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.

Coin, Money of Account, and Unit of Value.

It is desirable to distinguish clearly between three things which, although definitely related to each other, need not be identical. The unit of value, or standard weight of the selected metal, is not necessarily made into a coin. It may be a quantity too great or too small for coining. All that is requisite is that the current coins shall be multiples or submultiples of the unit, or easily expressible in terms of the unit. Nor is it even requisite that the numbers in which we express value should be numbers of coins, or number of units of value. The money of account, as it is called, may differ both from the current money and the standard money. This is well illustrated in the Anglo-Saxon system of currency. The unit of value was the Saxon pound of standard silver, which was far too large to be coined. The only coins issued in any considerable quantity by the Anglo-Saxon kings, were silver pennies and a few halfpennies; yet the usual money of account was the shilling, which, after varying from four to five pence, was fixed by William I. at twelve pence, as it has ever since continued. No coin called a shilling was issued before the reign of Henry VII. Though the shilling has survived, other moneys of account have been forgotten, as, for instance, the mancus, which was equal to thirty pennies, or six shillings of five pence each. The mark, the ora, and the thrimsa were other moneys of account used by the Anglo-Saxons.

In our present English system the three moneys happen to coincide, which is doubtless a matter of some convenience. The sovereign is at once the principal coin, the unit of value, and the money of account in all the larger transactions, although in the expression of smaller sums the shilling is yet preferred. In France at the present time the money of account and the unit of value is the franc in gold; but as this weighs only 0.3226 gram, or about five grains, it is coined only in five, ten, and twenty-franc gold pieces, with subsidiary silver coins. In Russia, before the time of Peter the Great, the rouble was an imaginary money of account, consisting of one hundred copper copecks.

When Montesquieu affirmed that the negroes on the West Coast of Africa had a purely ideal sign of value called a macute, he misunderstood the nature of money of account. The macute served with the negroes as the name for a definite, though probably a variable, number of cowry shells, the number being at one time 2000. The macute has also been coined in silver pieces of eight, six, and four macutes, struck by the Portuguese for use in their colonies, the macute being worth 2¾d.

When the currency of a country undergoes a change, the units of coinage, account, and value are likely to become separated. Sometimes a new system of accounts is applied to an old coinage, as in Norway at the present time. The Stockholm government is endeavouring to introduce the Swedish decimal system of currency, and some merchants are said already to keep their accounts in kroner and öre, although the money in circulation consists almost wholly of the old skillings and the paper specie-dalers. On the other hand, the coinage is sometimes changed, and yet the old methods of accounts retained, especially as regards foreign transactions. Thus the rates of foreign exchange between the United States and England were, until last year, quoted in terms of a dollar valued at 4s. 6d., in accordance with a law of 1789. This rate seems to have been the traditional par of exchange of the Mexican dollar, and it was still retained even when the American dollar had been coined so as to be worth only 49.316 English pence.

There are two causes which have often led to a difference between coinage and money of account. The coins may, by legitimate abrasion, or by fraudulent clipping and sweating, become much reduced below their proper weights, yet an agio, or allowance, being made for the average depreciation, the old standard of value and money of account may be retained, as was the case in Amsterdam, Hamburg, and other towns. When a depreciated currency is issued in a country, the money of account may either change with it or remain as before; and it is an exceedingly difficult, if not insoluble problem, to decide whether, in particular periods of English history, prices were expressed in the new depreciated or the old good money. Professor J. E. T. Rogers has pointed out, in his admirable "History of Agriculture and Prices in England," printed by the Clarendon Press (vol. i. p. 175), that, in the fourteenth century, the coinage, though apparently passed by tale, was often weighed. In the ancient college accounts which he has investigated, he finds charges entered both for the cost of scales to make the weighings, and for the deficiency of weight of the coins.

In many countries, even at the present day, the circulating medium consists not of any one simple and well-connected series of coins, but of a miscellaneous collection of coins of various sizes and values, imported from foreign states. In such cases the money of account must necessarily differ from the mass of the coins, of which the value is usually estimated by a tariff expressed in terms of the money of account. In the German states, a few years ago, French and English gold was freely accepted in this manner. In Canada there is an intricate confusion of monetary systems. There being no national mint, the circulation consists of many species of foreign coins, chiefly varieties of the dollar. The monetary unit is a dollar, taken as equal to fifty English pence; but this is represented by bank notes, and not by any coin. At the same time there are two different moneys of account: the Halifax Currency Pound divided into twenty shillings of twenty pence each, and defined by the fact that sixty such pence are equal to one dollar; and, secondly, the Halifax Sterling Currency, which perpetuates, for the purpose of expressing the rates of foreign exchange, the old valuation which makes a dollar equal to 4s. 6d.