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.

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:—

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.

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.

Chapter XIV

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.