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Front Page Titles (by Subject) Cost of the Metallic Currency. - Money and the Mechanism of Exchange

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Subject Area: Economics
Topic: Money and Banking

Cost of the Metallic Currency. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]

Edition used:

Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.

Cost of the Metallic Currency.

Calculations of some interest may be made as to the cost which falls upon the public in one way or another, owing to the use of metallic money. Speaking first of the subordinate coins of silver and bronze, the government make a profit by their manufacture, owing to the reduced weight at which they are issued as tokens. Standard silver can usually be bought by the mint for 5s. per standard ounce. It is issued to the public at the rate of 5s. 6d. per ounce, so that the government receives a seignorage of at least nine per cent. on the nominal value of the coin issued. The average coinage of silver at the English mint during the last ten years has been £546,580, upon which the seignorage would be about £49,200 per annum. On the other hand, the mint has to buy back worn silver coinage at its nominal value, and in recoining such money there is a loss, which, on the average of the last ten years (1864-73) has been £16,700, leaving a net annual profit of £32,500, no account being taken of the cost. of the mint establishment. At present the price of silver is not above 4s. 10d. per ounce, so that the seignorage is about 12 per cent., and the profit on coining silver proportionately greater.

We may look at this matter in another way, by regarding the seignorage as so much money funded to bear interest, to meet the cost of withdrawing the coin, when worn out, say thirty years subsequently. Now a pound bearing 3¼ per cent. compound interest, becomes in thirty years 2.61 pounds, so that the 9 per cent. of seignorage will have multiplied to 23.5 per cent. But the actual deficiency of weight of the silver coin withdrawn is, on the average, only 16½ per cent., so that, without taking into account the considerable number of coins which must be lost, exported, melted, hoarded, sunk in the sea, or otherwise finally withdrawn from circulation, there is a profit on the issue of the silver coin under the present regulations.

In the issue of bronze money there has been, as before stated, a profit of £270,000, against which must be set off the possible, but uncertain, cost of recoining a light token currency at some future time.

The cost of the currency is made up of four principal items: the loss of interest upon the capital invested in the money, the loss by the abrasion of gold coins, the expenses of the mint, and lastly the casual loss of coins. The last item is of wholly unknown amount; the other items may be estimated as follows. We may, roughly speaking, assume the gold currency of the kingdom to consist of 84,000,000 of sovereigns and 32,000,000 of half-sovereigns, the total value being 100,000,000 sterling. The sovereigns lose annually on the average 0.043 grain each, giving an annual loss of about £30,000; the half-sovereigns lose 0.069 grain each, producing a loss of £18,000. The loss of interest, however, is a far more serious matter. The whole value of the metals employed in the currency is, roughly speaking, as follows:—

 Gold coin in circulation . . . . 100 millions. Bullion in the Bank of England . . 15 " Silver coin . . . . . . . . 15 " Bronze coin . . . . . . . . 1 1/8 " Total . . . . . . . . . 131 1/8 millions.

The interest on this sum at 3¼ per cent. is no less than £4,262,000.

The cost of the mint establishment is about £42,000 annually. The following statement, then, show the aggregate cost of the metallic currency so far as it can be estimated.

 Loss of interest . . . . . . £4,262,000 Wear of coin . . . . . . . 48,000 Mint establishment . . . . . 42,000 £4,352,000

From this amount ought to be subtracted the profit which the mint makes out of the seignorage upon silver and bronze coins; but we may set off this profit against the wholly unknown amount which the public loses by the accidental dropping of coins.

International Money

In a book upon money written in the present day, reference must certainly be made to the scheme put forward, and even the steps accomplished, towards a world-wide system of International Money. Much time will no doubt pass before such a notion is realized, and the recent retrograde action of the German government tends to retard so great an achievement of advancing civilization. Yet in all our changes and discussions of monetary matters we ought to bear in mind the eventual introduction of a uniform monetary system. We may surely look for a gradual amelioration in the relations of nations, though wars cannot yet be avoided. We have international copyright, extradition of criminals, maritime codes of signals, postal conventions, treaties for lessening the horrors of war. Nations have long since ceased to be isolated bodies wishing evil to all their neighbours; and as free trade becomes everywhere predominant, and communication by means of railway, steamboat, telegraph, post, and newspaper continually increases, we may look for the time when all people will seek to break down, as far as possible, the barriers between one family and another of the human race.

I will first of all state the advantages which may be expected to accrue from an international system of metallic money, and will then describe in succession the corresponding possible disadvantages, the progress which has already been made towards the simplification of monetary systems, the principal schemes set forth, and their comparative merits and demerits.