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.

Cheques.

A cheque payable to bearer is an order addressed to a banker, requiring him to pay the sum named to the bearer of the cheque on demand. Like a bank-note, it bears no interest, and is transferable from hand to hand without any formality, so that the holder is primâ 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 cheque is drawn, it is difficult to see why a cheque should be inferior to a bank-note as representative money, except that it is usually drawn for an odd sum. In some places cheques 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 cheques, which are received at the stores, and thus become the circulating medium of the colony. Obvious objections to this use of cheques may be pointed out.

It is impossible to be acquainted with the cheque 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 cheques without minutely inquiring into their validity, immense facilities would be given to the perpetration of fraud. Forgery would be easy but hardly requisite, since it would be better to obtain possession of a cheque book, and then fill up cheques for amounts exceeding the deposits in the banker's hands. Every one accepting a cheque 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 cheque does not present it in "reasonable time," that is before the close of business hours on the day following the receipt of the cheque, he loses his claim against the drawer, if the bank on which it is drawn 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 cheque, and should not suffer from the holder's want of diligence.

The salutary effect of this law and of other conditions is, that cheques do not circulate in this kingdom in place of money, but are usually presented within one or two days of receipt. Hence they come to serve as mere instruments of transfer of money, and involve no considerable length of credit. Nothing can be gained by holding an ordinary cheque, for there is no interest, and something may be lost. Beyond the mere trouble of presentation, then, there is no motive to prevent a holder from at once getting coin or bank-notes for his cheque which, though paying no interest, are safer. Or still better, he may deposit the sum at his bankers, get a low interest in the mean tune, and draw a new cheque of his own when he wishes to pay the money 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 elsewhere, and usually paying interest all the time. On this foundation is erected the extensive system of payment which will be described in the next chapter, and which may be called the Cheque and Clearing System.

There are, indeed, many varieties of cheques. Bankers' cheques 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 cheques seem to me to be in no way inferior to bank-notes as representative money. If two perfectly well-known banks were to arrange to draw cheques upon each other for convenient even amounts, and to issue these to their customers, it would effect a successful evasion of the 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' cheques are presented almost as promptly as any others.

Certified cheques, as employed in the New York trade, are a still nearer approach to a bank-note, for they are cheques which have been marked by the bankers on which they are drawn, as sure to be paid on presentation. Either the banker in certifying the cheque 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 cheque in any case. Such cheques 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 safeguards against forgery. The cheques of the Cheque Bank, which will be subsequently considered (Chapter XXII.), are equivalent to certified cheques, as they cannot be issued except against deposits which are retained until the cheque is presented.

Of late years the practice has become very general of making cheques 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 discharged by an open endorsement, which renders the cheque 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 cheque, but when crossed specifically for presentation through a particular bank, the cheque becomes practically an order to credit a particular individual, who keeps his account in that bank, with the sum of money named.