Front Page Titles (by Subject) Extension of Gresham\'s Law. - Money and the Mechanism of Exchange
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Extension of Gresham's Law. - William Stanley Jevons, Money and the Mechanism of Exchange 
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Extension of Gresham's Law.
Gresham's remarks concerning the inability of good money to drive out bad money, only referred to moneys of one kind of metal, but the same principle applies to the relations of all kinds of money, in the same circulation. Gold compared with silver, or silver with copper, or paper compared with gold, are subject to the same law that the relatively cheaper medium of exchange will be retained in circulation and the relatively dearer will disappear. The most extreme instance which has ever occurred was in the case of the Japanese currency. At the time of the treaty of 1858, between Great Britain, the United States, and Japan, which partially opened up the last country to European traders, a very curious system of currency existed in Japan. The most valuable Japanese coin was the kobang, consisting of a thin oval disc of gold about 2 inches long, and 1¼ inch wide, weighing 200 grains, and ornamented in a very primitive manner. It was passing current in the towns of Japan for four silver itzebus, but was worth in English money about 18s. 5d., whereas the silver itzebu was equal only to about 1s. 4d. Thus the Japanese were estimating their gold money at only about one-third of its value, as estimated according to the relative values of the metals in other parts of the world. The earliest European traders enjoyed a rare opportunity for making profit. By buying up the kobangs at the native rating they trebled their money, until the natives, perceiving what was being done, withdrew from circulation the remainder of the gold. A complete reform of the Japanese currency is now being carried out, the English mint at Hong Kong having been purchased by the Japanese government.
What happened in an extreme degree in Japan has often happened in England and other European countries, in a less degree. If the ratio of gold and silver in the coinage, as legally current, differs only one or two per cent. from the commercial ratio, it may become profitable to export the one metal rather than the other, and in this way, as we shall see, the main part of the currency of France was changed from silver into gold between 1849 and 1869. In fact the character of the coinage of most nations has been determined in a similar manner, and England and the United States were thus led to adopt a principal gold currency. There is every reason to believe that in ancient Rome, both in the time of the Republic and of the Empire, great difficulties were encountered in regulating the currency of silver alongside of copper, and the perplexity became worse when gold coin was introduced.
Systems of Metallic Money
We are now in a position to analyse the construction of the various systems of metallic money which have existed, or do exist, or which might be conceived to exist. The systems actually brought into operation are more numerous than is commonly supposed, and I have nowhere met with an adequate classification of them. M. Courcelle-Seneuil, indeed, has satisfactorily described some of the principal systems, and MM. Chevalier, Garnier, and other writers, both continental and English, have given other brief classifications. But we must now take a comprehensive view of the possible ways in which two, three, or more metals may be employed in the construction of a more or less useful monetary system.
There seem to be five distinct modes in which a government may deal with metallic money.
1. It may confine itself to providing a system of weights and measures, and may then allow the precious metals to be passed about from hand to hand, like other commodities, in terms of the national weights and measures, and in the form which individuals find to be most convenient. This we may call the system of currency by weight.
2. To save the trouble of frequent weighing, and the uncertainty of fineness of the metal, it may coin one or more metals into pieces of certain specified weights and fineness, and may afterwards allow the public to make their contracts and sales in one or other kind of coin, as they deem expedient. This may be described as the system of unrestrictd currency by tale.
3. To prevent misunderstandings, the government, while emitting various coins, in various metals, may ordain that all contracts expressed in money of the realm shall, in the absence of express provision to the contrary, be taken to mean money of one kind of metal, specially named, while other coin shall be left to circulate at varying market rates compared with this principal kind of coinage. This is the single legal tender system.
4. The government may emit coins of two or more kinds of metal, and enact that money contracts may be discharged in one or other kind, at certain rates fixed by law. This is the multiple legal tender system.
5. While maintaining one kind of coin as the principal legal tender, in which all large money contracts must be fulfilled, coins of other kinds of metal may be ordered to be received in limited quantities, as equivalent to the principal coin. For this the name composite legal tender system may be proposed.