The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Chapter I: Barter
• Want of Coincidence In Barter.
• Want of a Measure of Value.
• Want of Means of Subdivision.
• Chapter II: Exchange
• Utility and Value Are Not Intrinsic.
• Value Expresses Patio of Exchange.
• Chapter III: The Functions of Money
• A Standard of Value.
• A Store of Value.
• Separation of Functions.
• Chapter IV: Early History of Money
• Currency In the Hunting State.
• Currency In the Pastoral State.
• Articles of Ornament As Currency.
• Currency In the Agricultural State.
• Manufactured and Miscellaneous Articles As Currency.
• Chapter V: Qualities of the Material of Money
• 1. Utility and Value.
• 2. Portability.
• 3. Indestructibility.
• 4. Homogeneity.
• 5. Divisibility.
• 6. Stability of Value.
• 7. Cognizability.
• Chapter VI: The Metals As Money
• Iron.
• Lead.
• Tin.
• Copper.
• Silver.
• Gold.
• Platinum.
• Nickel.
• Other Metals.
• Alloys of Metals.
• Chapter VII: Coins
• The Invention of Coining.
• What Is a Coin?
• Various Forms of Coins.
• The Best Form For Coins.
• Coins As Works of Art.
• Historical Coins.
• The Royal Attribute of Coining.
• Chapter VIII: The Principles of Circulation
• The Standard Unit of Value.
• Coin, Money of Account, and Unit of Value.
• Standard and Token Money.
• Metallic and Nominal Values of Coins.
• Legal Tender.
• The Force of Habit In the Circulation of Money.
• Gresham's Law.
• Extension of Gresham's Law.
• Chapter IX: Systems of Metallic Money
• Currency By Weight.
• Unrestricted Currency By Tale.
• Single Legal Tender System.
• Multiple Legal Tender System.
• Composite Legal Tender.
• Chapter X: The English System of Metallic Currency
• English Gold Coin.
• English Silver Coin.
• English Bronze Coinage.
• Deficiency of Weight of the English Gold Coin.
• Withdrawal of Light Gold Coin.
• Supply of Gold Coin.
• Supply of Silver Coin.
• The Royal Mint.
• Chapter XI: Fractional Currency
• Billon Coin.
• Composite Coin.
• Bronze Coin.
• English Bronze Coin.
• Weight of the Currency.
• Nickel, Manganese, Aluminium, and Other Metals and Alloys.
• Chapter XII: The Battle of the Standards
• The Double Standard.
• Compensatory Action.
• The Demonetization of Silver.
• Disadvantages of the Double Standard.
• The Monetary Systems of the World.
• Chapter XIII: Technical Matters Relating to Coinage
• The Alloys In Coin.
• The Size of Coins.
• The Wear of Coin.
• Methods of Counting Coins.
• Cost of the Metallic Currency.
• Chapter XIV: International Money
• Advantages of International Money.
• Disadvantages of International Money.
• Conflict of Monetary Systems.
• International Monetary Negotiations.
• Decimalization of English Money.
• The Future American Dollar.
• German Monetary Reform.
• Systems of Fractional Money.
• Final Selection of the Unit of International Money.
• Chapter XV: The Mechanism of Exchange
• Progressive Development of the Methods of Exchange.
• Representative Money.
• Cheque and Clearing System.
• Chapter XVI: Representative Money
• Early History of Representative Money.
• Reasons For the Use of Representative Money.
• Inconvenience of Metallic Money.
• The Weight of Currency.
• Saving of Interest.
• Chapter XVII: The Nature and Varieties of Promissory Notes
• Specific Deposit Warrant.
• General Deposit Warrant.
• Difference Between a Special and a General Promise.
• Pecuniary Promissory Notes.
• Principles of the Circulation of Representative Money.
• Chapter XVIII: Methods of Regulating a Paper Currency
• 1. Simple Deposit.
• 2. Partial Deposit.
• 3. Minimum Reserve.
• 4. Proportional Reserve.
• 5. Maximum Issue.
• 6. Elastic Limit.
• 7. Documentary Reserve.
• 8. Real Property Reserve.
• 9. Regulation By the Foreign Exchanges.
• 10. Free Issue System.
• 11. The Gold Par Method.
• 12. Convertibility By Revenue Payments.
• 13. Deferred Convertibility.
• 14. Inconvertible Paper Money.
• Over Issue of Paper Money.
• Want of Elasticity of Paper Money.
• Chapter XIX: Credit Documents
• Measurement of Credit.
• Bank-notes.
• Cheques.
• Bills of Exchange.
• Interest-bearing Documents.
• Definition of Money.
• Chapter XX: Book Credit and the Banking System
• Single Bank System.
• System of Two Banks.
• Complex Bank System.
• Branch Bank System.
• Bank Agency System.
• London Agency System.
• Country Clearing System.
• Chapter XXI: The Clearing-house System
• Transaction of Business At the London Clearing House.
• Manchester Clearing House.
• New York Clearing House.
• Extension of the Clearing System.
• Advantages of the Cheque and Clearing System.
• Proportion of Cash Payments.
• Cases to Which the Clearing System Is Inapplicable.
• Chapter XXII: The Cheque Bank
• Relation of the Cheque Bank to Other Banks.
• The Cheque Bank As a Monetary Agent.
• Payment of Wages By Cheques.
• The Cheque Bank As a Savings Bank.
• Results of the Cheque Bank System.
• Chapter XXIII: Foreign Bills of Exchange
• Origin and Nature of Bills of Exchange.
• Trade In Foreign Bills.
• The World's Clearing House.
• Centralization of Financial Transactions In London.
• Representation of Foreign Bankers In London.
• Chapter XXIV: The Bank of England and the Money Market
• Expansion of Trade.
• Competition of Bankers.
• The Bank Charter Act of 1844.
• The Free-banking School.
• Possibility of Over-issue.
• The Right of Coining Bank Notes.
• Scotch and English Banking.
• Cash Reserves of Bankers.
• Remedy For the Sensitiveness of the Money Market.
• Chapter XXV: A Tabular Standard of Value
• Corn Rents.
• A Multiple Legal Tender.
• Lowe's Proposed Table of Reference.
• Poulett Scrope's Tabular Standard of Value.
• Difficulties of the Scheme.
• Chapter XXVI: The Quantity of Money Needed By a Nation
• Quantity of Work to Be Done By Money.
• Efficiency of the Currency.
• Effects of the Cheque and Clearing System.
• Conclusion.

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 promise to give definite parcels of goods in return 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 portion of commodity of the proper quality, 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 deposited 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 fulfil 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 redeem 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 number of such notes in order to have a corresponding supply of commodity to sell. It is true that the issue of promises involves their fulfilment at a future day; but the future is unknown, and the issuer may believe that before the fulfilment is likely to be demanded the 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 unscrupulous 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 "bear" operations 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 of 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 proprietors 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 future day. It is quite common to make contracts 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 beneficial to society, and it is the recognition by law which makes it a right. If, on the contrary, it be found by experience that freedom of making and selling promises in a particular way gives scope to illegitimate speculation, or otherwise injures society more than it produces benefit, the law ought certainly to restrict this freedom and regulate the matter 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 disregarded, there are many cases in which it might be advantageously enforced.