Money by Francis A. Walker 1891

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BY THE SAME AUTHOR.
THE Â'AGES QUESTION. A

Treatise on Wages and the Wages Class.
8vo.
MONEY. 8vo.
MONEY, TRADE, AND INDUS-
TRY. i2mo.
POLITICAL ECONOMY. Advanced

Course. 8vo.
POLITICAL ECONOMY. Briefer

Course. I2nio.
POLITICAL ECONOMY. Elemen-

tary Course. I2mo.
MONEY
BY
FRANCIS A. WALKER
Pro/estor 0/ Political JSconomy and History in the Sheffield Scientific School of
Yale Colleg'e, and Lecturer in Political Economy in the Johns Hopkins
University; author ofi ^^Tke Statistical Atlas of the United
States^'' ^''The Wages Question^^ etc.
NEW TOBK
HENBT HOLT AND COMPAiNY
p. W. CHKISTEKN
BOSTON :CAKL SCHCBNHOF
1891.
Copyright 1877,
By henry holt.
PREFACE.
This volume contains tte substance of a course of
lectures delivered last spring in the Johns Hopkins
University, Baltimore. The most considerable change
which has been made in preparing the lectures for the
press is the definitive abandonment of the term Cur-
rency. After carrying that word around for twenty
years I have in the present work rid myself of the in-
cubus, and have experienced somewhat the same feeling
of relief as did the Ancient Mariner when the dead body
of the Albatross dropped from his neck and disappeared
in the sea. There is in my humble opinion not one
thing to be said for this ill-omened word, except that it
forms its plural rather more agreeably than does Money.
Some awkwardness of expression has doubtless resulted
from my first attempt to substitute that good old-fash-
ioned word for the mischievous "Tankeeism," as Mr.
McLeod calls it, which in the early part of this century
obtained so strong a hold upon the public ear. Per-
haps it does not savor too much of abusiveness to say
that the new-fangled term made itsway to general ac-
ceptance in no small degree because its own vagueness
answered well to the cloudiness of the popular mind on

the subject of Money ; and that its vagueness has, in
turn, done much to obscure the truth during the seventy-
five weary years of economical discussion since it became
current.
:
vl PREFACE.
Somethmg more, however, tlian a correct terminology
is needed to resolve the deep, dark questions -wMcli con-

stitutewhat Gen. Craufurd, in his "Eeflections on the
Circulating Medium," calls "the most intricate, abstruse,
complex and subtile parts of political economy." It is,
indeed, as Prof. Price declares, "a fatal theme."
"I
have found no branch of my subject," wrote Sir James
Steuart, "so difficult to reduce to principles as the
doc-
trine of Money."
an institution wholly of man's de-
It is strange that
vising should so baffle man's research,^ but it seems, as
Prof. Jevons has remarked, that a kind of intellectual
vertigo attacks all writerson this theme. Nor is it a
fault of the head alone which is apt to appear in such
discussions. Sir Walter Scott, in his "Letters on the

Currency of Scotland," puts into the mouth of a surly
critic a complaint which Sir Walter manifestly intended
for the whole race of writers on Money. "In your ill-

advised tract you have shown yourself as irritable as
Baalam, and as obstinate as his ass." If this volume
makes no great contribution to the philosophy of the
subject, the author trusts be judged to have
he will
shown no excess of controversial zeal, no lack of court-

esy towards those writers of reputation from whom he
is compelled to differ,
A great degree of originality is not claimed for the

present work. If it shall be found to assist the reader
in his study of this difficult subject, it will probably be
in the following way
1. By rejecting the word Currency and extending the
term Money to include bank-notes [pp. 395—400] by a ;
new analysis of the function of Money in recording and
'
Perry's Elements of Pol. Econ., p. 205.
FRJSFA GE. vii
registering for mutual comparison the values of all com-

modities ia the marliets, and the substitution thereupon
of the term " common denominator in exchange" for the
inappropriate and misleading term "measure of value"
[pp. 280-90] ; and by supplying the omitted proviso to
Bicardo's propositions respecting the circulation of de-

based coins and inconvertible paper [pp. 198-9 ; 279],
the doctrine of Money is relieved of certain factitious
features which have obscured or partially concealed the
nature and office of that great economical agent.
2. At the risk, perhaps the actual cost, of not a little
which are usually blended in

repetition, topics treat-
ment are here separately taken up and subjected to an

individual discussion. "Nothing," says Edmund Burke,
"is so great an enemy to accuracy of judgment as a
coarse discrimination, a want of such classification and
distribution as the subject admits of." The author has
sought not only to trace out the bearings of all dis-
tinguishable parts of the general subject, but, by arts of
arrangement and even by artifices of typography, to
emphasize distinctions and call attention sharply to dis-
criminations which he has learned by experience are
likely to be overlooked by the casual reader and even
by the faithful student.
3. If any subject has presented to the author's mind
peculiar difficulties, he has taken special pains to set forth
the questions involved therein stripped to the kernel,
with the arguments and authorities on either side fully
and fairly arrayed. At but a single point have I been
conscious of any bias of judgment arising from prepos-
session. The doctrine that paper money, nominally or
really convertible iato coin, is liable to be issued in ex-
cess under speculative impulses from trade, was main-
tained with religious earnestness for more than thirty
viii ,
PREFACE.
years by my honored father, and I cannot claim to be

free from a strong desire, not of a purely philosophical
origin, to establish the truth of that doctrine. I trust
it will notbe found that I have, on that account, failed
fairly to present and argue the questions involved.
The philosophy of money owes little to the cultiva-

tion of systematic political economy modern times. in
"If," says M. Wolowski, "political economy has within a
century become a distinct science, the fundamental doc-
trines which it teaches were in great part familiar to
the eminent minds of antiquity." In no department of
economical inquiry does this hold true to so large an ex-
tent as in that which is now before us. Aristotle's the-
ory of the Money-function is, even to-day, accepted by
a large school of economists as contaiaing the full es-
sence of truth on this subject. The same theme was
among the first to command the attention of the thought-
ful upon the intellectual revival of Europe. In 1360
Nicole Oresme, Bishop of Lisieux, moved by the abuses
of the French coin, wrote his treatise on Money, a work
which, after being long lost to the world, was about 1862
discovered' by the emiaent German economist, Eoscher,
of Leipzig, and has since been put out by M. Wolowski
ia the original Latin text, with an introduction and a
French translation. No work extant expresses more
justly and strongly the pernicious effects of that morbus
numericus which wrought such misery among the peoples
and caused such weakness in the governments of Eu-
rope, and had afflicted France with especial virulence,
' See his communication to the French Academy, in M. Wolowski'

edition of Oresme's work.
PREFA CE. ia
preparing the way for the arms of Edward III and

Henry V. Oresme sets forth the principles of coinage
and seigniorage with a precision nowhere surpassed.
At the beginning of the sixteenth century the astrono-
mer Copernicus addressed to the king of Poland his
treatise, "Monete Oudende Eatio," which opens with
thisbroad declaration "Numberless as are the evils by
:
which kingdoms, principalities and republics are wont

to decline, these four are, in my judgment, most bale-
ful : civil strife, pestilence, sterility of the soil, and cor--
ruption of the coin. The first three are so manifest
that no one can fail to apprehend them but the fourth, ;
which concerns money, is considered by few, and those

the most reflective, since it is not by a blow, but little
by little, and through a secret approach, that it destroys
the state."
But it was Italy that made the largest of the early
contributions to the philosophy of the subject. That
country, it has been remarked, was long noted for the
worst money and
the best writers on money.* The coin
of Italywas simk into a rayless abyss of discredit while
Becearia and Verri were expounding the true laws of
monetary circulation; and the works of Scaruffi and
Neri were manuals for the mints of the Continent.
Nor was the association accidental. It was the sight of
flagrant abuses which set Nicole Oresme in France to
pondering the laws of money. It was the almost incon-
ceivable degradation of the coin of Italy that drove its
publicists to investigate the cause of the evil and to re-

flect upon the means- of cure. Let us hope that the losses
and sufferings to which the people of the United States
have been subjected during the past sixteen years will af
'
Colwell, Ways and Means of Payment, p. 106 °,
X PREFACE.
least bring about some good result by enlightening tbe

public mind as to the nature money, and
and the laws of
by firmly establishing certain, principles at once of pub-
lic faith and public policy from which no temptation of
present advantage nor even the stress of warlike exi-

gency shall ever again be able to move the nation.
While this work aims at being a systematic treatise
on Money, and has been written without special refer-
ence to the existing financial situation, I cannot forbear,
in view of the propositions now pending in Congress
for altering our coinage laws, to quote the words which
a great English statesman addressed to his countrymen
during the period of the Bank Eestriction:' "A very
little reflection will satisfy every reader that, in the
present state of things, and so long as we have no fixed
standard of value for our currency, it would be absurd
to send into circulation any new coinage."
'
Huskisson, The Depreciation of the Currency.
CONTENTS
PART I.
METALLIC MONET.
CHAPTER I.
The Primitive Pdnotion op Monet :
The Medium of Exchange; the Denominator of Values; the
function, ------
Standard for Deferred Payments.
CHAPTER
Importance of the Money-
II.
1
The Elements of Monet :
General Acceptability, Portability, Divisibility, Non-liability to
Deterioration, Comparative Stability of Value. The Metals as

Money ; Silver and Gold, . - - . 24
CHAPTER III.
The Territorial Distribution of Monet :
The Mercantile Theory; how much Money does a Community

tequire ? ; Distribution through the agency of Price ; Relation
Volume Money to prevailing Prices Effect of the
_.-.--
of the of ;
Credit System and of Banks in reducing the Demand for
Money, 44
CHAPTER lY.
The Importance of the Monet-supplt :
Consequences of a Reduction of the Volume of Money ; Effects

of a Progressive Depreciation of Money; the Supply of Mon-
ey and the Rate of Interest, - - - - 76
;
xu CONTENTS.
CHAPTER V.
The PRODtrcTioN or the Precious Metals :

rhe Field of Production; its Economic Conditions; Production
in the Early Ages largely Non-economical ; Effects of Haste
and Greed, of War and Civil Convulsion, - - - 9S
CHAPTER VI.
The Peobitction of the Precious Metals, Continued :
The Elements of the Money^supply : Consumption of the Metals

in the Arts; Abrasion of Coin; the Drain of Silver to the
East. Accumulation of Treasure in the Reign of Augustus
gradual Decline of Mining Industry Invasion of the Barbari-
------
;
ans; Loss of Mining Populations; the Silver Famine of the

Middle Ages, 117
CHAPTER VII.
The Production of the Precious Metals, Continued :
The Discovery of America; the Mines of Mexico and Peru; the

Amalgamation Process ; Rise of Prices in Europe, 1570-1640;
Effects on Society and Industry ; the Spanish- American Rev-
olutions, 1809-25 ; the falling off in Production : Effect on
Prices, 132
CHAPTER Yin.
The Production of the Precious Metals, Concluded :
The Califomian and AustraHan Episode; rapid Increase of the

Grold-supply M. Chevalier's and Prol Caimes's Investigations
;
of the Effects upon Different Classes and Countries; Corn-

rents proposed; a Tabular Standard for Deferred Payments, 144
Coinage, ----- CHAPTER
CHAPTER
IX.
X.
. 1(54
Seigniorage :
Who shall bear the charge of Coinage?; Effect of Seigniorage
on Prices ; Debasement of the Coin, - . - igj
CHAPTER XI.
Reooinage.
The English Recoinages of 1560, 1696, and 1774, Who shall
bear the charge of Recoinage ? - . - 20o
:
—UVNTFNTS. xffl
CHAPTER XII.
The Conodbrent Circulation or Two Metals :
Billon, or Token-money Effect on the Poorer Classes, and on

;
Eetail Prices. " Single or Double Standard ? " ; the Experi-
ence of England and the United States; Variations in the

Comparative Purchasing Power of Gold and Silver Influence ;
of the French Coinage Law; the Gold Panic, 1850-9; the
card Silver, ...---

Silver Panic, 1867-77 ; Germany and the United States
CHAPTER XIII.
dis-
217
" The Battle of the Standards "
The Interchangeable Use of Gold and Silver restrains the tend-

ency to Divergence in Value ; Prof. Jevons's statement of the
Question the Power of Law to join the Metals in Coinage at
;
a Fixed Ratio; Theories of MM. Wolowski and Cernuschi;

Eff'ects of discarding Silver upon the Debtor Class; PoUtical
withstanding Bi-metalism, - - - 243

Difficulties
PABT IT.
INOONVEETIBLE PAPEE MONET.
CHAPTER Xir.
The Theory or Inconvertible Paper Monet
-----
:
The " Measure of Values " a Fallacy ;

" Ideal Money " ;
Non-
exportable Money, 275
CHAPTER XV.
Illustrations op Inconvertible Paper Money :
The "Chao" of China; the "Bills of Credit" of the American

"
Colonies ; the " Continental Currency of the Revolution, 302
CHAPTER XVI
Illustrations of Inconvertible Paper Monet, Continued :
Tlie " Assignats" of Revolutionary France.
England under the
Restriction; the Bullion Report and Debates; the Resumption
Act of 1819. The Paper Money of Russia and Austria^ Ori-

33C
gin of ths Legal-tender Notes of the United States, -
;
Tiv CONTENTS.
CHAPTER XVII.
The Theokt or Inconvertible Paper Monet, Concluded:
Conclusions: the Dangers of Overissue; the Consequences of
Inflation. Does the Premium on Gold Measure the Deprecia-
tion of Paper' 376
PABT III.
CONVEETIBLE PAPEE MONEY.
CHAPTER XVni.
The Theory of Convertible Paper Monet :
Are Bank-notes Money ? ; the Advantages claimed for Bank Is-
sues: Convenience; Cheapness; "Elasticity," - 495
CHAPTER XIX.
The Cureenot Principle vs. The Banking Principle :
Can Convertible Paper Money be issued in Excess ? ; Views of
Lord Overstone and Mr. Tooke ; the alleged " Reflux " of
Bank-notes; Relation of Bank Paper Money to Speculation
and Overtrading ; Competition among Issuers ; Small Notes, 422
CHAPTER XX.
Convertible Paper Monet in England:
The Progress of the Currency Principle ; the Recharter of 1832
the Act of 1844; Separation of the Departments; the Princi-
ple of a Secured Circulation. Operation of the Act ; the Crisis
of 1846-7; Suspension of the Act. Theory of the Foreign
Exchanges;
.-...--
Regulation of Note-issues by the Exchanges;
the Treatment of Crises and Panics ; Raising the Rate of In-
terest, 443
CHAPTER XXI.
Convertible Paper Money in the United States :
What are the Conditions of True' Convertibihty ? ; not fulfilled in

the United States ; Competition in Issues ; Small Notes ; Fail-
ure of the Banks to Exchange their Notes ; Obstacles to Re-
demption; Views of Prof. A. Walker; the First Bank of the
United States ; History of Paper-money Banking, 1811-37;
CONTENTS. xt
The Second Bank of the United States; Panics of 1837 and

1839; Efforts at Eeform; the New York Free Banking
System; Experience from 1844 to 1860; the National Bank-
ing System.
Other Examples of Convertible Paper Monet
......
:
Scotland, France, Sweden, and Holland; the New Grermat

Bank Law, 479
CHAPTER XXII.
The Theokt op Convertible Paper Monet, Concluded :
The Bank Paper Money of the United States frequently Depre-

ciated; how this was effected Failure of the Reflux Conse-
; ;
quences to the Agricultural Interest ; is Bank Paper Money

issued in excess of Specie held for Eedemption, really Cheap? 517
PART I.
METALLIC MONEY.
MONEY.
CHAPTEE I.
THE PEIMrriVE FUNCTION OP MONET.
Teade arises out of the Division of Labor. ) *
The need of Money comes from the fact of Trade. )

Trade, in its beginnings, assumes the form qi direct
exchange, commodity for commodity ; what we call Truck
or Barter. But trade cannot proceed far without serious
obstacles to direct exchange being encountered through
the failure of what Prof. Jevons iu his admirable work,
"Money and the Mechanism of Exchange" (1875), terms
Coincidence in Barter. The difficulty is " to find two
persons whose disposable possessions mutually suit each
other's wants. There may be many persons wanting,
and many possessing those things wanted but to allow ;
of an act of barter, there must be a double coincidence,

which will rarely happen." — [P. 3.]
Illustrations of the difficulty noted are so familiar that
I need not dwell upon it in order to show the importance
of the Money-function. The griefs of the boot-maker
' " Currency has its origin in the Division of Labor." —Prof. Price,
Principles of Currency, p. 38.

2 MONEY.
wanting a hat, who found many who had hats but did
want boots, and many more who wanted
not, at the time,
boots badly enough but were quite as ill off, temporarily
or permanently, respecting hats, have been related by
every writer upon money. Prof. Jevons notes what he
regards as a distmct, though minor, inconvenience of
barter, namely, the impossibihty of dividing many kinds
utility.
of goods, without impairing or destroying their
" store of com, a bag of gold dust, a carcass of meat
A
may be portioned out, and more or less may be given in
exchange for what is wanted. But the tailor, as we are
remiaded ia several treatises on political economy, may

have a coat ready to exchange, but it much exceeds in
value the bread which he wishes to get from the baker,
or themeat from the butcher."— [P. 6.] It is evident that
the inconveniences of barter, arising out of the difficulty
noted by Prof. Jevons, of securing the required coinci-
dence ol wants and of possessions, caU loudly, even in
the most primitive condition of industrial society, for
some
MEDIUM OP EXCHANGE,
some commodity which every one shall freely receive
in exchange for what he has but does not desire person-

ally to consume, in the confident assurance that, with it,
he can, atany time, and of kinds and in quantities to

suit his immediate wants, obtain from others what they
have but do not desire to use.
Such an "interposed commodity," to employ Prof.
Price's phrase,^ would be money, whatever its material
or form. This is the first Money-function to facilitate:
exchanges by obviating the necessity of the double coin-
Principles of Currency, p. 44
lY-FUNCTION.
cidenoe "wiiich is required in Barter.' An exohange

where money is thus introduced becomes, it will be ob-
served, a twofold ^ transaction. " Every sale for money,"
says Prof. Price, following J. B. Say, "is only half a
transaction." Goods are sold for money, in order that
money itself may, at the time and in the place most
suitable and convenient, be, iu turn, sold for goods.

"It is not," says Mr. Mill, "with money that things
are really purchased. Nobody's income (except that of

the gold or silver miner) is derived from the precious
metals. The pounds or shillings which a person receives
weekly or yearly, are not what constitute his income they ;
are a sort of tickets or orders which he can present for

payment any shop he pleases, and which entitle him to
at
receive a certain value of any commodity that he makes
choice of. The farmer pays his laborers and his landlord
in these tickets, as the most convenient plan for himself
and them; but their real income is their share of his corn,
cattleand hay, and it makes no essential difference
whether he distributes it to them direct, or sells it for them
and gives them the price but as they would have to sell
;
'
"Une que I'usage du numeraire est devenu general, chaqua
fois
besoins, qua
individu ne doit plus s'inquieter, pour satisfaire tous ses
ou un service rgpondant & un besoin queloonque,
de fournir une chose
certain qu'il est d'obtenir, en gchange de cette cliose
ou de ce service,
il pourra se
une quantite dgterminde de numeraire, avec laquelle
les autres choses et les a'ltres services dont il aura besom."—
procurer
[A. E. Oherbuliez, Science iScon., i, 2il].
= "
Ce sout deux ^changes au lieu d'un. Mais, grace a ce dedou-
sans attendro
blement, on peut effectuer des eotanges innombrables
coincidence, presque impossible, de besoins inverses
le hasard d'une
et rJciproques; grace a ce dodoublement,

on pout cSder et acqugrir
et sans qu'il faille jamais
toute sorte de bien par quantit^s tres-exaotes
I'introduction d'objets qui Ini sont
gtablir I'dquivalenoe du maroM par
I'Soliange, p. 24].
etrano-ers."— [H. Cernusclii, Mgcanique de
;
4 MONEY.
it for money if he did not, and as lie is a seller at any ratSi

it best suits the purposes of all, that he should sell their
share along with his own, and leave the laborers more
leisure for work and the landlord for being idle. The
capitalists, except those who are producers of the
precious metals, derive no part of their income from
those metals, since they only get them by buying them
with their own produce ; while aU other persons have
their incomes paid to them by the capitalists, or by those
who have received payment from the capitalists, and as
the capitalists have nothing, from the first, except their
produce, it is that and nothiag else which supplies aU
incomes furnished by them. There cannot, in short, be
intrinsically amore insignificant thing, in the economy
of society, than money except in the character of a
;
contrivance for sparing time and labor. It is a machin-

ery for doing quickly and commodiously what would be
done, though less quickly and commodiously, without it
andjhke many other kinds of machinery," adds Mr. Mill,
"it only exerts a distinct and independent influence of
its own when it gets out of order." — [Principles of
PoHtieal Economy, iii, 7, 3.]
n. MONEY AS A MEASUEE OE VALUE (?)
" But a second difficulty," says Prof. Jevons, " arises

in barter. At lohat rate is any exchange to be made ?
If a certain quantity of beef be given for a certain quan-

tity of corn, and in like manner corn be exchanged for
cheese, and cheese for eggs, and eggs for flax, and so on,
stm the question will arise —^how much beef for how much
flax, or how much of any one commodity for a given
quantity of another ? In a state of barter, the price-
^rmmmmt-FUNCTioN. t
current list would be a most complicated document,' for

each commodity would have to be quoted in terms of
every otter commodity, or else complicated rule-of-three
sums would become necessary. Between 100 articles
there must exist no less than 4950 possible ratios of
exchange. . . . All such trouble is any one
avoided if
commodity be chosen and its ratio of exchange with each
other commodity be quoted. Knowing how much corn

is to be bought for a pound of silver, and also how much
flax for the same quantity of silver, we learn without

further trouble how much corn exchanges for so much
flax. The chosen commodity becomes a common denom-
inator or common measure of value, in terms of which we
estimate the value of all other goods, so that their values
become capable of the most easy comparison." [Fp. —
6-6.]
By some money is treated as
writers this function of
even more important than that of a medium of exchange.
Thus, Prof. Bowen writes :^ "We can do without money
as a medium and can even barter com-
of exchange,
modities for other commodities without the use of any
medium. But we cannot do without money as a com-
mon standard, or measure, of value. A measure must be
homogeneous with the thing measured. As that which
measures length or capacity must itself possess length
liave value
or capacity, so tlmt which measures value must
in itsdf, or intrinsic value."
• " L' Evaluation directe de chaque bien par chaque Men est una
... La monnaie simplifie tout au lieu
ci;gr^tion presque impossible. :
d'evaluer chaque bien par chaque bien, on

evalue tous les biens pal
bien dvaluant; tous les autres biens sont
un seuL La monnaie est le
des biens evaluds."— [H. Cernuschi,

M&anique de I'ôhange, p. 19.]
» American Political Economy, p. 293.

6 MONEY.
And Eogers says } "A little reflectlou will sho^

Prof.
that some common measure of value must needs
be
adopted in all societies whose condition is superior to
mere barbarism. Even if money were not a
. . .
physical object would still be necessary as a symbol or

it
calculus. We need some common measure of value as

we need measures of length and capacity, even though we
never transfer that which is designated by the name,
money. ... So necessary is this process to trade,
that we are told of nations who have no money, properly
so called, but who have been constrained to invent a ficti-
tious measure in order to express values. In short, the
functions of money in the act of exchange present a close

analogy to the functions of language in relation to
thought. As there may be a rude barter, so there may
be a rude language of signs. But there is no true com-
munication of thought except by articulate speech, and
similarly there can be no real and effectual trade except
by the use of a common measure."
And Mr. MiU :^ "In order to understand the manifold
functions of a circulating medium, there is no better way
than to consider what are the principal inconveniences
which we should experience if we had not such a medi-
um. The first and most obvious would be the want of a
common measure for values of different sorts. If a tailor
had only coats and wanted to buy bread or a horse, it
would be very troublesome to ascertain how much bread
he ought to obtain for a coat, or how many coats he
should give for a horse. The calculations must be re-
commenced on different data, every time he bartered his
coats for a different kind of article; and there could be
• Political Economy, p. 22.

' Principles of Political Economy, iii, 7, 1.
'
THE MONEY-FUNCTION. 7
no current price or regular quotations of value. Whereas

now, each thing has a current price in money, and he gets
over aU diificulties by reckoning his coat at or £5, and M
a four-pound loaf at 6d. or Id. As it is much easier to
compare different lengths by expressing them in a com-
mon language caUed feet and inches, so it is much easier
to compare values by means of a common language called

pounds, shillings, and pence. In no other way can values
be arranged one above another in a scale in no other ;
can a person conveniently calculate the sum of his pos-

sessions ; and it is easier to ascertain and remember the
relations of many things to one thing, than their innumer-
able cross-relations with one another. This advantage
of having a common language in which values may ie ex-
pressed, is, even by itself, so important, that some such
mode of expressing and computing them would probably

be used even if a pound or a shilling did not express any
real thing, but a mere unit of calculation."
There is to be observed, extending through the state-
ments here quoted from these four justly celebrated writ-
ers, an unfortunate confusion of the functions of a com-
mon denominator and of a common measure of value.

And I make bold to say that the failure of nearly aU
writers on this subject, to discriminate between the two
offices, has caused no small part of the contradiction and
confusion of the popular, and even of the scientific dis-
cussion of the subject.
"A common denominator or common measure of
value," • says Prof Jevons: but surely a common denom-
So Prof. Rogers follows up the just remark, "Even if money

were not a physical object, it would still be necessary as a symbol or
calculus," by the wholly inconsistent assertion, " We need some com-
mon measure of valne as we need measures of length and capacity."

S MONET.
inator and a common measure of value are not equiva-

lent; indeed, they have no necessary relation to each
other. That which is to measure must, as Prof. Bowen
says, be of a kind with the thing measured of a kind, ;
that is, in the respect of which the comparison is made.

Not that we need cloth to measure cloth ; but to measure
the weight of cloth, we must have that which itself pos-
sesses weight; and to measure the length of cloth, that
which itself So to measure value, an
possesses length.
article must possess value. But values being measured
may be expressed, relatively to each other, by a simple
scale of numbers just as the ratios between lengths that
;
have been measured may be expressed without reference

to feet or inches. If I say that three objects are, in
length, respectively, as 1, 7 and 4, 1 use no fictitious meas-
ure of length. And so, if I say that the values of three
commodities are as 1, 7 and 4, I am using no " fictitious
measure of value " (Eogers). I take a unit, and say that
there are in the one case 4 of these, in another 7, in the
last only 1. This is the function of the common de-
nominator, not of the common measure.
The distinction is vital. In it lies the germ of the
whole controversy between the advocates of Ideal Money
and the advocates of Real Money. The former admit all
that is claimed for the importance of having a common

denominator through which to register the relative values
of the 100 commodities, for instance, of which Prof.
Jevons makes account, and thus save the necessity of
4950 quotations in the price-current but for this, they ;
But a mere symbol or calculus cannot be a measure of length or of

capacity. In like manner Mr. Mill shows the importance of having
"a common language in which values may be expressed " undeir the title
" the want of a conm'.on measure for values."
TswusruTmr-FUNuriON. 9
say, and they say justly, no distinct article, as a measure

of value, is necessary. The articles are measured against
each other, in respect of their several values, and it is
only necessary that there should be some common de-
nominator in which the values, thus determined, may be
expressed.
If, for example, it takes five times as much labor to
produce a -wheelbarrow as to produce a bushel of wheat,
the value of the wheelbarrow will be to that of the wheat
as 5 to 1. And if a cart costs five times as much labor
as a wheelbarrow, the respective values of the three com
modities may be expressed as 25 : 5 : 1.
To measure values we must, of course, use values ; but,

in the instances given, we have the amounts of labor em-
bodied, so to speak, in the several articles, compared
directly with each other, and the resulting ratios, ex-
pressed in pure numbers, are quite sufficient for a basis
of exchange. It is not necessary to the comparison that
there should be an article distinct from the wheelbarrow,
the cart, and the bushel of wheat, itself costing one day's
labor, against which each of these three articles might
by turns be measured, in order that "exchanging propor-
tions" should be estabhshed between them.
We shall return to this subject at a later period in our
discussion,^ when we shall undertake to show that it is
not even necessary that the amounts of labor respectively

embodied in the several commodities to be exchanged
should be compared against each other but that articles ;
possessing no "intrinsic value" (Bowen) whatever, mere

bits of colored paper, perhaps, may afford the common
denominator needed for the expression of a list of values
as long as the diversification of modern industry shall
'Pp. 190; 281-8.

