mr. Bagehot has well remarked, there is 
 no object whatever, as regards the greater 
 mass of the population, in having coins sim- 
 ply related to the system of weights, because 
 most people never need take any account of 
 the weight at all. They need only know how 
 many copper coins are equal to one silver 
 coin, and how many silver to one gold coin. 
 Now, if we carry out M. Chevalier's scheme 
 consistently and fully, and make all the coins 
 multiples of the gram, we shall oblige all 
 people to be constantly working complex 
 arithmetical sums. No one could give ex- 
 actly correct change without calculating 
 how many silver ten-gram pieces are, at the 
 market price of silver, equal to one gold ten- 
 gram piece. The necessity for calculation 
 occasions needless loss of time and trouble, 
 and a factitious gain is sure to accrue to the 
 expert and unscrupulous at the expense of 
 the poor and ignorant. 
 
 Owing to these obvious objections no 
 government has ever, I believe, carried into 
 practice a system of money of the kind de- 
 scribed. Nevertheless, currencies approxi- 
 mating to it in nature have come to exist in 
 many parts of the world by the intermixture 
 of coinages of different states. There are 
 many half-civilized nations which have no 
 national coinage, but employ the coins 
 which happen to reach them in the course of 
 trade. On the West Coast of Africa the 
 
 panish dollar is the best known coin, but 
 Danish, French or Dutch coins also circulate. 
 In several of the South American States the 
 currency is in a state of complete confusion, 
 consisting of a mixture of American eagles, 
 gold doubloons, silver dollars, English sov- 
 ereigns, piastres, etc., together sometimes 
 with several different issues of coinage of 
 the South American States variously depreci- 
 ated. Even in the British possessions we 
 find the same state of things. In the British 
 West Indian Islands, American, Mexican, 
 Spanish, and other dollars, circulate concur- 
 rently with English money ; but it should be 
 added that in most cases the Spanish dollar 
 is treated as the standard of value, and other 
 coins are quoted in terms of it. 
 
 In Eastern countries there is a similar 
 intermixture of coinage. In Singapore the 
 Indian rupee mingles with Spanish and Mex- 
 ican dollars. Persia has a rude coinage of 
 its own, so uncertain in weight that it has to 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [75] 2' 
 
 be dealt in by the balance, but Russian, 
 Turkish, and Austrian gold coins circulate by ( 
 tale. Some of the best-regulated nations 
 have allowed, or even promoted, the cur- 
 rency of various foreign coins. In Ger- 
 many, French and English gold coins used 
 to be accepted, according to a well-recog- 
 nized tariff. The circulation of English, 
 French, Spanish, Mexican, and other gold 
 coins in the United States was legalised by 
 an Act of June 28th, 1834, repealed by an 
 Act of February 2ist, 1857, which however 
 allows certain foreign coins to be received 
 at government offices. 
 
 In England we have for many generations 
 enjoyed a very pure currency, so that we are 
 unconscious of the inconveniences arising 
 from a confusion of coins of different values. 
 But in the early part of this century Spanish 
 dollars were put into circulation for a time in 
 England. 
 
 In former centuries the mixture of coin- 
 ages was far more common than at present. 
 No country had a currency free from strange 
 coins. It is impossible to open an old book 
 on commerce without finding long tables of 
 coins which the merchant might expect to 
 meet with ; and the business of money- 
 changing was a lucrative and common one. 
 
 It will be understood, that only so long as 
 coins are known by the fresh sharp appear- 
 ance of the impression to be of full weight, 
 and are accepted according to tariff, does the 
 system of currency by tale of number exist. 
 The silver dollar, being a large coin, is sub- 
 ject to comparatively little abrasion, so that 
 people learn to receive dollars of various 
 species at certain well-established rates. 
 Thus the dollar has practically been for sev- 
 eral centuries the international money of the 
 tropical countries. But so soon as coins bear 
 evidence of wear or ill-treatment, they must 
 be circulated by weight, and we revert to a 
 more primitive system. 
 
 M. Feer-Herzog has described, as the sys- 
 tem of parallel standards, that in which a 
 state issues coins in two or more metals, and 
 then allows them to circulate by tale at ratios 
 varying according to the market values of the 
 metals. He cites, as recent examples, the 
 rixdaler in silver, employed as the internal 
 money of Sweden in combination with the 
 ducat in gold, serving as international money. 
 The government of India, again, has on sev- 
 eral occasions tried to introduce a parallel 
 standard of gold alongside of the single silver 
 legal tender now existing there. Gold mo- 
 hurs have long been more or less in circula- 
 tion in India, and are supposed to form at 
 present about one-tenth part of the coinage. 
 They are of exactly the same weight and fine- 
 ness as the silver rupee, and are usually 
 valued at from fifteen to fifteen and two- 
 third rupees. It seems probable, however, 
 that what M. Feer-Herzog calls the system 
 of parallel standards will coincide according 
 to circumstances, either with that which I 
 
 have described as the system of unrestricted 
 currency by tale, or that of a single legal ten- 
 der, with an additional commercial money of 
 varying value. The Indian currency must 
 certainly be classed under the latter head. 
 There cannot in fact be two different parallel 
 standards used both at the same time ; and 
 though it is not uncommon for a state to coin 
 moneys in two metals, and leave its subjects 
 to pay in one or other at will, yet one of the 
 two is generally recognized as the standard of 
 value. 
 
 SINGLE LEGAL TENDER SYSTEM. 
 
 The system of currency naturally adopted 
 by the first coiners of money was that of a 
 single legal tender. Coins of one kind of 
 metal, or even a single series of coins of uni- 
 form weight, were at first thought sufficient. 
 Iron in small bars was the single legal tender 
 in Lacedaemon, and possibly in some other 
 early states. Aes was undoubtedly the legal 
 tender among the Romans for a length of 
 time. In China the sole measure of value 
 and legal tender to the present day consists 
 of brass cash or sapeks, strung together in lots 
 of a thousand each. In England silver was 
 the only metal coined from the time of Egbert 
 to that of Edward III., with the doubtful ex- 
 ception of a very few small pieces of gold, 
 Silver was the sole legal tender and measure 
 of value, and few coins except silver pennies 
 were issued. In Russia and Sweden, during 
 part of last century, copper was the sole legal 
 tender. 
 
 A single metal currency has the great ad. 
 vantages of simplicity and certainty. Every 
 one knows exactly what he is to pay or re- 
 ceive, and when the coins are of one size or 
 of a few sizes, simply related to each other, 
 like the early English coins, no one is sub- 
 ject to loss by errors of calculation. But 
 there is the obvious disadvantage that, ac- 
 cording as the metal chosen is cheap or dear, 
 large or small transactions will be trouble- 
 some to effect. To pay a few hundred pound3 
 in Swedish copper plates, or Chinese strings 
 of cash, a cart would be required for con- 
 veyance, and the counting of cash is almost 
 impracticable. A silver coinage again does 
 not admit of coins sufficiently small for 
 minor transactions. It is difficult to under- 
 stand how retail trade was carried on when 
 the silver penny weighed twenty-two-and-a- 
 half grains, and the precious metals were 
 far more precious than at present. The 
 penny was, indeed, cut up into half pence 
 and farthings, i. e., four things; but even 
 the farthing must have been equal in pur- 
 chasing power to our three-penny or four- 
 penny piece. The mass of the currency ap- 
 pears to have consisted of silver pennies. 
 
 Accordingly it is found that, if a govern- 
 ment issue coins only of a single metal, the 
 people will introduce and circulate coins of 
 other metals for their own convenience. In 
 Anglo-Saxon times, gold byzants from By- 
 
28 [76] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 zantium were used ih England, and the gold 
 coins of Florence, thence called florins, were 
 much esteemed both here and in other parts 
 of Europe. In later centuries, too, in the 
 absence of a legitimate copper coinage, 
 tradesmen's tokens came into general circu- 
 lation. 
 
 MULTIPLE LEGAL TENDER SYSTEM. 
 
 Out of a single legal tender naturally grew 
 up systems of a double or even multiple 
 legal tender. The Plantagenet Kings of Eng- 
 land, for instance, rinding that though they 
 coined only silver, the people made use of 
 gold, eventually began to issue gold coins, 
 and fixed the rates at which they should be 
 exchanged for silver coins. In the absence 
 of any special regulations to the contrary, 
 this constituted a double tender system. As, 
 after a time, the ratio of values of the metals 
 would fail to coincide with that involved in 
 the relative weights of the coins, it became 
 requisite to fix by royal proclamation a new 
 value for one metal in terms of the other. 
 From 1257 to 1664, the gold and silver cur- 
 rency of England was thus regulated, no 
 coins of copper or any inferior metal being 
 then issued. From 1664 to 1717, proclama- 
 tions were made upon the subject, and the 
 value of the guinea was allowed to vary in 
 terms of the shilling. At one time it rose 
 nearly to thirty shillings, owing partly to the 
 decreased value of silver, but chiefly to the 
 clipped and worn state of the silver money. 
 During this interval, then, the country had a 
 single silver standard. 
 
 In the early part of the last century, a 
 great deal of discussion took place upon the 
 unsatisfactory state of the silver currency, and 
 Sir Isaac Newton, the Master of the Mint, 
 was requested to report upon the best meas- 
 ures to be adopted. In 1717 he made a 
 celebrated report, recommending that the 
 government should revert to the practice of 
 fixing the price of the guinea, and he sug- 
 gested twenty-one shillings as the best rate. 
 His advice being accepted, the guinea has 
 ever since been valued at twenty-one shil- 
 lings. Then there was again a double stand- 
 ard in England, any one being at liberty to 
 pay in either kind of coin. In practice, how- 
 ever, it is almost impossible that the com- 
 mercial value of the metals should coincide 
 with the legal ratio. At the rate adopted by 
 Sir Isaac Newton, gold was overvalued by 
 rather more than one and a-half per cent.'; 
 to that extent it was more valuable as cur- 
 rency than as metal. Therefore, in accord- 
 ance with the Law of Gresham, and the 
 principles laid down in Chapter VIII., the 
 the full weight silver coin was withdrawn or 
 exported, and gold became the practical 
 measure of value, which it has ever since 
 continued to be. 
 
 In every other part of the world, where at- 
 tempts have been made to combine two met- 
 als as concurrent standards of value, similar 
 
 results have followed. In Massachusetts, in 
 1762, gold was made a legal tender, as well 
 as silver, at the rate of two pence halfpenny 
 per grain; but being overvalued as much as 
 five per cent. , the silver coinage rapidly dis- 
 appeared from circulation. Various laws 
 were passed to remedy this inconvenient 
 state of things, but without success so long 
 as this valuation of gold was maintained. 
 
 In these and many other cases which 
 might be quoted, a government had attempt- 
 ed to combine a circulation of gold with that 
 of silver, without being aware of all the prin- 
 ciples involved in the experiment. It was 
 hardly, perhaps, till the time of the French 
 Revolution that the double standard system 
 was consciously selected as the best method. 
 Since the celebrated law, known as "La loi 
 du 7 Germinal, an XL," was adopted by the 
 Revolutionary Government, the system has 
 become identified with the policy of the 
 j French economists. The history of the 
 origin of this law was almost unknown, un- 
 til M. Wolowski described it in a series of 
 valuable articles published in the Journal ' des 
 Economistes for 1869. 
 
 As early as 1790 Mirabeau presented to 
 the National Assembly a celebrated memoir 
 on monetary doctrines, in which, amid a cu- 
 rious mixture of true and false views, he de- 
 cided in favor of silver as the principal money, 
 on the ground of the greater abundance of 
 silver compared with gold. He proposed to 
 make silver the constitutional money, that is. 
 the legal tender, and to employ gold and cop- 
 per as additional signs of value. These ideas 
 were only so far carried out that the franc 
 was defined first as ten grams of silver by the 
 decree of the ist August, 1793, and was af- 
 terward definitely fixed at five grams by the 
 law of the 28th Thermidor, an III. The 
 old gold pieces of twenty four and forty-eight 
 livres continued to circulate, while the ten- 
 gram gold pieces ordered by the decree to be 
 struck were not really issued. 
 
 In the year IX. Gaudin proposed that the 
 ratio of fifteen and a-half to one should be 
 adopted in fixing the weight of the gold coins 
 relatively to the silver ones. Thus, while 
 the franc was defined as consisting of five 
 grams of silver nine-tenths fine, the twenty- 
 franc gold piece was to contain 6 '451 grams 
 of gold of equal fineness. He seems to have 
 thought that this ratio was sufficiently near 
 to that of the market to allow the coins to 
 circulate side by side for a long time, and in 
 case of a change, he thought that the gold 
 pieces could be melted and reissued at a dif- 
 ferent weight. After a great amount of dis- 
 cussion, in which Berenger, Lebreton, Daru, 
 and Bosc took the most prominent parts, the 
 proposals of Gaudin were carried out, but 
 not precisely on the ground indicated by 
 him. It appears to have been thought unwise 
 either to demonetize gold altogether, which 
 would have seriously diminished the circulat- 
 ing medium, or to leave the value of the 
 
MONEY AND Till-: MECHANISM OF EXCHANGE. 
 
 [V7] 2 
 
 gold coins uncertain, which would give rise 
 to disputes. 
 
 The ratio adopted by the legislators of the 
 Revolution hapju-ncd to overvalue silver in 
 pnme degree, and hence the currency of 
 i- came to consist principally of the 
 five-francs pieces, or ecus. Not until 
 the Californian and Australian discoveries 
 gold to be the cheaper money in 
 
 which to make payments, did this heavy sil- 
 ver money gradually disappear. The action 
 of the double standard system will be further 
 considered in Chapter XII. 
 
 COMPOSITE LEGAL TENDER. 
 
 We have seen that with a single metal cur- 
 rency there is inconvenience in making small 
 or large payments, according as the metal 
 chosen is dear or cheap. If two or more 
 series of full-weight coins be issued in differ- 
 ent metal, and allowed to vary in relation to 
 each other, the difficulty of circulation inter- 
 
 are reduced by abrasion or clipping below 
 the corresponding weight. From the year 
 1717, when the guinea was fixed at twenty- 
 one shillings, until the present system was 
 instituted in 1816, the English currency was. 
 based theoretically upon the double standard 
 system. Practically, however, the silver 
 coins were so scarce and worn that they 
 served but as tokens. The tradesmen's cop- 
 per tokens, too, being always of light weight, 
 and exchangeable by custom for a certain 
 proportion of silver coins, formed the third 
 term in the series. But Lord Liverpool 
 appears to have been the first to apprehend 
 and explain the principles on which such a 
 composite system worked, and there can be 
 no doubt that the system, as he expounded 
 it, is the best adapted for supplying a con- 
 venient and economical currency. 
 
 Most of the leading nations have now 
 adopted the composite legal tender in a more 
 or less complete form. France, Belgium, 
 
 venes. If they both be made legal tenders j Switzerland, and Italy still adhere to the 
 at a fixed ratio, the currency will tend to be- 1 double standard in theory, but have reduced 
 
 ' all coins of less value than five francs to the 
 
 come composed alternately of one or the 
 other metal, and money-changers will nuke 
 a profit out of the conversion. 
 
 There yet remains another possible system, 
 in which coins of one metal are adopted as 
 the standard of value and principal legal ten- 
 der, and subordinate token coins of other 
 ir: etuis are furnished for the purpose of sub- 
 division, being recognized as legal tender 
 only for small amounts. The values of these 
 token coins now depend upon that of the 
 standard coins for which they ate legally ex- 
 changeable, and care is taken to make their 
 weights such that the metallic value will al- 
 ways be less than the legal value. No profit 
 can ever be made by melting such coins, or 
 removing them from the country, and their 
 rntio of exchange with the principal coins is 
 always a simple ratio fixed by law. 
 
 The composite legal tender rises naturally 
 out of the double standard system ; for, as 
 we have seen, if, under the latter system, 
 gold be overvalued at the legal rate, all full- 
 \veight silver coins will be withdrawn nd ex- 
 ported by degrees, so that there will remain 
 practically a token currency of light silver. 
 Lord Liverpool, having in his thorough in- 
 vestigation of the subject of metallic money 
 observed the superior convenience of the 
 composite legal tender to the double legal 
 tender, advocated its adoption in England in 
 tae most conclusive manner. His arguments 
 will be found in his admirable " Treatise on 
 the Coins of the Realm in a Letter to the 
 King" (Oxford, 1805), and his recommenda- 
 tions, as carried into effect in 1816, are the 
 foundation of our present monetary system. 
 
 A composite system of currency has fre- 
 quently existed in one country or another 
 
 without being specially designed or recog- j certainty, thanks to 
 nized. It comes into existence whenever 1(33 Victoria, ch. 
 
 footing of token money, by reducing the 
 fineness of the silver from 900 parts to 835 
 parts in looo, or by seven and one-fourth 
 per cent., and by limiting the amount for 
 which they are legal tender. The copper 
 money of France had previously been re- 
 stricted as a legal tender to sums below five 
 francs in any one payment. In the United 
 States, when metallic currency was generally 
 employed, the double standard system exist- 
 ed in theory, but was reduced to a composite 
 standard by the excessive overvaluing of the 
 gold money. Moreover, by a law of 2ist of 
 February, 1853, the smaller silver coins were 
 reduced in weight and made legal tender 
 only for sums not exceeding five dollars. The 
 silver three-cent pieces, and the several cop- 
 per, bronze, or nickel coins, issued from the 
 United States mints, were also token money 
 with various limits as regards legal tender. 
 
 The new German monetary system is per- 
 fectly organized as a composite legal tender. 
 
 CHAPTER X. 
 
 THE ENGLISH SYSTEM OF METALLIC CUR- 
 RENCY. 
 
 I now come to describe in more detail the 
 system of metallic currency which has existed 
 in England for more than half a century, and 
 which seems to be the best of all as regards 
 the principles on which coins of three differ 
 ent metals are combined into a composite 
 legal tender. The legal regulations under 
 which the Fnglish coinage is issued and cir- 
 culated, can be ascertained with ease and 
 the Act of Parliament 
 z), which Mr. Lowe 
 
 coins of gold and silver are current at rates caused to be passed to simplify and consoli- 
 fixed by law or custom, but the silver coins I date the statutes on the subject. 
 
[78] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 ENGLISH GOLD COIN. 
 
 The English sovereign is the principal 
 legal tender and the standard of value. It is 
 defined as consisting of 123*27447 grains 
 t7 '98805 grams) of English standard gold, 
 composed of eleven parts of fine gold, and 
 one part of alloy, chiefly copper. The sov- 
 ereign ought, therefore, in theory, to con- 
 tain 113-00160 grains, or 7-32238 grams, of 
 pure gold. But as it is evidently impossible 
 to make coins of any precise weight, or to 
 maintain them of that weight when in circu- 
 lation, the weight stated is only that standard 
 Weight to which the mint workmen should 
 -aim to attain as closely as possible, both in 
 each individual piece, and in the average. 
 
 From the weight of the sovereign we de- 
 duce the mint price of gold. For if we di- 
 Yide the number of grains in the sovereign in- 
 to the number of grains namely, 486 in 
 the troy ounce, we ascertain exactly how 
 many sovereigns and portions of a sovereign 
 the mint ought to return for each ounce de- 
 livered in. This we find to be 3*89375, 
 'which is equivalent to ^3 17.?-. io^</. It 
 conies to exactly the same thing to say in 
 terms of the old mint indentures, that twen- 
 ty-pounds' weight troy of gold are to be 
 coined into 934 sovereigns, and one half- 
 sovereign. I have heard of people who pro- 
 tested against the government fixing the 
 price at which gold should be bought and 
 sold by the mint, and who yet allowed that 
 the sovereign must have some fixed weight. 
 But the fixed price is convertible with the fixed 
 weight, and vice versa. Either follows from 
 the other. 
 
 In practice the weight of a coin is always 
 a matter of limits, and there must be limits 
 both for the weight assent out and that at 
 \vhich it can legally remain in circulation. 
 The remedy is the technical name for the al- 
 lowance made to the mint-master for imper- 
 fection of workmanship, and is defined by 
 the Act as two-tenths of a grain (0*01296 
 gram). Thus the mint cannot legally issue 
 a sovereign weighing less than 123 "074 grains, 
 or more than 123-474 grains. Since the fine- 
 ness of the gold, again, can never be adjust- 
 ed exactly to the standard of eleven parts in 
 twelve, or 916 '66 in a 1000, a remedy of two 
 parts in 1000 is allowed in this respect. It is 
 understood that the English mint succeeds in 
 working well within the remedy both of 
 weight and fineness- 
 
 Every sovereign issued from the mint in 
 accordance with these regulations, and bear- 
 ing the impress authorized by the Queen, is 
 legal tender, and must be accepted by a 
 creditor in discharge of a debt to that 
 amount, provided that it has not been re- 
 duced by wear or ill-treatment below the 
 weight of 122-50 grains (7*93787 grams). 
 If a sovereign of less than this least current 
 weight be tendered to any person, he is pre- 
 sumed by the law to detect the deficiency, 
 
 and is bound to cut or deface the coin, and 
 return it to the tenderer, who must bear the 
 loss. If the coin so defaced should prove 
 not to be below the limit, then the defacer 
 has to receive it and bear the loss arising 
 from his mistake. Any justice of the peace 
 may decide disputes arising concerning light 
 sovereigns in a summary manner. 
 
 The only other gold coin actually issued is 
 the half-sovereign, of which the standard 1 
 weight and remedy are exactly half those of 
 the sovereign, the remedy in fineness the 
 same as in the sovereign, and the least cur- 
 rent weight 61-1250 grains (3-96083 grams). 
 The Coinage Act also legalizes the issue of 
 two and five-pound gold pieces, the weights 
 and remedies in weight being corresponding 
 multiples of those of the sovereign. Coins of 
 the value of five and two guineas were struck 
 by most of the English monarchs from the 
 time of Charles II. to that of George III. 
 Patterns of five and two-pound pieces have 
 been prepared under Queen Victoria ; but 
 gold coins of this size have not been issued in 
 the present reign, nor is it desirable, for 
 reasons stated in Chapter XIII, that they 
 should be issued. 
 
 ENGLISH SILVER COIN. 
 
 The further subdivision of the pound is 
 effected by token coins of silver and bronze, 
 which are made of such weights that there is 
 no danger of their metallic values rising 
 above the metallic value of the gold coins 
 for which they are legally equivalent. Pre- 
 vious to the year 1816, the troy pound of 
 standard silver, containing 925 parts of fine 
 silver and seventy-five parts of alloy in 1000, 
 was coined into sixty-two shillings, so that 
 each shilling would contain 92*90 grains of 
 standard metal. Under these regulations 
 gold was rated as 15*21 times as valuable as 
 silver. As silver, however, may sometimes 
 become more valuable relatively to gold, 
 Lord Liverpool very wisely recommended in 
 his letter to the king, that the weight of the 
 shilling should be reduced. By the Act 56 
 Geo. MI. ch. 68, it was ordered that the 
 troy pound of silver should be coined into 
 sixty-six shillings, a reduction of weight of 
 about six per cent. The new Coinage Act 
 maintains the chief provisions of that of 
 1816, so that the English shilling now has 
 the weight of 87-27272 grains of standard 
 silver (5*65518 grams), and the weights of all 
 the other silver coins are exactly correspond- 
 ing multiples or submultiples of this. The 
 mint remedy in weight for the shilling is a 
 little more than the third part of a grain, and 
 in simple proportion for the other coins. The 
 remedy in fineness is in all cases four parts in 
 one thousand. The denominations of coins 
 authorized are nine in number, namely, the 
 crown, half-crown, florin, shilling, sixpence, 
 groat, or fourpenny piece, threepence, two- 
 pence, and penny. All, except the crown, 
 are coined in greater or less quantity, but 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 the fcurpence, twopence, and penny, are 
 now only stiuck in very j. mall quantities, as 
 Maundy money, which, after being distrib- 
 uted by the Queen annually in alms, appears 
 to find its way into numismatic cabinets or 
 to ; >e melted down. 
 
 All such coins are legally current, irrespec- 
 tive of their weights, so long as they are not 
 called in by proclamation, or so worn and de- 
 faced that the impress of the mint cannot be 
 recognized. The coin in circulation is actu- 
 ally reduced in weight by abrasion to a con- 
 siderable amount, often one-fourth or one- 
 third of its original weight. Moreover, the 
 fall in the value of silver relatively to gold 
 reduces the metallic worth of the coins, so 
 that no one can export them to foreign coun- 
 tries, or melt them for sale as bullion, without 
 losing from ten to thirty per cent, of their 
 nominal value. 
 
 It would obviously be a cause of grievance 
 if a person could be obliged to receive unlimit- 
 ed amounts of this token money in discharge 
 of a debt. Merchants might often have 
 thousands of pounds worth of such coins 
 thrown upon their hands, the full value of 
 which could only be realized by gradually put- 
 ting it into circulation again. It was there- 
 fore provided by the Acts of 1816 and 1870, 
 that silver coin shall be a legal tender only to 
 the amount of forty shillings in any one pay- 
 ment. This limit was chosen apparently be- 
 cause the two-pound piece was in 1816 re- 
 garded as the largest coin then in circulation, 
 or likely to be issued. 
 
 ENGLISH BRONZE COINAGE. 
 
 The final subdivision of the pound is ef- 
 fected by bronze pence, halfpence, and farth- 
 ings, of which the weights when issued should 
 be respectively 145*833, 87*500 and 43'75o 
 grains. They are composed of an alloy of 
 ninety-five parts by weight of copper, four 
 parts of tin, and one part of zinc, being exact- 
 ly the same kind of bronze as was previously 
 employed by the French mints. The remedy 
 in weight is one-fifth of one percent., and as 
 the coins are token money there is no least 
 current weight. As the reasons against al- 
 lowing them to be a legal tender for large 
 sums are stronger than in the case of silver 
 coin, it is enacted that bronze coins shall be 
 a legal tender only to an aggregate amount of 
 one shilling. 
 
 If a copper penny were now made to con- 
 tain metal equivalent in value to the two hun- 
 dred and fortieth part of a sovereign, its 
 weight would be eight hundred and seventy- 
 one grains, at the present market price of 
 copper (75 per ton). Thus the fractional 
 coinage has been reduced in weight nearly to 
 one-sixth part of what it would be as stand- 
 ard copper coin. The bronze of which the 
 pence are made is worth, according to Mr. 
 Seyd, ten pence per troy pound, so that the 
 metallic values of the coins are almost exactly 
 one-fourth part of their nominal values. A 
 
 | considerable profit therefore accrues upon the 
 coinage of bronze, amounting up to the end 
 
 I of 1871 to about ,270,000; but the reduction 
 of weight is altogether an advantage, and is 
 probably not carried as far as it might pro. 
 perly be done. 
 
 DEFICIENCY OF WEIGHT OF THE ENGLISH 
 GOLD COIN. 
 
 It is the theory of the present English 
 monetary law, as we have seen (Chapter X.), 
 that every person weighs a sovereign tender- 
 ed to him, and assures himself, before ac- 
 cepting it, that it does not weigh less than 
 I22'5 grains. In former days, it was not un- 
 common for people to carry pocket-scales for 
 weighing guineas, and such scales may still 
 be occasionally seen in old curiosity shops. 
 But we know that the practice is entirely 
 given up, and that even the largest receivers 
 ol coin, such as the banks and railway com- 
 panies, and even the tax-offices, post-offices, 
 etc., do not pay the least regard to the law. 
 Only the Bank of England, its branches, and 
 a few government offices, weigh gold coin in! 
 England. The result is that a large part of 
 the gold coinage is worn below the least cur- 
 rent weight, and all persons of experience 
 avoid paying old sovereigns to the Bank of 
 England. Only ignorant and unlucky per- 
 sons, or else large banks and companies which 
 cannot otherwise get rid of light coin, suffer 
 loss. The quantity of light gold coin with- 
 drawn by the bank did not for many years 
 exceed half a million a year; during the last 
 few years it has varied from .700,000 to 
 950,000. As the average amount of gold 
 coined annually is four or five millions, and 
 the coins melted or exported are for the most 
 part new and of full weight, it follows ne- 
 cessarily, that the currency is becoming more 
 and more deficient in weigh;. 
 
 In 1869, I ascertained, by a careful and 
 extensive inquiry, that thiny-one and a-half 
 per cent, of the sovereigns and nearly one- 
 half )i the ten-shilling pieces were then be- 
 low the legal limit. The reader who has at- 
 tended to the remarks on Gresham's Law 
 (Chapter VIII.), will see that no amount of 
 coinage of new gold will drive out of circula- 
 tion these depreciated old coins, because 
 those who export, or melt, or otherwise treat 
 the coins as bullion, will take care to operate 
 upon good new ones. 
 
 Great injustice arises in some cases from 
 this defective state of the gold currency. I 
 have heard of one case in which an inexperi- 
 enced person, after receiving several hundred 
 pounds in gold from a bullion dealer in the 
 city of London, took them straight to the 
 Bank of England for deposit. Most of the 
 sovereigns were there found to be light, and 
 a prodigious charge was made upon the un- 
 fortunate depositor. The dealer in bullion 
 had evidently paid him the residuum, of a 
 mass of coins, from which he had picked the 
 heavy ones. In a still worse case, 
 
32 [80] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 reported to me, a man presented a post-office I 
 order at St. Martins-le-Grand, and carried 
 the sovereigns received to the stamp-office at 
 Somerset House, where the coins were 
 weighed, and some of them found to be de- 
 ficient. Here was a man, so to say, de- 
 frauded between two government offices. 
 
 It should be stated that the government 
 made, in July, 1870, a slight effort to .pro- 
 mote the withdrawal of light gold by engag- 
 ing to receive it through the Bank of Eng- 
 land at the full price of 3 ijs. qd. per ounce 
 by weight, the price previously paid by the 
 bank having been only 3 17*. 6^r/., owing 
 to the old sovereigns being a little below the 
 standard in fineness. A certain increase in 
 the amounts withdrawn has no doubt fol- 
 lowed this measure: but the loss by defici- 
 ency in weight is still thrown upon the pub- 
 lic, and as long as this is the case the with- 
 drawal of light gold will continue inadequate 
 to maintain the coinage at its standard 
 weight. 
 
 WITHDRAWAL OF LIGHT GOLD COIN. 
 
 Some steps must soon be taken to remedy 
 the increasing deficiency of weight of the 
 gold coinage described above. The with- 
 drawal may no doubt be effected in several 
 ways. One method would be for the Queen to 
 issue a proclamation calling in and prohibit- 
 ing the circulation of all gold coins more than 
 twenty or twenty-five years old, as it is mostly 
 the older coins which are deficient in weight. 
 Another method would be to oblige all reve- 
 nue officers, postmasters, and- others, under 
 the control of government, ro weigh all sov- 
 ereigns presented to them. If necessary, the 
 bankers of the kingdom generally might be 
 obliged to weigh coin. But it is obvious that 
 great trouble and inconvenience would arise 
 from such measures. The progress of the 
 post-office savings bank would be imperiled 
 if every depositor of a pound were liable to 
 be charged two per cent, for lightness. Con- 
 siderable excitement and trouble followed 
 the issue of the last proclamation of June, 
 1842, calling in light gold. To make the 
 last holder of a coin pay for the whole cost 
 of its circulation during thirty or forty years 
 past, leads in many cases to gross injustice. 
 The present law tends to throw the loss 
 upon the poor, who have usually only one or 
 two sovereigns at a time to pay, whereas rich, 
 people, having many, can avoid paying light 
 gold at offices where it will be weighed. 
 
 I hold that the only thorough remedy is 
 for the government to bear the loss oc- 
 casioned by the wear of the gold, as it al- 
 ready bears that of the silver currency. 
 The' Bank cf England should be authorized 
 to receive all sovereigns showing no marks of 
 intentional damage or unfair treatment at 
 their full nominal value on behalf of the 
 mint, which should re-coin the light ones at 
 the public expense. No one would then have 
 any reason for keeping the light gold away 
 
 from the bank; the currency would soon be 
 purged of the illegally light coins, and 
 would thenceforth be kept up strictly to the 
 standard weight; all loss of time and trouble 
 would be saved to individuals, a consider- 
 ation which we should not lose sight of; and, 
 lastly, no injustice would be done, as at 
 present, to the last holder of a light sov- 
 ereign. 
 
 In opposition to such a proposal it is 
 usually urged, that encouragement would be 
 given to the criminal practice of sweating or 
 otherwise diminishing the weight of the 
 currency. I answer that, on the contrary, 
 it is the present state of things which gives . 
 the best opportunity for illegal practices, be- 
 cause it renders the population perfectly ac- 
 customed to handling old and worn coins. 
 No one now actually refuses any gold money 
 in retail business, so that the sweater, if he ex- 
 ists at all, has all the opportunities he can 
 desire. I have met with sovereigns deficient 
 to the extent of four to five grains, or eight 
 pence to ten pence, but they nevertheless 
 circulate. If under a better system the 
 gold currency consisted entirely of full- 
 weight, fresh coins, with sharp, new, perfect 
 impressions, attention would quickly be 
 drawn to any coin which appeared to be 
 worn or ill-treated in any degree. As the 
 currency, too, would be constantly passing 
 through the automaton weighing-machines 
 of the Bank of England, without vreviously 
 undergoing the operation of garbling by 
 bullion brokers, sweated coins, if they ex- 
 isted at all, would soon be detected; where- 
 as, according to the present system, thebank 
 authorities have no opportunity of exami^in^ 
 the whole coinage. It is the present state of 
 things, then, which gives the best oppor- 
 tunity for tampering with the currency, 
 though there is no evidence to show that 
 fraudulent practices are carried on to any 
 appreciable extent. Under the proposed, 
 new system, such practices would be ren 
 dered almost impossible. 
 
 SUPPLY OF GOLD COIN. 
 
 It is the theory of the English monetary 
 law that every individual is entitled to take 
 gold to the mint and have it coined gratui- 
 tously, all the expenses being borne by the 
 public revenues. It is intended that the coin 
 shall be rendered identical in value with an 
 equal quantity of gold bullion, so that it 
 shall, in short, be so much certified bullion. 
 and shall be reconvertible in to ingots without 
 loss. Though this theory is simple and 
 sound in some respects, it is not perfectly 
 carried into practice. The mint never en- 
 gages to deliver coin in immediate exchange 
 for gold sent for coining, so that there is a 
 loss of interest during the uncertain interval 
 of coinage. If, instead of sending gold di- 
 rectly to the mint, the owner pursues the 
 customary mode of selling it to the Bank of 
 England, he receives, according to the Bank 
 
MONEY AM) THE MECHANISM OF EXCHANGE. 
 
 [81] 33 
 
 Charter Act of 1844, only three pounds, sev- 
 enteen shillings, ninepence per ounce, in- 
 stead of the full mint price of three pounds, 
 seventeen shillings, ten and one-half pence. 
 Moreover, it has been pointed out by Mr. E. 
 Seyd, that, as the bank used to conduct their 
 bullion business, there was a series of small 
 
 silver money, and the supposed right of pri- 
 vate individuals to demand the coinage of 
 silver, it may be well to describe exactly how 
 the supply of silver coin is legally regulated 
 and practically carried out. There is no la\v r 
 statute, or common, which gives any private 
 person, company, or institution, the right to 
 
 charges or profits made for weighing, melt- \ take silver to the mint, and demand coin in 
 
 ing, assaying, the turn of the scale, the dif- 
 ference of the assay reports, etc., which 
 amounted on the whole, including the above 
 charge of one and one-half pence per ounce 
 for demurrage, to 0*2828 per cent, on the 
 value of the gold. The bank has since 
 made some small improvements in the mode 
 of conducting the business, but it may still 
 be considered that the cost of converting gold 
 bullion into sovereigns is about one-fourth 
 per cent. 
 
 Though every person whatever has the 
 right, under the Coinage Act, of taking gold 
 to the mint and having it coined free of 
 charge and in order of priority without 
 undue preference, no one ever does use the 
 privilege, except the Bank of England. 
 
 exchange. Thus it is left in the hands of the 
 Treasury and the mint to issue so much and 
 such denominations of silver coins as they 
 may think needful for the public service- 
 This state of the law is perfectly right ; be- 
 cause, as the silver coins are tokens, they 
 cannot be got rid of by melting or exporta- 
 tion at their nominal values. If individuals 
 were frtc r> demand as much silver coin as 
 they liked, a surplus might be thrown into 
 circulation in years of brisk trade, which in a 
 subsequent year of depressed trade would lie 
 upon people's hands. 
 
 Practically speaking, the mint is guided in 
 the supply of silver coin by the Bank of 
 England, not because this bank has by law 
 any special powers, privileges, or duties in 
 
 During an inquiry into the Bank Act in 1857, I the matter, but because, in acting as the bank 
 Mr. Twells stated that he had once sent of banks, and the bank ot government de- 
 jio,ooo to the mint, and was afterward sur- I partments, it has the best opportunities of 
 prised to find his firm of Spooner and Co. judging when more coin is wanted. Not 
 mentioned in a parliamentary paper as the [ only do all the London bankers draw silver 
 only private firm that had ever done such a i coin from the Bank of England when they 
 thing. The directors of the Bank of Eng- j need it, but the same is done directly or in- 
 land have naturally acquired the monopoly j directly by all the other bankers in the king- 
 of transactions with the mint, because they dom. A deficiency of silver coin in any 
 have to keep large stocks both of coin and county is shown by the stock of the local 
 bullion to meet the demands of the Issue | bankers running down. They replenish their 
 Department and of their customers, includ- ' stocks either from the nearest branch of the 
 ing directly or indirectly, the whole of the ' ' 
 bankers of the United Kingdom. They can 
 convert portions of their bullion into coin 
 without any loss of interest or cost, whenever 
 they find the stock of coin running down. 
 They feel the monetary pulse of the whole 
 community, and they have all the requisite 
 
 Bank of England or from their London 
 agents, who again draw from the Bank of 
 England. At other times or places the 
 bankers tend to accumulate a surplus of sil- 
 ver coin. Some banks in a large town may 
 happen to have accounts with many shop- 
 keepers, butchers, brewers, cattle-dealers, or 
 
 appliances for the custody, assay, or exact j dealers of one kind or another, who deposit 
 weighing of bullion. Even those persons silver coin in large quantities. Other banks 
 who need to possess large sums of gold often may be largely drawn upon by manufacturers 
 employ the bank to weigh, pack, and ware- I for the payment of wages, and muy suffer 
 house it, and the bank is always willing to do from a deficiency of silver coin. It is a com- 
 mon practice, therefore, for bankers in any 
 locality to assist each other by buying or sell- 
 ing superfluous silver coin as the case may- 
 require. If a superfluity of coin, however. 
 
 the work for fixed low charges. Hence it te 
 most natural and convenient that the bans 
 should act as the agent of the mint. Though 
 the bank makes a certain profit out of the 
 
 business, it is hardly earned at the cost of | cannot be got rid of in this way, it may be 
 
 the public, but rather comes out of the econ- 
 omy with which tt<e work i? managed. It 
 could in no way improve the currency of the 
 country if every one who owned a few 
 ounces of gold were to run with it to the 
 mint, throwing upon the country the cost of 
 melting and assaving- insignificant ingots, and 
 
 returned to the Bank of England or one of 
 its branches. This bank indeed is in no 
 way bound to provide or receive large sums 
 in silver, and it therefore usually makes a 
 small charge of about five shillings per hun- 
 dred pounds to cover the trouble and risk. 
 In consideration of this charge the bank 
 
 complicating the accounts and transactions J bears the cost of transmission by railway, 
 of the mint. c-xamines the coin for the detection of base 
 
 pieces and the withdrawal of worn coin 
 which latter it sends to the mini for recoin- 
 
 SUPPLY OF SILVER COIN. 
 
 On account of the absurd misapprehen- 
 
 sions recently existing as to the scarcity of ' mint. 
 
 age, and acts in general as the agent of the 
 
84 [82] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 Having the business so much in its hands, 
 it is obvious that the department of the bank 
 which manages the receipt and issue of silver 
 coin can judge accurately when a fresh sup- 
 ply of coin is wanted. Before the stock runs 
 too low notice is given to the mint, and 
 money is usually advanced to the Master that 
 he may purchase silver bullion for coinage. 
 / Under this system it is almost impossible for 
 a deficiency of currency to arise without be- 
 coming known to the mint, and if, two or 
 three years ago, the supply could not be 
 made equal to the sudden demand, it was be- 
 cause the mint was not supplied by govern- 
 ment with machinery adequate to the growing 
 wants of the country. The existing system, 
 in short, seems to be as nearly perfect as can 
 be desired, provided that the mint be rebuilt 
 :and organized in such a manner as to enable 
 it to meet any demand which the fluctuations 
 of trade may occasion. 
 
 THE ROYAL MINT. 
 
 While treating of the English system of 
 metallic money, it is impossible to avoid ex- 
 pressing the wish that the House of Commons 
 and the government will no longer delay a 
 complete reconstruction of the Royal Mint. 
 The mint factories, as they now stand, were 
 very creditable to the generation which erect- 
 ed them ; but it is needless to say that in the 
 last fifty or seventy years we have immensely 
 advanced, both in the art of constructing 
 machinery and in our ideas of the arrange- 
 ment and economy of manufactories. What 
 should we think of a Cotton Spinning Com- 
 pany, which should propose to use a mill and 
 machinery originally constructed by Ark- 
 wright, or to drive a mill by engines turned 
 out of the Soho works in the time of Boulton 
 and Watt ? Yet the nation still depends for 
 its coinage upon the presses actually erected 
 by Boulton and Watt, although much more 
 convenient coining presses have since been 
 invented and employed in foreign and colo- 
 nial mints. 
 
 The present mint workshops are quite in- 
 adeq'uate for meeting the demands which 
 may be throne upon them by the increasing . 
 industry and wealth of the United Kingdom, 
 not to speak of the British Empire. A few 
 years ago it was impossible to turn out silver 
 coin as quickly as it was required when trade 
 was brisk, and, while one metal is being 
 coined, there are no means of meeting the 
 demand for other kinds of coin. As to the 
 bronze coinage, it has generally to be obtain- 
 ed from Birmingham presses, and bronze 
 blanks have also to be purchased at times. 
 Even silver blanks have been obtained from 
 Birmingham. The British mint ought to 
 represent the skill and wealth of the British 
 nation, and no petty considerations should 
 be allowed to postpone so necessary a reform. 
 
 Nothing short of a complete reconstruc- 
 tion of the mint workshops will meet the 
 requirements of the case. If this is to be 
 
 done, much convenience and economy will 
 arise from abandoning the large and valuable 
 site upon Tower Hill, and erecting an en- 
 tirely new mint in a more accessible position. 
 The opinions of Mr. E. Seyd upon this sub- 
 ject are worthy of much attention. 
 
 CHAPTER XI. 
 
 FRACTIONAL CURRENCY 
 
 One monetary question which can hardly 
 be said to be satisfactorily solved as yet, is 
 that of selecting the best possible material 
 for coins of small value, called in English 
 pence, in French monnaie <f appoint. The 
 fractional coins should be equal in value to 
 about a tenth part of the silver ones, coin 
 for coin, but it unfortunately happens that 
 there is no suitable metal of which the value 
 is now one-tenth part of that of silver. In 
 the time of the Romans, gold was about ten 
 times as valuable as silver, and silver about 
 ten times as valuable as copper, so that there 
 would then have been no difficulty in con- 
 structing a perfect decimal system of money. 
 
 To throw light upon this subject; I have 
 drawn out the following table, in which are 
 shown the weights of the principal commer- 
 cial metals which are of equal values at pres- 
 ent. The numbers in such a table must of 
 course be subject to perpetual fluctuations, 
 according to the changes in the market 
 prices of the metals. In some cases, too, it 
 is difficult to find any accurate quotations 
 at all, and the price often depends greatly 
 on the manufactured state of the metal. 
 Gold and silver are taken as of standard fine- 
 ness, and gold forms the unit. 
 
 EQUIVALENT WEIGHTS OF THE PRINCIPAL 
 METALS. 
 
 Gold . 
 Platinum . 
 Aluminium 
 Silver . . 
 Nickel 
 
 i 
 
 314 
 7 
 16 
 
 Tin . 
 Copper . 
 Lead . 
 Bar Iron . 
 Pig Iron 
 
 942 
 
 1,696 
 
 6,360 
 
 15,900 
 
 50,880 
 
 It may be worthy of notice that when we 
 thus draw out what may be called the com- 
 <nercial equivalents of the metals, they are 
 found to form a series very rudely approxi- 
 mating to a geometrical series with the com- 
 mon ratio three. Silver, however, is an ex- 
 ception. There is, too, one term missing 
 between nickel and tin, and as tin is not a 
 coinable metal, there is a wide interval be- 
 tween nickel and copper, and a still wider one 
 between silver and copper. At present silver 
 is almost exactly one hundred times as valu- 
 able as copper ; hence copper pence must 
 either contain in metallic value but a fraction 
 of the nominal value, or else they must be 
 very heavy and bulky. When a new copper 
 coinage was issued in England from the mint 
 of Boulton and Watt :n 1797, the coins were 
 
MONEY AND TI1K MECHANISM OF EXCHANGE. 
 
