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.

The Royal Attribute of Coining.

Every civilized community requires a supply of well-executed coins, and there arises the question, how shall this money be provided? The coins of each denomination must contain exactly equal weights of fine metal, and must bear an impress proving that they do so. Can we trust to the ordinary competition of manufacturers and traders to keep up a sufficient supply of such coins, just as they supply buttons or pins and needles? Or must we establish a government department, under strict legislative control, to secure good coinage?

As almost every opinion finds some advocate, there are not wanting a few who believe that coinage should be left to the free action of competition. Mr. Herbert Spencer especially, in his "Social Statics," advanced the doctrine that, as we trust the grocer to furnish us with pounds of tea, and the baker to send us loaves of bread, so we might trust Heaton and Sons, or some of the other enterprising firms of Birmingham, to supply us with sovereigns and shillings at their own risk and profit. He held that just as people go by preference to the grocer who sells good tea, and to the baker whose loaves are sound and of full weight, so the honest and successful coiner would gain possession of the market, and his money would drive out inferior productions.

Though I must always deeply respect the opinions of so profound a thinker as Mr. Spencer, I hold that in this instance he has pushed a general principle into an exceptional case, where it quite fails. He has overlooked the important law of Gresham (to be explained in the next chapter), that better money cannot drive out worse. In matters of currency self-interest acts in the opposite direction to what it does in other affairs, as will be explained, and if coining were left free, those who sold light coins at reduced prices would drive the best trade.

This conclusion is amply confirmed by experience; for at many times and places coins have been issued by private manufacturers, and always with the result of debasing the currency. For a long time the copper currency of England consisted mainly of tradesmen's tokens, which were issued very light in weight and excessive in number. In Mr. Smiles' "Lives of Boulton and Watt" (p. 391), there is printed an interesting letter, in which Boulton complains that in his journeys he received on an average at the toll-gates two counterfeit pennies for one true one. The lower class of manufacturers, he says, purchased copper coin to the nominal value of thirty-six shillings for twenty shillings in silver, and distributed it to their work-people in wages, so as to make a considerable profit. The multitude of these depreciated pieces in circulation was so great, that the magistrates and inhabitants of Stockport held a public meeting, and resolved to take no halfpence in future but those of the Anglesey Company, which were of full weight. This shows, if proof were needed, that the separate action of self-interest was inoperative in keeping bad coin out of circulation, and it is not to be supposed that the public meeting could have had any sufficient effect. In China the current small money called cash or le, is commonly manufactured by private coiners, and the consequence is that the size, quality, and value of the coins have fallen very much.

In my opinion there is nothing less fit to be left to the action of competition than money. In constitutional law the right of coining has always been held to be one of the peculiar prerogatives of the Crown, and it is a maxim of the civil law, that monetandi jus principum ossibus inhæret. To the executive government and its scientific advisers, who have minutely inquired into the intricacies of the subject of currency and coinage, the matter had better be left. It should as far as possible be removed from the sphere of party struggles or public opinion, and confided to the decision of experts. No doubt, in times past, kings have been the most notorious false coiners and depreciators of the currency, but there is no danger of the like being done in modern times. The danger lies quite in the opposite direction, that popular governments will not venture upon the most obvious and necessary improvement of the monetary system without obtaining a concurrence of popular opinion in its favour, while the people, influenced by habit, and with little knowledge of the subject, will never be able to agree upon the best scheme.

Chapter VIII

The Principles of Circulation

Before proceeding to consider the actual monetary systems adopted by modern or ancient nations, it is desirable to dwell for a short time upon the different meanings which may be attributed to the word money, and upon the natural principles which govern the use and circulation of coins. We must, in the first place, distinguish three things which, in the practical working of a currency system, are often separate, namely, the actual coins employed, the numbers by which they are expressed, and the relation of those numbers to the assumed unit of value. We must further distinguish coins according as their values depend upon the metal they contain, the metal for which they can be exchanged, or the other coins for which they are the legal equivalent.