1*
10 MONBT.
require. For the present, it is sufficient to point out tha
distinction between the common denominator and the

common measure of values ; and to note that the writers
quoted only establish the need of
A COMMON DENOMINATOB
for the various commodities to be exchanged in any

market. This, then, we accept as the second Money-
function.
III. But something more stiU is required in the de-

velopment of industrial society.
"A third function of money," says Prof Jevons, "soon
develops itself. Commerce cannot advance far before
people begin to borrow and lend, and debts of various
origin are contracted. some cases usual, indeed,
It is in
to restore the very same article which was borrowed,

and in almost every case it woidd be possible to pay back
in the same kind of commodity. If com be borrowed,
corn might be paid back with interest in corn ; but the
lender will often not wish to have things returned to him
at an uncertain time, when he does not much need them,
or when their value is unusually low ; a borrower, too,
may need several different kinds of articles, which he is
not Hkely to obtain from one person hence arises the;
convenience of borrowing and lending in one generally

recognized commodity, of which the value varies little.
Every person making a contract by which he wiU re-
ceive something at a future day, wiU prefer to secure
the receipt of a commodity likely to be as valuable then
as now. This commodity will usually be the current
money, and it will thus come to perform the function ol
a Standard of Vnhie" — [P. 14.]
THE MOWET-FUNCTION. U
The office whieli Prof. Jevons tlius indicates is
actually performed in industrial society by that which
we call Money but the title applied by Prof. Jevons to
;
this office, or function, is unfortunate, both as being little

descriptive and as arousing the antagonism of those who
advocate the concurrent circulation of gold and silver as
money. These economists find themselves galled by the

use of this term, since, if money serves as a standard of
value, then the use of two metals indifferently as money

constitutes a dQvMe-standard of value, a phrase which
savors of absurdity, and which the bi-metallists resent
as applied to their scheme. They assert that there can
be no such thing as a standard of value, single or double,^
value being nothing but a relation between commodities,
a ratio of exchange varying in the nature of the case
with the incessant fluctuations of supply and demand.
There no reason why the prejudices, if they are
is
nothing more, of so large and respectable a body of

the
writers should not be regarded in this instance, since
phrase in dispute is biit little descriptive, if not actually
misleading. Bearing in mind, then, Prof. Jevons's
state-
the
ment of this function, but changing its title to suit
money performs the part
casemore precisely, we say that
in industrial society of a
STANDAED FOE DEFEEBED PAYMENTS.
money still another

rV. But Prof. Jevons attributes to
function in industrial society :
to M. Wolowsld " La
»
The German esonomist Rau thus writes :
en France par le terme etalon

confusion d'idees qui a 6te oocasionnge
nous, parce que nous ne d^signons pas par le mtoe
n'existe pas chez
les choses matSrielles, soit
le volume et le
mot I'unitS de mesure pour
prix."-[L'or et L'argent, p. 42.]
poids des corps, et celle des
Maluateur, instead of Malon.
M. Wolowski proposes
—
12 MONEY.
" It is worthy of inquiry whether money does not alsc
serve a fourth distinct purpose —that of embodying value
in a convenient form for conveyance to distant places.
Money, when acting as a medium of exchange, circulates
backwards and forwards near the same spot, and may
sometimes return to the same hands again and again.
. . . But at times a person needs to condense his prop-
erty into the smallest compass, so that he may hoard it
away for a time, or carry it with him on a long journey,

or transmit it to a friend in a distant country.
" Something which is very valuable, although of little
bulk and weight, and which will be recognized as very

valuable in every part of the world, is necessary for this
purpose. The current mOney of a country is perhaps
more likely to fulfill these conditions than anything else,
although diamonds and other precious stones and ar-

ticles of exceptional beauty and rarity might occasion-
ally be employed." — [P. 15.]
It appears to me that this suggestion of Prof. Jevons'
cannot be received favorably. Money does not serve as
a store of value. When a commodity comes to serve as
a store of value, it ceases to be money. Gold and silver
in hoards, or as treasure, are no more money than gold
and silver in plate, or on the roof of a temple, or in a
statue of Jupiter. The fact that gold and silver may be
used as a store of value constitutes, indeed, one of the
important facts which go to qualify them for service as
money, just as their usefulness in the arts and in in-
dustry goes, as we shall see, to the same object ; but in
' Mr. Horton, in his excellent work, " Silver and G-old " (1877),
adopts this view of Money :
" It is largely used for the peculiar pur
pose of preservation oi value, and this both in space and time." \V
66, cf. p. 103].
;
neither case are they performing the functions of money,

which have reference exclusively to exchanges, arising
out of the division of labor.
Such is the analysis of the operation of Money made
by Prof. Jevons. Eeserving our exception to the fourth
function, and to the titles given to the second and third,
we may fully accept the remark with which he closes his
analysis :
" It is in the highest degree important that
the reader should discriminate carefully and constantly
between the four functions which money fulfills, at least
in modem societies. We are so accustomed to use the
one same substance in all the four different ways, that
they tend to become confused together in thought. We
come to regard as almost necessary that union of func-
tions which is, at the most, a matter of convenience, and
may not always be desirable. We might certainly em-
ploy one substance as a medium of exchange, a second
as a measure of value, a third as a standard of value,
and a fourth as a store of value. In- buying and selling
we might transfer portions of gold; in expressing and
calculating prices we might speak in terms of silver;
when we wanted to make long leases we might define
the rent in terms of wheat, and when we wished to carry
our riches away we might condense it into the form of
precious stones.
"This use of different commodities for each of the
functions of money has, in fact, been partially carried
out. In Queen Elizabeth's reign, silver was the common
measure of value, gold was employed in large payments,
in quantities depending upon its current value in silver
while com was required by the Act 18th Elizabeth,
e. VI (1576), to be the standard of value in drawing the
leases of certain college lands." — [Pp. 16-7.]
"There is, however," adds Prof. Jevons, "evident
2
14 MONEY.
convenience in selecting, if possible, one single sub-

stance -wliicb can serve aU the functions of money."
But wMle we recognize the truth of Prof. Jevons's re-
mark that two and even more articles may at the same
time, in the same community, be performing the offices of
money, we hardly accept Turgot's proposition that all
commodities are, in some sense, money.^ Any article
may become money all cannot. Money :must always be,
in the phrase of the logicians, particular. That one ar-
ticle should at any time and in any place be money, it is
essential that aU. others, or even many others, should

not.
Such, as it has been described, is the primitive func-
tion of money.
Its importance can scarcely be exaggerated. "It has
been wisely said," remarks Chevalier, "that there is no
machine which economizes labor like money, and its
*
adoption has been likened to the discovery of letters."
—[On Gold, p. 28],
The illustrations taken to show the inconveniences of
barter have been drawn from a primitive condition of in-
' " Ces deux propri^tls de servir de commune mesure des toutes
les valeurs, et d'etre un gage reprlsentatif de toute marchandise de
pareille valeur, renferment tout ce qui constitue 1' essence et I'utilit^
de ce qu'on appelle monnaie, et il suit des details dans lesquels je viena

d'entrer que toutes les marchandises sent S quelques egards monnaie,
et participent S ces deux proprietSs essentielles plus ou moins' a rai-
son de leur nature partiouli^re," — [Sur la formation et la distribution
dos richesses, xli.]
' " The value of money has been settled by general consent to ex-
press our wants and Qur property, as letters were invented to express
our ideas ; and both these institutions, by giving a more active energy
to the powers and passions of human nature, have contributed to
multiply the objects they were designed to express." —[Gibbon,
chap, ix.]
7H& MONEY-FUNGTION. ,
15
dusti'y tlie artisans were men known to eacli otlier, oaoh

;
working by himself and producing by his own labor the

whole of the article he desired to exchange for others;
the articles assumed for the purposes of illustration were
simple necessaries, in universal request.
If, however, we step at once forward to the most highly
organized forms of modern industry, and consider the in-
conveniences of universal barter, even after the introduc-
tion of the credit system, to be hereafter described,^ we
shaU them such as to constitute a most onerous and
find
oppressive tax upon the production of the community,
amounting, in many cases, to absolute prohibition.
Hence when Mr. Huskisson said of the crisis of 1825-6,
that England approached "within twenty-four hours of
barter," he represented a state of things dangerous
^
in an appalling degree to the welfare of the kingdom.

So that, even in combating doctrines deemed perilous
heresies, like those of the Inflationists of the Western
States, I must deem it always unwise to make state-
ments like that contained in Mr. Wells's able paper en-
titled " The Cremation Plan of Eesumption."
"Were all the currency in the country absolutely
swept out of existence to-morrow morning, there would
doubtless be much inconvenience experienced, the same
as though all the yard-sticks, foot-rules, and bushel
measures were to disappear; but in either case, tliere
would notprohably be one less acre of land cultivated, yard
of doth made, ton of coal dug, or pound of iron
smelted, in
consequence." — [P. 7.]
How differently Mr. Wells viewed the Money-function
Pp. 65-9.
» Lord Normanby wrote fi-om Paris, in 1848, that the city was
'
reduced to a oondiiion of bai'ter."
'
16 MONEY.
when dealing directly with, the practical inconvenieuces

of barter, we see in the following sentence from his tract
entitled "Eobinson CruHoe's Money," in which he de-
scribes the embarrassment of his islanders in carrying
on production without a medium of exchange :
—
" The people on the island both laborers and employ-
ers —were, however, fully agreed that life was too short
to wastea good part of it va. & game of blind-man's-buff,
on a large scale, for such this attempt to conduct ex-
changes on a basis of direct barter substantially was but ;
they nevertheless also clearly perceived that the game

would continue to be played to the interruption of all ma-
terial progress, unless some other method of exchanging
could be devised and adopted." [P. 20.] —

In his "Nutrition of a Commonwealth," Hobbes has
briefly but strikingly exhibited the importance of the
Money-function in the State :
"By means of which measures, all commodities, mov-

able and immovable, are made to accompany a man to
all places of his resort, within and without the place of
his ordinary residence,and the same passeth from man

to man, within the Commonwealth, and goes round about,
nourishing as it passeth, every part thereof ; in so much
as this concoction is, as it were, the sanguinifaction^ of
the Commonwealth for natural blood is in like manner
;
made of the fruits of the earth, and, circulating, nourish-

eth by the way every member of the body of man.
" By concoction I understand the reducing of all com-
' " Les heures et les jours ne suffiraient pas h cherch^r, soliciter, of-
rir, combiner des trocs." — [H. Cernuschi, M^c. de r]Sch., p. 25.]

^ "La monnaie est Lppelee a remplir dans I'dconomie publique, le
role du sang dans I'economie aiumale : elle commence par dissoudre

THE MONEY-FUNOTION. I7
moditios which are not presently consumed, bxit reserved

for nourishment in time to come, to something of equal
value, and withal, so portable as not to hinder the mo-
tion of men from place to place, to the end a man may
have in what place soever, such nourishment as the
place affordeth. And this is nothing else but gold and
silver and money."
In a very judicious work on "Money and Banks," pub-
lished in 1839, Prof. Tucker, of Virginia, well expressed
the advantages to be derived from the use of money :
"By
reason of the readiness with which money en-
ables every producer to dispose of his redundant prod-
ucts —that is, to convert them into what has a more
varying and universal value — it is a great incentive to
industry. Were the practice of barter to prevail, the
fear felt by a tradesman
that he might not find persons
who would both want his commodities, and have such as
he himself would take in return, would check his indus-
try, and he would generally wait, as is often the case
with country workmen, for articles to be ordered before

they were made.
" There is also, from the use of money, a great saving of
time, which the industrious class can appropriate to the

business of production.
"M(3ney is moreover favorable to that separation of
trades' which is of itgelf so propitious to increased
production, and to an improvement in the quahty of the
articles produced. If there was no general medium of ex-
tous les moyens de subsistance pour en extraire la partie nutritive et

repandre ensuite dans les diverses parties du corps les elements da
conservation et de vie." — [Rosoher, Wolowski's Translation, §117.]
' " Money is essential to the subdivision of labor and services, and
the organization of society." — [Prof. Rogers, Pohtical Ef onomy, p. 23.]
18 MONET.
change, men would often fabricate articles for themselves,

from the trouble and delay of obtaining them by barter.
"As every article has its known market price in the
general measure of value, where there is one, every
producer can thereby better adapt his supply to the
varying demands and diversified tastes of the communitj-.
Money furnishes a very sensitive barometer of these
by consulting which the industrious classes
variations,
will be and create re-
less likely to misdirect their labor,
dundancy on the one hand, or subject the community to

scarcity on the other.
" The introduction of money has also a manifest ten-
dency to beget frugality and encourage accumulation.'
Without such a convenient and unchanging representa-
tive of value, or mode of investment, man;^ things would
be wastefully consumed, supposing them to be produced,
which would be saved if convertible into money. The
practice of saving is so much encouraged by the facilities
which the precious metals afford, that it occasionally
grows to be one of the strongest human passions ; and
misers, who are instances of the abuse of frugality, and
who are, in part, the creatures of a metallic currency,
furnish striking proofs of its power over human action,

a power which, excessive in their case, exerts a healthy
influence on the rest of the commujiity."
' " L'avantage principal de I'or et de I'argent pour la formation des

capitaux a ete de favoriser les plus petites Economies, et de les capita-
liserde fagon qu'elles devinssent au bout d'un certain temps applicablee
a des acquisitions de moubles et de vetements d'un usage durable au
meme 3. solder des travaux utiles. Avant I'introduotion de ces met aux
dans le commerce, \in liomme ne pouvait se former de capital que
par la multiplication de ses bestiaux ou I'eniploi de son travail qui
n'etait pas absolument neoessaire a sa subsistance, a se fabriquer des
choses durables qui fussent h, son usage, ou qui pussent etre vendues.'
—rôte of Dupont de Nemours to Turgot, Des Eichesses, \ii\.

TEE MONEY-FUNQTIOK 19
Prof. Perry expands one of the ideas suggested by

Prof. Tucker, as follows:'
" The fact tliat such a medium is in universal circula-
tion,and that the holders of it are ready to exchange it
against any sort of services adapted to gratify their
desires, exercises a
kind of creative power, and brings a
thousand products to the market which would otherwise
never have come into existence.
" Since money will buy anything, men are on the alert
to bring forward something which wUl buy money, and
since money is divisible into small pieces, an incredible
number and variety of small services are brought for-
ward to be exchanged against these pieces, which
services we have no reason to suppose would ever be
brought forward at aU were it not for the strong attrac-
tion of the money. . . .
"Money is a form of capital which stimulates and

facihtates all the processes of production, without excep-
tion."
This is treading on perilous ground. To speak of
money as exercising a kind of creative power and as
stimulating the processes of production, is to use lan-
guage which might, without a great deal of violence,
be wrested to serve the argument of those who, at the
present juncture, are clamoring for increased issues by
the government, as a means of reviving industry. Strictly
taken, however, Prof. Perry's statement is true. We
shall have occasion, at a later stage of our discussion, to
^
sonsidei the effects of an increase in the amount of
money circulating in any community.

StiU another consideration, bearing not so much upon
•
Political Economy, 213-4.
' See chap. iv.
20 MONET.
the production as upon the distrit iition of wealth, may

be presented in the language of the eminent German
economist, Eoscher.' It is that, under the system of bar-
ter, "the party which is, in an economical view, the
stronger, would, in every bargain, possess an advantage

mudi greater than he enjoys at present." The truth oi
this proposition will be seen if we imagine two persons,
one strong and and lame, to be

active, the other feeble
required to travel in company, first along a smooth road,

and afterwards over a rough and broken country. Both
wiU suffer from the irregularity of the ground in the sec-
ond case but the weak and lame person
;
will experience
relatively the greater disadvantage. He will fall further
behind, as well as accomplish his task with much more

of weariness and pain.
If then, as there is reason to assert, every industrial
community is divided among the economically weak and
the economically strong; if, in the exchange of products
or services, some classes are, in their best estate, at a dis-
advantage by reason of their inability to resort, with
promptitude and assurance, to the best market, whether
from poverty, from ignorance, from social ties and do-
mestic burdens, or from apprehensions, reasonable or
superstitious, of the effects of change, clearly it is true
that any cause, like the introduction of money, which
facilitates the exchange of products or services, does not
merely advantage the community as a whole, but relieves
the weaker classes from a portion of their disabilities
and raises them more nearly to an equality with those
whom they have to encounter in the competitions of in-
dustry. AH classes derive a benefit from the use of
money but ; that which the poorest and the economicallj

feeblest receive is relatively greater.
' Lib. ii, cap, 3.

But while we thus magnify the services rendered by

money to industrial civilization, it must not be overlooked
that barter is still retained in many transactions, even
in the most advanced communities, especially in the pay-
ment of wages, "in kind." This fact is exceedingly im-
portant to be noted, as will hereafter appear.^ The ques-
tion of a direct exchange or of the use of "an interposed
commodity," not always one of necessity, but some-
is
times one of convenience merely of convenience, too, in

;
such a degree only, that a positive reason, perhaps of no

great force, may lead to a considerable extension of barter.
Can the which we have obtained of the facts

analysis
of exchange in a primitive industrial state be apphed
with assurance to the conditions of modern society with-
out adding to or subtracting from the conclusions we
have reached ?
Prof. Price, in his "Principles of Currency," remarks
that he writes first of metallic currency, or coin, "not
only because it is the most ancient, the most general,
and the most easily understood form of currency, but
also because it furnishes peculiar facilities from its sim-
plicity for ascertaining the fundamental principles of all
currency."- — [P. 37.] Again he says: "We arrived at

first principles in the investigation of coin. Our duty is
to adhere to them and to apply them firmly, un-

closely
der the conviction that money, currency, whether made
of paper or metal, in its leading features is always the
same, and that its various forms all work out the same
general result."— [P. 98.]
It is yet too early to criticise this assumption of Prof,
'
See rp. 199-204.
2*
22 MONEY.
Price, that the analysis of the Money -function in a prim-

itive condition of industrial society yields aU the ele-
ments which are found in a state of highly organized pro-
duction and trade ;'
but let us leave our minds open on
this side.
The savage builds his canoe of materials every part of
which would float of itself. The civilized man builds his
broadside ship-of-war of material which, of itself, would
drop like a plummet to the bottom.
We may find, in our further investigation, that there is
something more in the philosophy of money than comes
out in the primitive trade between the tailor, the butcher
and the baker.
To obtain such large advantages as we have seen resxdt

from the use of money, no small sacrifice may MdUingly
be submitted to.
" There is
no doubt," says Mr. James Wilson, " that
the time and labor which are saved by the interposition
of coin, as compared with a system of barter, form an
ample remuneration for the portion of capital withdrawn
from productive sources, to act as a simple circulator of
commodities, by rendering the remainder of the capital
of the country so much the more productive." [Capital, —
Currency and Banking, p. 15].
" The portion of capital," says Mr. Wilson. Is money
capital? We have, unfortunately, on this point, great
looseness of statement among economists, due more, I
am disposed to believe, to carelessness of expression
than to faults in thinking.
Mr. Wilson says :
" Whatever coin is actually used in
' " The vast operations of commerce, when dissected, only reproduce
tlio action of the tailor and his two fellow-tradesmen." — [P. 43.1
circulation, although it may aid the productiveness of

the general capital of the country, is itself so much with-
drawn from productive uses"' [iUd.'] and he elsewht;re ;
speaks of money withdrawn from circulation, as resfmrd

to productive uses. — [Cf. pp. 16, 39, 41, 228.]
If gold and silver are capital before their use as money

it is difficult to see how they lose this character by being
applied to a use in which they facilitate production in
a high degree. ^ It would be quite as correct to speak
of a railway locomotive as withdrawn from productive
uses because employed only in the transfer of commodi-
ties, and as restored to capital when laid up for repairs.
' In the same way, Prof. Newcomb, of Washington, who has writ-
ten admirably in Political Economy, in the special departments of
Money and Taxation, says :
" Gold and silver coin is, in the strictest
sense, unproductive capital, whether lying in the vaults of banks, or
locked up in a miser's chest, or circulating as money." — [Financial

Pohcy of the United States, p. 48.] "Sterile mai.s necessaire,'' says
M. Cernuschi [Mec. de I'Bch.] On the other hand, M. Wolowski
says [La Question des Banques, p. 27"J :
" La partie du capital con-
sacree a la monnaie produit autant et plus que celles qui se trouvent

engagees dans I'autres mecanismes. II n'est pas de machine qui
coute relativement moins et qui donne des resultats plus considera-
CHAP TEE n.
THE ELEMENTS Ot MONEY : THE MBTAl S AS MONET.
Hating seen the occasion whicli exists, even in a prim-

itive state, and increasingly in communities as they ad-
vance industrially, for "an interposed commodity" to
facilitate exchanges, it wiU be profitable to inquire what
qualities a commodity should possess to fit it for such a

use.
And first, it may be said, the one condition which is ab-
solutely essential, is general acceptability.^ Specific ma-
terial qualities may be noted, partly as contributing to
this fact of acceptability, partly as offering independent
advantages for the use, as money, of the commodities in
which these are found but, however important the uses
;
of an article, however admirably suited in its properties to

perform such an office, unless the fact of general accepta-
bility is secured, whether with or without reference to
such qualities, an article cannot serve in this capacity.
It is the disposition, or the indisposition, of the gi'cat ma-

jority of the community to receive it in payment which
' "II dacaro 5 la meroe universale: ciod a dire d quella merce ia
quale per la universale sua aooettazione, per il pooo voluirc ohe ue

rende facile 11 trasporto, per la comnioda divisibility, e per la incor-
luttibilita sua ^ universalmente rioevuta in.iscambio di o"iii merce
yartioolare." —[Count Verri, Delia Pol. Econ., § 2.]
THE ELEMENTS OF MONEY. 25
settles the question whether a particular commodity shall
become money or not. The reasons, if indeed they reason

at all in the matter, which actuate individuals or the
community may be mistaken, or
ia their preferences,
the appetencies to which they yield may be such as the
moral philosopher cannot approve. The economist has
only to do with the fact that, however it comes about,
the willingness of the mass of the people to receive one
article rather than others in payment for whatever they
have to sell, furnishes the prime, the one essential, con-
dition of a true money.
The carved pebbles formerly used by the Ethiopians,
the wampum which circulated between the New England
colonists and the natives, the glass beads used in small
payments even down to this day along the Arabian gulf,
the shells and the red feathers employed throughout the
islands of the Indian ocean, were good money, though
serving no purpose but ornament and decoration.' They
were desired by the community in general;^ men would
give for them the fruits of their labor, knowing that with
them they coidd obtain most conveniently in time, in
form and in amount, the fi'uits of the labor of others-
' "Vanity, which among some peoples, makes its appearance be-
fore the need of clothing is felt." — [Wolowski, notes to Eostiher,
§ 119-]
' It is not enough that a few individuals may greatly desire an
article. Sir Hans Sloane might be willing to give iive guineas for an
overgrown toad; but were a hundred gentlemen of the county to
share his degraded taste, that would not constitute toads money. It
is hazardous to say however, what may not become money at some

time and place Milburn, in his "Oriental Commerce," tells v.s that al
St. J ago '-old clothes, particularly blaclc," form the best Ks.lium foi
obtaining supplies of food from the nati 7es.
3
:
26 MONEY.
It is in view of its general, or universal, acceptability

that certain writers speak of money as a pledge or se-
curity for whatever the holder may wish, now or at a
future time, to obtain.
Thus Aristotle, in the " Nicomachian Ethics," says
"With regard to a future exchange [if we want nothing
at present], money is, as it were, otir security."
Mr. McLeod, in the same connection, quotes from
Baudeau, Adam Smith, and Henry Thornton, as follows :
Baudeau " It is a kind of bill of exchange, or order

:
payable at the will of the bearer."

Adam Smith :
" A guinea may be considered as a bill
for a certain quantity of necessaries or conveniences,

upon all the tradesmen of the neighborhood."
Thornton: "Money, of every kind, is an order for
goods."
Bastiat develops the same idea in the following illus-
tration :
"You have a crown-piece, what does it mean in your

hands? It is, as it were, the witness and the proof that
you have at some time done some work, which, instead
of profiting by, you have allowed society, in the person
of your client, to enjoy. This crown-piece witnesses that
you have rendered a service to society, and moreover,
it states the value of it. It witnesses, besides, that you
have not received back from society a real equivalent
service, as was your right. To put it in your power to
exercise this right when and how you please, society, by
the hands of your client, has given you an Acknowledg-
ment, a Title, an Order of the State, a Token, a Crown-
piece, in short, which does not differ from titles of credit,
except that it carries its value in itself, and if you can

read with the eye of the mind the inscription it bears,
you can distinctly see these words : 'Pay to the bearer
—
a service equivalent to that which he has rendered to

society, value received and stated, proved and measured
by that which is on me.'
"After that you cede your crown -piece to me ; either it
is a present, or it is in exchange for something else.

Ji you give it to me as the price of a service, see ^^•hat
follows : your account as regards the real satisfaction

with society is satisfied, balanced, closed. You rendered
it a service in exchange for a crown-piece, you now re-
store it the crown-piece in exchange for a service : so far
as regards you the account is settled. But I am now
just in the positionyou were before. It is I now who
have done a service to society in your person. It is I
who have become its creditor for the value of the work
which I have done for you, and which I could devote to
myself. It is into my hands therefore that this title of
credit should pass, the witness and the proof of this
social debt."
Now, these are striking and picturesque expressions
of the universal acceptability of money. But Mr.
McLeod has proceeded to deal with them as if literally
true, and issues from his discussion of the subject with
the strange statement that " Money is the representative

of debt" [Econ. Phil., "where there
i, 198], adding that
is no debt, there can be no currency" [p. 196], and at
last formulates his definition of money as "Any eco-
nomic quantity which aîebtor can by law compel his
creditor to take in discharge of a debt."' \l'bid., 276.]
'
Again, " Among all civilized nations, gold or silver bullion is the
acknowledged representative of debt," [ii, 370]

— "the symbol of
debt."— [/JicZ.]
He denies that money is an interposed (or as he terms it, an inter-
mediate) commodity. " It is the essential quality of currency that it
18 a general charge of debt upon the person of the debtor, or obligant

28 MONEY.
Of whicli it may be enough at the present time to say,

that the perfect form of money would be one which the
creditor would be as desirous of receiving as the debtor
could wish him tc be, and thus the element of legal com-
pulsion would become entirely inconsequential, and
hence no proper part of a definition ; and, secondly, that
such money has in fact circulated, at one time or
another, over pretty much the whole inhabited world,
not even the nominal compulsion ' of the creditor exist-
ing in no small proportion of instances.
There could scarcely be a grosser case of the perver-
sion of the plainmeaning of a writer than in the use
which Mr. McLeod here makes of the expressions he
quotes. Dr. Smith intended to convey this thought : that
the acceptabihty of the guinea was so complete that the
tradesman, though free to sell his goods or to withhold
them, would gladly take it in exchange for any equivalent
part of his stock; and that the holder of the guinea

would therefore be just as sure of obtaining, through its
agency, what he might desire, as if he had an obligation
which could be enforced at law. Dr. Smith uses, thus,
the entire freedom of the tradesman to show more strik-
ingly the universal purchasing power of money. Mr.
McLeod twists this around, with what violence it is need-
less to say, to make it fit into his proposition that it is
of the essence of money that the creditor should be

obliged by law to receive it.
and IS not a title m any specific or particular articles."' — [i, 206.] " In
all cases whatever, it involves the idea of personal liability." " This
distinction is of (he utmost importance and it seems to show that tha

transferability frcm hand tc hand is not the fundamental conception
of a currency.''
' " Our paper is oi value in commerce, becduse in law it is of
none; it is powerful on 'Change, becaiise in Westn-inster Ilall it k
impotent." — [Burke, French Revolution.]
—
Even Prof. Price, whose conception of the primitive

function ofmoney is very strong and clear, makes use of
an unfortunate mode of expression regarding it.
He says, speaking of money, as compared with bank-
notes, bills of exchange, promissory notes, etc. :
" Tlie
distinction I would suggest would place coin in a class by

itself, and would group in a second and collateral class
all the other instruments of exchange. The two classes
of the instruments ofexchange would then be guaran-
tees by a commodity and guarantees by account. The
basis of this division is the fact that coin constitutes an
actual payment." — [Principles of Currency, p. 177.] But,
if coin constitutes an actual payment, why call it a guar-
antee at all ?
I must suppose Prof. Price's reason in so doing to be

that this form of statement best consists with the propo-
sition upon which modern
his theory of the exchanges of
industrial society is built up, thatmoney is an instru-
—
ment for the transfer of debts of which we shall inquire
more hereafter but, surely, in the view we have obtained
;
of the Money-function in primitive industrial society, and

in view of Prof. Price's admission that coin constitutes
an actual payment, the use of the word guarantees is" of
very doubtful propriety.

If I have parted voluntarily with the fruit of my labor
and received therefor the fruit of another man's labor
—
gold ^being "an actual payment," it is not easy to see
what further is guaranteed me, or who should guarantee
me anything. It is true that with the gold I expect to
be able to obtain, at any time, an equivalent portion of

the product of any other man in the community; and
this expectation constitutes my reason for being willing
to receive it; and everybody's willingness, on similar

grounds, to receive it, constitutes it money but
; if we go
30 MONEY.
far enougli back, we note that when I produced the arti-
cle with which I obtained this money, I probably did so

not because I wanted that specific article (my parting
with it would seem to be a proof of that), but in the ex-
pectation that with it I could obtain the money, yiiih
which, in turn, I could obtain the particular articles 1

should wish to consume. If, then, the money which the
tailor receives for his coat is a guarantee (that he will
receive from other members of the industrial community
that which his personal wants demand), the coat itself
was a guarantee. With his labor he gets the coat ; with
the coat he gets the money; with the money he gets
bread and meat for his family. If the money was a guar-
antee for bread and meat in this case, so was the coat a
guarantee for the money.
At the same time, it is well to enforce strongly the
thought that men take money with the expectation of
parting with it; that this is the use to which they mean
to put it, and it is for this reason they receive it; that
the real object is something other and further on; and
that money is always truly a medium, a means to an end.
In this view, and anticipating the adoption of gold as
mdney and its we can
coinage for higher convenience,
fully assent to thesewords of Prof. Price :
" Gold, in the form of money or coin, is simply a com-
modity, employed for bartering, as a ship for carrying,

or a plow for farming. It is not sought for its
. . .
o^vn sake, as an article of consumption, but purely as a

machine. It is wealth only in the identical sense that
a cart is; for its action is very similar to a cart's; it
owner the things he is in want of.

fetches for its . . ,
"It is nothing but machinery and must never be re-

garded as valuable, except for the work it performs, so
long as it remains in the state of coin. It can be con-
;

verted at pleasure into an end, into an
article of con-
sumption, by being sold as metal; till then it
is a mere
tool, and wealth only in the sense that
tools are wealth.
Its specific worth, the work for which
money is made, is
to supersede single by double barter; for
the exchanges
which are indispensable to civilized life could not
be
carried on by direct barter. Selling is the first half of
double barter; the second half is obtained when the
coin
got by the sale is itself sold for something else. When-
ever gold buys, it is also itself sold. The goods and the
gold fare exactly alike in every sale and every purchase.
Men take money in selling solely in order to seU that
money again in buying."— [Principles of Currency, p. 65.]
Looking at the history of money, we notice that two

conditions, now united and now separated, have served
to give to a considerable number of commodities a local
and temporary acceptance, in the degree necessary to
bring them into use as money.
The first is the general consumption of the article
throughout the community. Thus, in many countries
the staple cereal crop has come into use as money. How-
ever inconvenient hi other respects, the fact that every
family had occasion, during the year, to use considerable
portions of it, has often given to such a commodity a good
degree of currency. Wheat, corn and rye, have exten-
sively fulfilled this office. Cattle, also, were used as
money from the earliest days. With the Greeks of the
Homeric period, oxen served as the medium of exchange
and after the abandonment of Britain by the Romans
we find the inhabitants, in the scarcity of coin, re-
turning to the use of "living money," especially in
Scotland and Wales. "It is very possible," says Sit
32 MONEY.
Henry Maine,' " that kine were first exclusivelj valued

for their flesh and milk ; but it is clear that, in very early
times, a distinct and special importance belonged to
them as the instrument or medium of exchange." The

fact of general use made copper skewers^ once good
money in Greece and the many adaptations of iron have
;
given it currency in countries and in ages when it was

not so plentiful that its weight, for a limited value, be-
came embarrassing.
But even more than the fact of general consumption at
home, the fact that an article forms the staple export of
a region gives it acceptability for the purposes of an " in-
terposed-commodity." Thus in the early colonial days,
we find tobacco in Virginia and Maryland, and rice^ in
Carolina, constituting the ordinary money of the people ;
and they, served this purpose reasonably well. At every

country-store, tobacco or rice was always freely taken
every week or month the storekeeper sent his stock down
to the seaboard, where his wagons were loaded with West
India goods, hardware, etc., for the planters' use. The
fact that these articles of produce were always and freely
received at the country-store, gave them a high degree
of acceptabihty in all the ordinary transactions of ex-
change. Even professional fees and salaries were paid
in rice and tobacco. For a similar reason, dried cod
were, during the same period, used in Newfoundland as
'
Early History of Institutions, p. 149.
' A'Jam Smith speaks of a village in Scotland in his day, where

nails were used as money. The general use of bullets, in the chase
and in warfare against the Indians, made them good "change" in
the early days of New 1-lngland.
' At Porto Novo, on the Coromandel shore, accounts are kept in

" coUums " of paddy, i. e., rice in the husk.
— [Milburn, Oriental Com-
merce, 213.]
:

money, and sugar in the West Indies. Tea is still used
in the settlement of transactions at the
great Eussiau
fairs, and small compressed blocks
of that article still
circulate in Chiua, as, according to Mr. McLeod,
dates,
in definite measures, do in the oases of
Africa. Furs
have always been a good money, in regions from which
they are exported. Thus the Massachusetts Court
of
Assistants, in 1631, ordered that corn at the usual rates
should pass for payment of all debts, unless money or
beaver^ were expressly named m the contract. Purs
play an important part in the history of Eussian money.
Among the material properties fitting articles for use

as money, we note the following
Portability. —Doubtless one reason for the preference
given to cattle among the ancients was the fact that they
would carry themselves, instead of requiring to be car-
ried, like most other forms of property, whenever the
chieftain had occasion to move his abode, for purposes

of gain, or to avoid a threatened attack. And of articles
which cannot be classed as "living money," preference
will naturally be given, in any state of society, to such
as contain much value in small bulk, and which can
thus be easily transported, and for the same reason,
easily stored and concealed.
A second desirable quality is uniformity. In this, the
living money referred to was particularly deficient. If
Glaucus stipulated, in advance, to give 100 oxen for his
' " Of all the articles, th° products of the country, which our fa-
thers used as currency, that which was most available and convenient
was the skin of the beaver. Furs were in demand in Europe, and
could always, without much loss, be converted into coin or its equiv-
alent." —3* [Bronson, Connecticut Currency, p. 7.]