 [83] 35 
 
 made nearly of standard weight, at the rate 
 of an ounce avoirdupois for each penny. 
 There was a double inconvenience in this. 
 Sixteen pence actually weighed a pound avoir- 
 dupois, at which rate the people would now 
 be carrying three times as great a weight in 
 their pockets as with our bronze currency. 
 Moreover, the price of copper having risen, 
 Boulton's pence became more valuable as 
 nietni than as coins, and were used as mate- 
 rial in spite of their beautiful execution. 
 
 first and most obvious course was to 
 reduce the weight of the penny, making it 
 purely a token coin. The old pennies of 
 Victoria weighed about 290 grains each, 
 instead of about 433 grains, as in the coinage 
 of Boulton and \Vatt, a reduction of about 
 one-third part. The bronze penny has been 
 still further reduced, and ought to weigh 
 145 "8 grains. 
 
 There are two inconveniences which may 
 arise from too great and sudden a reduction 
 in the weight of token currency. There is a 
 risk of the population rejecting the new coins 
 as fraudulently light. This was the case 
 with the new copper five and ten-centime 
 pieces, struck in France in 1794 by the Rev- 
 olutionary Government, at the rate of one 
 gram for each centime, which was harf the 
 previous rate. The government was obliged 
 to' call in the light coin and issue it again at 
 the old weight, and only in the time of 
 Napoleon III. could coins of one gram per 
 centime be put into circulation. The people, 
 then, must be educated to receive very light 
 tokens, and the reduction must be made by 
 moderate steps. 
 
 In the second place, if the metal is easily 
 coined or manipulated like copper, if it fails 
 to retain a very good impression, and if there 
 is a considerable margin for profit, the temp- 
 tation to false coiners might become strong. 
 I am not aware that this has ever happened 
 in regard to the English copper coinage, but 
 counterfeit sous used to be manufactured on 
 a large scale in the Faubourg Saint Antoine, 
 in Paris, almost under the eyes of the govern- 
 ment. 
 
 At the best, too, pure copper makes indif- 
 ferent coin, being deficient in hardness, so 
 that it soon becomes disfigured ; it has a 
 disagreeable odor which it communicates to 
 the fingers ; and when exposed to damp air 
 it becomes covered with verdigris, which is 
 both unsightly and poisonous. I proceed to 
 consider the various ways in which it has been 
 attempted to substitute for copper coin some 
 more convenient currency. 
 
 BILLON COIN. 
 
 Pennies and twopenny pieces, if now made 
 of standard silver, like the Maundy money, 
 would be two small and light for use, weigh- 
 ing respectively, seven and one-fourth and 
 fourteen and one-half grains. Even the 
 threepenny pieces, now so abundant in Eng- 
 and, and weighing 21 '8 grains each, are in- 
 
 conveniently small. In England, for a very 
 long time, no silver has been coined of less 
 fineness than the old standard of 925 parts in 
 looo. In many continental countries the 
 smaller currency has been made of a very low 
 alloy of silver and copper called billon. Such 
 coins were at one time current, to a certain 
 extent, in France, the metal containing only 
 one part of silver in five of alloy, but they 
 have long been recalled. In Norway the 
 small currency now consists partly of half- 
 skilling and one-skilling pieces in copper, the 
 skilling being nearly equal in value to an 
 English halfpenny, but principally of two, 
 three, and four-skilling pieces, composed of 
 billon, containing, according to an analysis 
 performed for me at the Owens' College 
 chemical laboratory, one part of silver and 
 three of copper. These billon pieces are 
 very convenient n size, and, being for the 
 most part newlyi ssued, are clean and neat. 
 Billon is still being coined in Austria. 
 
 It is in the states now forming the German 
 empire that billon coins have been most ex- 
 tensively used, especially in pieces of three, 
 four, and six kreutzers, the so-called scheid- 
 emunze now being recalled. This consists of 
 silver alloyed with three, four, or more times 
 its weight of copper. Before such base silver 
 is passed through the coining press, it is 
 usual to dissolve the copper from the surface 
 of the blank pieces of metal, so as to produce 
 a film of pure white silver upon the surface. 
 This operation, called coloring, gives a fine 
 bright appearance to the coins when new, 
 and they are easily put into circulation. But 
 after a little time the silver film is worn off, 
 and the coins assume a very patchy aspect. 
 Billon coinage seems to have, too, an extra- 
 ordinary power of accumulating a layer of 
 dirt of a very disagreeable character, with 
 which all travelers in Germany in past years 
 must be well acquainted. Moreover, it offers 
 great facilities to the counterfeiter, and for 
 several sufficient reasons cannot be recom- 
 mended for adoption. 
 
 COMPOSITE COIN. 
 
 It is said that Saint Louis, the great King 
 of France, finding much want of small 
 money to pay his soldiers, caused little pieces 
 of silver wire, weighing nine and eighteen 
 grains, to be fixed on pieces of stamped 
 leather, and circulated for one- and two-dime 
 pieces. The silver gave the value and the 
 leather served as a case or handle to preserve 
 the small bit of metal from being lost. In 
 recent times, composite coins, having a center 
 piece of silver and a rim of copper, were 
 constructed on similar principles. A model 
 penny of this kind has an agreeable appear- 
 ance and a convenient size, but seems to be 
 subject to several objections. The cost of 
 coinage would be considerable ; the coins 
 could hardly be made so perfect that the 
 center would not come out sometimes ; the 
 contact of dissimilar metals would set up 
 
36 [84] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 electro-chemical action, and the copper would 
 be corroded ; and, lastly, it would be difficult 
 to detect counterfeit silver pieces inserted by 
 the forger. Composite coins of a similar 
 character were struck in France under Napo- 
 leon I., about the year 1810, but were never 
 circulated. Pennies formed of a copper cen- 
 ter with a brass rim have been employed in 
 England, and tin pence, halfpence, or far- 
 things, with a copper plug inserted near the 
 center, were long used, and are plentiful in 
 numismatic cabinets. 
 
 BRONZE COIN. 
 
 It was known, even in prehistoric times, 
 that a small quantity of tin communicated 
 hardness to copper, and the ancient nations 
 were familiar with the use of bronze thus 
 manufactured. The French Revolutionary 
 Government melted up the bells of the 
 churches seized by them, and the sotis de 
 cliche, as they were called, made from the 
 bell metal, were superior to coins of pure 
 copper. Yet curiously enough no modern 
 government thought of employing a well- 
 chosen bronze for small money, until the 
 government of the late Emperor of the 
 French undertook the recoinage of the old 
 sous in 1852. This recoinage was carried 
 out with great success. 
 
 Between the years 1853 and 1867 coins to 
 the nominal value of about two millions ster- 
 ling, consisting of 800 millions of pieces, 
 and weighing eleven millions of kilograms 
 (10,826 tons) were struck, in addition to a 
 subsequent issue of about two hundred mil- 
 lions of pieces. The experiment was in al- 
 most every way successful. The ten and five- 
 centime pieces now circulating in France are 
 models of good minting, with a low but sharp 
 and clear impression. They were readily ac- 
 cepted by the people, although only weighing 
 as much as the sous rejected in the time of 
 the Revolution, namely, one gram per cen- 
 time, and they are wearing well. 
 
 The bronze used consists of ninety-five parts 
 of copper, four of tin, and one of zinc. It is 
 much harder than copper, yet so tough and 
 impressible that it takes a fine impression 
 from the dies, and retains it for a long time. 
 It cannot be struck except by a press of some 
 power, and thus counterfeiting is rendered 
 almost impossible. It can hardly be said to 
 corrode by exposure to air or damp, and 
 merely acquires a natural patina, or thin dark 
 film of copper oxide, which throws the worn 
 part of the design into relief, and increases 
 the beauty of the coin. 
 
 Bronze has since been coined by the gov- 
 ernments of England, the United States, 
 Italy, and Sweden, and it seems probable* 
 that it will entirely take the place of copper. 
 The German Government is now using 
 bronze for the one-pfennig pieces. 
 
 ENGLISH BRONZE COIN. 
 
 The old copper coinage of the United 
 
 Kingdom was replaced from ten to fifteen 
 years ago, by a much more convenient and 
 elegant series of pence, half-pence, and far- 
 things, struck in exactly the same kind of 
 bronze as the French centime pieces. The 
 English coins, though far from being so 
 well executed as the French ones, are clean, 
 and likely to wear well. The only great 
 objection which can be raised to them, is that 
 they are still of considerable size and weight, 
 although less than the old copper coins. As- 
 all the latter are now withdrawn, and few of 
 the new ones can yet be lost or destroyed, 
 we know very accurately the amount of the 
 English fractional currency. The whole 
 amount issued in the years 1861 to 1873 is 
 as follows: 
 
 Weight Number of Nominal 
 
 in tons. pieces. value in 
 
 pounds steiling. 
 
 Pennies . 1,585 170,41^9,000 ,710,082 
 Halfpennies . 918 164,505,000 342,719. 
 Farthings . . 149 53,594,000 55,826 
 
 2,652 388,518,000 1,108,627 
 
 Including a small amount issued before 
 1861, the whole value of the bronze coin put 
 into circulation up to the end of 1873 was 
 ;i, 143,633. It is remarkable that the 
 quantity of small coins used in England is- 
 much less than in France, where at least 
 1000 millions of pieces, chiefly of ten and 
 five centimes, are in use. Thus while the 
 English, Scotch, and Irish seem to be suf- 
 ficiently supplied with eight and a-half pence 
 per head, the French employ on the average 
 one franc sixty centimes, (fifteen pence), the 
 Belgians, two francs twenty-six centimes 
 (twenty-one and a-half pence), and the Ital- 
 ians as much as three francs ten centimes 
 (twenty-nine and a-half pence). 
 
 WEIGHT OF THE CURRENCY. 
 
 It is curious that the weights of the sev- 
 eral kinds of currency vary inversely as^ 
 their nominal values; thus, taking the paper 
 circulation of the United Kingdom at forty 
 millions, the gold roughly at one hundred 
 millions, the silver at fifteen millions, and 
 the bronze as above, I find the weights to be 
 approximately as follows: 
 
 Paper currency . . . 16 tons. 
 
 Gold " . . . . 786 ' 
 
 Silver " . ... . 1670 ' 
 
 Bronze . . . . 2652 ' 
 
 5124 tons. 
 
 It is impossible to give a satisfactory rea- 
 son why the least valuable part of the cur- 
 rency should be so much the most weighty. 
 A tendency thus arises for the pence to accu- 
 mulate upon the hands of retail traders, es- 
 pecially publicans, omnibus proprietors, and 
 n ewspaper publ ishers . At one ti me the Lon don 
 brewers had such large quantities of bronze 
 coins thrown upon their hands from the pub- 
 
MONEY AND Till- M LCI I AN ISM OF KXCHANGF.. 
 
 [80] 37 
 
 lie-houses which they own, that the mint had 
 
 eventually to arrange to buy it from them, 
 
 ,1 of coining more. In large towns, ar- 
 
 nents have to be made for getting rid 
 
 of the accumulating pence with the least 
 
 trouble and loss ; the coin is transferred 
 
 weekly to mills and factories, where it is 
 
 in paying wages. Bankers refuse to 
 
 nything to do with bronze coin beyond 
 
 the amount of a shilling, for which it is legal 
 
 tender, and it is usual for persons to object 
 
 to receive more than twopence or threepence 
 
 of change in pence. 
 
 It is worthy of inquiry whether this ten- 
 dency of the fractional currency to stagnation 
 would not be remedied by the substitution of 
 a much lighter and more elegant currency of 
 nickel, or of some alloy yet to be invented. 
 In France, it is found that the bronze coin- 
 age circulates much more freely than the old 
 copper and bell metal sous, which tended to 
 accumulate in certain localities. Our bronze 
 pence are much bet'er than the old copper 
 pence, but it does not follow that we have 
 in any degree approximated to perfection. 
 Coins of about half the weight of those in 
 circulation would be much more convenient. 
 
 NICKEL, MANGANESE. ALUMINIUM, AND OTHER 
 METAl.S AND ALLOYS. 
 
 The employment of nickel in the manufac' 
 tureof small money has already been referred 
 to (Chapter VI.), and if the conditions of sup- 
 ply and demand of this metal were more steady 
 we should perhaps want nothing better. The 
 alloy of nickel and copper generally used is 
 hard and difficult to coin, but it takes a fine 
 impression which it will probably require long 
 wear to efface. Nickel coinage is thus very 
 unlikely to be counterfeited, and its peculiar 
 nondescript color renders it easily distinguish- 
 able from silver or gold money. The pro- 
 gress of metallurgy, however, is making us 
 acquainted with several new metals and many 
 new alloys, and it is quite likely that some 
 new material for fractional money will event- 
 ually be found. Dr. Percy, having regard to 
 the rising price of nickel, suggests that man- 
 ganese should be employed instead, as it 
 gives alloys of similar character, and can be 
 procured in greater quantities. 
 
 Dr. Clemens Winkler strongly recommend, 
 aluminium as suited for monetary pur- 
 poses. Trial pieces, marked "^ real, 1872," 
 have been struck, and one of them may be 
 seen in the Monetary Museum at the Paris 
 mint. This metal has a characteristic bluish 
 white color, but its great advantage is its low 
 specific gravity. The trial piece i:i question, 
 of which a specimen was furnished to me by 
 Mr. Roberts, the chemist of the English 
 mint, is two centimeters, o'7Q inch, in diam- 
 eter, a little wider than a sixpence and much 
 thicker, and yet weighs only one gram, or 
 fifteen and a-half grains. Were our pence 
 and halfpennies as light and convenient as 
 this coin, we could carry many of them in 
 
 ! the pocket without discomfort. The chief 
 
 ! difficulty in adopting such a new metal would 
 
 1 arise from the uncertain price at which it can 
 
 j be produced. It is unknown, too, how it 
 
 would wear. Even if pure aluminium were 
 
 found to be unsuitable for coining, some of 
 
 its remarkable alloys might be employed 
 
 instead. Mr. Graham, the late Master of the 
 
 Mint, had a series of trial pieces of one to 
 
 ten cents struck in the so-called "aluminium 
 
 bronze." 
 
 I may suggest that one of the best possi 
 ble materials for small money would be steel- 
 provided it could be prevented from rusting. 
 Steel coins would be difficult to strike, but 
 when once struck could be hardened, so as 
 to be almost indestructible. The cheapness 
 of the material would allow of their produc- 
 tion on a large scale at small cost, while they 
 could not possibly be imitated by the false 
 coiners with any profit. Hence it would be 
 needless to pay any attention to the metallic 
 value of the coins, which might be struck of 
 the most convenient sizes, probably those of 
 the sixpence and shilling. Now it has been 
 pointed out by Sir John Herschel (Physical 
 Geography, reprinted from the " Encyclo- 
 paedia Britannica," 320, p. 289), that steel 
 appears to be protected from rusting by be- 
 ing alloyed with a small quantity of nickel; 
 this at least is the effect in the case of mete- 
 oric iron. It is much to be desired that such 
 an alloy should be fairly tried. I am inform- 
 ed by Mr. Roberts, that silver also alloys 
 well with iron or steel, and that such mix- 
 tures have been proposed for coining pur- 
 poses. An alloy of silver, copper, and zinc 
 has already, indeed, been fully tested in 
 Switzerland, where it is used for twenty, ten, 
 and five- centime pieces. These coins are 
 convenient in size, but have a poor yellowish 
 white appearance. They have not been 
 adopted, so far as I know, by any other 
 country ; and there seems to be no use in 
 putting silver into them, as it would proba- 
 bly be easy to produce a similarly colored 
 alloy without silver. 
 
 It is a misfortune of what may be called 
 the science of monetary technology, that its 
 study is almost of necessity confined to the 
 few officers employed in government mints. 
 Hence we can hardly expect the same ad- 
 vances to be made in the production of 
 money as m other branches of manufacture, 
 where there is wide and free competition. 
 Moreover, it is very difficult to get an oppor- 
 tunity of testing any new kind of coin ; in a 
 large currency, like that of the United King- 
 dom, it is almost impossible to execute ex- 
 periments. But it may be suggested that the 
 English mint, in supplying coins for some 
 of the smaller British colonies and posses- 
 sions, enjoys an admirable opportunity for 
 testing new proposals. This need not in- 
 volve any cost to such colonies, as the Eng- 
 lish government, in striking a few hundred 
 or thousands of pounds worth of small coia 
 
38 [80] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 for a colony, might readily engage to with- 
 draw them at its own cost if found unsuitable 
 after a certain number of years. 
 
 CHAPTER XII. 
 
 THE BATTLE OF THE STANDARDS. 
 
 Western Europe, and those who uphold SL 
 gold standard combined with subsidiary coin- 
 ages of silver and small money, somewhat in 
 the manner of the English system. The ad- 
 vantages of the double standard have been 
 most ably advocated by MM. Wolowski, 
 Courcelle-Seneuil, Seyd, Leon, Prince-Smith, 
 and others, while MM. Chevalier, De Parieu, 
 Hendriks, Frere Orban, Levasseur, Feer- 
 Herzog, and Juglar, have been some of the 
 leading upholders of the gold standard. The 
 literature of the subject is very extensive and 
 to most readers dreary in the extreme, but I 
 will try to give a tolerably concise statement 
 of the principal arguments. 
 
 In the first place, I have no doubt what- 
 ever that M. Wolowski is theoretically quite 
 correct in what he says about the compen- 
 satory action of the double standard system. 
 English writers seem completely to have mis- 
 understood the question, asserting that the 
 system exposes us to the extreme fluctuations 
 
 Ever since the great discoveries of gold in 
 California and Australia began to disturb the 
 value of that metal relatively to silver and to 
 other commodities, it has been a continual 
 subject of discussion what standard of value 
 should be ultimately adopted. There have 
 been partisans of the now antiquated silver 
 standard, of the double standard, and of the 
 gold standard. Having in England long 
 possessed a gold standard, we have been only 
 in a secondary degree concerned in such dis- 
 cussions, upon which quite a library of works 
 has been written by distinguished French, 
 Belgian, German, Swiss, Italian, and Dutch 
 economists. The changes actually effected 
 in the currencies of Europe since 1849 are 
 of the most extensive character. Some 
 nations have more than once changed their 
 policy. Holland, anticipating a great fall in 
 the value of gold, adopted silver as the single 
 Standard of value in 1850. This change had 
 to be effected at considerable pecuniary loss, 
 and it is understood that Holland is again 
 exposed to the trouble and expense of having 
 to admit a gold standard, either as a sole legal 
 
 tender, like Germany, or else concurrently gM and sUver standard . \ 
 
 with a restricted silver coinage like Belgium j er jn . e than fiye sh}llings t hirteen-six- 
 and the other monetary allies of France teenths of a ou silver becO mes 
 
 From the time of Locke to that of Lord - r ' 
 
 of both metals, 
 silver are both 
 amounts, there 
 
 No doubt, when gold and 
 legal tenders to unlimited 
 will be a tendency to pay in 
 
 that metal which is overrated in the legal 
 ratio of fifteen and a-half to one. Only 
 when the price of standard silver is exactly 
 five shillings and thirteen-sixteenths of a 
 penny per ounce is it a matter of indifference 
 in France whether a debt be paid in gold or 
 silver, and this exact price has only been 
 quoted a few times in the London market 
 in the last thirty years. Accordingly, it has 
 been urged that the double standard is not 
 really a double one, but only an alternative 
 When silver is low- 
 
 Liverpool, the comparative advantages of 
 gold and silver, as the principal measure of 
 value, were a frequent subject of discussion 
 among English political writers. Locke and 
 most of the earlier English economists upheld 
 silver. Lord Liverpool definitely decided 
 English policy in favor of gold, and the ten- 
 dency of opinion is now strongly in the same 
 direction. Several countries have recently 
 changed from silver to gold, and since the 
 
 the standard; when silver rises above this 
 price, gold takes its place as the real measure 
 of value. 
 
 So far, the English economists are no 
 doubt correct; but, in the first place, it does 
 not follow that the prices of commodities 
 follow the extreme fluctuations of value of 
 both metals, as many writers have inconsid- 
 erately declared. Prices only depend upon 
 
 the 
 
 of the metal which happens to 
 
 since e haye sunk in va]ue bdow the l { ratio of 
 
 single example of Holland no nation has fifteen and a _ ha]f tQ Qne Now> if in the ac _ 
 
 passed from gold to silver. Even Austria, companying . ngure we represent by the line 
 
 *Tr\i,r*Vk ic? c f i I c?Mr-vr\*~vco/-i tr\ rf*r\rf*ct*ri f- tVi^ ciltr^r* ^ J . . . 
 
 which is btiil supposed to represent the silver 
 standard, has taken a step toward a change 
 by coining ten and twenty-franc pieces in 
 
 A the variation of the value of gold, as es- 
 timated in terms of some third commodity, 
 
 say copper, and by the line B the correspond 
 
 gold, the inscriptions ten francs and twenty . J .fSTJ r *.t-_ i t ,!... +^~ 
 
 francs now appearing, as well as four gulden 
 and eight gulden, on the new gold coins of 
 
 Austro-Hungarian empire. 
 
 THE DOUBLE STANDARD. 
 
 ing variations of the value of silver; then, 
 superposing these curves, the line C would 
 
 be the curve expressing 
 
 The single silver standard having been 
 practically abandoned as regards the curren- 
 cies of Europe, the battle has more recently 
 
 been waged between the partisans of the dou- i curves of gold or silver, but the fluctuations 
 ble standard, represented in the currencies of do not proceed to so great an extent, a point 
 France and the Monetary Convention of ! of much greater importance. 
 
 the extreme fluc- 
 tuations of both metals. Now, the stand- 
 ard of value always follows the metal which 
 falls in value; hence the curve D really 
 shows the course of variation of the stand- 
 ard of value. This line undergoes more 
 frequent undulations than either of the 
 
MONEY AND TIIK MECHANISM Ul EXCHANGE. 
 
 17J 39. 
 
 6V\ 
 
 COMPENSATORY ACTION. 
 
 Nor is this the whole error of the English 
 writers. A little reflection must show that 
 MM. Wolowski and Courcelle-Seneuil are 
 quite correct in urging that a compensatory 
 or, as I should prefer to call it, equilibra- 
 tory action goes on under the French cur- 
 rency law, and tends to maintain both 
 gold and silver more steady in value than 
 they would otherwise be. If silver becomes 
 more valuable than in the ratio of one to 
 fifteen and one-half compared with gold, 
 there arises a: once a tendency to import 
 gold into any country possessing the double 
 standard, so that it may be coined there, and 
 exchanged for a legally equivalent weight of 
 silver coin, to be exported again. This is no 
 matter of theory only, the process having 
 gone on in France until the principal cur- 
 rency, which was mainly composed of silver 
 in 1849, was in 1860 almost wholly of gold. 
 France absorbed the cheapened metal in vast 
 quantities and emitted the dearer metal, 
 which must have had the effect of preventing 
 gold from falling and silver from rising so 
 much in value as they would otherwise have 
 done. It is obvious that, if gold rose in 
 value compared with silver, the action would 
 be reversed ; gold would be absorbed and 
 silver liberated. At any moment the stand- 
 ard of value is doubtless one metal or the 
 other, and not both ; yet the fact that there 
 is an alternation tends to make each vary 
 muchless than it would otherwise do. It can- 
 not prevent both metals from falling or rising 
 in value compared with other commodities, but 
 it can throw variations of supply and demand 
 over a larger area, instead of leaving each 
 metal to be affected merely by its own acci- 
 dents. 
 
 Imagine two reservoirs of water, each sub- 
 ject to independent variations of supply and 
 demand. In the absence of any connecting 
 
 pipe the level of the water in 
 each reservoir will be subject to 
 its own fluctuations only. But 
 if we open a connection, the 
 water in both will assume a cer- 
 tain mean level, and the effects 
 of any excessive supply or de- 
 mand will be distributed over 
 the whole aiea of both reser- 
 voirs. The mass of the metals, 
 gold and silver, circulating in 
 Western Europe in late years, 
 is exactly represented by the 
 water in these reservoirs, and 
 the connecting pipe is the law 
 of the 7th Germinal, an XI, 
 which enables one metal to take 
 the place of the other as an un- 
 limited legal tender. 
 
 DEMONETIZATION OF SILVER. 
 
 M. Wolowski has earnestly 
 warned Europe against the dan- 
 ger of abrogating the law of the double 
 standard, and demonetizing silver. Ger- 
 many, in adopting a gold standard, is caus- 
 ing a considerable demand for gold, and 
 at the same time throwing many millions of 
 silver coins upon the market. Austria, Den- 
 mark Sweden, and Norway are likely to 
 follow her example. If other countries were 
 to insist upon suddenly having a gold money, 
 it is evident that gold would tend to rise in 
 value compared with silver, which might be 
 largely depreciated. If France, Italy, Bel- 
 gium and other countries now possessing 
 theoretically the double standard were to 
 allow the free action of their monetary laws, 
 the depreciated silver would flow in and re- 
 place the appreciated gold, so that the 
 change of values would be moderated M. 
 Wolowski asserts that if this compensatory 
 action be suspended, and the demonetization 
 of silver be extended, there must ensue a dis- 
 astrous rise in the value of gold, thus ren- 
 dered the sole standard of value. All debts 
 private and public will be legally due in fhis 
 metal, and all burdens will be greatly in- 
 creased. 
 
 Within the last year or two the predictions 
 of M. Wolowski may seem to have been veri- 
 fied in some degree. The price of standard 
 silver, which was at one time 62 l/^d. per 
 ounce, has already fallen as low as 57^^. 
 while the demonetization of silver in Germany 
 is only partially accomplished. The whole 
 effect of the great discoveries of gold was 
 only to raise the price from about 59^^- to 
 a maximum of 62*^., while the double 
 standard system freely worked ; but since its 
 action has been, as we shall see, suspended, 
 the minting operations of a single govern- 
 ment can affect the price in a greater degree. 
 
 Agreeing that M. Wolowski is entirely cor- 
 rect in an abstract point of view, and is justi- 
 fied to some extent by the course of events, I 
 must adhere to the opinion which I expressed 
 
40 [88] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 at his request in 1868, and which was par- 1 
 tially published in his volume, " L'Or et ' 
 1' Argent " (p. 62). 
 
 The question seems to be entirely one of 
 degree, and in the absence of precise infor- 
 mation is quite indeterminate. If all the 
 nations of the globe were suddenly and simul- 
 taneously to demonetize silver, and require 
 gold money, a revolution in the vs>lue of gold 
 would be inevitable. But M. Wolowski 
 seems to forget that the nations of Europe 
 constitute only a small part of the population 
 of the world. The hundreds of millions who 
 inhabit India and China, and other parts of 
 the eastern and tropical regions, employ a 
 silver currency, and there is not the least fear 
 that they will make any sudden change in 
 theii habits. The English government has 
 repeatedly tried to introduce a gold currency 
 in to our Indian possessions, but has always 
 failed, and the gold coins now circulating 
 there are supposed not to exceed one-tenth 
 part of the metallic currency. Although the 
 pouring out of forty or fifty millions sterling 
 of silver from Germany may for some years 
 depress the price of the metal, it can be 
 gradually absorbed without difficulty by the 
 eastern nations, which have for two or three 
 thousand years received a continual stream 
 of the precious metals from Europe If other 
 nations should one after another demonetize 
 silver, yet the East may be found quite able 
 to absorb all that is thrust upon It, provided 
 that this be not done too rapidly. 
 
 As regards the gold required to replace sil- 
 ver, it does not seem to be evident that there 
 will be any scarcity. The adoption of the 
 gold standard does not necessarily involve the 
 cohiing of much gold, for some countries 
 may, like Norway, or Italy, or Scotland, have 
 a principal currency almost entirely composed 
 of paper. In other countries, such as France 
 and Germany, the check and clearing sys- 
 tem, which we shall shortly considt r, may 
 be gradually introduced, and may economize 
 to a great extent the use of the metallic cur- 
 rency. The current supply of gold from the 
 mines is still very large, and we cannot be 
 sure that it will not be increased by fresh 
 discoveries in New Guinea, South Africa, 
 North and South America, and elsewhere. 
 
 In short, then, the amount of supply and 
 amount of demand of both the precious met- 
 als depend upon a number of accidents, 
 changes, or legislative decisions, which can- 
 not be in any way predicted. The price of sil- 
 ver has fallen in consequence of the German 
 currency reforms, but it is by no means cer- 
 tain that it will fall further than it has already 
 done. That any great rise will really happen 
 in the purchasing power of gold is wholly a 
 matter of speculation. We cannot do more 
 than make random guesses on the subject, 
 and, as a mere guess, I should say that it is 
 not likely to rise. Gold has since 1851 been 
 falling in value, and an increased demand for 
 gold is not likely to do more than slacken, or 
 
 at the most arrest, the progress of depYecia- 
 tion. 
 
 DISADVANTAGES OF THE DOUBLE STAND- 
 ARD. 
 
 While the need for maintaining the system 
 of the double standard is a matter of specula- 
 tion, the inconveniences of the system are 
 beyond doubt. So long, indeed, as its oper- 
 ation resulted in substituting a beautiful 
 coinage of napoleons, half-napoleons, and 
 five-franc pieces in gold for the old heavy 
 silver ecus, there was no complaint, and the 
 French people admired the action of theh 
 compensatory system. But when, a year of 
 two ago, it became evident that the heavy 
 silver currency was coming back again, and 
 that the gold coin was likely to form the cir- 
 culating medium of other nations, the matte* 
 assumed a different aspect. The French, in 
 short, have been educated to the use of gold, 
 and they are not likely to wish for the return 
 of a currency fifteen and one-half times a9 
 heavy and cumbrous. Moreover, the change 
 involves a loss to the community in general, 
 who receive their debts in a metal of lessen- 
 ed value; and a part of the benefit is reaped 
 by bullion-brokers, money-changers, and 
 bankers, for whom a factitious trade in gold 
 and silver money is created by the law of tha 
 yth Germinal, an XI. The statesmen of the 
 countries still maintaining the double stand' 
 ard must have reflected that other nations 
 showed no tendency whatever to adopt the 
 same system. Thus, if France were to con- 
 tinue to act as a great compensatory currency 
 pendulum, she would bear the cost and in- 
 convenience, while other nations would reap 
 equally with herself the advantage of the in- 
 creased steadiness of value of the precious 
 metals. The founders of the Monetary Con- 
 vention and the advocates of International 
 Currency never intended to sacrifice them, 
 selves to this extent for the benefit of the 
 world. Accordingly they have in effect aban- 
 doned the double standard. 
 
 When the renewed tendency to coin silver 
 five-franc pieces in large quantities first be- 
 came apparent, the French government at 
 once suspended the coinage. Subsequently 
 an agreement has been made from year to 
 year between France, Switzerland, Belgium, 
 and Italy, that each country shall coin only a 
 fixed quantity of silver ecus proportional to 
 its population. An agreement to the same 
 effect had before existed as regards the silver 
 token currency of two-franc and smaller 
 pieces; but the coinage of ecus, which were 
 in theory standard coins and legal tender for 
 unlimited amounts, had been left unrestrict- 
 ed. The result of the limitation of coinage 
 now imposed is to destroy the action of the 
 double standard system. Silver being coined 
 only in limited quantities cannot replace and 
 drive out the gold, and the five-franc pieces, 
 although worth more than five single franc 
 pieces, are worth less than the fourth part of 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [S-..J 41 
 
 a napoleon or twenty-franc piece in gold. 
 Although, so far as 1 understand, they re- 
 main a legal tender for unlimited amounts, 
 they cannot be had in unlimited quantities, 
 and are thus practically reduced to the rank 
 of token coins. By the least possible legisla- 
 .lange, the French and other govern- 
 ments of the Monetary Convention have thus 
 practically abandoned the double standard, 
 and have adopted one which is hardly distin- 
 guishable from the composite legal tender of 
 England and Germany. Ever since 1810 
 copper or bronze money had only been legal 
 tender in France to the amount of four francs 
 ninety-nine centimes, and since the fineness 
 of the smaller silver currency was lowered, 
 this money also was restricted as a legal ten- 
 der to the amount of fifty francs for any one 
 payment between individuals, or to the 
 amount of one hundred francs for any pay- 
 ment to the public treasuries. The silver 
 ecu forms the single link by which France 
 holds to the double standard, and this link is 
 half severed. 
 
 It is remarkable that the changes thus ef- 
 fected in the money of Western Europe are 
 almost the same as those by which the 
 United States had previously abandoned the 
 double standard. Until the year 1853 the 
 silver dollar of the United States mint was a 
 standard coin of unrestricted legal tender, 
 concurrently with the gold coinage of eagles 
 and their fractions. The legal ratio of silver 
 to gold in weight indeed, was sixteen to one, 
 
 of exchange. This system is now adopted 
 throughout Great Britain and Ireland, the 
 Australian colonies, and New Zealand, the 
 African colonies, and many of the minor 
 possessions of the British empire. It has ex- 
 isted for some tyne in Portugal, Turkey, 
 Egypt, and in several of the South American 
 States, such as Chili and Brazil. It has been 
 established by recent legislation in the Ger- 
 man empire, and also in the Scandinavian 
 kingdoms of Denmark, Norway, and Sweden, 
 where a gold currency, and principal legal 
 tender, of twenty-kroner pieces, is now being 
 issued. Even Japan has imitated^ European 
 nations, and introduced a gold coinage of 
 twenty, ten, five, two, and one-yen pieces, 
 being only three per mille less than 
 
 the American gold dollar. The new fraction- 
 al money of Japan is to consist of fifty, twen- 
 ty, ten, and five-sen pieces in silver, the sen 
 corresponding to a cent, and forming a token 
 money at uie fineness of eight parts in ten. 
 
 The double standard is still theoretically 
 maintained in France, Italy, Belgium, Switz- 
 erland. Spain, Greece, and Roumania have 
 also in recent years reformed their curren- 
 cies in imitation of :he French system, and 
 must, I suppose, be considered as having a 
 double standard. In the New World, Peru, 
 Ecuador, and New Grenada, profess to have 
 the same system. 
 
 A few years ago a very considerable part 
 of Europe might have been classed as retain- 
 ing the ancient system of a single silver stand- 
 
 instead of fifteen and one-half to one as in i ard, with gold coins circulating, if at all, 
 
 France. More silver being thus required to 
 make a legal payment in America than else- 
 where, gold was naturally preferred for this 
 purpose, and the silver was sent abroad. To 
 
 at varying rates, as commercial money. The 
 whole of Germany, north and south, togeth- 
 er with Austria, the Scandinavian kingdoms, 
 and Russia, belonged to this group. Owing 
 
 remedy this state of things the government j to the changes already mentioned, only Aus- 
 
 of Washington, in 1853, reduced the half- 
 dollar and smaller silver pieces to the con- 
 dition of token coins, and though the single 
 silver dollar pieces remained of standard 
 
 tria and Russia now clearly represent the sil- 
 ver standard in Europe, and even Austria has 
 begun, since 1870, to coin gold pieces of 
 eight and four florins, the same in weight and 
 
 weight, they were coined in very small quan- ! fineness as the French gold twenty- and ten- 
 
 tities and were practically suppressed. The 
 predominance of an inconvertible paper cur- 
 rency suspended the question of metallic 
 money for a time. The Coinage Act of the 
 United States Congress came into operation 
 on ist April, 1873, and constituted the gold 
 
 franc pieces. By an imperial decree, dated 
 Vienna, I2th July, 1873, it is ordered that the 
 French, Belgian, Italian, and Swiss gold 
 pieces of twenty, ten, and five francs shall 
 be internationally accepted in the Austro- 
 Hungarian empire in the ratio of eight gold 
 
 one-dollar piece the sole unit of value, whilst j florins to twenty francs of gold coin of the 
 it restricted the legal tender of the new silver other nations. Nevertheless the silver stand- 
 trade dollar, and of the half-dollar and its j ard practically prevails over a large part of 
 subdivisions, to an amount not exceeding five I the world. The vast populations of India 
 dollars in any one payment. Thus the dou- 1 and China, Cochin China, the East Indian Is- 
 
 ble standard previously existing in theory was 
 finally abolished, and the United States was 
 
 lands, portions of Africa and the West In- 
 dies, Central America and Mexico, have a 
 
 added to the list of nations adopting the single currency mainly consisting of silver coins, 
 
 gold standard. 
 
 THE MONETARY SYSTEMS OF THE WORLD. 
 
 On reviewing the changes which have re- 
 cently taken place in the currencies of the 
 principal nations, we notice an unmistakable 
 
 tendency to the adoption of gold as the mea- | specie payments, they will certainly adopt 
 sure of value, and the sole principal medium gold, and Canada, whose currency can hardly 
 
 either rupees as in India, sycee bars as in 
 China, or silver dollars as in many other 
 places. 
 
 The gold standard has thus made great 
 progress, and it will probably continue to 
 progress. When the United States return to 
 
42 [90] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 Declassed at all at present, must do the same. 
 The Latin nations, having once abandoned 
 the double standard in practice, are not likely 
 to return to it, and Austria must follow. An 
 extensive monetary change is hardly to be 
 expected in Russia, although it is very re- 
 markable that in the province of Finland, a 
 part of the empire highly distinguished for 
 intelligence and good education, Russia has 
 positively admitted the franc system and its 
 decimal subdivisions, the Finnish marc or 
 quarter-rouble having the precise silver weight 
 and value of the franc, lira, and peseta. A great 
 step toward a future international coinage is 
 thus effected. Like changes are impossible 
 imong the poor, ignorant, conservative na- 
 tions of India, China, and the tropics gener- 
 ally. Hence, we arrive, as it seems to me, 
 at a broad, deep distinction. The highly 
 civilized and advancing nations of Western 
 Europe and North America, including also 
 the rising states of Australasia, and some of 
 the better second-rate states, such as Egypt, 
 Brazil, and Japan, will all have the gold 
 standard. The silver standard, on the other 
 hand, will probably long be maintained 
 throughout the Russian Empire, and most 
 parts of the vast continent of Asia ; also in 
 some parts of Africa, and possibly in Mex- 
 ico. Excluding, however, these minor and 
 doubtful cases, Asia and Russia seem likely 
 to uphold silver against the rest of the world 
 adopting gfo/d. In such a result there seems 
 to be nothing to regret. 
 
 CHAPTER XIII. 
 
 TECHNICAL MATTERS RELATING TO COIN- 
 AGE. 
 
 In this chapter I propose to consider sev- 
 eral minor points relating to the construction 
 and regulation of metallic currency. Al- 
 though the first principles of money are sim- 
 ple, it is surprising how many little details 
 have to be considered before we can attain 
 the-maximum of convenience. We have al- 
 ready discussed the selection of metals to be 
 employed, the modes in which they may be 
 combined into a system, the regulations as to 
 issue, etc. In this and the following chap- 
 ters we still have to consider the character of 
 the alloy which is best adapted for coining ; 
 the most convenient sizes for coins ; the 
 method of counting large numbers of coins ; 
 the cost at which the currency is maintained ; 
 the advantages and disadvantages of inter- 
 national currency of money ; the difficulty of 
 selecting a single standard unit : the best se- 
 ries of multiples and submultiples of the 
 unit. At the most, I cannot in this work at- 
 tempt to give more than a slight sketch of 
 the complicated questions of detail which 
 have to be considered before making any 
 change in the currency. 
 
 THE ALLOY IN COINS. 
 
 Although we commonly speak of money 
 as consisting of gold or silver, the coins ac- 
 tually used contain alloys either of silver or 
 copper, or of gold and copper, or of gold, 
 silver, and copper. Money struck in nearly 
 pure gold has indeed been issued both in 
 early and recent times, and among such gold 
 coins may be mentioned the ancient bezant, 
 the recent Austrian ducat, containing 986 
 parts of gold in looo, the six-ducat piece of 
 Naples, containing 996 parts, or the Tuscan, 
 sequin, which is said to be almost pure gold, 
 namely 999 parts in 1000. Pure gold and 
 silver are, however, soft metals, so that 
 even if they were found naturally in ihe pure 
 state, it would be desirable to add copper, 
 which communicates hardness and reduces 
 very much the abrasion of the coins. The 
 proportion of copper to be adopted has been 
 a matter of frequent discussion, and is de- 
 termined partly on historical, partly on sci- 
 entific grounds. 
 
 The exact alloy employed in England ap- 
 pears to have been decided by the system of 
 weights used. Silver was weighed by the 
 troy pound of twelve ounces, of which eleven 
 ounces two pennyweights were to be pure 
 silver, and eighteen pennyweights copper. 
 This proportion, which even in 1357, was 
 called the " old right standard of England," 
 has, in spite of temporary depreciations, 
 been maintained to the present day, and cor- 
 responds to the proportion of 925 parts in 
 1000. Gold having been weighed by the 
 ancient and curious system of carat weights, 
 said to be derived from the seeds of an 
 Abyssinian plant, the unit weight of gold 
 was twenty-four carats, of which twenty-two- 
 were to be of pure gold and two of alloy. 
 This ratio, which has existed for many cen- 
 turies, is decimally expressed by 916*66 parts 
 in 1000. 
 
 The degrees of fineness employed in one 
 country or another at different times are in- 
 finitely various. Silver has been coined of 
 only 200 or even 150 parts in 1000, and gold 
 of 750 or 700 parts; and coins exist of al- 
 most every fineness from these limits up to 
 nearly pure metal. The only standards of 
 fineness which it is needful to discuss in the 
 present day are those of 900 and 835 which 
 are proposed for general adoption in inter- 
 national money. A few years ago, indeed, 
 the Berlin government contemplated the 
 adoption of a standard German crown, con- 
 sisting of ten grams of pure gold and one 
 gram of alloy, which would give a fineness 
 of ten-elevenths or 909*09. This scheme 
 had no apparent advantages, and was fortu- 
 nately abandoned in favor of the present Ger- 
 man coinage, which is, both as regards gold 
 and silver, of the fineness of 900 parts in 
 1000. This simple decimal proportion was 
 adopted by the French in the time of the 
 Revolution ; it has been extended over the 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 countries belonging to the Monetary' Conven- 
 tion of 1865, and over Spain, Greece, and 
 other countries which have more or less imi- 
 tated the French system. It was long ago 
 adopted by the United States, and has been 
 recently introduced into the gold currency of 
 the Scandinavian kingdoms. The German 
 government, having now decided to accept 
 it, the simple decimal fineness is established 
 in all the more advanced countries, excepting 
 England and some oi her colonies, and a few 
 nations, such as Russia, Portugal, and Tur- 
 key, which have imitated the English cur- 
 rency and coined gold at 916 '66. 
 
 In a chemical and mechanical point of 
 view the exact degree of fineness is not a 
 matter of importance. The difference be- 
 tween eleven-twelfths and nine-tenths is only 
 one-sixtieth, and though the often-quoted 
 experiments of Hatchett were said to show 
 that our standard was slightly better than 
 that of the French, the difference is so slight 
 and questionable as to afford no ground for 
 preference. The late Master of the Mint, 
 Professor Graham, was quite willing to ac- 
 cept the standard of 900, both for gold and 
 silver, and there are really no reasons, except 
 prejudice and traditional usage, why we 
 should not do so as soon as we make any 
 change at all. Uniformity in the practice of 
 nations is desirable in this and many othei 
 points, and the French economists lay great 
 stress upon this question of fineness. It ap- 
 pears to me, however, that the exact degree 
 of fineness is altogether a matter of secondary 
 importance. If we were now to make oui" 
 sovereign nine-tenths fine, we should have to 
 raise its weight from 123*274 grains to 125'- 
 557 grains, and the mixture of old and new 
 coins would entirely frustrate the method of 
 counting gold money by the scales adopted 
 in all banks. We must certainly, therefore, 
 postpone a change of fineness in gold until 
 we make a more considerable monetary re- 
 form. I see no reason, on the other hand, 
 why the mint should not at once be author- 
 ized to coin silver of the decimal fineness of 
 nine-tenths. This would merely involve an 
 imperceptible increase in the thickness of the 
 coins, which would, in the case of the small- 
 er ones, be advantageous. 
 
