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 Wear of Coin.

Some attention must be given to the abrasion which coins suffer in use. In the case of gold coins the loss of metal thus occasioned is of importance, and leads, as we have seen (p. 111), to a gradual depreciation of the currency. As coins pass frequently from hand to hand, the amount of metal abraded will be nearly the same as regards each coin of the same type, and each year of circulation. The loss will be proportional to length of wear. Now the English law allows a sovereign to be legal tender so long as it weighs 122.5 grains, or more; and the difference between this and the full standard weight, or 0.774 grain, represents the margin allowed for abrasion. Now, from experiments described in a paper read to the London Statistical Society in November, 1868 ("Journal of the Statistical Society," Dec., 1868, vol. xxxi. p. 426), I estimated the average wear of a sovereign for each year of circulation at 0.043 grain (0.00276 gram). It would follow that a sovereign cannot in general circulate more than about eighteen years without becoming illegitimately light. This length of time, then, would constitute what may be called the legal life of a sovereign. It has since been shown by Dr. Farr, that certain considerations overlooked in my calculations would reduce this estimate of the legal life to fifteen years. Mr. Seyd, on the other hand, thinks that twenty years might be adopted as the legal age of the sovereign.

When we compare the currencies of different countries, it becomes evident that the rate of abrasion will depend partly upon the rapidity and constancy of circulation, partly upon the size and character of the coins. According to the inquiries of M. Feer-Herzog in Switzerland, the average loss of the twenty-franc piece amounts to 200 millionths of the full weight in each year, while with the ten and five-franc gold pieces, the corresponding amounts are 430 and 620 millionths. My own weighings of English gold show that the sovereign loses about 350 millionths in each year of wear, and the half-sovereign no less than 1120 millionths, or more than one-tenth per cent. per annum. As the English coins are heavier than the napoleon and half-napoleon, they should suffer less loss in proportion. M. Feer-Herzog attributes the excessive loss manifested by English money to the softer character of the English alloy of eleven-twelfths. This cause may contribute something to the effect observed, but it is probable that the greater rapidity of the circulation in England is the main ground on which so great a difference can be explained.

The rate of wear of a coin depends greatly, it will be seen, upon its size. A large coin, like an English crown, a French silver écu, or an American double eagle, suffers comparatively little wear, because the surface increases much less rapidly in proportion than the contents of the coin. The slight degree of abrasion of the various silver dollars may be one cause of their popularity in the East. Smaller silver money loses much more. Thus, according to experiments made at the mint in 1833, the loss per cent. per annum on half-crowns is about 2s. 6d., on shillings 4s., and on sixpences 7s. 6d., or decimally .125, .200, and .375 per cent. respectively. This loss becomes considerable in the course of years, as may readily be seen in the case of worn sixpences. The average loss of weight of the old silver coins melted at the mint, seems to be about 16½ per cent., but this loss is more than covered by the profit upon the issue of new silver coin. Experiments were made at the mint in 1798 upon the weight of English silver coins then in circulation. It was found that the deficiency amounted in crowns to 3.31 per cent., and in half-crowns, shillings, and sixpences respectively, to 9.90, 24.60, and 38.28 per cent. In the recent withdrawal of the old silver money of South Germany, it was found to have lost on the average about one-fifth part of its weight.

To reduce the loss arising from the wear of gold coin, it might seem to be desirable to issue large gold pieces. The Americans used to have a great circulation of eagles and double eagles, the latter especially being very handsome medal-like pieces. In former days many large gold coins, such as the carlino, dobraon, doubloon, quadruple pistole, and the double ryder were current. A serious objection, however, to such coins as a double eagle, one-hundred franc piece, or five-pound piece, is that they can readily be falsified. Small holes can be drilled through them, and then concealed by hammering. The application of the file, the sweating bag, or cylinder, or of chemical reagent, would probably be safer with large than with small coins. In some cases a double eagle has been completely sawn into two flat discs, which were afterwards neatly soldered together again with a plate of platinum between to give the requisite weight. It might have been thought that the labour and skill required to effect such falsification would have been better remunerated in some honest employment; but, according to the reports of the Director of the United States Mint, there is evidence to show that the practice is profitable. It is proposed to prevent this falsification by reducing the thickness of the double eagle, and also making it somewhat dish shaped; but it would be better to abandon the issue of such large gold money, as has long been done in England and France. Experience shows that sovereigns, napoleons, half-eagles, and gold coins of the same size are not fraudulently treated, nor are silver coins ever debased in the way described.

In order to diminish the abrasion of coins as far as possible, the design and legend should be executed with the least possible relief consistent with perfect definition, and the head of the monarch, or other personage, should not protrude. In this and most other respects the sharply defined flat design upon the English florin is much superior to the high rounded ornaments of the old crown, half-crown, and shilling. Tic French mints seem to be very successful in the execution of dies, all the coins, gold, silver, and bronze struck by them having flat yet admirably executed devices. Perhaps the most beautiful recent coin which I have seen is the new twenty-franc gold piece struck during 1874 for Hungary, the engraving of the die being excellent. The new Scandinavian gold pieces of five-specie dollars, or twenty kroner, are also well executed.