34 MONET.
golden armor, there is too mucli reason to fear tfeat it
was a sorry lot of " lean kine " that were turned in for
payment. The public records of the Colony of Massa-

chusetts bear amusing testimony to the depravity of
human nature, in culling out the worst of the floclc in
settlement of taxes and no one who is familiar with the
;
frontier life of our day but has had occasion to be as-

ionished at the capabilities of some of the animal species,
in the way of furnishing gaunt and puny specimens for
consumption by the " wards of the nation." Not a few
articles, otherwise reasonably well suited to use as
money, fail in this important respect of uniformity of
size and quahty.
Again, it is desirable that the article which is to ba
used as money should be such as will cost little or noth-
ing for keeping, and will not readily deteriorate. The
mention of the first condition reveals how poorly fitted
cattle are for use as money ' in any but a pastoral state
of society (where they, in fact, keep themselves), owing
to their remarkable physiological property of being able
to " eat their heads off," every little while. Especially
did the good people of Massachusetts find cattle un-
suited for receipt into the public treasury. It is as-
tonishing how much a cow can eat without either giving
milk or gaining flesh, if she belongs to a government or
a corporation.
Liability to deterioration is so far common to most
forms of wealth as to leave but few without serious dis-
advantages in their use as money. Eust, insects, excess-
ive moisture, undue heating, even mere exposure to the
air, work mischief more or less rapidly to most of the
' " Usage qui suppose la possession facile de riches paturages."—

[Eoscher, Wolowski's translation. § 1 18.]
THE ELEMENTS OF MONET. 35
treasures of earth. In the degree, therefore, in which

any waste or deterioration, is it un-
article is subject to
fitted to serve as money. This, however, was not the
view of Peter Martyr, who, contemplating the bags of
cacao used by the early Mexicans in their exchanges, was
led to exclaim, "Blessed money! which extmpts its
possessors from avarice, since it cannot be long hoarded

or hidden under ground!" In his cheerful optimisrc
this writer deserves to take rank, at least approxi-
mately, with those philosophers of to-day who, after dis-
covering good things about our greenbacks,
all sorts of
have declared it to be their crowning excellence that

nc
other nation can, or will, take them from us.
Still another thing which is to be desired in that com-
modity which is to serve as money, is that it shall be

susceptible of division, according to the ever varying
necessities of exchange, without any important loss of its
own utihty thereby. Grain, and not a few others of the
articleswhich we have referred to as used for money, in
one country or another, at one period or another, have
possessed this property. The lack of it would prove a
fatal objection in the case of many commodities in
other ways weU adapted to such- uses. It was reported
by some early travelers that the Tartars, when in want
of meat, would take a steak from the living animal, and
by some means close the wound till the exigencies of tlie
larder demanded another cut off the flank. If the Tar-
tars ever had this knack of serving up beef as occasion
required, other peoples have not derived it from them,
but have found it necessary to deal with the living
animal as a whole, This difficulty or impossibility of a
division without loss, clearly would throw out many
commodities from possible use as money. The tailor,
while he could put on a patch of any required dimen-
86 MONEY.
sioDS, corresponding to a loaf of any size of the baker's

breiid, could not well split a coat down the back to nkike
change, or sell one pantaloon without its fellow.
So much for money as a medium of exchange ; but

further, it is evident that, to enable an article to per
form the function of a standard for deferred payments,
a certain steadiness in value is essential. That men may
safely promise to pay down, at a future date, definite
quantities of a specific commodity, it is highly important
commodity shaU then rep-
that a given quantity of that
resent approximately the same cost of production as at
the time the bargain is made. Otherwise, grave un-
certainty will be introduced into every contract, with the
strong probability that one or the other party will suffer
serious loss, to the discourageinent of industry and
trade.
Thus, through the capriciousness of the seasons, a
bushel of wheat may represent, in one year, an amount
of labor greater or less by fifty per cent, than in the
preceding or the succeeding year. For the payment of
rents, through terms of years, the lessor may perhaps

take the chance of good years with bad (though a long
succession of bad or of good harvests is a not unfamiliar
occurrence); but ordinary commercial transactions could
not be carried on amid the uncertainty as to the value
of payments to be made or received, which would be
involved in the -use of an article varying so greatly in
cost of production within a brief term.
Such beiag the material properties most important in

any article which is to be used as money, we note that
the metals have been found to possess them iu a highei

degree than any other considerable class of commodities.
THE METALS AS MONET. 37
Iron, lead, tin or copper, early became the money of

nearly all the nations whose history we know. Of these
the first' possesses perhaps the fewest advantages ;
yet
when we compare it with cattle or wheat, we find ample
reason for the preference given to it, over them, in use
as money, in very early times. It is, indeed, subject to
deterioration by exposure to the atmosphere ; but it has
a life of many years, even in the worst conditions. This
fact gives it comparative stability of value. In early
times, moreover, iron possessed considerable value for
its bulk. The art of miniug being in its infancy, a com-
paratively small amount of the metal represented the
labor of days f while its numerous uses in the economy
of life, whether civilized or savage, contributed to its
general acceptability among all classes and between
different communities.
Lead was used as money both by the Romans and
the early English, and is still received in Burmah, by
weight, in small payments.'
Tin served the Mexicans* as money, even after gold
and silver were known among them, and was in extensive

use for personal ornament and in the arts of decoration.
Itwas long and extensively used as money in Sweden,
and is still so employed among the Chinese, along the
shores of the Malay Peninsula, and in Prince of "Wales
Island.
But of the metals named, copper has the greatest im-
'
The money of Lacedsemon was of iron ; Sweden was reduced to
iron money during the wars of Charles XII; money of this metal ia
still used by the inhabitants of Senegambia.
°
Lead was .cheaper than iron, in England, down to the Grea'
Plague. — [Rogers, Hist. Agriculture and Prices, i, 599.]

^
E. Seyd, Bullion and the Foreign Exchanges, p. 368.
'
Prescott, Conquest of Mexico, ii, 140.
4
;
38 MONEY.
portance in the history of money. From its higher cosi

of production, it very generally superseded iron, as the
latter came, in the progress of the mining art, to possess
a value for its bulk unsuited to the office of exchange

while silver was yet too rare and precious for the iiso
of the humbler classes. During the silver famine of the
Jliddle Ages copper again returned to be the principal
and most valuable money in common circulation, silver
and gold being found only in the cabinets of nobles and

the caskets of bankers. The employment of copper as
an actual money has continued down even to our day,
though we have seen it reduced to the less honorable
office of small change, and even, within the last few years,
degraded to a mere ingredient of coin-metal, as in
France, or dispensed with entirely in favor of the cleaner

nickel, as in the United States.
• SILVER AND GOLD.
Two metals, however, gold and silver, have enjoyed a

pre-eminence in the history of Money, which has earned
forthem the proud title, the Precious Metals.
Not that they are the most costly of all several' ;
metals surpass both of them in this respect but this is ;
true only of metals found in extremely limited quantities.

Of the two, silver first came to be used as money.
We hear of it in the early history of the Hebrew race.
We find it coined among the Greeks and Romans while,
for long ages, gold remained m'erely treasure, devoted
almost exclusively to regal or sacerdotal uses.
" Silver," says Mr. Seyd,^ "ranks next after gold, in the
'
Eight, I believe. Vanadium I have seen quoted at more than
eight times its weight in gold.
" Bullion and the Foreign Exchanges, pp. 111-5. Mr. Seyd gives
an interesting description of the properties of silver.
THE METALS A S MONEY. 39
class of noble metals, though platimim and its kindred

metals are less liable to alteration, and less subject to
the influence of chemical agents. But silver, on the
other hand, possesses many most valuable properties
which the metals of the platinum group lack altogether."
The extreme beauty of silver, and its numerous uses
in the economy of life make it an object of admiration
and desire among people in all degrees of social ad-
vancement. The brightest of all metals, its surpassing
brilliancy almost justifies the preference expressed by
the barefoot boy of Sir "Walter Scott, " Give me the
white money, please." Practically imperishable (since
the sulphide which forms over silver in impure air, veil-
ing its beauty, protects it from further action of the at-
mosphere), a high degree of steadiness in value is se-
cured by the large volume of existing metal in compari-

son with the results of current production. Easily
would have
fusible, highly ductile, silver filled our ut-
most conception of a money-material had not the earth
yielded one transcendent metallic product, in compari-
son with which even silver fades from desire.
In Oriental worship, the temple of the Moon is inlaid
with Silver ; the temple of the Sun is resplendent with
Gold.
The advantages which this royal metal possesses for
use as money have been so often illustrated, and have
been so far intimated in what has been shown of the
defects of other commodities and even of the other
metals, that it will not be necessary to dwell upon them
here at length.
The practical indestructibility of gold —for it can only
be attacked by agents which have to be specially pre-
—
pared for the purpose at once gives assurance to him
who receives it that he can suffer no loss from natu val
40 MONL 7.
causes through taking it, and imparts to it, when used

as money, the highest attainable steadiness in value.
" Tlie price of all metals," says Adam Smith, " though
liable to slow and gradual variations, varies less from

year to year than that of almost any other part of the
rude produce of land; and the price of the precious
metals is even less liable to sudden variations than that
of the coarse ones.
" The durableness of metals is the foundation of this
extraordinary steadiness of price.^ The corn which was
brought to market last year will be all or almost all
consumed long before the end of this year. But some

part of the iron which was brought from the mine two
or three hundred years ago may be still in use, and
perhaps some part of the gold which was brought from
it two or three thousand years ago. The different
masses of corn which in different years must supply the

consumption of the world will always be nearly in pro-
portion to the respective produce of those different years.
" But the proportion between the different masses of
iron which may be in use in two different years will be
very httle affected by any accidental difference in the
produce of the iron mines of those two years ; and the
proportion between the masses of gold will be still less
affected by any such difference in the produce of the
gold miaes. Though the product of a greater part of
metallic mjnes therefore varies perhaps still more from
year to year than that of the greater part of corn-fields,
ihose variations have not the same effect upon the price
' " Tandis que dcs moissons plus c u moins abondantes font rapide.
iiient osciller le prix du ble, parce qie la portion conservee n'atteint
pas le ohiffre d'une seule rSoolte, las alluvions d'or et d'argent n'ex-
priment qu' une fraction minime des existences ne m^taux pr^cieux.''
—[Wolowski, L'Or et 1' Argent, 11.]
THE METALS AS MONEY. 41
of tlie one species of commodities as upon that of the

other."— [Wealth of Nations, i, 221.]
The fusibility, ductility and malleability of gold form
a group of properties of the highest importance, as we
shall have occasion farther to note when we come to
speak of coinage, while they add vastly to its uses in
the arts industrial and decorative. One cubic inch oi
gold, Mr. Seyd tells us, may be drawn out to cover four-
teen millions of square inches. Gold may be refined
and alloyed, united and divided, with absolutely no loss
of the pure metal' in the repeated process. Practically
a slight loss is experienced in a corresponding treatment
of silver.^ Silver, on the other hand, has a certain ad-
vantage over gold in respect to tenacity.
" The compendious value of gold," to use Mr. Jacob's
phrase, allows a vast amount of purchasing power to be
concentrated, for conveyance or for concealment, in
small bulk. In his memoir upon the Production of Gold
and Silver, Humboldt states that at then existing prices,
one kilogram of gold would purchase 1611 kilograms of
copper,. 9700 of iron, 20,794 of wheat, 27,655 of rye or
31,717 of barley.
But while gold is thus precious, it is found in sufficient
quantity to allow of its convenient use as an every-day
medium of exchange in aU highly advanced industrial
communities. Were gold as costly as vanadium, the
piece in which a workman received his day's wages might,
' " Si, par rapport a la socidte, la monnaie peut 3. bon droit etre
assimilee aux machines, cette machine-lS, se distingue de toutes les
autres, en ce que les matilrcii dont elle est faite sent tres preoieusos
et possedent, S. tres-peu pr^s, la meme valeur que la machine toute

confectionnee. Le bois, la fonte, le fer, le ouivre, qui entrent dans
vous brisez celuici, per-
la composition d'un meoanisme quelconque,
si
dent beaucoup de ce qu'ils valaient ajustes ensemble. "--[Chevalier
La Monnaie, p. 591.]
• Jacob, Inquiry into the Precious Metals, p. 166.
42 MONEY.
as Mr. McAdam says, be carried off and lost througli an

inadvertent sneeze, and would habitually require to be
handled with delicate pincers. "While it is true that the
value of any commodity varies with the quantity in
which it is and that, were there less gold,
supplied ;
eacli i)ortionwould bear a higher purchasing power, and

thus, theoretically, all the commodities of the world's
commerce might be exchanged through the agency of
the gold which is found in a half-eagle ;
yet, practically,
it is of consequence that the metal or metals employed,

while possessing great value for a given bulk and weight,
should be found in quantity to afford pieces of such
purity as to remain clean and bright, and of such size as
to be conveniently handled and carried about, in num-
ber suiScient to achieve the highest convenience of ex-
change, according to the spending-habits of the com-
munity, habits which will vary much with the social
condition of the people, the ratios obtaining in the dis-
tribution of wealth among the several classes, the facih-
ties of intercourse, the characteristics of the local in-
dustry (as when a community produces mainly that

which itself wishes to consume, or the reverse), etc., etc.
It is evident that in every varying condition of society

and industry there must be, between the body of poten-
tial —
purchasers those, that is, who have occasion and
themeans to buy goods offered in the markets and the —
body of coins or money-pieces of a given size, a numer-
ical proportion which best answers the requirements of
the community ; and that, as this proportion is departed
from, either in the way of excess or of deficiency in the
number of coins or money-pieces, through usiug a ma-
terial too cheap or too costly, the convenience of ex-
change will be impaired, very slightly indeed at first,
and perhaps for a long time not appreciably, but to the

cerfcaiu annoyance and obstruction of trade and industry
THE METALS AS MONEY. 43
sliOTild this course of things proceed to extremity in

either direction. The iron of the Lacedaemonians wouhl
be an impossible money to-day. Copper, an ounce of
which, speaking roughly, is worth a pound of iron, hap
become too bulky to serve as the sole, or the most vahi
able, money of highly civiUzed countries, and is hence
remitted to those less advanced, or is confined to use as
the smallest of change. And within the present decade
several nations have resorted for the first time, upon an
extensive scale, to the coinage of gold, on the plea that
silver has become too cheap a material for the common
coin of commerce.
We have seen that the precious metals derive a remark-
able degree of steadiness in value through their high de-
gree of durabihty, from which it results that great changes
in theamount of current production have only a sUght
effectupon the total volume in the possession of man-
kind. We have now to note in closing, that money of
gold and silver receives an additional support in maia-
taining its value uniform, through the rapid extension of
demand for the use of these metals in the arts,' which is
the sure concomitant of an increase of supply threaten-

ing to reduce their power in exchange.
'
Looking to this demand for gold and silver from the arts, indus-
trial or decorative, Prof. N. W. Senior, in his lectures on " The Cost

Money," declares that " the value of the precious metals.
of Obtaining
as money, must depend ultimately on their value as materials ol
jewelry and plate, since, if they were not used as commodities thoy
could not circulate as money." [In the Edinburgh Review of July,
" The primary cause
1843, Prof. Senior wrote : of the utihty of gold
is of course, its use as the material of plate ; the secondary cause is
its use as money."] Prof. Senior appears here to be in error. The

value of money (with a given supply) is governed by the aggregate
demand for it from all sources, both for use in the arts ard for ser-
vice as money.
CHAPTEE in.
THE TEKBITORIAL DISTKIBUTION 01 MONET.
We have noted the material properties which have

given to gold and silver their special fitness for use as
money. In part, these properties may be said to con-
tribute to that universal acceptability which is the prime
condition of a medium of exchange. In part, they may
be regarded as affording advantages, especially in the
way of coinage, which are independent of and additional
to that acceptability, since we know that the passion for
gold and silver appeared, to curse or to bless mankind,
before the art of coinage was known. But while the uni-
versal acceptability of these metals has fitted them to
perform their great service to trade, and through trade to
production, a false apprehension of the advantages of
their possession has led peoples, philosophers and states-
men into errors of the gravest practical consequences.
The so-called Mercantile Theory, which, nearly down
to the present century, exercised undisputed sway over
the councils of every commercial state, the influence of
which survives in some measure to our day, defying the
power of reason, is a growth out of this root.
"Midas," says Mr. McLeod, "was the parent of the
Mercantile System: and for centuries every government
in Europe was imbued with his ideas. . . , .
THE MER CANTILE TUEOR Y. 45
"Midas saw that, with treasure in his hand, he was

wealthy, —he could obtain whatever he wanted, and could
command the services of others. He quite forgot that
gold was only of use while it could command something else,
and that if that something else were changed to gold, h is
fjold would be of no use whatever. Gold, therefoie, was
only of use because of the multitude of things which wero
not gold. The very same ideas gradually grew up in
Europe. Sovereigns saw that their chief power consisted
in the treasures they could accumulate. It then became
a cardinal point of their policy to encourage the importa-
tion of money as much as possible and to prohibit its
export.' From about the beginning of the 14th Century
the laws of nearly every country in Europe endeavored
to prevent the export of money. Statesmen and mer-
chants were all infected with this delusion, which was
greatly fosteredby the discovery of the New World.
The Spaniards, dazzled with the brilliant prospect of se-
curing the greatest part of the wealth in the world, with-
out labor, imagined that the well-being of the country con-
sisted in amassing enormous heaps of gold and silver.
But they wholly mistook the means for the end, not dis-
cerning that the precious metals are only precious so
'
The usual method taken by kings and parhaments to increase tho
stock of money within their respective countries was to prohibit the
export of gold and silver, the penalty not infrequently being death ;
but, ill, addition to this, acts of the legislature, in both England and
Scotland, decreed that merchants, foreigners as well as natives, should
import a certain quantity of coin or bullion in every shin, in propor-
tion to the value of the other goods, and should expend 6. that coin
and bullion, with all the money received for their imports, m purchas-
ing the commodities of the country. These laws were, however,
soon repealed. By a treaty with Sweden cited by Hume, the Swedes
were permitted to export English commodities free of duty, provided
the price wa.<5 paid in bullion.
46 MONEY.
loug as they are used for setting industiy in motion,

wMle they encourage the tilling of the land —the mother
of increase —or the building of ships to promote the com-
merce of nations, or plying the loom to produce clothing
for manMnd."^[Economical Philosophy, i, 50.]
Upon the consequences of this delusion, to Spain first
and most and to the other countries of Europe,

heavily,
in restraints laidupon trade and in wars waged for a
commercial supremacy which should enable the victor
to control the movement of the precious metals, which
had come to be regarded as the true and sole wealth, it
is not necessary to dwell.

To Adam Smith the world owed its deUverance out of
the power of this monstrous delusion, which had for cent-
uries been more potent for evil, perhaps, than any other
which has afflicted mankind. Dr. Smith's refutation of
the Mercantile Theory will ever remain the great monu-
ment of his fame, for what a century ago was the stand-
ing policy of all the statesmen of Europe, has now
scarcely an apologist or defender.'
Nothing has been added to Adam Smith's great argu-
ment. It has required no expansion, no corroboration,
no further illustration, no adaptation, even, to popular
comprehension. At once and forever, the Mercantile
Theory fell out of the intellectual sympathy of mankind.
Yet, unfortunately, it has not wholly lost its hold upon
the imagination and the sensibilities of the masses, and
' " Even countries retaining a higlily protective or restrictive sys-

tom," says Chevalier, "now allow tie exportation of money." Of
Russia, however, Mr. Seyd says :
" The exportation of silver has for
a long time been prohibited ; that of gold is periodically allowed, but
just now [18G8] it is prohibited." — [Bullion and the Foreign Ex-

changes, 332.]
:
THE MERCANTILE THEORY. 47

even of tlie refined and educated. "There are few,"
says Prof. Cairnes,' "even among professed
economists,
who are free from the influence of the Mercantile Theory
of Wealth."
So deeply rooted is this instinct respecting gold and
silver, that Prof. Price is drawn to use this vigorous lan-
guage respecting it : "The greatest of commercial delu-
sions is the wonderful apostasy about gold. I call it
apostasy because the light was made to shine, and men

wiUfully shut their eyes against it. Adam Smith exposed
in undying words the emptiness and the absurdity of that
inveterate fallacy, of the trading world which has been
called the Mercantile Theory. Many writers of great
ability followed him
same path, and this famous
in the
theory became almost a by-word for ridicule. Men for a
time were shamed out of such a preposterous illusion
but for a time only. Truth in this region proved itself to
be no match for error ; the tendency to backslide into the

old thoughts, into the old habit of looking only at what
was visible and on the surface, was irresistible. Money
buys goods with money debts are paid money opens
; ;
shops and warehouses loans and advances are counted

;
in money : therefore, money is the true riches ; money is
the one thing of which there never can be too much;

money is the soul and essence of all trade ; money is the
wealth of nations." "I confess," continues Prof. Price,
" that I never address myself to the examination of such
language without some feehng of humiliation to have to :
repeat Adam Smith's refutation of the Mercantile The-

ory to the whole trading Avorld, in an age remarkable for
intellectual activity, is a spectacle far from gratifying to
the believers in the power of truth and genius. How
'
Essays in Pol. Boon., p. 98°.
:
48 MONEY
can one hope for tlie yictory of truth, when an exploded
delusion can re-appear in such force, and assert its mas-
tery over a whole community ? What confidence can bo
placed in the success of new arguments when reasoning
of the most powerful order has served only to flash a
be followed after by darkness
brief outbreak of light, to
more universal, more deeply settled down, than ever?"
The image with which this quotation closes is mani-
festly too strong justly to represent the phase of the
public mind which Prof. Price deprecates. Far from the
darkness having become more universal, more deeply
settled down after the lightning flash, the influenpe of
the Mercantile Theory was never so slight as now. That
any of its effects survive such universal admission of its
falsity, only affords another instance of the tenacity of

popular prejudice and superstition.
The complaints which Profs. Cairnes and Price make

respecting the persistence in popular feeling of the re-
futed notion that money is a means and not an end; that
something more or other than a tool for a specific
it is
and highly technical purpose, brings us squarely up

against the question
HOW MUCH MONEY DOES AN INDUSTEIAL COMMUNITY EEQUIEE?
I say industrial, instead of commercial, because I de-

sire strongly to insist on the distinction with which I
started out, that the function of trade is to allo-s the di-
vision of labor to be carried out to its economical maxi-
mum and that money confers a benefit, not because it
;
facilitates trade, as if that were an end in itself, but be-
cause, by facilitating exchanges, it allows the division of

THE DISTRIBUTION OF MONEY. 49
labor in production to be carried as far as industrial rea-

sons exist forits extension.
How mucli monej', then, does an industrial community

require?
To be in a position to answer this question, we must
ascertain the law of the distribution of the precious met-
als.
Perhaps no doctrine is more truly entitled to be called

Eicardian than that which is generally accepted on this
subject, with or without qualification, by the whole body
of economists. Not that Mr. Eicardo first conceived the
doctrine, or first taught it ; but it may well be called his,
on account of the breadth of statement and power of ex-
pression with which he advanced it, in the memorable
pamphlet " On the High Price of BuUion," (1809), which
preceded, and in a certain sense brought on, the great
Bullion Controversy.
"The precious metals employed for circulating the
commodities of the world, previously to the establish-
ment of banks, have been supposed by the most approved
writers on political economy to have been divided iuto
certain proportions among the different civilized nations
of the earth, according to the state of their commerce
and wealth, and, therefore, according to the number and
frequency of the payments which they had to perform.
When so divided, they preserved everywhere the same
value, and as each country had an equal necessity for the
quantity actually in use, there could be no temptation
offered to either for their importation or exportation.
" If the quantity of gold and silver in the world cm-
ployed as money were exceedingly small, or abundantly
great,it would not in the least affect the proportions in
which they would be dividf;d among the different nations

-—the variation in their quantity would have produced nc
5
50 MONEY.
other effect than to make the commodities for which

they were exchanged comparatively dear or cheap. The
smaller quantity of money would perform the functions
of a circulating medium as well as the larger."
If, in the progress towards wealth, one nation advanced

more rapidly than the others, that nation would require
and obtain a greater proportion of the money of the
world. Its commerce, its commodities, and its payments
would increase, and the general currency of the world
would be divided according to the new proportions. All
countries, therefore, would contribute their share to this
effectual demand.
" In the same manner, if any nation wasted part of its
wealth, or lost part of its trade, it could not retain the

same quantity of circulating medium which it before pos-
sessed. A part
would be exported, and divided among
the other nations till the usual proportions were re-estab-
Ushed."
" If a mine of gold were discovered in either of these
countries, the currency of that country would be lowered
in value in consequence of the increased quantity of the
precious metals brought into circulation, and would there-
fore no longer be of the same value as that of other
countries. Gold and silver, whether in coin or in bullion,
obeying the law which regulates all other commodities,
would immediately become articles of exportation they ;
would leave the country where they were cheap, for those
countries where they were dear, and would continue to
do so as long as the mine should prove productive, and
till the proportion existing between capital and money
in each country before the discovery of the mine were
again estabhshed, and gold and silver restored every-
where.to one value,"
THE DISTRIBUTION OF MONEY. 51
"Thus, then, it appears that the currency of one coun-
try can never, for any length of time, be much more val-
uable, as far as equal quantities of the precious metals
are concerned, than that of another that excess of cur- ;
rency is but a relative term."

From no logical consequence of liis doctrine did Mr.
Ricardo shrink.
"The exportation of the specie," he says, in the same
pamphlet, " may at all times be safely left to the discre-
tion of individuals. It will not be exported more than
any other commodity, unless its exportation should be
advantageous to the country. If it be advantageous to
export it, no laws can efifectually prevent its exportation."
"The exportation of coin," he says again, "is caused
by its cheapness." "We should not import more goods
than we export, unless we had a redundancy of currency."
Again " Specie
: will be sent abroad to discharge a debt
only when it is superabundant only when it is; the cheap-
est exportable commodity." "
Honey can never be ex-
pwted to excess ;
"
— never to such an extent " as to occasion
a void in the circulation."
Not only did Mr. Bicardo insist that the exportation
of specie might safely be left to the natural course of

trade, in the assurance that it could never be carried to
excess, never to such an extent as to produce a void ir
the circulation; and that all outflow of specie certainlj

indicated an excess of money, the reduction of which
was wholesome to trade, and through trade, to produc-
tion; but he daunted many of his followers by advanc-
ing boldly to the extreme case of a large subsidy to be
jiaid suddenly abroad, in time of war, when foreign porta
were closed anil commerce in a large degree suspended,
and declared, without hesitation or qualification, that
such a subsidy to a foreign country would not be paid
.
62 MONEY.
in specie unless the circulating medium at home were re-
dundant.
This doctrine was attacked by Mr. Malthus in the " Ed-
inburgh Keview" (Feb., 1811), with arguments of which
the following extracts contain the gist. Mr. Malthus
supposes the necessity arising for importing corn largely,
or for paying a subsidy abroad, and proceeds as follows
" A part be paid in these metals [gold
of the debt will
and silver], and a part by the increased exports of com-
modities. But, as far as it is paid by the transmission
of bullion, this transmission does not merely originate
in redundancy of currency. It is not occasioned by its
cheapness. It' is not, as Mr. Kicardo endeavors to per-

suade us, the cause of an unfavorable balance, instead
of the effect. It is not merely a salutary remedy for a
redundant currency ; but it is owing precisely to the
cause mentioned by Mr. Thornton, —the unwillingness
of the creditor nation to receive a great additional quan-
tity of goods not wanted for immediate consumption,
without being bribed to it by excessive cheapness ; and
its willingness to receive bullion —the currency of the
commercial world —without any such bribe.
" It is unquestionably true as stated by Mr. Eicardo,
that no nation will pay a debt in the precious metals if
it can do it cheaper by commodities

but the prices of ;
commodities are liable to great depressions from a glut

in the market ; whereas, the precious metals, on account
of their having been constituted by the universal consent
of society the general medium of exchange and instrument
of commerce, wiU pay a debt of the largest amount at
its nominal estimation, according to the quantity of bull-
ion contained in the respective currencies of the coun-
tries in question."
I have said that in carrying his doctrine out without

;
THE DISTRIBUTION OF MONEY.