 The fineness of 835 parts in 1000 was 
 adopted by France, as already stated (Chapter 
 VIII.), in order to reduce the two-franc and 
 smaller pieces to the rank of tokens, witnout 
 making any change in their weight and ap- 
 pearance. There is no special objection to 
 this alloy, which is perfectly coinable and of 
 good color ; but it is not likely that it will be 
 adopted by the English government instead 
 of the present fineness of 925 parts in 1000 
 of our silver coinage, and does not need fur- 
 ther discussion. It may be added that, in 
 former years, the alloy contained in gold 
 coins consisted in part of silver, which is al- 
 ways present in greater or less quantity in 
 native gold wherever it is found. The yel- 
 
 low appearance of guineas, and also of many 
 Australian sovereigns, was due to this silver 
 alloy ; but all such silvery gold coins are 
 rapidly withdrawn now by gold refiners, wha 
 can profitably separate tne silver. The very 
 remarkable invention of Mr. F. B. Miller, oi 
 the new Melbourne mint, enables this separa- 
 tion to be effected with great ease, and at 
 small cost, almost on the gold fields. It is 
 only requisite to melt the silvery gold, and 
 pass a current of chlorine gas into it, to ob- 
 tain the silver in the state of chloride, which 
 is readily separated from the gold and re- 
 duced to the metallic state. It is a further 
 advantage of this simple process that all gold 
 so treated is freed from accidental impurities, 
 and rendered perfectly malleable and fit for 
 coining. One of the great difficulties of mint 
 masters, the brittleness of gold, has thus 
 been entirely overcome. A full description 
 of the process, as employed at the English, 
 Australian, American, Norwegian, and other 
 mints will be found in the First Annual Re- 
 port of the Deputy Master of the English 
 Mint (p. 93), and in the Second Report (p. 
 33), or in the specification as printed by the 
 Patent Office. 
 
 THE SIZE OF COINS. 
 
 There appear to be pretty well defined 
 limits of size within which we should confine 
 ourselves in the striking of money. Coins 
 must not be so small that they can be easily 
 lost, or can with difficulty be picked up. 
 The rule seems to be that the coin should 
 cover the whole area of contact between the 
 points of the thumb and first finger ; and 
 though, of course, this area will differ with 
 men, women, and children, we should err 
 rather in excess than defect. On this ground 
 I should condemn the English threepenny 
 silver piece as too small, and, on the same 
 ground, the Swedish ten-ore piece, the Amer- 
 ican one dollar gold piece, the. former Papal 
 one-scudo piece, must be pronounced incon- 
 veniently small. The 'French five-franc gold 
 piece of the latter type, the English fourpen- 
 ny piece, the Canadian five-cent piece, or the 
 new silver piece of twenty pfennigs, now be- 
 ing introduced into the German empire, must 
 be considered the smallest coins to be toler- 
 ated. The thickness of the coins, however, 
 must be taken into account as well as the 
 diameter. The moneys issued from the 
 1 United States min-t are thicker than usual, 
 and though this tends to give some of the 
 i coins a clumsy appearance, yet they seem 
 ito me all the more convenient to use. 
 I The^ French have gone to the opposite ex- 
 j treme, the five-franc gold piece being very 
 thin, and having a diameter of nearly seven- 
 teen millimeters, while the American dollar, 
 which is more valuable, has a diameter of 
 little more than thirteen millimeters. The 
 maximum size of coins has probably been de- 
 -termined chiefly with regard to the practical 
 difficulty of coining. The largest coin which 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 has been very widely circulated is perhaps 
 the Maria Theresa dollar, measuring I '6 inch- 
 es, or forty-one millimeters, in diameter ; 
 the other most common species of dollar are 
 somewhat smaller, such as the Spanish dol- 
 lar of 1858, measuring thirty-seven milli- 
 meters ; the American dollar, 1846, the Span- 
 ish dollar, 1870, the Mexican dollar, 1872, 
 measuring from thirty-seven to thirty-eight 
 meters. The average diameter of the dollars 
 which I have examined is thirty-eight and one- 
 half millimeters, or almost exactly an inch 
 and a-half. In their larger gold coins the 
 Americans maintain unusual thickness. Thus 
 the double eagle, though in value equal to 
 more than four pounds, has a diameter of 
 only thirty-four millimeters, or one and one- 
 third inches. The beautiful four-ducat piece of 
 Austria has a larger diameter than the double 
 eagle, though it contains less than half the 
 quantity of fine gold. 
 
 THE WEAR OF COIN. 
 
 Some attention must be given to the abra- 
 sion which coins suffer in use. In the case 
 of gold coins the loss of metal thus occa- 
 sioned is of importance, and leads, as we 
 have seen (Chapter X.), to a gradual depre- 
 ciation of the currency. As coins pass fre- 
 quently from hand to hand, the amount of 
 metal abraded will be nearly the same as re- 
 gards each coin of the same type, and each 
 year of circulation. The loss will be propor- 
 tional to length of wear. Now the English 
 law allows a sovereign to be legal tender so 
 long as it weighs 122*5 grains, or more ; and 
 the difference between this and the full stand- 
 ard weight, or 0774 grain, represents the 
 margin allowed for abrasion. Now, from 
 -experiments described in a paper read to the 
 London Statistical Society in November, 
 1868, ("Journal of the Statistical Society," 
 Dec. 1868, vol. xxxi. p. 426), I estimated the 
 average wear of a sovereign for each year of 
 circulation at 0x543 grain (o '00276 gram). 
 It would follow that a sovereign cannot in 
 .general circulate more than about eighteen 
 years without becoming illegitimately light. 
 This length of time, then, would constitute 
 what may be called the legal life of a sover- 
 eign. It has since been shown by Dr. Farr, 
 that certain considerations overlooked in my 
 calculations would reduce this estimate of the 
 legal life to fifteen years. Mr. Seyd, on the 
 other hand, thinks that tvventy years might be 
 adopted as the legal age of the sovereign. 
 
 When we compare the currencies of differ- 
 ent countries, it becomes evident that the 
 rate of abrasion will depend partly upon ^:he 
 rapidity and constancy of circulation, partly 
 upon the size and character of the coins. 
 According to the inquiries of M. Feer-Her- 
 Zog in Switzerland, the average loss of the 
 twenty-franc piece amounts to two hundred 
 millionths of the full weight in each year, 
 while with the ten and five-franc gold pieces, 
 >the corresponding amounts are 430 and 620 
 
 ' millionths. My own weighings of English 
 I gold show that the sovereign loses about 350 
 ! millionths in each year of wear, and the half- 
 | sovereign no less than 1120 miiuonths, or 
 more than one-tenth per cent, per annum, 
 As the English coins are heavier than the 
 napoleon and half-napoleon, they should suf- 
 fer less loss in proportion. M. Feer-Herzog 
 attributes the excessive loss manifested by 
 English money to the softer character of the 
 English alloy of eleven-twelfths. This cause 
 may contribute something to the effect ob- 
 served, but it is probable that the greater 
 rapidity of the circulation in England is the 
 main ground on which so great a difference 
 can bi explained. 
 
 The rate of wear of a coin depends greatly, 
 it will be seen, upon its size. A large coin, 
 like an English crown, a French silver ecu. 
 or en American double eagle, suffers com- 
 paratively little wear, because the surface in- 
 creases much less rapidly in proportion than 
 the contents of the coin. The slight degree 
 of abrasion of the various silver do"ars may 
 be one cause of their popularity in the East. 
 Smaller silver money loses much more. Thus, 
 according to experiments made at the mint 
 in 1833, the loss per cent, per ajinum on half- 
 crowns is about 2s. 6t/., on shillings 4.9., and 
 on sixpences "js. bd., or decimally '125, '200, 
 and '375 per cent, respectively. This loss 
 becomes considerable in the course of years, 
 as may readily be seen in the case of worn 
 sixpences. The average loss of weight of 
 the old silver coins melted at the mint, seems 
 to be about i6^ per cent., but this loss is 
 more than covered by the profit upon the 
 issue of new silver coin. Experiments were 
 made at the mint in 1798 upon the weight of 
 English silver coins then in circulation. It 
 was found that the deficiency amounted in 
 crowns to 3*31 per cent., and in half-crowns, 
 shillings, and sixpences, respectively, to 9 '90, 
 24*60, and 38*28, per cent. In the recent 
 withdrawal of the old silver money of South 
 Germany, it was found to have lost on the 
 average about one-fifth part of its weight. 
 
 To reduce the loss arising from the wear of 
 gold coin, it might seem to be desirable to 
 issue large gold pieces. The .Americans 
 used to have a great circulation of eagles 
 and double eagles, the latter especially being- 
 very handsome medal-like pieces. In for- 
 mer days many large gold coins, such as the 
 carlino, dobraon, doubloon, quadruple pis- 
 tole, and the double ryder were current. A 
 serious objection, however, to such coins as 
 a double eagle, one-hundred franc-piece, or 
 five-pound piece, is that they can readily be 
 alsified. Small holes can be drilled through 
 them, and then concealed by hammering. 
 The application of the file, the sweating-bag, 
 or cylinder, or of chemical reagents, would 
 probably be safer with large than with small 
 soins. In some cases a double eagle has 
 been completely sawn into two flat discs, 
 which were afterward neatly soldered to- 
 
MONEY AND TIIK Ml-X'HAMSM OF i:\riI.\NtiK. 
 
 [93] 45 
 
 gether again with a plate of platinum be- 
 tween to give the requisite weight. It might 
 have been thought that the labor and skill 
 
 pidity for the payment of checks over the 
 counter, or to verify the number of sovereigns 
 paid in on deposit. For this purpose balan 
 
 required to effect such falsification would I ces are employed, with weights prepared so 
 have been better remunerated in some honest j as to be equivalent to 5, 10, 20, 30, 50, 100, 
 employment; but, according to the reports of i 200, and 300 sovereigns. Any sum which is 
 the Director of the United States Mint, there j a multiple of five sovereigns can thus be rap. 
 is evidence to show that the practice is prof- '.idly, and almost infallibly, weighed out in a 
 itable. It is proposed to prevent this falsifi- 'few seconds, provided that the coins are not 
 cation by reducing the thickness of the double I too old and worn. An error of a sovereign is 
 eagle, and also making it somewhat dish ' sometimes possible in a large sum, on account 
 shaped; but it would be better to abandon of deficiency of weight. 7n the case of half. 
 
 the issue of such large gold money, as has 
 long been done in England and France. Ex- 
 perience shows that sovereigns, napoleons, 
 half-eagles, and gold coins of the same size 
 are not fraudulently treated, nor are silver 
 coins ever debased in the way described. 
 
 In order to diminish the abrasion of coins 
 as far as possible, the design and legend 
 should be executed with the least possible re- 
 lief consistent with perfect definition, and 
 the head of the monarch, or other person- 
 age, should not protrude. In this and most 
 other respects the sharply defined flat design 
 upon the English florin is much superior to 
 the high rounded ornaments of the old crown, 
 half-crown, and shilling. The French mints 
 seem to be very successful in the execution 
 of dies, all the coins, gold, silver, and bronze, 
 struck by them having flat, yet admirably ex- 
 ecuted devices. Perhaps the most beautiful 
 recent coin which I have seen is the new 
 twenty-franc gold piece struck during 1874 
 
 sovereigns, this process is seldom to be de- 
 pended upon, owing to the very considerable 
 lightness of the coins. This uncertainty in 
 weighing is one of several serious inconveni- 
 ences which arise from the defective state of 
 our gold coinage. 
 
 Half-sovereigns, nowever, and in fact all 
 coins which are approximately equal to each 
 other on the average, can be rapidly counted 
 on the balance by the ingenious method 0f 
 duplication. Any convenient number, for 
 instance, fifty coins, being counted into one 
 scale, an equal number may be made to bal- 
 ance them, without counting, in the other 
 scale. The two equal lots being united, one 
 hundred more coins may be made to counter- 
 balance them, and by a second union we get 
 two hundred coins. We may repeat this du. 
 plication, if the balance will bear the weight, 
 and afterward, using one lot of coins as the 
 fixed weight, may go on counting out lot 
 after lot equal to it in weight and number. 
 
 METHODS OF COUNTING COINS. 
 
 for Hungary, the engraving of the die being | When neither balance nor counting board 
 excellent. The new Scandinavian gold pieces j is available, coins may be counted out into 
 of five specie dollars, or twenty kroner, are little piles of ten, fifteen, or twenty. Placing 
 also well executed. these piles alongside each other on a flat 
 
 board, it is easy to detect any inequality of 
 height by the unassisted eye, or by a straight 
 To count large quantities of coin by tale, ! edge laid along the top. A mistake in count- 
 piece after piece, is not only a tedious opera- j ing will thus be generally made manifest, 
 lion, but very uncertain as regards accuracy. ' 
 Several methods have been devised to facili- 
 tate the operation. In mints, the Bank of 
 
 England, and other establishments, where 
 
 COST OF THE METALLIC CURRENCY 
 
 Calculations of some interest may be < 
 as to the cost which falls upon the public in 
 
 vasT quantities of coin are treated, counting\ one way or another, owing to the use of me- 
 boardsvxt used. Similar boards have indeed, tallic money. Speaking first of the subordi- 
 been used from time immemorial in some | nate coins of silver and bronze, the govern- 
 parts of India by money-changers and trades- ment make a profit by their manufacture, 
 
 men. These consist of simple flat trays, with 
 several hundred depressions regularly arrang- 
 ed, aud of such a size that one coin will ex- 
 actly fit into each depression. Handfuls of 
 uniform coins are thrown on to the board, 
 and shaken over it, until most of the holes 
 are filled; the remaining holes are then filled 
 p one after another by hand- The number 
 contained upon the board is then known with 
 
 owing to the reduced weight at which they 
 are issued as tokens. Standard silver can 
 usually be bought by the mint for five shi- 
 lings per standard ounce, It is issued to the 
 public ~t the rate of five shillings, six pence 
 per ounce, so that the government receives a 
 seignorage of at least nine per cent, on the 
 nominal value of the coin issued. The aver- 
 age coinage of silver at the English mint dur- 
 
 infallible accuracy, and at the same time it is j ing the last ten years has been ^546, 5 So, upon 
 very easy to examine the coins, and detect j which the seignorage would be about jC^q.- 
 
 On the other hand, the 
 
 any counterfeit, defective, or foreign pieces. 
 By the use of such boards, bags of equal 
 numbers of any coinage are readily made up 
 with great certainty. 
 
 In English banks it is requisite to count 
 out considerable sums in gold coin with ra- 
 
 200 
 
 per 
 
 mint has to buy back worn silver coinage at 
 its nominal value, and in recoining such 
 money there is a loss, which, on the average 
 of the last ten years (1864-73) has been 
 ^"16,700, leaving a' net annual profit of 
 
46 [94] 
 
 MONEY AND THE MECHANISM OF EXCHANGE, 
 
 500, no account being taken of the cost of 
 the mint establishment. At present the 
 price of silver is not above four shillings 
 ten pence per ounce, so that the seignorage 
 is about twelve per cent., and the profit on 
 coining silver proportionately greater. 
 
 We may look at this matter in another 
 Way, by regarding the seignorage as so much 
 money funded to bear interest, to meet the 
 cost of withdrawing the coin, when worn 
 out, say thirty years subsequently. Now a 
 pound bearing three and one-fourth per cent, 
 compound interest, becomes in thirty years 
 2r6i pounds, so that the nine per cent, of 
 seignorage will have multiplied to 23*5 per 
 cent. But the actual deficiency of weight of 
 the silver coin withdrawn is, on the average, 
 only sixteen and one-half per cent., so that, 
 without taking into account the considerable 
 number of coins which must be lost, ex- 
 ported, melted, hoarded, sunk in the sea, or 
 otherwise finally withdrawn from circula- 
 tion, there is a profit on the issue of the silver 
 coin unaer the present regulations. 
 
 In the issue of bronze money there has 
 been, as before stated, a profit of ,270,000, 
 against which must be set off the possible, 
 but uncertain cost of recoining a light token 
 currency at some future time. 
 
 The cost of the currency is made up of 
 four principal items : the loss of interest 
 upon the capital invested ia the money, the 
 loss by the abrasion of gold coins, the ex- 
 penses of the mint, and lastly the casual loss 
 of coins. The last item is of wholly un- 
 known amount ; the other items may be esti- 
 mated as follows. We may, roughly speak- 
 ing, assume the gold curutocy of the king- 
 
 dom to consist of 84,000,000 of sovereigns 
 and 32,000,000 of half-sovereigns, the total 
 value being 100,000,000 sterling. The sov- 
 ereigns lose annually on the average o 043 
 grain each, giving an annual loss of about 
 30,000 ; the half-sovereigns lose 0*069 
 grain each, producing a loss of 18,000. 
 The loss of interest, however, is a far more 
 serious matter. The whole value of the 
 metals employed in the currency is, roughly 
 speaking, as follows : 
 
 Gold coin in circulation . . . 100,000,000 
 Bullion in the Bank of England 15,000.000 
 Silver coin . . . . ... . . 15,000,000 
 
 Bronze coin 1,125,000 
 
 Total 
 
 131,125,000 
 
 The interest on this sum at three and a-half 
 per cent, is no less than 4,262,000. 
 
 The cost of the mint establishment is 
 about 42,000 annually,*-, The following 
 statement, then, shows the aggregate cost 
 of the metalllic currency so far as it can be 
 estimated: 
 
 Loss of interest 4,262,000 
 
 Wear of coin 48,000 
 
 Mint establishment .... 42,000 
 
 4.352,000 
 
 From this amount ought to be subtracted the 
 profit which the mint makes out of the 
 seignorage upon silver and bronze coins ; 
 but we may set off this profit against the 
 wholly unknown amount which the public 
 loses by the accidental dropping of coins. 
 
THE HUMBOLDT LIBRARY OF SCIENCE. 
 
 CONTAINING 
 
 THE BEST SCIENTIFIC WORKS, AT POPULAR PRICES.-THE GREAT 
 
 CLASSICS OF MODERN THOUCHT.-STRONC MEAT FOR 
 
 THEM THAT ARE OF FULL ACE. 
 
 Paper Covers, Price 15 cents each. Double Numbers, 3O cents each. 
 
 b<'ks arc ctunplrte and unabridged, tantt'fullt/ yottvii tip, and are sold, on an average, at one-tenth 
 the prices charged by othtr publishers. 
 
 No. I. 
 LIGHT SCIKNTK FOR LEISURE HOURS. 
 
 A series of Familiar Essays on Scientific Subjects. 
 l?y RICHARD A. PROCTOR, F.R.A.S. 
 
 Y/if<? (in part). The Earth a Magnet The Se- 
 ;' the North Pole Our Chief Timepiece Losing 
 Time Tornadoes Influence of Marriage on the Death 
 Rate Squaring the Circle The Usefulness of Earth- 
 quakesThe Forcing Power of Rain, &c. 
 
 No. 2. 
 THE FORMS OF WATER IN CLOUDS AND 
 
 RIVERS, ICE AND GLACIERS. By JOHN 
 
 TYXDALL, LL.D., F.R.S. Illustrated. 
 
 Contents (in part). Oceanic Distillation Architect- 
 ure of Snow The Motion of Glaciers Icicles Erratic 
 Blocks Tropical Rains Atomic Poles Birth of a 
 Crevasse Moraine Ridges, &c. 
 
 No. 3. 
 
 YSICS AND POLITICS: An Application of the 
 Principles of Natural Selection and Heredity to Po- 
 litical Society. By WALTER BAQEHOT, author of 
 "The English Constitution," &c. 
 Contents. The Preliminary Age The Use of Con- 
 flictNation Making The Age of Discussion Verifi- 
 able Progress Politically Considered. 
 
 No. 4. 
 
 EVIDENCE AS TO MAN'S PLACE IN NA- 
 TURE By THOMAS HUXLEY, F.R.S. Illust'd. 
 
 Contents. The Natural History of the Manlike 
 Apes The Relations of Man to the Lower Animals- 
 Fossil Remains of Man. 
 
 No. 5. 
 EDUCATION: INTELLECTUAL, MORAL, 
 
 AND PHYSICAL By HERBERT SPENCER. 
 
 Contents. What Knowledge is of Most Worth? 
 Intellectual Education Moral Education Physical 
 Education. 
 
 No. 6. 
 TOWN GEOLOGY.- By Rev. CHARLES KlNGSLEY, 
 
 F.R.i- Canon of Chester. 
 
 Contet . The Soil of the Field The Pebbles in the 
 Street 1 3 Stones in the Wall The Coal in the Fire 
 The Lime m the Mortar The Slates on the Roof. 
 
 NO. r. 
 
 THE CONSERVATION OF ENERGY By 
 
 BALFOUR STEWART, F.R.S. Illustrated. 
 
 Contents. What is Energy? Mechanical Energy 
 and its Change into Heat The Forces and Energies of 
 Nature Transmutations of Energy The Dissipation 
 of Energy The Position of Life Correlation of Nerv- 
 ous and Mental Forces: 
 
 No. 8. 
 
 THE STUDY OF LANGUAGES BROUGHT 
 BACK TO ITS TRUE PRINCIPLES By 
 
 (\ MARCEL. 
 
 Contents. Subdivision and Order of Study The Art 
 of Reading The Art of Hearing The Art of Speaking 
 The Art of Writing Mental Culture Routine. 
 
 No. 9. 
 
 THE DATA OF ETHIC S.-By HERBERT SPENCER. 
 Contents. Conduct in General Evolution of Con- 
 duct Good and Bad Conduct Ways of Judging Con- 
 duet The Physical View The Biological View The 
 Psychological View The Sociological View Criticisms 
 and Explanations Relativity of Pains and Pleasures- 
 Egoism vs. Altruism Altruism vs. Egoism Trial and 
 Compromise Conciliation Absolute Ethics and Rel- 
 ative Ethics The Scope of Ethics. 
 
 No. 10. 
 THE THEORY OF SOUND IN ITS RELATION 
 
 TO MUSIC By Prof. PIETRO BLASERNA, of the 
 
 Royal University of Rome. Illustrated. 
 
 Contents (in part). Periodic Movements Vibra- 
 tion Transmission of Sound Characteristics of Sound, 
 and difference between musical sound and noise Dis- 
 cords Quality or timbre of musical sounds Italian 
 and German music, &c. 
 
 No*. 11 and 12. Double number, 8O cents. 
 THE NATURALIST ON THE RIVER AMA- 
 ZONS A Record of Adventures, Habits of An- 
 imals, Sketches of Brazilian and Indian Life, and 
 Aspects of Nature under the Equator, during eleven 
 years of travel. By HENRY WALTER BATES, F.R.S. 
 *% One of the most charming books of travel in our 
 language. 
 No. 18. 
 
 MIND AND BODY: THE THEORIES OF 
 THEIR RELATION By ALEXANDER BAIN, 
 LL.D., Professor of Logic in the University of Ab- 
 erdeen. 
 
 Contents. The Question Stated Connection of 
 Mind and Body The Connection Viewed as Corre- 
 spondence or Concomitant Variation General Laws of 
 Alliance of Mind and Body The Feelings and Will 
 The Intellect How are Mind and Body united ? His- 
 tory of the Theories of the Soul. 
 
 No. 14. 
 
 THE WONDERS OF THE HEAVENS.- By 
 
 CAMILLE FLAMMARION. Illustrated. 
 
 Contents (in part). The Heavens The Milky Way 
 
 Double, Multiple, and Colored Suns The Planets 
 
 The Earth Plurality of Inhabited Worlds Infinite 
 
 Space Constellations The Sun Comets The Moon. 
 
 No. 15. 
 
 LONGEVITY: THE MEANS OF PROLONG- 
 ING LIFE AFTER THE MIDDLE AGE. 
 By JOHN GARDNER. M.D. 
 
 Contents (in part). Is the Duration of Life in any 
 way within our power? Physiology of Advanced Age 
 Heredity Established Facts regarding Longevity, &c. 
 
 No. 16. 
 
 O5* THE ORIGIN OF SPECIES; or, The 
 Causes of the Phenomena of Organic Nature. 
 A Course of Six Lectures. By THOMAS HENRY 
 HUXLEY, F.R.S. 
 
 Contents. Present Condition of Organic Nature 
 Past Condition of Organic Nature Origination of Or- 
 ganic Beings Perpetuation of Living Beings Con- 
 ditions of Existence A Critical Examination of Mr. 
 Darwin's Great Work. 
 
THE HUMBOLDT LIBRARY OF SCIENCE. 
 
 No. 17. 
 PROGRESS: ITS LAW AND CAUSE. With 
 
 Other Disquisitions. By HERBERT SPENCER. 
 
 Contents. Progress The Physiology of Laughter- 
 Origin and Functions of Music The Development 
 Hypothesis The Social Organism The Use of Anthro- 
 pomorphism. 
 
 No. 18. 
 LESSONS IN ELECTRICITY. By JOHN TYN- 
 
 DALL, P.R.S. Illustrated. 
 
 Contents (in part). The Art of Experiment Elec- 
 tric Induction Lichtenburg's Figures Electrics and 
 Non-Electrics The Leyden Jar Physiological Effect 
 of the Electric Discharge Atmospheric Electricity, &c. 
 
 No. 19. 
 
 FA3IILIAR ESSAYS ON SCIENTIFIC SUB- 
 JECTS By RICHARD A. PROCTOR, F.R.A.S. 
 
 Contents Oxygen in the Sun Sun-spot, Storm, and 
 Famine New Ways of Measuring the Sun's Distance- 
 Drifting Light-waves The new Star which faded into 
 Star- mist Star-grouping. 
 
 No. 80. 
 THE ROMANCE OF ASTRONOMY. By R. 
 
 KALLEY MILLER, M.A. 
 
 Contents. The Planets Astrology The Moon 
 The Sun The Comets Laplace's Nebular Hypothesis 
 The Stars The Nebulae Appendix. 
 
 No. 81. 
 ON THE PHYSICAL, BASIS OF LIFE. With 
 
 Other Essays. By THOMAS H. HUXLEY, F.R.S. 
 
 Contents. The Physical Basis of Life Scientific 
 Aspects of Positivism A Piece of Chalk Geological 
 Contemporaneity A Liberal Education, and where to 
 find it. 
 
 No. 83. 
 SEEING AND THINKING By Prof. WILLIAM 
 
 KINGDON CLIFFORD, F.R.S. Illustrated. 
 
 Contents. The Eye and the Brain The Eye and 
 Seeing The Brain and Thinking On Boundaries in 
 General. 
 
 No. 88. 
 SCIENTIFIC SOPHISMS. A Review of Current 
 
 Theories concerning Atoms, Apes, and Men. By 
 
 SAMUEL WAINWRIGHT, D.D. 
 
 Contents. The Right of Search Evolution A Pu- 
 erile Hypothesis Scientific Levity A House of Cards 
 Sophisms Protoplasm The Three Beginnina-rThe 
 Three Barriers Atoms Apes Men Auimn Mundi. 
 
 No. 84. 
 POPULAR SCIENTIFIC LECTURES. By 
 
 Prof. H. HELMHOLTZ. Illustrated. 
 
 Contents. The Relation of Optics to Painting. 
 1. Form. 2. Shade. 3. Color. 4. Harmony of Color. 
 The Origin of the Planetary System Thought in Med- 
 icineAcademic Freedom in German Universities. 
 
 No. 85. 
 THE ORIGIN OF NATIONS Comprising two 
 
 divisions, viz., "Early Civilizations," and "Ethnic 
 
 Affinities." By GEORGE RAWLINSON, M.A., Camden 
 
 Professor of Ancient History in Oxford University, 
 
 England. 
 
 Contents. Early Civilizations Introduction An- 
 tiquity of Civilization in England Antiquity of Civili- 
 zation at Babylon Phoenician Civilization Civiliza- 
 tions of Phrygia, Lydia, the Troas, Assyria, Media, 
 India, &c. Civilization of the British Celts Civiliza- 
 tion of the Etruscans Results of the Inquiry. 
 
 Ethnic Affinities. Chief Japhetic Races Subdivis- 
 ions of the Japhetic Races Chief Hametic Races Sub- 
 divisions of Cush Subdivisions of Mizraim and Canaan 
 The Semitic Races Subdivisions of the Semitic 
 Races. 
 
 No. 86. 
 THE EVOLUTIONIST AT LARGE. By GRANT 
 
 ALLEN. 
 
 Contents (in part). Microscopic Brains Slugs and 
 Snails Butterfly Psychology In Summer Fields 
 Speckled Tront Origin of Walnuts Dogs and Masters. 
 
 No. 87. 
 
 THE HISTORY OF LANDHOLDING IN ENG- 
 LAND. By JOSEPH FISHER, F.R.H.S. 
 Contents (in part). The Aborigines The Romans 
 
 The Scandinavians The Normans The Plantagenets 
 
 The Tudors The Stuarts The House of Brunswick 
 
 Land and Labor, &c. 
 
 No. 88. 
 
 FASHION IN DEFORMITY, as Illustrated 
 in the Customs of Barharous and Civilized 
 
 Races. By WILLIAM HENRY FLOWER, F.R.S. 
 
 Illustrated. To which is added Manners and 
 
 Fashion. By HERBERT SPENCER. 
 
 Contents (in part}. Fashions in Coiffure Tattooing 
 Deforming the Teeth Deforming the Feet Erad- 
 icating the Eyebrows Ornaments for the Nose. Ears, 
 Lips Compressing the Skull Effects of Tight Lacing. 
 
 No. 89. 
 FACTS AND FICTIONS OF ZOOLOGY By 
 
 ANDREW WILSON, Ph.D. Illustrated. 
 
 Contents. Zoological Myths The Sea Serpents of 
 Science Some Aniinal Architects Parasites and 
 Their Development What I saw in an Ant's Nest. 
 
 NOB. SO and 81. 15 cents each number. 
 ON THE STUDY OF WORDS By RICHARD 
 
 CHENEVIX TRENCH, D.D. 
 
 Contents. Introduction The Poetry in Words 
 The Morality in Words The History in Words The 
 Rise of New Words The Distinction of Words The 
 Schoolmaster's Use of Words. 
 
 No. 88. 
 
 HEREDITARY TRAITS, AND OTHER ES- 
 SAYS. By RICHARD A. PROCTOR, F.R.A.S. 
 Contents. Hereditary Traits Artificial Somnam- 
 bulismBodily Illness as a Mental Stimulant Dual 
 Consciousness. 
 
 No. 88. 
 VIGNETTES FROM NATURE. By GRANT 
 
 ALLEN. 
 
 Contents (in part). Fallow Deer The Heron's 
 Haunt Wild Thyme The Fall of the Leaf The 
 Hedgehog's Hole Seaside Weeds The Donkey's An- 
 cestors. 
 
 No. 84. 
 
 THE PHILOSOPHY OF SYTLE. By HERBERT 
 SPENCER. To which is added THE MOTHER 
 TONGUE By ALEXANDER BAIN. LL.D. 
 Contents. The Principle of Economy Applied to 
 Words Effect of Figurative Language Explained Ar- 
 rangement of Minor Images MI Building up a Thought 
 : The Superiority of Poetry to Prose Explained 
 i Causes of Force in Language which depend upon 
 I Economy of the Mental Sensibilities The Mother 
 I Tongue. 
 
 No. 85. 
 
 ORIENTAL RELIGIONS Edited by Rev. JOHN 
 CAIRD, D.D., President of the University of Glasgow. 
 Contents. Brahmanism Buddhism Confucianism 
 Zoroaster and the Zend Avesta. 
 
 No. 86. 
 
 LECTURES ON EVOLUTION, with an Ap- 
 pendix on the Study of Biology. By THOMAS 
 H. HUXLEY. F.R.S. Illustrated. 
 Contents. The Three Hypotheses Respecting the 
 j History of Nature The Hypothesis of Evolution : the 
 ! Neutral and Favorable Evidence The Demonstrative 
 Evidence of Evolution The Study of Biology. 
 
 No. 87. 
 
 SIX LECTURES ON LIGHT. By JOHN TYN 
 DALL, F.R.S. Illustrated. 
 
 Contents. Introductory Origin of Physical The- 
 or i es Relation of Theories to Experience Chromatir 
 i Phenomena Produced by Crystals Range of Vision 
 j and Range of Radiation Spectrum Analysis. 
 
THE HTTMBOLDT ./,/// AM AT or SCIENCE. 
 
 \,,.. :; IIM.I :;-.. i.. ii nmnh.T. 
 
 i <X.K \\ SKI:K in -:s AT IKMII: AND 
 
 AHKOAD In two parts, each complete in itself. 
 AKCHIBAI.I' ; ; S. 
 
 -Part I. My First ( ;,<>!, ^ir.ul Excursion 
 
 "The Old Man of I], rou r a Stoiii-..t Kil- 
 
 lochan The Colliers of Carrick Ainoiii: the Volcanoes 
 
 itral Franct The Old Glaciers of Norway find 
 
 :ul Rock-Weathering Measured by Decay of 
 
 I'u: inieTit of Primeval Europe In Wy- 
 
 omingTin- I ii >ys.'i-s of tilt' Yellowstone 'Phi' Lava 
 
 irthwestern Europe The Scottish School 
 aphical Evolution The Geological 
 Influences which have affected the Course of British 
 History. 
 
 No. 10. 
 
 THi: SCIENTIFIC KMDKNCE OF ORGANIC 
 EVOLUTION By GEORGE J. ROMANES, F.R.S. 
 '.iits tin part). The Argument from Classifica- 
 tion from Morphology or Structure from Geology 
 from Geographical Distribution from Embryology 
 from Certain General Considerations. 
 
 N ... 41. 
 CTKRENT DISCUSSIONS IN SCIENCE. By 
 
 \V. M. WILLIAMS, F.C.S. 
 
 'ntx (in part). The Fuel of the Sun Origin of 
 Lunar Volcanoes Aerial Exploration of the Arctic 
 Regions The Air of Stove-heated Rooms, &c. 
 
 No. 42. 
 HISTORY OF THE SCIENCE OF POLITICS. 
 
 By FREDERICK POLLOCK. 
 
 Contents. The Place of Politics in Human Knowl- 
 edgeThe Classic Period: Pericles, Socrates, Plato, 
 Aristotle. &c. The Medieval Period: The Papacy and 
 the Empire Beginning of the Modern Period: Machi- 
 avelli, Hobbes The Modern Period: Locke, Hooker, 
 Blackstone. Hume, Montesquieu. Burke The Present 
 Century: Bentham, Austin, Kant, Savigny, Spencer. 
 
 No. 48. 
 DARWIN AND HUMBOLDT: THEIR LIVES 
 
 AND WORK. Contains a series of notices of 
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 EDWARD CLODD, F.R.A.S. 
 
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 HISTORICAL SKETCH OF THE DISTRIBU- 
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 WILLIAM LLOYD BIKKBECK, M.A. 
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THE HUMBOLDT LIBRARY OF SCIENCE. 
 
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 PSYCHOLOGY OF ATTENTION ByTH.RlBOT. 
 
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 UPON THE ORIGIN OF ALPINE AND ITAL- 
 IAN LAKES, and Upon Glacial Erosion. 
 
 By Sir A. C. RAMSAY, F^.S. JOHN BALL, F.L.S. 
 
 Sir RODERICK I. MURCHISON, F.R.S., D.C.L. Prof. 
 
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 EDWARD WHYMPER. J. W. SPENCER, of Georgia. 
 
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THE irrunoLnr L 
 
 or SCIENCE. 
 
 No*. 1 mid 127.- Two doiil.U- nuiiili.T8.K4> 
 1'IIYSIOGNOMY AM) E\ I'KKSSION. - By 
 
 PAOLO MANTKC.AZZA, Direct..!- of tin- National Mu- 
 seum of Anthropology, Florence i President of the 
 Italian Society of Anthro>.<> 
 
 ','nttt (in part). Historical Sketch of the >- 
 of Physiognomy The Human Pact The Hair and the 
 : Tlu> Alphabet of Kxpression The K.v, 
 
 . Pain. Love. Benevolence. Devotion, Yen- 
 
 n. Iv-ligious Feeling, Hatred, Cruelty, Passion. 
 
 Vanity. Haughtiness. Modesty. Humiliation. 
 
 Distrust. Timidity The Five Verui.-ts on the 
 
 i Face Criteria for .Judgini: the Moral Worth of 
 
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MONEY 
 
 AND 
 
 THE MECHANISM OF EXCHANGE. 
 
 BY W. STANLEY JEVONS, M.A., F.R.S., 
 
 PROFESSOR OF LOGIC AND POLITICAL ECONOMY IN THE OWENS COLLEGE, MANCHESTER. 
 
 IN TWO PARTS PART TWO. 
 
 CHAPTER XIV. 
 
 INTERNATIONAL MONEY. 
 
 In a book upon money written in the pres- 
 ent day, reference must certainly be made to 
 the scheme put forward, and even the steps 
 accomplished, toward a world- wide system 
 of International Money. Much time will no 
 doubt pass before such a notion is realized, 
 and the recent retrograde action of the Ger- 
 man government tends to retard so great an 
 achievement of advancing civilization. Yet 
 in all our changes and discussions of mon- 
 etary matters we ought to bear in mind the 
 eventual introduction of a uniform monetary 
 system. We may surely look for a gradual 
 amelioration in the relations of nations, 
 though wars cannot yet be avoided. We 
 have international copyright, extradition of 
 criminals, maritime codes of signals, postal 
 conventions, treaties for lessening the hor- 
 rors of war. Nations have long since ceased 
 to be isolated bodies, wishing evil to all their 
 neighbors ; and as free trade becomes every- 
 where predominant, and communication by 
 means of railway, steamboat, telegraph, 
 post, and newspaper, continually increases, 
 
 we may look for the time when all people 
 will seek to break down, as far as possible, 
 the barriers between one family and another 
 of the human race. 
 
 I will first of all state the advantages 
 which may be expected to accrue from an in- 
 ternational system of metallic money, and 
 will then describe in succession the corre- 
 sponding possible disadvantages, the progress 
 which has already been made toward the 
 simplification of monetary systems, the prin- 
 cipal schemes set forth, and their compara- 
 tive merits and demerits. 
 
 ADVANTAGES OF INTERNATIONL MONEY. 
 
 Short-sighted people have objected to all 
 schemes of international money, that the ob- 
 ject in view, if ever realized, would only save 
 trouble to the comparatively few people who 
 travel from nation to nation. This is the 
 least of all the benefits which the uniformity 
 of money would confer. I am disposed to 
 put in the first place the immense good which 
 would arise from facility in understanding all 
 statements of accounts, prices, and statistics, 
 when expressed in terms of a uniform meas- 
 ure of value. To the statistician it is al- 
 most intolerable to meet with tables of inform- 
 ation, variously expressed in francs, pounds. 
 
43 l<u\] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 dollars, thalers, meters, yards, ells, hundred- DISADVANTAGES OF INTERNATIONAL MONEY 
 weights, kilograms. The labor of statistical 
 
 inquiry is sufficiently great without the pre- 
 liminary labor of reducing great masses of 
 figures to a common unit. To the merchant, 
 or man of business, the variety of moneys 
 and measures is equally perplexing. In 
 
 There are, no doubt, cf-rtxin evils which 
 might possibly arise from the circulation of 
 money between nation and nation. One 
 government, for instance, might coin money 
 slightly inferior to the proper standard, and 
 
 many places the value of the currency is not ' sucn money, once introduced, would, in vir- 
 certainly known, and only those who happen ! tue of Gresham's law, be difficult to dislodge, 
 to have a special knowledge of a locality, and | The French mint has been in fault in this 
 the money and measures there employed, can \ re spect. Frenchgold coin, when carefully 
 venture to trade with it. The difference of assayed, is found to have a fineness of 898 or 
 monetary systems, again, renders calculations ^99 parts in looo, instead of goo parts, 
 relating to the foreign exchanges very com- | There is, indeed, a mint remedy of two 
 plex, so that profit falls to those who have ac- ! P arts so that the coin was legally issued ; yet 
 quired skill in calculations of the kind. | tn p mi nt authorities have taken advantage of 
 
 In the second place, the actual adjustment i ^is remedy in an improper way. On the 
 of the foreign exchanges would be rendered aver age, the coins issued by any mint ought 
 more prompt and perfect when the coin of to have almost the exact standard fineness, 
 one country could be transferred directly in- and the divergence allowed under the name 
 to the circulation of another country. One ' f re medv is only intended to cover accidental 
 Tesult of international currency would be ' faults of workmanship in particular coins, 
 that the precious metals would be held more and not in intentional average divergence 
 in the form of coin. At the present time, f rom the standard. 
 
 what is coined by one country has often to be | . It: is hardly to be supposed that a state is- 
 melted up and recoined by another, although \ suing money under international obligations 
 to some extent the principal kinds of coin, ' w uld wish to make a profit of one or two 
 English sovereigns, American eagles, French P art s in a thousand in this way. To secure 
 
 uniformity, it would be desirable for the as- 
 sayers and officers of different mints to meet 
 and agree upon a common standard process, 
 
 and uniform trial 
 not show that one 
 
 plates. Experience does 
 nation need distrust the 
 
 faithfulness of another in matters of coining. 
 We do not look upon Spain and Mexico as 
 models of financial integrity, yet so faithfully 
 
 napoleons, Mexican dollars, are held by 
 
 banks and bought and sold. With a single 
 
 system of coins, all stocks of gold and silver 
 
 would, as a general rule, be kept in the coined 
 
 tate, ready to go into circulation at any 
 
 moment. Some small savings would accrue 
 
 from the less amount of mintage required, 
 
 though this is a very secondary matter. One , , , , 
 
 of more importance is the lessened oppor- | used the mints of those countries to main- 
 
 tunities of profit which there would be for | tain the standard of weight and fineness in 
 
 the issue of silver dollars, that these coins 
 have for a hundred years past been received 
 by tale almost without question in most parts 
 of the world, and were at one time made 
 current in England. The possibility of in- 
 ternational currency is proved by the fact 
 that, without any international treaties, the 
 coins of several nations are recognized as a 
 legal tender elsewhere. This is the case with 
 English sovereigns, not only in the British 
 colonies and possessions, but also in Portugal, 
 
 bullion brokers and others, who trade upon 
 the^difficulties of conducting the bullion traf - 
 fie in the present state of things. Nor is the 
 saving of trouble and loss to travelers a mat- 
 ter of indifference. As international com- 
 munication increases, the number of trav- 
 elers will increase, and we ought to break 
 ^lown as far as possible, all factitious diffi- 
 culties. 
 
 One benefit of international money which 
 has been insufficiently noticed, is the improve- 
 ment which its adoption would probably ef- 
 fect in the currencies of minor and half-civil- 
 ized states. In many parts of the world 
 there is still a mixture of coins of various 
 and uncertain value ; and as long as the 
 principal nations coin money on totally dif- 
 ferent systems, the coins will circulate else- 
 where and make confusion. Already for a 
 long time the practically international currency 
 of the Mexican dollar has been a matter of 
 great convenience ; and where it is the unit 
 of value, merchants know on what basis they 
 
 Now, if all the lead- 
 to issue coins of one 
 
 are making contracts, 
 ing nations combined 
 uniform series of weight and sizes, these 
 would by degrees form the currencies of non- 
 coining states, and would effect a reform in 
 the most remote pa.rts of the world. 
 
 Egypt, Brazil, and probably elsewhere. The 
 napoleon has circulated freely in most parts 
 of Europe. The ducat of Holland has also 
 been a highly esteemed coin; and of the 
 wide circulation of several species of dollars 
 I have frequently spoken. 
 
 CONFLICT OF MONETARY SYSTEMS. 
 
 The chief difficulty in establishing an in- 
 ternational money, arises from the fact that 
 there are several great nations, the French, 
 English, Americans, and Germans, each with 
 its own system of money, which, from mo- 
 tives worthy and unworthy, it is unwilling to 
 give up. There is no overpowering advant- 
 age which marks out any one of these sys- 
 tems on its own merits as distinctly the best. 
 There is accordingly a balance of power 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 which produces a dead lock. Each of the 
 three first-named nations has much to say in 
 favor of its own system. The French sys- 
 tem, founded on the franc, is an eminently 
 perfect decimal coinage, and has the prestige 
 of being recognized as international money in 
 Belgium, Switzerland, and Italy, besides 
 being adopted with international currency as 
 regards gold in Austria, and without it as 
 regards silver in Spain, Greece, and some 
 minor states. 
 
 The English may very properly urge that, 
 though the subdivision of the pound is not 
 to be recommended, the pound sterling is it- 
 self an excellent unit of value. It is the 
 largest existing monetary unit, and on a gold 
 basis, so that it seems to be peculiarly suit- 
 able for the growing wealth of nations. 
 Though recognized only in a small corner of 
 Europe, namely, Portugal, we must remem- 
 ber that Europe is rapidly ceasing- to be the 
 exclusive centre of trade and civilization. 
 In the Australian, Polynesian, and African 
 colonies are growing states which will make 
 their might felt ere long, and they adhere to 
 the pound. The world-wide extension of 
 British commerce and British shipping makes 
 the sovereign known in all the ports of the 
 world. 
 
 On their part, however, the Americans 
 might have much to say in favor of the dollar. 
 It is decimally divided, and, as we shall see, 
 in the most convenient manner. It corre- 
 sponds to the coins which have for two or 
 three centuries been most widely circulated 
 and treated as units of account, so that there 
 is much weight of experience in its favor. 
 But, above all, it is firmly adopted as the 
 money of a nation, which, as far as human 
 wisdom can penetrate the future, is destined 
 to be the most numerous, rich, and powerful 
 in the world. That nation, which has arisen 
 from the best stock of England, has absorbed 
 much of the best blood of other European 
 nations, and has inherited the richest conti- 
 nent in the world, must have an importance 
 in coming times of which even Americans 
 are barely conscious. 
 
 NTERNATIONAL MONETARY NEGOTIATIONS. 
 
