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.

Currency by Weight.

The order in which I have enumerated the principal systems of metallic money, is not only the logical order, but it is the historical order in which the systems have, for the most part, been introduced. There is overwhelming evidence to prove that simple currency by weight is the primitive system. Before the invention of the balance, lumps and grains were no doubt exchanged according to a rude estimation of their bulk or weight; but afterwards the balance became a necessary instrument in all important transactions. In the Old Testament we find several statements clearly implying that the ancient Hebrews used to pass money by weight. In Genesis (xxiii. 16) Abraham is represented as weighing out to Ephron "four hundred shekels of silver, current money with the merchant," but the silver in question is believed to have consisted of rough lumps or rings not to be considered coin. In the Book of Job (xxviii. 15) we are told that "wisdom cannot be gotten for gold, neither shall silver be weighed for the price thereof."

Aristotle, in his Politics (Book I., chap. ix), gives an interesting account of his view of the origin of money, and distinctly tells us that the metals were first passed simply by weight or size, and Pliny makes a similar assertion. That it was so, we may infer from the remarkable fact that, even when no use was made of it, the custom of bringing a pair of scales survived as a legal formality in the sale of slaves at Rome.

There can be little doubt that every system of coinage was originally identical with a system of weights, the unit of value being the unit of weight of some selected metal. The English pound sterling was certainly the Saxon pound of standard silver, which was too large to be made into a single coin, but was divided into two hundred and forty silver pennies, each equal to a pennyweight. In the English and Scotch pounds, and the French livre, we have the vestiges of a uniform international system of money and weights, the establishment of which is attributed to Charlemagne, but which unfortunately became differentiated and destroyed by the various depreciations of the coinage in one country or another. Most of the other principal units of value were originally units of weight, such as the shekel, the talent, the as, the stater, the libra, the mark, the franc, the lira.

In the Old Testament the notion of money is expressed three times by the Hebrew word kesitah, which is translated in certain old versions into words meaning lamb. This might seem to be an additional proof of the former use of cattle as a medium of exchange; but I am informed by my learned friend, Professor Theodores, that this translation probably arises from an accidental blunder, and that the original meaning of the word kesitah, was that of "a certain weight," or "an exact quantity." The corresponding word in the Arabic, kist, is said to denote a pair of scales.

Currency by weight still exists among considerable portions of the human race. In the Burman empire, for instance, three kinds of metal are current, namely, lead, silver, and gold, and all payments are made by the balance, the unit of weight for silver being the tical. In the Chinese Empire and Cochin China, there is indeed a legal tender currency of cash or sapeks but gold and silver are usually dealt in by weight, the unit being the tael. A very interesting account of Chinese money, by M. le Comte Rochechouart, will be found in the Journal des Economistes for 1869 (vol. xv. p. 103). According to this writer, both gold and silver are treated simply as merchandise, and there is not even a recognized stamp, or government guarantee of the fineness of the metal. The traveller must carry these metals with him, as a sufficient quantity of strings of cash would require a waggon for their conveyance. Yet in exchanging silver or gold he is sure to suffer great losses, both from the falsity of balances and weights, and the uncertain fineness of the metal. In buying a tael of gold the traveller may have to give eighteen taels of silver; but in selling it he will often not obtain more than fourteen taels.

Whatever be the inconveniences of the method, currency by weight is yet the natural and necessary system to which people revert whenever the abrasion of coins, the intermixture of currencies, the fall of a state, or other causes destroy the public confidence in a more highly organized system. Though the silver penny among the Anglo-Saxons was supposed to correspond with a pennyweight, there was a practice of giving compensatio ad pensum, which really amounted to taking the coins by weight, to allow for abrasion and inaccurate or false coinage. The as was at first equal in weight to a Roman pound, but it was rapidly lessened, so that at the epoch of the First Punic War, it did not exceed two ounces, and by the time of the Second Punic War it had sunk to one ounce. The Roman people had naturally reverted to weighing the metal, and the aes grave was money reckoned by weight instead of by tale.

In the present day currency by weight is far more extensively practised then might be supposed, because, in many parts of the world, the currency consists of a miscellaneous assortment of old gold, silver, and even copper coins, which have been brought thither from other countries, and have been variously worn, clipped, or depreciated. In such countries the only means of avoiding loss and fraud is to weigh each coin, and the impress passes for little more than an indication of the fineness of the metals. In all large international transactions, again, currency by weight is the sole method. The regulations of a state concerning its legal tender have no validity beyond its own frontiers; and as all coins are subject to more or less wear and uncertainty of weight, they are received only for the actual weight of metal they are estimated to contain. The coin of well-conducted foreign mints is bought and sold by weight without melting; but the coin of minor states, which have occasionally depreciated their money, is melted up and treated simply as bullion.