53
qualification to the case of a foreign subsidy
in case of
war, Mr. Eicardo daunted some who held
with him up
to that point. Mr. Henry Thornton,
subsequently one
of the authors of the BulHon Eeport\ ia
his important
^vork on "Paper Credit," published in
1802, had admitted
that in case of a disastrous failure of successive
harvests,
an exportation of money might take place, without refer-
ence to the state of the domestic circulation, and to the
detriment of trade. The following are his words :
"Though the value of the commercial exports and

imports of a country will have this general tendency to
proportion themselves to each other, there will not fail
occasionally to arise a very great inequality between
them. A good or a bad harvest in particular will have
a considerable influence in producing this temporary
difference. The extra quantity of corn and other articles
imported into Great Britain in this and the last year,
with a view to supply the deficiency of our own crops,
must have amounted in value to so many miUions, that
it may justly excite surprise that we should have been
able, during an expensive war, to provide the means of
canceling our foreign debt so far even as we have done
especiallywhen the pecuhar interruptions to our com-
merce are also considered."
Mr. Thornton dwells for several pages on the causes
thus tending to produce an unfavorable balance, and
resumes :
" The fair statement of the case seems to be
this : At the time of a very unfavorable balance (pro-
duced, for example, through a failure of the harvest), a
country has occasion for large supphes of corn from
abroad ; but either it has not the means of supplying at
the instant a sufiicient quantity of goods as a return, or
"
See pp. 353-4.
5i MONEY.
whicii is much the more probable case, and which, I

suppose, is more applicable to England, the goods which
the country haying the unfavorable balance is able to
furnish as means of canceling its debt are not in such
demand abroad as to afford the prospect of a tempting
or even of a tolerable price and this want of a demand
;
may happen possibly through some pohtical circum-

stance which has produced, in a particular quarter, the
temporary interruption of an established branch of com-
merce. The country, therefore, which has the favorable
balance being, to a certain degree, eager for payment,
but not in immediate want of all that supply of goods
which would be necessary to pay the balance, prefers
gold as part, at least, of the payment, for gold can
always be turned to a more beneficial use than a very
great overplus of any other commodity."
Mr. Thomas Tooke, again, in his pamphlet on the
" State of the Currency," published after the.
Panic of
1825, discusses the practicabihty of meeting large and
unexpected balances of payments by the shipment of
goods, in which he adduces considerations to show that an
increased export of ordinary commodities cannot always
be made with the promptness which a sudden exigency
may demand, the disturbing causes being, in his view,
of considerable extent and duration.'
It is to be noted that since the date of these several
publications, the importance of the exceptional causes
contemplated by Messrs. Thornton, Bicardo, and Tooke
' Thus Mr. Tooke states that "taking the time occupied in the
shipment, the transmission, the interval between arrival and sale,
and again between the sals and the expiration of the credit, a period
of a year and a half, or two years, may elapse before the funds
arising from such shipments can be made available tofoieign pay-
ments."— [P. IOC]
TBE DISTRIBUTION OF MONEY. 55
liasbeen greatly diminished. The railway car and the

ocean steamship to convey freight, with the telegraph
by land and sea, to convey information of comniernial
demand and to carry back orders for goods, have much
reduced the scope of the retarding forces, while the
almost universal reduction in the term of commercial
credit has rendered the proceeds of exportation avail-
able at a much ea,rlier date.
A second cause which has operated within the same

interval to take away much of the importance which the
participants in this high debate, in the early part of the
century, attached to any sudden and extensive disturb-
ance of trade or demand for foreign expenditure, is the
remarkable extension, coincidently with the reduction in
the term of commercial credit, of the national borrowing-
system, under which any organized government, however
poor its credit, can borrow, at a price ; while govern-
ments of resource and reputation are enabled to con-
tract loans to an almost unlimited extent upon favorable
terms.
Such is the law of distribution of the precious metals

as expounded and enforced by Mr. Eicardo. In his view,
gold and silver keep their due proportions, the world over,
as the waters of a lake preserve their level. If any force
operates to disturb that level, every particle in the whole
mass moves instantly to restore the equilibrium. , So long
as the movement of the precious metals is not restrained
by force of law (and Mr. Eicardo holds the force of law
in this respect to be very slight'), no country can retain
'
"It is by all writers indiscriminately allowed that no penalties can
prevent the coin from being melted when its value as bullion becomes
Buperior to its value as coin." — [High Price of Bullion.]
Mr. Mill, however, is drawn to remark: "The pffpnt of tbf prohi-
56 MONET.
an excess, or suffer a deficiency, above or below its own

just share.
That a country has no mineral wealth of its own puts
it at no disadvantage for the securing of its proper
part of the world's supply of money. "For gold," said
John Locke, in his glorious paper on " The Yalue of Mon-
ey," addressed to the Lord-Keeper Somers, "For gold
grows not that I know in our country, and silver so little
that one-hundred-thousandth part of the silver we have
now England was not drawn out of any mines in this
in
island." " The power of manufacturing at a cheap rate,"
wrote Henry Thornton, " is far more valuable than any

stock of bullion." And Prof. Senior, in his lectures
(1830) on "The Cost of Obtaining Money," writes:
"The mine worked by England is the general market
of the world. The miners are those who produce those
commodities by the export of which the precious metals
are obtained."
It will be observed that Mr. Eicardo makes Price the
agent in effecting this movement of gold and silver. It
is because the purchasing power of money falls when it
is supplied in excess, that the excess tends to run away.
bition' cannot, however, have been so entirely msignificant as it has

been supposed to be by writers on the subject. The facts adduced
by Mr. PuUarton sliow that it required a greater percentage of dif-
ference in value between coin and bullion than has commonly been
imagined, to bring the coin to the melting-pot." — Economy,
[Political
III, ix, 1.]

" The conscience of the exporter, and the value of a false oath/
says Mr. Bosanquet, " are correctly stated by the committee at four
and one half per cent." — [Practical Observations, etc., p. 30.] The
market price of consciences would seem to have fallen in the course
of a century, for "A. V.," in his letter (o Lord Godolphin, in 1696,

speaks of tviênty per cent, as " a good alloy for any scruple of con-
science " in the melting of the coin.
RELATION OF MONEY TO PRICES. 57
It is because the purchasing power of money rises where

its quantity is deficient, that gold and silver set in Kke a
tide ^ towards whatever country lacks its due distributive
share of the volume in existence. And in the case of a new
supply, as from an opened mine, the added amount,
wherever produced, is swiftly and surely apportioned
among all the nations having commercial relations, just
as a bucket of water poured tipon the centre of a lake
will not long disturb the general level.
Whether Mr. Ricardo does not attribute an undue de-
gree of mobility to the precious metals, under the agency
of price ; whether the retarding influences have not more
power than this great thinker attributes to them ; wheth-
er, during the delays attending the redistribution of the
precious any important disturbing
metals following
cause, effects may not be produced which we cannot af-
ford to overlook in our philosophy of money, are ques-
tions we shall yet have to discuss.^ The general truth of
the doctrine is not to be disputed, nor can its importance
be disparaged. It sets justly forth the tendency of great
forces which never cease to operate, whatever obstruc-

tion they may encounter, throughout the world of com-
merce.
" The amount of money in a country " is, therefore, in
Mr. Eicardo's words, " regulated by its value." — [Reply

to Bosanquet.J And, conversely, the value of money in
any country is determined by the amount existing.
Wo
now in a position to undertake the inquiry
are
how much money a country requires ? It is that amount
'
Mr. Tooke's favorite illustration, frequently repeated in his works
« See p. 150.
5*
58 MONEY.
wHch will keep its prices (after allowance is made for
the cost of transporting goods ') at a level with those of

the countries with which it has commercial relations.^
Thus, if it costs $2 (including charges for freight, insur-
ance, interest, commissions, etc.,) to carry a barrel of
flour from New York to London, and flour of a given
quahty seUs in London at $12, ther3 should be money
enough in New York to allow and to enable $10 to buy a
barrel of flour of that quahty.
But what determines whether $10, or more or less,
shallbuy a barrel of flour in New York ? Why will not
$8 buy it ? Why wHl less than $12 do it ?
This brings us to the question, what is the relation
between the amount of money in a country and the gen-
eral scale of prices existing therein ? a question which,
if not the most difficult in Political Economy, is perhaps
the one upon which the most contradictory opinions
have been expressed by economists of reputation.
The following is Mr. John Stuart MiU's statement of
' II peut arriver que le prix de 1' argent difF^re d'une maniere durable
de pays S, pays, lorsque des obstacles permanents s'opposent au
mouvement de va-et-vient, qui retablirait le niveau. Ainsi les m(5-
taux preoieux se maintiendront §, un prix eleve dans les contrdes qui
ne peuvent se les procurer qu'en livrant en echange des biens d'un

transport tres-difficile." — [Kosoher (Wolowski's Tranl.), § 125.]
''
" Every country (temporary fluctuations excepted) will possess,
and have in circulation, just that quantity of money which will perform
all the exchanges required of it, consistently with maintaining a value
conformable to its cost of production. The prices of things will, in
thj average, be such that money will exchange for its own cost in all
othei goods ; and precisely because the quantity cannot be prevented

from aflecting the value, the quantity itself will be kept at the
amount consistent with that standard of prices — at the amount nec-
essary for performing, at those prices, all the business required of it."
—[J. S. Mill, Political Economy, III, ix, 3.]

the relation between money and commodities:^ "The

supply of money is the quantity of it which people are
wanting to lay out : that is, all the money they have in
their possession, except what they are hoarding, or at
least keeping by them as a reserve for future contingen-
cies. The supply of money, in short, is all the money
in circulation at the time.
"The demand money, again, consists of all the
for
goods offered for Every seller of goods is a buyer
sale.
of money, and the goods he brings with him constitute

his demand. The demand for money differs from the
demand for other things in this, that it is limited only
by the means The demand for other
of the purchaser.
things, is for so much and no more but there is always ;
a demand for as much money as can be got. ... As

the whole of the goods in the market compose the de-
mand for money, so the whole of the money constitutes
the demand for goods.'' . . .
[Mr. Mill then supposes an increase of money to take

place and prices thereupon to rise.J
"It is to be remarked that this ratio would be pre-
cisely that in which the quantity of money had been in-
creased. If the whole money in circulation was doubled,
prices would be doubled. If it was only inci'eased one-
fourth, prices would rise one-fourth.^ . . .
'
The following is the statement made by Montesquieu " Si Ton :
compare la masse de Tor et de I'argent qui est dans le monde ave: la

somme des marchandises qui y sont, il est certain que chaque denree
ou marchandise en partioulier pourra etro comparee f"l une certaine
portion de la masse entiere de I'or et de I'argent. Comme le total de
I'une est au total de I'autre, la partie de I'une sera & la partie de
I'autre." —[De I'Esprit des Lois, xxii, 7.]
' " That commodities would rise or fall in price, in proportion to
the increase or diminution of money, I assume as a fact which is
incontrovertible." — [Eioardo, Reply to Jlosanquet.]

60 MONEY.
" The very same effect would be produced on prices, if
we suppose the goods diminished instead of the money

increased; and the contrary effect, if the goods were
increased or the money diminished. . . .
" So that the value of money, other things being the

same, varies inversely as its quantity ; every increase of
quantity lowering the value, and every diminution rais-
ing it in a ratio exactly equivalent.
"From what precedes, it might for a moment be sup-

posed that all the goods on sale in a country at any one
time are exchanged for all the money existing and in cir-
culation at that same time ; or, in other words, that
there is always in circulation in a country a quantity of
money equal in value to the whole of the goods ther
and there on sale. But this would be a complete mis-
apprehension. . . .
" If
we assume the quantity of goods on sale, and the
number of times these goods are resold, to be fixed quan-
tities, the value of money will depend upon its quantity,
together with the average number of times that each

piece changes hands in the process.
" The propositions we have laid down . . . must

for the present be understood as applying only to a
state of things in which money, that is, gold or silver, is
the exclusive instrument of exchange and actually passes
" If the quantity of gold in a country whose currency consists of
gold should be increased in any given proportion, the quantity of

other articles and the demand for them remaining the same, the
value of any given commodity measured in the coin of that country
would be increased in the same proportion." —[Huskisson, The De-
preciation of the Currency.]
j
from hand to hand at eveiy purchase, credit in any of ita

shapes being unknown.* ....
" In no commodity is it the quantity in existence, but
the quantity offered for sale, that determines the value.
Whatever may bo the quantity of money in the country,
only that part of it will affect prices which goes into the
markets for commodities, and is there actively exchanged
against goods. . . . Money hoarded does not act on
prices. Money kept in reserve by individuals to meet
contingencies which do not occur, does not act on prices.
The money in the coffers of the bank, or retained as a
reserve by private bankers, does not act on prices until
drawn nor even then, unless drawn out to be expend-
out,
ed in commodities. /
"It frequently happens that money, to a considerable
amovint, is brought into the country, is there actively
em-
ployed and again
as capital, flows out, without having
ever once acted upon the markets of commodities,^ but
only upon the market of securities, or, as it is commonly
though improperly called, the money market."
' By overlooking this proviso, Prof. Price, in liis " Principles of Cur-
rency," was led to do grave injustice towards Mr. Mill, characterizing
his proposition that all the goods on sale constitute the demand for
money as " absolutely and glaringly untrue " [p. 162], and goes for-
ward to show how cotton is sold for iron and iron for cotton without
the intervention of money. No one, however, has more justly de-
scribed (in the appropriate place) the office of barter and of credit in
saving the use of money, than Mr. Mill ; and in the above series of
propositions he carefully guards himself against misconstruction by
the proviso which Prof. Price so strangely overlooked.
' Mr. Ricardo appears to doubt whether this can occur, at least
in an important degree. " There can," he says in his reply to Bosan-
quet, " be no great addition to the bullion of a country, the currency
of which is of standard value, without causing an increase in tfc
quantity of money.' We.shall meet the question further on,
6
;
G-2 MONEY.
"This is a case," continues Mr. Mill, "highly deserv-

ing of attention, and it is a fact now beginning to be rec-
ognized that the passage of the precious metals from coun-
try to country is determined much more than was for-
merly supposed^ by the state of the loan market in
different countries and much less by the state of prices."

In the above paragraphs Mr. MiU shows very clearly
the fallacy of the popular notions which have crept into
many a treatise not without merit, that the volume of
money is in some way to be compared with the volume
of accumulated wealth, or with the volume of annual
production, or with the numbers of the population. The
use of money, we have seen, arises out of trade. Hence
it isthe amount of trade, and not of production, that
must determine price, the volume of money being fixed.
But production and trade have no necessary or constant
relation to each other. A community may have large
production and little trade ; or it may have great trade
with relatively small production. If, as is conceivable,
the entire product were to beconsumed by the identical
producers, no exchange at all would take place and no
use of money whatever would be required.
But Mr. Mill's propositions require to be still further
qualified. Let us suppose we are making arrangements
for the transportation from Chicago to Baltimore of a
large part of the wheat of the Northwest. It is evident
that the number of cars of a given capacity wiU bear
some necessary ratio to the bulk of grain to be carried
but it is also evident that we cannot ascertain how many
cars will be needed to carry so much wheat till we
know how often the cars can, on the average, make the
trip.
' See Eicardo's statement of the law of the distribution of the

precious metals.
RELATION OF MONET TO PRICES. 63
So we must say of the supply of money it is a quan- :
tity of two dimensions. We need to know not only its

volume, the number of coins of a given weight and fine-
ness of metal, but also its rate of movement, or, as is
usually said, its rapidity of circulation.'
"What have we thus far obtained? We have seen that

the quantity of money required in any community bears
no constant ratio to population, and that it is not deter-
mined by the amount of accumulated wealth, nor by the
extent of the annual production;'* but that, as the need
of money arises wholly out of the fact of trade, we must
look to the demands of trade to ascertain the quantity of
money which a community shall employ, the question as
to the demand for money being merely the question what
goods are offered for money.
We have further seen that the supply of money is a
quantity of two dimensions, the volume of the precious
metals circulating —the number of pieces of a given
weight and fineness —and the rate of their movement.
"Engineers," says Mr. McLeod, "usually call the quan-
tity of the motion of an engine its duty; so we may call
the circulation of the currency its duty."^
'
Mr. Mill severely criticises this phrase, and makes the following
sufo-estion :
" Rapidity of circulation being a phrase so ill adapted to
express the only thing which any importance to express by it,

it is of
and having a tendency to confuse the subject by suggesting a mean,

ing extremely different from the one intended, it would be a good
thing if the phrase could be got rid of, and another substituted more
directly significant of the idea meant to be conveyed. Some such
expression as '
the efficiency of money,' though not unexceptionable,
would do better."
" For similar reasons, not by the amount of taxation : a favorite
view of some writers.

" Economical Philosophy, i. 211.
64 MONE T.
And tMs requires us to observe tliat, in tlie view of
those who hold that money acts as a Measure of Value,^
it performs this function in respect to a vast bulk of

commodities where it is not called on to become a me-
dium of exchange. It is its use as a medium of exchange
which determines its value; yet its value, so determined,
becomes the means of estimating values, without refer-
ence to actual exchanges.^ It costs nothing to measure
values, in this sense. It costs something to exchange
them. It requires the actual use of money, for a longer
or shorter space of time, to effect those double exchanges
which we call buying and selling but the prices result-
;
ing from such exchanges may be applied to far greater

bodies of wealth, without the use of money. For exam-
ple, a farmer sells a cow to be sent to the city for beef.
It is only in the actual sale that money is used : but he
takes the price —the money-value —thus determined, as
the means of estimating the value of his herd; and so
does the government in taxing him ; so also do his neigh-
bors in deciding how much of a man lie is. Our farmer
sells another cow, this time to a mechanical neighbor,
and takes his pay in work. No money passes, and hence
money serves here as a measure of value either for the
cow or the work, only, if at all, ia the way indicated,
namely, the farmer compares his cow with the one he
has just sold for money, and, knowing it to be as good a
cow, or better, or poorer, fixes her price, in denomina-
tions of money, for the purposes of the contemplated ex-
Seopp 4-9.
' " The cotton must be calculated and expressed in money, and sc
must the iron, before they can be exchanged Eor one another; in oth-
er words, they must be measured, and that is done by money : but
the actual money is not wanted at alL" — [Prof. Price, Principles of
Currency, p. 163.]
change, the same, or higher, or lower, to correspond with

the facts of the case, while the mechanic, having worked
the month before at money wages, and knowing his abil -
ity to render an equal service in the new relation, fixes
the price of his labor, in denominations of money, for the
purposes of the contemplated exchange, at the same
amount per day or per week.
It will be observed that every time a barter transac-
tion is substituted for buying and selling, the demand
for money is thereby diminished and its value thereby
lowered (the supply remaining the same), while the
higher prices of commodities which result from the sales
actually effected by the use of money, are carried over,
in estimation, to the commodities remaining unsold, or
to those whose transfer is accomplished by a direct ex-
change of goods for goods.
And conversely, just so far as sales for money ar?
substituted for barter transactions, the demand foi
money being thereby increased, the value of money
rises, and the lower prices which result are carried over,
in estimation, to the commodities directly exchanged, or -
remaining in store.
But it is not alone the continuance, in part, of the

barter system which reduces the demand for money.
The introduction of the Credit System has an effect in
the same We
saw that one great reason for
direction.
the use of money was found
in the want of coincidence
in exchange, both as to times and quantities. The
farmer harvests his crop within the space of a few weeks.
But that which he purchases he requires now and then,
week by week, throughout the year. In the discussion
of the need for money which was quoted' fi-om Profi
' See p. 2.
66 MONEY.
Jevons's work, was assumed that the farmer would

it
not part with his produce until he had the material-

equivalent therefor actually in hand and that the shop-
;
keeper would be equally lacking in confidence towards

the farmer. But if the farmer and the shop-keeper can
agree to trust each other, this failure of coincidence in
the times at which their respective needs are felt, will
involve merely a little book-keeping, and no use of
money. The farmer wiU take groceries, clothing, etc.,
as he requires them and at the end of the season will
;
haul down fifty bushels of wheat to the grocer, twenty

and the accounts are squared.
to the tailor, etc.,
The tailor and the boot-maker no longer are plunged
into that embarrassment in which we have contemplated
them, arising out of a want of coincidence between the
value of integral portions of their respective products.
The tailor is no longer obliged to say One coat is worth :
two pairs of boots you have brought me a pair of

;
boots good take half of this coat and wear it while I

: ;
wear your boots when I have worn them out I will

;
take another pair, and then I will let you have the other
half of the coat. The tailor credits the boot-maker with
one pair of boots, bought, charges him with one entire
coat, sold, and when the second pair of boots is brought
in, gives credit for that also, squaring the transaction.
The above illustration may represent all that large
body of exchange-transactions where the parties become
mutually indebted ; obligations very irregularly incurred
as to time and amount, canceling each other, leaving a
small balance, or perhaps none at all, to be paid in
money. It does not for our present purpose matter
whether such indebtedness is witnessed only in the
memory of the parties, or takes the form of current
book accounts, or is more formally evidenced and se-
RELATION OF MONET TO PRICES. 67
cured by notes of hand. Mr. McLeod states a (ase as

follows :
"Let us suppose that A. and B are reciprocally in-

debted to each other for the sale of goods. Let us
suppose that A has bought goods from B to the amount
of £10, and B has bought goods from A to the amount
of £13. Then it is quite clear there are three ways of
settUng their dealings : Krst, each may send a clerk to
the other to demand payment in full of his debt. This
would i-equire £23. Second, A may send £10 to B to
discharge his debt and B may send it back to A with £3
more to discharge his debt. This method would require
£13. Third, they may meet and set off their mutual
debts against each other and pay only the difference in
coin, requiring £3." —
[Economical Philosophy, i, 208.]
But the credit system has a still wider application in
economizing the use of money. The more minute the
subdivision of labor, the more comphcated become the
relations of exchange, and the larger the proportion of
obligations which are not mutual. The cotton manu-
facturer, perhaps, does not sell to a single person from
whom he buys. Must he, therefore, receive a material
equivalent every time he sells, and yield up a material
equivalent every time he buys? Here again we find
room for an expedient which vastly economizes the use
of money. In the advance of civihzation, the prom-
issory note is made transferable.^
Of the efficiency of this agency for dispensing with
the use of money, it is scarcely necessary to speak. I
give to my creditor my note for the value of what I have
received. Li the fullness of time it is offered to me, not
'
Some of our readers may not know thst this is a verj- modern
expediert. In England it was not introduced till the reign of Anna
68 MONET.
by my creditor witli a demand for payment, but by mj

debtor, who says, in effect, to me, here is your note
again; now give me back that I gave you. He has
bought my note from my original creditor, has put him-
self in the place of the creditor, and being thus at the
same time both debtor and creditor to me, as I am botJi
creditor and debtor to him, the transaction is complete.
As Mr. ColweU remarks, " no currency can be more
suited to pay a man with than that which he has issued
himself." —
[Ways and Means of Payment, p. 8.]
In this cancellation of indebtedness the banks perform
a most important service,^ saving a vast amount of time
and labor, of annoyance and disappointment.
'
In the first edition of this work, exception "Î'as taken to Prof.
Piice's definition of a bank, given in his "PrinciiJles of Currency "
(1869), viz. : as " an Institution for the Transfer of Debts."
I was not aware, when tiiat note was written, that in his
work on Currency and Banking (1876), Prof. Price had proposed
another and a wider definition of banking, -wliich is not only
beyond teclmical criticism, but wliich sets forth the function
which the banker performs in modern industrial society with all
the freedom and force which distinguish the writings of that
eminent economist.
"He it is," says Prof. Price, "who selects the men into whose
hands the wealth moved by his agency is to be committed. He
neitlier created the wealth which his depositors sold, nor does he
touch the other wealth which his borrowers purchase; but it
signifies immensely to what sort of borrowers he gives the means
of liuying, by empowering them to draw cheques upon his bank.
Cfn him mainly depends whether the men who acquire the wealth
of the nation will employ it wisely and preserve it by making use
of it as capital in processes which will reproduce its consumption,
or to men who will waste and destroy it in prodigal expenditure,
or in unskilful trade, or in reckless speculations in mines, or in
making railways in the wilds which cannot for a long period of
years reproduce to the country the food, clothing, and materials
which their construction consumed. This is the sole range of the
banker's action —his selection of the men to whom the country'g
wealth shall be entrusted — and it is a mighty one."
RELATION OF MONET TO PRICES. G9
In this Yiew, tlie bank is a third party who,

by putting
itself now and now in the creditor's
in the debtor's
place, that is, becoming debtor and creditor alternately,
at the request and on the warrant of the trading indi-
viduals concerned, effects that mutuahty of obligations
which is the condition of cancellation. It is in the bank
that the claim of the creditor and the obligation of the
debtor meet and are simultaneously discharged.
The Clearing-House, with its gigantic operations is, in
respect to the cancellation of indebtedness, only the
Banker's Bank, doing that for its constituent banks
which the banks do for the individuals of the trading

community. When it is said that the annual Cleariug-
House transactions of London now stand at or above
£6,000,000,000, while those of New York are even
greater, the importance of this contribution to the econ-
omy of money will be apparent.
While thus, through the operation of the Credit Sys-

money is largely reduced
tem, the occasion for the use of
in modern industrial society, and thus the demand for
money is diminished, the efficiency of a given body of
money is contiuually being heightened by improvements
in the art of banking, and thus the supply of money is
practically increased. For the present we leave out of
account the substitution of paper for coin as a circulat-
ing medium, and keep in view a purely metallic cur-
rency. Even in 1809, Mr. Ricardo noted "the daily
improvements which we are making in the art of econ-
omizing the use of the circulating medium," and Mr.
Norman, in his "Bemarks on Currency and Banking"
(1838), states that notwithstanding .the vast increaFe of
production, England probjibly possessed less coin than
6*
70 MONET.
she had fifty years before, while France had less iliac
before the Kevolution. Since that time, the telegraph

and the steam-car, with the extension of the banking
system, have still further increased the rate of move-
ment which money is able to attain in the purchase of
commodities and the payment of debts.
It has been shown that the Bank and the Clearing-
House, through their agency in securing the Cancel-
lation of Indebtedness, greatly diminish the amount of
money which requires to be used in effecting the exchanges
of a people. The Bank, through the Check System,
also gives a higher efficiency to any given amount of
money, by diminishing the necessary Reserves of the
trading community. It will appear that if each man is
to carry around in his pocket, or keep in his house or

shop, all the money which he apprehends he may need
to use before it will be possible or convenient to get a
new supply, the aggregate amount of such reserves will
necessarily be very large.
But, through the Deposit and
Check System, the aggregate reserves of the commercial
community may be greatly reduced. Instead of each
man keeping money by him, in anticipation of a call, for
weeks it may be, the banker is able, with 'a fifth or a
tenth part the ready money which his customers would,
in the aggregate have required, to serve each in his turn.
Only one man could have a given piece of money in his
pocket at a time but a dozen
; men may be checking upon
the same gold in the banker's vaults, with perfect safety.
The adoption of this system, therefore, diminishes the
amount of money which, in a given state of trade, will be
needed to make purchases and effect payments. "If,"
says Lord Overstone, "a state of things be supposed in
which no deposit business existed, and there is a certain
state of prices under that condition of things; if yon
ECONOMY OF MONEY. 71
then suppose the sudden introduction into the country of

the deposit system, to the extent to which it now exists
in this country, the effect of that great change will be a
greater economized use of the precious metals, and con-
sequently a new distribution of the precious metals
throughout the world."— [Tracts, p. 473.]
But economy in the use of money extends even
this
further down in industrial society. "Not only," wrote
Mr. Tooke, " are improvements daily taking place among
the bankers in their payments on the largest scale ; not
only is the practice of lodging money with a banker be-
coming more general, as including a large proportion of
the smallest classes of tradesmen but there is less deten-
;
tion in the very minutest channels of circulation, taasmuch

as, by the institution of savings banks, the most inconsid-
erable sums, which must, but for this mode of investment,
have been dormant as petty hoards in the hands of me-
chanics and menial servants, have beco]ne and are becom-
ing daily more available to swell the amount of currency
applicable to general purposes." — [History of Prices, i,
145.]
The causes which Mr. Tooke here indicates are con-
tinually operatiag to economize the use of money, though,
in spite of all these improvements, there is still inevit-
ably more or less, everywhere, of waste or loss. " Some
of it," says Locke, "leaving the channels of trade, will

unavoidably be drained into standing pools."
But while, as Chevalier has remarked,' "it is well to
give prominence to the fact of the nearly stationary char-
acter of the metallic currency in countries where the
commercial machinery is well organized," it is easy to
overstate the case. Thus Prof. Price, in his book on the
'
On Gold, Cobden's translation, p. 96.
72 MONEY.
" Principles of Currency," giyes an analysis of the sum ol
£19,000,000 paid into Sir John Lubbock's bank, from

which it appears that only £605,000, or about three pe r
cent., was paid
in coin or notes and Prof. Price there-
;
after argues' on the assumption that this fairly repre-

sents the proportion of payments made in England witli
ready money. There is, however, reason to doubt
whether Sir John Lubbock's bank affords accurate in-
dications of the character of the whole body of com-
mercial transactions throughout England, taking city and
country together; while it is notorious that no other
people approach the English in the economy of the pre-
cious metals, the check, for example, being thus far
almost exclusively an English and American institution.
Were Prof. Price to make an analysis of the payments
into many a German or French, or even Scotch, bank,
he would find the payments in coin and notes to be,
not three parts in a hundred only, but thirty or oven
sixty. So that must not be taken too
this able writer
seriously when he says tliat gold and silver and even
bank-notes are "only the small change of commerce" [p.
164] ; and again, when he says that "it is only for small
payments, for the small retail business of the country,
and what may be called 'change,' that gold is wanted

and used in England," there is danger that the mind of
the reader shall receive an erroneous impression of the
importance of this function. In a philosophical sense
retail business can hardly be called small. " The value,"
sa3's Adam Smith, "of the goods circulated between the
different dealers never can exceed the value of those eir-
sulated between the dealers and consumers, whatever is
' Cf, pp. G8, 75, 78, 83, 8G, 87, 88, IIG, 117, 173.
' ;
bought by the dealers being ultimately destined to be

sold to consumers."
From this long review we see that the amount of

money which any country should possess, or to put it
other-nise, will possess under the free operation of the

laws of distribution, depends not alone upon the amount
number and frequency of payments to be
of its trade, the
made, but also upon the habits of the people, commercial
and even domestic;^ upon the degree in which credit ex-
ists between man and man, and between city and city;
upon the efficiency of the laws for the collection of debts
upon the amount of traveling which takes place (for the
traveler, notwithstanding the letter-of-credit, uses more
money for a given expenditure than the stay-at-home)
upon, the state of the roads, upon the celerity and cer-
tainty of the postal and telegraph^ services, and the de-
gree in which express companies are permitted to im-
'pose upon the public; and upon the commercial and
banking organization which exists.
Hence, in respect to no community can we say, in ad-
'
Wealth of Nations, i, 323.
'^
I am surprised to find Prof. Tucker holding of the former slave-
holding States that, thougli on so many accounts they required little
money in proportion to their capital or their income, they yet had in
the institution of slavery an occasion for money which made a large

addition to their circulation. — [Money and Banks, p. 28.] I should
suppose that, notwitlistanding the demamls of the domestic slave-
trade, the fact that the masters made all the purchases and held all
(he money-reserves for their arti'5oiai families of 100, 200 or 500 souls,
would have made the occasio-. lor money less rather than greater, by
reasori of the institution of slavery.
'
On the influence of the telegraph in a panic, see the " Economist,'
1875, p. 609.
7
74 MONEY.
vance, -what amount of money it should possess in ordei

satisfactorily to exchanges, at prices corre-
perform its
sponding to those which rule in the communities with

which has commercial relations.
it
Nor is it necessary that it should be known. Such in-

(]uiries, for example, as those of Locke, who reaches the
conclusion that not less than "one-fiftieth part of the la-

borers' wages, one-fourth part of the land-holders' yearly
revenue, and one-twentieth part of the traders' yearly
returns, in ready money," can be enough to drive the
trade of a country, and of Sir Wm. Petty, who thought
the money needed in his time was one-half the rent of
land, one-fourth the rent of buildings, and one-fifty-sec-
ond part of the annual wages,^ such inquiries as these
are of merely curious interest.
If no interference with the natural distribution of the
precioiis metals is allowed, each country, each cqiinty,
and each town, throughout the trading wprld, wiU re-
ceive its due distributive share that amount of money :
which will best perform its exchanges, an amount which

could not be exceeded without raising prices unduly and
disturbing the relations of trade.
This clearly means that, in general, poor countries must
have httle money, and, of course, they will not relish
such a dispensation. It would be too much to expect of
human nature that the inhabitants of such countries
should not complain bitterly of the lack of money, and
resort to many devices to attract and retain it in defiance
' "lu the calculation of Mr. Jevons on the one hand, and various
siatisticians on the other, who have estimated the annual produce
of capital and labor in the United Kingdom, the proportion between
the circulation and the annual income of the country is 1 to 6 7 or
8."
— [Prof. Rogers's Notes to Adam Smith's "Wealth of Na'ions, i,
295.]
' : ;
of tlie law of distribution which has been pointed out,

not seeing that the real evil from which they suffer is
poverty of capital and paucity of production, duo to
soil, to climate, to vices of industrial character, or to
the newness of settlement; and that the true cure for tlie
be found in the extension and diversification of

evil is to
production which will bring trade, and, with it, money,

correspondingly.
Not only does the law which has been stated govern
the distribution of the precious metals, as between sep-
arate countries, but it applies with equal force, and even,
perhaps, against less of resistance, to the several sections
of the same country." Each will receive, each will retain,
that portion of the money of the whole country which
the necessities of its trade demand. It is in view of this
tendency of gold and silver to seek their best market,
that Sir Walter Scott, in his " Letters of Malaohi Mala-

growther, on the Currency of Scotland," compared Great
Britain to the Image in Belshazzar's Dream
" London, its head, might be of fine gold ; the fertile
provinces of England, like its breast and arms, might be
of silver ; the southern half of Scotland might acquire
some brass or copper, but the northern provinces would
be without worth or value, like the legs, which were
formed of iron and clay.
" What force is to compel gold to circulate to these
barren extremities of the island I cannot understand
and, when once forced there, I fear its natural tendency
to return to the source from which it issued will render
all eflbrts to detain it as difficult as tlie task of the meu
who attempted to hedge in the cuckoo.
—
CHAPTEE IV.
THE IMPOETAlfCE OF THE MONEY SUPPLY.
Such being the operation of the law of the distribu-
tion of the precious metals through- the agency of Price,

and such the relation of the Yolume of money to prevail-
ing prices, we have now to meet the much vexed ques-
tion, liow far it is of consequence that the volume of
money in the world should be maintained at its present

dimensions, or increased above them.
It is argued that the law of distribution as stated by
Mr. Eicardo, applies mth the same force, whatever
within reasonable limits' —the volume of the precious
metals. A reduction of quantity would result in a cor-
responding enhancement of the purchase-power of each

integral portion of the remainder ; while an increase would
'
In his "Cremation Plan of Resumption," Mr. Wells says: "A
three-cent piece, if it could be divided into a sufficient number of
pieces, widi each piece capable of being handled, would undoubtedly
f-'ilfice for doing all the business of the country, if no other instru-
aenlality was available.''
On the grounds of those vvho'hold th,e theory of an Ideal Money,

(see pp. 290-91] the stateir.ent may be accepted; but if Mr. Wells, as
I understand, holds with M. Chevalier, that money must be " a ma-

terial equivalent " for the things with which it is to be exchanged,
such an amount of silver as he indicates would be an impossible cur-
rency ff'V a country. Such a quantum of v.ilue, like the drop of
;
IMPORTANCE OF MONEY SUPPL T. 77
as surely result, other things remaining the same, in a

diminution of the purchase power of each ounce of silver,
each grain of gold.
Bastiat, in his airy way, thus treats the question :
" Ten persons were at play. For greater ease they had
adopted the plan of each person taking ten counters,
and placing against these a hundred francs under a can-
dlestick so that each counter corresponded to ten francs.
After the game, the winnings were adjusted and the play-
ers drew from the candlestick as many ten francs as
would represent the number of counters. Seeing this,
one of them —a great arithmetician, perhaps, but an in-
different reasoner, said, '
Gentlemen, experience invaria-
bly teaches me that, at the end my-
of the game, I find
self number of my counters.
a gainer in proportion to the
Have you not observed the same with regard to your-
selves ? Thus, what is true of me must be true of each of
you, or what is true of each must he true of all. We should,
therefore, all of us gain more at the end of the game if
we all had more counters. Now, nothing can be easier
we have only to distribute twice the number.' This was
done but when the game was finished and they came to
;
adjust the ivinnings, it was found that the thousand francs

under the candlestick had not been miraculously multi-
phed according to the general expectation. They had to
be divided accordingly, and the only result obtained (chi-
merical enough) was this: every one had, it is true, his
double number of counters, but every counter, instead of
corresponding to ten francs, only represented five.
water in a small tube, would fall within the law of capillary attraction,
where the tendency to adhere to the wall of the tube becomes strong-
er, tlirough the smallness of the matter on which it operates, than
the tendency, through the force of gravitation, to- seek the general
level below.
78 MONEY.
" Thus it was clearly shown, that what is true of each is
uot always true of all." — [Essays in Political Economy.]