 It is quite impossible that I should in this 
 brief work give any sufficient sketch of the 
 long series of discussions, meetings, con- 
 gresses, associations, negotiations, and con- 
 ventions which resulted in the actual estab- 
 lishment of an international money among 
 the nations of western continental Europe. 
 I must refer the reader, desirous of more in- 
 formation, to the excellent pamphlet of the 
 eminent actuary, Mr. Frederick Hendriks, 
 which first made the subject well known in 
 England. It is called " Decimal Coinage; a 
 Plan for its immediate Extension in England 
 in connection with the International Coinage 
 of France and other Countries." and was pri- 
 vately printed in 1866. Mr. Seyd's " Treatise 
 on Bullion and the Foreign Exchanges" may 
 
 also be consulted, and \htjournal des Eeono- 
 mistes is full of information on the subject. 
 
 The International Association for obtain- 
 ing a Uniform Decimal System of Measures, 
 Weights, and Coins, was founded in Paris in 
 1855, and the English branch carried on act- 
 ive operations. In 1858 the United States 
 made proposals towards the assimilation of 
 currencies. In 1860 and 1863 important in- 
 ternational congresses were held at London 
 and Berlin, and, at the latter one especially, 
 important resolutions were adopted which we 
 shall have to consider. It was, however, the 
 close contiguity of the countries, Belgium, 
 France, Switzerland, and Italy, and the fact 
 that French gold, and even silver coin, could 
 not be prevented from passing the frontiers, 
 which forced the question forward, and led, 
 in December, 1865, to an actual Convention 
 for International Currency. 
 
 The report of the Congress of 1863 con- 
 cerning currency is a highly important docu- 
 ment. It points out the superior convenience 
 of a gold standard, with a subsidiary coinage 
 of silver and bronze ; advocates uniform 
 fineness of nine parts in ten for all standard 
 coins ; suggests a definition of weight of 
 coins, on the metric system ; and, finally, 
 propounds a scheme by which the existing 
 monetary units could be brought into simple 
 relations with each other. 
 
 In 1870, a short time previous to the de- 
 claration of war with Germany, France sum- 
 moned a fresh Imperial Commission, presided 
 over by the Minister of Commerce and the 
 Minister President of the Council of State 
 (M. de Parieu), to take evidence from all 
 sides on the various questions connected 
 with the standard and its bearing upon inter- 
 national coinage. No less than thirty-seven 
 witnesses were examined, and the results of 
 the inquiry, printed by the French govern- 
 ment in two very large volumes in 1872, 
 show that the majority of the witnesses and 
 of the Commissioners were decidedly in favor 
 of a single gold standard. 
 
 Owing to a purely accidental coincidence, 
 the principal monetary units already closely 
 approximate to simple multiples of t!he 
 franc. The following table shows the pres- 
 ent relative values of these units and the 
 multiples to which it is proposed to make 
 them exactly conform : 
 
 Present value Proposed 
 
 in francs ralue in frs. 
 
 Franc i i 
 
 Florin (Austrian, silver) 2*47 2j 
 
 Dollar (American, gold) 5*18 5 
 
 Pound sterling .. 25*22 25 
 
 It is only requisite to raise the florin i'2i 
 per cent., and to lower the dollar and pound 
 sterling respectively 3*5 and o'88 per cent., to 
 establish very simple ratios between them. 
 Thus, without any appreciable change of 
 monetary systems, it would be possible to re- 
 duce statements from one mode of expression 
 
60 '. 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 into another ; moreover, the coins might | lation, of the same weigh;, fineness, and 
 themselves have international currency, the value as at present, but would be translated, 
 />und sterling serving as a twenty-five franc 
 piece in France, and as a five-dollar piece in 
 America, the American gold dollar recipro- 
 cally circulating as an ecu in France, and a 
 
 four-shilling piece in England. 
 
 The congress abstained from recommend- 
 ing any one unit for universal adoption, but 
 urged that every nation, not possessing one 
 of the four units named, should select that 
 which should please them best. Had this 
 scheme been accepted by all nations in an 
 intelligent and liberal spirit, we should ere 
 now have probably seen our way clearly to 
 the selection of the best unit. Since 1865, 
 unfortunately, both the German empire and 
 the Scandinavian kingdoms have made alter 
 ations not in accordance with these princi 
 
 as coin of account, into fifty mils instead of 
 forty-eight farthings, and the sixpence into 
 twenty-five mils instead of twenty-four far- 
 things. This subdivision is not more com- 
 plex than the one successfully, and in thfr 
 almost parallel forms of fifty and twenty 
 pfennig?, centimes, lire, ore, etc., pieces, car- 
 ried out in the new coinages of Germany, 
 Scandinavia, or of the monetary allies of 
 France. As to the mil being too small for a. 
 submultiple, it seems to be overlooked that it 
 is two and one-half times as large as the 
 initial submultiple of the French system, and 
 two and one-twenty-fifth times as large as 
 that of the new German system. 
 
 The second scheme was suggested by the 
 late Professor Graham, and by Mr. Rivers 
 
 pies. A great assimilation of moneys has I Wilson, in their Report upon the Proceed- 
 
 taken place, but it is in the direction of 
 groups of national, rather than of interna- 
 tional currencies, although as has been dem- 
 onstrated by Mr. Hendriksiu several articles 
 in the Economist, the new coins have many 
 fresh and important points of contact and of 
 agreement with the metrical and decimal 
 systems, so that some real progress has ac- 
 tually been accomplished. 
 
 DECIMALIZATION OF ENGLISH MONEY. 
 
 Since Lord Wrottesleyin 1824 proposed in 
 parliament to adopt a decimal subdivision of 
 Jhe pound sterling, an immense amount of 
 discussion has taken place upon various 
 schemes for a new arrangement of our 
 money. The advantages of several plans 
 are so nearly balanced, and the difficulty of 
 carrying any one into effect is so great, that 
 no practical result has yet been achieved by 
 half a century of debate. The two princi- 
 pal schemes, which perhaps need alone be 
 noticed now, are the Pound and Mil scheme , 
 and the Penny and Ten-franc scheme. 
 
 The former of these schemes reposes upon 
 the fact that the farthing is nearly the thou- 
 sandth part of the pound. Since 960 farth- 
 ings make a pound, it would only be neces- 
 sary to alter the farthing four per cent, to 
 obtain the lowest decimal multiple, to be 
 called the mil. The penny would be five 
 toils, like the French halfpenny or five cen- 
 times ; as some have supposed, a new coin, 
 in value 2 '4 pence, would have to be intro- 
 duced as the hundredth part of the pound; 
 but this is unnecessary, and the florin would 
 be one hundred mils, and the half-sovereign 
 five hundred mils. The great advantage of 
 this method is, that it retains the pound as 
 the principal unit, together with several 
 other familiar coins. Against it has been 
 urged (i) the supposed fact that it excludes 
 the most familiar of all coins, the shilling 
 and sixpence, and (2) that the mil is some- 
 what too small a submultiple to begin with. 
 This is, however, not necessarily the case. 
 The shilling might remain, as coin of circu- 
 
 ings of the International Monetary Confer- 
 ence of 1867. It is founded upon the fact 
 that the ten-franc piece is within three-fourths 
 of a penny of eight shillings, and only differs 
 four per cent, from one hundred pence. Thus 
 it would only be requisite to introduce a gold 
 piece of ten francs, temporarily serving as a 
 token for eight shillings, to obtain a link with 
 the French system. The subsequent reduc- 
 tion of the penny by four per cent., and the 
 replacement of the shilling by a franc or ten- 
 penny-piece, would give us a truly decimal 
 system. A great advantage of this proposal 
 is, that it retains, almost unaltered, so famil- 
 iar a coin as the penny, and makes it, as it is 
 for the most part at present, the lowest money 
 of account. It is, moreover, in close accord- 
 ance with the French monetary system. The 
 main difficulty is that it involves the aban- 
 donment of the pound, which becomes two 
 and a-half of the new unit; and that, of all 
 our present coins, only the florin, penny, and 
 halfpenny, would fall in conveniently. To 
 convert sums of money from pounds sterling 
 into the new currency, it would be requisite 
 to multiply by the factor two and a-half, 
 which would be regarded by most people as 
 a very troublesome process. 
 
 When the decimalization of English money 
 was first proposed, the notion of international 
 money had never been seriously entertained, 
 and hardly indeed conceived. So much pro- 
 gress has now been made, that it is impossi- 
 ble to consider the one reform without refer- 
 ence to the other. The difficulty of making 
 any change whatever is so great, that it would 
 not be worth while to achieve a partial re- 
 form. 
 
 THE FUTURE AMERICAN DOLLAR. 
 
 The most easy, and important step which 
 can now be taken toward an international 
 money, consists in the assimilation of the 
 American dollar to the five-franc piece. A 
 great opportunity arises from the fact that 
 the currency of the United States is now a 
 variable paper currency. Considering the 
 
MONEY AND THE MECHANISM OF EXCHAN<;i . 
 
 |99J 51 
 
 enormous fluctuations of vflue which have 
 been experienced in the last ten years, it 
 would be altogether needless scrupulosity to 
 bring it back to the old standard, to the last 
 degree of exactness. Every change of value 
 of the currency, whether it be a fall or a rise, 
 s so far injurious. Now the American dollar 
 consists of 25-8 grains of gold, valued in 
 English money at 49-316 pence. When gold 
 is at one hundred and eleven the paper dollar 
 will be at a discount of ten per cent., and will 
 therefore be worth 44*384 pence, whereas the 
 French dollar, or five-franc gold piece, weighs 
 24*89 grains, and is worth 47*58 pence. It 
 would be obviously desirable, therefore, to 
 make the new metallic dollar exactly of the 
 same weight as the French one, and to com- 
 mence specie payments when the greenback 
 currency shall have risen to par with this coin. 
 As regards all contracts made in paper, all 
 current prices and charges, this change would 
 involve no breach of faith whatever; it would 
 in fact imply less change and breach of con- 
 tracts than if the paper currency were reduced 
 sufficiently to come to par with the old 
 dollar. 
 
 The reduction of weight of the dollar 
 would indeed lead to a repudiation of all gold 
 contracts, including all bonds of the United 
 States, railway companies, and other bodies 
 payable in coin, unless provision were made 
 to alter the terms of such contracts. This 
 difficulty, however, could be overcome by 
 simply enacting that each 103 > of the new 
 dollars shall be received and paid as equiv- 
 alent to 100 of the old ones. 
 
 There is little doubt that the adhesion of 
 the American Government to the proposals 
 of the Congress of 1863, would give the hold- 
 ing turn to the metric system of weights, 
 measures, and moneys. It is quite likely that 
 it might render the dollar the future univer- 
 sal unit. The fact that the dollar is already 
 the monetary unit of many parts of the world 
 gives it large odds. In becoming assim- 
 ilated to the French ecu, American gold 
 would be capable of circulation in Europe, 
 or wherever the French napoleon has hither- 
 to been accepted. It may seem unpatriotic 
 in an Englishman to advocate a change 
 which may lead to the defeat of the pound 
 sterling, but I look upon any one scheme of 
 unification as better than none. Whatever 
 may be the ultimate results, I desire to see 
 assimilation between the French and Amer- 
 ican systems adopted as soon as possible. 
 For reasons subsequently stated, I consider 
 the dollar so good a unit that it would be 
 mere national prejudice to oppose it, were 
 4here a fair chance of its general adoption. 
 Even if 5it were not generally adopted, it 
 would be* a great step in advance if Great 
 Britain, America, and France, were to agree 
 to coin gold money identical in weight and 
 fineness, which might circulate indifferently 
 as sovereigns, five-dollar pieces, and twenty- 
 five franc pieces. 
 
 GERMAN MONETARY REFORM. 
 
 The new monetary system of the German 
 Empire, is introducing a good money where 
 all was before confusion. In a few years it 
 will hardly be comprehensible to Germans 
 that they had so long endured a state of the 
 currency in which two, or even three or four, 
 nconsistent series of coins were mingle^ 
 without any method. In many respects, tht 
 new system is all that could be desired. In 
 place of the antiquated silver standard, gold 
 is selected as the measure of value, the sola 
 principal money, and unlimited legal tender. 
 The unit of account is the mark, consisting 
 of 6*1465 grains of gold of the fineness ol 
 9 parts in 10. Its value is, therefore, about 
 
 ^d. The principal coin will be the 
 twenty-mark piece, weighing 122*92 grains, 
 or 7*964954 grams, and containing 7*168459 
 grams of pure gold. There is also a ten- 
 mark piece of exactly half the weight. 
 
 The subordinate coins of silver and nickel- 
 copper, are issued on the footing of the com- 
 posite tender, or English system, being 
 tokens. The seignorage to "be levied on the 
 German silver coins, will be 11*111 percent., 
 exceeding the amounts subtracted from the 
 English and French silver money, whictt 
 are about 9 and 7*784 per cent, respectively 
 
 It cannot be too much regretted by all friends 
 of progress, that, in deciding upon the weigh* 
 of the new mark piece, the German Govern- 
 ment should have studiously avoided assioar 
 ilation to the French system. The sovereign 
 contains 7*3224 grams of pure gold, the 
 twenty-five-franc piece when coined, will 
 contain 7*2581, and the twenty-mark piece 
 has been made to contain 7*1685. The only 
 ground on which this precise weight could 
 have been justified, is that three marks are 
 approximately equal to one thaler. But so 
 various was the coinage of the German 
 States, that the field was open to the adop- 
 tion of any system; and it is impossible to 
 suppose that in so great a reform a difference 
 of i /^per cent, would have been an insuper- 
 able obstacle to the adoption of international 
 coinage. 
 
 SYSTEMS OF FRACTIONAL MONEY. 
 
 A unit of value having been chosen, there 
 are three competing methods according to 
 which it might be subdivided, the binary, 
 duodecimal, and decimal The first system is 
 carried out most perfectly in our avoirdupois 
 weights, in which sixteen ounces make a 
 pound ; but it is also freely employed in our 
 monetary system, the sovereign being divided 
 into half-sovereigns, crowns, and half -crowns, 
 the shilling into sixpences and three-penny 
 pieces ; and the penny into halfpence and 
 farthings. At the same time, the duodeci- 
 mal method is represented in our money by 
 the division of the shilling into twelve pence, 
 of which the third part is still in circulation 
 as the groat, or fourpenny piece, now being 
 withdrawn. 
 
32 [100] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 Each system of subdivision has its own 
 advantages, and there must always exist a 
 kind of natural competition between them. 
 They have thus competed from the earliest 
 times. In ancient Italy the duodecimal sys- 
 tem predominated to the south of the Apen- 
 nines, while the decimal division was in use 
 to the northward. In Sicily the two methods 
 were confused together. China has had a 
 purely decimal system from an unknown 
 epoch in antiquity. In England duodecimal 
 and binary divisions have existed from very 
 early times, it will be readily allowed that 
 the binary system is most simple and natural, 
 involving as it does the least possible factor 
 above unity. The duodecimal system also 
 has marked advantages, because it allows of 
 division into several aliquot parts, involving 
 the factor 2 twice over, and the next higher 
 factor 3 once. Thus the shilling is divisible 
 exactly into two sixpences, three fourpences, 
 four threepences, and six twopences. 
 
 The decimal system is far less simple, and 
 in some ways less convenient. Ten admits 
 of only two factors superior to unity, namely, 
 2 and 5, and 5 is a more complex prime fac- 
 tor than appears in either of the previous 
 methods. But the system has the supreme 
 advantage of exactly falling in with our deci- 
 mal system of numeration and calculation. 
 Although probably not the best method 
 which might have been selected, had selection 
 been open to us, decimal numeration is firm- 
 ly fixed among the institutions of the human 
 race, as an hereditary habit, derived from the 
 early practice of counting on the fingers. 
 We have no choice but to accept the inevita- 
 ble, and as all our arithmetical processes are 
 conducted on the decimal method- there is an 
 overwhelming advantage, as education and 
 the use of writing advance, in making all our 
 weights, measures, and coins comformable to 
 the same system. 
 
 A perfectly and purely decimal system, in- 
 deed, would admit only the decimal multiples 
 and submultiples, thus: 1000, 100, 10, I, 
 O'l, O'oi, o'ooi. But it is so troublesome 
 to have to count out as many as ten coins, 
 before coming to the next higher unit, that 
 the rigor of the decimal divisions has always 
 been relaxed. In the French system, the 
 half and the double of each multiple are al- 
 lowed to be represented by intermediate 
 coins, the series being I, 2, 5, 10, 20, 50, 
 100, 200. 500, etc. The American coinage 
 is less simple and symmetrical, since it ad- 
 mits the half and quarter eagle, half and 
 quarter dollar, the ten and five- cent pieces, 
 and also a three-cent piece. I am inclined 
 to prefer the French method, and to think 
 that the American mint has issued too many 
 denominations of coins. 
 
 FINAL SELECTION OF THE UNIT OF INTER- 
 NATIONAL MONEY. 
 
 I wilt conclude this chapter by some re- 
 marks on the reasons which should guide us 
 
 in selecting the monetary unit to be finally 
 established as the basis of a future universal 
 money. 
 
 I attribute very little weight to arguments 
 concerning the absolute amount of the rival 
 units. It is said that as the wealth of nations 
 increases, and the value of gold at the same 
 time sinks, we need a large unit. The. pound 
 is recommended on this ground as clearly 
 superior to the franc. If we count in francs 
 our figures will be twenty-five times as large 
 as in pounds sterling. It seems to be for- 
 gotten that the same unit can never suit the 
 extremely different sums which we have to 
 express, so that we must use multiples or 
 submultiples of the actual unit. Just as we 
 use inches, feet, yards, furlongs, miles, or 
 diameters of the earth's orbit, according to 
 the magnitudes to be measured, so we vary 
 the unit with money. If we are discussing 
 a workman's weekly wages, we count in shil- 
 lings ; if we speak of a clerk's yearly salary, 
 we speak of pounds ; if the fortune of a mer- 
 chant or banker is in question, we take notice- 
 only of thousands of pounds ; in matters re- 
 lating to the revenue of the kingdom or the 
 national debt, we give our exclusive attention 
 to millions of pounds. The Portuguese unit 
 of account, called the rei, is worth only about 
 the nineteenth part of an English penny, and 
 is probably the smallest unit in the world. 
 Practically, however, the milreis, or thousand 
 reis, worth 53 i-3</. , becomes the unit. In 
 the same way Indian merchants speak of lacs 
 and crores of rupees. The French estimate 
 their national debt in milliards of francs. 
 No doubt it is puzzling to Englishmen to in- 
 terpret exactly the meaning of a milliard of 
 francs, but, tC these accustomed to count in 
 francs it is no more difficult than a million of 
 pounds. Exactly the same considerations 
 apply to units of weight; thus, though the 
 French use so small an ultimate unit as one 
 gram, or 15 '43 grains, yet according to the 
 magnitudes of the objects to be weighed, 
 they use smaller or larger units, centigrams 
 or milligrams on the one side, or decagrams 
 and kilograms on the other. The absolute 
 amount then of the ultimate unit seems to me 
 to be entirely a matter of indifference in this 
 point of view. 
 
 As regards the subdivision of the unit 
 there are considerations of more importance. 
 The subdivision ought of course to be deci- 
 mal, and it ought to be so contrived that the 
 lowest submultiple shall correspond to the 
 smallest sum which is thought worthy of be- 
 ing recorded in mercantile transactions. 
 Now the franc is divided into 100 centimes, 
 so that the centime has a value of less than 
 the tenth of a penny. Though bronze pieces 
 j of one and two centimes were coined to the 
 i amount of about five per cent, of the whole 
 I bronze currency, it is found that they hardly 
 I circulate. Even if they were used in the 
 smallest retail transactions at bakers' shops, 
 they would not be entered in account books. 
 
MONF.Y AND TIIF. Ml-.i IIAMSM ul EXCHANGE. 
 
 [101J 
 
 Thus the lowest entry which a French ac- 
 countant ma&es is five centimes, and the 
 next lowest ten centimes, corresponding to 
 our penny. A needless complexity i . thus 
 introduced into small accounts. It is indeed 
 so inconvenient to have to call the smallest 
 coin in general use cinq centimes that it is 
 still common to speak of it as a sou, in spite 
 of the ninety years during which the decimal 
 system has existed in France. The Portu- 
 guese rci is so small a unit that it is not rep- j 
 resented by any coin at all. It nevertheless | 
 has a place in Portuguese meicantile ac- j 
 counts, and thus needlessly adds a figure to 
 all pecuniary statements. 
 
 In England the smallest coin in actual use 
 is the farthing, but in accounts little notice 
 is taken of farthings or halfpennies, so that 
 the penny is the lowest money of account. 
 The post-office, in the Regulations of the sav- 
 ings bank business, refuses to recognize any 
 coin less than the penny. But the penny is 
 inconveniently related to the pound, the 
 hundredth part of which is 2 '4^., and the 
 thousandth part about a farthing. Thus the 
 decimal system applied to our pound would 
 oblige us to record as the lowest money of 
 account an inconveniently small coin, namely, 
 the mil. In this respect, indeed, the pound 
 and mill scheme is superior to the franc and 
 centime system. Thus I2s. bd. may be ex- 
 pressed as 625 mils ; but in French money 
 (at twenty- five francs to the pound) it would 
 become 15 '625. Taking the ten-franc piece 
 as the principal unit, it would become I "56 
 units, or 156 metrical pennies. In many 
 cases it would require less figures to express 
 a sum in pennies than in mils or centimes. 
 
 The American system is unexceptionable 
 in this respect. The dollar is divided into one 
 hundred cents, each of which has the value 
 of about one halfpenny. Although half cents 
 have been coined, and may be used in some 
 trifling purchases, they need never be entered 
 in ordinary accounts. The cent thus seems 
 to me to correspond to the smallest sum 
 which need be treated in accounts, so that 
 money statements are reduced to the greatest 
 possible simplicity. The question may well 
 be asked whether the lowest coin actually re- 
 corded is not truly the unit, of which all 
 other coins are multiples. Perhaps the best 
 answer would be to say that the unit is indif- 
 ferently the cent, or the dollar, or the eagle. 
 In English money it matters not whether 
 we regard the pound, or its twentieth part, 
 or its two hundred and fortieth part, as the 
 unit. The absolute amount of the unit, I 
 repeat, is totally a matter of indifference, and 
 the only point we have to consider is whether 
 it, or any decimal part of it, corresponds 
 to the smallest sum of which we need take 
 account. In this respect the dollar is the 
 best existing unit; but it might admit of dis- 
 cussion whether the double dollar, or ten- 
 franc piece of gold, equal to eight shillings, 
 or one hundred pence, would not be better. 
 
 If the wealth of nations continues to grow,, 
 and the value of gold to fall, even the cent 
 will be loo small a coin to appear convenient- 
 ly in accounts, and the penny will be a bet- 
 ter lowest unit. In this case the hundred 
 pennies, or the ten-franc piece, would be- 
 come the best unit. The choice thus seems- 
 to me to lie between the five-franc and the 
 ten-franc piece in gold as the ultimate unit of 
 international money. In favor of the ten- 
 franc piece it may be added, that it would 
 make a convenient gold coin of the smallest 
 size which it would be well to issue. The 
 goKl dollar and five-franc piece are too* 
 small, and suffer great abrasion. 
 
 CHAPTER XV. 
 
 THE MECHANISM OF EXCHANGE. 
 
 Having now sufficiently discussed the sub- 
 ject of metallic money, we pass on to con- 
 sider the devices which naturally develop 
 themselves in a highly organized commercial 
 nation, for the purpose of economizing the 
 precious metals, or even avoiding the use of 
 coins altogether. No sooner have a people 
 fully experienced the usefulness of a good 
 system of money, than they begin to discover 
 that they can dispense with it as a medium 
 of exchange, and return to a method of traffic 
 closely resembling barter. With barter they 
 begin and with barter they end; but the sec- 
 ond form of barter, as we shall see, is very 
 different from the fi:st. Purchases and sales 
 continue to be made in terms of gold and sil- 
 ver coin, but equivalent quantities of goods 
 thus estimated are made to pay for each 
 other. If ownership in gold or silver inter- 
 venes at all, it is in the shape of -warrants or * 
 representative documents, with which gold can 
 be procured, if desired, but which are seldom 
 used to procure it. 
 
 At the outset we found that money per- 
 formed at least two, and probably four dis- 
 tinct functions (Chapter III.); and, in a sim- 
 ple state of industry, it is convenient that the 
 same metallic substance should fulfill all 
 these functions concurrently. But it does 
 not follow that this union of functions is the 
 best possible arrangement under all condi- 
 tions. We shall find that gold or silver al- 
 ways continues to be the common denomi- 
 nator of value, but that these metals cease to 
 a great extent to be the actual medium of 
 exchange which is passed about between 
 buyer and seller. In a later part of the book 
 (Chapter XXV.) I shall further show that 
 money may with great advantage be replaced 
 in its function as a standard of value for long 
 periods of time by a Tabular Standard. 
 
 PROGRESSIVE DEVELOPMENT OF THE 
 METHODS OF EXCHANGE. 
 
 Beginning with the primitive method of 
 barter, a series of steps have been made to- 
 
4 [102] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 ward a. perfect and world-wide system of~in- 
 terchange of commodities, with the least 
 possible use of the precious metals. We 
 may classify the devices employed for avoid- 
 ing the use of metallic money under five dif- 
 ferent heads, as follows: 
 
 1. Replacement of standard money by 
 representative money. 
 
 2. Intervention of book credit. 
 
 3. The check and clearing system. 
 
 4. Use of foreign bills of exchange. 
 
 5. International clearing system. 
 
 REPRESENTATIVE MONEY. 
 
 Metallic money, as we have seen, im- 
 mensely facilitates and, so to speak, lubri- 
 cates the operation of exchange. But nations 
 employing gold and silver money have usu- 
 ally discovered, in the course of time, that 
 tokens of small metallic value, or even pieces 
 of leather and paper of nominal value, might 
 be passed from hand to hand as signs of the 
 ownership of coins. That which replaces 
 gold, or silver, or copper money, is at first of 
 a purely representative character. But, when 
 a community has become thoroughly habitu- 
 ated to the circulation of a currency of this 
 character, it is often found possible to remove 
 the basis of valuable metal > which it is sup- 
 posed to represent, and yet to maintain the 
 valueless bits of leather or paper in circulation 
 as before. Thus arises the abnormal phe- 
 nomenon known as an inconvertible puper 
 money. Such a currency is, however, never 
 accepted beyond the frontiers of the state 
 recognizing it. 
 
 Merchants conducting large international 
 transactions soon found out that great loss of 
 interest and risk of loss of the whole mony 
 would arise, if they were to trade with actual 
 specie. Hence they introduced the use, many 
 centuries since, of bills of exchange, which are 
 signs or certificates of debt, passed from hand 
 to hand almost like representative money, and 
 often accomplishing many acts of exchange 
 by a single transfer of specie. 
 
 CHECK AND CLEARING SYSTEM. 
 
 There is yet a more potent way of avoiding 
 the actual use of a medium of exchange, 
 without encountering any of the inconven- 
 iences of barter. Those who frequently 
 traded with each other, both buying and sell- 
 ing, found that it was absurd to pay a sum of 
 money for what was bought, and then receive 
 it back for what was sold. It was sufficient 
 to estimate in terms of money the values of 
 the articles exchanged, and then pay the 
 difference, if any, in actual cash. The prac- 
 tice having grown up of depositing the metal- 
 lic money not immediately wanted with gold- 
 smiths or bankers, for safe custody, it was 
 gradually discovered than an order to pay 
 money would serve instead of the money ; 
 and that, if two persons trade with the same 
 banker, they need not in their mutual trans- 
 actions handle the money at all. A transfer 
 
 in the books of their common bankers will 
 effect the payment of any balance of debt. 
 Bankers can in like manner arrange their 
 mutual accounts, and in this way there has 
 been gradually developed in this country and 
 in America a vast system, which I propose to 
 denominate the Check and Clearing Svslem, 
 whereby all the larger internal transactions of 
 the people are arranged by a mere settlement 
 of accounts. 
 
 In this system London naturally becomes 
 the monetary center of the United Kingdom ; 
 but there is a further tendency to make Lon- 
 don the banking center of the world as 
 regards all large and international transac- 
 tions. It is found to be advantageous to 
 deposit money in London, or to obtain credit 
 and make bills payable there, rather than 
 elsewhere. By such a concentration of bank- 
 ing operations, London tends to become the 
 seat of a world-wide Clearing House. Such 
 are the principal steps in the development of 
 the mechanism of exchange, and we proceed 
 to consider them in detail. 
 
 N CH AFTER XVI. 
 
 REPRESENTATIVE MONEY. 
 
 Although we now distinguish money ac- 
 cording as it is metallic or paper money, 
 because paper has in recent times been uni- 
 versally adopted as the material for repre- 
 sentative money, yet it is well to remember 
 that various other substances have been used 
 for the purpose. We may pass, in fact, by 
 gradual steps from the perfect standard coins, 
 whose nominal value is coincident with their 
 metallic value, to worthless bits of paper, 
 which are yet allowed to stand for thousands, 
 or even millions of pounds sterling. 
 
 Token money, which we considered in 
 Chapter VI Ii., is in some degree repre- 
 sentative money, because it derives its 
 value, not so much from the metal it contains 
 as from the standard coins for which it can be 
 exchanged. There is no need that a promise 
 should be always expressed by ink and paper. 
 It may be still more durably recorded by a 
 die upon a piece of metal. Accordingly, 
 while the monarchs of England down to the 
 end of Elizabeth's reign refused to debase 
 their currency, as the notion seems to have 
 been, by issuing such a poor metal as copper, 
 the tradesmen supplied the want of pence by 
 issuing tokens. These pieces were in the 
 earlier centuries composed of lead, or latten, 
 a kind of brass, or sometimes, it is believed, 
 of leather. During the last century, again, 
 they were issued in large quantities, chiefly in 
 copper, and often bore an express statement 
 that they served as promissory notes. Thus 
 a well-executed piece, issued at Southampton 
 in 1791, bears the inscription, "Halfpenny 
 Promissory, payable at the Office of W. Tay- 
 lor, R. V. Moody & Co." A token struck by 
 
MONEY AND Till-: MECHANISM 
 
 EXCHANGE. 
 
 IK.-] .-,5 
 
 the Flint lead works in 1813, states the prom- 
 ise in different terms, thus: "One Penny 
 Token, One Pound Note for 240 Tokens." 
 The variety of such promissory coins issued 
 at one time or other is very great, and their 
 study forms an important branch of numis- 
 matic science, as will be learned by looking 
 into such a work as "Akerman's London 
 Tradesmen's Tokens." In quite recent years 
 
 h s ory of the leather money which long had 
 currency in Russia. 
 
 It is impossible to ascertain what was the 
 character of the leather money which, accord- 
 ing to an obscure tradition, was in use at 
 Rome before the time of Numa. There is 
 no doubt that the Carthaginians had a repre- 
 sentative leather currency, for /Eschines the 
 Socratic tells us that they used small pieces of 
 
 small money was found to be scarce in New ( leather wrapped round cores of unknown 
 
 material, and then sealed up. Neighboring 
 nations refused to receive these curious 
 pieces of currency, whence we may safely 
 infer that their value was nominal. 
 
 It is, however, in China that the use of pa- 
 per money was most fully developed in early 
 
 South Wales, and some tradesmen issued 
 copper or bronze tokens which circulated 
 until the year 1870, when their further use 
 was prohibited. 
 
 The ancients were well acquainted with 
 the difference between a standard and a 
 token currency. The iron money of the 
 
 Lacedaemonians was probably standard legal 
 tender, for it is described as being heavy and 
 bulky, and yet of small value. The iron 
 money of the Byzantines, on the contrary, 
 was token representative money. We shall' 
 find in the following section that pieces of 
 money of the same nature as bank-notes 
 were also employed by several ancient na- 
 tions. 
 
 EARLY HISTORY OF REPRESENTATIVE 
 MONEY. 
 
 Ancient nations were unacquainted with 
 the use of paper money, simply because they 
 had no paper. But it would be a mistake to 
 suppose that they did not employ represent- 
 ative money exactly on the same principles 
 as we use bank-notes. Some few particulars 
 on the subject have long been known, but a 
 recent article by M. Bernardakis in the Jour- 
 nal des Economistes (vol. xxxiii. pp. 353-370) 
 has added much to our knowledge, and made 
 it quite clear that the ancients were more 
 acute in matters of currency than we have 
 given them credit for. 
 
 One of the very earliest mediums of 
 exchange, as we have seen, consisted of 
 the skins of animals. The earliei-t form 
 of representative money consisted of small 
 pieces of leather, usually marked with an 
 official seal. It is a very reasonable sug- 
 gestion made by Storch, Bernardakis, and 
 other writers, that when skins and furs be- 
 gan to be found an inconveniently bulky 
 kind of money, small pieces were clipped off, 
 and handed over as tokens of possession. 
 By fitting into the place from which they 
 were cut they would prove ownership, some- 
 thing in the same way that notched sticks, 
 or tallies, were for many centuries used to 
 record loans of money to the English 
 Exchequer. We know by experience in the 
 case of paper money, that if the people had 
 become thoroughly accustomed to the circu- 
 lation of these small leather tallies, they 
 would in time forget their representative 
 character, and continue to circulate them, 
 when the government, or other holders of 
 the skins themselves, had made away with 
 the actual property. Such is no doubt the 
 
 times. More than a century before the 
 Christian era, an emperor of China raised 
 funds to prosecute his wars in a way which 
 shows that the use of leather tokens was fa' 
 miliar to the people. The tokens having 
 been made of the skins of white deer, he 
 collected together into a park all deer of this 
 color which he could find, and prohibited 
 his subjects from possessing any animals of 
 the same kind. Having thus obtained a 
 monopoly of the material, reminding one of 
 the monopoly of the Bank of England in 
 water-marked paper, he issued pieces of the 
 white leather as money at a high rate. 
 
 In the middle of the thirteenth century, 
 Marco Polo found a paper money in circula- 
 tion in China, composed of the inner bark of 
 a tree beaten up and made into paper, square 
 pieces of which were signed and sealed with 
 
 great formality, 
 ous values, and 
 
 These notes were of vari- 
 were legal tender, death 
 
 being the penalty imposed upon those who 
 refused to receive them. Counterfeiters 
 likewise incurred the same penalty. Another 
 traveler, who visited China in the fourteenth 
 century, gives a very similar account of the 
 paper money then circulating, and adds that, 
 when worn or torn, it could be exchanged 
 for new notes without charge. It is need- 
 less to follow out the long and doubtful his- 
 tory of the subject in later times, many par- 
 ticulars of which will be found in the article 
 of M. Bernardakis, or that of M. Courcelle- 
 Seneuil on Papier Monnaie in the " Dic- 
 tionnaire de 1'Economie Politique." It may 
 suffice to say that the history resembles that 
 of most inconvertible currencies. The quan- 
 tity of paper afloat increased so much under 
 the Mongol dynasty as to cause great evils, 
 and the Ming dynasty, continuing the issues, 
 went so far as to prohibit the use of gold or 
 silver money. The value of the paper fell so 
 low, it is said, that one metallic cash was 
 worth a thousand paper cash, reminding us 
 of the present state of the paper currency in 
 San Domingo. The resmlt was a collapse 
 and reaction in the fifteenth centnry. 
 
 Among other Asiatic nations, the Tartars 
 and the Persians also understood the use of 
 paper money, and Sir John Maundeville, 
 who traveled in Tartary in the fourteenth 
 
66 [104] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 century, gives the following account of the j 
 advantages which the Great Chan enjoyed in | 
 consequence. " This Emperour may dis- 
 penden als moche as he wile, withouten esty- 
 macioun. For he despendethe not, ne 
 makethe no money, but of Lether emprented, 
 or of Papyre. And of that money, is som 
 of gretter prys, and som of lesse prys, af tre 
 the dyversitee of his Statutes. And whan 
 that Money hathe ronne so longe that it be- 
 gynnethe to waste, than men beren it to the 
 Emperoure's Tresorye ; and than thei taken 
 newe money for the olde. And that Money 
 gothe thorghe out all the contree, and 
 thorghe out alle his Provynces. For there 
 and beyonde hem, thei make no Money 
 nouther of Gold nor of Sylver. And there- 
 fore he may despende ynow, and outrage- 
 ously." Not a few great emperors and 
 kings, and even republics, have imitated the 
 Great Chan, and have spent their paper 
 money, "ynow and outrageously." 
 
 REASONS FOR THE USE OF REPRESENTATIVE 
 MONEY. 
 
 It is well to analyse and state exactly the 
 reasons which may be given for the introduc- 
 tion of pieces of representative money. Sev- 
 eral motives may be detected, and they have 
 been of different weight in different cases. 
 The origin of the European system of bank- 
 notes is to be found in the deposit banks 
 established in Italy from four to seven cen- 
 turies ago. In those days the circulating 
 medium consisted of a mixture of coins of 
 many denominations, variously clipped or 
 depreciated. In receiving money, the mer- 
 chant had to weigh and estimate the fineness 
 of each coin, and much trouble, loss of time, 
 and risk of fraud thus arose. It became, 
 therefore, the custom in the mercantile re- 
 publics of Italy to deposit such money in a 
 bank, where its value was accurately estima- 
 ted, once for all, and placed to the credit ot 
 the depositor. 
 
 The banks of Amsterdam and Hamburg 
 were subsequently established on a similar 
 system, and a full account of them will be 
 found in Adam Smith's ' ' Wealth of Nations," 
 Book IV., Chapter III., and in Hewitt's 
 "Treatise upon Money" (p. 121). The 
 money placed to the credit of individuals in 
 these banks was called bank-money, and com- 
 manded an agio or premium corresponding 
 to the average depreciation of the coins. Pay- 
 ments were made by the merchants attending 
 at the bank at a particular hour, and order- 
 ing transfers to be made in the bank books. 
 The money paid was thus alwavs of full 
 value, and all trouble in counting and valu- 
 ing it was avoided. The regulations of these 
 banks were, however, in many respects com- 
 plicated, and it is difficult to understand their 
 purpose. 
 
 INCONVENIENCE OF METALLIC MONEY. 
 
 Closely involved with the previous motive 
 for the use of representative money is that of 
 
 avoiding the trouble and risk of handling 
 large amounts of the precious metals. In 
 order to keep large sums of metallic money 
 in safety a person must have strongholds 
 and watchmen. The origin of banking in 
 England has never been sufficiently inves- 
 tigated, but, so far as we know, it arose for 
 the purpose of safe custody. While public 
 and well-regulated deposit banks had existed 
 for centuries in Italy, the only trace of such 
 an institution in England was found in the 
 mint in the Tower of London, whither mer- 
 chants were accustomed to send their specie 
 for safe keeping. Unfortunately, in 1640 
 King Charles I. appropriated as a loan ^200, - 
 ooo thus deposited, and the merchants, no 
 longer trusting the government, and finding 
 it dangerous to keep large sums of money in 
 their own houses during the troubled times 
 which followed, resorted to the practice of 
 depositing their money with goldsmiths, who 
 probably had vaults and guards suitable for 
 the purpose. 
 
 As acknowledgments of the possession of 
 such sums of money, the goldsmith gave re- 
 ceipts, and at first these documents were 
 special promises, like dock warrants. The 
 practice arose of transferring possession bjr 
 delivery of these receipts, or "goldsmiths' 
 notes," as they were called. Such notes are 
 frequently referred to in Acts of Parliament, 
 and even as late as 1746 most of the London 
 bankers continued to be members of the 
 Goldsmiths' Company. It is plain from the 
 manner in which these notes were mentioned 
 in some statutes that they had become gen- 
 eral and not special promises mere engr Ce- 
 ments to deliver a sum of money on demand, 
 without conditions as to keeping a reserve for 
 the purpose. 
 
 THE WEIGHT OF CURRENCY. 
 
 Even the weight of metallic money would 
 be a sufficient reason for the use of repre- 
 sentative documents in large transactions. 
 In proportion as the legal tender is more 
 bulky and inconvenient to carry about, is this 
 motive more powerful. Thus, when the state 
 of Virginia employed tobacco as the medium 
 of exchange in the eighteenth century, the 
 tobacco was placed in stores, and receipts on 
 paper were handed about. Paper money was 
 issued in Russia under Catherine II. in 1768, 
 on the ground that the copper money, then 
 forming the legal tender, was inconvenient. 
 So much were these assignats, or notes, pre- 
 ferred, that they at first circulated at a pre- 
 mium of one-fourth per cent. 
 
 In the present state of commerce, even gold 
 money would be far too heavy to form a con- 
 venient medium for making large payments. 
 M. Chevalier states that it would require 
 forty men to carry the gold equal in value to 
 the Regent Diamond. The average daily 
 transactions in the London Bankers' Clearing 
 House amount to about twenty millions of 
 pounds sterling, which if paid in gold coin 
 

 
 MONEY AND THE MECHANISM OF EXCHANGE, 
 
 [lOoj 
 
 would weigh about 157 tons, and would re- 
 quire nearly eighty horses for conveyance. If 
 paid in silver the weight would be increased 
 to more than 2500 tons. For the conveyance 
 and custody of very moderate sums in coin or 
 bullion, individuals, or even large banks, re- 
 sort to the aid of the Bank of England, whose 
 officials are experienced in the matter, and 
 have all facilities. 
 
 I find that a Bank of England note weighs 
 about 2O}4 grains (I'/j grams), whereas a 
 single sovereign weighs about 123 grains, 
 and the note may represent five, ten, fifty, a 
 thousand, or ten thousand such sovereigns 
 with slight differences in the printing. If 
 we were obliged to handle a medium of ex- 
 change actually embodying value, it woul I, 
 ere now, have been necessary to employ pre- 
 cious stones, or some metal much more rare 
 and precious than gold. But the use of 
 representative documents is becoming so 
 general in the most advanced commercial 
 countries, that the portability of metallic 
 money is a question of very minor importance. 
 Gold already acts in England only as change 
 for notes, and the question will arise whether 
 it will long be needed even for that purpose. 
 
 SAVING OF INTEREST. 
 
 A further and very potent motive for em- 
 ploying representative tokens and notes, con- 
 sists in the saving of interest and capital, 
 which is effected by substituting a compara- 
 tively valueless material in place of costly gold 
 and silver. Whenever a nation is in great 
 straits for want of revenue, there is a great 
 temptation to treat the metallic currency as a 
 treasure t<5 be temporarily borrowed for the 
 necessities of the state. The ancient Greeks 
 understood this as well as the modern Eng- 
 lish, Italians, or Americans. Dio g nysius, on 
 this ground, obliged the Syracusans to accept 
 tin tokens in place of silver coins, worth four 
 times as much in metallic value. In the book 
 on Economics, attributed to Aristotle, we are 
 told that Timotheus the Athenian persuaded 
 the soldiers and merchants to receive copper 
 money in place of silver, promising to ex- 
 change it for silver coins at the close of the 
 war. The Clazomenians rmde a similar issue 
 of token money avowedly for the sake of the 
 interest thereby saved. Being unable to pay 
 twenty talents due to some mercenary troops, 
 they were under the necessity of paying four 
 talents a year as interest. They fell upon the 
 device of coining iron tokens to the nominal 
 amount of twenty talents, which they obliged 
 the citizens to take in place of silver coin. 
 The silver thus obtained was used for the 
 immediate discharge of the debt, and there 
 was a spare annual revenue of four talents, 
 formerly absorbed in the payment of interest, 
 which now enabled them in a few years to 
 redeem the token money. Closely parallel to 
 this is the case of the Guernsey Market, 
 which was built without apparent cost. Dan- 
 iel le Broc, the governor of the island, de- 
 
 termined to build a market in St. Peters, but 
 not having the necessary iuru s, issued under 
 the seal of the island four thousand market 
 notes for one pound each, with which he paid 
 the artificers. When the market was finished 
 and the rents came in, the notes were thereby 
 canceled, and not an ounce of gold was em- 
 ployed in the matter. There is, however, no 
 mystery in this advantage of paper money. 
 
 Dauiel le Broc, by issuing his market notes, 
 drove an equivalent amount of gold out of 
 circulation, and thus effected a kind of forced 
 loan out of the metallic currency of the isl- 
 and, without paying any interest for it. A 
 similar gain of interest accrues upon all paper 
 notes so far as their amount exceeds the gold 
 held in readiness to pay them. The private 
 and joint stock banks of issue in England in 
 this \\~y enjoy the interest upon a sum of 
 about six millions and a half sterling, the 
 Scotch banks upon two millions and three- 
 quarters, and the Irish banks upon more tnan 
 six millions. The issue of paper representa- 
 tive money b beneficial to all parties, pro- 
 vided that it be conducted upon a sound 
 method of regulation, a subject upon which 
 the greatest differences of opinion exist. 
 
 ' CHAPTER XVII. 
 
 THE NATURE AND VARIETIES OF PROMIS- 
 SORY NOTES. 
 
