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.

Want of Means of Subdivision.

A third but it may be a minor inconvenience 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 handiwork. 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 varying requirements.

In the present day barter still goes on in some cases, even in the most advanced commercial countries, but only when its inconveniences are not experienced. Domestic servants receive part of their wages in board and lodging: the farm labourer 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 truck or barter system, by which workmen took their wages in kind, has hardly yet been extinguished in some parts of England. Pieces of land are occasionally exchanged by adjoining landowners; but all these are comparatively trilling cases. In almost all acts of exchange 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 apparently 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 exchange. 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 desire, as Senior so well remarked, is for variety, 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, and this definition will be correct if we state it as the barter of the comparatively superfluous for the comparatively 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 substance, the urgency of our need for more is in some proportion weakened. A cup of water in the desert, or upon the field of battle, may save life, and become infinitely useful. 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 satisfied 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.