What matters it, then, whether the amount of money
be increased or decreased ?
This question has been the subject of controversy
down to our day. The result with which we shall issue
from the inquiry be found of immediate application
will
to the Silver Problem, now agitating the political and
economical world.
Let Prof. Cairnes represent the views of those econ-
omists who deprecate the increase, or, at any rate, the
considerable increase, of the precious metals.
"I am aware, indeed, that there are writers' who re-
gard gold not simply as a convenient medium for the ex-
change of commodities independently produced, but as,
in itself, a source of productive energy, as the '

motive
power of all industry and commerce,' and who accord-
ingly consider an addition to the quantity of
'
money to be
the same thing as an addition to the fixed capital of a
country,' as equivalent in its affects upon industry to
'
Prof. Cairnes has especially in view Mr. William Newmaroh, tlie
distinguished coadjutor of Thomas Tooke in his " History of Prices,"

and himself the actual author of the later volumes of that invaluable
series.
That ingenious author, Sir Wm. Petty, in his tract entitled " Verb-
um Sap," thus writes :
" For money is but the fat of the body politic,
whereof too much doth as often hinder its activity, as too little makes
it-sick. 'Tis true that, as fat lubricates the motion of the muscles,
feeds in want of victuals, fills up uneven cavities and beautilies the
body, so doth money, in the state, quicken its action, feed Iiom
abroad in the time of dearth at home, even accounts by reason of its di-
visibility and beautify the whole, especially the particular personr

that have it in plenty.'' Hume's oft-quoted image has a sort of fam-
ily resemblance to that of Petty ;
" It is the oil wliich readers the
motion of the wheels more smooth and easy."
:
IMPORTANCE OF MONET SUPPLY. 79
'improved harbors, roads, and manufactories.' According

to such views, the influence of the gold discoveries must
be universally beneficial —beneficial not merely in rela-
tion to the countries which produce the cheap money,
but in a still more eminent degree in relation to those
which permanently retain it. But, in spite of the plau-
sibilities of the Mercantile Theory, common sense no
less than economic science will continue to ask how the
world is enriched by parting with its real wealth ? how
the well-being of Europe and Asia is promoted by part-
ing with the materials of well-being, receiving in return,
not materials of well-being, not augmented supplies of
wool and tallow, corn and provisions, not those com-
modities which new countries are specially fitted to pro-
duce, and of which old countries are pressingly in need,
but what ? increased supplies of the precious metals
a more cumbrous medium of exchange !
" And again he
asks: "Are the other nations of the world destined to
continue forever laboring in the service of the gold coun-
tries, for no other than the barren reward of an addition
to their circulation?"— [Essays on Pohtical Economy,
p. 45.]
Such is the objection of one of the ablest of recent

economists, one, moreover, who made a special study oi
the effects of the Calif ornian and Austrahan gold discov-
eries. What can be opposed to this view of the case ?
The following is the serious and weighty statement of
Mr. Hume, a favorite quotation among the advocates
of increased quantities of money :
'•
It is certain that, since the discovery of the mines in
America, industry has increased in all the nations of
Europe, except in the possessors of those mines and ;
this may be justly ascribed, amongst other reasons, to

the increase in gold and silver.
80 MONEY
"Accordingly we find that, in every kingdom into
which, money begins to flow in greater abundance than
formerly, everything takes a new face ; labor and indus-
try gain life ; the merchant becomes more enterprising,
the manufacturer more diligent and skillful, and even the
farmer follows his plow with greater alacrity and atten-
tion. This is not easily to be accounted for, if we con-
sider only the influence which a greater abundance of
coin has in the kingdom itself by heightening the price
of commodities and obliging every one to pay a greater
number of these little yellow or white pieces for every-
thing he purchases. And as to foreign trade, it appears
that great plenty of money is rather disadvantageous,
by raising the price of every kind of labor.
" To account, then, for this phenomena, we must con-
sider that, though the high price of commodities be a
necessary consequence of the increase of gold and silver,
yet it follows not immediately upon that increase ; but

some time is required before the money circulates
through the whole state and makes its effect to be felt
on aU ranks of people. At first no alteration is per-

ceived ; by degrees the price rises, first of one commod-
ity and then another, tiR the whole at last reaches a just
proportion with the new quantity of specie which is in
the kingdom.
" In my opinion it is only in this interval, or interme-
diate situation, between the acquisition of money and rise
of prices, that the increasing quantity of gold and silver
is favorable to industry. When any quantity of money
is imported into a nation it is not at first dispersed into
many hands, but is confined to the coffers of a few per-
sons, who immediately seek to employ it to advantage.
" It is easy to trace the money in its pr.ogress through

IMPORTANCE OF MONET SUPPLY. 81
the whole commonwealth, where we shall find that it
must first quicken the diligence of every individual be-

fore it increases the price of labor.'"
But the largest claim for the advantages of an in-
creased production of the precious metals* is that put
forward by Sir Archibald Alison :
"The two greatest events which have occurred in the

history of mankind have been directly brought about by
a successive contraction and expansion of the circulating
medium of society. The fall of the Roman Empire/ so
long ascribed, in ignorance, to slavery, heathenism, and
moral corruption, was in reality brought about by a de-
chne in the silver and gold mines of Spain and Greece.
And as if Providence had intended to
reveal in the clearest manner the influence of this
mighty agent on human affairs, the resurrection of man-
kind from the ruin which these causes had produced was
owing to the directly opposite set of agencies being put
in operation. Columbiis -led the way in the career of
renovation when he spread his sails across the Atlantic,
;
he bore mankind and its fortunes in his bark. ....

The annual supply of the precious metal for the use of
the globe was tripled before a century had expired, the
;
prices of every species of produce were quadrupled. The

weight of debt and taxes insensibly wore off under the
iufluence of that prodigious increase ; in the renovation
of industry, the relations of society were changed ; the
weight of feudalism cast off'; the rights of man estab-
lished. Among the many concurring causes which con-
spired to bring about this mighty consummation, the
' Contrast with this the striking fa it that the copious index to Meri-
vale's -ffoi-lj does not contain either of the titles, Coin, Currency, 02
Money.
7*
82 MONET.
most important, though hitherto the least observed, was.

the discoTery of Mexico and Peru.
"That Great Britain, and every state largely concerned

in industrial enterprises, has suffered grievous and long
continued distress since the peace [1815], is unhappily
too well known to all who have lived through that pe-
riod.
"
• •••••
The thoughtful in aU countries had their attention
forcibly arrested by this long succession of disasters, so
different from what had been anticipated during the smil-
ing days of universal peace, and many and various were
the theories put forward to account for such distressing
phenomena. The real explanation of them is to be found
in a cause of paramount importance and universal opera-
tion, though at the time unobserved —
and that was the
simultaneous contraction of the monetary circulation of
the globe, from the effects of the South American revo-
lution, and of the paper circulation of Great Britain. . . ,
"If the circulating medium of the globe had remained

stationary, or declining, as it was from 1815 to 1849 from
the effects of South American revolution and English
must have been that it
legislation, the necessary result
would have become altogether inadequate to the wants

of men and not only would industry have been every-
;
where cramped, but the price of produce would have

universally and constantly fallen. Money would every
—
day have become more valuable all other articles meas-
ured in money, less so debts and taxes would have been
;
constantly increasing in weight and oppression the fate :
which crushed Eome and has all but crushed

in ancient,
Great Britain in modern, times, would have been that of
the whole family of mankind.
IMPORTANCE OF MONEY SUPPL 7. 83
"All these evils have been entirely obviated, and the

opposite set of blessings introduced, by the opening of
the great reserve treasures of nature in California and
AustraUa. . . . Three years only have elapsed since
( was discovered by Anglo-Saxon enter-
ualifornian gold
prise, and the annual supply has already come to exceed
£25,000,000. Coupled with the mines of Australia and

the Ural mountains, it will soon exceed thirty, perhaps
reach forty milhons ! Before half a century has elapsed,
prices of every article of commerce will be tripled, enter-
prise proportionally encouraged, industry vivified, debts
and taxes lessened." — [History of Europe, 1851-52, ch.
i,§§ 33-40.]
I have given the text of Sir A. Alison's remarks,
though with some abridgment, because any paraphrase
of a claim so extensive would necessarily have been
deemed a caricature. In the view of this writer, the
decline of the Roman Empire was caused by the faihng
production of the mines of Spain and Thrace ; the long
life in dea'^h of the Middle Ages was due to the scarcity
of the circulating medium ; the revival of political and in-
dustrial activity in the 16th Century had its origin and
motive force, not in the invention of the printing press
and the mariner's compass, but in the discovery of Po-
tosi ; the rapid increase of pauperism and the decline in
the condition of the working classes after the Napoleonic
wars, was the result, primarily, not of the exhaustion of
Europe by that long and desperate struggle of the Old
against the New, not of vicious systems of taxation, but
of the suspension of gold and silver mining industry in
Mexico and the Spanish South American states.
And from the condition of abject misery into which
the world was plunged by this cau=e, rehef could, in the
constitution of things, have come in but one way, noi
84 MONET.
througli increase of public or private virtue, not by ad-
vances in the industrial arts, not througli industry or

tlirougli international peace, but, as it in fact came,
through the accidental discovery of gold at Sutter's Mill
in California, in 1847.
Nor must Sir A. Alison's views on this subject be
regarded as singular and exceptional. A large party in
England, through the controversy on the resumption

all
of specie payments and the successive renewals of the

Bank Charter, down to 1841, maintained the vital ne-
cessity of securing the increase of the circulating me-
dium, to keep pace with, and even to run ahead of, the
demands of trade for money, regarding the consequences
of a failure to effect this object as involving the worst
industrial and social disasters.
Nor is the view of the importance of maintaining the
volume of the circulating medium which is taken by a
large party in the United States, for which Mr. Henry C.
Carey' furnishes the arguments, less pronounced than
that of the so-called " Birmingham School," of which
the eloquent Mathias Attwood was the leader in the
Enghsh Currency battles of 1819, 1822, and 1832. But
as the attention of this party is directed to the increase
of Paper Money, we may defer the consideration of
their position.
How much of economical truth is there in the claim

that the volume of Money should be kept good from age
to age?
• See his tract: " The Finance Minister and the Currency," a re-
view of Mr. H. McCulloch's administration of the Treasury Depart-

ment.
IMPORTANCE OF MONEY SUPPLY. 85
—
In the first place it must be admitted what is too apt
to —
be overlooked that the adyocates of Hard Money,
so called, are in fairness estopped from treating with
contempt as they are prone to do, claims like those of
Sir Archibald Alison. Writers who regard an inflation
of the currency through excessive issues of paj er money
as the sufficient cause of overwhelming national disaster,
paralyzing the nerves and sinews of industry, corrupting
public and private morals, and perverting every instinct,
social or economical, to mischievous effects, have no
right to treat as absurd the largest assertion respecting
the evils of a reduction of the volume of money, through
a stoppage of the sources of supply, such as took place
in consequence of the invasion of the Roman Empire by
the barbarians, and of the Mexican and South American
revolutions.
Perhaps we shall get a better view of the subject by
confining ourselves to the claim made in favor of a pro-
gressive increase of money, keeping in advance of the
demands of trade, and hence effecting a gradual reduc-
tion of its value.

To be observed, three distinct advantages
this, it will
are attributed by the writers we have quoted.

The first is that indicated by Mr. Hume. "Whereas
Mr. Eicardo assumed, for the purposes of his argument
in the bullion controversy, that the distribution of the
]irecious metals would take place throughout the whole
commercial world, and among the industrial classes
of each nation by turns, with no appreciable interval,
Mr. Hume asserts that some time is actually required
before the new money circulates through the commercial

body and makes its influence felt on all ranks of people
and aU sorts of commodities. In this Mr. Hume antici-
pated the best results of recent thinking and investiga-

tion.
86 MOXEY.
Such an effect, says M. ClieYaKer, muct proceed, as it

were, by jerks; and lie elsewhere iises the figure, as
translated by Mr. Cobden, "a series of rebounds "—per-
haps we might say^ successiye action and reaction to —
describe the progress, between 1849 and 1859, of the dif-
fusion of the money from the Californian and Austrahan
mines. Prof. Cairnes, in his able essays on the "Gold
Question," published in 1859 and 1860, has also shown
that the effects of gold discoveries proceed, not only
from one class of commodities to another, but from one
country to another, with appreciable intervals, allowing
important economical effects to be produced meanwhile.'
Now, in the course of this retarded distribution, Mr.
Hume discovers the possibility of an influence highly
beneficial, while it lasts, upon the industry of a country.
In the interval, or intermediate situation, between the
acquisition of money and the rise of prices, a stimulus is
given to enterprise which causes everything to take on a

new facef labor and industry to gain life; the mer-
chant to become more enterprisiug ; the manufacturer
more diligent and skillful, and even the farmer to follow
his plow with greater alacrity and attention.
It seems to me that this view of the subject commends
itself as both rational and thoroughly practical.
The Eicardian economist, looking at money as a tool

for a specific and highly technical purpose —and, in gen-
eral, we cannot too strongly insist upon this view—de-
clares that he sees no advantage in an increase of money
above its former level. If money gains in amount, it
loses in value ; more of it only purchases the same quan-
tity of commodities. On the other hand, Mr. Hume, as
a moral philosopher, having his attention strongly fixed
' See pp. 150-7.

IMPORTANCE OF MONEY SUPPLY. 87
on tl-ie power which hope and courage have to call forth

the utmost energies of men, finds in an increase of money
the possibility of a gain which may more than compen-
sate mankindfor the labor expended in raising the ad-
ditional goldand silver from the mine. It does not need
to be said that Mr. Hume had in view an increase of
money not so great as to bewilder the producer and the

trader through a fiercely rapid advance of prices, or to
render sober business calculations impossible. When
courage and enterprise are exalted to rashness, through
a stimulation proceeding to intoxication, the effects are
only prejudicial. Within certain limits, however, and
these not necessarily narrow, there are illusions which
inspire exertion because they dignify and beautify the
objects of exertion evoking efforts which would not
;
otherwise be put forth, yet from which there are no in-

jurious reactions, inasmuch as they are thoroughly com-
patible with the moral and physical nature of man.
It is to be observed that Mr. Hume confines the ad-
vantage of a given increase in the volume of the precious
metals to the interval required to secure its uniform dif-
fusion among all classes, and its equal effect upon all
prices. This view is taken by Mr. Jacob, the author of

the "Inquiry into the Precious Metals," who declares
that " an impulse would be given to the productive pow-
ers which would continue so long as the increase of the
precious metals should continue to lessen their relative

value to other commodities." — [P. 251.J
We may conceive such an increase of the precious

metals as Mr. Hume has in contemplation, through dis-
coveries of new mines, or through the invention of new

mechanical or chemical agencies for working mines, as
occurring once in a human generation, quickening enter-
prise, inciting to mental activity and breaking up the
88 MONEY.
scale of liabit wMcli tends to form over social and indus-

trial organizations ; or, we may conceive sucli a relation
between tlie current production of tlie precious metals

and the volume in existence, that the process which
Mr. Hume describes may be continually, though quietly,
going forward from age to age.
It may be said: were such a cause to operate contin-
uously, would come to be anticipated, would be taken
it
into account in business calculations, and hence, the iq-

centive which Mr. Hume discovers ia the occasional in-
crease of the precious metals would cease to be exerted
by a continuous enlargement of the volume of money.
To a certain extent this would prove true in the situa-
tion supposed ; but the objection, which is in the spirit
of a great deal of accepted reasoning upon economical
human
subjects, fails to recognize the limitations of the
mind. The operations involved in mental discount, or
enlargement to a scale, are among the most diflScult
which ordinary men are called to perform and in either ;
of these most persons fail entirely. It is in this way, as
we shall have occasion to note hereafter,' that the princi-
pal mischiefs of fluctuating paper money are inflicted.

A second advantage would seem to be claimed by Sir
Archibald Alison for an increase of the precious metals
in use as money, namely, a diminution in the rate of tax-
was the reduction
ation, as, according to this writer, it
of the volume of money, from the time of Augustus for-
ward, which increased the taxes of the Empire while a ;
like cause enhanced the burden of taxation in England

after tlie Napoleonic wars.
Except so far as taxation results from the necessity of
paying the interest or principal of public debts, it is diffi-
' See pp. 385-7.

IMPORTANCE OF MONB Y SUPPL Y. 8£
cult to see how the cause adduced can have anj^ consider-
able effect in this direction. Taxes are the means of fur-
nishing the revenue of government. The revenue of gov-
ernment is to meet current expenditures for a vast range'
of commodities and services. If the volume of money
is increased and purchasing power diminished, tlie
its
prices of the commodities purchased by government will,

it is to be presumed, advance correspondingly. During
the interval spoken of by Mr. Hume, the prices of ser-
vices — —
wages may indeed not advance with equal rapid-
ity, and thus, in the language of Mr. Huskisson, " a saving
accrue to the state from paying the wages of valor, talent,
industry, and labor, in a depreciated currency," but this
gain could not be long or greatly reckoned upon.
It is in the third claim made by the advocates of an
increase of money, viz., the reduction in the pressure of
indebtedness and of fixed charges of kinds —
all rents,
pensions, annuities, etc. —that the main strength of their
position lies. In Mr. Hume's day, the body of indebted-
ness, public and private, was comparatively small iu Sir ;
A. Alison's time it had assumed vast dimensions, and

has been steadily increasing ever since, not only abso-
lutely, but relatively to other financial interests.
The public indebtedness of the civilized world, to-

day, probably stands between twenty-five and thirty
thousand milhons of dollars of American money. The
volume of pri-vate debts, including the capitalized value
of fixed charges —loans, annuities, etc. —is vastly greater.

Nearly the whole of this body of obligations is payable,
interest and principal (where the principal sum is to be
paid') in Money. The question whether the supply of
money shall increase or decrease is, then, the question
•
The English Consols are merely perpetual annuities.
90 ^
MONEY.
wlietlier tlie
' barden of these more or less permanent
charges shall be diminished or enhanced.
You loan to the city of Baltimore $10,000, receiving
therefor a bond payable in thirtj' years, with interest at
six per cent, annually, meanwhile. The city expends the
$10,000 borrowed in purchasing supplies for municipal
purposes, brick for building, stone for paving and curb-
ing, pipe for drainage, posts and lamps for lighting.
Goiug back further we see that what the city really bor-
rows is days' labor. If ordinary labor is worth $1.25 a
day, you, in effect, lend to the city eight thousand days'
labor, either of men in the quarries or kilns, where the
stone and the brick are gotten out, or in the streets and
on the partly erected walls of the public buildings, lay-
ing the stone and brick for municipal uses. Tou pay
these men their wages now and bid them work for the
city.
In return, what does the city, in effect, promise to do

for you? To j)ay you eight thousand days' labor at the
end of thirty years, and, meanwhile, to let you enjoy
every year four hundred and eighty days' labor, which
_you take out to suit yourself, whether of men dredging
for oysters in the bay, or working on your house, or
raisiug wheat for you in Illinois.
Such, in the economical view, was your contract with

the city ; but, through the use of a " Standard for Deferred
Payments," these quantities are expressed in terms of
money, and the legal obligation of the city to you is to be
satisfied withmoney only. If, then, while that bond is
running to maturity, the supply of the precious metals is
to be either decreased or increased (by supply I mean
here the volume relatively to the demand), you receive
more or fewer days' labor to enjoy, from year to year,
and the city wiU pay you more or fewer days' labor at
the end of the term, in final discharge of the obligation.
IMPORTANCE OF MONEY SUPPL Y. 9]
It is the fact of a vast body of outstanding indebted-

ness which gives its chief importance to the current pro-
duction of the precious metals. That gold and silver

should be yielded in exactly that amount, from year to
year, from generation to generation, which will serve to
keep the value of money uniform, is not to be expected.
We have seen the causes which tend,, with varying force,
to reduce the use for money in trade, while other causes
operate to increase "the duty" (to use Mr. McLeod's
phrase) of the existing volume. At the same time, the
diversification of productionand the extension of trade
make their urgent demand for an increased medium of
exchange. While these causes operate to subject to con-
tinual change the demand for money, the production
which is to furnish the required supply is, in a high de-
gree, spasmodic, and has at times almost altogether
ceased.
We are not to expect, therefore, that the value of
money will remain constant through any long period.
One of the two parties to long contracts will, in aU ^
probability, lose while the other gains, by the change in

values. The losses thus sustained may be slight; they
may be serious, even ruinous.
, The question arising out of the consideration of this
possibihty, this probabiUty, that the burden of the body
of indebtedness, pubhc and private, existing at any given
date, will be enhanced or diminished appreciably, per-
haps enormously, before it comes to maturity, by changes
in the value of money, whether the economist should
look upon the two possible results with equal regret, or
should, upon economical grounds purely, regard the one
'
For Prof. Jevons's proposition for obviating the eflFects of sucli
fluctuations) see p. 159.
92 MONEY.
or the other as preferable, or even, it may be, as posithe-
ly desirable, is a question which has been made the sub-

ject ofanimated controversy.
Mr. J. E. McCuUoch, the English economist, has per-
haps taken the strongest ground in favor of the desir-
ableness' of a gradual reduction in the burden of debts,
through the natural increase of the volume of the pre-
cious metals. He maintains that a depreciation of the
circulating medium, through promotes indus- this cause,
try, diminishing the weight of the obligations

which
press upon the producing classes, whether employers or
employed, giving them the use, at a lower rate in produce,

(because at a fixed rate in money), of all the agents-^
land, buildings, stock—which they hold by hire or lease
for terms of years, from those who are not themselves

personally engaged in production. At the same time,
all that part of the taxation of government which goes to
the payment of the principal and interest of public in-
debtedness, is reduced in its weight upon the whole com-
munity, whether engaged in active production or not.
Now, "why," asks Mr. Maclaren,^ "should the power
to make a fortune be cherished, at the expense of a for-
tune when made?"
Please observe that the question here is not, whether
by any act of government, or association of debtors, the
burden of debts shall be reduced. That question we
shaU see arising in connection with the debt incurred by
' " Though, like a fall of rain after a long course of dry weather,
it may be prejudicial to certain classes, it is beneficial to an incom-
,>arably greater number, including all who are actively engaged in
industrial pursuits; and is, speaking generally, of great public or

national advantage." — [His article on the "Precious Metals'' in (hft
Bncyclopiedia Brittanica.]
" History of the Currency, p. 312.
:
IMPORTANCE OF MONEY SUPPLY 93
England in the Napoleonic wars, and that incurred by

the United States in the recent civil conflict. It is quite
iidifferent matter. The scaling down of debts by a pur-
posed depreciation of the circulation, through excessive
issues of paper money, is only a form of practical repu-
which has always the sting of injustice about
diation, it,
and always draws a retribution after it.^

The question we are now considering is, whether such
an effect, as the result of natural causes, where no ill-
faith can be alleged, —purely, ictus dei — is a proper sub-

ject of congratulation on strictly economical considera-
tions : whether, in short, as Mr. Maclaren puts it, the
power to make a fortune should be cherished at the ex-
pense of fortunes which have been made; whether, if
the mortgage which the representatives of past produc-

tion, for such the holders of these obligations preponder-
atingly are, have upon the fruits of current industry can
be paid on reduced terms, without any violation of
off
faith, the world may be expected to gain economically

thereby.
Having conducted the inquiry to this point, we reach
' Some writers would appear to shrink from the discussion o£ the
eiiects of an increase of the precious metals, lest they should give
encouragement to schemes for reducing the burden of debts by acts
of legislation. On this point, Mr. Horton's remark seems to me

thoroughly just and manly
" I am well aware of the demagogue spirit which is the legitimate
child of the Legal Tender Acts, and whicl has sought to dishonor
the country by appeals to the ba-ser rnotives of the debtor class. I

know the danger of appearing to give the support of science to that
spirit. On the other hand, I have confidence in truth and in the
honesty and acuteness of my countrymen; and I think the safe
course for the advocates of sound currency is to grasp this neti.le
firmly. The truth will bear to be seen ; the greatest danger w in
misrepresenting it." — [Silver and Gold, p. 70.]
8^
: :
94 MONEY.
the strict limits of tlie department of money. The mat-

ter is tobe decided as a question in general economics
Certainly I think no one could refuse to admit that, if it
were an issue between having the pressure of the whole
body of indebtedness diminished by natural causes, or
increased, the former result would be preferable. If it
were a question between sacrificing the present to the

past, or the past to the present, all would agree in say-
ing, let the dead bury its dead. Whether it is a result
on economical grounds, that debts
positively desirable,
should undergo a progressive depreciation, might fairly
be disputed. The weight of opinion, among economical
writers of reputation, seems to be in the affirmative. M.
Chevalier, with great emphasis, gives his ample authori-
ty to this view
" Such a change will benefit those who live by current
labor ; it will injure those who live upon the fruits of past
labor, whether their fathers' or their own. In this, it
will work in the same direction with most of the develop-

ments which are brought about by that great law of civ-
ilization to which we give the noble name of progress.^
THE MONEY SUPPLY AND THE BATE OE INTEEEST.
Still another advantage which is at times claimed for

a progressive increase of the stock of money, is that it
lowers the rate of interest. This opinion is so widely,

spread, that it deserves a careful examination
Interest is compensation for the use of capital; not
necessarily of money.^ Money is only one of many forms
'
La Monnaie, p. 760.
' The inveterate disposition to rega -d tlio rale of interest as de-
pending on the supply of money is thus explained by Mr. Mill:
"Money, wliicV is so commonly understood as the synonym of
MONET SUPPLY AND RATE OF INTEREST. 95
of capital ; and in loans

is commonly but the agent for
tlie transfer,from lender to borrower, of other special
forms of capital. In any philosophical view, it is not
the money but the capital, in its special forms, which is
lent and borrowed.
If Iborrow a thousand dollars in money, the chances
are a thousand to one that I immediately, or shortly,
turn the money iuto articles suitable for my business,
my personal necessities, etc., etc. These were what I
reaUy wanted money was but the means to that
: the
end. These are what I really pay iaterest upon, not
upon the money.
In the modern commercial organization money is not
always, nor even usually,^ the agent in the transfer of
capital from lender to borrower. Thus, a country mer-
wealth, is more especially the term in use to denote it when borrow-

ing is spoken of. . . . Borrowing capital is universally called
borrowing money; the loan market is called the money market;
those who have their capital disposable for investment or loan are
called the moneyed class ; and the equivalent given for the use of
capital, or in other words, interest, is not only called the interest of
money, but, by a grosser perversion of terms, the value of money.
This misapplication of language, assisted by some fallacious appear-
ances which we shall notice and clear up hereafter, has created a
general notion among persons in business, that the value of money,
meaning the rate of interest, has an intimate connection with the
value of money in its proper sense, the value or purchasing power of
the circulating medium." — [Pol. Boon., Ill, viii, 2.]
' I am surprised to see this remark of Prof. Perry :