 Before attempting to come to any conclu- 
 sion as to the best mode of regulating the 
 issue of promissory notes, we must carefully 
 analyse the differences which may exist be-, 
 tween one promise and another. What 
 seems at first sight a very slight and subtle 
 distinction, may be found to lead to import- 
 ant results. He who issues a representative 
 or promissory document, engaging to give a 
 certain quantity of a defined commodity in 
 return for the document when presented, 
 may really make any one of three distinct 
 engagements. 
 
 1. He may promise to keep acertian iden- 
 tical article in his possession until it is 
 called for. 
 
 2. He may engage to have in his posses- 
 sion a certain amount of commodity ready to 
 meet the promissory notes, without distin- 
 guishing between portion and portion of a 
 similar substance. 
 
 3. The undertaking may be merely to 
 the effect that the required commodity shall 
 be forthcoming when the note is presented, 
 no covenant being made as to the quantity 
 to be held in stock for the purpose. 
 
 SPECIFIC DEPOSIT WARRANT. 
 
 The most satisfactory kind of promissory 
 document is the first, which is represented 
 by bills of lading, pawn-tickets, dock-war- 
 rants, or certificates which establish owner* 
 
68 [106] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 ship to a definite object. A bill of lading 
 entitles the legal holder of it to certain cases 
 or packages of goods, described by marks, 
 numbers, dimensions, or otherwise. The 
 ship-master signing such a bill is obliged to 
 retain the identical cases committed to his 
 care, unti he delivers them up in return for 
 the bill of lading at the close of his voyage. 
 Dock-warrants are of the same character, 
 being receipts for packages of goods depos- 
 ited in the London or other dock ware- 
 houses. The holder of a dock-warrant has a 
 prima facie claim to the pipes of wine, bales 
 of wool, hogsheads of sugar, or other pack- 
 ages named thereon. Transfer of the war- 
 rant by endorsement or otherwise, as^re- 
 'quired by law and custom, is accounted a 
 transfer of the ownership of the goods. 
 The important point concerning such prom- 
 issory notes is that they cannot possibly be 
 issued in excess of the goods actually depos- 
 ited, unless by distinct fraud. The issuer 
 ought to act purely as a warehouse keeper, 
 and as possession may be claimed at any 
 time he can never legally allow any object 
 deposited to go out of his safe keeping un- 
 til it is delivered back in exchange for the 
 promissory note. 
 
 GENERAL DEPOSIT WARRANT. 
 
 We pass to the case in which the issuer of 
 a promissory document engages to keep on 
 hand goods exactly equivalent in quantity 
 and' quality to what are specified thereon, 
 without taking note of individual parcels. 
 In many cases commodities are so homoge- 
 neous that there seems to be no need to 
 ^distinguish parcel from parcel, or to restore 
 the identical portion deposited. Thus the 
 keeper of a pig-iron store in Glasgow receives 
 large quantities of pig-iron, of several 
 brands, and issues corresponding warrants 
 representing ownership therein. As no dif- 
 ference, however, is known to exist between 
 different portions of iron of the same brand, 
 it was the practice in former years not to al- 
 lot one heap of pigs to each warrant, but 
 simply to retain a stock of each brand equal 
 in weight to the aggregate amount due on 
 outstanding warrants. More recently a bet- 
 ter system has been introduced, and each 
 specific lot of iron has been marked and set 
 aside to meet some particular warrant. The 
 difference seems to be slight, but it is really 
 very important, as opening the way to a lax 
 fulfillment of the contract. Misunderstand- 
 ings occasionally arise upon this point in 
 other trades. For instance, a cotton mer- 
 chant in Liverpool, a few years since, ob- 
 tained a loan of money upon the security of 
 cotton in his possession, and a court of law 
 was subsequently called upon to decide 
 whether he had mortgaged certain individual 
 bales of cotton, and undertaken to retain 
 them until the loan was repaid, or whether 
 he had merely engaged to have in his hands 
 an equal quantity of cotton of the same 
 
 quality. I have heard that carrying and 
 warehousing companies are sometimes care- 
 less about distinction of parcel and parcel. 
 If they are continually conveying or holding 1 
 portions of exactly the same goods, flour 
 from the same miller, coal from the same 
 seam, they will sometimes deliver out the re- 
 quired quantity of the same sort of goods, 
 irrespective of its being the identical portion 
 delivered to them for conveyance or safe 
 custody. 
 
 DIFFERENCE BETWEEN A SPECIAL AND A 
 GENERAL PROMISE. 
 
 The great importance of the distinctions 
 pointed out in the last section will be easily 
 apparent. He who has made a special prom- 
 ise to give definite parcels of goods in re- 
 turn for particular individual papers, cannot 
 issue any such promissory papers without 
 holding corresponding goods. If he does so, 
 he will be continually liable to be convicted 
 of fraud or default by the presentation of a 
 particular document. If the promises made 
 by him, however, are only general ones, any 
 promissory document can be met by any por- 
 tion of commodity of the proper qualit -, and 
 it will be necessary to present most or all of 
 the documents in order to disclose default. 
 The way is thus opened for the speculative 
 issue of promissory notes. The receiver of 
 deposits, finding that a large portion of the de- 
 posited commodity always remains on hand, 
 may proceed to use it in trade, only keeping 
 so much as may meet current demands. So 
 long as he does fulfill promises, no harm 
 seems to be done ; but experience proves that 
 there will always be a certain proportion of 
 persons who, in such circumstances, will not 
 act so discreetly as to be in a position to re- 
 deem all their engagements. 
 
 Moreover, it now becomes possible to 
 create a fictitious supply of a commodity; 
 that is, to make people believe that a supply 
 exists which does not exist. The possessor 
 of a promissory note or warrant regards the 
 document as equivalent 'to the commodity 
 named thereon. It is only necessary then to 
 print off, fill up, and sign an additional num- 
 ber of such notes in order to have a corre- 
 sponding supply of commodity to sell. It is 
 true that the issue of promises involves their 
 "ulfillment at a future day ; but the future is 
 unknown, and the issuer may believe that 
 :>efor,e the fulfillment is likely to be demanded 
 he price of the commodity will have fallen. 
 Thus, if pig-iron warrants could be issued in 
 unlimited quantities (irrespective of the stocks 
 actually in the stores at Glasgow), an unscru - 
 Dulous band of speculators might perhaps make 
 large profits by selling great quantities of 
 iron for future delivery. After suddenly and 
 excessively depressing the price of pig-iron 
 they might succeed in gradually buying up 
 enough at lower prices to meet the warrants 
 when presented. This kind of ' 4 bear " oper- 
 
MONEY AM) TllK MECHANISM OF EXCHANGE. 
 
 J107J 
 
 ations has certainly been successful in other 
 markets. 
 
 About ten years ago it became the practice 
 to rig the market as regards the shares of 
 particular joint-stock banking companies. 
 A party would be formed, perhaps owning 
 none cf the shares of the selected company, 
 and they would proceed to sell considerable 
 quantities of the shares, hoping so to damage 
 the reputation of the company and lower the 
 value of the stock as to be able to buy up 
 enough before delivery would be required. 
 This noxious kind of speculation was 
 checked by an Act of Parliament (30 Victoria, 
 c. 29,1867), which now requires the seller of 
 bank shares to specify the numbers or the 
 registered proprietcrs of the shares which he 
 is selling for future delivery. 
 
 It might be urged, indeed, that there is a 
 natural right belonging to all persons to 
 make promises, if they can thereby benefit 
 themselves. Any one can accept a bill, 
 thereby promising to deliver money at a fu- 
 ture day. It is quite common to make con- 
 tracts involving the delivery of government 
 stock, or of cotton or corn expected to arrive 
 by sea, before delivery becomes due. But 
 we must remember that all laws and all 
 social relations are devised to secure the 
 greatest good of the greatest number. If a 
 right to make all promises be recognized by 
 law, it must be because the right is benefi- 
 cial to society, and it is the recognition by 
 law which makes it a right. If, on the con- 
 trary, it be found by experience that freedom 
 of making and selling promises in a particu- 
 lar wi<y gives scope to illegitimate specula- 
 tion, or otherwise injures society more than 
 it produces benefit, the law ought certainly 
 1 3 restrict this freedom, and regulate the mat- 
 ter for the good of the community. The 
 whole matter, in short, is one of expediency. 
 It used to be held as a general rule of law, 
 that any present grant or assignment of 
 goods not in existence is without operation. 
 Though the rule seems to be generally disre- 
 garded, there are many cases in which it 
 might be advantageously enforced. 
 
 PECUNIARY PROMISSORY NOTES. 
 
 Applying these considerations to the spe- 
 cial matter of money, we find that pecuniary 
 promises are nearly always of a general kind. 
 He who undertakes to pay a sum of money 
 on a future day, farely specifies the individ- 
 ual coins which will be paid. In fact, the 
 Coinage Act, in defining legal tender, makes 
 any sovereigns, shillings, and pence, duly 
 coined and of proper weight, a discharge for 
 a corresponding sum named in a contract. 
 It is true that just as pipes of wine are 
 warehoused in the London docks, cases of 
 gold and silver bullion or, it may be, of for 
 eign or English coin, are warehoused in the 
 vaults of the Bank of England. In fact, 
 Imports of gold and silver, at whatever port 
 in the kingdom they may arrive, are almost 
 
 always sent up for delivery at the bullion 
 office of the bank, which acts precisely as if 
 it were a dock warehouse, and delivers the 
 packages on production of the bills of lading. 
 These bills of lading are specific promises, 
 and may yet be passed by endorsement fromr 
 one person to another. Such consignments 
 of bullion, however, do not enter into the 
 banking accounts. 
 
 The Bank of England note is neither more 
 nor less binding upon the bank authorities 
 than a bill of lading, but it does noi specify 
 the bag or box of money to be employed in 
 paying it. Almost all other pecuniary en- 
 gagements are in the same way general en- 
 gagements. No banker could make any 
 profit if he were obliged to put away the 
 sovereigns deposited by a customer until that 
 customer presented a check for them, nor 
 would there usually be a sufficient motive for 
 desiring such a special pledge. The idea never 
 enters into our heads in mercantile matters. 
 Disputes, however, have occasionally arisen 
 upon this point. Some people have a pecu- 
 liar fancy for collecting particular coins, and 
 an old lady, having formed a hoard of four- 
 penny pieces, died after bequeathing them to 
 a relative. Although wishing to keep them, 
 out of respect for the old lady, this relative 
 was in want of ready cash, and desired to 
 realize their value; he thought to achieve 
 both objects by pledging them with a pawn- 
 broker. The broker readily received them, 
 but after a while thoughtlessly used the 
 groats as change. When the pawn-ticket 
 was presented he considered that the tender 
 of the equivalent sum in sovereigns and shil- 
 lings was a sufficient discharge. Here, how- 
 ever, the pledge should have been held as a 
 special one. 
 
 Now, if pecuniary promises were always of 
 a special character there could be no possible 
 harm in allowing perfect freedom in the issue 
 of promissory notes. The issuer would 
 merely constitute himself a warehouse-keepjr, 
 and would be bound to hold each special lot 
 of coin ready to pay each corresponding note. 
 But this is not the case, and much harm may 
 arise from the excessive issue of promises to 
 pay gold on demand. The gold market may 
 be rigged as well as the iron or any other 
 special market. One difference is that the 
 gold market is the most extensive of all mar- 
 kets, so that a great many individuals or 
 companies, each acting under the separate 
 impulses of self-interest, must over-issue 
 notes in order to produce any appreciable ef- 
 fect. A further difference is that gold, being 
 itself the measure of value, the rise or fall in 
 ts price cannot be apparent except in the 
 average fall or rise in the price of many com- 
 modities. This subject must be pursued in 
 Chapter XXIV. 
 
 PRINCIPLES OF THE CIRCULATION OF REP- 
 RESENTATIVE MONEY. 
 
 In the last two sections of Chapter VI I L 
 
60 [108] 
 
 MONEY AND THE MECHANISM OF 
 
 we founu that by analysing the moiives 
 of individuals in receiving, holding, or 
 paying away metallic money, we could ar- 
 rive at certain laws of circulation, which were 
 amply confirmed by experience. It was also 
 pointed out that the same laws might be extend- 
 ed mutatis mutandis, to the mixed circulation 
 of metallic and paper money. Habit is 
 almost as powerful in supporting the use of 
 representative money as of real metallic coins. 
 Persons who have long been accustomed to 
 pay away certain pieces of paper without loss, 
 "will continue to regard them as good currency 
 until some rude shock is given to their confi- 
 dence. This may go so far that a dirty bit 
 of paper, containing a promise to pay a sover- 
 eign, will be actually preferred to the beau- 
 tiful gold coin which it promises. The cur- 
 rency of Scotland is a standing proof of this 
 assertion; and the same may be said of Nor- 
 way, where, until 1874, no gold at all was in 
 circulation, and notes for one, five, or ten 
 dollars formed the principal part of the cur- 
 rency. 
 
 There is one all-important point in which 
 representative differs from metallic money ; 
 it will not circulate beyond the boundaries of 
 the district or country where it is legally 
 current or habitually employed. No doubt 
 Bank of England notes are frequently car- 
 ried abroad by travelers, and are in most 
 places readily exchanged for the money of 
 the locality ; but they never circulate, and 
 are treated as bills upon London, forming a 
 convenient mode of remittance. They do 
 not satisfy a debt from this to another coun- 
 try, but rather create it, an English bank- 
 note, in the hands of a Paris banker, repre- 
 senting a claim which he has upon the Bank 
 of England. The only money which can 
 really be exported in payment of debts due 
 to foreign merchants is standard metallic 
 money. Hence paper money has exactly the 
 Same capacity for driving out standard 
 money that light or depreciated coins pos- 
 sess. 
 
 In the case of inconvertible notes this has 
 always been most obvious. As the quantity 
 of such notes issued progressively increases, 
 as almost always happens, coin must be ex- 
 ported, otherwise the currency would become 
 excessive. But when most of the coin is 
 gone, need of it begins to be felt for making 
 foreign payments, and then the value of the 
 paper falls below that of the coin which it is 
 supposed to correspond to. Many persons 
 begin to hoard the coins for the sake of an- 
 ticipated profit, and nothing but paper is 
 Soon to be found in circulation. This effect 
 cf paper in driving coin out of use has been 
 manifested over and over again, as in the 
 time of the assignats of the French Revolu- 
 tion, the suspension of specie payments at 
 the Bank of England between 1797 and i8iq, 
 and the late American war. One of the 
 most recent and striking instances is to be 
 found in Italy, where laree quantities of 
 
 beautiful gold and silver coins? had been 
 struck in the years 1862 to 1865, but all dis- 
 appeared very rapidly from circulation as 
 soon as ths co **s forct of paper money was 
 proclaimed. 
 
 CHAPTER XVIII. 
 
 METHOo* OF REGULATING A PAPER CUX' 
 RENCY. 
 
 We may now proceed with advantage to 
 consider the various methods on which the 
 issue of paper money may be conducted. This 
 question is perhaps the most vexed and de- 
 batable one in the whole sphere of political 
 economy ; but, by carefully adhering to the 
 analysis of facts, we may, perhaps, get a view 
 of the subject free from the great perplexities 
 in which it is commonly involved. The ele- 
 mentary principles of the subject are not of t 
 complex character ; and if we hold tenaciously 
 to those piinciples, we may perhaps be saved 
 from that dangerous kind of intellectual verti- 
 go which often attacks writers on the cur- 
 rency. 
 
 The state may either take the issue of 
 representative money into its own hands, as 
 it takes the coining of money, or it may allow 
 private individuals, or semi-public companies 
 and corporations, to undertake the work 
 under more or less strict legislative control. 
 We will afterward briefly consider the rela- 
 tive advantages of government and private is- 
 sues, but in either case we may lay down the 
 following series of methods according to 
 which the amount of issue may be regulated, 
 and the performance of the promises guaran- 
 teed. 
 
 1. The Simple Deposit Method. The issuer 
 of promissory notes may be obliged to keep a 
 stock of coin and bullion constantly on hand, 
 equal in amount to the aggregate of the un- 
 canceled notes, each of which, being instantly 
 paid on presentation, will produce a corre 
 spending decrease of the reserve. 
 
 2. The Partial Deposit Method. Instead 
 of being obliged to keep the whole of the 
 precious metals deposited in his vaults, the 
 issuer may be allowed to invest a fixed amount 
 in government funds, or other safe profitable 
 securities. 
 
 3. The Minimum Reserve Method. The 
 issuer may be bound to have on hand undef 
 all circumstances a fixed minimum amount of 
 coin and bullion. 
 
 4. The Proportional Reserve Method. The 
 reserve may be made to vary with the amount 
 of outstanding notes, being, say, at least 
 one-third or one-fourth of the total. 
 
 5. The Mzximum Issue Method. Permis- 
 sion may be given to issue notes not exceed- 
 ing in the aggregate a fixed amount, prohibi- 
 tory penalties being imposed upon anj 
 breach of this restriction. 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 poo] <; 
 
 6. The Elastic Limit Method. A limit 
 may be assigned to the aggregate amount of 
 notes, as in the last method, but the penal- 
 ties on the excessive issue may be intention- 
 ally made so light, that the issuer will under 
 some circumstances prefer to pay the penalty 
 rather than restrict his issues. 
 
 7. The Documentary Reserve Method. The 
 reserve of property which the issuer is re- 
 quired to keep may consist, not of gold or 
 silver coin or bullion, but of government 
 funds, bonds, shares, or other documentary 
 securities. 
 
 5. rhc Real Property Reserve Method. In- 
 stead of merely documentary property, the 
 issuer may be allowed to treat various prop- 
 erty, such as land, houses, ships, railway 
 shares, etc , as his reserve of wealth to meet 
 engagements. 
 
 9. The Foreign Exchanges Method. Some 
 important bank may be aljowed to issue con- 
 vertible notes on the understanding that it 
 will not increase the amount in circulation so 
 long as the foreign exchanges are against the 
 country, and render the export of specie prof- 
 itable. 
 
 10. The Free Issue Method. The business 
 of issuing promissory notes may be left open 
 to the free competition of all individuals, free 
 from any restrictions or conditions, except 
 such laws as apply to all commercial con- 
 tracts and promises. 
 
 II. 
 may 
 
 be required to be partially in the form of 
 specie, and partially in documentary securi- 
 ties, or real property. A banker may be al- 
 lowed to issue a certain fixed amount of 
 notes without any condition as to reserves, 
 and to issue further notes on the Deposit 
 Method. 
 
 It would obviously require a very large 
 volume to enter at all in an adequate manner 
 upon a description of these methods, their 
 relative advantages or deficits, and the ways 
 in which they have been combined and car- 
 ried into effect at different times and places. 
 I must therefore confine myself in this small 
 book to a very concise discussion of this most 
 extensive subject. 
 
 I. SIMPLE DEPOSIT. 
 
 This method is perfectly represented by the 
 ancient deposit banks in the Italian commer- 
 cial republics, by the banks of Amsterdam 
 and Hamburg, or by the London goldsmiths, 
 so long as they only acted as safe keepers of 
 the specie committed to their care. Notes is- 
 sued on this system have a purely representa- 
 tive character, like dock warrants or pawn 
 tickets, as I have already fully explained. The 
 performance of promises is rendered certain 
 so far as legislation can provide for it. The 
 amount of such currency will vary exactly 
 like that of a metallic currency, and there can 
 be no fear of paper replacing specie, and driv- 
 
 ' The Gold Par Method. Paper money ing it , U ^ f . the country because the specie 
 be issued hrnjinr tho appcaranoc of ' must ln vaults of the issuing banks be- 
 ***rWUt inconvertible into coin. t *^^~ e _ 
 
 he issue being restricted as long as any pre- 
 mium on gold is apparent, the paper money 
 may be thus maintained equal in value to the 
 coin which it nominally represents. 
 
 12. The Revemie Payments Method. In- 
 convertible paper money may be freely issued, 
 but an attempt may be made to keep up its 
 value by receiving it in place of coin in the 
 payment of taxes. 
 
 At the same time the advantages of the 
 method are comparatively slight, because the 
 use of paper representatives merely saves the 
 abrasion of coin, and the trouble and risk of 
 carrying it about and counting it. The com- 
 munity kses the interest of the whole sura 
 held in pledge, and this forms by far the 
 largest part of the cost of the currency, 
 as we have seen. The coin, too, may 
 be safer in the hands of the people. 
 
 The Deferred Convertibility Method. "* 3< T . u 
 
 mav hpi^invl nrr-rri*,' tn nav I When lvm g apparently useless within the 
 
 Ts otes may be issued promising to pay me 
 tallic money at some future day, either defi- 
 nitely fixed or dependent upon political or 
 other contingent events. 
 
 14. The Paper Money Method. Lastly, 
 those who coin apparent promissory notes 
 may be entirely absolved from the perform- 
 ance of their promises, so that the notes cir- 
 culate by force of habit, by the command of 
 tne sovereign, or in consequence of the ab- 
 sence of any other medium of exchange. 
 
 Although I have, in the above statement, 
 enumerated no less than fourteen distinct 
 methods of managing the issue of paper cur- 
 rency, it is by no means certain that other 
 methods have not been employed from time 
 to time. There may be, in fact, an almost 
 unlimited number of devices for securing the 
 performance of promises, or for rendering 
 the performance unnecessary. Moreover, 
 these methods may be combined together in 
 almost unlimited variety. The reserve may 
 
 reach of an abritraiy government, it often 
 proves an irresistible temptation. Charles I. 
 seized the money in the Tower. When the 
 French invaded Holland in 1795, a large part 
 of the specie supposed to be deposited in the 
 vaults of the bank of Amsterdam was not 
 forthcoming, having been secretly lent to the 
 Dutch East India Company, and the city au- 
 thorities. The Russian government diligent- 
 ly collected a bank reserve in the citadel of 
 St. Petersburg, which was under the cogni- 
 zance of members of the Exchange, until the 
 troubles of 1848 forced the emperor to as- 
 sume the control himself. In innumerable 
 instances governments, including the English 
 government in 1797, have made use of bank 
 deposits, under the form of suspending specie 
 payments. 
 
 2. PARTIAL DEPOSIT. 
 The Bank of England, under the Bank 
 Charter Act of 1844, perfectly represents this 
 
62 [110] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 method. For each additional five-pound note 
 which is put forth out of the issue department, 
 gold to the weight of 616 37 grains must be 
 deposited in that department. The whole 
 amount of gold, however, retained. in the 
 vaults is less by ^15,000,000 than the out- 
 standing notes, this constant difference being 
 covered by documentary securities, and by a 
 sum of about eleven millions which the bank 
 lends to the government without interest. 
 Under this arrangement we secure all the ad- | 
 vantages of the simple deposit system, while j 
 the community gains the interest amounting i 
 to about ^445,000, of which the government 
 receives ^188,003 per annum. The charac- 1 
 ter of the contract between the government 
 and the bank is of too intricate a nature to be 
 readily fathomed or described, but it substan- 
 tially amounts to the government borrowing 
 the larger part of the fifteen millions of de- 
 posits, and allowing the bank to use the rest 
 to cover the cost of printing and managing 
 the note circulation. I shall treat of this 
 system again in Chapter XXIV. The Partial 
 Deposit method is the basis of the new law 
 concerning the issue of notes in the German 
 empire, in combination with the Elastic 
 Limit method, which possibly constitutes an 
 improvement. 
 
 3. MINIMUM RESERVE. 
 
 One mode of guaranteeing the payment of 
 notes, which might be suggested, would con- 
 sist in obliging the issuers to keep on hand 
 a stock of specie, which is never to be 
 allowed to fall below a certain fixed amount. 
 This would be like recommending a man to 
 avoid impecuniosity by always keeping a 
 shilling in his pocket. The fact that the 
 minimum amount must be kept in the vaults 
 renders it unavailable for meeting demands 
 when they come. There can be no use in 
 such a reserve unless there be a power exer- 
 cised by the legislature or executive govern- 
 ment, of arbitrarily suspending the operation 
 of the law when there is a run upon the 
 banks. 
 
 4. PROPORTIONAL RESERVE. 
 
 The issuer of promises to pay money on 
 demand may be required to keep a reserve of 
 coin never less than, say, one-fourth of the 
 whole outstanding notes. This is analagous 
 to the method on which the National Bank 
 currency of the United States was lately 
 regulated, and it is, perhaps, better to en- 
 force the keeping of a certain amount than to 
 leave the matter entirely to the discretion and 
 good faith of the individual issuers. As the 
 banker sees his reserve running down nearly 
 to the legal limit, he will be compelled to use 
 additional caution, in order to avoid a breach 
 of the law. But if the untoward state of 
 trade and credit causes any large portion of 
 the outstanding notes to be presented, the 
 legal tender reserve will be diminished in a 
 reater proportion than the amount of notes, 
 which is larger in absolute quantity. If 
 
 there be 100,000 dollars of outstanding notes, 
 and 40,000 dollars reserve, then it is obvious 
 that the presentation of 20,000 dollars of 
 notes will reduce these numbers respectively 
 to 80,000 dollars of outstanding notes, and 
 20,000 dollars of reserve ; and if the law re- 
 quired the reserve to be one-fourth part of 
 the liabilities, no more notes could be paid. 
 Thus, from the moment that the banker 
 allows his reserve to touch the legal minimum, 
 it becomes unavailable to him, except by a 
 breach of law, and it may be said that the 
 law is of little use except when broken. This 
 system, in fact, reduces itself, when it comes 
 into operation at all, to the Minimum Re- 
 serve method last described. The banker 
 cannot touch his reserve just when he most 
 wants it, and the deadlock thus occasioned 
 was acutely felt in the United States during 
 the panic of 1873. 
 
 This method of regulation has, moreover, 
 little or no effect in removing the motives for 
 an extension of the circulation. The greater 
 part of the value of every additional note kept 
 in circulation is a gratuitous addition to the 
 loanable capital of the bank, and bears inter- 
 est as long as it can be kept afloat. 
 
 5. MAXIMUM ISSUE. 
 
 To allow a bank or banks to issue in the 
 aggregate a certain fixed amount of prom- 
 issory notes, and no more, appears to me 
 quite consistent with the principles of polit- 
 ical economy. It saves interest upon a cer- 
 tain portion of the circulating medium, and 
 supplies a convenient and economical cur- 
 rency. At the same time, the notes issued 
 cannot drive gold out of the country beyond 
 a fixed amount. It is strongly urged by Mr. 
 R. Inglis Palgrave and others that the limit- 
 ation is arbitrary, and that the people want 
 more money , but it is always open to them 
 to use metallic money instead. The limitation 
 imposed is not upon money itself, but upon 
 the representative part, and though we there- 
 by forego the increased saving of interest 
 upon enlarged issues, this loss may be 
 balanced by the freedom from any risk of 
 producing a fictitious abundance of gold. 
 This system is sufficiently illustrated in the 
 170 banks of England which are still allowed 
 to issue notes. Sir Robert Peel provided, 
 in the Act of 1844, that they might continue 
 to issue, without any condition as to reserve, 
 the same quantity of notes as they had 
 issued on the average of twelve weeks pre- 
 ceding a day named. If any bank ex- 
 ceeded the amount thus determined it was to 
 be fined a sum of money equal to the average 
 excess of the month ; and sworn returns of 
 their circulations were required from all issu- 
 ing banks. 
 
 6. ELASTIC LIMIT. 
 
 The above is the best name which I can 
 find for a new method of regulation which 
 has just been adopted in the Bank Act of the 
 
MONi:\ AM> I UK MECHANISM OF KXCIIANGE. 
 
 [Ill] 68 
 
 German empire. So far as regards the issue j restrict ourselves to a single commodity gold, 
 of bank-notes the banking organization of | but may mortgage for the purpose, land, 
 Germany will substantially resemble that of houses, or any kind of fixed real property. 
 
 England. The new Imperial Bank, and 
 such of the state or other banks which con- 
 form to the requirements of the law, will have 
 the right of issuing notes not backed by gold 
 to the aggregate sum of 385 millions of 
 marks. They may apparently issue any 
 further quantity of notes in exchange for a 
 deposit of gold to an equal value. So far the 
 method is precisely that of \\\t partial deposit 
 already described. Observing, however, 
 that the English Bank Charter Act has 
 on several occasions been violated to prevent 
 a panic, the German legislature has provided 
 that a tax of 5 per cent, be paid thereon. 
 It is intended in this way to make it unpro- 
 fitable for any bank to exceed the normal 
 limits. It seems likely that this provision 
 will work well, and form an improvement on 
 our method. The Englisn Government, in- 
 deed, has always deprived the Bank of Eng- 
 land of the interest on any excess of notes 
 which it issued during a suspension of the 
 Bank Act, but the German law makes the 
 
 The celebrated scheme of John Law was of 
 this 'nature- In his remarkable tract on 
 " Money and Trade Considered, with a Pro- 
 posal for Supplying the Nation with Money," 
 published in 1705, he suggests that commis- 
 sioners should be appointed to " coin " notes 
 "to be received in payments where offered," 
 that is, I presume, as legal tender. He sets 
 forth three alternative modes of issuing these 
 notes on land security, the first and simplest 
 being to lend them to land-owners at the ordi- 
 nary interest, to the extent of one-half or two- 
 thirds of the value. He endeavors to provide 
 against depreciation of the notes by taking 
 care that the prices are always estimated ia 
 silver money. 
 
 The assignats of the French Revolutionary 
 Government represented land assigned, name- 
 ly, portions of the confiscated estates of the 
 Church. They were to b^ received back and 
 canceled as the lands were bought by the 
 public, but, as the price of the land was not 
 fixed, no proportion was established between 
 
 limit of issue elastic in all cases, so as to land and paper, and no amount of land could 
 
 prevent the assignats from falling as they did 
 to one two-hundredth part of their original 
 value. In the subsequent issue of Mandats, 
 
 avoid the danger of panic. 
 
 7. DOCUMENTARY RESERVE. 
 
 It might seem enough in order to ensure 
 the convertibility of notes, that the bankers 
 issuing them should prove their possession of 
 abundant funds, in the form of government 
 stocks, bonds, exchequer bills, rentes, or even 
 good mercantile bills, sufficient to establish 
 the perfect solvency of the firm. If a con- 
 siderable margin be left, it may seem impos- 
 sible that the notes should not ultimately be 
 paid. To argue in this way, however, is to 
 forget that bank-notes are promises to pay 
 gold c/r legal tender metallic money on demand, 
 and that to pay the notes ultimately is not to 
 pay them on demand. With such a reserve, 
 payment can only be made in any large quan- 
 tity by selling the stocks and bonds for me- 
 tallic money, but it is just when there is a 
 scarcity of gold and silver, that notes are pre- 
 sented for payment. No doubt good govern- 
 ment funds and good bills can always be 
 sold at some price, so that a banking firm 
 with a strong reserve of this kind might al- 
 ways maintain their solvency. But the 
 remedy might be worse for the community 
 than the disease, and the forced sale of the 
 reserve might create such a disturbance in 
 the money market as would do more harm 
 than the suspension of payment of the notes. 
 Payment of notes on demand implies the pos- 
 session of adequate gold and silver, and if 
 there be not sufficient bullion and coin in the 
 country, no paper documents, or promises to 
 pay at a future day, can take their place. 
 
 8. REAL PROPERTY RESERVE. 
 
 Many currency theorists have held, that in 
 securing the repayment of notes we need not 
 
 an attempt was made to fix the price of land 
 in mandats, but this schemealso failed. The 
 inconvertible land mortgage notes, issued by 
 Frederick the Great to recruit his treasury, ex- 
 hausted by wars, were of somewhat the same 
 nature, but bore interest. 
 
 Land is doubtless one of the best kinds of 
 security for the ultimate repayment of a debt, 
 and is therefore very suitable when money is 
 lent for a long time. But representative 
 bank-notes purport to be equivalent to gold 
 payable on demand, and nothing is less 
 readily convertible into gold on an emergency 
 than land. In this respect a reserve of real 
 property is worse than a reserve of excheq- 
 uer bills or consols. 
 
 This method of providing paper money 
 has generally been advocated on the ground 
 that the quantity of money in circulation 
 might thus be greatly increased, and the 
 wealth of the nation augmented. It could 
 readily be shown, however, that an increase 
 of the money in circulation will lead to a re- 
 duction in its value. In any given state of 
 industry only a certain quantity of circula- 
 ting medium is needed, and were the notes 
 really convertible into definite quantities of 
 land or any other substantial commodity, the 
 excess of notes would ultimately be present- 
 ed for payment. To suppose that the cur- 
 rency could be made equal in aggregate 
 value to any large part of the lands of the 
 country is evidently absurd. 
 
 9. REGULATION BY THE FOREIGN EX- 
 CHANGES. 
 
 A theory was very much in favor among 
 
64 [112] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 bank directors at the beginning of this cen 
 kury that a paper currency could be regula 
 ted merely by watching the rates of the foreign 
 exchanges, and restricting the issue when 
 the lowness of the rates and the export ol 
 specie showed a depreciation of the paper. 
 This was one of the methods proposed in 
 opposition to the celebrated Bullion Report, 
 and a summary of the interminable discus- 
 sions on the subject will be found in Mr. 
 Macleod's Treatise on Banking, Vol. II. 
 Chapter IX. 
 
 Regulation by the foreign exchanges is 
 much better than no regulation at all, but if 
 'perfectly carried out it would give exactly the 
 'same results as the deposit method, and is 
 only a loose and indirect way of reaching the 
 same end. 
 
 IO. FREE ISSUE SYSTEM. 
 
 There is a school of conomists, both in 
 this country and America, who uphold the 
 expediency of allowing all persons to issue 
 as many promissory notes payable on de- 
 mand as they can get other persons to ac- 
 cept. They call this system the Free Bank- 
 ing system, but incorrectly, because it is no 
 necessary function of a banker to issue 
 promissory notes, and a great many banks 
 xist in England without any power of issue. 
 This subject will be further discussed in a 
 subsequent chapter, and I will only add 
 here that under the system of unrestricted 
 issue, a banker is bound by law to pay a note 
 issued by him, but it is left entirely at his 
 own discretion to keep such balance of specie 
 for the purpose as he may think proper. As 
 * general rule, no doubt, notes thus issued 
 will be paid ; but, having regard to the great 
 fluctuations of commerce, which are becom- 
 ing more, rather than less marked, there will 
 occur periods when a pressure for payment 
 of notes will be made. Experience abun- 
 dantly shows that a certain number of indi- 
 viduals will calculate too confidently on their 
 good fortune, and fail to carry out their 
 promises and intentions when the critical 
 iime arrives. 
 
 II. THE GOLD PAR METHOD. 
 
 Assuming an inconvertible paper currency 
 to be issued, and to be entirely in the hands 
 ol the government, many of the evils of such 
 r. system might be avoided if the issue were 
 limited or reduced the moment that the price 
 of gold in paper rose above par. As long as 
 the notes and the gold coin which they pre- 
 tend to represent circulate on a footing of 
 eqnality, they are as good as convertible. 
 Since the beginning of the Franco -Prussian 
 war, the Bank of France appears to have 
 acted successfully on this principle, and the 
 inconvertible notes were never depreciated 
 more than about one-half or one per cent, in 
 spite of the vast political or financial troubles in 
 France. But this is one of the very few cases 
 
 been depreciated. During the restriction of 
 specie payments in England, gold was bought 
 and sold at a premium varying up to 25 per 
 cent., yet Fox, Vansitfart, and other leading 
 men of the time, declared it to be absurd to 
 suppose that paper was depreciated. So un- 
 accouutable are the prejudices of men on the 
 subject of currency that it is not well to leave 
 anything to discretionary management. 
 
 12. CONVERTIBILITY BY REVENUE 
 PAYMENTS. 
 
 In many instances governments have fried 
 to maintain the value of a paper circulation by 
 engaging to receive it as taxes, or even ren. 
 dering its use for this purpose obligatory. 
 The Russian government, when issuing assign- 
 ats, received them at a fixed rate in place of 
 copper coin, and required that at least one- 
 twentieth part of every payment was to be 
 thus paid. The French assignats of the Rev- 
 olution were also received at the public treas 
 uries. This would be a fair method of secur- 
 ng stability of value oh two conditions : -(i) 
 :hat the taxes or charges were themselves 
 evied according to a fixed tariff ; and (2) 
 :hat the quantity of notes issued were kept 
 within such moderate limits that any one 
 wishing to realize the metallic value of the 
 notes could find some one wanting to pay 
 axes, and therefore willing to give coin for 
 notes. It is very unlikely, however, that 
 hese conditions could e^er be fully and con- 
 veniently realized in practice. 
 
 The United States greenback currency 
 was made receivable for United States stamps, 
 ind was also to be received in payment of all 
 axes and dues in sums of certain assigned 
 amounts, excepting Customs dues. But the 
 act that some notes are thus withdrawn will 
 not prevent depreciation, if they be soon paid 
 out again with additions required to meet 
 the pressing expenditure of a government. 
 
 In a small way postage stamps are becom- 
 ing used 'as currency in several countries. 
 They were extensively used in the earlier years 
 of the American war as the well-known frac- 
 tional currency. They are now a recognized 
 medium of payment in England, being re- 
 purchased by most postmasters at a discount 
 of two and one-half per cent, if presented in 
 a piece of two or more undivided stamps. 
 Independently, however, of re-purchase, 
 stamps are so continually being canceled by 
 use in postage, that their value can hardly be 
 lowered by excess of quantity. They form a 
 convenient and costless form of remittance 
 for very small sums, say from a halfpenny to 
 five shillings, and little or no objection can 
 be made to their occasional use as change, in 
 place of pence. They would, however, form 
 a very bad currency if circulated to any great 
 extent. 
 
 13. DEFERRED CONVERTIBILITY. 
 
 It is a common resource for insurrectionary 
 
 in which inconvertible paper currency has not I or belligerent governments in want of funds. 
 
MONEY AND THE MECHANISM Of EXCHANGE. [113] 65 
 
 to issue documents promising to pay cash 
 after their successful establishment. When 
 interest proportional to the time is also prom- 
 ised, these notes must be regarded rather as 
 bonds. Of such nature were those issued by 
 Kossuth in New York to form a Hungarian 
 fund, to be paid after the erection of an inde- 
 pendent Hungarian government. Similar 
 bonds were signed by the notorious Walker, 
 as President of the provisional government of 
 tin- republic of Nicaragua By far the best 
 instance of this kind of currency is furnished 
 by the Confederate States treasury notes, the 
 issues of which were made payable six 
 mor.ths after the ratification of a treaty of 
 peace with the United States, and further is- 
 sues were made payable two years after such 
 treaty. 
 
 All such documents may be considered as 
 bills of very long date and of very uncertain 
 value. The public spirit of a people in 
 time of war often enables them to be put 
 afloat, and the need of currency keeps them 
 in circulation for a time, but their value un- 
 dergoes violent variations, and there are few 
 instances in which such bills have been 
 eventually paid. 
 
 14. INCONVERTIBLE PAPER MONEY. 
 
 Finally we come to the undisguised paper 
 money issued bv government and ordered to 
 be received as legal tender. Such inconvert- 
 ible paper notes have in all instances been 
 put in circulation for convertible ones, or in 
 the place of such, and they are always ex- 
 pressed in terms of money. The French 
 mandats of 100 francs, for instance, bear 
 the ambiguous phrase ' ' Bon pour cent 
 francs." The wretched scraps of paper 
 which are circulated in Buenos Ay res, are 
 marked " Un Peso, Moneda Corriente," re- 
 minding one of the time when the peso was 
 a heavy standard coin. After the promise of 
 payment in coin is found to be illusory the 
 notes still circulate, partly from habit, partly 
 because the people must have some currency, 
 and have no coin to use for the purpose, or if 
 they have, carefully hoard it for profit or fu- 
 ture use. There is plenty of evidence to 
 prove that an inconvertible paper money, 
 carefully limited in quantity, can retain its 
 full value. Such was the case with the Bank 
 of England notes for several years after the 
 suspension of specie payments in 1797, and 
 such is the case with the present notes of the 
 Bank of France. 
 
 The principal objections to an inconvert- 
 ible paper currency are two in number. 
 
 1. The great temptation which it offers to 
 over issue and consequent depreciation. 
 
 2. The impossibility of varying its 
 amounts in accordance with the requirements 
 of trade. 
 
 OVER ISSUE OF PAPER MONEY. 
 
 It is hardly requisite to tell again the well- 
 Worn tale of the over issue of paper money, 
 
 which has almost always followed the re- 
 moval of the legal necessity of convertibility. 
 Hardly any civilized nation exists, excepting 
 some of the newer British colonies, which has 
 not suffered from the scourge of paper 
 money at one time or other. Russia has had 
 a depreciated paper currency for more than a 
 hundred years, and the history of it may be 
 read in M. Wolowski's work on the finances 
 of Russia. Repeated limits were placed to 
 its issue by imperial edict, but the next war 
 always led to further issues. Italy, Austria, 
 and the United States, countries where the 
 highest economical intelligence might be ex- 
 pected to guide the governments, endure the 
 evils of an inconvertible paper currency. 
 Time after time in the earlier history of the 
 New England and some of the other States 
 now forming parts of the American Union, 
 paper money had been issued and had 
 wrought ruin. Full particulars will be found 
 in Professor Sumner's new and interesting 
 " History of American Currency." Some of 
 the greatest statesmen pointed to the results ; 
 and Webster's opinion should never be for- 
 gotten. Of paper money he says : "We 
 have suffered more from this cause than from 
 every other cause or calamity. It has killed 
 more men, pervaded and corrupted the 
 choicest interests of our country more, and 
 done more injustice than even the arms and 
 artifices of our enemy." 
 
 The issue of an inconvertible money, 
 as Professor Sumner remarks, has often 
 been recommended as a convenient means of 
 making a forced loan from the people, when 
 the finances of the government are in a des- 
 perate condition. It is true that money may 
 be thus easily abstracted from the people, 
 and the government debts are effectually 
 lessened. At the same time, however, every 
 private debtor is enabled to take a forced con- 
 tribution from his creditor. A government 
 should, indeed, be in a desperate position, 
 which ventures thus to break all social con- 
 tracts and relations which it was created to 
 preserve. 
 
 WANT OF ELASTICITY OF PAPER MONEY. 
 
 A further objection to a paper money in- 
 convertible into coin, is that it cannot be 
 varied in quantity by the natural action of 
 trade. No one can export it or import it 
 like coin, and no one but the government or 
 banks authorized by government can issue or 
 cancel it. Hence, if trade becomes brisk, 
 nothing but a decree of the government can 
 supply the requisite increase of circulating 
 medium, and if this be put afloat and trade 
 relapse into dullness, the currency becomes 
 redundant, and falls in value. Now, even 
 the best informed government department 
 cannot be trusted to judge wisely and im- 
 partially when more money is wanted. Cur- 
 rency must be supplied like all other com- 
 modities, according to the free action of the 
 laws of supply and demand. 
 
66 [114] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 Some persons have argued that it is well to 
 have a paper money to form a home currency, 
 which cannot be drained away, and will be 
 free from the disturbing influences of foreign 
 trade. But we cannot disconnect home and 
 foreign trade, except by doing away with the 
 latter altogether, If two nations are to trade, 
 the precious metals must form the inter- 
 national medium of exchange by which a bal- 
 ance of indebtedness is paid. Hence each 
 merchant in ordering, consigning, or selling 
 goods must pay regard not to the paper price 
 of such goods, but to the gold or silver price 
 with which he really pays for them. Gold 
 and silver, in short, continue to be the real 
 measure ^ value, and the variable paper cur- 
 rency '.=> only an additional term of comparison 
 which adds confusion. 
 
 CHAPTER XIX. 
 
 CREDIT DOCUMENTS. 
 
 Much mystery has been created on the 
 subject of money by those who assert vaguely 
 that credit can replace coins, and that we have 
 only to print sufficient bills and other promis- 
 sory documents in order to have an abundant 
 circulating medium. Credit has been said to 
 multiply property and to perform all kinds of 
 prodigies. When we analyze its nature, how- 
 ever, credit is found to be nothing but the 
 deferring of a payment. I take credit when I 
 induce my creditor to consent to my paying 
 a month hence what might be demanded to- 
 day ; and I give credit when I allow my 
 debtor in the same manner to put off the 
 liquidation of his debt. This credit involves, 
 as Locke, very accurately said, "the expecta- 
 tion of money within some limited time." 
 The debts, indeed, may consist of a definite 
 quantity of any commodity. I may have to 
 pay corn, pig-iron, palm-oil, cotton, or any 
 other staple article, but, generally speaking, 
 debts are debts of legal tender money. 
 
 MEASUREMENT OF CREDIT. 
 
 In order to measure and define exactly the 
 amount of credit which is given or received, 
 and to estimate the present value of a debt, 
 we must take into account at least five dis- 
 tinct circumstances, which are as follows: 
 
 1. The amount of money to be received. 
 
 2. The probable interval of time elapsing 
 before its receipt. 
 
 3. The probability that it will then be paid. 
 
 4. The rate of interest likely to prevail in 
 the meantime. 
 
 5- The legal liabilities which it creates or 
 involves. 
 
