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.

The Demonetization of Silver.

M. Wolowski has earnestly warned Europe against the danger of abrogating the law of the double standard, and demonetizing silver. Germany, in adopting a gold standard, is causing a considerable demand for gold, and at the same time throwing many millions of silver coins upon the market. Austria, Denmark, Sweden, and Norway are likely to follow her example. If other countries were to insist upon suddenly having a gold money, it is evident that gold would tend to rise in value compared with silver, which might be largely depreciated. If France, Italy, Belgium, and other countries now possessing theoretically the double standard, were to allow the free action of their monetary laws, the depreciated silver would flow in and replace the appreciated gold, so that the change of values would be moderated. M. Wolowski asserts that if this compensatory action be suspended, and the demonetization of silver be extended, there must ensue a disastrous rise in the value of gold, thus rendered the sole standard of value. All debts private and public will be legally due in this metal, and all burdens will be greatly increased.

Within the last year or two the predictions of M. Wolowski may seem to have been verified in some degree. The price of standard silver, which was at one time 62½d. per ounce, has already fallen as low as 57¾d. while the demonetization of silver in Germany is only partially accomplished. The whole effect of the great discoveries of gold was only to raise the price from about 59¾d. to a maximum of 62½d., while the double standard system freely worked; but since its action has been, as we shall see, suspended, the minting operations of a single government can affect the price in a greater degree.

Agreeing that M. Wolowski is entirely correct in an abstract point of view, and is justified to some extent by the course of events, I must adhere to the opinion which I expressed at his request in 1868, and which was partially published in his volume, "L'Or et l'Argent "(p. 62).

The question seems to be entirely one of degree, and in the absence of precise information is quite indeterminate. If all the nations of the globe were suddenly and simultaneously to demonetize silver, and require gold money, a revolution in the value of gold would be inevitable. But M. Wolowski seems to forget that the nations of Europe constitute only a small part of the population of the world. The hundreds of millions who inhabit India and China, and other parts of the eastern and tropical regions, employ a silver currency, and there is not the least fear that they will make any sudden change in their habits. The English government has repeatedly tried to introduce a gold currency into our Indian possessions, but has always failed, and the gold coins now circulating there are supposed not to exceed one tenth part of the metallic currency. Although the pouring out of forty or fifty millions sterling of silver from Germany may for some years depress the price of the metal, it can be gradually absorbed without difficulty by the eastern nations, which have for two or three thousand years received a continual stream of the precious metals from Europe. If other nations should one after another demonetize silver, yet the East may be found quite able to absorb all that is thrust upon it, provided that this be not done too rapidly.

As regards the gold required to replace silver, it does not seem to be evident that there will be any scarcity. The adoption of the gold standard does not necessarily involve the coining of much gold, for some countries may, like Norway, or Italy, or Scotland, have a principal currency almost entirely composed of paper. In other countries, such as France and Germany, the cheque and clearing system, which we shall shortly consider, may be gradually introduced, and may economize to a great extent the rise of the metallic currency. The current supply of gold from the mines is still very large, and we cannot be sure that it will not be increased by fresh discoveries in New Guinea, South Africa, North and South America, and elsewhere.

In short, then, the amount of supply and amount of demand of both the precious metals depend upon a number of accidents, changes, or legislative decisions, which cannot be in any way predicted. The price of silver has fallen in consequence of the German currency reforms, but it is by no means certain that it will fall further than it has already done. That any great rise will really happen in the purchasing power of gold is wholly a matter of speculation. We cannot do more than make random guesses on the subject, and, as a mere guess, I should say that it is not likely to rise. Gold has since 1851 been falling in value, and an increased demand for gold is not likely to do more than slacken, or at the most arrest, the progress of depreciation.