" Value in any
olher form than money is not generally suitable for loaning. "-^[Pol.
Econ., p. 236.] And again, " Thus we see the reason why govern-
ments, corporations and individuals, when they borrow, borrow
money." — [P. 237.] I do not beheve that two per cent, of the dis-
counted paper in the banks of New York to-day was gi\en for
money paid. As will be said further on, money is used to a greater
extent in paying debts than in contracting them.
•
96 MONEY.
chant comes to tlie city and goes about making his jjur-
chases for the month: he buys dry goods, groceries,

hardware, etc., etc., and in each case he gives his note —
promising, for value received, to pay so much mth mterest.
No money has passed in the transaction. The interest
is not paid upon money loaned, but upon merchandise
bought.
In this distinction, that interest is paid for the use of
capital, not usually of money, we see the insufficiency of
Aristotle's objections to usury, viz., that, as money does
not produce money, no gain or increase should be ex-
pected upon the loan of money. It is true that money
does not beget money ^ ; but capital does manifestly beget
capital. If a man borrows a thousand ducats and ties
them up in a bag, he wiU not find any little ducats in the
bag at the end of a year but if he purchases with the
;
ducats a flock of sheep, he will, with proper attention,

have lambs enough at the end of the year to pay a hand-
some interest on the loan, and make a handsome profit
for himself. If he turns the ducats into corn he will find
it bringing forth, some thirty, some sixty, and some an
hundred fold out of which he may abundantly compen-

;
sate the owner of the ducats, the laborers who have

plowed, sown, and reaped, and still retain something
for himself. Very seldom does a man borrow money to
use it, as money, through anything like the term of his
loan. When he does so, as brokers, for example, some-
times do, he may to Antonio's question, "Is your gold
and silver ewes and rams?" return Shylock's answer,
" I cannot tell ; I make it breed as fast."
* " Monstruosum est et contra naturam quod res infecnnda pariat,
quod res sterilis a tota specie fructificet vel multiplicetur ex se, cujus-
modi est pecunia." — [Nicholas Oresme, Tractatus de Origine, Natura,
Jure, et Mutationibus Mone'arum.]
;
MONEY SUPPLY AND RATE OF INTEREST. 97
In the same light we see the futility of the notion that

the rate of interest to be permanently reduced by
is
augmenting the supply of money. The rate of interest

depends on the supply of capital in all forms suited to
productive uses, .compared -with the opportunity to use
capital productively. There may be a low rate of inter-
est with Little capital, in a country
where industry is de-
pressed by bad government or social disorder; there
may even be a high rate of interest with great capital,
where natural resources are abundant and the spirit of
enterprise is continually incited by success. What "the
West " wants is more capital what it thinks it wants is
;
more money. Capital is there relatively scarce and the

rate of interest consequently high, because the country
is new, the natural advantages abundant, the people en-
terprising. Were the people less enterprising, there
might be capital enough for all their uses, and interest
would then be low. Were the natural advantages less
abundant, there might be capital enough to furnish all
the tools and materials which labor could profitably em-

ploy, and would then be low; and again, when
interest
those communities shaU become older, they will natural-
ly have accumulated larger stores of tools and materials
will have their warehouses, furnaces, shops, bridges,
fences, and roads constructed, and then there will be
capital enough to allow a low rate of interest. Interest
was high in New England two hundred years ago for the
same reason that makes it high now at the West. The
people had inherited little and had, therefore, much to
make for themselves, and tools and materials were thus
in scant supply in comparison with the demand, i. e.,
the occasion for their use.
'
But while the average rate of interest is determined
thus in the supply and demand of capital in its various
9
98 MONEY.
forms, it is true tliat temporary effects for days, foi

weeks, it may even be for months, are produced by
changes in the supply of money. This is due to two
considerations : first, that money is, as has been said, to
a certain extent the agent in the transfer of capital from
lenders to borrowers ; and, secondly, because money, as
the standard of deferred payments, is, to a much greater
extent,' the means with which the maturing obligations
of borrowers are met.
'
Due to the fact that the notes given by retail dealers for goods
had of the wholesale merchants are not generally paid [offset] by
other notes which have come into their possession, but by the money
which they have collected in small amounts through the sales of their
goods.
CHAPTEE V.
THE PKODUCTION OF THE PBECIOUS METALS.
No treatment of the subject of money can be complete

wliicli omits a survey of the existing field of gold and
silver production. The monetary questions which now
agitate many of the nations of the world, not sparing
America, Asia, or Austraha, convulsing some with the
severest throes of felt or apprehended financial distress,
have reference primarily to the facts, the startling facts,
of the present yield of the precious metals. Nor can we
fully gather the due effect of recent developments with-
out at least a brief review of the past production of gold
and silver.
THE EIEID OP PEODUCTION.
When we consider the efi'ects upon local prices, extend-
ing often to serious disturbances of international com-

merce, which attend the rapid increase of the money of
the world, the wide geographical distribution of the pre-
cious metals becomes a fact, not alone of curious inter-
est, but of positive economical importance. It would be
easier to say in what countries gold or silver had not
been found than to enumerate those where one or both
have been produced. Even in economic quantities,
100 MONEY.
there are few considerable couniries which have not, at

one time or another, contributed to the world's supply of
these metals.
"It is probable," says Mr. Jacob, from whose "In-
quiry into the Precious Metals" (1831) I shall freely
quote throughout the present and the two succeeding
oliapters, "that the precious metals were first known tc
mankind iu the eastern parts of Asia and in Egypt ; but

which of these countries is entitled to a priority in the
discoTery, it is almost impossible to determine."
Of aU the continents, Africa, though early conspicuous
for ifs production of both gold and silver, appears to be
the one which has made, withiu recent times — it might

almost be said within historic times —the smallest con-
tribution to the stock of the precious metals, although
the name of an obsolete British coin —the Guinea— tes-
tifies to the fame of the gold dust of a portion of the

western coast.^ "We are," says Mr. Jacob, "disposed
to estimate at a very low rate the whole produce of gold
from Africa, and as no silver is known to be extracted
from that part of the world, in an estimate of the pro-
duction and consumption of the world at large we have
not thought it necessary to take any notice of either the
western or the eastern shore." — [P. 372.]
Yet the mines of Africa furnished a large share of
the gold and silver produced before the Christian era.
It was with treasures torn from the temples of Egypt
by Cambyses that the pala,ces of Susa and Persepolis
were built. The greater portion of th"B metalHc wealth
had been obtained in commerce with the Nubians and
Macrobians. There is no evidence that the valley of
' " The gold that has reached Europe from Africa, has consisted ol
small grains stated to have been collected from the streams and car
ried about in quills as an article of traf&c." — [Jacob, p. 371.]
PRODUCTION OF THE PBEUI0U8 METALS. 10]
the Nile below the cataracts ever yielded the precious

metals; while the complete abandonment of the fertile
sources of metallic wealth above appears to have taken
place even before the time of Alexander.
The mineral wealth of Asia Minor, which has remained
to this day proverbial, made, ia fact, biit a sHght contri-
bution to the world's supply. The mines of Mt. Tmolus
and the gold sands of the Pactolus were early exhausted.
Neither gold nor silver was produced in Palestine, Phe-
nicia, and the land reaching to the frontier of Egypt.
In Arabia, no mines of the precious metals are known to
exist, and^Mr. Jacob remarks that, were any found, it
would probably prove unprofitable to work them, on ac-

count of the scarcity of fuel. In the country now known
as Persia, argentiferous lead is said to exist in great
abundance; but Uttle silver is produced. "In Afghanis-
tan, gold," says Mr. Jacob, "is said to be found in some
of the streams that flow from the mountains of Hindoo
Cosh, and some silver iu the country of the Caifres; but
is known as to the quantity of either."
nothing In the
Burman empire and in Thibet, the mining of the precious
metals is an important source of national wealth. In
Cochin China, small quantities both of gold and silver
continue to be extracted from the sands of the rivers.

The extensive tterritory of India affords little either of
gold or sUver. "None is found within the government
of the three great Presidencies." —
[Jacob, p. 375.] The
Malay Peninsula was called by the ancients Chersone-
sus Aurea ; but if it ever yielded the precious metals in
quantity to justify that appellation, little or none is now
produced there. Of China, our information is indefinite,
though the quantity of silver is known to be considerable.

What is called Syce or Sycee silver was formerly sup-
posed to be wholly of Chinese origin, but is now known
102 MONEY.
to be indifferently either Chinese or American silver;
which has undergone the process of refining in a degree

making it exceptionally pure. The islands of the Indian
Ocean yield some gold. It is said to have been former-
ly produced in Ceylon, but none is now extracted; nor,
says Mr. Jacob, are there authentic accounts of that
metal being found in Java. Sumatra yields gold in mod-
erate amount, both from the washing of the river sands
and from small mines in the mountains.' Borneo has
long been celebrated for abundance of gold, chiefly
its
from alluvial deposits. Gold is also found in the bed of

the rivers of Celebes. The Phillipine islands produce
a moderate amount. Of Japan we have, from Marco
Polo and early travelers, accounts which speak of large
amounts of the same precious metal but little has flowed ;
into the channels of the world's commerce.

Mr. Jacob, writing about 1830, estimated the whole
product of Asia at not above £1,400,000 annually, made
up of:
380,000 oz. gold £3 5s. - - £1,235,000
260,000 oz. silver 5s. - - - 65,000
Silver in Turkey 100,000
£1,400,000
'
Prof. Rogers, iu his notes to Adam Smith (i, 225), quotes from
Sir R. Murchison's "Siluria" the statement that gold is generally
fomid superficially, silver in deep mines. " Modern science, instead
of contradicting, only confirms the truth of the aphorism of the

patriarch Job which thus shadowed forth the downward persistence
o' the one, and the superficial distribution of the other: 'Surely
there is a vein for the silver : the earth has dust of gold.' " Con-
siderable exceptions require to be taken to this statement. Au
increasing pre portion of the gold produced is drawn from deep
mines.
PR OD UOl'ION OF THE PRECIO US METALS. 103
Nearly all the principal geographical divisions of Eu-

rope have, at an earlier or later age, yielded gold or
sil.
ver, though in some the mining industry has
never as-
sumed importance. None of the ancient writers speak
of gold or silver in Portugal, as distinct from
Spain,
tJiough a little gold is now washed from the sands of the
Douro, and smaller streams. Southern Italy has al-
ways been barren of the precious metals; and, while
early writers record the washing of gold from the sands
of the Po, none has been produced since the subjugation
of that region by the Eomans. The islands of Sicily,
Corsica, Majorca, Minorca, and Malta are also destitute
of the precious metals, but Sardinia has furnished some
gold and much silver. Gold and silver were found in
England and Wales centuries before the Eonian con-
quest, and gold is still produced in economic quantities
in Cornwall. In the reign of James IV and James V of
Scotland,' goldwas taken in considerable amounts from
the earth washed down from the Grampian HiUs. " The
search," says Mr. Jacob, "is now given over; but bits
are stiU found accidentally." — [P. 158.] In Ireland small
amounts of have been taken out in Tipperary;
silver
and it is stated that about the close of the last century

about £10,000 of gold was obtained from the alluvial
soil of the county Both silver and gold
Wicklow.
have been mined from an immemorial period in Sweden
'
Martin, in his "Description of the Western Islands," tries hard,
in tlie face of discouragement, to make out a gcod story. "I shall
not," he says, " offer to assert that there are mines of gold or silver
in the Western Isles from any resemblance they may bear to other
parts that afford mines ; but the natives affirm that gold dust has
been found at G-rimiiiis on the west coast of the isle of North Yist,
and at Copreaul in Harries, in which, as well as in other parts of the
isles, the ieeth of the sheep that feed there are dyed ydhw."
104 MONEY.
and Norway, though the product yielded is not believed

to have been at any time of great importance for the
supply of commerce. Mr. Jacob remarks [p. 154] that

the Northern nations of Europe appear to have possessed
more gold and silver during the Middle Ages than was tc
be found in Germany, France, or the British islands,
but there is reason to believe that this abundance was
due to the success of the piratical expeditions which
scourged the shores of so many countries, and in part,
also, to a profitable trade with Russia.
The country Europe most productive of the pre-
of
cious metals, but especially of silver, in early times, was
Spain.' The "Tarshish" of Scripture is quite generally
identified as a portion fof this peninsula. The amount
of gold obtained in Spain was probably never consider-
able. It is not mentioned by Ezekiel among the treas-
ures brought from Tarshish. The productiveness of the
Spanish mines continued through the period of Koman
domination; but with the decline of the Empire the
yield of the precious metals greatly diminished or ceased
altogether. "There are no accounts," says Mr. Jacob,
"of any mines being worked under the Suevic or under
the Gothic monarchs who at length governed that coun-
' Diodorus relates an absurd story about the discovery of silver

through the accidental burning of the woods on the Pyreftees, the
streams of molten silver running down the sides of the mountains.
Almost every place celebrated for the precious metals has some tra-
dition, mare or less improbable, respecting the first discovery of the

tieasurc. At Potosi, it was a hunter pulling up a bush which he had
seized to steady himself by in ascending the mountain. In the
Hartz Mountains it was a horse pawing up the earth. In Saxony,
glittering particleswere observed among the dirt on the wheels of
carts which had passed through the extensive forest in which the
silver was concealed.
PRODUCTION OF TEE PRECIOUS METALS. 105
try nor any traces of works in mines at this time to be

;
seen, that are not evidently of Eoman/ of Moorish, or

of more modern construction." — [P. 146.] The revival
of the productiveness of the Spanish mines under the
Moors was probably due not more to the engineering
skill of this people than to the fact that their conquests
had given them vast numbers of Christian slaves who
could be employed in the mines where free laborers
would not consent to serve.
We know little of ancient mining operations in France.
The Romans during their occupation worked mines of
silver in the Pyrenees, and perhaps in Languedoc. The
Prankish rulers of Lorraine opened extensive mines of
silver in that territory. Silver is still found in Prance,
in moderate amount, in connection with lead.
In what is now Prussian Silesia, mines of silver were
discovered at a very early date, and were long extensive-
ly worked. The mines of Saxony^ and the Hartz district
were discovered about the tenth century of the Christian

era, and are stiU. productive. Their contributions have
never ceased to be of importance to the world's supply
of silver,though overshadowed after the fifteenth cen-
tury by the vast resources of Mexico and Peru.
The mines of Hungary, especially at Kremnitz, began
'
Mr. Bowles notes that, on both sides of the Pyrenees, the shafts
dug by the Eomans are easily identified, being round; while the
Moorish shafts are square. This ingenious writer suggests that, ia
this, each people followed their habits in respect to fortifications.
The Romans, accustomed to the use of the battering ram, avoided
angles; the Moors, with no fear of such attacks, built their forts
square.
''
"There no part of the world in which the operations
is of min-
ing are conduated with more skill, ecoEomy and industry." — [Jacob.
p. 139.]
9*
106 MONEY.
to be worked somewhat earlier than those of Silesia and

the Hartz ; and have never ceased to be of importance.
The mines of Austria, the richest in mineral wealth of
all the countries of Europe, were among the chief sources
of supply during the Middle Ages. In Transylvania, es-
pecially, the rivers, without exception, are auriferous,
and numerous goid mines are still productive. In the
Bohemian mountains were formerly gold washings but ;
the yield in recent times has been small, if, indeed, it

was ever of consequence. Illyxia was anciently esteemed
very rich in gold, and Strabo attributes the great decline
in the value of that metal in Italy to the produce of the
Noric Alps. Gold in moderate quantities and small
amounts of silver are still drawn from this district. Of
the gold regions of Russia Herodotus has left a glowing
description ; but the very traces of former workings were
for two thousand years lost, and gold was only rediscov-
ered at the beginning of the eighteenth century. Greece,
last to be mentioned, was probably the Europe first of
in which the precious metals were systematically pro-
duced. It is believed that the Grecian mines were
opened by Phenician miners and capitalists, first in the
islands of the Mediterranean, next upon the mainland

and especially in Attica, and lastly in Macedon and
Thrace. li was with the gold of his Thracian mines
that Philip bribed the orators of Athens to betray the
h'berties of their country.
XHE ECONOMIC CONDITIONS OF GOLD AND SILYEB PBODUOTION.
Such, as we have hastily surveyed it, was the field of

the production of the precious metals prior to the dis-
covery of America. Let us, for a moment, consider the
economic law which governs this branch of industry, as
it is well stated by Mr, Mill
•
;
PRODUCTION OF THE PRECIOUS METALS. 107

" Of tlie three classes intî which commodities are di-
vided, those absolutely limited in supply those which
;
may be had unhmited quantity, at a given cost of pro-

in
duction ,
and those which may be had in unhmited quan
tity,but at an increasing cost of production: the pre-
cious metals, being the produce of mines, belong to the
third class. Their natural value, therefore, is propor-
tional to their cost of production in the most unfavora-
ble existing circumstances that is, at the worst mines
:
which it is necessary to work in order to obtain the re-

quired supply. A pound weight of gold will, in the
. country of the mines, exchange, on the average, for as
much
equal to
of every other
its
••-•.
own.
commodity
" If gold is above its natural or cost value,
be of high value, and the prices of

as is produced
all things,
money
at a cost
labor in-
will
cluded, will be Ibw. These low prices will lower the

expenses of all producers : but as their returns wiU also
be lowered, no advantage will be obtained by any pro-
ducer except the producer of gold, whose returns from
his mine, not depending on price, will be the same as
before ;and his expenses being less, he will obtain extra
profits and will be stimulated to increase his production.
" E converso, if the metal is below its natural value,
since this is as much as to say that prices are high and
the money expenses of all producers unusually great
for this, however, all other producers will be compen-
sated by increased money returns the miaer alone wiU ;
extract from his mine no more metal than before, while

]iis —
expenses will be greater." [Political Economy, III,
ix, 2.]
The foregoing account would hold good in all produc-

tion of the precious metals under the operation of the
108 MONEY.
law of supply and demand. But in the early ages, es-

pecially throughout the eastern world, the production of
gold and silver was, as I conceive it, chiefly non-eco-
nomical. The mines, the property of the king, Avero
worked by his subjects who were equally his property,
and the products remained his peculiar possession, or
were devoted to sacerdotal uses.^ Gold and silver were
regarded as an end, not as a means ; as treasure, not
money.^ They were distributed not by trade, but by
war. It was the hand of the conqueror that stripped
them from palaces and temples. If they were taken from
the store of the monarch, it was not to freight the cara-
vans of commerce, but to fiU the chariots and mule-carts,
to lade the sumpter-horses or the camel-trains of a vic-
torious army.'
Hence it was that the distribution of the precious
metals through the agency of prices, which was described
in a previous chapter,was in early ages effected so tar-
and the wealth or poverty of a kingdom,
dily, if at all ;
measured by its possession of gold and silver, was de-

termined, primarily, by the fact of mines being found
within secondarily, by the military prowess
its limits ;
of the people and the ambition of their princes. Anax-

imenes of Lampsacus relates that Philip of Macedon, in
the early part of his reign, before the mines of Thrace
' " It was deemed either a royal or a sacerdotal privilege to pos-
sess them." — [Jacob, p. 72.]

° Mr. Mill remarks that "in Hindostan, gold, silver and gems ai3
most curiously hoarded, and not devoted to production.''
' Indeed, the expectation of plunder originally, formed the tie
vrhich drew the free Grecian soldier after his general. It was not
until the time of Pericles that the regular payment of soldiers began
at Athens, and it, was not till a century later that the custom had
extended itself over the whole of Greece.
wore opened to him, was wont, when lie retired to rest,

to place under his pillow the small and only cup of gold
he possessed. That Philip's son loaded with the golden
spoil of Persepolis ^ ten thousand mule-carts and five
thousand camels. And when Macedon, in turn, fell be-
fore the conquering rage of Eome, the treasures carried
away by Paulus .S^milius sufficed for fifteen years' ex-
penditure, without the necessity of a resort to taxation.
Speaking broadly, we may say of those early times, that
the law of supply and demand had
do with the
little to
production of the precious metals and that when pro-

;
duced, they were not distributed through the agency oi

price. To this rule there were, however, exceptions.
The peasantry not infrequently extracted by patient
labor small amounts of gold from sources, especially the
river sands, which had not attracted the notice of their
rulers. No degree of vigilance could guard against the
unfaithfulness of slaves and overseers ia pilfering the
products of the mine. And when the vast accumulations
of treasure passed from the conquered, enormous waste
was certain to result; large sums were seized by the
soldiery in the hour of sack and pillage, while from time
to time the conqueror, perhaps the usurper, appeased
his mutinous followers by donatives^ of gold, which were
speedily dissipated and passed into circulation.
Of the foregoing statement of the non-economical nat-
ure of the production and distribution of the precious
metals, one other important qualification requires to be
made. The Tyrians, and afterwards the Carthaginians,
early directed their great commercial talents to exchang-
'
Stated by Diodorus at £27,600,000 British sterling. The whole
gpoil of Persia is' put by Arrian at forty milhong British sterling.
' According to Arrian, Alexander distributed, in Susa, £4,600,000,
British money, in paying the debts of his soldiery.

110 MONEY.
ing the silver of Western Europe, and especially of SpaiU;

for gold with Arabia and the further East, perhaps with
India itself. Nor could the statement be applied with-
out large and continually increasing exceptions, aftei
the time of Alexander. Already had the extensive coin-
age of Persia shown that gold was losing its character as
treasure and gaining that of money while
; the Bomans.
not so much through their commercial instincts, as
through that courting of the populace and the soldiery
which marked their entire history, gave a merry circula-
tion to the spoil of Macedon and Asia.
Tet, whUe these exceptions require to be made, the
original condition of things subsisted not only down to
the period of the Roman Empire, but for centuries later,
though with continually diminishing scope, as personal

slavery, in its absolute form, gave way, first, before the
gradual extension of Roman citizenship, and, secondly,
before the free spirit of the Teutonic inVaders of the
Empire who came to occupy the countries, Spain and
Thrace, then most productive of the precious metals.
As I conceive it, we can only explain the\vast accumu-
lations of treasure in Egypt, Persia and Judea, by ref-
erence to the political system of the age. The produc
tion of the precious metals was, in the main, especially at
the East, non-economical, without reference, that is, to
the cost of production. It was only because kings were
as completely masters of the labor and as regardless of
the lives of their subjects as the royal builders of the
Pyramids, that such quantities of gold and silver could
be extracted from the soil by the rude implements of that
age. The treasures of Susa and Persepolis could no
more have been accumulated under the operation of
commercial demand, than the Pyramids have been built
by free labor.
—
PRODUCTION OF THE PRECIOUS METALS. HI
The comparison may appear extravagant : yet I cannot
but think that it will serve to express very justly the
non-
economical character of the labor which was expended
for this object during the early ages, at least down to the
time of Alexander, and largely, through the East, for
centuries later.
And even when gold and silver began to lose somewhat
their character of royal or sacerdotal treasure, and to ac-
quire that of money, and when, thus, their production
ceased to be non-economical, when, that is, it began to
have reference to the cost of production and became sub-
ject to the law of supply and demand, it still remained, in
a high sense, uneconomical, by which I mean that the or-
dinary assumptions of economical reasoning would have
to be importantly modified in dealing -with this industry.
The ordinary reasoning of the economist is based upon
the sufficiency of the individual initiative —each man,
that is, on his own instance seeking his own interest
to accomplish the largest production of wealth, and its
most equable distribution among the various producing
classes and this, not for the moment merely, but
;
through any period of time that may be taken into ac-

count, however considerable.
It is upon this assumption that the abstract doctrine
of laissez faire, freedom of industry, freedom of trade, is
built.
But while this assumption clearly has to be modified

somewhat in application to almost any form of produc-
tion, in respect to none do the assumed depart from the
observed facts so widely as in the mining of the precious

metals.
While greed, the haste to be rich, is always and every-
where the enemy of true self-interest, it nowhere ob-
tains such a mastery over the senses of men, as where
112 MONET.
gold and silver are in sight, the immediate objects of

exertion. NeA'er do men so sacrifice the future to the
present, never so disregard the larger considerations of
prudence This is not due merely to the fact that the
production of the precious metals has generally been
pursued at a distance from the permanent seats of pop-
ulation, under conditions difficult and perhaps dangerous,
and hence by men more than usually reckless and subject
to the force of immediate desires. Largely is it due to
the mysterious attraction which these metals have ex-
erted upon the powers and passions of men of all races
and in all ages. The sacra auri fames of the poet is but
a sober expression of the lust which has ever burned ia
the hearts of men in sight of gold.
But while greed, in the economical sense which I have
given the word, is thus often, and almost as a rule, op-
posed to true self-interest ; and while greed is so easily
exalted to frenzy in the prospect of the precious metals,
there is also no industry in which so wide a difference
ismade in the large, the ultimate, result, according as
men work under the blind impulse of immediate ac-
quisition, or under the direction of an intelligent sens'e
of self-interest, extending its view beyond the present

to the distant future.
Time will not serve us to go deeply into the techni-
calities of the production of gold and silver ; but one
or two simple illustrations may make this proposition
seem not unreasonable.
Here is, let us suppose, a. superficial deposit of gold
dufit in the bed of an old river. Throughout certain
porbions of the former channel, where the forces of the
current especially directed it, the gold lies richly min-
gled with the sand. Over other portions of the bed of
the stream it is found more and more sparsely, yieldiig
PRonucTiujs oj? I'jdjb j:'hm.oioo;s metals. 113
a less and less return to labor. Is it not evident that a

hundred men under intelligent direction, animated by
the purpose to secure for themselves, as a body, the
largest amount of the precious metal from this deposit,
would proceed to work very differently from a hundred
miners who should rush into the bed of the old stream,
with the wild cry of "Gold!" each for himself strug-
gling with furious haste to get the most he could
before night, careless how much he wasted in his
search, half washing the sands, and letting perhaps
more than he obtained be carried down, to be lodged
here and there in places which would escape the eye,
or in quantities which would not pay the working?
Does it not appear that thus a " placer " which would
yield a handsome return to labor for a month, might
be exhausted for economical purposes in a week, so
that thereafter labor would receive a fortuitous, and
at best, an inadequate return ?
But let us transfer our view to the production of the
precious metals, no longer from the bed of streams, but
from the deep recesses of the earth, where shafts have
to be driven hundreds of fathoms through solid rock,
where the roof under which th4 miners work by the light
of their torches has to be supported by beams of timber
or by pillars of rock left for that purpose in the progress
of the excavation; where Hfe has to be guarded most
carefuUy and expensively against mephitic or explosive
gases ; and where the mines have to be kept free of water
by constant pumping or systematic drainage. Under
such circumstances it is evident that, unless the present
is to be strictly subordinated to the future; unless the
greed for immediate acquisition is to be held strongly in
hand by prudence, and all work be done in the large
view of true self-interest, a great difference will be

114 MONEY.
wrought, in tlie result, upon the production of the mine,
looked upon as a resource for supplyiug the world ci

commerce from age to age with the metal which has
been adopted, not only as the medium of current ex-
changes, but as the standard by which deferred pay-
ments are to be effected. If only indolence furnishes in
insufficient quantity, or of inadequate material, the tim-

bers which are to shore up the sides and the roof of tho
galleries, or if, in the haste to push the work that yields
so richly its golden gains, the accumulation of fire-damp

is unnoted or neglected, one awful hour may suffice tc
close forever that source of wealth, which, with propei

care, with a due subordination of the present to thf
future, with a just view of self-interest, would have re-
mained open to give employment, generation after gen
eration, to a large population.

So much for the effects of greed upon the work hov ;
of the worker?
The statistics of mining populations show a horribl;
waste of laboring power and of life arising out of reck

lessness in exposure and of parsimony in expenditure
even where laborers are free to make their terms with
their employers. how rapid must have been tht
If so,
consumption of and laboring force, when mines
life
were generally worked by convicts and slaves, havinj.

no power to contract or to stipulate terms, but drivei
to work by gangs, in chains Do we not see here tb
!
possibility, almost the certainty, of indefinite waste

and
loss where the passionate greed ol
in production,
wealth, the consuming lust of gold, loses even the phys-
ical instincts of self-preservation to restrain the exei-
tious of the bodily powers and the exposure of life and
limb iji the perilous work of mining ?
Bat we have yet another step to take in the same di
PRODUCTION OF rKK PEMVlOUS METALIS. iio
rection. Let us suppose the miii« to be worked and the

body of slaves to be driven, not by tbfi owner and
master, who could never entirely forget the claims of the
future, never be wholly inconsiderate of the needs of his
cmi property, but by the farmer, cut off, by the very
terms of his brief lease, from all interest in the distant
future, intent only on achieving the maximum of imme-
diate production with the minimum of outlay, utterly in-
different as to the condition in which he shall leave the
mine at the expiry of his legal interest therein, and as to
the labor supply of the next lessee.

Here, at last, we reach the sufficient explanation of the
havoc which has been wrought upon the mining resources
of the world,' a havoc which is eloquently witnessed,
throughout Europe, Asia, and Africa, by abandoned
mines never truly worked out, and by the utter sterihty
of regions once the sources of rich suppHes of metallic

wealth.
Nor can we afford to disregard the effects of war and
of civil commotion upon the production of the precious
metals. The fire runs over the fields and burns and
blackens all around but, another spring, nature blooms
;
'
The family of the Puggars were the best miners of Europe at the
century.
close of the sixteenth and the beginning of the seventeenth
Their success was long witnessed by scores of noble famihes in Augs-
burg, Madrid, Antwerp, Genoa, Milan and Ghent. Yet Mr. Jacob
says of their mines at Guadalcanal, in Spain: "They viewed their
concessions as a temporary property from which they were to

ex-
tract what wealth they could, with as much expedition

as possible,
and with the least expense to themselves. With this view they
foi'med many where the mineral s

galleries appeared the most rich,
and speedily forsook them to open others. There are now visible as
many as sixteen of these operings, the roofs of

which were sup-
ported by wooden posts, but so slightly that they have aU rotted,
aud thus tne passages became closed up." — [P. 150.]

;
116 MONEY.
with even a greener foliage and a larger fruitage, for

what wasted also fertihzed. The fire that sweeps over
the mouth of the mine leaves blackness and the horror
of a deep silence only.
Such, ia a figure, is the difference between the effects
of war or civil convulsion upon mining, as contrasted
with agricultural industry. No cause has been more
potent for closing mines not yet exhausted. Even relig-
ious persecution ' has set its seal over the mouth of many
a mine, a seal never to be broken. The mining popula-
tion once scattered, the mouth of the mine fallen in., the
roof here crushing the neglected timbers, the subterra-
nean springs there filling up the vacant galleries, this
once fertile source of supply is added to the almost count-
less number of those which have ceased to contribute to

the world's stock of the precious metals.
It may be thought that the moral and material con-
ditions of mining have been dw^lt upon at undue length
but I conceive that we cannot understand the waj^ward
course of the production of the precious metals, since the
establishment of the E-oman Empire, without reference
to these considerations, any more than we can upon the
principle of supply and demand, alone, account for the
vast accumulations of treasure, prior to that period, by
the unskilKul labor and rude implements of the early
ages.
' The Altenburg mines were abandoned by reason of Protestantisni

spreading among the miners. " Fallen buildings, heaps of scorise,
open shafts and choked galleries," says Mr. Jacob, "still attest the
firmer prosperity of the mining operations of this district." — [P. 136.]