 Writers upon currency have be*n too much 
 accustomed to mass together all kinds of 
 credit documents, taking no account of the 
 important results which tray follow from very 
 slight legal or customary differences. No 
 
 doubt every kind of promise to pay money 
 has a certain value, but the degree in which it 
 may be made available to facilitate exchange 
 varies exceedingly according to circum- 
 stances. 
 
 BANK NOTES. 
 
 What we call a bank note is a promissory 
 note, issued by a banker, and binding him to 
 pay the sum named therein to the bearer im- 
 mediately upon demand. The note is trans- 
 ferable by delivery, so that the holder is, like 
 the holder of a coin, the ownerr-/nVa facie, 
 and as such can claim the fulfillment of the 
 promise at any moment, within reasonable 
 hours, without inquiry. The failure of the 
 banker to pay the note when presented does 
 not create any liability between the persons 
 through whose hands the note had previously 
 passed, so that the note is continually em- 
 ployed, like metallic money, in settling debts 
 and removing liabilities. It is most impor- 
 tant to observe that a bank-note being paya- 
 ble on demand bears no interest, and is never 
 bought at a discount, except when the ulti- 
 mate pay is doubtful. Hence the holder of a 
 note has, like the holder of ordinary coins, 
 no motive in keeping it, except to make 
 future purchases. If a man has more liotes 
 than he expects to pay away in a week or 
 two, he will do best to deposit them in a 
 bank, where they will be safer and at the 
 same time bear interest. There is thus an 
 inherent tendency in notes to circulate like 
 coins, and to be kept down in amount to the 
 lowest quantity consistent with the accom- 
 plishment of retail purchases. 
 
 CHECKS. 
 
 A check payable to bearer is an order 
 addressed to a banker, requiring him to pay 
 the sum named to the bearer of the check on 
 demand. Like a bank-note, it bears no inter- 
 est, and is transferable from hand to hand 
 without any formality, so that the holder is 
 prima facie the owner. If there be no doubt 
 at all as to the credit both of the drawer and 
 of the bank on which the check is drawn, 
 it is difficult to see why a check should be 
 inferior to a bank-note as representative 
 money, except that it is usually drawn for an 
 odd sum. In some places checks have been 
 so used, and in Queensland at the present 
 time, in the absence of coins and notes, the 
 settlers pay their men in small bank checks., 
 which are received at the stores, and thus be- 
 come the circulating medium of the colony. 
 Obvious objections to this use of checks may 
 be pointed out. 
 
 It is impossible to be acquainted with the 
 check forms of all banks, the signatures of 
 those who draw them and the credit of the 
 drawers. If the public were in the habit of 
 daily receiving and paying checks without 
 minutely inquiring into their validity, im- 
 mense facilities would be given to the perpe- 
 tration of fraud. Forgery would be easy but 
 
MOM-V AND Till-: MECHANISM Ol 1 ^CHANGE. 
 
 |115J 67 
 
 hardly requisite, since it would be better to 
 obtain possession of a check book, and then 
 fill up checks for amounts exceeding the de- 
 posits in the banker's hands. Every one ac- 
 cepting a check thus receives it at the risk 
 of fraud or bankruptcy on the part of the 
 drawer. There is, moreover, the possibility 
 of failure of the bank on which it is drawn ; 
 for it is a well-understood point of law, that if 
 the holder of a check does not present it in 
 "reasonable time," that is, before the close 
 of business hours on the day following the re- 
 ceipt of the check, he loses his claim against 
 the drawer, if the bank should happen to fail. 
 The reason obviously is that the drawer loses 
 the deposit which he left in the banker's 
 hands to meet the check, and should not 
 suffer from the holder's want of diligence. 
 
 The salutary effect ofAis law and of other 
 conditions is, that checks do not circulate in 
 this kingdom in place of money, but are usu 
 ally presented within one or two days of re- 
 ceipt. Hence they come to serve as mere in- 
 struments of transfer of money, and involve 
 no considerable length of credit. Nothing 
 can be gained by holding an ordinary check, 
 for there is no interest, and something may 
 be lost. Beyond the mere trouble of pre- 
 sentation, then, there is no motive to prevent 
 A holder from at once getting coin or bank- 
 notes for his check which, though paying no 
 interest, are safer. Or, still better, he may 
 deposit the sum at his bankers, get a low in- 
 terest in the meantime, and draw a new 
 check of his own when he wishes to pay the 
 check away again. Experience shows that 
 the latter is the most satisfactory course, the 
 money being usually safer and more available 
 in the hands of a good banker than else- 
 where, and usually paying interest all the 
 time. On this foundation is erected the ex- 
 tensive system of payment which will be de- 
 scribed in the next chapter, and which may 
 be called the Check and Clearing System. 
 
 There are, indeed, many varieties of 
 checks. Bankers' checks are those drawn 
 by one banker upon another, and are used as 
 a means of remittance. If both the bankers 
 concerned are of perfect credit, and the form 
 and signature can be verified, such checks 
 seem to me to be in no way inferior to bank- 
 notes as representative money. If two per- 
 fectly well-known banks were to arrange to 
 draw checks upon each other for convenient 
 even amounts, and to issue these to their cus- 
 tomers, it would effect a successful evasion of 
 vhe law against the unlimited issue of notes. 
 So great however is the force of habit, or the 
 respect for law, that no such attempt is 
 made, and bankers' checks are presented al- 
 most as promptly as any others. 
 
 Certified checks, as employed in the New 
 York trade, are a still nearer approach to a 
 bank-note, for they are checks which have 
 been marked by the bankers on whom they 
 are drawn, as sure to be paid on presenta- 
 tion. Either the banker in certifying the 
 
 check has funds belonging to the drawer 
 which he can retain to meet it, or else he 
 pledges his own credit that he will meet the 
 check in any case. Such checks are really 
 promissory notes of the banker, and I can 
 see no reasons why they should not circulate 
 as freely as bank-notes, except that they are 
 drawn for odd sums, and present few safe- 
 guards against forgery. The checks of the 
 Check Bank, which will be subsequently 
 considered (Chapter XXII.), are equivalent 
 to certified checks, as they cannot be issued 
 except against deposits which are retained 
 until the check is presented. 
 
 Of late years the practice has become very 
 general of making checks payable to order 
 instead of to bearer, and of crossing them 
 so as to necessitate their presentation through 
 a banker. The order may, indeed, be dis- 
 charged by an open endorsement, which 
 renders the check again payable to bearer, 
 but there remains the possibility of a forged 
 endorsement, concerning which difficult points 
 of law have arisen. A general crossing need 
 not interfere appreciably with the circulation 
 of a check, but when crossed specifically 
 for presentation through a particular bank, 
 the check becomes practically an order to 
 credit a particular individual, who keeps his 
 account in that bank, with the sum of money. 
 
 BILLS OF EXCHANGE. 
 
 A bill of exchange is an order to a person 
 to pay money to the legal holder of the docu- 
 ment on a day indicated therein. If payable 
 at sight, a bill does not apparently dirfer 
 from a check or draft to order, except that 
 it will be usually drawn upon persons of less 
 credit than well-known bankers. If not 
 payable at sight, the length of time interven- 
 ing between the day named for payment and 
 the day of issue may vary from a day or two 
 upward, and the money cannot be demanded 
 in the meantime. Hence, a bill generally 
 bears interest, or rather is only bought at such 
 a discount as will enable it to be held to 
 maturity without loss. To estimate the 
 liability of loss, some estimate must be formed 
 of the rate of interest likely to prevail in the 
 meantime, and the value of the bill will thus 
 vary according to a multitude of circum- 
 stances. Bills of exchange may be made 
 payable to the bearer, but as a general rule 
 they are payable to a specified person, and 
 transferred by endorsement to other specified 
 persons. Thus, every party concerned with 
 a bill incurs a certain liability, which is not 
 removed until it is duly paid. In several 
 respects, then, a bill may differ from coined 
 money, which bears no interest, and dis- 
 charges instead of creating liability when ten- 
 dered in payment of debts. ' 
 
 INTEREST-BEARING DOCUMENTS. 
 
 It is extraordinary that few writers on 
 currency have remarked the deep difference 
 between commercial documents which bear 
 
68 [116] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 interest and those which do not. On this 
 point turns the possibility of their forming 
 representative money. For it is an essential 
 characteristic of coin that it yields no profit 
 by keeping it in the pocket or the safe. I 
 may be obliged to keep money ready to pay 
 debts, but in the meantime I lose the interest 
 which I might receive by investing the sum 
 in the funds, in bills, bonds, or even as a 
 bank deposit. Hence money must be con- 
 sidered as a commodity which, as Chevalier 
 says, is in a constant state of supply and de- 
 mand. Every one is always trying to part 
 with it in a profitable purchase, and keeps as 
 little in hand as possible. The same is even 
 more true of bank-notes, checks, circular 
 notes, bills at sight, and a few other kinds 
 of documents, all of which are payable on 
 demand at sny moment, so that no amount 
 of interest can be assigned to them. Except 
 so far as the payment may be doubtful, or 
 the possession of the documents may involve 
 the holder in legal difficulties, these docu- 
 ments have the characteristics of coin, and 
 the amount held is kept down to the lowest 
 convenient figure. Interest-bearing docu- 
 ments, on the contrary, are held in as large 
 quantities as possible, because the longer 
 they are held the more interest accrues. It 
 is the principal business of every banker to 
 hold a portfolio full of good bills, which 
 really represent the investment of capital in 
 industry. Government bonds, or bonds 
 issued by public companies and corporations, 
 do not differ from commercial bills except in 
 the fact that they have very long, or even 
 interminable, usance, and that the interest is 
 paid at definite intervals. Such bonds repre- 
 sent the sinking of capital in fixed under- 
 takings, and are therefore held as property 
 by individual investors. They may be bought 
 and sold for money, but are not money 
 themselves. They rather necessitate than re- 
 place the use of money, since currency must 
 have been paid at the first investment, and is 
 repaid by degrees at the periodical terms 
 fixed. 
 
 A number of schemists have urged from 
 time to time that, in addition to our ordinary 
 currency, there ougat to be an interest-bearing 
 currency. The first small issue of the French 
 assignats bore interest, and about twelve 
 years ago the United States Government 
 tried a similar" experiment, which was soon 
 discontinued. Persons have proposed to 
 coin the whole National Debt into money, 
 so that instead of some 160 millions of 
 metallic and paper currency we might have 
 more nearly a thousand millions. Mr. E. 
 Hill has published a form of bank-note en- 
 titling the holder to one hundred pounds on 
 demand, and to interest at the rate of 3^ 
 per cent, up to the time when it is presented, 
 the amount of interest being tabularly stated 
 on the form. It is obviously impossible, 
 however, that any government should issue 
 such notes, because whenever the current 
 
 rate of interest rose above 3 >, and the value 
 of the note accordingly fell below par, a 
 profit would be made by presenting the notes 
 for payment. Thus the government issuing 
 such notes would have to keep a large 
 quantity of coin in reserve to meet them, and 
 would at the same time be paying interest on 
 the whole of the notes. Thus there would 
 be a loss of interest upon the whole reserve 
 of coin. 
 
 The English government has rendered the Na- 
 tional Debt as transferable as possible by au- 
 thorizing, in terms of the Act of 33 and 34, Vic- 
 toria, chapter 71, the issue of stock certificates. 
 These certificates resemble the bonds of the 
 United States and other governments. They 
 have coupons for the payment of interest, and 
 when not filled up with a name are transfer- 
 able by delivery like bank notes. They are 
 issued in exchange for Three per Cent. An- 
 nuities for even sums of not less than ^50 
 and not more than .1,000; and if the right to 
 annuity could be passed from one person to 
 another as currency, these certificates would 
 allow of its being done. But it is understood 
 that a comparatively small amount of such 
 certificates has ever been applied for. They 
 are, I believe, used to some extent by bank- 
 ers and others, who have to hold sums of 
 money invested in the funds for short peri- 
 ods, and can save the cost of transfers by 
 the use of certificates. The public at large 
 are found to prefer the old method of regis- 
 tering their stock in the books of the Bank of 
 England. 
 
 DEFINITION OF MONEY. ^ 
 
 Much ingenuity has been spent upon at- 
 tempts to define the term money, and puz- 
 zling questions have arisen as to the precise 
 kinds of credit documents which are to be in- 
 cluded under the term . Standard legal ten- 
 der coin of full weight is undoubtedly money, 
 and as convertible legal tender bank-notes are 
 exactly equivalent to the coined money for 
 which they may at any moment be exchanged; 
 it has often been considered that these also 
 may be included. But inconvertible notes 
 are often made legal tender by law, and can 
 discharge in inland trade all the functions of 
 money. Are they not then to be included ? 
 The question will next arise whether checks 
 may not be as good as money. 
 
 All such attempts at definition seem to me to 
 involve the logical blunder of supposing that 
 we may, by settling the meaning of a single 
 word, avoid all the complex differences and 
 various conditions of many things each re- 
 quiring its own definition. Bullion, standard 
 coin, token coin, convertible ard inconverti- 
 ble notes, legal tender and not legal tender, 
 checks of several kinds, mercantile bills, 
 exchequer bills, stock certificates, etc., are 
 all things capable of being received in pay- 
 ment of a debt, if the debtor is willing to pay 
 and the creditor to receive them; but they 
 are, nevertheless, different kinds of things. 
 
MONEY AND THE MECHANISM OF EXCHAMiK. 
 
 [117] 69 
 
 By calling some money and some not, we do 
 not save ourselves from the consideration of 
 their complex legal and economical differ- 
 ences. Bullion is evidently not coin, but 
 can be turned into it at little or no cost, and 
 will make foreign payments almost as well as 
 coin. Token coins are not standard coins, 
 and will not make foreign payments, but are 
 legal tender for small sums, and may be 
 readily exchanged for standard coin at little 
 or no loss. Bank of England notes are not 
 exactly coin, but can be readily turned into 
 coin by those who dwell near the Bank of 
 England, and are received as equivalent to 
 coin by other persons. Checks are not 
 coin, but orders to receive it on demand, and 
 are valuable in proportion to the probability 
 that the sum will be received. Accepted 
 bills are an engagement to pay coin at a day 
 named ; if we overlook the possible failure of 
 the acceptor to pay them, they are, as it were, 
 deferred money. A certificate of consoli- 
 dated stock entitles the holder to an annuity, 
 that is, to quarterly sums of money. 
 
 We get back, in short, to that with which 
 we started. Standard legal tender coin is 
 that in which all commercial transactions and 
 documents are expressed, but according to 
 infinitely various circumstances, the receipt 
 of the money is more or less deferred, more 
 or less involved in legal complexities, and 
 also variable in amount, as interest is or is 
 not to be received in addition. All other 
 commercial property, mortgage deeds, prefer- 
 ence shares and bonds, and ordinary shares, 
 resolve themselves into more or less proba- 
 oility of receiving coin at future dates ; and 
 thus we pass insensibly from the golden sov- 
 ereign in hand to the most flimsy chance of 
 receiving gold which is still like the bird in 
 the bush. 
 
 The word cash is used with exactly the 
 same ambiguity as money. Originally cash 
 meant that which was encaisse, i. e. t put into 
 the chest or till. Strictly speaking, it should 
 consist of actual specie, and the word is used 
 in some English banks to include only coin 
 of the realm. But I find by actual inquiry 
 that bank cashiers use it with every shade of 
 meaning. Some take Bank of England notes 
 to be cash. Good checks upon a bank paid 
 into that bank are evidently as good as cash. 
 Others go so far as to include checks upon 
 other banks of the same town, and even 
 country bank-notes are sometimes included 
 in cash. The question is evidently one of 
 degree, and cannot be settled except by the 
 general adoption among cashiers of some one 
 arbitrary line of definition. 
 
 In ordinary life we use a great many 
 words with a total disregard of logical pre- 
 cision. Who shall decide, for instance, what 
 objects are to be included under the names 
 building and house? Let the reader attempt 
 to decide which of the following objects is to 
 be considered a house, and why? namely, 
 stables, cow-houses, conservatories, sheds, 
 
 lighthouses, tents, caravans, hulks, sentry, 
 boxes, ice-houses, summer-houses, and par. 
 ish pounds. The difficulty is exactly anal, 
 ogous to that of deciding what is money or 
 cash. 
 
 CHAPTER XX. 
 
 BOOK CREDIT AND THE BANKING SYSTEM. 
 
 Considerable economy o the precious 
 metals arises, as we have seen, from passing 
 about pieces of paper representing gold coin, 
 instead of the coin itself. But a far more 
 potent source of economy is what we majr 
 call the Check and Clearing System, where- 
 by debts are, not so much paid, as balanced 
 off against each other. The germ of the 
 method is to be found in the ordinary prac- 
 tice of book credit. If two firms have fre- 
 quent transactions with each other, alternate- 
 ly buying and selling, it would be an absurd 
 waste of money to settle each debt immedi- 
 ately it arose, when, in a few days, a corre- 
 sponding debt might arise in the opposite di- 
 rection. Accordingly, it is the common prac- 
 tice for firms having reciprocal transactions, 
 to debit and credit each other in their books 
 with the debt arising out of each transaction, 
 and only to make a cash payment when the 
 balance happens to become inconveniently 
 great. An insurance broker is one who acts 
 as a middleman between the owners of ships 
 and the underwriters who insure them in 
 shares. He has, therefore, to make many 
 small payments to underwriters, for the pre- 
 miums on policies, and at intervals has to 
 receive back the indemnity for any insured 
 vessel which has been lost. It is the com- 
 mon practice to avoid cash payments ; the 
 broker credits the underwriter with the pre- 
 miums and debits him with losses, and only 
 pays or receives the balance when large. 
 
 To represent the highly complex system of 
 book credit which is organized by the bank- 
 ers of a large kingdom, we shall have to em- 
 ploy a method of diagramatic notation. I 
 will therefore remark that the simplest case 
 or type of book-credit is represented by the 
 formula 
 
 P Q. 
 
 Each of the letters, P and Q, indicates a 
 person or a firm, and the line indicates the 
 existence of transactions between them. 
 Only in special cases, however, will this di- 
 rect balancing of accounts render the use of 
 cash or of a more complex system unneces- 
 sary. Generally speaking, there will be a 
 tendency for a surplus of goods to pass in 
 one direction, so that money must pass in 
 the opposite direction. The manufacturer 
 sells to the wholesale dealer, the latter sells 
 to the retailer, and the retailer to the con- 
 sumer. By the intervention of the banker,. 
 
70 .[118] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 however, the transactions of many different 
 individuals, or even of many branches of 
 trade, are brought to a focus, and a large 
 proportion of payments can be balanced off 
 against each other. 
 
 SINGLE BANK SYSTEM. 
 
 To obtain a clear notion of the way in 
 which bankers help us to avoid the use of 
 money as the medium of exchange, we must 
 follow up the rise of the system from the 
 simplest case to the complete development 
 of the complex organization now existing in 
 the United Kingdom. Let us imagine, in 
 the first place, that there is an isolated town 
 having no appreciable dealings with other 
 parts of the world, and possessing only a sin- 
 gle bank, in which each inhabitant has de- 
 posited all his money. If any person, a, then 
 wishes to make a payment to b, he need not 
 go to his banker, draw out coin, and carry it 
 to b, but may hand to b a check requiring the 
 banker to pay the coins to b, if needed. But 
 if b makes payments in the same way, he will 
 not need to draw out any coin. It would be 
 a mere formality for b to receive the coin due 
 from a, and then pay it back over the counter 
 to the credit of his account with the same 
 banker. The payment is made by merely 
 writing the sum cf money to the debit of a's 
 account. If b wishes to make another pay- 
 ment to c, a similar record in the banker's 
 ledger will accomplish the business. However 
 many other traders, d, e, etc., there may be, 
 their mutual transactions may be settled in 
 the same way, without their seeing a single 
 coin. We may represent this elementary 
 banking organization by the following dia- 
 gram, 
 
 it is requisite to consider have an accoun 
 with one or the other. In the diagram, 
 
 \\l/ \\// 
 
 let P and Q be the two bankers, a t b, c, a 
 being customers of P, and q, r, s, t, cus- 
 tomers of Q. Now the mutual transactions 
 of a, 6, c, d will, as before, be balanced off 
 in the books of P, and similarly with the 
 customers of Q. But if a has to make a 
 payment to q. the operation becomes some- 
 what more complex. He draws a check 
 upon P, and hands it to q, who may, of 
 course, demand the coin from P. Not want- 
 ing coin, he carries the check to his own 
 banker, Q, and pays it into his account in 
 place of coin. It is the banker, Q, who 
 will now have to present the check upon P, 
 and it might seem as if the use of coin would 
 be ultimately required. There will be other 
 persons, however, making payments in the 
 town in the same manner, and the probabil- 
 ity is very great that some of these will result 
 in giving P checks upon Q, and some in 
 giving Q checks upon P. The two bankers, 
 then, will be in the position of the two traders 
 before described, who have a running 
 account. At the worst the payment to be 
 made in coin will be only the balance of 
 what is due in opposite directions ; but as 
 this balance will probably tend in one direc- 
 tion one day, and in the opposite direction 
 the next day, the balance need only be paid 
 when it assumes inconvenient proportions. 
 
 I ro ft 9 9 * 
 
 in which it is obvious that P represents the 
 single banker, and a, b, c, d, e his customers. 
 The deposit banks of Amsterdam and Ham- 
 burg form perfect illustrations of this arrange- 
 ment. 
 
 So long as we regard only the internal 
 transactions of a town, then, a stationary 
 amount of coin, lying untouched in the bank, 
 will allow the whole to be accomplished. If 
 the traders never require to make payments at 
 a distance, the metallic money might be dis- 
 pensed with altogether. But since any of 
 the customers , b, c, etc. , may want his 
 money, the banker ought to keep at least as 
 much as will meet possible demands. 
 
 SYSTEM OF TWO BANKS. 
 
 As a second case, let us suppose that there 
 is a town which is able to support two banks. 
 Some of the inhabitants keep their money in 
 one bank and some in the other, but all whom 
 
 COMPLEX BANK SYSTEM. 
 
 A large commercial town usually possesses 
 several banks, each with its distinct body of 
 customers, The mutual transactions of 
 each body will, as before, be balanced off 
 in the books of this common bank, but the 
 larger part of the transactions will be cross 
 ones, resulting in a claim by one banker 
 upon another. The probability is very great, 
 indeed, that each banker will have to receive, 
 as well as to pay, each day ; but it does not 
 follow that he will pay to the same as those 
 who are going to pay to him. The com- 
 plexity of relations becomes considerable ; 
 
 thus among fourteen banks there are * 4 X ~ 
 
 2 
 
 or 91 different pairs which may have mutual 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [119] 71 
 
 claims, and among fifty banks there would be 
 no less than 1,225 pairs. The result is, that 
 P might happen to have a considerable bal- 
 ance to pay toQ, and yet might be going to 
 receive about the same sum from K or S. 
 The actual carrying about of coin under 
 such circumstances would be absurd, be- 
 cause a manifest extension of the book-cred- 
 it system at once meets the difficulty. The 
 several banks need only agree to appoint, as 
 it were, a bankers' bank^ to hold a portion of 
 the cash of each bank, and then the mutual 
 indebtedness may be balanced off just as 
 when a bank acts for individuals. In the 
 figure we see four banks, P, Q, R, S, each 
 with its own body of customers, but brought 
 into connection with each other by the bank- 
 ers' bank, X. P need not now send a clerk 
 to present bundles of checks upon Q, R, 
 and S, but can pay them into the central 
 bank, X, where after being placed to the 
 credit of P and sorted out, they will be 
 joined to similar parcels of checks received 
 from Q, R, S, and finally prtsented at the 
 banks upon which they are drawn. Thus 
 all the payments made by checks will be ef- 
 fected without the use of coin, just as if 
 there were only a single bank in the town. 
 What each bauk has to pay each day will 
 usually be balanced pretty closely by what 
 it has to receive. Such balance as remains 
 will be paid by a transfer in the books of X, 
 the bankers' bank. 
 
 It is not precisely true that there is in 
 any English town a bankers' bank, which 
 thus arranges the payments between banks. 
 The accountants' part of the work is carried 
 out by an institution called the Clearing 
 House, managed by a committee of bankers, 
 and the Bank of England is employed to 
 hold the deposits of the bankers, and make 
 transfers which close the transactions of 
 each day. The organization of the Clearing 
 House will be described in the next chapter. 
 
 BRANCH BANK SYSTKM. 
 
 It is impossible to avoid perceiving that 
 the organization of the English bank system 
 is undergoing a complete transformation, and 
 is approximating to that which has existed 
 for a century or more in Scotland. Instead 
 of a great number of small, weak, discon- 
 nected banks, there is arising, by amalgama- 
 tion and extinction of the weaker ones, a 
 moderate number of important banks, each 
 possessing numerous branches. The Scotch 
 banks have long had many branches, and at 
 present each of the eleven great, banks has on 
 an average 78 branches, the lowest number 
 being 19, and the highest 125. Already a 
 few of the English banks have equally exten- 
 sive ramifications. Thus the London and 
 County Bank, and the National Provincial 
 Bank, which have especially developed the 
 branch system, have respectively 148 and 137 
 branches ; the Manchester and Liverpool 
 District Bank has 50 branches and sub- 
 
 branches. The Irish Banks also adopt the 
 the same system, and the National Bank of 
 Ireland has about 114 branches and sub- 
 branches. It is interesting to observe that in 
 Australia, too, the banking system has taken 
 3 similar form, and a comparatively small 
 number of strong banks, such as the Bank of 
 New South Wales, or the Bank of New Zea- 
 land, leave no rising village without its 
 branch. 
 
 Now, the close connection which exists be- 
 tween the head office and each of the branches 
 of an extensive bank leads to a great clearing 
 off of claims. The third diagram again 
 serves to represent this relation, X being the 
 head office, P, Q, R, S, branch banks, and 
 a, b, c, etc., customers. If a pay m with a 
 check on P. the check will be paid into R, 
 credited to tn, forwarded by post direct to P, 
 and debited to a. The head office being in- 
 formed of this transaction in the usual daily 
 statement, will close the business by trans- 
 ferring the sum from the account of P to 
 that of R. Much accountants' work seems 
 to arise, but it is work of mere routine which 
 costs little. Cash remittances are seldom 
 necessary, because each branch settles accounts 
 only with the head office, so that many sums 
 will be credited and debited during each 
 week, and the balance will usually be small. 
 The head office, in fact, acts in every way 
 ike a clearing house, or bankers' bank. 
 
 The question naturally arises, indeed, how 
 will the branches of one bank transact business 
 with those of another bank? The solution, 
 lowever, is simple ; for unless the branches 
 lappen to be in the same town, or for other 
 reason, in close relation with each other, they 
 will communicate through their head offices. 
 A check upon any branch of the London and 
 County Bank received by a branch of the 
 National Provincial Bank, will be presented 
 through the head office of the latter at the 
 Clearing House upon the head office of the 
 former. 
 
 BANK AGENCY SYSTEM. 
 
 Another important feature of the banking 
 system is the extensive organization of 
 agencies. A large bank has various business 
 to be transacted in each of the principal com- 
 mercial towns of the kingdom, and if it has 
 no branches in these towns employs a banker 
 in each town to act as its agent. This agent- 
 bank collects checks, notes, etc., payable in 
 the district, cashes drafts drawn against 
 them, retires bills according to instructions, 
 and does almost all that a branch bank would 
 do, the main difference being that the re- 
 muneration for this work consists of a com- 
 mission. Each agent-bank has a running 
 account with its principal, so that to a certain 
 extent each important bank and its agencies 
 form a clearing system analogous to that of 
 a head bank and its branches. 
 
 LONDON AGENCY SYSTEM. 
 
 By insensible degrees there has grown up 
 
T'J {120] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 vn England an all-comprehensive and most 
 perfect system of relations between the pro- 
 vincial and London city banks. Every 
 b inker in the United Kingdom, without, I 
 believe, any exception, employs one or other 
 of the great London city banks to act as 
 agent. There are twenty-six city clearing 
 banks which thus undertake agencies, and on 
 an average each of these banks represents at 
 least twelve country banks ; but the number 
 varies very much, and some country banks 
 have two London agent banks. 
 
 This agency system leads at once to a 
 clearing of transactions, because, if any two 
 country banks have the same London agent, 
 all their mutual adjustments of accounts can 
 be made by transfers in the books of the 
 agent. The third diagram on p. 70 applies 
 once more, and X represents the city agent, 
 having running accounts with P, Q. R, S, 
 the country banks. The whole of the cus- 
 tomers of all the banks, having the same 
 London agent, are thus brought into close 
 relation, though they may live in the most 
 distant parts of the country. Each of the 
 city banks may be regarded as a bankers' 
 bank and a clearing house on a small scale. 
 
 COUNTRY CLEARING SYSTEM. 
 
 Only one further step is required to com- 
 plete the system of connections between each 
 bank in the kingdom and all other banks. 
 Every country bank, as we have seen, has a 
 running account with some city bank, and 
 all the city banks daily settle transactions 
 with each other through the Clearing House. 
 It follows that a payment from any part of 
 the country to any other part can be accom- 
 plished through London. In the following 
 diagram, 
 
 A t * * / I 
 
 \l/ W 
 
 m n 
 
 T 5 i 
 
 B 
 
 ^ CB 
 
 let P, Q, R, be country banks having 
 the London agent, X, and U, V, 1 W, 
 other country banks having the London 
 agent, Y. If a, a customer of P, wishes to 
 pay r, a customer of U, he transmits by post 
 a check upon his banker, P. The receiver, 
 r, pays it into his account with U, who, 
 having no direct communication with P, for- 
 ward it to Y, who presents it through the 
 Clearing House on X, who debits it to P, and 
 forwards it by the next post. Nothing can 
 exceed the simplicity and perfection of this 
 arrangement. 
 
 It will be readily seen, too, that sums of 
 money passing between London banks, or 
 
 rather cleared off in the Lombard Street Clear- 
 ing House, will frequently be the balances of 
 extensive running accounts between country 
 banks and their agents and correspondents. 
 So long as the balance of accounts between 
 any two banks does not assume large propor- 
 tions, it need not be paid in cash at all, ex- 
 cept for special reasons. When a balance 
 has to be paid, and the banks happen to have 
 the same London agent, it is only requisite 
 for the debtor bank to direct their London 
 agent to transfer so much money to the credit 
 of the other country bank. If any have dif- 
 ferent London agents, and P, in the last dia- 
 gram, desires to pay a balance to U, it is done 
 by directing X to credit Y, the agent of U. 
 The credit note effecting this payment passes 
 through the Clearing House amid a mass of 
 other documents representing payments in 
 one direction or the other, and will in general 
 become an insignificant item in the general 
 clearing. If it can be said to be paid in cash 
 at all, it is in the form of a final transfer in 
 the books of the Bank of England, as we 
 shall see. Great as are the transactions daily 
 settled in the London Clearing House, they 
 are after all only those which have not been 
 previously cleared off bv any more direct com- 
 munication, and they often represent the bal- 
 ances of multitudinous transactions whicfc 
 never pass through London at all. 
 
 CHAPTER XXI. 
 
 THE CLEARING-HOUSE SYSTEM. 
 
 By means of the London agency system, 
 
 the banking transactions of the country are, 
 
 as we have seen, brought to a focus in the 
 
 city of London. The 
 
 u v V! g g z settlement of the re- 
 \ | / \ I / ciprocal claims of the 
 \ I / \ I / twenty-six principal 
 city banks is therefore 
 a business of the ut- 
 most magnitude and 
 importance, represent- 
 ing as it does the 
 completion of the 
 business of no small 
 part of the world. In 
 a room of moderate dimensions, entered from 
 a narrow passage running from the post- 
 office in King William Street across to Lom- 
 bard Street, debts to the average amount of 
 nearly twenty millions sterling per day are 
 liquidated without the use of a single coin or 
 bank-note. In the classic financial neighbor- 
 hood of Lombard Street, and even in this 
 very chamber, the system of paper commerce 
 has been brought nearly to perfection. The 
 early history of the London Clearing House 
 is buried in obscurity, and it is much to be 
 desired that those who are acquainted with 
 the principal incidents in its progress should 
 put them on record before it is too late. 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 | 121] 73 
 
 The Clearing House appears to have been 
 first created just a century ago. About the 
 year 1775 a few of the city bankers hired a 
 room where their clerks could meet to ex- 
 change notes and bills, and settle their mutual 
 debts. The society was of the nature of a 
 strictly private club, the public knowing 
 nothing about it, and the transactions being 
 conducted in perfect secrecy. Mr. Gilbart 
 tells us that, even in this form, it was re- 
 garded as a questionable innovation, and 
 some of the principal bankers refused to have 
 anything to do with it. By degrees, however, 
 the convenience of the arrangement made it- 
 self apparent, more bankers were admitted to 
 the society, and a distinct committee and set 
 of rules were formed for its management. 
 Although it remains to the present day a 
 private and voluntary association, unchar- 
 tered, and in fact unknown to the law, the 
 Clearing House has steadily grown in import- 
 ance and in the publicity of its proceedings. 
 
 Several important extensions of the clear- 
 ing work have been made in the last twenty- 
 five years. After the rise of the London 
 Joint Stock Banks, subsequent to 1833, they 
 were for a long time refused admittance to 
 the Clearing House ; but in June, 1854, they 
 were at last allowed to join the association. 
 The Bank of England long remained entirely 
 outside of the confederation, but more re- 
 cently it has become a member, so far as re- 
 gards the presentation of claims upon other 
 banks. The West End banks of London are 
 still beyond its sphere, partly, perhaps, be- 
 cause their distance stands in the way of the 
 working of the system. They are thus in the 
 position of provincial banks, and can clear 
 through city agents like provincial banks. 
 
 Before the year 1858 the business of the 
 Clearing House was restricted to the ex- 
 change of checks and bills actually drawn on 
 the clearing bankers. Country bankers re- 
 ceiving checks drawn upon other distant 
 country banks were in the habit of remitting 
 them direct by post, the paying bank ef- 
 fecting the payment by directing their Lon- 
 don banker to pay the amount to the London 
 agent of the receiving bank. In the year 
 1858, at the suggestion of Mr. William Gil- 
 lett, but chiefly by the exertions of Sir John 
 Lubbock, the country clearing system was 
 organized. The country banker, instead of 
 posting many checks every day to all parts 
 of the kingdom, sends them in a single par- 
 cel to his London agent, to be presented 
 through the Clearing House on the London 
 agents of the paying banks. This exchange 
 is made, as we shall see, at different hours of 
 the day, but the results are summed up in the 
 general balance of the day's transactions. 
 
 TRANSACTION OF BUSINESS AT THE LONDON 
 CLEARING HOUSE. 
 
 There are three clearings daily at the Lom- 
 bard Street House. The morning clearing 
 op*ns on ordinary days at 10.30; drafts are 
 
 received not later than II, and the work 
 must be closed at noon. The country clear- 
 ing then begins, drafts being received until 
 12 30, and the clearing closed at 2.15. The 
 heaviest clearing, however, is that of the af- 
 ternoon, which begins at 2.30. The bustle 
 and turmoil of the work grow to a climax at 
 four o'clock, the runners rushing in with the 
 last parcels of drafts, up to the moment when 
 the door is finally closed. On the fourth 
 day of each month, when the heariest work 
 occurs, the hours are extended, the House 
 opening at nine o'clock. 
 
 The Clearing House is a plain oblong 
 room, with rows of desks in compartments 
 round three sides, and down the middle. A 
 small office for the two superintendents stands 
 at one end. Each bank sends as many clerks 
 to the House as may be requisite for the- 
 rapid completion of the work, and some 
 banks have as many as six clerks. The 
 checks and bills to be presented by any one 
 clearing bank, say the Alliance Bank, upon 
 any other clearing banker, are entered at 
 home in the "Out-clearing book," and are 
 then sorted into twenty-five parcels, one of 
 which is to be presented on each of the other 
 clearing banks. On reaching the Clearing 
 House, these parcels are distributed round 
 the room to the desks of the clerks represent- 
 ing the several paying banks, who imme- 
 diately begin to enter them in the " In-clear- 
 ing books " in columns bearing at the head 
 the name of the presenting bank. After be- 
 ing entered, the drafts are, as soon as possi- 
 ble, forwarded to the banking house for ex- 
 amination and entry in the bank books. Any 
 checks or bills refused payment are called 
 " returns," and can generally be sent back to 
 the Clearing House the same day, and en- 
 tered again as a reverse claim by the bank 
 dishonoring them on the banks which pre- 
 sented them. At the close of the day the 
 clerks of the Alliance Bank are able to add 
 up the whole of the claims which have been 
 made upon them by the other twenty-five 
 banks, and they learn from the out-clearing 
 book the amount of the claims which the Al- 
 liance Bank is making on other banks. The 
 difference is the balance which the Alliance 
 Bank has either to pay or receive as the case 
 may be. These balances being .communi- 
 cated to the superintendents of the House are 
 by them inserted in a kind of balance sheet. 
 When finally added up, the debtor aiul 
 creditor sides of the sheet should exactly 
 balance, because every penny to be received 
 by one bank must be paid by another. 
 
 In former years the balance due by or to 
 each bank was paid in bank notes, and in 
 the year 1839, average daily transactions to 
 the amount of about three millions were 
 cleared by the use of ^200,000 in bank- 
 notes, and ,20 in coin, or about one- 
 fifteenth part of the debts liquidated. More 
 recently a suggestion of the late Charles. 
 Babbage was carried into effect, and the bal- 
 
74 [122] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 ances were paid by drafts upon the Bank of 
 England, in which bank each city banker de- 
 posits a large part of his spare cash. 
 
 One ingenious minor arrangement in the 
 London Clearing House is the division of 
 the whole list of twenty-six bankers into 
 three groups, in such a way that one of the 
 clearing clerks of the Alliance Bank corre- 
 sponds with one group of the other banks, a 
 second clerk with the second group and so 
 on. Thus when a comparison or correction 
 of accounts is made between any two banks, 
 :*: is known precisely which clerk must an- 
 swer to the questions called across the room. 
 
 Although the rapid and effective way in 
 which the settlement is carried out in the 
 London Clearing House must always excite 
 surprise, it is quite open to question whether 
 i improvements are not needed. The room does 
 not seem to be large enough for the conven- 
 ient and wholesome transaction of such vast 
 and increasing work. Although some banks 
 employ as many as six clerks, the pressure is 
 very great at times. The facility which these 
 clerks acquire by practice in making and add- 
 ing up entries is very great, but the intense 
 head work performed against time, in an at- 
 mosphere far from pure, and in the midst of 
 bustle and noise arising from the corrections 
 shouted from one clerk to another across the 
 room, must be exceedingly trying. Brain 
 disease is occasionally the consequence. 
 
 The question must arise, too, whether the 
 privilege of clearing is to be forever restrict- 
 ed to twenty-six principal city banks, when 
 there are certainly many other banks existing 
 or being founded which need the convenience 
 of access to the House. In New York the 
 clearing circle, as we shall see, is much wider. 
 At present the minor London banks are 
 forced to employ the clearing bankers as 
 agents, or to forego the advantages of the 
 Clearing House altogether. It is hardly just 
 or possible that a narrow monoply of the sort 
 should be maintained forever. 
 
 MANCHESTER CLEARING HOUSE. 
 
 Though the London Clearing House is en- 
 tirely the birthplace of the system, and the 
 spot where the work has been organized on 
 the largest scale, it does not follow that it is 
 in every respect the most suitable for imita- 
 tion in commercial towns of less magnitude. 
 At least two English provincial towns, Man- 
 chester and Newcastle, have established local 
 clearing houses. The bankers of Liverpool, 
 also, I am told, have recently arranged a pri- 
 vate system of clearing houses among them- 
 selves; and it is possible that the bankers of 
 other towns may have taken a similar step 
 without the fact becoming generally known. 
 Through the kindness of some members of 
 the committee, I have received full informa- 
 tion as to the working of the Manchester 
 Clearing House. The business seems to have 
 been arranged chiefly, I believe, by Mr. E. 
 "W. Nix, with great success, and it may be 
 
 useful to describe the arrangements in detail, 
 as they would be very suitable for adoption 
 in many English, foreign, or colonial towns, 
 which will doubtless before long establish 
 clearing houses. 
 
 In the Manchester Clearing House the 
 work is performed entirely upon loose forms, 
 and not in account books, as in London. 
 Though these forms may seem rather numer- 
 ous and elaborate, they greatly assist in the 
 accurate and orderly settlement of the balance. 
 The clearing clerk, before leaving his bank, 
 sorts out the drafts, which he has to deliver, 
 into thirteen parcels, one for each of the 
 thirteen other banks, and then fills up thir- 
 teen lists, one for each parcel, in the Form 
 No. i shown below, each check being rep- 
 resented only by the amount of money ex- 
 pressed in it. A copy of the list is entered 
 in one of the books of the bank provided fot 
 the purpose. 
 
 Form Aie. I. 
 
 .2 
 
 
 
 G 
 
 Adding up each such list, he inserts the 
 totals in one of the left hand columns of the 
 Form No. 2. He thus obtains a complete 
 abstract of all the claims he holds upon other 
 banks, and adding up the columns ascertains 
 the aggregate " Out-clearing." 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [123] 
 
 fttm Nf. a. 
 
 MANCHESTER BANK 
 
 .187 
 
 
 OUT. 
 
 
 IN 
 
 ^ 
 
 First 
 Clearing. 
 
 Second 
 Clearing. 
 
 First 
 Clearing. 
 
 Second 
 Clearing. 
 
 
 
 
 
 
 
 
 Adelphi 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Bank 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Consolidated 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 County 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Cunliffc's 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 District 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Heywood 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Joint Stock 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 King Street 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Lancashire 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 National Provincial 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Salford 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Sewell 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Union 
 
 Total 
 Balance 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 - 
 
 
 
 
 
 
 On reaching the Clearing House, the clerk 
 walks round the room and lays on the desk 
 belonging to each other bank the parcel of 
 checks and the corresponding list already de- 
 scribed. In the course of a little time thir- 
 teen similar parcels and lists will be laid on 
 
 his own desk by the clerks of other banks, 
 and as they come in he compares the list 
 with the checks, verifies the addition, and if 
 all be correct, enters the amount in one of 
 the right hand columns of the second form, 
 against the name of the bank presenting the 
 
76 [124J MONEY AND THE MECHANISM OF EXCHANGE. 
 
 drafts. These parcels are called the "7- 
 cletring" and represent all the claims of 
 other banks upon the one in question, so that 
 when all the thirteen amounts are entered, 
 and the columns added up, the clerk learns 
 the aggregate which his bank will have to 
 pay. 
 
 At Manchester two clearings are held each 
 day. The first at 11.15 A.M. is a preliminary 
 one only, and no payment of balances is 
 made. As soon as the columns for the first 
 clearing are filled up, the clerk returns to his 
 bank with the in-clearing parcel of checks 
 and drafts presented upon the bank. These 
 documents are immediately examined by the 
 proper officials in order to detect any which 
 may be irregular, fraudulent, or, for want of 
 funds or other reasons, must be dishonored. 
 At the Clearing House the clerk has already 
 made a first rough inspection, and returned 
 any documents which were obviously irregu- 
 lar, but no draft is considered to be finally 
 accepted until one hour after the clearing is 
 over. The returned drafts are comparatively 
 few, and, as soon as detected, are forwarded 
 direct to the bank presenting them. 
 
 The second clearing takes place at 2.15 
 P.M. and is conducted just as in the morning. 
 The second columns of the out- and in-clear- 
 ing, in Form 2, having been filled and 
 summed up, the totals of the first columns 
 are added in, and the clerk learns the sum 
 that has to be paid, and at the same time to 
 be received, by his bank. The difference is 
 the balance which he has either to receive or 
 pay. These totals and the balance he copies 
 into the following brief form, No. 3, which 
 he hands to the inspector of the Clearing 
 House : 
 
 Form No. 3. 
 
 <* <s? 
 
 The inspector now proceeds to verify the 
 balances by inserting the amounts in Form 
 No. 7, in an abbreviated form, only four of 
 the names of the banks being inserted, to 
 save space. In these forms the names of 
 the banks are given in the briefest manner, 
 and the Branch Bank of England is called 
 simply "Bank." 
 
 Form No, . 
 
 It is evident that the total &rhich some of 
 the banks have to receive on balance must 
 equal what the others have to pay, because 
 every check has been added in twice, once 
 in favor of, and once against, some bank. If 
 the debtor and creditor columns of the 
 seventh form, being added up, fail to bal- 
 ance, some error of account must have been 
 committed, and all the work is submitted to 
 careful re-examination until the error is de- 
 tected. When all is correct, it remains only 
 to effect the payments, which is done by 
 means of credit and debit notes, directing 
 transfers in the books of the Branch Bank of 
 England, to or from the accounts of the 
 clearing bankers. The payments are made, 
 indeed, to and from the Clearing House, as 
 a kind of fictitious entity ; but as its pay- 
 ments and receipts each day exactly balance, 
 the Clearing House requires no separate 
 ledger account, except for small currcofc 
 expenses, or inconsiderable errors. 
 
