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.

Nickel, Manganese, Aluminium, and other Metals and Alloys.

The employment of nickel in the manufacture of small money has already been referred to (p. 49), and if the conditions of supply and demand of this metal were more steady we should perhaps want nothing better. The alloy of nickel and copper generally used is hard and difficult to coin, but it takes a fine impression which it will probably require long wear to efface. Nickel coinage is thus very unlikely to be counterfeited, and its peculiar nondescript colour renders it easily distinguishable from silver or gold money. The progress of metallurgy, however, is making us acquainted with several new metals and many new alloys, and it is quite likely that some new material for fractional money will eventually be found. Dr. Percy, having regard to the rising price of nickel, suggests that manganese should be employed instead, as it gives alloys of similar character, and can be procured in greater quantities.

Dr. Clemens Winkler strongly recommends aluminium as suited for monetary purposes. Trial pieces, marked "¼ real, 1872," have been struck, and one of them may be seen in the Monetary Museum at the Paris mint. This metal has a characteristic bluish white colour, but its great advantage is its low specific gravity. The trial pieces in question, of which a specimen was furnished to me by Mr. Roberts, the chemist of the English mint, is two centimetres, or 0.79 inch, in diameter, a little wider than a sixpence and much thicker, and yet weighs only one grain, or 15½ grains. Were our pence and halfpennies as light and convenient as this coin, we could carry many of them in the pocket without discomfort. The chief difficulty in adopting such a new metal would arise from the uncertain price at which it can be produced. It is unknown, too, how it would wear. Even if pure aluminium were found to be unsuitable for coining, some of its remarkable alloys might be employed instead. Mr. Graham, the late Master of the Mint, had a series of trial pieces of one to ten cents struck in the so-called "aluminium bronze."

I may suggest that one of the best possible materials for small money would be steel, provided it could be prevented from rusting. Steel coins would be difficult to strike, but when once struck could be hardened, so as to be almost indestructible. The cheapness of the material would allow of their production on a large scale at small cost, while they could not possibly be imitated by the false coiners with any profit. Hence it would be needless to pay any attention to the metallic value of the coins, which might be struck of the most convenient sizes, probably those of the sixpence and shilling. Now it has been pointed out by Sir John Herschel (Physical Geography, reprinted from the "Encyclopædia Britannica," §320, p. 289), that steel appears to be protected from rusting by being alloyed with a small quantity of nickel; this at least is the effect in the case of meteoric iron. It is much to be desired that such an alloy should be fairly tried. I am informed by Mr. Roberts, that silver also alloys well with iron or steel, and that such mixtures have been proposed for coining purposes. An alloy of silver, copper, and zinc has already, indeed, been fully tested in Switzerland, where it is used for twenty, ten, and five-centime pieces. These coins are convenient in size, but have a poor yellowish white appearance. They have not been adopted, so far as I know, by any other country; and there seems to be no use in putting silver into them, as it would probably be easy to produce a similarly coloured alloy without silver.

It is a misfortune of what may be called the science of monetary technology, that its study is almost of necessity confined to the few officers employed in government mints. Hence we can hardly expect the same advances to be made in the production of money as in other branches of manufacture, where there is wide and free competition. Moreover, it is very difficult to get an opportunity of testing any new kind of coin; in a large currency, like that of the United Kingdom, it is almost impossible to execute experiments. But it may be suggested that the English mint, in supplying coins for some of the smaller British colonies and possessions, enjoys an admirable opportunity for testing new proposals. This need not involve any cost to such colonies, as the English government, in striking a few hundreds or thousands of pounds' worth of small coin for a colony, might readily engage to withdraw them at its own cost if found unsuitable after a certain number of years.

Chapter XII

The Battle of the Standards

Ever since the great discoveries of gold in California and Australia began to disturb the value of that metal relatively to silver and to other commodities, it has been a continual subject of discussion what standard of value should be ultimately adopted. There have been partizans of the now antiquated silver standard, of the double standard, and of the gold standard. Having in England long possessed a gold standard, we have been only in a secondary degree concerned in such discussions, upon which quite a library of works has been written by distinguished French, Belgian, German, Swiss, Italian, and Dutch economists. The changes actually effected in the currencies of Europe since 1849 are of the most extensive character. Some nations have more than once changed their policy. Holland, anticipating a great fall in the value of gold, adopted silver as the single standard of value in 1850. This change had to be effected at considerable pecuniary loss, and it is understood that Holland is again exposed to the trouble and expense of having to admit a gold standard, either as a sole legal tender, like Germany, or else concurrently with a restricted silver coinage, like Belgium and the other monetary allies of France.

From the time of Locke to that of Lord Liverpool, the comparative advantages of gold and silver, as the principal measure of value, were a frequent subject of discussion among English political writers. Locke and most of the earlier English economists upheld silver. Lord Liverpool definitely decided English policy in favour of gold, and the tendency of opinion is now strongly in the same direction. Several countries have recently changed from silver to gold, and since the single example of Holland no nation has passed from gold to silver. Even Austria, which is still supposed to represent the silver standard, has taken a step towards a change by coining ten- and twenty-franc pieces in gold, the inscriptions 10 Francs and 20 Francs now appearing, as well as 4 Gulden and 8 Gulden, on the new gold coins of the Austro-Hungarian empire.