Religious differences caused the abandonment of many of the Salzburg
:
CHAPTER VI.
THE PRODUCTION OF THE'PEECIOUS METAXS.- -FROM AUGUSTUS

TO COLUMBUS.
In tracing the history of the production of the pre-

cious metals, as bearing on the question of the Money-
supply, we need to hare in consideration three elements
besides the yield of the mines.
The other elements of the problem are
1. The consumption of gold and silver as ornaments,
and in the arts, industrial and decorative.

2. The "wear of the metals in use as coin.
3. The drain of silver to the East.
The consumption of the precious metals as orna-

ments and in the arts has long been of vast though in-
determinate extent. Nor has the dedication of gold or
silver to that use always prevented its return to more
practical service as money. In some ages and countries
these uses have been in a high degree interchangeable.'
'
The telegraphic correspondence London " Times " from Cal-
of the
cutta, June 17, 1877, contains the following " The Bombay papers
:
have been drawing attention to the extraordinary increase in the

amount of jewelry and personal ornaments tendered for sale at the
Presidency Mint, as afibrding a sure test of the severity with which

the famine is pressing on the people. The pubhshed figures are cer-
tiiuly starthng. The value of silver ornaments tendered from Jan-

uary to October, 1876, averaged from £?00 to £600, monthly. It ha«
10*
118 MONEY.
As we shall see/ ring-money preceded coined money,

and tlie ring and the chain have not infrequently served
very well in later times as substitutes for coin. The
reader recalls how the Scottish archer of Louis XI bit
off some links of his gold chain, to purchase masses for
the souls of his murdered kindred. On the death of
Sir Thomas Gresham, the founder of the Koyal Ex-
change of London, no small part of his wealth was
found to consist of rings and chains, almost as truly
ready-money, in those days, as easily appraised, aa
easily exchanged, as the coin of the realm.
There are other uses to which the precious metals are
put which would seem to be incompatible with their
further service as money yet time and accident have
;
served to bring about the restoration to the purposes of

commerce of vast masses of gold and silver dedicated,
not merely to royal uses, but to the decoration of tem-

ples and the worship of deity, whether in heathen or
Christian lands.
Not only was conquest generally deemed to carry
with it the right to strip the temples of their precious
utensils, and even of the images and the masses of
metal which gave refulgence to altar and roof and dome f
but the necessities of the monarch or the state might,
even in Christian countries, justify a demand upon the
church for its vessels of silver and of gold. When
since then increased enormously and was, in May, over £80,000.

It is a well-known fact that the purchase of ornaments is the Indian
peasant's usual way of investing his savings, and that he clings tc
these baubles as long as possible."

' See p. 165.
° The Capitol, denominated aurea by Virgil and fulgens by Horace,
was gilded, or rather plated, with 12,000 talents of gold, and the
game mode of decoration soon extended to temples and palaces.
.
Richard the Lion Heart was ransomed from captivity

in 1194, " even the gold and silver cups and other ves-
sels used in the Holy Eucharist," says Arnold, Abbot of
Lubec, " were melted for the purpose."
The consumption of these metals in the arts of inte-
rior decoration, and in the form of household utensils,
has varied greatly, not merely in diiierent ages, and not
merely in conseqiênce of the scarcity or profusion with
which the precious metals were supplied by the mines,
but according to the prevailing tastes of each people at
the time. The Romans, even when, by the victories of
Paulus ^milius and of Csesar, they became masters of
a large part of the accumulated treasures of the world,
employed the precious metals but little in their homes,
whether for gilding or for ' plate.
But in public places the Romans, ever intent on im-
pressing the populace, now by magnificence, now by
generosity, were profuse in the employment of gold and
silver.^ The equipage of the senator, the leciica, or
sedan-chair, in which hewas borne, the carriage in
which he rode, and even the bits and collars of his
horses were, wholly or in considerable part, of gold.
Of the gold and silver applied thus to purposes of os-
tentation, not a little would, in times of disaster to the
'
Gilding on metals or china, which involves great loss of the
metal, was unknown to the ancients.
' " Though the Greeks and Romans generally were without some
of our commonest implements of gold and silver, such, for instance,
as watches and forks, it is probable that they indulged even more

than we do in personal- decoration with rings, seals and trinkets of
a thousand descriptions. Their armor and even their peaceful ha-
biliments were ornamented with the precious metals, and altogether
the particular article, which came chiefly from the
traffic in this
Spanish mines, furnished as important an element in their oommerne

as in onr own." —
[Merivale's History of the Romans, iv, 317 ]
120 MONET.
incIiYidual or the state, find its way back to the clian-

nels of commerce. This was, however, a resource oi
less scope than it would be found to be now. " It has
been supposed," says Mr. Jacob, " that in England, at

ihe present day, the quantity of gold and silver in act-
uiil existence, including utensils, ornaments, jewelry,
trinkets and watches, is three or four times as great as
the value of those metals which exist in the form of
money. In case circumstances should arise to induce
the conversion of plate into money, these would be a re-
source which could furnish a supply ; but in the Boman
Empire the plate and jewels of two thousand wealthy
families would have been but a feeble aid to the money
circulating in that powerful Empire, which compre-
hended within its limits the most populous and exten-
sive parts of the known world." [P. 116.] —
During the
Middle Ages, the quantity of the precious metals em-
ployed for domestic utensils, for religious uses or in
personal decoration, is believed by this writer to have
been very small. — [P. 165.] Gilding and plating were
now the forms chiefly taken by this species of luxury.
The use of gold and silver in the arts has in some
countries been caused, not so much by the abundance
of the precious, as by the scarcity of the useful, metals.
Th(i Portuguese discoverers found the Brazilians using
fish-hooks of gold; while in the Scandinavian tumuli
opened in Denmark were swords, daggers and knives,
the blades of which were of gold while an edge of iron
was introduced for the purpose of cutting. Prescott, in
his Conquest of Peru," relates that silver was mingled
'
with copper in the manufacture of armor by the Le-

vantine artisans employed by Almagro at Cuzco [ii,
212] ; and that in the march on Xauxa, Pizarro shod
the horses of his command throughout witli silver. — [i.
452.]
Tlie loss of gold and silver by abrasion of coin in

use, is another element of the question of the Money-
supply. The amount of this loss is a function of twc
variables : exposure to abrasion, as determined by the
shape of the coin and the rapidity of circulation, and
the power of resistance, as determined by the character
of the alloy in the coin.
Thus, when the stock of the precious metals was at
its height in the reign of Augustus, by far the greater

portion was protected from abrasion by being held in
mass, as treasure. Within the next hundred years,
however, the vast bodies which had been stored in the
treasure houses were thrown into active circulation
among the people, and a high rate of consumption im-
mediately resulted from the inferior character of the
alloys used in the miuts of the empire.
It does not appear that the ancients employed silver
to alloy gold. Their alloys consisted wholly of tin,
copper or Now, the English mint experiments,
iron.
most carefully conducted between 1798 and 1802, show

that the loss on gold under the same friction but with
different alloys, was as follows :
On British standard gold, if alloyed with silver alone,

or with equal parts of silver and copper, on 854 grains,
4.20 grains; alloyed with tin and copper, on 846
if
grains, 15.30 grains ; if alloyed with iron and copper,

on 825 grains, 21.60 grains.
On the other hand, when, between 800 and 1492, the

quantity of the precious metals in existence had sunk
to aminimum, and prices had reached the point that
copper, tin and iron contained a value for their bulk
adequate to effect the few and tardy exchanges of that
dark age, the loss from abrasion on the surviving volume
ply less
of gold and silver coins became almost indefinr
11
122 MONET.
they were witlidrawii from the uses of ordinary com-

{IS
merce and were found only in the caskets of princes or

in the shops of goldsmiths.
It has been said that the drain of silver to the East
is to be regarded as an element in the question of the
Money-supply.
be asked why, under the principle of
It will naturally
Ricardo's law of distribution, the East should thus be
separated, in our contemplation, from the West; why
the silver sent to Asia should be treated by the writer
on Money as lost to commerce?
been intimated that the result of re-
It has already
cent thinking and investigation has been to qualify
somewhat Ricardo's statement of the diffusion of the
precious metals by the operations of commerce that it ;
has come to be recognized that the distribution is not

effected without encountering retarding causes, which
allow important effects to be experienced through the
occurrence of distinct intervals in the passage of a new
supply from one country to another, and from one class
of commodities to another. But even those economists
who have most rigidly insisted on applying the princi-
ple of diffusion, without important qualification, to all
the nations of Europe and America, have been wont to
regard the East as, until recently, at least, almost a
total exception, looking upon China and the other coun-
tries of Asia as constituting, as it were, a vast plain of
sand, which drinks up the streams of the precious met-
"als without gi'S'ing them back to commerce.
The exchange of the silver ofEurope, and particular-

ly of Spain, for the gold and spices of the East, had
proceeded from the earliest times. The proportionate
value of silver to gold was greater in Asia than in Eu-
rope. "When gold," says Mr. Jacob, "was worth iu
Asia and Africa no more than eight or nine times its

weight in silver, it was worth in Europe, and especially
in Western Europe, from ten to thirteen times as
—
much." [P. 190.] Indeed, there is reason to believe
that the values of silver and of gold in Asia at earlir r
dates approached even nearer to equality. A fragment

of Agatharchidas is preserved which assigns to silvei
in Arabia a value greater than that of gold, and in oui
own day, the opening of trade with Japan found gold
valued in the coinage of that empire only as one to foui
of silver.
It was not, however, until the sixteenth century thai
the money of Europe and America began to overflow, iv
great streams, into what Prof. Cairnes calls "the mor>
absorbent and impassive systems of Asia." Durinj
that and the following century, Mr. Jacob estimate,
that one-tenth of the treasure supplied to Europe bj
the mines of America was transported to India. L
the eighteenth century the export rapidly increased
with the European consumption of teas, silk, and othei
oriental productions. For the period 1700 to 1829, the
conclusion of his "Inquiry," Mr. Jacob estimates the
share of the product of the mines transferred to Asia
to be not less than two-fifths.
Having dwelt with some fullness upon the conditiDJu
of the production of the precious metals, and haviiif

stated and briefly illustrated the other elements of tli(
case, let us consider the main facts respecting thu
Money-supply of the Western world since the estab
lishment of the Eoman Empire.
By successive conquests Eome had not alone acquired
possessioa of nearly all the mines throughout tie worL
i
.
124 MONEY.
then yielding the precious meials. A large proportion

of the whole mass of gold and silver which had been
produced during preceding centuries was drawn to
Italy. This result was only rendered possible by the
habitual accumulation of the precious metals through-
out the East in great stores of royal treasure, as has
been described. Had the produce of the mines been
dififusedby the agency of commerce, as in subsequent
ages, among the body of the people, even the force of
imperial taxation at its utmost pressure must have
failed to draw together so large a portion of the gold
and silver of the world.
Through the non-economical character of the produc-
tion of the precious metals, as discussed in a previous
chapter, the volume of these metals in existence had
been raised to dimensions far exceeding what would
have been possible under the operation of the law of
supply and demand, with the rude chemical and me-
chanical appliances then in use. The mass was indeed
enormous. Mr. Jacob estimates the stock of money in
the Empire on the accession of Augustus, at £358,-
000,000 sterling.!
But while Rome, by her military energy, seized the
accumulated treasures of Carthage, Spain, Gaul, Greece,
Asia, and Egypt, throwing into circulation, as money,
among her people what had been hoarded as royal
'
Throughout this and the following chapter I shall give the figures
oE produotion and consumption as Mr. Jacob estimates them, not

because I Lave great confidence in estimates of this sort, prior to the
present century, but because (1) Mr. Jacob's estimates are referred
to very extensively by all English, French, and German writers, and
the reader may therefore be interested to see them in detail (2) Mr. ;
Jacob's mode of tracing down the course of production ami consump-

tion affords a capital example of that sort of invcstigatioa
breasTire or devoted, in vast masses, to sacerdctal uses,

thus raising the prices of all commodities throughout
the Empire, but especially in Italy and the countries
nearest the capital, Roman dominion, almost by the
necessity of the case, proved fatal to the continued sup-
ply of the precious metals. The Eomans were unskilled
in mining. Italy was, perhaps, of all the countries em-
braced within the Empire, that which had least devel-
oped its own mineral resources. This fact undoubted-
ly concurred with the Roman instinct for the simplifi-
cation of administration, in inducing the general adop-
tion of the system of "farming" the mines, with the re-
sult, both upon the mines as properties and upon the
laboring populations pertaining to them, which has been
described as incident to that mode of working.
"The farmers," says Mr. Jacob, "took out only the
best ores, and neglected those of inferior quality ; leav-
ing them where they soon became buried in
in the pits,
the rubbish with which they were surrounded. Their
object being to enrich themselves during the term for
which they held the mines, they naturally neglected
the interests of future workers and suffered them to go
to ruin. Whilst exhausting the mines of the richest
ores, they only cut the passages and propped the roofs
in so slight a manner that, if they lasted during the
current leases, they would all require to be reconstruct-
ed in a short period after ; which, when the best ores
had been would be at an expense that could
extracted,
not be replaced by any product of the inferior ores
which had been left behind. The various contrivances
for keeping out the water from the mines, and the ma-
chines and the implements for extracting whai could
not be kept out, were all contrived to answer temporary
purposes commensurate with the length of the period
for which they were let to farm." [P. 79.]—
126 MOÊY.
But the Eoman dominion served in still another way

to diminish the productiveness of the mines. Prior t(..
conquest, the mines of Spain, Thrace, Asia, and other

gold or silver bearing countries, had been worked, for
the benefit of the local sovereigns, by convicts, by con-
scripts, or by serfs. The crop of convicts in those
brutal days was never likely to fail ; and as their labor
was essentially non-economical, i. e., as they had, in
any case, to be confined at the public charge, for the
protection of society or their own punishment, the
produce of their labor bore no necessary relation to thu
cost of their maintenance. It was otherwise with th(j
conscripted and the adsoripted laborers in the mines,
those drawn by lot and those born to the service. ll
the supply of these was to be kept up from generatiqr

to generation, the produce of their labor must bt
charged with the cost of maintaining them, togethei
with their families. A fourth class of laborers in mine:
consisted of slaves, the captives of almost incessan
wars. The employment of these, again, was chiefl^
non-economical, being without reference either to re

paying the cost of bringing the present body of labor
ers to maturity, or to providing for the future. It was,
by this last means that the labor-supply of the minefc
of the earliest period was largely recruited and thi ;
activity of the production of the precious metals in any

country was made to depend greatly upon the good oi
ill fortune of the people in war. The gxadual exten

siou of the Homan dominion brought about a state <j1
almost universal peace, merging a thousand warring

tribes in the vast empire which was bounded by the
ocean, the Ehine, the Danube, the Euphrates, and the
Desert of Africa a state of peace interrupted only by
;
civil commotion, the results of which, however bloodv.

could not include the reduction of the soldiers of either

faction to the condition of slavery.^ Thus war,
as a
source of labor-supply for the mines, practically ceased.
Slaves were still, it is true, brought into the Empire as
the result of piracy, or of trade with barbarous regions
beyond the reach of Eoman power; but these were
hardly numerous enough to meet the demands for per-
sonal service, under the growing luxuriousness of the
age; and purchased slaves soon became too costly to be
employed in the difiicult and dangerous work of mining.*
There remained to the Eoman authorities, as a re-
source for working. the mines of the precious metals
which had been acquired by conquest, the labor of
convicts and of serfs.' As the difficulty of securing
laborers from other sources increased, labor in the
mines was more and more made the penalty of crime,
until this mode of punishment became almost universal;
while successive decrees increased the traditional ob-
ligations of the peasantry in the neighborhood of
mines.* The severity of these exactions coupled with
' " The legions of Pompey, when beaten by Julius Csesar, did not
become slaves, neither were those who fought under Brutus and
Cassius at Philippi, nor those who contended under Marc Antony
against Octavius, when dispersed as an army, sold for slaves to their
fellow-citizens." — [Jacob, p. 101.]
" " Though numerous slaves were employed in all the offices of
domestic life, in trades, in fabrics, and in agriculture, . . . there
are no instances, in the time of the emperors or in the ages that fol-
lowed, of their being employed in the degrading and unproductive

labor of the mines." — [Jacob, p. 103.]
° GrlebEe et metallis adscripti.
''
"At first, one half of the inhabitants, only, were compelled to
labor in the operations connected with the mines ; but as the num-
bers decreased a law was made by which all the children of these he-
reditary miners were required to devote their labor to the mines."—

[Jacob, p. 98.]
128
'
MONEY.
fche cruelty of tlie farmers and overseers made great

inroads upon these unfortunate populations. Soon a
new danger presented itself. The barbarians appeared
on the borders of the Empire, offering a refuge to those
who had the courage, born of despair, to attempt their
escape from the power of Kome. Next, the barbarians
thrust themselves into the Empire, and the lands ear-
liest invaded were those on thfe produce of whose mines
the world was most dependent for its supply of the
precious metals. The serfs became the personal slaves
of the conquerors, or swelled the ranks of their armies.'
Such were the causes which in swift succession re-
duced the labor-supply of the mines of the Empire.
Meanwhile, so wasteful had been the operations of the
farmers of the mines, that the earlier emperors were
driven to assume the charge of the mines, which were
again worked by public officers on government account.
It will not be necessary to speak of the various meas-
ures resorted to by successive emperors to stimulate
the failing production of .the precious metals ; of grants
to individuals to work mines on shares of edicts issued
;
almost in despair, making mining as "free" as many

nowadays wish banking to be ; of efforts to systematize
the administration of the mines and introduce scientific
knowledge and technical skill into the conduct of min-
ing operations. The production of the precious metals
had received a shock from which it was not to recover
for more than one thousand years.
"We may safely conclude," says Mr. Jacob, "that
after the third or fourth century the labor of extracting
the precious metals had gradually diminished within
^ Dacian miners re-info reed the Goths who defeated and slew ths
Emperor Valenj.
PR OB UCTION OF TEE PRECIO US METALB.
'
1 29
the limits of the Boman Empire; and that, from the

fifthcentury, after the more afflicting irruptions of the
barbarians into the weak and tottering Western Em-
pire, it had altogether ceased." — [P. 101.] " In the pe-
riod from about 480 to 670 or 680, the greatest diligence
has been able to discover no trace, in any author, of the
operations of mining having been carried on." [P. 131.J —
produced in the supply of
It v?as to the decrease thus
the precious metals, beginning "at the very time when
the victories of the legions and the wisdom of the An-
tonines had given peace and security, and, with it an
increase innumbers and riches, to the Roman Empire,"
and proceeding to such an extent as to allow the stock
of money to waste away to probably less than one-
tenth the amount held in the reign of Augustus, that
Alison attributes the Decline and Pall of that mighty
fabric of military power, legislative wisdom and admin-
istrative skill. The value of money undergoing a con-
tinual enhancement by the falling off in the yield of the
mines, the producing classes were kept at a constant
disadvantage in competition with the more alert and in-
telligent exchanging and speculative classes ; while the
debtor class was put at an increasing disadvantage in
its relations with the creditor class through the grow-
ing aggravation of all charges fixed by custom or by
contract.
From the long dearth of money which prevailed from
the foundation of the Empire, the first signs of revival
came with the Saracen conquests in Europe, in the
eighth century. That revival, however, only proceeded
so far as, by Mr. Jacob's computations, to put a stop to
the waste of the stock of money, and to keep the vol-
ume in circulation good from 806 to the period of the
discovery of America. "The whole period," says this
11*
130 MONEY.
writer, "was a time of hostility and turbulence.

There
was little and less
security for any kind of property,
still for that which could alone induce the working oJ
mines for silver and gold. None of the mines that are
noticed were uninterruptedly wrought, and few of these
were worked simultaneously. Some were most product-
ive at one period, and then yielded nothing for centu-
ries, while others were discovered, explored and speed-
ily abandoned.
"The art of separating the precious metals from the
ores and from the inferior metals with which they had
been mingled had been lost' since the time of the Ro-
man operations, and were recovered by the same slow
and gradual steps by which the ancients had proceeded.
As the mines were worked in countries very remote
from each other, the improvements, either in the me-
chanical or scientific process, would not be speedily dif-
fused, and though some might advance rapidly, others
would do so at a slower pace." [P. 193.] —
It is in view of the general facts of production re-

cited, and of the elements of loss and waste which have
been indicated, that Mr. Jacob makes his computations,
so frequently cited in economical discussions, of the
quantity of the precious metals in circulation at the
discovery of America.
He assumes that in the year 14 A.D., there was in
existence, as money, £358,000,000. Every thirty-six
years he supposes that ten per cent, was lost by abrasion
in use, which would leave in the year 158 A.D., £283,-
' " L'art mSme des mines se perdit." — [Chevalier, La Monnaie, p

431.]
:
PRODUOTION OF THE PREQIOUS METALS. 131
263,800 ; in 302, £147,374,380 ; in 482, £87,033,099 ; ir
806, £33,674,256 ; whicli last figures he takes as repre-

senting the lowest point reached by the stock of money
within historic times. In the seven hundred years that
followed, Mr. Jacob holds that this amount was kept
good, but not increased,' by the yield of the mines,
especially those of the German Empire.
'
To show the high purchase power which money had obtained in
England through its scarcity, Mr. Jacob gives numerous illustrations,
of which the following will suffice

King Henry VI, being held a prisoner by Edward IV (1470),
there was allowed for the subsistence of himself and his suite of ten
persons, £3 10s. per week. Lady Anne, daughter of King Edward

m, was allowed £1 lis. weekly " for her exhibition, sustcntation,
and convenient diet of meat and drink." —[Inquiry into the Precious
Metals, p. 180.]
CHAPTEE VII.
THE PBODUCTION OF THE PKECIOUS METALS. —1492-1848.

In 1492 America was discovered. The first lands
reached by the Spaniards" did not produce the precious
metals in abundance ; but enough was in the posses-
sion of the natives to excite the cupidity and inflame
the imaginations of the discoverers. Their accounts of
enormous quantities of gold and boundless treasure are
calculated to deceive the readers of the chronicles of
the early conquests.Humboldt estimates the average
annual amount of the precious metals which America
furnished to Europe, 1492 to 1500, at only about
X62,000.
It was not Mexico by Cortes, in
until the invasion of
1519, that the yield was greatly increased. The Mex-
ican treasure consisted mainly of silver, which metal
was destined to form the greater part of the New World's
production during the next three centuries.
The conquest Mexico aroused the ambition of
of
Pizarro, and the invasion and subjugation of Peru
speedily followed, bringing to the supply of the ex-
hausted circulation of Europe at once the large annual
yield of the mines of that country, and the accumula-
tions of past production, in th ) temples and in the pal-
aces of the Incas.
PR on UCTION OF THE PRECIOUS METALS. 133
Estimating tlie annual production of the new world
between 1492 and 1521 (the date of the capture

of the city of Mexico) at £52,000, which is Hum-
boldt's estimate for the period 1492 to 1500, and
which it is safe to continue to 1521, we have
£1,308,000
From 1521 to 1545, Humboldt estimates
the annual production at £630,000, 15,750,000
1492-1545, - - - £17,058,000
In the latter part of the year 1545, the mines of the
Cerro de Potosi were opened. The fame of the dis-
covery soon attracted a large population and the mount-
ain was pierced in every direction. The real date of
the finding of the treasures of the new world is 1545,
not 1492.
Of far more lasting consequence, even than the dis-
covery of the deposits of Potosi, was the discovery by
Medina' of the process of amalgamation by the use of
mercury. The mines of Potosi, wonderful as they
were, would in time be exhausted but the process of ;
this humble Mexican miner is practiced to-day in every

quarter of the globe where silver ores are raised.
The annual supply of the American mines for the
fifty-four years, 1546-1599, Mr. Jacob estimates at
£2,100,000, while the miners of Europe, especially

those of the Pyrenees and of Languedoc, stimulated by
the fame of the trans-Atlantic treasures, redoubled their
'
"Medina fut pour I'industrie mStallurgique, ce (jue Triptoleme
avait ete pour la culture du sol dans les temps priinitiik " . .
" Habituellement I'esprit humain n' arrive aux formules simples qu'en
tiaversant beaucoup de complications; ce pauvre mineur fut plus
heureux ; du premier coup, il trouva une recette tellement simple, que

penda.it trois siecles on n'y a presque rien changd '
— [M. Chevalier
La Monnaie.]
12
:
134 MONEY.
exertions and their production. For the entire period

1492 to 1599, Mr. Jacob makes the following computa-
tion:
Stock of money current in Europe, at the discov-
ery of America, - - - £34,000,000
Additional product, after making allow-
ance for the loss by natural wear
(sxo per annum), - - 138,000,000
.£172,000,000
Deduct from itwhat had been convey-
ed to Asia (xo) and what had been
applied to arts and industries (t), 42,000,000
Stock in 1599, - - £130,000,000

From 1600 to 1699, the elements of the problem ara
increased by the contributions of Brazil; and the esti'
mate of annual production, in which Mr. Jacob con
ours substantially with Humboldt, rises to £3,375,000
Stock of coin, 1600, - £130,000,000
Deduct for abrasion and
loss 1600-1699, - 43,000,000
£87,000,000
Produce of the mines, 100
yârs, - - - 337,500,000
Transferred to India and
China, - - - 33,250,000
£304,250,000
Deduct as converted to
other uses than coin, 60,250,000
£244,000,000
Deduct for abrasion and
loss, - - - 54,000,000
210,000,000
£297,000,000
It -was in the latter portion of the sixteenth, and the

earlier portion of the seventeenth century, that the
effects of the new supply of the metals appear to have
been realized in the prices of produce in the countries
of Europe. Adam Smith entertains the view that, uu-
til the year 1570, silver did not fall in value.' At
the latter date, however, the influence of the astonish-
ing production of silver at Potosi began to be felt.
Frota 1570 to 1640 silver sank rapidly. Corn rose from
about two oz. of silver the quarter, to six or eight oz.^
"The discovery of the abundant mines of America
seems to have been the sole cause of this diminution in
the value of silver, in proportion to that of corn. It
is accounted for, accordingly, in the same manner by
everybody, and there never has been any dispute, either
about the fact or about the cause of it."
So great a fall in the value of the precious metals
could not but powerfully affect the social and industrial
conditions of Europe. We, have seen how far Mr. Hume
and Sir A. Alison attribute to it the astonishing devel-
opments of the centuries which followed. Even so
careful an economist as Prof. Cairnes declares that the
produce of the mines of the New World " supplied and
rendered possible the remarkable expansion of oriental
trade which forms the most striking commercial fact of
^
the age that followed."
' Wealth of Nations, i, 187-202.

' Mr. Hume wrote: "By the most exact computations that have
been formed all over Europe, after making allowance for the altera-
tions in the numerary value, or the denomination, i1; is found that
the prices of aE things have only risen three, or at most four, times
since the discovery of the West Indies." Mr. Jacob makes Dut the
increase to have been as from 100 to 470.
'
Essays in Political Economy, p. 110.
136 MONEY.
On the other hand, so rapid was the fall, so great

the disturbance of trade and industry that followed, sc
wholesale the reduction in the value of fixed incomes
and permanent charges, that wide-spread distress and
much permanent pauperism resulted. Even in the vieM-
of those who advocate the gradual depreciation of mon-
ey, the depreciation efi'ected between 1570 and iBiO
was too sudden and violent to be consistent with the
best results. Mr. Jacob attributes to the overwhelm-
ing changes in the purchase power of money, at this
period, that sudden increase of pauperism which gave
occasion for the establishment of the English Poor
Laws and those financial embarrassments of Charles I
;
which led to the Great Rebellion.' Instead of a slow

and gradual diminution of the weight of indebtedness
(that mortgage which the representatives of past pro-
duction hold upon the produce of present labor), debts
were, in many cases, almost confiscated by the rapid de-
preciation of the money in which they were to be paid.
The creditor class was very generally impoverished, if
not hopelessly ruined.
In seventy years, however, the work, so far at least
as England was concerned, was accomplished. " Be-
t\êen 1630 and 1640, or about 1636," says Adam Smith,
"the effect of the discovery of the mines of America, in
reducing the value of silver, appears to have been com-
pleted and the value of that metal seems never to have
;
'
Prof. Cairnes holds the same view: "Less directly, but sMll in-
timately connected with the same event were the sudden growtl'
and tenlôâ^y splendor of the Spanish monarchy, the establishment
of the I'oor Laws in England, the financial embarrassments of
Charles I, which resulted in the Long Pariiament and the Revolu-
tion, and the rise and progress of British maritime power." — [Essays,
p. 110.
PR OD UCTION OF THE PREOIO US METALS
137
sunk lower, in proportion to that of corn,
than it waa
about this time."
Let us follow Mr. Jacob in his further inquiry

into
the Moncj-supply.
Down to the close of the seventeenth centurj-,
lie
had assumed the loss by wear, on the general mass
of
coined gold and silver, to be tfo annually. The
reaso]i
for this was, in hisown language, "If the rate of loss
by wear on gold money was at the rate of one part in
600, and that money was one-sixth of the circulating
medium, and if the rate of loss on the silver money was
at the rate of
one part in 150, the mean rate of depreci-
ation would be as near to one part in 360 as can
be cal-
culated."— [P. 300.] After 1700, however, Mr. Jacob
adopts a different assumption, taking the ratio of silver
to gold in use,no longer as 6:1, but as 4:1. Gold
being more durable than sUver, we have a lower rate
of annual consumption in the total mass, which is
henceforward, for the purposes of these computations,
taken as xto annually.
The eighteenth century witnessed the comparative
decline of the miues of Peru and the rapid development
of those of Mexico,^ whose production increased two-
' M. Chevalier, in Ms treatise " La Monnaie," has set in striking

contrast the condition of mining in the one country and in the otlier.
" La plupart des mines mex'caines sont dans de fertiles contrSes, ou
la vie est facile. Let mines du Perou ocoupent une tare glacee, en
Taison de son elevation extrîiie, et oil les arbres meme refusent de
croitre. On y touche de la main les neiges eternelles. . . . C'cst
la Siberie sous I'equateur, la Sib^rie sans ses forets qui ofFrent au
metaUurgiste un combustible in^puisable ; la Sib&ie sans f^ plaines
aisles S. parcourir ; la Sib&ie sans f es fleuves majestueux qui y don-
nent, psndant la belle saison, un syotdme de communication plus com-
mode encore que Ic traineau sur les neiges de I'hiver." — [Pp. 379-SO.l
138 MONEY.
fold, fourfold, and even fiyefold, before tlie close ol

the period.
Stock in Europe, 1700, £297,000,000
Deduct for friction and
loss, 1700 to 1809, 71,000,000
£226,000,000
Add produce of mines,^ 880,000,000
Deduct I for Asia, - 352,000,000
528,000,000
Deduct -f as applied to
otter uses than coin, 352,000,000
176,000,000
Deduct for wear, -j-g-Q an-
nually, - - 22,000,000
154,000,000
Stock in 1810, - - £380,000,000^
The year 1809 marks the beginning of a new epoch

in the history of the Money-supply.
From 1492 onward, the yield of the precious metals,
though Taryiug greatly at times, had never fallen below
what was necessary to keep up the supply of coin, after
all the loss in wear, the consumption of the metals in
' Spanish America, about £706,000,000; Portuguese America,

about £80,000,000; gold and silver from Europe and gold dust from
Africa, about £94,000,000.
' " This computation," adds Mr. Jacob, " though by a very different
process, gives a result so nearly approaching to those of Forboimais,
G-erboux, and Heron de Villefosse, that it seems more entitled tc

confidence than that of Necker, who rated the coi: of France to' be
nearly equal to that of all Europe, and the collective stock not much
to exceed one-ha^f of this estimate." — [P. 315.]
PR OD UCTION OF THE PRE 010 US METALS.
139
the arts, and the steady and increasing
drain to India;
while for the entire period the excess of the
supply over
the requirements for these purposes had
been such aa
to raise the amount in existence throughout
the civil-
ized world, as coin, according to Mr. Jacob's
estimate,
from £34,000,000 to £380,000,000.
But a change was to come. The disturbed state of
Europe, and particularly the invasion of Spain by Bo-
naparte, incited the Spanish colonies to assert their in-
dependence. For twenty years war and civil convulsions
racked the populations of Spanish America to a degree
that became almost destructive of all settled industry,
but produced their first and worst effects upon the min-
ing of the precious metals. "In each district," says
Mr. Ward, in his work on Mexico, "the principal mines
were abandoned the machinery was allowed to go to
;
ruins, and the silver raised was merely the gleanings of

more prosperous times, the workings, where any were
attempted, being confined almost entirely to the upper
1
levels."
Tet, even in this abandonment of the mines by the
capitalists and by the organized bodies of paid and
trained miners, Mr. Ward notes that production did not
wholly cease, even in the districts most affected. "It
is a fact," he remarks, "universally admitted, that in
almost all the mining districts, although the towns have
been ruined by the emigration of the wealthy inhabit-

