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.

Unrestricted Currency by Tale.

The simplest way for a state to manage its money might seem to be to revert to the primitive notion of a coin, and issue pieces of gold, silver, and copper, certified to be equal to units of weight, leaving all persons free to make contracts or sales in terms of any of these metals. These pieces of certified metal would then be so many commodities thrown into the markets and allowed to take their natural relative values.

Such appears to have been the system intended to be established by the French Revolutionary Government in terms of the abortive law of Thermidor, an III. Discs of ten grams each were to be struck in gold, silver, and copper, and then put in circulation, without any attempt to regulate their currency. If I understand his meaning correctly, M. Garnier has recently brought forward a somewhat similar scheme, proposing to make the gram of gold at nine-tenths the unit of value, and to coin pieces of one, two, five, eight, or ten grams concurrently with standard silver pieces, which are in France already multiples of the gram. M. Chevalier's proposed system of international money, partially at least, involves the same notion; for he considers that the principal currency should consist of decagrams of gold. But, as Mr. Bagehot has well remarked, there is no object whatever, as regards the greater mass of the population, in having coins simply related to the system of weights, because most people never need take any account of the weight at all. They need only know how many copper coins are equal to one silver coin, and how many silver to one gold coin. Now, if we carry out M. Chevalier's scheme consistently and fully, and make all the coins multiples of the gram, we shall oblige all people to be constantly working complex arithmetical sums. No one could give exactly correct change without calculating how many silver ten-gram pieces are, at the market price of silver, equal to one gold ten-gram piece. The necessity for calculation occasions needless loss of time and trouble, and a factitious gain is sure to accrue to the expert and unscrupulous at the expense of the poor and ignorant.

Owing to these obvious objections no government has ever, I believe, carried into practice a system of money of the kind described. Nevertheless, currencies approximating to it in nature have come to exist in many parts of the world by the intermixture of coinages of different states. There are many half-civilized nations which have no national coinage, but employ the coins which happen to reach them in the course of trade. On the West Coast of Africa the Spanish dollar is the best known coin, but Danish, French, or Dutch coins also circulate. In several of the South American states the currency is in a state of complete confusion, consisting of a mixture of American eagles, gold doubloons, silver dollars, English sovereigns, piastres, etc., together sometimes with several different issues of coinage of the South American states variously depreciated. Even in British possessions we find the same state of things. In the British West Indian Islands, American, Mexican, Spanish, and other dollars, circulate concurrently with English money; but it should be added that in most cases the Spanish dollar is treated as the standard of value, and other coins are quoted in terms of it.

In Eastern countries there is a similar intermixture of coinage. In Singapore the Indian rupee mingles with Spanish and Mexican dollars. Persia has a rude coinage of its own, so uncertain in weight that it has to be dealt in by the balance, but Russian, Turkish, and Austrian gold coins circulate by tale. Some of the best-regulated nations have allowed, or even promoted, the currency of various foreign coins. In Germany, French and English gold coins used to be accepted, according to a well-recognised tariff. The circulation of English, French, Spanish, Mexican, and other gold coins in the United States was legalized by an Act of June 28th, 1834, repealed by an Act of February 21st, 1857, which however allows certain foreign coins to be received at government offices.

In England we have for many generations enjoyed a very pure currency, so that we are unconscious of the inconveniences arising from a confusion of coins of different values. But in the early part of this century Spanish dollars were put into circulation for a time in England.

In former centuries the mixture of coinages was far more common than at present. No country had a currency free from strange coins. It is impossible to open an old book on commerce without finding long tables of coins which the merchant might expect to meet with; and the business of money-changing was a lucrative and common one.

It will be understood, that only so long as coins are known by the fresh sharp appearance of the impression to be of full weight, and are accepted according to tariff, does the system of currency by tale or number exist. The silver dollar, being a large coin, is subject to comparatively little abrasion, so that people learn to receive dollars of various species at certain well-established rates. Thus the dollar has practically been for several centuries the international money of the tropical countries. But so soon as coins bear evidence of wear or ill-treatment, they must be circulated by weight, and we revert to a more primitive system.

M. Feer-Herzog has described, as the system of parallel standards, that in which a state issues coin in two or more metals, and then allows them to circulate by tale at ratios varying according to the market values of the metals. He cites, as recent examples, the rixdaler in silver, employed as the internal money of Sweden in combination with the ducat in gold, serving as international money. The government of India, again, has on several occasions tried to introduce a parallel standard of gold alongside of the single silver legal tender now existing there. Gold mohurs have long been more or less in circulation in India, and are supposed to form at present about one-tenth part of the coinage. They are of exactly the same weight and fineness as the silver rupee, and are usually valued at from 15 to 15 2/3 rupees. It seems probable, however, that what M. Feer-Herzog calls the system of parallel standards will coincide according to circumstances, either with that which I have described as the system of unrestricted currency by tale, or that of a single legal tender, with an additional commercial money of varying value. The Indian currency must certainly be classed under the latter head. There cannot in fact be two different parallel standards used both at the same time; and though it is not uncommon for a state to coin moneys in two metals, and leave its subjects to pay in one or other at will, yet one of the two is generally recognized as the standard of value.