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 Force of Habit in the Circulation of Money.

No one can possibly understand many social phenomena unless he constantly bears in mind the force of habit and social convention. This is strikingly true in our subject of money. Over and over again in the course of history, powerful rulers have endeavoured to put new coins into circulation or to withdraw old ones; but the instincts of self-interest or habit in the people have been too strong for laws and penalties. Though in particular instances it may be difficult to explain occurrences which happen in the circulation of coins, yet a close analysis of the character of those who handle money, and their motives for holding or paying it away, will throw much light upon the subject.

We must notice, in the first place, that the great mass of the population who hold coins have no theories, or general information whatever, upon the subject of money. They are guided entirely by popular report and tradition. The sole question with them on receiving a coin is whether similar coins have been readily accepted by other people. Thus in the remote parts of Norway at the present time, the old paper daler notes are preferred to the beautiful new twenty-kroner gold pieces. By far the greater number of the people possess no means of learning the metallic, or even the legal, value of an unfamiliar coin. Few people have scales and weights suitable for weighing a coin, and no one but an assayer or analytical chemist can decide upon its fineness. Many a traveller who has carried good new coin into a country where it happened to be strange, has had to suffer a loss in paying it away. When our bronze pence were quite a novelty, I happened to take some with me into a remote part of North Wales, and they were rejected.

People in general accept coin simply on the ground of its familiar appearance. So entirely is this the case among very ignorant populations, that it has often been found desirable to maintain unchanged the impress on successive issues of coins. In many cases coins have been struck for this purpose with the date of a long past year, or even the effigy of a dead sovereign. The Maria Theresa dollar is still coined by the Austrian mint, with exactly the same design and date as when first issued in 1780, because it is the favourite coin in some of the states of North Africa, and various parts of the Levant. The British Government, when undertaking the Abyssinian expedition, procured a large stock of these coins for paying the natives. In the same way Mexican dollars are usually worth rather more than silver bullion, because of their easy currency in the East.

To the supremacy of habit, and the absence of means of estimating the real value of coin, is obviously due the depreciation which currencies have undergone. False coiners and kings alike find that, if they can only make new coins look and feel exactly like old coins, the people will accept depreciated money without question.

The annals of coinage, in this and all other countries, are little more than a monotonous repetition of depreciated issues both public and private, varied by occasional meritorious, but often unsuccessful, efforts to restore the standard of the currency. A curious instance of successive attempts to beguile a people are found in certain Roman denarii of the Consular times. False coiners having issued plated denarii among the subject Germans, the people appeared to have notched them with files to test their genuineness. The Germans having thus become accustomed to see genuine notched coins, the Roman government found it desirable to issue new coins notched in a similar manner. But the forgers were not to be beaten. They issued plated denarii with the notches all complete, apparently displaying good metal within; and notched false coins of this kind exist to the present day in numismatic cabinets.