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.

Interest-bearing Documents.

It is extraordinary that few writers on currency have remarked the deep difference between commercial documents which bear 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 mean time 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 considered as a commodity which, as Chevalier says, is in a constant state of supply and demand. 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, cheques, circular notes, bills at sight, and a few other kinds of documents, all of which are payable on demand at any 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 documents have the characteristics of coin, and the amount held is kept down to the lowest convenient figure. Interest-bearing documents, 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 represent the sinking of capital in fixed undertakings, 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 replace 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 ought 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 entitling the holder to one hundred pounds on demand, and to interest at the rate of 3 1/3 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 1/3, 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 National Debt as transferable as possible by authorizing, in terms of the Act of 33 and 34 Victoria, 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 transferable by delivery like bank notes. They are issued in exchange for Three Per Cent Annuities for even sums of not less than £50 and not more than £1000; and if the right to an 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 bankers and others, who have to hold sums of money invested in the funds for short periods, and can save the cost of transfers by the use of certificates. The public at large are found to prefer the old method of registering their stock in the books of the Bank of England.