MONEY AND THE MECHANISM OF EXCHANGE. [125] 77 
 
 To effect the transfer the clerk of each 
 paying bank fills up the double form, No. 4, 
 as follows : 
 
 Form No. 4. 
 
 made, as a receipt for the sum on behalf of 
 the Clearing House. 
 
 When, on the other hand, the balance is in 
 favor of a bank, Form No. 5, printed an 
 green paper for the sake of easy diecrimina- 
 tion. comes into use. It sufficiently explains 
 
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 H 
 
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 V 5 
 
 
 to be signed by the clerk, 
 
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 for the 
 
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 There remains tbn only the question of 
 
 cashier to credit the Clearing House with the 
 balance, and debit the sum to the paying 
 bank in question. The authorized official of 
 the Bank of England signs the corresponding 
 fcna on the right hand, when the payment is 
 
 the returned checks. Even these do not re- 
 quire cash payment. The balance at the 
 close of the day is paid only provisionally, 
 and those checks which have to be dis- 
 honored are returned within an hour to thf 
 
78 [126] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 bank presenting them. Unless the irregu 
 larities be explained away or removed, th 
 presenting cashier then signs the followin 
 form, No. 6, which is an acknowledgmen 
 that so much money too much was receive 
 by him at the last clearing. This form i 
 included by the bank dishonoring the checks 
 in its out clearing parcel, and the matter i 
 rectified in the balance of the next clearing. 
 
 form No. 6. 
 
 I 
 
 !' 
 
 H 
 
 t-.-s 
 
 The settlement in the Manchester Clearing 
 House is often effected in less time than it 
 would take to read this account of the 
 
 method, and the work goes on with noiseless 
 ease, strongly contrasting with the turmoil 
 of the London House. No doubt, the 
 amounts cleared are comparatively insignifi- 
 cant in Manchester, the average daily sums 
 being, in the years 1872, 1873, and 1874, re- 
 spectively ^226,160, ^"237,150, and ^"247,- 
 
 930, or little more than one-hundredth part 
 of the daily transactions in the Lombard 
 Street House. 
 
 The Manchester Clearing House is man- 
 aged by a committee of bankers, of which the 
 chief agent of the Bank of England in Man- 
 chester is the chairman, 'and the superintend- 
 ence of the clearing work is conducted by an 
 official of the Bank of England. Thus the 
 Bank, while naturally taking precedence, 
 
 j harmoniously co-operates with the local 
 
 ' bankers. 
 
 NEW YORK CLEARING HOUSE. 
 
 The New York Clearing House was estab- 
 lished in October, 1853, and has become a 
 most important institution, embracing 59 
 banks, as compared with 26 in London, and 
 settling transactions hardly, if at all, inferior 
 in amount to those of the London house. 
 The general method of settling the business 
 is necessarily much the same as that already 
 described, but it seems to be in some respects 
 better arranged than in London. The work 
 is carried on in a fine large Exchange Room, 
 and there is proper accommodation for the 
 manager and his x clerks, instead of the small 
 jlass box in which the inspectors sit in the 
 Lombard Street room. 
 
 Each New York bank has one settling 
 clerk in the Exchange Room, besides a mes- 
 senger, who brings and delivers the parcels 
 of checks and bills, The settling clerks sit 
 n a series of desks arranged in an oval form 
 n the middle of the spacious room, and the 
 exchanges are effected by an equal number 
 f messengers simultaneously walking round 
 he desks, delivering the parcels of " out- 
 learing," and receiving those of " in-clear- 
 ng," or as they are called in New York the 
 Credit and Debit Exchanges. An account of 
 he institution will be found in Gibbon's work 
 n " The Banks of New York." There are- 
 >aid to be no less than fifteen provincial 
 :learing-houses in the principal cities of the 
 Jnited States, so that the clearing system 
 would seem to be more developed there than 
 n the United Kingdom. 
 
 EXTENSION OF THE CLEARING SYSTEM. 
 
 Until within the last few years there 
 xisted only two bankers' clearing houses, 
 hose of Lombard street and New York, but 
 much progress has recently been made in ex- 
 ending a similar system to other places, and 
 ven to other branches of business. The 
 Manchester Clearing House was established 
 n July, 1872, and Newcastle has a similar 
 stablishment. On the continent only a 
 ingle city has yet adopted the method. In 
 'aris about eighteen bankers have formed an 
 ssociation, called a " Chambre des Com pen - 
 ations," which is located in the Place de la 
 Jourse, and balances the reciprocal claims of 
 icse firms much in the manner of the English 
 
 earing houses. In France, Germany and 
 ther continental countries the use of the 
 anker's check is much less developed than in 
 
 ngland and America. In Germany a per- 
 on wishing to remit a hundred pounds will 
 ften collect the actual coins, seal them up in 
 
 bag with five seals, and register them at the 
 ost office. Thanks to the excellent system 
 f government Posies existing in Germany, 
 lis method of remittance is sufficiencly safe, 
 ut it is evident that where the monetary 
 rrangements of a country are of such a kind 
 icre is no need of a clearing house. 
 
 The method of balancing claims needs by 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 [127] 71 
 
 o means to be restricted to the business of 
 banking. As, indeed, the monetary trans- 
 actions of any locality come to a focus in the 
 banks, the principal clearing will always be 
 in the hands of bankers. But wherever a set 
 of traders have numerous reciprocal claims, 
 they may find it desirable to set up their own 
 clearing house. As long ago as 1842 it 
 occurred to Robert Stephenson and Mr. K. 
 Morison, that the principle of the City Clear- 
 ing House might be advantageously applied 
 to settling the very complicated accounts 
 arising between railway companies, which 
 have through booking arrangements. The 
 work constantly carried on in the great house 
 full of accountants at Euston Square is vastly 
 more complicated and various than that 
 of a bankers' clearing house ; but the final 
 result is to ascertain how much each railway 
 company is indebted to each other one. The 
 balance due to or from each company is then 
 paid by a transfer at the bankers. 
 
 Within the last twelve months an attempt 
 has been made, unsuccessfully as yet, to in- 
 troduce the general use of checks into Liver- 
 pool, where great sums of money are con- 
 stantly passing, especially in the cotton 
 market. For reasons which it would be 
 difficult to trace out satisfactorily, the Liver- 
 pool menhants and bankers have never 
 adopted t) e use of checks to the same extent 
 and in the same way as in other commercial 
 ter^a. } lazij firms in Liverpool still refuse 
 to receive payment by checks, and only a year 
 or two '[Q it was a common practice for a 
 
 A. ^<;r firm to send a clerk to Liverpool 
 
 by railway with a bundle of bank-notes to 
 make payments. At present, as I am in- 
 formd, bank bills payable at sight, and for- 
 warded by post, yji e substituted for Bank of 
 England notes. 
 
 A Liverpool *tock or cotton broker, wish- 
 ing to make . payment, draws money out of 
 his bank in notes and gold, and his clerks 
 carry it about the town. Every evening a 
 number of small cash-boxes, containing large 
 ams o f money, are deposited at a well-known 
 silversmith's shop, opposite the Town Hall-, 
 for safe custody during the night. A great 
 amount of capital is thus kept lying idle, and 
 it is surprising that the bankers do not se- 
 cure this sum, as an addition to their deposits, 
 by removing every obstacle. At present the 
 practice is to charge one-eighth or one-fourth 
 per cent, commission, whereas the actual cost 
 of the accountants' work by which the bank 
 transfers are accomplished is almost nominal 
 in regard to large transactions. 
 
 An important extension of the clearing 
 principle was affected by the establishment, 
 in 1874, of the London Stock Exchange 
 Clearing House, which undertakes to clear, 
 Bot sums of money, but quantities of stock. 
 As stock brokers settle their transactions 
 only once a fortnight, or in consoles once a 
 month, it naturally arises that, in the inter- 
 ais, tne same broker will usually hare 
 
 bought the same kind of stock for one client 
 and sold it for another. The very same stock 
 may have passed through several different 
 hands, and the same brokers may have had 
 reciprocal dealings with eacn other. Instead, 
 then, of actually making transfers of stock 
 for each transaction, and paying by checks 
 which greatly swell the business of the Lom- 
 bard Street Clearing House on settling days, 
 a plan has been arranged, according to which 
 each member of the Clearing House pre- 
 pares a statement of the net amount of each 
 stock which he has to receive from or deliver 
 to each other member. The manager of the 
 house, after verifying these accounts, which 
 should balance in the aggregate, directs the 
 debtor members to transfer qualities of stock 
 to the creditor members in such a way as to 
 close all the transactions. It will be noticed 
 that, for pretty obvious reasons, the transfer* 
 are made in the stock exchange, directly fron* 
 broker to broker and not to the manager of 
 the Clearing 1 ouse, as in banking transac- 
 tions. A separate clearing has, of course, to 
 be made in each kind of stock It is found 
 that the quantities actually transferred do not 
 exceed 10 per cent, of the whole transactions 
 cleared, and the checks drawn are diminished 
 on settling days as much as ten millions 
 sterling. 
 
 Still more recently the Cotton Brokers' As- 
 sociation of London, although uuable to ap- 
 ply the system of clearing as yet to their 
 money transactions, have arranged a clearing 
 system for the settlement of business con- 
 nected with the sales of cotton "to arrive." 
 Under the new arrangement the first seller 
 and the last buyer come into contact, and all 
 intemediate business, which sometimes oc- 
 casioned much dispute und delay from con- 
 tracts involving many middle-men, will be, 
 as it were, canceled by the Clearing House. 
 
 The business, indeed, is being extended, so 
 that all contracts, declarations, and payments 
 will be effected through the agency of the 
 association. 
 
 It may very well admit of question whether 
 we have at all reached the limit of the advan- 
 tageous application of the clearing principle. 
 From banker's transactions it has been ex- 
 tended to railways, stock exchange, and cot- 
 ton broker's business. It is conceivable that 
 any other body of merchants, brokers, pub- 
 lishers, or others who have frequent pecuniary 
 claims upon each other, might have a clearing 
 meeting once or twice a week. Suggestions 
 to this effect have already been made, and I 
 am told that in the Glasgow iron market, a 
 settlement day for the clearing of mutual 
 transactions has been established. 
 
 ADVANTAGES OF THE CHECK AND CLEARING 
 SYSTEM. 
 
 Returning to the subject of the bankers' 
 Clearing Houses, it is to be remarked con* 
 cerning the vast system of relations whicfc 
 now exists between English banks, that it 
 
80 [128] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 luts grown spontaneously, oninvented, un- 
 authorized by the legislature, and only recog- 
 nized by the judges when firmly established 
 -as a matter of business custom. No Act of 
 Parliament has been passed to facilitate the 
 -operations of clearing, and it is only by an 
 understanding between the banks, that the 
 presentation of checks and bills through the 
 Clearing House, or their settlement by the 
 payment of a balance, is regarded as legally 
 valid. 
 
 The advantages of the system are evi- 
 dently of enormous magnitude. All the 
 larger payments are made with a minimum 
 of risk, loss of time, trouble, or use 
 'Of the precious metals. While the 
 check representing a payment is travel- 
 ing about the country, the" money which it 
 -Is transferring is reposing in the vaults of 
 'some bank, or rather, not being needed in 
 the operation at all, is lent or sent out of the 
 country, so that its interest is saved. We 
 found in p. 165 that the loss of interest upon 
 4he metallic money now circulating or stored 
 asp in the United Kingdom, amounts to be- 
 tween four and five millions annually. If 
 payments were now made by coin only, many 
 Hmes as much metallic money would be 
 needed. 
 
 The security with which the payments are 
 effected is also an element of importance. 
 Specie when transmitted in large sums, is 
 always a temptation to thieves, and has 
 usually to be accompanied by one or more 
 guards. Through the agency of banks, 
 whether by crossed checks or credit notes, 
 the largest payments may be made with al- 
 most absolute immunity from risk. The 
 checks, bills, and other documents trans- 
 ferred in the clearing houses are, as a general 
 rule, so crossed or endorsed as to be of no 
 value to any one but the legal owners, and in 
 any case are regarded by thieves as " duffer," 
 with which they dare not meddle. 
 
 PROPORTION OF CASH PAYMENTtS. 
 
 It is surprising to find to what an extent 
 9aper documents have replaced coins as a 
 medium of exchange in some of the princi- 
 pal centres of business. In the Statistical 
 Journal lot September, 1865, Sir J. Lubbock 
 published some particulars concerning the 
 business of his bank during the last few days 
 of 1864. Transactions to the amount of 
 ,23, 000,000 were effected by the use of coin 
 and other documents, as shown in the follow- 
 ing statement: 
 
 Per Cent. 
 
 Checks and Bills passed through the 
 Clearing House 70.8 
 
 Checks and Bills not cleared 
 
 Bank of England Notes 
 
 Coin 
 
 Bank-Etote* . ............ 
 
 IOO.O 
 
 The sums of aoaey paid I* by town cos* 
 
 tomers amounted to ^19,000,000, and 
 analysed gave the foliowii g results: 
 
 Checks and Bills- 
 
 Bank of England Note*......., 
 
 Country Bank-notes 
 
 Coin 
 
 PerCe*. 
 . 96.8 
 . 2. 2 
 
 2 
 
 It is not for a moment to be supposed that 
 these figures represent the average use of 
 coin in banking transactions. The propo*- 
 tional amounts of different kinds of money 
 and commercial documents used in different 
 parts of the country, in different trades, or 
 in banks of different size and character vary 
 widely. It is much to be desired that bank- 
 crs and others who have the facts before 
 them should publish more copious informa- 
 tion on the subject. In Manchester the use 
 of Bank of England notes appears to be 
 much more extensive than in London. Mr. 
 R. H. Inglis Palgrave gave in the Statistical 
 Journalist March, 1873 (p. 86), an estimate 
 prepared for him by Mr. Langton, the Man- 
 aging Director of the Manchester and Sal- 
 ford Bank, of the proportion of cash payments 
 made in that bank. It appears that coin and 
 notes formed 53 per cent.of the total turn -over 
 in 1859, 42 per cent, in i864, and only 31 
 per cent, in 1872, so that a rapid decrease 
 has been going on. But we find that in 1873 
 the amount of notes was still large, the turn- 
 over of customers' accounts being thus com- 
 posed: 
 
 Checks, Bills, etc..... 
 
 Bank-notes 
 
 Coin 
 
 PerCent. 
 
 68 
 
 ........ 27 
 
 5 
 
 IOO 
 
 I have endeavored to form some notion of 
 the comparative amounts of checks and bill* 
 which are cleared off at successive points in 
 the organization of the banking system. It 
 is very desirable that we should learn what 
 proportion the transactions of the Clearing 
 House bear to the whole transactions of the 
 banks of the kingdom. There would not be 
 much difficulty in forming a fair estimate if 
 we had from one or more banks in each of 
 the principal towns a statement of the com- 
 parative amounts of checks dealt with in 
 various manners. According to information 
 kindly furnished to me by the authorities of 
 one of the principal banks of Manchester, I 
 find that, during the months July to October, 
 1874, the checks and bills on demand pre- 
 sented on or through the bank were disposed 
 of as follows: 
 
 Per Cent. 
 Checks paid in Coin and Bank-notes 
 
 over the Counter . - 
 
 Checks on Selves paid to Credit of 
 
 Account 25*4 
 
 Checks presented through Manchester 
 
 Clearing- House ...........,.... 22*1 
 
MONEY AND THE MECHANISM OF EXCHANGE. [120] 81 
 
 IVr rent. 
 
 Checks and Bills on demand on Lon- 
 don presented through London 
 Clearing-House io'8 
 
 Checks on Country Bankers pre- 
 sented through the London Clear- 
 ing House 3*5 
 
 Checks on Country Bankers presented 
 direct '. 3'6 
 
 100*0 
 
 Although considerable trouble has been 
 sptnt in the preparation of this account, it 
 seems doubtful whether the items are com- 
 plete and correct, and I give it more as a 
 specimen of the kind of information which is 
 much wanted than as a reliable statement. 
 
 CASES TO WHICH THE CLEARING SYSTEM IS 
 INAPPLICABLE. 
 
 It will now be sufficiently apparent that, so 
 long as trade is reciprocal, the check and 
 clearing system can arrange all exchanges 
 without the use of coin. The values of goods 
 are estimated and expressed in terms of gold, 
 which acts as the co.nmon denominator of 
 value, but metallic money ceases to be the 
 medium of exchange. The banking organi- 
 zation effects what I have heard Mr. W. 
 Langton describe as a restoration of barter. 
 But it happens in some cases that the trans- 
 actions are not reciprocal, and cannot be 
 made to balance. In certain trades there is a 
 permanent set of the goods in one direction. 
 In the Manchester cotton trade, for instance, 
 the manufacturers, in purchasing cotton from 
 the Liverpool merchants, pay with cash or 
 short credits The goods, when completed, 
 are often shipped again at Liverpool for 
 foreign consignees at long credits, but are 
 not generally purchased by the Liverpool 
 merchants. Consequently, while the Man- 
 chester manufacturer owes the Liverpool 
 merchant for the whole cost of the raw 
 material, and for the shipping charges and 
 freights upon the goods sent abroad, there 
 are no equivalent claims of Manchester 
 merchants against Liverpool. The foreign 
 consignees of the goods pay for them by bills 
 upon London. Now, if the Manchester 
 manufacturers held their funds in Manchester, 
 and the Liverpool merchants their funds in 
 Liverpool, there would 'have to be a constant 
 current of money from London to Manchester, 
 and from Manchester to Liverpool, whence it 
 would go abroad to pay for the raw material. 
 This inconvenient state of things is remedied 
 to a certain extent, as we shall see in Chapter 
 XXIII., by making London the headquarters 
 and clearing-house both of home and foreign 
 transactions. 
 
 But there is always a liability that claims 
 expres ed in metallic money, and actually 
 capable of being demanded in that shape at 
 the option of the owner, will sometimes be 
 pressed. In certain states of trade, or under 
 certain contingent circumstances, the holders 
 
 of checks require gold, and bankers who 
 have become accustomed to consider metallic 
 reserves as almost superfluous, find them- 
 selves suddenly in a difficult position. Such, 
 as we shall see in Chapter XXIV., is thereat 
 cause of the present instability of the English 
 money market. 
 
 CHAPTER XXII. 
 
 THE CHECK BANK. 
 
 THE Check and Clearing System, so far as 
 we have hitherto considered it, is mainly re- 
 stncted to the arrangement of considerable 
 payments. ' No one can enjoy its advantages 
 unless he keeps a banking account, and for 
 this purpose he must be able to command a 
 certain sum of money, and must have a 
 sufficiently good position and credit to be 
 entrusted by a banker with a check book. 
 The result is that the larger part of the popula- 
 tion is entirely outside the banking system, 
 and must either use coin, postage stamps or 
 post-office orders in making payments. 
 
 A very ingenious attempt is now being 
 made to extend the area of banking to the 
 masses by the institution of the Check Bank. 
 When preparing materials for this book, I 
 was so much struck by the way in which this 
 new bank seems to be adapted to complete 
 the check and clearing system in a downward 
 direction, that I applied to Mr. James Hertz, 
 the able inventor of the scheme, for informa- 
 tion upon the subject, and have been enabled 
 to inquire minutely into it. 
 
 The weak point of the present ordinary 
 check book is, that a person once getting a 
 book full of blank checks, can fill them up 
 for any amounts, irrespective of the balance 
 against which they are supposed to be drawn. 
 Here is an opening for easy fraud, if checks 
 were generally received from strangers with- 
 out inquiry. The Check Bank proceeds on 
 the new principle of issuing checks which 
 can be filled up only to limited amounts, as 
 shown by printed and indelible perforated 
 notices upon the forms. These checks, too, 
 are only to be had in exchange for the ut- 
 most sum for which they can be drawn, 
 which sum is retained as a deposit until each 
 corresponding check has been presented. 
 It follows that each check, when duly filled 
 up and signed by the owner, is as good as a 
 bank-note issued against a documentary re- 
 serve. It is true that check books or forms 
 may be lost or purl ;ined, and then fraudu- 
 ently signed and issued ; but, being drawn 
 to order and crossed, these documents are 
 very dangerous to meddle with in a criminal 
 manner, and, in the only instance in which 
 raud has yet been attempted, swift punish- 
 ment followrd. 
 
 RELATION OF THE CHECK BANK TO OTHER 
 BANKS. 
 
 We have seen how much has been accom- 
 plished by establishing relations between. 
 
82 [130] 
 
 MONEY AND THE MECHANISM OF EXCHANGE. 
 
 banks, as branches, agents, or correspondents 
 of each other. The Check Bank carries 
 out a similar system to the utmost extent by 
 establishing relations with almost all the 
 banks of the United Kingdom, as well as 
 with most foreign banks of importance. Al- 
 ready 984 English, Irish, or Scotch banks, 
 have entered into relations with the Check 
 Bank, and 596 colonial or foreign banks cash 
 the checks. One advantage of this ar- 
 rangement is, that the sphere of the check 
 system can be greatly extended without any 
 equal increase of trouble and risk. When- 
 ever a bank opens a new account with an 
 individnal, that account has to be kept apart 
 in the ledger, and constantly watched. But 
 a bank can sell Check Bank checks to any 
 amount, without opening separate accounts 
 with the purchasers, and may also pay such 
 checks when presented without risk. The 
 Check Bank thus aims at becoming a great 
 institution of accountants, operating for the 
 most part through other banks, but relieving 
 them of much of the risk and trouble of 
 small transactions. The Bank of England 
 is a bankers' bank in the sense that it holds 
 the reserves of other banks, and makes those 
 final payments of cash which close the gen- 
 eral balance of transactions. The Check 
 Bank seems to be a bankers' bank in the op- 
 posite sense of making deposits in all other 
 banks and employing them as agents. 
 
 A peculiar feature of the Check Bank is 
 that it entirely abstains from using, or even 
 holding, the money deposited. All money 
 received for check books is left in the hands 
 of the bankers, through whom they are 
 issued, or transferred to other bankers, as 
 may be needed for meeting the checks pre- 
 sented. The interest paid by these bankers 
 will be the source of profit, and as the money 
 thus lies in the care of the most wealthy and 
 reputable firms in the kingdom, it could not 
 be lost in any appreciable quantity, except by 
 the break-down of the whole banking system 
 of the country. It would hardly be true to 
 say that these checks correspond to notes 
 issued on the deposit of government funds, 
 because each agent-bank can use at its own 
 discretion the portion of the funds of the 
 Check Bank in its possession. Neverthe- 
 less, as the portion in the hands of any one 
 fcank will usually be a small fraction of the 
 whole, and there is, moreover, a guarantee 
 fund of consols in the background, the sys- 
 tem of issue is more closely analogous to that 
 of a documentary reserve than any other. 
 
 THE CHECK BANK AS A MONETARY AGENT. 
 
 The Check Bank appears to aim at becom- 
 ing the medium forthe accomplishment of an 
 immense mass of small payments, Small 
 pensions and annuities, small dividends, 
 small disbursements by officers of depart- 
 ments, by agents, clerks, or even domestic 
 servants are made through it. A book of 
 
 the Check Bank checks can be safely trusted 
 to almost any servant or a^ent who can 
 write, and the check when presented forms a 
 record of the way in which he has applied the 
 money. No one can venture in like manner 
 to give signed blank checks to a servant, as 
 they may be filled up for unlimited amounts, 
 and the Check Bank checks are evidently 
 better than a sum of metallic money, which 
 may be more readily misapplied, purloined, 
 or lost. 
 
 The recipient of such checks finds them 
 one of the most convenient possible forms of 
 remittance, because they will be cashed by 
 almost any banker, and will therefore be re- 
 ceived as cash by any person who has acquired 
 sufficient knowledge of their nature Thus 
 the check bank seems to be capable of replac- 
 ing with great advantage the money-order 
 system of the English Po*t-Office. 
 
 To procure a post-office order it is requisite 
 to apply at an office and wait while certain 
 forms are being filled up. A definite office 
 of payment must be selected, and the re- 
 ceiver of the order can ob f ain payment, as a 
 general rule, only by allying personally at 
 the office, and giving the name of the sender. 
 Even if a person cannot afford to purchase a 
 book of Check Bank checks, he can, in 
 towns where agencies are established for the 
 purpose, buy single checks filled up for any 
 odd sum with less formality than at the post- 
 office, and these checks are payable not at 
 one office, but at almost any bank in the 
 United Kingdom and in most foreign towns. 
 They can afterward be restricted in payment 
 if desired, to any particular bank. The cost 
 of remittance by checks will on the average 
 be lower than by money orders, since the 
 Post-Office makes charges for inland orders, 
 increasing from one penny for sums under 
 ten shillings to one shilling for a ^10 order, 
 with much higher charges for orders to 
 be paid in certain colonies or foreign coun- 
 tries. The Check Bank check costs only- 
 one penny and one-fifth of a penny in 
 excess of the sum remitted, and of this charge 
 the penny is for the government stamp duty 
 and represents so much public revenue. 
 
 The government can have no reason for 
 opposing the Check Bank, because if success- 
 ful it must earn for the Chancellor of the Ex- 
 chequer a large annual revenue. The money- 
 order system, on the other hand, in spite of 
 the higher charges, is understood to yield no 
 profit, and is rather a burden upon the de- 
 partment. It is said that the issue of every 
 money order involves the filling up of eight 
 or nine forms, and the amount of labor ren- 
 dered requisite swallows up the revenue. It 
 is a very striking instance of the comparative 
 inefficiency of government industry, except in. 
 special cases, that a single banking company 
 can bring into use a form of remittance avail- 
 able in all parts of the world, and far cheaper 
 than post-office orders, and yet pay duty up- 
 on their transactions. 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 \l*l\ 83 
 
 The Check Bank also aims -t becoming a 
 collecting as well as a paying Agency. Any 
 public institution needing to collect a sub- 
 scription, for instance, ha.: only to procure a 
 "paying-in" form, or credit note, and the 
 snm inserted therein will be received by any 
 of the numerous banks in relation. Thus 
 small debts and subscriptions may be readily 
 collected without trouble or expense in any 
 part of the country. 
 
 PAYMKNT OK WAUKS KV CHECKS. 
 
 .The managers of the Check Bank hope to 
 substitute their checks for the coin now used 
 by manufacturers in payment of wages. If 
 this could be accomplished it would be con- 
 venient rather than otherwise to bankers, who 
 arc called upon to furnish large sums in gold 
 and silver coin, and have the trouble and cost 
 of holding and continuing a sufficient stock. 
 Now, if a master in payxig his men present- 
 ed them with small checks, or, perhaps better 
 still, with checks for even sums, and the bal- 
 ance in silver, the checks would be cashed by 
 shopkeepers, and would be deposited by them 
 in the banks, or might even be bought back 
 in large sums by the masterafpr further use. 
 It was at one time the practMLof great rail- 
 Way contractors to issue talljMZhecks in the 
 form of one, two, or five shilling' cards, which 
 were paid to their workmen, and circulated 
 among the publicans and tradesmen of the 
 neighborhood, until taken back by the con- 
 tractor in wholesale. Such checks constituted 
 true representative money, but would be of 
 doubtful legality. The Check Bank checks 
 might serve the same purpose, and have been 
 declared legal, but it is yet very doubtful 
 how far the wholesome practice of imme- 
 diately presenting ordinary checks will stand 
 in the way of the continued circulation of 
 other checks, for which there is no need of 
 immediate presentation. Time after time we 
 have found that habit and custom exercise an 
 immense and very unmanageable influence in 
 monetary affairs, and it will probably take a 
 long time to teach the public to look upon a 
 check as a safe document to keep. 
 
 THE CHECK BANK AS A SAVINGS BANK. 
 
 Already the Check Bank serves as a sav- 
 ings bank into which persons may put sur- 
 plus money for security, receiving as an ac- 
 knowledgment the check forms by which it can 
 be drawn out or paid away with ease. No 
 interest, however, is paid on such deposits. 
 It seems to me, however, that the bank, if 
 successful in its present aims, might readily 
 become the most admirable of savings banks. 
 Instead of issuing checks payable at any 
 moment, it might issue through its agent- 
 banks, deposit receipts, bills, or what comes 
 to much the same thing, post-dated checks, 
 the interest to be paid at the time of deposit 
 as a discount at the rate of two or two-and-a- 
 half per cent. This receipt could be re- 
 tained, transferred by endorsement, or again 
 
 discounted by the Check Bank. If retained 
 until maturity it would become payable like a 
 check at any bank in relation with the Check 
 Hank. The money deposited in this way 
 might be invested in consols at three and one- 
 fourth per cent., and the cost of the docu- 
 ments and accountants' work being slight, 
 might leave a fair margin of profit 
 
 The Post-Office Savings Bank system as 
 established by ^tr. Gladstone is an admirable 
 institution ; it has been very successful, and 
 has done great service in increasing provi- 
 dence. But it is troublesome and costly in 
 working, and leaves no profit to the State. 
 Already the Scottish banks serve almost in 
 the capacity of saving banks by receiving 
 small fixed deposit*. ; and it is well worthy of 
 consideration whether, by the assistance of 
 the Check Bank, almost all the English banks 
 might not be converted into savings banks, to 
 the advantage of every one. 
 
 RESULTS OF THE CHECK BANK SYSTEM. 
 
 I have thought it quite suitable to this 
 book to enter somewhat minutely into the 
 actual and possible work done by the Check 
 Bank, because, if successful, the institution 
 opens an indefinite sphere for financial im- 
 provement. The institution is, indeed, at 
 present a mere experiment, undertaken at the 
 risk of the shareholders, and iV oan only suc- 
 ceed by offering conveniences to the public 
 and the body of bankers. It may succeed in 
 some of its schemes, and not in others, but 
 in any case it will tend to replace coin pay- 
 ments by check payments, to be balanced off 
 in the general London clearing. The profits 
 of the bank depend upon a very small charge 
 of one-fifth of a penny for each check and 
 the interest on deposits. The amount of 
 deposits remaining undrawn depends upon 
 three circumstances : () the time before the 
 check is utilized ; (2) the time it is in circula- 
 tion, or traveling about, and (3) the difference 
 between the sum drawn and that deposited. 
 The average duration of circulation, I am in- 
 formed, was lately ten days, but many checks 
 have already been out a year. 
 
 I should add that, in describing with some 
 detail the 'operations of the Check Bank, I 
 have no interest in the success of the institu- 
 tion other than a strictly scientific interest. 
 In any case it is a most ingenious innovation, 
 and if successful cannot fail to benefit the 
 community in a high degree, adding a new 
 feature to a banking system already wonder* 
 fully organized. 
 
 CHAPTER XXIII. 
 
 FOREIGN BILLS OF EXCHANGE. 
 
 In early times foreign trade consisted im 
 the direct exchange of commodities. A 
 caravan set out with a variety of manufact- 
 
84 [132] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 tired articles across the deserts of Arabia 
 or Sahara, and came back with ivory, spices, 
 and other valuable raw produce obtained by 
 barter. In later times the merchant loaded 
 his own ship and sent her forth on an advent- 
 ure, trusting that his ship-master would sell 
 the cargo to advantage, and, with the pro- 
 ceeds, bring back another cargo to be sold to 
 great profit at home. Trade was thus evi- 
 dently reciprocal and what was sent out paid 
 f 01 what was brought back, so that little or 
 no money was kept idle in the mean time. 
 
 Wherever this direct reciprocal exchange 
 did not exist it was^iecessary either to trans- 
 mit metallic money, or to devise some mode 
 of transferring debts. NoV the transmissi m 
 of money not only causes the loss of inter- 
 est during the interval of transit, but leads 
 to the expense of guarding it, and the liabil- 
 ity of total loss. Many centuries ago, ac- 
 cordingly, it was discovered that the use of 
 paper documents would economize if not 
 altogether render needless, the use of me- 
 tallic money in foreign trade. 
 
 ORIGIN AND NATURE OF BILLS OF EX 
 CHANGE. 
 
 Even the Romans appear to have been ac- 
 quainted in a slight degree with the system 
 of foreign bills of exchange ; but it is to the 
 -early Italian, and,especially the Jewish mer- 
 chants, that we owe the development of the 
 practice. The history ot the subject is 
 buried in much obscurity, but there is evi- 
 dence that, as early as the fourteenth cen- 
 tury, the use of bills of exchange was fully 
 established. The forms of the bills, and 
 the laws and customs relating to them, were 
 then much the same as in the present day. 
 
 A bill is nothing but an order to pay 
 money addressed by the drawer to the 
 drawee, or person on whom it is drawn, 
 specifying the amount to be paid, the time 
 of payment, and the person to whom it is to 
 be paid. Whenever a bill is drawn, it is to 
 be presumed that a debt is due from the 
 drawee to the drawer. When presented to 
 the drawee and accepted by him, this accept- 
 ance is an acknowledgment of the existence 
 of the debt. The bill, although drawn in 
 favor of a particular person, is transferable 
 by endorsement, and thus represents a nego- 
 tiable claim to receive money at a future date 
 in a distant country. Hence it is capable of 
 being transmitted in discharge of another 
 debt of equal amount. 
 
 Eng! tnd buys every year from America a 
 great quantity of cotton, corn, pork, and 
 many other articles. America at the same 
 time buys from England iron, linen, silk, and 
 ther manufactured goods. It would be ob- 
 viously absurd that a double current of specie 
 should be passing across the Atlantic Ocean 
 in payment for these goods, when the inter- 
 vention of a few paper acknowledgements of 
 debt will enable the goods passing in one di- 
 rection to pay for those going in the opposite 
 
 direction. The American merchant who hfo 
 shipped cotton to England can draw a bill 
 upon the consignee to an amount not exceed- 
 ing the value of the cotton. Selling this bill 
 in New York to a party who has imported 
 iron from England to an equivalent amount, 
 it will be transmitted by post to the English 
 creditor, presentea for acceptance to the En- 
 glish debtor, and one payment of cash on 
 maturity will close the whole circle of trans- 
 actions. Money intervenes twice over, in- 
 deed; once when the billls sold in New York, 
 once when it is finally canceled in England^ 
 but it is evident that payment between two 
 parties in one town is substituted for payment 
 across the whole breadth of the Atlantic. 
 Moreover, the payments may be effected by 
 the use of checks, or the bills when due may 
 themselves be presented through the Clearing 
 House, and balanced off against other bills 
 and checks. Thus the use of metallic money 
 seems to be rendered almost superfluous, 
 and, so long as there is no great disturbance 
 in the balance of exports and imports, foreign 
 trad&.is restored to a system of perfected 
 
 TRM^m^i FOREIGN BILLS. 
 
 It is an ^Kpturjfh supposition that every 
 importer of Vpds fln meet with an exporter 
 of goods tdBthe s$me amount, so that two 
 transactions Wall exactly balance each other. 
 But there are many merchants in Liverpool 
 indebted to American merchants, and many 
 American merchants indebted to others in 
 Liverpool. Hence there will be a continual 
 supply of bills of various amounts, and a con- 
 tinual demand, and it becomes a profitable 
 business for certain houses to deal in the bills, 
 purchasing bills from those who can draw 
 and selling to those who wish to remit. 
 
 Large firms of merchants often have houses 
 both in America and in England, or a firm 
 in one country has agents or correspondents 
 in the other with whom they keep a running 
 account. Not uncommonly, the very same 
 firm may be both importing and exporting, 
 so that a direct balancing of their accounts 
 will be so far effected. The remaining bal- 
 ance need only be paid from time to time as 
 opportunity offers. Thus, in foreign as in 
 home trade, book credit serves in a great de- 
 gree to economise the use of money. Only 
 when there is a derangement of the balance 
 of trade, and one country owes to another a 
 preponderating debt of large amount, need 
 specie be transmitted. 
 
 It is out of the question that I should, in 
 
 this .small treasise, attempt to enter into the 
 
 intricacies of the Foreign Exchanges, which 
 
 have been so admirably treated by Mr. Gos- 
 
 chen, in his "Theory of the Foreign Ex 
 
 changes." The general principle of the sub- 
 
 | ject is, that bills of exchange drawn on any 
 
 j particular place constitute a new kind of ar- 
 
 i tide, subject to the laws of supply and de- 
 
 1 mand. Any circumstance diminishing the 
 
MONKV AM> T1IK MECHANISM OF EXCHANGE. 
 
 [133] 85 
 
 supply, or increasing the demand, raises the 
 price of such bills and ''ice versa. The price 
 being raised, there is additional profit on any 
 transaction which allows a new supply of 
 bills to be drawn. The export of any kind 
 of goods in greater quantities tends to restore 
 the balance, but, if requisite, coin or bullion 
 can be sent at a certain cost, and bills drawn 
 against it. Thus the cost of transmitting 
 specie is the limit to the premium on bills. 
 Gold and silver being everywhere considered 
 a desirable possession, and being also very 
 portable, form, as remarked at the outset, 
 the natural currency between nation and na- 
 tion. If a country were to be absolutely de- 
 nuded of specie, and had foreign debts to 
 pay, forced exportation and ^sale of the next 
 most generally desirable and portable com- 
 modity would be the only resource, and the 
 premium on bills might vary to almost any 
 extent from par. Thus it is seen that, in an 
 economical point of view, gold and silver 
 differ from other merchandise not in kind but 
 in degree. 
 
 THE WORLD'S CLEARING HOUSE. 
 
 It might seem that 
 ternally, and of bills 
 trade, we have re ' 
 economy of metalli 
 one further step to 
 long as all the mercha 
 
 e of checks in- 
 in foreign 
 imax in the 
 t there is yet 
 found that so 
 town keep their 
 
 cash with the same banker, they have no need 
 to handle the money at all, but can make pay- 
 ments by transfers in the books of their 
 banker. Let us imagine, then, that mer- 
 chants all over the world agreed to keep their 
 principal accounts with the bankers of any one 
 great commercial town. All their mutual 
 transactions could then be settled among 
 those bankers. An approximation to such 
 a state of things exists in the tendency to 
 make London the monetary headquarters of 
 the commercial world, and the general clear- 
 ing house of international transactions. 
 
 All that is needed to secure economy of 
 money is centralization of transactions, so 
 that there may be wider scope for the balan- 
 cing of claims. Before the elaborate system 
 of English provincial banking grew up, con- 
 siderable economy was effected by the prac- 
 tice of "drawing upon London." In every 
 country town many persons wanted to trans- 
 mit money to London, and others wanted to 
 draw money from the same place. To vast 
 private trading transactions with the capital 
 and principal commercial towns was added 
 the whole of the payments connected with 
 the collection and expenditure of the public 
 revenue. In each country town some promi- 
 nent trader discovered that profit was to be 
 made by selling bills on London to those who 
 wished to remit, and buying with the pro- 
 ceeds the bills of those who had claims upon 
 banks and firms in London. The capital thus 
 becoming the monetary centre, it was often 
 convenient to make payments to other 
 
 towns by bills upon London. Each person 
 wanting to remit was more likely to get a bill 
 upon London with ease than upon any other 
 place, and it was likely that the creditor 
 would prefer such a bill to one upon a town 
 with which he had no relations. It is ob- 
 vious that if every important trader in En- 
 gland kept his principal cash with a city 
 banker, the use of bills on London would 
 have enabled all the commercial transactions 
 of England to be centred in, and cleared 
 through the books of these bankers and the 
 Clearing House. 
 
 CENTRALIZATION OK FINANCIAL TRANSAC- 
 TIONS IN LONDON. 
 
 There is a similar advantage in centraliz- 
 ing foreign transactions in London. In the 
 absence of any general center, each two com- 
 mercial towns must settle their mutual trans- 
 actions directly and separately. A merchant 
 will be receiving bills upon the bankers and 
 merchants of many other towns. There is a 
 double inconvenience in this. The supply 
 and demand for bills upon comparatively 
 small places must be comparatively small and 
 variable, and the bills will be drawn upon 
 minor firms, of the soundness of which it 
 will not be easy to get satisfactory informa- 
 tion. Many firms, too, in the present day 
 have houses in several parts of the world, and 
 it would be more convenient that their mutual 
 transactions should be brought to a centre 
 somewhere, just as the transactions of branch 
 banks are brought to a centre in the head 
 office. Thus there arises a tendency to pre- 
 fer bills drawn upon well-known London 
 banks, or other great London firms, whose 
 credit is known all over the world, and cetei is 
 paribus, such bills will command a readier 
 acceptance in the exchange market. Persons 
 having to draw bills will get a better price if 
 they can draw upon London, which they can 
 do by opening an account with a London 
 firm, and arranging that remittances due to 
 them shall be deposited to their credit in 
 London. It comes to pass that a merchant 
 in America, Australia, or India, will prefer 
 to receive money in London rather than any- 
 where else. Everyone wishing to remit 
 money can then do so in the form of a bill 
 upon the holders of these funds in London, 
 and the fund will be recruited from time to 
 time by similar bills received and transmitted 
 to London for collection. 
 
 This tendency to the centralization of fi- 
 nancial business in London is much pro- 
 moted by the fact that the largest mass of 
 cheap loanable capital exists there. The 
 general rate of interest in New York is at 
 least 2 per cent, higher than in London, so 
 that a trader who has credit enough to obtain 
 loans in London, will make a profit by bor- 
 rowing there rather than in New York. Thus, 
 instead of first depositing money in London, 
 and afterward drawing against it, the more 
 usual and profitable form of the transaction 
 
S6 [134J MONEY AND THE MECHANISM OF EXCHANGE. 
 
 ! to get a credit there, that is, leave to draw 
 against a banker, making subsequent remit- 
 tances to recoup the banker accepting and 
 paying the bills. As regards continental 
 trade, Paris, Benin, Vienna, Hamburg, and 
 Amsterdam are of course highly important 
 centres, but recent wars have occasioned a 
 considerable transfer of financial business 
 to London. Moreover, the great foreign 
 trade of England, reaching into every quar- 
 ter of the globe, and the many distant colon- 
 ies and dependencies which naturally have 
 financial relations with the capital of the em 
 pire, tend to give London a unique position. 
 
 REPRESENTATION OF FOREIGN BANKERS IN 
 LONDON. 
 
 The result of this centralization of banking 
 transactions in London is, that colonial and 
 foreign bankers find it very desirable to have 
 agents, or even head offices in London. At 
 the present time there are no Idss than 60 im- 
 portant colonial and foreign banks which 
 have their own London offices or houses. 
 These include the principal Australian, New 
 Zealand and Indian banks, and a number of 
 minor banks, established by English capital- 
 ists to cultivate the trade of the minor states 
 of Europe, South America, China and the 
 East. In addition to the above 60 banks, 
 there are fully i.ooo foreign and colonial 
 banking houses in correspondence with Lon- 
 don bankers, so that almost every town in 
 the world which can maintain a bank at all, 
 lias the means of correspondence with some 
 member of the London banking system. The 
 foreign bankers vary greatly in the importance 
 of their transactions, and some of them 
 would, according to English ideas, be con- 
 sidered merchants rather than bankers ; but, 
 in the aggregate, their transactions must be 
 exceedingly large. It must almost inevitably 
 follow that transfers of money will be more 
 and more made through London. Just as 
 this city is the link of connection between each 
 English country banker and each other one, 
 so it may, and probably will by degrees, be- 
 come the link between the most distant parts of 
 the world But the greater becomes the profit- 
 able burden of financial business thrown upon 
 Lombard street and Threadneedle street, the 
 more it behoves us to take care that our cur- 
 rency system is maintained upon the soundest 
 possible basis. It is requisite, too, that our 
 bankers, financiers and merchants should reg- 
 ulate their operations with a thorough com- 
 prehension of the immense system in which 
 they play a part, and the risks of derange- 
 ment and failure which they encounter by 
 over-severe competition. No one doubts that 
 alarming symptoms have during recent years 
 presented themselves in the London money 
 market. There is a tendency to frequent 
 severe scarcities of loanable capital, causing 
 sadden variations of the rate of interest al- 
 most unknown thirty years ago. I will there- 
 for* in the next chapter offer a few remarks 
 
 intended to show that this is an evil naturally 
 resulting from the excessive economy of the 
 precious metals, which the increasing perfec- 
 tion of our banking system allows to be 
 practiced, but which may be carried too far 
 and lead to extreme disaster. 
 
 CHAPTER XXIV. 
 
 THE BANK OF ENGLAND AND THE HOMEY 
 MARKET. 
 
