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 Standard Unit of Value.

It is essential, in the first place, to decide clearly what we mean by a standard unit of value. This must consist of a fixed quantity of some concrete substance, defined by reference to the units of weight or space. Value may seem to some people to be a purely mental phenomenon, and a pound would then have to be defined, as Lord Castlereagh asserted, by a sense of value. But we might as well define a yard by a sense of length, or a grain by a sense of weight. Just as every quantity in physical science is defined by reference to some concrete standard specimen, so, if we are to measure and express value at all, we must fix upon definite quantities of one or more definite and unchangeable commodities for the purpose.

The expression standard unit of value, will indeed be almost inevitably misunderstood as implying the existence of something of fixed value. As we have seen, however (p. 11), value merely expresses the essentially variable ratio in which two commodities exchange, so that there is no reason to suppose that any substance does for two days together retain the same value. All that a standard of value means is, that some uniform unchangeable substance is chosen, in terms of which all ratios of exchange may be expressed and calculated, without any regard whatever to the feelings or mental phenomena which the commodities produce in men. For reasons already stated, one or other of the metals, gold, silver, or copper, has usually been considered most suitable for constituting the standard substance.

The absolute weight or magnitude of the unit of money is a matter of little or no importance, provided that all people agree upon the same unit, and that it be permanently and exactly defined, and afterwards adhered to. Before the English yard was fixed, it would not have mattered whether it was a few inches longer or shorter; it does not matter, indeed, whether the inch, the foot, the furlong, or the mile is the unit, provided that one of them is definitely fixed, and the others referred to it by known ratios. So, it is really indifferent whether we regard the pound troy of standard gold, or the ounce, or the fixed number of grains in the sovereign, as our standard. It is only requisite that every contract expressed in money shall enable us to ascertain exactly how much standard gold is due from one person to another.

M. Chevalier and some other continental economists have argued elaborately in favour of a universal standard unit of value, coinciding with the metric system of weights. They wish the unit of value to be ten grams of gold exactly, and seem to think that there is some magical efficacy in the correspondence of money and weights. This correspondence might perhaps be a slight convenience to those bullion dealers who have to calculate the metallic value of coins before melting or exporting them, or to those mint officials who have to adjust and test the weights of coins; to all other persons it would be a matter of complete indifference. Those who use coins in ordinary business need never inquire how much metal they contain. Probably not one person in ten thousand in this kingdom knows, or need know, that a sovereign should contain 123.27447 grains of standard gold. Besides, if we agree to accept a precise metrical quantity of one metal as our standard, the weights of the coins composed of other metals will be complicated fractional amounts, to be determined with reference to the accidental market values of the metals.

All we can say, then, is that the standard unit of value is some entirely arbitrary weight of the standard metal, the exact amount of which, being a matter of indifference on general grounds, should be fixed as seems most convenient in reference to the habits of nations or other accidental circumstances.