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.

Early History of Representative Money.

Ancient nations were unacquainted with the use of paper money, simply because they had no paper. But it would be a mistake to suppose that they did not employ representative money exactly on the same principles as we use bank-notes. Some few particulars on the subject have long been known, but a recent article by M. Bernardakis in the Journal des Economistes (vol. xxxiii. pp. 353-370) has added much to our knowledge, and made it quite clear that the ancients were more acute in matters of currency than we have given them credit for.

One of the very earliest mediums of exchange, as we have seen (p. 20), consisted of the skins of animals. The earliest form of representative money consisted of small pieces of leather, usually marked with an official seal. It is a very reasonable suggestion made by Storch, Bernardakis, and other writers, that when skins and furs began to be found an inconveniently bulky kind of money, small pieces were clipped off, and handed over as tokens of possession. By fitting into the place from which they were cut they would prove ownership, something in the same way that notched sticks, or tallies, were for many centuries used to record loans of money to the English Exchequer. We know by experience in the case of paper money, that if a people had become thoroughly accustomed to the circulation of these small leather tallies, they would in time forget their representative character, and continue to circulate them, when the government, or other holders of the skins themselves, had made away with the actual property. Such is no doubt the history of the leather money which long had currency in Russia.

It is impossible to ascertain what was the character of the leather money which, according to an obscure tradition, was in use at Rome before the time of Numa. There is no doubt that the Carthaginians had a representative leather currency, for Æschines the Socratic tells us that they used small pieces of leather wrapped round cores of unknown material, and then sealed up. Neighbouring nations refused to receive these curious pieces of currency, whence we may safely infer that their value was nominal.

It is however in China that the use of paper money was most fully developed in early times. More than a century before the Christian era, an emperor of China raised funds to prosecute his wars in a way which shows that the use of leather tokens was familiar to the people. The tokens having been made of the skins of white deer, he collected together into a park all deer of this colour which he could find, and prohibited his subjects from possessing any animals of the same kind. Having thus obtained a monopoly of the material, reminding one of the monopoly of the Bank of England in water-marked paper, lie issued pieces of the white leather as money at a high rate.

In the middle of the thirteenth century, Marco Polo found a paper money in circulation in China, composed of the inner bark of a tree beaten up and made into paper, square pieces of which were signed and sealed with great formality. These notes were of various values, and were legal tender, death being the penalty imposed upon those who refused to receive them. Counterfeiters likewise incurred the same penalty. Another traveller, who visited China in the fourteenth century, gives a very similar account of the paper money then circulating, and adds that, when worn or torn, it could be exchanged for new notes without charge. It is needless to follow out the long and doubtful history of the subject in later times, many particulars of which will be found in the article of M. Bernardakis, or that of M. Courcelle-Seneuil on Papier Monnaie in the "Dictionnaire de l'Economie Politique." It may suffice to say that the history resembles that of most inconvertible currencies. The quantity of paper afloat increased so much under the Mongol dynasty as to cause great evils, and the Ming dynasty, continuing the issues, went so far as to prohibit the use of gold or silver money. The value of the paper fell so low, it is said, that one metallic cash was worth a thousand paper cash, reminding us of the present state of the paper currency in San Domingo. The result was a collapse and reaction in the fifteenth century.

Among other Asiatic nations, the Tartars and the Persians also understood the use of paper money, and Sir John Maundeville, who travelled in Tartary in the fourteenth century, gives the following account of the advantages which the Great Chan enjoyed in consequence. "This Emperour may dispenden als moche as he wile, withouten estymacioun. For he dependethe not, ne makethe no money, but of Lether emprented, or of Papyre. And of that money, is som of gretter prys, and som of lasse prys, aftre the dyversitee of his Statutes. And whan that Money hathe ronne so longe that it begynnethe to waste, than men beren it to the Emperoure's Tresorye; and than thei taken newe money for the olde. And that Money gothe thorghe out alle the contree, and thorghe out alle his Provynces. For there and beyonde hem, thei make no Money nouther of Gold nor of Sylver. And therefore he may despende ynow, and outrageously." Not a few great emperors and kings and even republics have imitated the Great Chan, and have spent their paper money, "ynow and outrageously."