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.

Effects of the Cheque and Clearing System.

Far more important than these considerations is the fact that, where an extensive banking system exists, only a portion of the exchanges are actually effected by money. I do not lay much stress upon the use of bills of exchange as replacing money, because the degree in which they are so used must be comparatively limited, and they are rather articles bought and sold with money than money itself. But we have traced out step by step the way in which the cheque and clearing system enables debts to be balanced off against each other, so that the money is never touched at all, and only intervenes as the unit of value in which sums are expressed. Almost all large exchanges are now effected by 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 explained, this amount gives no adequate idea of the exchanges a arranged by cheques, because so many transactions are really cleared in provincial banks, between branches, agents, or correspondents of the same bank, or between banks having the same London agents.

If our knowledge of the amount of transactions 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 correspondence between these banks enables them to economize currency as much as the English system of London agencies. In France and most continental countries the cheque 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, attributes 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 improvements in locomotion and in commercial activity which have so largely augmented the money-making power of the Germans, have also quickened prodigiously the circulation of money; and the development of credit, likewise following 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 composed of coin alone, whatever the amount of the precious metals issuing from the mines, or circulating in other countries, and whatever the price of German commodities in markets abroad, no rise in the prices of German commodities at home could take place without additional coin to sustain it."

So different, then, are the commercial habits of different peoples, that there evidently exists no proportion whatever between the amount of currency in a country and the aggregate of the exchanges which can be effected by it. Even if we had reliable statistics of the amounts 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.