 We commenced the study of money with 
 the barter of ordinary commodities, and 
 money appeared in the first place as some 
 common commodity handed about as a me- 
 dium of exchange. By degrees, however, 
 the subject assumed a greater and greater 
 degree of complexity. The metals took the 
 place of other commodities as currency, and 
 delicate consideratious began to enter con- 
 cerning token and standard coins. From 
 metallic representative money, we passed to 
 
 oney, and finally dis- 
 eck and clearing sys- 
 almost eliminated 
 ges of the country, 
 now present them- 
 m full of account- 
 sums of money. 
 
 up 
 
 paper representaj 
 
 covered that, 
 
 tern, metallk 
 
 from the int| 
 
 Pecuniary tr 
 
 selves in the 
 
 ants, hastily ac 
 
 But we must never forget that all the figures 
 'in the books of a bank represent gold, and 
 I every creditor can demand the payment of 
 i the metal. In the ordinary state of trade no 
 | one cares to embarrass himself with a quan- 
 I tity of precious metal, which is both safer 
 I and more available in the vaults of a bank. 
 ! But in international trade, gold and silver 
 ! are still the media by which balances of in- 
 | debtedness must be paid, and serious conse- 
 ! quences may arise from any disproportion 
 ; between the amount of transactions carried 
 ' on, and the basis of gold upon which they 
 i are settled. 
 
 EXPANSION OF TRADE. 
 
 No one doubts that in the last thirty years 
 there has been an immense expansion in 
 the trade of this and most other countries. 
 If, as is very commonly done, we take the 
 foreign trade as a test of the general advance 
 of industry, we find that the total declared 
 real value of British and Irish produce ex- 
 ported from the United Kingdom was, in 
 1846, about 58 millions sterling. In 1866 it 
 amounted to 189 millions, or more than three 
 times as much. In the mean time the bank- 
 note circulation had rema'ned almost un- 
 changed, and such alteration as there was, 
 consisted in a decrease. The total circula- 
 tion of bank-notes, English, Scotch, and 
 Irish, was, in 1846, 89 millions, and in 1866, 
 38^ millions. I believe, however, that the 
 best test ot the progress of trade, both in- 
 ternal and external, is furnished by the ovfc 
 
MONEY AND THE MECHANISM OF EXCHANGE. 
 
 PS5J 8? 
 
 pot of eon!, the mainspring of our wealth. | the restriction of specie payments, the bullioa 
 Now, in 1854 the total quantity of coal ; report, the one-pound note question, and the 
 raised was about 65 millions of tons, and the joint stock banks. Since 1844. however, all 
 note currency 38 millions ; in 1866 the coal currency theorists have concentrated their 
 raised had increased to 101 >< millions of 
 tons, or by 56 per cent., while the note cur 
 
 rency still remained almost as before, natne- 
 
 islation. 
 
 The Acts of 1844 and' 1845 placed a fixed 
 
 the 
 
 attentions upon tne tfanK L,narter Act ot tnat 
 year, and while endlessly differing about the 
 nature of the remedy, have been unanimous 
 
 38 j millions. Between 1866 and 1874, in attributing all kinds of evils to a settle- 
 indeed, there was a remarkable increase in ment of our currency, which I believe to be a 
 the circulation, the amount of which rose to monument of sound and skillful financial leg- 
 43, 912,000, or by 14 per cent., but the 
 production of coal had in the mean time 
 
 risen to 127 millions, an increase, compared limit upon the amount of notes which can in 
 with 1854, of 95 per cent, this country be issued without an equal de- 
 
 ! posite of gold. At present (April, 
 
 COMPETITION OF BANKERS. [ g Qf | ngland JjJ 
 
 It is quite apparent, therefore, that the | fifteen millions; the private and joint stock 
 tendency is to carry on a greater and greater banks of England are individually restricted 
 trade upon an amount of metallic currency ' to fixed amounts, which, added together, 
 which does not grow in anything like the make about ^6,460,000, while the Scotch 
 same proportion. The system of banking, banks can, in a similar manner, issue notes 
 too, grows more perfect in the sense of in- to the amount of .2,750,000, and the Irish 
 creasing the economy with which money is banks to the amount of ^6,350,000, making 
 used. The competition of many great banks, in all about 30^ millions. In addition to 
 leads them to transact the largest possible i this the Bank of England, and the Scotch and 
 business with the smal 
 they can venture to 
 banks pay dividends o 
 ty five per cent., wh 
 by using large de 
 manner. Even the 
 much of actual coins 
 
 reserves which ,' Irish banks, can issue as many more notes 
 >me of these ! as they have deposits of bullion or coin; and 
 ity to twen- in the year 1874, the extra amount thus issued 
 jbe possible was about 14% millions. Let it be never 
 fery fearless forgotten, that no restriction is thus placed 
 isist not so upon the sum total of the currency of the 
 __ c-notes in the country; for the original legai tender of the 
 vaults, as of money employed in the Stock country is the coined sovereign of 123*274 
 ExchAnge, or deposited in the Bank of En- grains of gold, and every one who has the 
 gland which again lends the deposits out to a 1 gold can readily turn it into sovereigns. The 
 certain extent. objectors to the Bank Charter Act urge that 
 
 Now the larger the trade which is carried we want more currency, but they cannot 
 on, the larger will be the occasional demand really mean more metallic currency. We 
 for gold to make foreign payments ; and if must not look to changes in the law to 
 the stock of gold kept in London be growing increase the amount of specie in the country, 
 comparatively smaller and smaller, the greater and, as I have remarked, any one can get 
 will be the difficulty in meeting the demand j sovereigns if he has the needful gold. This 
 from time to time. Such is, I believe, the metal, again, is only to be had, in the absence 
 whole secret of the growing instability and of gold mines, by that state of foreign trade 
 delicacy of the money market in this country. | which brings it, and does not drain it away 
 There is a larger and larger quantity of \ again. The principal currency, in short, 
 claims for gold, and comparatively less gold must be regarded as a commodity, the supply 
 to meet them, so that every now and then j of which is to be left to the natural action of 
 there is a natural difficulty in paying claims, the laws of supply and demand. The unre- 
 and the rate of interest has to be suddenly strictcd issue of paper representative notes 
 raised to induce those who have gold to lend I produces an artificial interference with these 
 it, or to induce those who were demanding it natural conditions. 
 to forego their claims for a time. Most peo- I BANKTNP srwooi 
 
 pie, it is true, attribute all these troubles, I 
 
 either to the much abused gentlemen who i What the currency theorists want, then, is 
 meet weekly in the parlor of the Bank of i not more gold, but more promises to pay gold. 
 England, or to Sir Robert Peel, who estab- 
 
 lished the note issue of the Bank upon the 
 partial deposit system already described in 
 Chapter XVIII. 
 
 THE BANK CHARTER ACT OF 1844. 
 
 At all times during the last two hundred 
 years, there has been some currency topic 
 upon the anvil. In early days it was tne 
 scarcity of silver coin, the South Sea bubble, 
 or the price of the guinea. Later on ca ae 
 
 The Free-banking School especially argue 
 that it is among the elementary rights of an 
 individual to make promises, and that each 
 banker should be allowed to issue as many 
 notes as he can get his customers to take, 
 keeping such a reserve of metallic money, as 
 he thinks, in his own private discretion, suffi- 
 cient to enable him to redeem his promises. 
 But this free issue of paper representative 
 money does not at all meet the difficulty of 
 the money market, which is a want of gold. 
 
M [133] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 not of paper ; on the contrary, an unlimited 
 issue of paper would tend to reduce the 
 already narrow margin of gold upon which 
 we erect an enormous system of trade. Here 
 we reach the critical point of the whole theory 
 of currency. There is also a school of cur- 
 rency writers, formerly represented in En- 
 gland by Ricardo and Tooke.who hold that it 
 is impossible to over-issue convertible paper 
 money. Arguments to this effect have been 
 recently urged with great ability by Mr. R. 
 H. Inglis Palgrave, in his work entitled 
 " Notes on Banking," and his wide acquain- 
 tance with the subject should lend much 
 force to his opinions. But there is, to my 
 mind, an evident flaw in their position. 
 
 POSSIBILITY OF OVER-ISSUE. 
 
 When prices are at a certain level, and 
 trade in a quiescent state, a single banker is, 
 no doubt, unable to put into circulation more 
 than a certain quantity of bank-notes. He 
 cannot produce a greater effect upon the 
 whole currency than a single purchaser can 
 by his sales or purchases produce upon the 
 market for corn or cotton. But a number of 
 bankers, all trying to issue additional notes, 
 resemble a number of merchants offering to 
 sell corn for future delivery, and the value of 
 gold will be affected as the price of corn cer- 
 tainly is. We are too much accustomed to 
 look upon the value of gold as a fixed datum 
 line in commerce; but, in reality, it is a very 
 variable thing. The tables of prices analysed 
 by me in the Statistical Journal for June, 
 1865, show that between 1822 and 1825 there 
 was an average rise of prices to the amount 
 of 17 per cent.; and between 1844 and 1847, 
 and 1852 and 1857, the average rises were 
 respectively 13 and 31 per cent. Such vari- 
 ations of prices mean that the value of gold 
 is itself altered in the inverse ratio; and these 
 variations are produced mainly by extensions 
 of credit. Every one who promises to pay 
 gold on a future day, thereby increases the 
 anticipated supply of geld, and there is no 
 limit to the market. Every one who draws a 
 bill or issues a note, unconsciously acts as a 
 "bear" upon the gold market. Everything 
 goes well, and apparent prosperity falls upon 
 the whole community, so long as these prom- 
 ises to pay gold can be redeemed or replaced 
 by new promises. But the rise of prices thus 
 produced turns the foreign exchanges against 
 the country, and creates a balance of indebt- 
 ness which must be paid in gold. The basis 
 of the whole fabric of credit slips away, and 
 produces that sudden collapse known as a 
 commercial crisis. 
 
 Now, what is true of credit generally, is 
 still more true of the special form of credit 
 involved in bank promissory notes. These 
 purport to be payable in gold coin on demand, 
 so that they are taken by every one as equiv- 
 alent to the coin. Even bills of exchange 
 can be paid in notes, and as regards internal 
 trade, no difficulty would be felt in maintain- 
 
 ing credit so long as promises to pay gold 
 circulate instead of gold. But foreigners wili 
 not hold such promises on the same footing; 
 and, if the exchanges are against us, the 
 metallic, not the paper, part of the currency 
 will go abroad. It is at this moment that 
 bankers will find no difficulty in expanding 
 their issues, because many persons have 
 claims to meet in gold, and the notes are re- 
 garded as gold. The notes will thus conven- 
 iently fill up the void occasioned by the ex- 
 portation of specie; prices will be kept up, 
 prosperity will continue, the balance of for- 
 eign trade will be still against us, and the 
 game of replacing gold by promises will go 
 on to an unlimited extent, until it becomes 
 actually impossible to find more gold to make 
 necessary payments abroad. 
 
 Professor Cliffe Leslie, writing in MacmiU 
 fan's Magazine for August, 1864, correctly 
 pointed out, as I think, that speculative 
 credit often raises prices for a time above 
 their natural range. Representative credit, 
 on the other hand, by which I suppose he 
 
 posit of metal, 
 tion of the cu 
 in raising p 
 exist under 
 The actu 
 country is n 
 occurred in t 
 
 means notes issued against the actual de- 
 sly forms no augmenta- 
 and can have no effect 
 the level which would 
 
 system. 
 
 olf the bullion of * 
 event, for it is what 
 try in 1839. under the 
 free system of note issue. The Bank of 
 England had parted with almost the whole 
 of its bullion, and was only saved from bank- 
 ruptcy by the ignominious expedient of a 
 large loan from the Bank of France. The 
 narrow limits of this book evidently restrict 
 me from entering into historical and statis- 
 tical illustrations, but it may be said, that the 
 collapse which followed the crisis of 1839 
 induced severer distress and depression of 
 trade than has ever since been known in this 
 country. We now carry on industry and 
 commerce many times greater than in 1839, 
 and there is nothing to indicate that either 
 the bank directors or the commercial classes 
 are more cautious or far-seeing than they then 
 were. On the contrary, competition, specu- 
 lation, and the bold erection of the widest 
 affairs upon the narrowest basis of real cap- 
 ital is more common than ever. Knowing as 
 we do the very narrow margin of real metal 
 upon which our many great banks conduct 
 their business, it is impossible to entertain 
 for a moment the notion of allowing the pa- 
 per currency of the country to rest upon the 
 discretionary reserves of such competing 
 bankers. 
 
 THE RIGHT OF COINING BANK-NOTES. 
 
 According to the view which I adopt, the 
 issue of notes is more analogous to the 
 royal function of coinage than to the ordinary 
 commercial operation of drawing bills. We 
 ought to talk of coining notts, as John Law 
 did; for though the design is impressed on 
 
MONEY AND THF. M KCIIANISM ol 1 XCHANGE. 
 
 |_ 1:{7 J 
 
 paper instead of metal, the function of the 
 note is entirely the same as a representative 
 token. As to the right to issue promises, it 
 no more exists than the right to establish pri- 
 vate mints. For our present purposes that 
 alone is right which the legislature declares 
 to be expedient to the community at large. 
 As almost every one has long agreed to place 
 the coinage of money in the executive gov- 
 ernment, so I believe that the issue of paper 
 representative money should continue to be 
 practically in the hands of the government, 
 or its agents acting under the strictest legis- 
 lative control. M. Wolowski, in his admir- 
 able works on banking, has maintained that 
 the issue of notes is a function distinct from 
 the ordinary operations of a banker; and Mr. 
 Gladstone has allowed that the distinction is 
 a wholesome and vital one. Bankers enjoy 
 the utmost degree of freedom in this country 
 a* present, in every other point, so that it is 
 wholly a confusion of ideas to speak of the 
 unrestricted emission of paper representative 
 money as a question of free banking. 
 
 Professor Sumner and others have objected 
 to the Bank Charter Acti that it cannot be 
 regarded as a scientific sdftlement of the cur- 
 rency question, ina^mwh as n^ other nation 
 had adopted the. eamfc'JDrinqiples. Quite 
 lately, however, th6'Genan Imperial gov- 
 ernment has adoptecUtJpJg^m^in principle of a 
 partial deposit, adding to it the liberty of in- 
 creasing the issues under a tax of five per 
 cent., an arrangement which I have de- 
 scribed under the name of the Elastic Limit 
 System (Chap, xviii). This provision appears 
 to be designed to avoid the suspension of 
 the law during times of crisis, and it is 
 quite possible that we might with advantage 
 introduce a similar modification into our own 
 currency law. But the fine or tax upon the 
 excessive issue ought surely to be much more 
 than five per cent., and in this country should 
 certainly not be less than ten per cent. 
 
 SCOTCH AND ENGLISH BANKING 
 
 It is common, indeed, to point to the 
 Scotch banks as a proof that a perfectly sound 
 currency may be furnished by banks acting 
 on their own unfettered discretion. Up to 
 1 845, the twelve or thirteen Scotch banks cer- 
 . tainly did possess the right of freely issuing 
 notes down to one-pound notes, and only in 
 one or two cases did bankruptcy occur. All 
 this I grant, holding that Englishmen and 
 Americans, and natives of all countries, may 
 well admire the wonderful skill, sagacity, and 
 caution with which Scotch bankers have de- 
 veloped and conducted their system. There 
 is no doubt, too, that Scotch bankers are 
 guiding the course of development of the 
 banking system in England, India, the Aus 
 tralian colonies, and everywhere with con- 
 spicuous success. If we were all Scotchmen, 
 I believe the unlimited issue of one-pound 
 notes would be an excellent measure. But 
 when we compare the Scotch and English 
 
 banking systems, we discover a profound dif- 
 ference. In Scotland there exist only eleven. 
 great banks, which take good care that there 
 shall not be a twelfth great bank. The un- 
 doubted monopoly which they possess is. 
 however, used with great moderation and 
 wisdom, and by an immense ramification of 
 branches, every village has its banks, 
 and every poor man may have his bank de- 
 posit, if he will save a few pounds. In En- 
 gland and Wales we have 267 private and 121 
 joint stock banks, or, in ali, 388 banking 
 firms, including in these numbers the London 
 banks, but not including any of the numerous* 
 branch banks. There is, no dcubt, a ten- 
 dency to approximate to the Scotch system 
 by the amalgamation of smaller banks. Still 
 many new banks are from time to time 
 started, and the competition between them i*v 
 of the keenest character. The high divi- 
 dends expected by the shareholders can onlj" 
 be earned by bold trading on small reserves 
 and every commercial man is aware that th< 
 money market is becoming more and mort- 
 sensitive. 
 
 CASH KESKRVES OF BANKERS. 
 
 It is important, but very difficult to decide, 
 what is the amount of real cash held by th< 
 bankers of the United Kingdom in readiness t<t 
 meet their liabilities. Many banks publish baU 
 ance-she^ts professing to show the reserve of 
 ready money. 1 have already remarked 
 (Chap. x:x) upon the ambiguity which at- 
 taches to the words money and cash as com- 
 monly used ; and, when we inquire into the 
 nature of the banker's ready money, it is 
 found to consist in a great degree of money 
 invested in government securities, deposited 
 witu other bankers, especially the Bank of 
 England, or held "at call," that is, lent to 
 speculators who invest in negotiable securi- 
 ties. From the published balance-sheets we 
 thus get no indication of the real metallic re- 
 serve of the country, available for the pay. 
 ment of foreign debts. 
 
 Mr. R. H. Inglis Palgrave, in his impor- 
 tant *' Notes on Hanking," published both in 
 the Statistical Journal, for March, 1873 (Vol. 
 xxxvi. p, 166), and as a separate book, has 
 given the results of an inquiry into this sub- 
 ject, and states the amount of coin and Bank 
 of England notes, held by the bankers of the 
 United Kingdom, as not exceeding four or 
 five per cent, of their liabilities, cr from one 
 twenty-fifth to one twentieth part. Mr.T. B. 
 Moxon, of Stockpert and Manchester, has 
 subsequently made an elaborate inquiry into ' 
 the same point, and finds that the cash re- 
 serve does not exceed about seven per cent, 
 of the deposits and notes payable on demand. 
 He remarks that even of this reserve a large 
 proporticn is absolutely indispensable for the 
 dally transactions of the bankers' business, 
 and coutf not be parted with. Thus the 
 I whole fabric of our vast commerce is found 
 ' to depend upon the improbability that the 
 
'90 [138] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 merchants and other customers of the banks 
 ivill ever want, simultaneously and suddenly, 
 much as one twentieth part of the gold 
 money which they have a right to receive on 
 Demand at any moment during banking 
 Vours. 
 
 REMEDY FOR THE SENSITIVNESS OF THE 
 MONEY MARKET. 
 
 The present state of things in England is 
 not to be cured by any legislation. No 
 government can save those from trouble who 
 will make unlimited transactions in gold, 
 Without a sure prospect of finding the gold 
 when wanted It is absurd to suppose that 
 any single establishment like the Bank of 
 England, itself becoming hardly more im- 
 portant than some of the great city banks, 
 can prop up the whole fabric of English 
 commerce. 
 
 The only measure which can restore sta- 
 bility to the London market, or prevent it 
 from becoming more and more sensitive, is 
 to secure byome means the existence of more 
 satisfactory cash reserves, either in actual coin, 
 or in Bank of England notes, representing 
 deposited of coin in the foank ^vaults. It 
 would be of comparatively little use, how-, 
 ever, for some banks to become more prutl^nt 
 and self-denying, while others are allowed 
 to stretch their resources to the utmost pos- 
 sible point, and outbid the more prudent 
 banks in the rates of dividend they can pay/ 
 Combined action, therefore, seems requisite, 
 somewhat in the manner suggested by Mr. 
 Bagehot, as regards the city bankers. 
 
 As the Bank of England pays no interest 
 'Upon the eight millions which it on the aver- 
 age of the last four years holds as the deposits 
 oi the London bankers, there seems to be no 
 sufficient reason why the Bank should be 
 -allowed to make a profit out of so large a 
 -Sum. If held by a committee of the deposit- 
 ing banks it would be equally safe, almost 
 -equally available, and might, moreover, by 
 the investment of a portion in government 
 Stock, yield a profit to the depositors. It 
 may be asked, Why not leave each Dank to 
 hold its own reserve in its own vaults? But 
 there would then be no security against some 
 :banks running their reserves dangerously low, 
 and trusting to extrinsic aid in times of diffi- 
 culty. One objection which I should make 
 to the scheme as put forth is, that govern- 
 ment stock should not be allowed to form any 
 part of the ultimate reserve. When loanable 
 capital is very scarce, such stock can only be 
 converted into actual bullion by forced sales 
 which depreciate the funds, shock public con 
 fidence, and drain away money from those 
 who would in some other channel have em- 
 ployed it in the money market. Unless 
 /government stocks be sent abroad, their sale 
 cannot possible increase the stock of gold in 
 the country. A cash reserve ought to be 
 -Composed of cash, and although it may be 
 "Very convenient to bankers to use this word 
 
 in a loose and ambiguous manner, it ought 
 not to mean, in speaking of the ultimate 
 reserves of the country, anything but gold 
 coin or bullion, or warrants, actually issued 
 against coin or bullion, on the deposit system 
 previously considered. 
 
 It has been pointed out, moreover, in an 
 able article in the Banker's Magazine for 
 February, 1875, that the proposed scheme 
 would be very insufficient if carried out mere- 
 ly by a narrow circle of city bankers. The 
 association should include, in one way or 
 another, all the more important banks in the 
 three kingdoms. The vast trade of the 
 country cannot be placed upon a sound basis 
 until the force of public opinion among bank- 
 ers imposes upon each member the necessity 
 of holding a cash reserve bearing a fair pro- 
 portion to the liabilities incurred. It matters 
 little who holds the reserve, provided it actu- 
 ally does exist in the form of metal, and is 
 no/yevaporated away by being placed at call, 
 or deposited with other banks which make 
 free use of it. In the absence of some com- 
 mon action amo|g bankers, it is certain that 
 the sensitiveness of the money market will 
 itfcrease, and it is* probable^ that commercial 
 crises will from time* to time recur, even ex. 
 ceeding in their violence and disastrous con- 
 sequences those whose history we know too 
 well. 
 
 CHAPTER XXV. 
 
 A TABULAR STANDARD OF VALUE. 
 
 At the outset it was observed that money, 
 besides serving as a common denominator of 
 value, and as a medium to facilitate exchange, 
 was usually employed likewise as the stand- 
 ard of value, in terms of which contracts ex- 
 tending over long series of years are expressed. 
 In letting land on long or perpetual leases, 
 in lending money to governments, corpora- 
 tions and railway companies, it is the general 
 practice to make the interest and capital re- 
 payable in legal tender gold money. But 
 there is abundance of evidence to prove that 
 the value of gold has undergone extensive 
 changes. Between 1789 and 1809 it fell in 
 the ratio of 100 to 54, or by 46 per cent., as 
 I have shown in a paper on the Variation 6f 
 Prices since 1782, read to the London Stetis 
 tical Society in June, 1865. From 1809 ro 
 1849 it rose again in the extraordinary ratio 
 of loo to 256, or by 145 per cent., rendering 
 government annuities and all fixed payments 
 extending over this period, almost two and a 
 half times as valuable as they were in 1809. 
 Since i849the value of gold has again fallen 
 to the extent of at least 20 per cent., and a 
 careful study of the fluctuations of prices, as 
 shown either in the Annual Reviews of Trade 
 of the Economist newspaper, or in the paper 
 referred to above, shows that fluctuations of 
 
MONEY AND THE MECHANISM OJ EXCHANGE. 
 
 [139] 91 
 
 from 10 to 
 cycle. 
 
 85 per cent, occur in every credit 
 
 CORK RENTS. 
 
 The question arises whether, baring regard 
 to these extreme changes in the values of the 
 precious metals, it is desirable to employ them 
 as the standard of value in long lasting con- 
 tracts. We are forced to admit that the 
 Statesmen of Queen Elizabeth were far-seeing 
 when they passed the Act which obliged the 
 colleges of Oxford, Cambridge and Eaton to 
 lease their lands for corn rents. The result 
 has been to make those colleges far richer 
 than they would otherwise have been, the 
 rents and endowments expressed in money 
 having sunk to a fraction of their ancient 
 value. 
 
 I believe that there is no legal impediment 
 in the way of a landlord leasing his lands at 
 present for a corn rent, or an iron, or a coal 
 or any other rent. All that the law requires 
 is that the contract shall be perfectly definite, 
 and of exactly determinate meaning, so that 
 the kind of commodity intended, and the 
 quantity of that commodity, shall be exactly 
 ascertainable. But the law, in defining legal 
 tender money, provides against misapprehen- 
 sions concerning money payments, whereas 
 there is no security that mistakes and diffi- 
 culties will not arise in taking other com- 
 modities as the matter of cents Moreover, 
 any single commodity, such as corn or coal, 
 undergoes considerable fluctuations from 
 year to year, and as regards periods of ten or 
 twenty years, might prove not to be so good 
 a standard as silver or gold. Commodities 
 which are comparatively steady in value on 
 the average of long periods may be subject to 
 great temporary variations of supply or de- 
 mand. 
 
 A MULTIPLE LEGAL TENDER. 
 
 The question thus arises whether the prog- 
 ress of economical and statistical science 
 might not enable us to devise some better 
 standard of value. We have seen (Chap, xii) 
 that the so-called double standard sys- 
 tem of money spreads the fluctuations of 
 supply and demand of gold and silver over a 
 large area, and maintains both metals more 
 unchanged in value than they would other- 
 wise be. Can we not conceive a multiple 
 legal tender, which would be still less liable 
 to variation ? We estimate the value of one 
 hundred pounds by the quantities of corn, 
 beef, potatoes, coal, timber, iron, tea, coffee, 
 beer, and other principle commodities, which 
 it will purchase from time to time. Might 
 we not invent a legal tender note which 
 should be convertible, not into any one sin- 
 gle commodity, but into an aggregate of 
 small quantities of various commodities, the 
 quantity and quality of each being rigorously 
 oefined ? Thus a hundred pound note would 
 xive the owne r s a right ro demand one quar- 
 u r of good wheat, one ton of ordinary mer- 
 i i-.-ui bai iron, ooc fcondrcd pounds weight 
 
 of middling cotton, twenty pounds of sugar, 
 five pounds of tea, and other articles suffi- 
 cient to make up the value. All these com- 
 modities will, of course, fluctuate in their 
 relative values, but if the holder of the note 
 loses upon some, he will in all probability 
 gain upon others, so that on the average his 
 note will remain steady in purchasing power. 
 Indeed, as the articles into which it is con 
 vertible are those needed for continual con- 
 sumption, the purchasing power of the note 
 must remain steady compared with that of 
 gold or silver, which metals are employed 
 only for a few special purposes. 
 
 In practice, such a legal tender currency 
 would obviously be most inconvenient, 
 since no one would wish to have a miscel- 
 laneous assortment of goods forced into his 
 possession. He who wanted corn, would 
 have to sell to other parties the iron, beef, 
 and other things received alon^ with it ; gold, 
 or other metallic money, would doubtless be 
 used as the medium in these exchanges. This 
 scheme would, therefore, resolve itself prac- 
 tically into that which has been long since 
 brought forward under the title of the Tabu, 
 lar Standard of Value. 
 
 LOWE'S PROPOSED TABLE OF REFERENCE. 
 
 Among valuable books, which have been 
 forgotten, is to be mentioned that of Joseph, 
 Lowe on " The Present State of England in 
 regard to Agriculture, Trade and Finance,* 
 published in 1822. This book contains one 
 of the ablest treatises on the variation of prices, 
 the state of the currency, the poor-law, popu- 
 lation, finance, and other public question, of 
 the time in which it was published, that I 
 have ever met with. In Chapter IX. Lowe 
 treats, in a very enlightened manner, of the 
 fluctuations in the value of money, and pro- 
 ceeds to propound a scheme, probably in- 
 vented by him, for giving a steady value to 
 money contracts. He proposes that persons 
 shall be appointed to collect authentic infor- 
 mation concerning the prices at which the 
 staple articles of household consumption were 
 sold. In regard to corn and sugar, authori- 
 tative returns were then and have ever since 
 been, published in the London Gazette, and 
 there seemed to be no difficulty in extending 
 a like system to other articles. Having re- 
 gard to the comparative quantities of com- 
 modities consumed in the household, he would 
 then frame a table of reference^ showing in 
 what degree a money contract must be varied 
 so as to make the purchasing power uniform. 
 In principle the scheme seems to be perfectly 
 sound ; but Lowe did not attempt to work 
 out the practical details, and his plan involves 
 needless difficulties. 
 
 POULKTT SCROPE'S TABULAR STANDARD OF 
 VALUE. 
 
 A very similar scheme was independently 
 proposed, about eleven years later, by Mr. 
 
2 [140] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 G. Poulett Scrope, the well known writer on 
 geology and political economy. In a very able 
 but now forgotten pamphlet, called "An 
 Examination of the Bank Charter Question, 
 with an Inquiry into the Nature of a Jusl 
 Standard of Value" (London, 1833), Mr. 
 Scrope suggests (p. 26) that a standard might 
 be formed by taking an average of the mass 
 of commodities which, even if not employed 
 as the legal standard, might serve to deter- 
 mine and correct the variations of the legal 
 standard. The scheme was also described 
 in Mr. Scrope's interesting book on the Prin- 
 ciples of Political Economy, published in the 
 same year (p. 406), and in the second edition 
 of the same book, called " Political Economy 
 for Plain People," issued two years ago, (p. 
 308). The late Mr. G. R. Porter, without 
 referring to previous writers, gave the same 
 scheme in 1838, in the first edition of his 
 well known treatise on "The Progress of 
 the Nation," (Sections III. and IV. p. 235). 
 He added a table showing the average fluct- 
 uations of fifty commodities monthly during 
 the years 1833 to 1837. 
 
 Such scheme fora tabular or average stand- 
 ard of value appear to be perfectly sound 
 and highly valuable in a theoretical point of 
 view, and the practical difficulties are not of 
 a serious character. To carry Lowe's and 
 Scrope's plans into effect, a permanent gov- 
 ernment commission would have to be creat- 
 ed, and endowed with a kind of judicial 
 power. The officers of the department would 
 collect the current prices of the commodities 
 in all the principal markets of the kingdom, 
 and, by a well-defined system of calculations, 
 would compute from these data the average 
 variations in the purchasing power of gold. 
 The decisions of this commission would be 
 published monthly, and payments would be 
 adjusted An accordance with them. Thus, 
 suppose that a debt of one hundred pounds 
 was incurred upon the 1st of July, 1875, and 
 was to be paid back on ist of July, 1878 ; if 
 the commission had decided in June, 1878, 
 that the value of gold had fallen in the ratio 
 of 106 to loo in the intervening years, then 
 the creditor would claim an increase of 6 per 
 cent in the nominal amount of the debt. 
 
 At first the use of this national tabular 
 standard might be permissive, so that it could 
 be enforced only where the parties to the 
 contract had inserted a clause to that effect in 
 their contract. After the practicability and 
 utility of the plan had become sufficiently 
 demonstrated, it might be made compulsory, 
 in the sense that every money debt of, say, 
 more than three months' standing, would be 
 varied according to the tabular standard, 
 in the absence of an express provision to the 
 contrary. 
 
 DIFFICULTIES OP THE SCHEME. 
 
 The difficulties in the way of such a scheme 
 re not considerable. It would, no doubt, 
 introduce a certain complexity into the rela- 
 
 tions of debtors and creditors, and dispute* 
 might sometimes arise as to the date of the 
 debt whence the circulation must be made. 
 Such difficulties would not exceed those aris- 
 ing from the payment of interest, which like- 
 wise depends upon the duration of the debt. 
 The work of the commission, when once es- 
 tablished and directed by Act of Parliment. 
 would be little more than that of accountants 
 acting according to fixed rules. Their deci- 
 sions would be of a perfectly bond fide and 
 reliable character, because, in addition to 
 their average results, they would be required 
 to publish periodically the detailed tables of 
 prices upon which their calculations were 
 founded, and thus many persons could suffi- 
 ciently verify the data and the calculations. 
 Fraud would be out of the question. 
 
 The only real difficulty which I foresee, is 
 that of deciding upon the proper method of 
 deducing the average. According to the 
 method which I should advocate, a consider- 
 able number of commodities, say 100, should 
 be chosen with special regard to the inde- 
 pendence of their fluctuations one from 
 another, and then the geometrical average of 
 the ratios in which their gold prices have 
 changed would be calculated logarithmically. 
 This is the method which I employed in my 
 pamphlet on the " Serious Fall in the Value 
 of Gold, etc," and in the paper on the 
 Variations of Prices since 1782, previously 
 referred to (page 323). A somewhat similar 
 method had been previously employed by 
 Mr. Newmarch. In the annual Commercial 
 History and Review of the Economist news- 
 paper, there has, for many years, appeared a 
 table containing the Total Index Number of 
 prices, or the arithmetical sum of the num- 
 bers expressing the ratios of the prices of 
 many commodities to the average prices of 
 the same commodities in the years 1845-50, 
 Whatever method were adopted, however, 
 he results would be better than if we con- 
 tinued to accept a single metal for the stand- 
 ard, as we do at present. 
 
 The space at my disposal will not allow 
 me to describe adequately the advantages 
 which would arise from the establishment of 
 a national tabular standard of value. Such a 
 standard would add a wholly new degree of 
 stability to social relations, securing the fixed 
 ncomes of individuals and public institutions 
 "rom the depreciation which they have often 
 suffered. Speculation, too, based upon the 
 requent oscillations of prices, which take 
 )lace in the present state of commerce, would 
 >e to a certain extent discouraged. The cal- 
 culations of merchants would be less fre- 
 quently frustrated by causes beyond their 
 own control, and many bankruptcies would 
 be prevented. Periodical collapses of credit 
 would no doubt recur from time to time, but 
 the intensity of the crises would be mitigated, 
 becauses as prices fell the liabilities of debt- 
 ors would decrease approximately in the urn* 
 ratio. 
 
MONEY AND THE MECHANISM OF EXCHANGE. [141J 91 
 
 CHAPTER XXVI. 
 ra QOAMTITT or MONEY NEEDED IT A 
 
 NATION. 
 
 It might seem natural that one most im 
 portant point for discussion in an Essay on 
 Money would be the quantity of money re 
 quired by a nation. Nothing would seem 
 more desirable than to decide how much eacl 
 person needs of paper, gold, silver or bronze 
 currency, so that the government might tak 
 care to provide sufficient for every one. In 
 almost every country great complaints have 
 from time to time been made as to the scarcity 
 of the circulating medium, and the urgen 
 need of more. All the evils of the day, the 
 slackness of trade, falling prices, declining 
 revenue, poverty of the people, want of em 
 ployment, political discontent, bankruptcy 
 and panic, have been attributed to the wani 
 of money, the remedy suggested being in 
 former days the setting of the mint to work, 
 and in later times the issue of paper money. 
 
 The true answer to all such complaints is 
 that no one can tell how much currency a 
 nation requires, and that to attempt to regu- 
 late its quantity is the last thing which a 
 statesman should do. In almost every case 
 the apparen-t scarcity of currency arises from 
 unskillful management of the metallic cur- 
 rency, bad regulation of paper representative 
 money, speculation, or some unsoundness in 
 commerce which would be aggravated by a 
 further increase of the paper currency. 
 We shall find that to ascertain how much 
 money is needed by a nation is a problem in- 
 volving many unknown quantities, so that a 
 sore solution can never be obtained. 
 
 QUANTITY OF WORK TO BE DONE BY MONEY, 
 
 To decide how much money is needed by 
 a nation, we must, firstly, determine the 
 quantity of work which money has to do. 
 This will be proportional, ceteris faribus, to 
 the number of the population; twice the num- 
 ber of people, if equally active in trade and 
 performing it in the same way, will clearly 
 want twice as much money. It will be pro- 
 portional, again, to the activity of industry, 
 and to the complexity of its organization. 
 The more goods are bought and sold, and the 
 more often they pass from hand to hand, the 
 more currency will be needed to move .them. 
 It will be proportional, again, to the prices 
 of goods; and if gold falls in value, and prices 
 are raised, more money will be needed to pay 
 the debts increased in nominal amount. 
 
 Few of the quantities concerned in such 
 considerations are known. We know fhe 
 number of the population approximately, and 
 the amount of foreign trade, but the quanti- 
 ties of goods bought and sold in inland trade 
 are almost entirely unknown. It is needless 
 to dwell on this side of the question, as our 
 
 knowledge is still more defective in other re- 
 spects. 
 
 EFFICIENCY OF THE CURRENCY. 
 
 By the efficiency of the currency we meam 
 the average number of exchanges effected by 
 each piece of money in a unit of time, such as 
 a year. The aggregate work done by money 
 will be measured by its Quantity multiplied 
 into the average number of times which each 
 coin or note passes from hand to hand dur- 
 ing the year. Now we know very imper- 
 fectly what is the quantity of the currency in 
 most countries, and we know nothing at all 
 as to the average rapidity of circulation. 
 Some coins, especially small silver and bronze 
 coins, may pass several times in the course of 
 a day. Other coins or notes may be kept in 
 the pocket for weeks, or may be laid by for 
 months and years. I have never met with 
 any attempt to determine in any country the 
 average rapidity of circulation, nor have I 
 been able to think of any means whatever of 
 approaching the investigation of the question, 
 except in the inverse way. If we knew the 
 amount of exchanges effected, and the quan- 
 tity of currency used, we might get by divis- 
 ion the average number of times the currency 
 is turned over; but the data, as already 
 stated, are quite wanting. 
 
 There is no doubt that the rapidity of cir- 
 culation varies very much between one coun- 
 try and another. A thrifty people with slight 
 banking facilities, like the French, Swiss, 
 Belgians, and Dutch, hoard coin much more 
 than an improvident people like the English, 
 or even a careful people with a perfect bank 
 ng system like the Scotch. Many circum 
 stances, too, affect the rapidity of circulation. 
 Railways and rapid steamboats enable coin 
 and bullion to be more swiftly remitted than 
 of old ; telegraphs prevent its needless re- 
 moval, and the acceleration of the mails has 
 a like effect. A decrease in the circulation 
 of country bank-notes in England, in 1843, 
 was attributed to the effect of the pmy 
 postal reform in facilitating presentation of 
 notes by post. 
 
 PFECTS OF THE CHECK AND CLEARING 
 SYSTEM. 
 
 Far more important than these censidera- 
 ions is the fact that, where an extensive 
 >anking system exists, only a portion of the 
 exchanges are actually effected by money. I 
 'o not lay much stress upon the use of billt 
 >f exchange as replacing money, because the 
 legree in which they are so used must be 
 omparatively limited, and they are rather 
 rticles bought and sold with money than 
 money itself. But we have traced out step 
 by step the way. in which the check and clear- 
 ng system enables debts to be balanced off 
 gainst each other, so that the money is never 
 ouched at all, and only intervenes as the unit 
 f value in which sums are expressed. Al- 
 most all large exchanges are now effected bf 
 
4 [142] MONEY AND THE MECHANISM OF EXCHANGE. 
 
 a complicated and perfected system of barter. 
 In the London Clearing House transactions 
 to the amount of, at least, ^6,000,000,000 in 
 the year are thus effected, without the use of 
 any cash at all, and, as I have before ex- 
 plained, this amount gives no adequate idea 
 of the exchanges arranged by checks, because 
 so many transactions are really cleared in 
 provincial banks, between branches, agents 
 or correspondents of the same bank, or be- 
 tween branches having the same London 
 agents. 
 
 If our knowledge of the amount of trans- 
 actions in England is highly imperfect, we 
 know still less of the way in which payments 
 are effected in other countries. The New 
 York Clearing House transactions are very 
 extensive, as we have seen, and there is an 
 elaborate banking system extending over all 
 the States of the Union ; but it would require 
 much investigation on the spot to enable any 
 one to form a notion whether the correspond- 
 ence between these banks enables them to 
 economize currency as much as the English 
 system of London agencies. In France and 
 most continental countries the check and 
 clearing system can hardly be said to exist 
 except in some of the large towns. Paris has 
 an incipient clearing house, and the Bank of 
 France, moreover, makes transfers between 
 clients to the extent of two or three millions 
 daily. All banks will to a certain extent 
 economize currency, and those of Amsterdam 
 and Hamburg have for some centuries carried 
 on a system of transfers, the true prototype 
 of our system. 
 
 Considerable changes, it is true, are taking 
 place in the mode of conducting business in 
 some parts of the continent. Professor Cliffe 
 Leslie, who is well known to be intimately 
 acquainted with the economical systems of 
 the continental countries, attnbutes the rise 
 of prices in Germany in a great degree to the 
 quicker circulation of the money, and the 
 freer use of instruments of credit. In the 
 Fortnightly Review for November, 1870 (pp. 
 568-9), he says : " The improvement in loco- 
 motion and in commercial activity which 
 have so largely augmented the money-mak- 
 ing power of the Germans, -have also quick- 
 ened prodigiously the circulation of money ; 
 and the development of credit, likewise fol- 
 lowing industrial progress, has added to the 
 volume of the circulating medium a mass of 
 substitutes for money which move with greater 
 velocity. A much smaller amount of money 
 than formerly now suffices to do a given 
 amount of business, or to raise prices to a 
 given range ; and to the increased amount of 
 actual money now current in Germany we 
 must add a brisk circulation of instruments 
 of credit. Were the circulating medium com- 
 posed of coin alone, whatever the amount of 
 the precious metals issuing from the mines, 
 or circulating in other countries, and what- 
 ever the price of German commodities in 
 markets abroad, no rise in the prices of Ger- 
 
 man commodities at home could take plae 
 without additional coin to sustain it. 
 
 So different, then, are the commercial 
 habits of different peoples, that there evident- 
 ly exists no proportion whatever between the 
 amount of currency in a country and the 
 aggregate of the exchanges which can be ef- 
 fected by it. Even if we had reliable statis- 
 tics of the amount of currencies, such data 
 should be regarded as indicating, not the 
 comparative abundance or scarcity of money, 
 but the degree of civilization, of providence, 
 or of complexity of banking organization, in 
 the country. 
 
 CONCLUSION. 
 
 From all the above considerations it fol- 
 lows that the only method of regulating the 
 amount of the currency is to leave it at per- 
 fect freedom to regulate itself. Money must 
 find its own level like water, and flow in aed 
 out of a country, according to fluctuations of 
 commerce which no government can foresee 
 or prevent. The manner in which paper 
 notes may be used to represent and replace 
 part of the metallic currency should be strict 
 ly regulated, because otherwise belief in the 
 existence of metallic money is created when 
 there is no such money to warrant the belief. 
 But the amount of money itself can be no 
 more regulated than the amounts of corn, 
 iron, cotton, or other common commodities 
 produced and consumed by a people. It 
 must be allowed, indeed, to be no easy matter 
 to discriminate precisely and soundly between 
 those points at which the legislator must in- 
 terfere in the management of the currency 
 and lay down a fixed rule, and those points at 
 which perfect freedom must be maintained. 
 
 A comparison of our present laws regard- 
 ing currency and trade, with those which ex- 
 isted in this country from the tenth to the 
 fourteenth century, will show a curious 
 double progress. Many things which our 
 ancestors attempted to regulate by law are 
 now left free by general consent, and other 
 things which they left free, or nearly so, ar 
 now strictly regulated. The rates of wages 
 the price of the quartern loaf, the exercise of 
 various trades, were then the subject of legis- 
 letion, though we know that they cannot be 
 properly brought within the scope of legisla- 
 tive control. On the other hand, an endless 
 diversity of weights and measures were for- 
 merly used in different parts of the country, 
 and little or no attempt was made to reduce 
 them to any system or precise definition. 
 Almost every important town, too, had its 
 mint in the earlier centuries, and barons and 
 great ecclesiastics often exercised the right of 
 issuing their own money. There are still a very 
 few persons who advocate free coinage; but, 
 by almost general consent, the work of coin- 
 ing metallic money is now, in every civilized 
 country, committed to the care of the State. 
 We provide for a uniform system of coins 
 with the same care that we establish a nation* 
 
MONEY AND TILE MECHANISM oF KXCHANGE. 
 
 [148J 95 
 
 al system of weights and measures. But 
 while we thus take the greatest care of the 
 metallic currency in one respect, we have ut- 
 terly abandoned all the futile attempts 
 which were in former centuries made to 
 bring bullion into the kingdom in order to 
 set the mint to work. 
 
 We must deal with the paper currency in 
 an analogous manner, and regulate it both 
 more and less than hitherto. Private issues 
 should disappearlike private mints, and each 
 kingdom should have one uniform paper cir- 
 culation, issued from a single central State 
 department, more resembling a mint than a 
 bank. The manner of issuing this paper 
 currency should be strictly regulated in one 
 sense; the paper circulation should be made 
 to increase and diminish with the amount of 
 
 gold deposited in exchange for it. At the- 
 same time, no thought need be taken about 
 the amount so issued. The purpose of tho 
 strict regulation is not to govern the amount, 
 but to leave that amount to vary according 
 to the natural laws of supply arid demand. 
 In my opinion, it is the ipsue of paper repre- 
 scntative notes accepted im place of coin. 
 which constitutes an arbitrary interference 
 with the national laws governing the vari- 
 ations of a purely metallic currency, so that 
 strict legislative control in one way leads to 
 more real freedom in another. I am quite 
 willing to allow, however that questions or 
 great nicety and subtlety arise in this sub. 
 ject, and that only in the gradual progress 
 of economic science can they be finally set 
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