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.

Multiple Legal Tender System.

Out of a single legal tender naturally grow up systems of a double or even a multiple legal tender. The Plantagenet kings of England, for instance, finding that though they coined only silver the people made use of gold, eventually began to issue gold coins, and fixed the rates at which they should be exchanged for silver coins. In the absence of any special regulations to the contrary this constituted a double tender system. As, after a time, the ratio of values of the metals would fail to coincide with that involved in the relative weights of the coins, it became requisite to fix by royal proclamation a new value for one metal in terms of the other. From 1257 to 1664 the gold and silver currency of England was thus regulated, no coins of copper or any inferior metal being then issued. From 1664 to 1717 no proclamations were made upon the subject, and the value of the guinea was allowed to vary in terms of the shilling. At one time it rose nearly to 30s., owing partly to the decreased value of silver, but chiefly to the clipped and worn state of the silver money. During this interval, then, the country had a single silver standard.

In the early part of the last century a great deal of discussion took place upon the unsatisfactory state of the silver currency, and Sir Isaac Newton, the Master of the Mint, was requested to report upon the best measures to be adopted. In 1717 he made a celebrated report, recommending that the government should revert to the practice of fixing the price of the guinea, and he suggested 21s. as the best rate. His advice being accepted, the guinea has ever since been valued at 21s. Then there was again a double standard in England, any one being at liberty to pay in either kind of coin. In practice, however, it is almost impossible that the commercial value of the metals should coincide with the legal ratio. At the rate adopted by Sir Isaac Newton, gold was overvalued by rather more than 1½ per cent.; to that extent it was more valuable as currency than as metal. Therefore, in accordance with the Law of Gresham, and the principles laid down in Chapter VIII., the full weight silver coin was withdrawn or exported, and gold became the practical measure of value, which it has ever since continued to be.

In every other part of the world, where attempts have been made to combine two metals as concurrent standards of value, similar results have followed. In Massachusetts, in 1762, gold was made a legal tender, as well as silver, at the rate of 2½d. per grain; but, being overvalued as much as 5 per cent., the silver coinage rapidly disappeared from circulation. Various laws were passed to remedy this inconvenient state of things, but without success so long as this valuation of gold was maintained.

In these and many other cases which might be quoted, a government had attempted to combine a circulation of gold with that of silver, without being aware of all the principles involved in the experiment. It was hardly, perhaps, till the time of the French Revolution that the double standard system was consciously selected as the best method. Since the celebrated law, known as "La loi du 7 Germinal, an XI.," was adopted by the Revolutionary Government, the system has become identified with the policy of the French economists. The history of the origin of this law was almost unknown, until M. Wolowski described it in a series of valuable articles published in the Journal des Economistes for 1869.

As early as 1790 Mirabeau presented to the National Assembly a celebrated memoir on monetary doctrines, in which, amid a curious mixture of true and false views, he decided in favour of silver as the principal money, on the ground of the greater abundance of silver compared with gold. He proposed to make silver the constitutional money, that is, the legal tender, and to employ gold and copper as additional signs of value. These ideas were only so far carried out that the franc was defined first as ten grams of silver by the decree of the 1st August, 1793, and was afterwards definitively fixed at five grams by the law of the 28th Thermidor, an III. The old gold pieces of twenty-four and forty-eight livres continued to circulate, while the ten-gram gold pieces ordered by the decree to be struck were not really issued.

In the year IX. Gaudin proposed that the ratio of 15½ to 1 should be adopted in fixing the weight of the gold coins relatively to the silver ones. Thus, while the franc was defined as consisting of five grams of silver nine-tenths fine, the twenty-franc gold piece was to contain 6.451 grams of gold of equal fineness. He seems to have thought that this ratio was sufficiently near to that of the markets to allow the coins to circulate side by side for a long time, and in case of a change, he thought that the gold pieces could be melted and reissued at a different weight. After a great amount of discussion, in which Berenger, Lebreton, Daru, and Bose took the most prominent part, the proposals of Gaudin were carried out, but not precisely on the ground indicated by him. It appears to have been thought unwise either to demonetize gold altogether, which would have seriously diminished the circulating medium, or to leave the value of the gold coins uncertain, which would give rise to disputes.

The ratio adopted by the legislators of the Revolution happened to overvalue silver in some degree, and hence the currency of France came to consist principally of the heavy five-franc pieces, or écus. Not until the Californian and Australian discoveries caused gold to be the cheaper money in which to make payments, did this heavy silver money gradually disappear. The action of the double standard system will be further considered in Chapter XII.