'
ants, whose capitals were formerly invested in mining
operations, the lower classes have throughout the rev-
olution found means to draw their subsistence from the
mines. Under the denomination of buscones, or search-
3rs, they have never ceased to work; and although,
'ii,21.
140 MONET.
fron: thewant of metliod in their operations, they have

done the most serious injury to the mines themselves,
they have in general continued to extract from the up-
per levels, or from the old workings, neglected in better
times for others of greater promise, a very considerable
quantity of silver. This desultory system is still pur-
sued in many parts of the country and at Zirmapan,
Zaculapan, El Doctor, and many of the northern dis-
ti'icts, a large population is even now maintained by it."
Like causes, operating between 1811 to 1820, pro-
duced like effects in Chili, Peru, Colombia and Buenos
Ayres. The gold product of Brazil had begun to de-
cline, even by the middle of the preceding century, and
the occasion of war between England and the United
States, 1812-5,by giving an impetus to the cultivation
of cotton, caused a still more rapid decrease in the
yield of the mines. At the same time the product of
Hungary and Austria, which had been the great re-
source of Europe during the money-famine of the Mid-
dle Ages, fell sharply off to one-half its former amount.
In one direction only did an increase appear. The
mines of the Ural mountains in this period began to
yield a large, and, after 1823, constantly increasing vol-
ume of the precious metals.
Mr. Jacob enters with much detail into the inquiry,
how much of the gold and silver of Europe and America
was drawn into consumption in the arts during the pe-
riod 1809 to 1829, the latter date marking the close of
his investigations. For the first time statistical infor-
mation, more or less precise, is available to form the
basis of his computations. The facts brought out in
his 26th Chapter as to the use of the precious metals
by the gold-beaters, the water-gilders, the jewelers and
the decorators of china-ware, and in the manufacture
:
PRODUCTION OF THE PRECIOUS METALS. ],41
of plate and of watches, are exceedingly interesting,

Our space wiU not serve to present his results in debail.
One item, only, deserves to be taken out of the account
and separately stated
"According to the information collected from the
most considerable refiners, who are commonly the pur-
chasers of broken pieces of gold and silver, of burned
lace and picture frames, and of foreign gold and silver
coins, the quantity of old metal used in this trade is very
small.
" "We cannot deem these meltings of old gold and sil-
ver goods to have contributed more than a fortieth part

to the precious metals that have been applied to useful
or ornamental purposes during the last twenty years."
—[P. 367.]
Of the drain to the East, Mr. Jacob remarks :
" In the former part of this inquiry, in all the recent
divisions of the subject, a large and rather doubtful al-
lowance has been made for that portion of the precious

metals which passed to the several parts of Asia by the
channels which Humboldt has traced.
"A great change has been effected in the commerce of
the East within a few late years. . , . . Though large
quantities have been transported there in some years,
other quantities have been again returned to Europe,
not, indeed, of the same species of metal, nor in equal
quantities. Silver has been conveyed to Asia, and gold
has been exported from thence."
After a criticism of the estimates of Humboldt, which
he deems excessive, Mr. Jacob concludes " We see no
:
necessity for considering the whole trade of Asia, taken

collectively, to have absorbed more of the stock of the
precious metals which Europe had collected from the
12*
142 MONEY.
inines of America and from those within her limits,

than to the amount of ^2,000,000, annually, within tho
twenty years we have been reviewing."
Mr. Jacob issues from his investigation of the Money-
supply of the period 1809-1829, with the following re-
sults :
Stock of coin, 1810, - - - £380,000,000

Loss by abrasion, - - - 18,095,220
361,904,780
Supply of the mines' - - - 103,736,000
£465,640,780
Converted into utensils
and ornaments - £112,252,220
Transferred to Asia - 40,000,000
152,252,220
£313,388,560
So marked a diminution in the Money-supply of the

world, coinciding with the vast increase of public and
private indebtedness, could not but excite serious ap-
prehension as to the future among economists and
statesmen. The apprehension felt on this subject was,
indeed, the motive of the investigation which Mr. Jacob
undertook, with the results which have been exhibited.
We have seen with what alarm the English historian of
this period of European politics contemplated the
threatened reduction of the Money-supply through an
indefinite future.
For the period between 1830 and 1848, we have no
such careful guide to follow. The general facts are
' Of -w-Moh Spanish America furnished £76,626,768; Brazil, £4,-
110,000
kjiown. From 1823, as has been stated, the production

of the Ural Mountains took on a steady rate of increase,
while later still, about 1830, the auriferous sands of
Siberia* became known, and after 1840 yielded a far
larger mass of gold than that taken from the Ural re-
gion. By 1848 the annual supply of gold alone had
risen to about £8,000,000, as estimated by Gheyalier, a
yield quite sufficient to remoye all apprehension of a
positive decline in the supply, and, indeed, adequate to
secure a progressive increase of the stock of money.
'
M. Leon Faucher strongly contra.its the popular character of gold
mining in Australia and California, with the severe restraints and
high taxes imposed dc this indistry by the government of Russia.
CHAPTEE Vni.
THE PRODUCTION OF THE PRECIOUS METAXS THE — CAT.TFOB-
NliN AND AUSTRALIAN EPISODE.
In 1848 the existence of ricliand vast deposits of

gold on the Pacific^ coast of the United States was
made known, followed quickly by the Australian discov-
eries of 1851. At once the annual yield of the precious
metals rose to .£38,000,000.
Of the disturbance of the proportions existing be-
tween the values of gold' and silver, from the fact that the
new supply was almost exclusively of the former metal,
we shall find occasion to speak hereafter.^ An increase
so sudden, so tremendous, in the volume of the precious
metals was well calculated to arouse the expectation ol
economists.
"The auriferous rocks and sands of California and
Australia," wrote Prof. Cairnes,' " are as much superior,
in richness and abundance, to those which rewarded the
industry of the Spanish adventurers, as the latter were
superior to all which had been previously known."
"The circumstances of the present time," he contin-
Up to this time gold had been produced at several points on the

Atlantic Slope, especially in North Carolina and Georgia. It waa
also raised in very small amounts in Virginia, South Carolina, Ala-
bama and Tennessee.
' See p. 233-5.
* Essays in Political Economy, p. 110.
ued, "are not such as to preclude the possibility of a

recurrence of events similar, or analogous, to those
which the first American discoveries drew after them.
Those events were of the greatest moment to mankind,
They included the rapid colonization of America by
European races; great and lasting 'changes in the chan-
nels of trade; striking vicissitudes in the fortunes of
nations, and a monetary revolution, the effects of which
have been felt in every quarter of the globe."
It was in a sort of panic at the effects of the new sup-
plies to be anticipated in the immediate future that
M. Chevalier wrote his well-known work on the "Prob-
able Fall in the Value of Gold;" but as M. Chevalier
directs his attention mainly to the disturbance of the
relations between gold and silver, and that, too, with
•specific reference to the monetary legislation of his own
country, dealing slightly with the changes which the
new money, by altering the distribution of purchasing
power in the world, should produce in the movements
of trade and the fortunes of nations, I prefer to deal
with the wider views of Prof. Cairnes, presented in four
papers, written at various dates between 1859 and 1872,
which occupy the first part of his volume, entitled
" Essays in Economy," a work which, with
Political
tlie treatise by the same writer on the "Character and
Logical Method of Political Economy," may be com-
m'inded unreservedly to every student of the science.
What, then, were the facts with which Prof. Cairnes
had In a word, the production of the precious
to deal?
metals had suddenly sprung into an activity, due to the
discovery of mines in hitherto unsettled and but par-
tially explored regions,^ which seemed to show the capa-
' " Between the years 1849-1868 it is calculated that gold valued
at £657,000,000, and silver at £345,000,000 have been added to the

146 MONEY.
bility ' of doubling the stock of the world in twenty oi
twenty-fiye years.
What was to come of this?
Let us revert to our statement of the elements of tha
problem of the Money-supply. The loss of coin by
abrasion in use is now reduced to a minimum, first, by
improvements in coinage, especially in the matter of
alloys, and, secondly, by the very general use of paper
substitutes for coin in circulation.
Prof. Cairnes had next to consider the probable de
mand for the consumption of the metals in the arts.
On this point he adds nothing to the minute and search-
ing analysis of M. Chevalier, but adopts the conclusion
reached by that economist, viz., that not much was to
be expected from the extending use of gold in' manu-
factures^ as a means of disposing of the new supplies.
India and the East remained as the possible absorb-
ent of the stock of silver, so far as it should be released
stock of precious metals in the world. Of this gold, £365,000,000

have been added from new sources." —[Rogers's Notes to Adam
Smith, i, 250".]
'
In reading the essays of Prof. Cairnes and the work of Chevalier
on " Gold," it should be remembered that they wrote at a time when
California and Australia still possessed vast- tracts which had no-,
been subjected to scientific survey or even to reconnoissance ; and

thus the extent of the gold fields could scarcely be conjectured..
' Prof. Cairnes deems the use of gold for ornaments characteristic
jf semi-barbarous life. " The superfluous expenditure of a nation
advancing in civilization is accordingly devoted less and less to ob-
jects which absorb mere masses of gold and silver, and more and
more to purposes of a higher order; to the beautifying of its do-
mains, the embellishing of its houses, the general cultivation of its
tastes; and parks and mansions, pictures, sculpture and books, take
the place of accumulations of plate and collections of jewelry,*'
-[P. 133.]
PR OD UCTION OF THE PRECl US METALS. 147
from money by the superabundant sup-
tlie offices of
plies of goldpouring into Europe from the new mines.

The capacity of the East to absorb the precious met-
als in vast amounts had been amply demonstrated when
Prof. Oairnes wrote. According to the computations of
M. Chevalier, the exports of silver to India and China
reached, in 1857, the prodigious sum of £20,145,921,
"that is to say, more than double the yield of all the
silver mines that supply the markets of the Western
world." ^ "This exportation," continues the writer, "is
independent of an exportation of probably one-tenth of
the above amount in gold, which has been going on dur-
ing the last few years." The closing remark intro-
duces a new feature of the situation. The East, which
from the had never ceased to exchange its
earliest ages
gold for the silver of the West, had itself become, in no
inconsiderable degree, a consumer of gold.^
In spite of the apparent capacity and disposition of
India and China to absorb a great portion of the new
supplies of the precious metals. Prof. Cairnes was not
prepared to accept this as the solution of the problem.
"In India," he wrote, "though more than a century
' On Gold, p. 65. M. Chevalier explains this increase in the ship-
ments of silvei- partly by the civil war in China, causing a demand

for that form of wealth which can be most easily concealed, and
partly by the Indian Mutiny, involving extraordinary expenditures
by the government for the supply of troops in the field. The falling
off in the European grain crop had also increased the demand for the
-
rice of the East,

' and the failure of the crop of silk in Italy and
France had obliged manufacturers to resort to China for a much
larger portion than usual of their material.
° The London "Economist" estimates that between 1858 and 1872
China and India received and retained £90,000,000 in gold. Little,
however, of this is used as money; s«e the Report of Mr. G-OHchen's

Committee, Q. 939, 1015, 1085.
;
148 MONET.
under Britisli rule, the advantages of credit, as a medi-

um of exchange, are only beginning to be understood.
The circulation of bank-notes is exceedingly limited,
and confined to some of the Presidency towns
is still
checks, by which so large a portion of the business of

this country is carried on, are but slightly used; and
the great mass of transactions is effected by a transfer of
rupees bodily in every sale. The magnitude of the
transactions conducted in this manner may be estimated
by the fact stated by Sir Charles Napier, that the es-
cort of treasure constituted one of the severest duties
of the late Bengal army from 20,000
; to 30,000 men being
constantly occupied in this manner. The quantity of
the precious metals employed in thus carrying on the
internal traffic of India has been variously estimated
between £150,000,000 and £300,000,000. But this state
of things is evidently not destined to be of long contin-
uance. Mr. Wilson's recent minute gives grounds for
believing that the Indian government are alive to this
subject, and that India will soon enjoy the advantages
of an effective paper system. Such an event cannot
fail to be attended with important consequences on the
trade and industry of that country and among these ;
consequences we may expect this, that, instead of re-

quiring, as now, continuous large additions to her pres-
ent enormous stock of metallic money, she will not only
be enabled to dispense with these, but will find it for
her interest to part with a large portion of what she
now employs ; the coin thus liberated will form a new
tributary to swell the increasing surplus, and the iuflu-
ences tending to depress the value of gold will be in-
creased."^
'
Essays in Political Economy, p. 127.
PR OD UGTIGN GF THE PRE 010 US META L8. 14S
Foi the above reasons Prof. Cairnes lield with M.

Chevalier, that "the currency offers the one sole chan-
nel by which the principal part of the enormous pro-
duction of gold can find an outlet " the population of :
civilized countries advancing at the rate of one and a

half per cent, per annum ;
gold, or at least that portion
which goes into general circulation, increasing by more
than ten per cent, per annum.
So much for the Money-supply. How of the demand?
Will the increasing requirements of trade absorb any
large proportion of the new supplies without allowing a
rise of prices, that is, a depreciation of money? To
this Prof. Cairnes replies :
" The proportion of the
trade of the world which is carried on with metallic
money is and constantly tends to di-
daily diminishing
minish." In one direction only Prof. Cairnes found an
occasion for an actual increase, though not an exten-
sive one, of the Money-supply without an advance of
prices but to state this new source of demand would
;
be to anticipate the natural development of the argu-

ment. I shall, therefore, refer to it at a later period.'
In general, then, we may say that Prof. Cairnes agreed
with M. Chevalier in holding that " the Currency ''
af-
forded the main channel by which the new supplies

must find their outlet; and, also, in holding that the
wants of trade were not likely to allow such an addition
to the money of the world ^ without an advance of prices,
that is, without a depreciation of money: a deprecia-
tion •N^'hich, if the rate of production was to be main-
tained, must be rapid and extensive.
'
See p. 156.
^ " It would be difficult to estimate at more than 6 milliards [£240,-
000,000] the sum required for the circulation, independently of silvei
-Dor?y, of all the nations of Christendom." — [Chevalier on Gold, p
100.]
,
150 MONEY.
With what results to the several countries of the

world and to the several classes of commodities ? Pro£
Cairnes's inquiry into these effects of the new Money-
supply constitutes one of the most valuable of receni
contributions to economical science.
It will appear that all the positive results a writer may
obtain in such an investigation must be in contravention
or modification of Mr. Eicardo's principle of the distri-
bution of the precious metals. If such a distribution is
to be achieved only with appreciable intervals, allowing
effects of serious consequence to be wrought, as the new
supplies pass,by equable process, or "by jerks," to use
M. Chevalier's phrase, from one country to another,
from one class of commodities to another, from one
body of producers to another, we shall find the neces-
sity, which it was intimated at the outset^ might arise,
of qualifying the principle which we provisionally ac-
cepted, as governing the relative proportions in which
the money of the world is to be divided among the sev-
eral nations, communities and classes of producers.
Prof. Cairnes holds strongly that it is of distinct
economical consequence where thte gold-supplies issue
and in what relations, geographical and commercial,
other nations stand to the sources of the new produc-
tion. That is, he holds that the immediate effects of
that production would be importantly different were
the thirty or forty million pounds yearly issuing from Cal-
ifornia and Australia to be yielded by mines scattered
over the surface of Europe and Asia. "Gold and silvei',
like all other things which are the subjects of interna-
tional exchange, possess local values ;^ audit is by a suc-
'
Seo p. 57.
''
" The lower the local value of the precious metals in any country
llie greater will be the adrantafjo to that couTitry in foreign markets.
PROLUOTION OF THE PRECIOUS METALS. 151
cession of operations on tlie local values of gold of an

unequal and fluctuating character, that its depreciation
is being effected, and that (the conditions of production
remaining as at present) its value will continue to It-

cline. The twofold^ rise of prices in the gold countiies
forms the first step in this progress, and
it will be
through a series of similar partial advances in other
countries, and not by any general movement, that the
depreciation of the metal throughout the world will be
accomplished, if that consummation is indeed to take
place."— [P. 82.]
So vast a volume of the precious metals cannot. Prof.
Cairnes holds, be poured into the reservoir from which
the nations draw their supplies, without producing dis-
turbances which will be very unequally experienced by
the several nations, according as they are geographic-
ally and commercially near to or remote from the place
of discharge. Of the great depreciation in the 16th
Century, he remarks " This disturbance was in favor
:
of the Spanish, the Portuguese and the Dutch, while the

English, further removed from the spring-head of the
new metal, received their supplies more slowly and in
scantier streams. Money incomes in England there-
fore rose less rapidly than prices in common markets ;
and the population of England suffered accordingly.

We have no doubt that this was a leading cause of the
industrial distress which prevailed throughout a por-
tion of the reign of Queen Elizabeth, and which led to
the introduction of the Poor Laws."
— Tr. 84.] ..." Every country, therefore, is interested in rais-
ing as rapidly as possible the prices of i\s productions — in other
words, in the most rapid possible depreciation cf the local value of
its gold."— [P. 85.]

• See p. 153.
152 MONET.
moTement, however, the tables

" 111 the present gold
have been turned, and the monetary disturbance is now

in favor of the Anglo-Saxon. It is now England and
the United States that have tkeir hands in the till, and
the money which they extract is employed in raising
prices^ against the nations which in the 16th Century
were gainers at their expense." — [P. 150.]
But if such be wrought as between na-

effects are to
tions, according as they are geographically and com-

mercially near to or remote from the sources of supply.
Prof. Cairnes attributes to the gold discoveries a decid-
ed potency, also, in altering the distribution of wealth
among the different producing classes of each nation by
turns. Ultimately, in this respect, as between nations.
Prof. Cairnes admits that an increase of money, where
the conditions of production remain in other respects
the same, must come to affect the prices of all commod-
ities and services in an equal degree " but before this ;
result is attained, a period of time, longer or shorter ac-

cording to the amount of the augmentation and the
general circumstances of commerce, must elapse. In
the present instance, the additions which are being
' " The rise in price has been most rapid in commodities produced in
the gold countries ; having in these, at a single bound, reached its
utmost limit —the limit set by the cost of procuring gold. After
commodities produced in the gold regions, the advance, I conceive,
will proceed most rapidly in the productions of England and (:je
United States; after these, at no great interval, in the pnductioua

of the continent of Europe ; vchile the commodities the last to feel
the effects of the new money, and which will advance most slowly
under its influence, are the productions of India and China, and I
may add, of tropical countries generally so far as these share, as re-
gards their economic conditions, the general character of the formei

countries." — [P. 73.] This was written in 1858.
PRODUCTION OF THE PRECIOUS METALS. 15S
awade to the monetary systems of the -world are upon

dn enormous scale, and the disturbance effected in the
relation of prices is proportionately great. Under
such circumstances it is very possible that tlie ineqvali-
ties resultingmay not find their correction throughmt tlit
whole period of progressive depredation; a period which
oven with our present facilities of production and dis-
tribution may easily extend over some thirty or forty
years. During this transitionary term, the actions of
the new gold on prices will not be uniform, but partial.
Certain classes of commodities and services will be af-
fected much more powerfully than others. Prices gen-
erally will rise, but with unequal steps." — [P. 56.]
An increased production of gold, argues Prof. Cairnes,
operates to raise prices by a twofold process, first, di-
rectly,through the medium of an enlarged money-de-

mand secondly, indirectly, through curtailing the sup-
;
ply of articles which do not come within the range of

the new demand.
The rise of wages in the industries which feel the force
of the new demand will raise wages in those depart-
ments not so affected; but the prices of their products
cannot advance proportionally hence profits fall below
;
the average, which contracts the production and the

supply offered.
"An increased supply of money thus tends, by one
mode of its operation, to raise prices in advance of
wages, and thus to stimulate production ; by another, to
raise wages in advance of prices, and thus to check it;
in both, however, to raise wages, and thus ultimately to

render necessary, in order to the maintenance of profits,
a general and permanent elevation of prices." '
— [P. 60.]
'
This is not inconsistent with Eicardo's doctrine that "high wa-
ges do not make high prices.'' That doctrine assumes the value of
tjionpv to be con.=itant.
:
154 MONEY.
In this view, Prof. Cairnes turns his attention to three

points
1. What is, and is likely to be, the direction of the
new expenditure?
2. What are the facilities for extending the supply of
the articles which feel the force of the new demand?
3. What is the term within which the production of
articles which are left out of the new demand may be

duly- curtailed?
As to the first point, the new expenditure will natu-
rally be determined by the habits and tastes of ths per-

sons into whose possession the new money comes, viz.,
in the first instance, the inhabitants of the gold coun-

tries, and secondly, those persons in other countries
who can best supply the wants of the former class.
"Speaking broadly, we may say that the persons who
will chiefly benefit by the gold discoveries belong to the
middle and lower ranks of society, in a large degree to
the lowest rank, the class of unskilled laborers." — [P.
61.J What the principal objects of their expenditure

are likely to be, does not require to be indicated.
As to the second point, the facilities for extending the
supply will depend on two circumstances : (a) the de-
gree in which machinery can be employed ; (6) the de-
gree in which the process of production is independent
of natural agencies which require time for accomplish-
ing their ends.' "The distinctions marked by these
two conditions, it will be found, correspond pretty ac-
' Thus, the production of cotton throughout the world might oon-
cei\ ably be increased thirty or fifty per cent, in a single year, in
obedience to a strong demand. It would take several years to in-
crease the production of wool in the same degree. In the former

case, it would only be necessary to sow a greater breadth of land ; in
the latter case, the increase of the flocks iôuld require time.
PRODUCTION OF THE PREOIOU.l METALS. 155
curately with two other distinctions—with the distinc-

tion, between raw and manufactared products:
viz.,
and, amongst the raw products, with that between those

derived from the animal and those derived from the
vegetable kingdom." [P. 61.J —
As to the third point
the supply of a commodity is
:
not at once or easily contracted, on a falling off of de-

mand, inasmuch as capital' is invested in the produc-
tion and cannot disengage itself. "The difficulty of
accomplishing this will generally be in proportion to
the amount of fixed capital employed; and the princi-
pal form in which fixed capital exists is that of machin-
ery. It is, therefore, in articles in the production of

which machinery is extensively employed —that to is
say, in the more highly finished manufactures —that

the contraction of supply will be most difficult ; and
this, it will be observed, is also the kind of commodities
for extending the supply of which the facilities are
greatest. "While, therefore, manufactured articles can
never be very long in advance of the general movement
of prices, they may, of all commodities, be the longest
in arrear of it."— [P. 63.]
We have, perhaps, already sufficiently discussed the
effects of a depreciation of money, in producing a dim-
inution in the burden of permanent charges, vents,
taxes, interest, etc.
' Prof. Cairnes gives much 'less weight here than he should do—
less than he himself has given in his "Political Boonumy " (see his
(heory of "Non-Competing Groups," pp. 70-3) — to the consideration
(hat labor, also, is committed to certain hnes of production, and can-

uot soon or easily change its direction. In a degree, therefore, it
submits to reductions of wages, which allow of prices being reduced

without a corresponding diminution of profits, hence stimulating de-
mand, and hence breaking the force of the impulse to contract pro-
duction.
—
156 MONEY.
What, to follow out Prof. Cairnes's reasoning in a sin-

gle direction only —for
our space will allow no more
what will be the influence of the progressive depreciation
of the precious metals, upon the condition of the work-
ing classes? M. Chevalier had held that the effects must
be prejudicial, at least whiLe the change should be in
progress. "Experience shows," he declares, "that
when provisions wages are not necessarily raised
rise,
in the same proportion." Prof. Carrnes, on the other

hand, says of the working classes, " the general effect of
the gold discoveries will be to alter the distribution of
wealth in their favor, and, on the whole, to benefit
them." — [P. 148.] The proposition that prices rise
earlier and further than wages,' he regards as essen-
tially unsound. If the prices of the laborers' provisions
and clothing rise, it is becatise more money is spent

upon them. " The rise in wages, in short, is (when it
proceeds from abundance of money) the cause of the
rise of the price of commodities." And here we find, in
Prof. Cairnes's view, a certain occasion for an increased

demand for money which will take up a portion of the
new supply without involving a rise in prices. " As the
production of gold continues, the proportion of the ag-
gregate wealth of the world, which goes to the industrial
classes, will increase ; and, the field of credit contract-
ing as we descend in the scale of society, the necessity
for coin^ will increase also." — [P. 131.]
This influence of the gold discoveries, in throwing
'
We shall have occasion to consider this proposition when treat-
ing of inconvertible paper money.

' It was from the operation of this principle, accordmg to this
writer, that England between 1851 and 1860 absorbed into its retail
sirculation an addition to its gold money of not less than forty per
cent, without anything like a commensurate advance of prices, the
population not I'.aving increased ten per cent, meanwhile.

;
PR OD UOTION OF THE PRECIO US METALS. 157
into tliehands of the industrial classes an increased

share of the purchasing power of the world, Prof.
Cairnes regards as "the great redeeming incident of the
gold discoveries. In almost every other aspect in
which we contemplate the occurrence, it is fraught with
incuaTenience, hardship, and injustice, introducing un-
certainty into mercantile dealings, disturbing contracts
which were designed to be fixed, stimulating the spirit
of commercial speculation, already too strong, and bring-
ing unmerited loss upon classes^ who have the strong-
est claims on our sympathy and whom, upon social
grounds, it is most desirable to sustain." [P. 152.]
" That good will on the whole predominate, we believe
—
but let us not, on that account, close our eyes to the se-
rious cost at which this preponderance of good will be
obtained."— [P. 158.]
On the other hand, we have quoted the opinion of
Mr. J. E. McCuUoch, that while cases of individual
hardship may arise, a progressive depreciation of mon-
ey is, like a fall of rain after a long drouth, beneficial
to incomparably the larger part of society, and is of
great public and national advantage.
COEN-BENTS.
The narrative given in this and the two preceding

chapters has exposed the one failing of the precious
'
The classes suffering by the depreciation of money are, according
to this writer, first, those living on fixed incomes, including especially
widows, orphans, and aged persons; and secondly, those "whose
remuneration is determined more by custom than by competition,
and this description includes a much larger number of persons than
is commonly supposed," especially the members of the learned profes-
sions, civil officials, salaried servants, etc. On the other hand, tha
tax-payer gains, the lessee, the mortgagor, the client of the lawyer,
the'patient of the physician, etc., etc.
158 MONEY.
metals in their use as money. That weakness appears

solely in the function of a standard for deferred pay-
ments.^ As the medium of exchange, or the denomina-
tor of values, gold and silver have fully justified tlif
preference bestowed upon them by the general consent

of mankind in the earliest ages. No article that could
be taken combines so many qualities fitting it for such

a use.
Moreover, as a standard for deferred payments, with-
in ordinary terms of commercial credit, the precious
metals derive from their slow consumption in use and
their absolute imperishableness in store, a stability
which no other important article of commerce attains.
From year to year these metals hold their way with

great steadiness, while cotton, corn, coal, and most
of the necessaries of life fluctuate from month to month,
often within a wide range of prices.
When, however, contracts have to be made for long
periods, as in the lease of lands and buildings, or in loans
to governments or corporations, there is always the
possibility, and, in view of recent developments, we
must say the probability, that one or the other party
will suffer loss through variations in the value of the
precious metals.Not to speak of the great changes pro-
duced between 1570 and 1640 by the influx of silver
from the mines of America, Prof. Jevons estimates that
the value of gold fell, between 1789 and 1809, 46 per
cent.; from 1809 to 1849 it rose 145 per cent.; while be-
tween 1849 and 1874 it fell again at least 20 per cent.
Even if we allow largely for the insufiiciency and inac-
curacy of the data used in such computations, there
' The reader will recall Prof. Jevons's statement tliat the several
Money-functions are not necessarily united iv one substance.

PR OD UGTION OF THE PREUIO US METALS. 159
would remain an unquestionable variation, of wide
reach, within each of the periods indicated.
These extensive changes in the value of the precious
metals have given rise to the question, whether some-
thing may not advantageously be substituted for them
in payments protracted through considerable periods
of time. To a certain limited extent such a substitute,
where lands are to be leased, has been found in corn-
rents. Locke advanced this idea in his paper on the
"Value of Money." "Wheat in this part of the world,
and that grain which is the constant general food of
any other country, is th§ fittest measure to judge of the
altered value of things, in any long tract of time."
Mr.
Horner, in his speech during the bullion debates, de-
clared that "Bread-corn is the paramount and real
standard of "We are forced to admit,"
all values."
says Prof. Jevons, " that the statesmen of Queen Eliza-

beth were far-seeing when they passed the act which
obliged the colleges of Oxford, Cambridge and Eton
to lease their lands for 'corn-rents. The result has been
to make those colleges far richer than they would other-
wise have been, the rents and endowments expressed
in money having sunk to a fraction of their ancient value."
A TABULAE STAKDAED FOE DEFEEKED PAYMENTS.
Prof. Jevons, in his excellent work on Money, so fre-

quently cited in this treatise, has re-opened the ques-
tion,"whether the progress of economical and statistical
science might not enable us to devise some better stand-
ard of value?" "We have seen," he says, "that the so-
called double-standard system of money spreads the
fluctuations of supply and demand of gold and silver
over a large area, and maintains both metals more un-
160 MONET.
changed in value than they -woiild otherwise be. Can

we not conceive a multiple legal tender which would
be still less liable to variation? We estimate the value
of one hundred pounds by the quantities of corn, beef,
and other
potatoes, coal, timber, iron, tea, coffee, beer,
principal commodities, which it will purchase from time
to time might we not invent a legal-tender note which
;
should be convertible, not into any single commodity,

but into an aggregate of small quantities of various
commodities, the quantities and qualities of each being
rigorously defined?"
Prof. Jevons sees that a bill-of-goods would be an im-
possible medium of exchange. "This scheme would
therefore resolve itself into that which has long since
been brought forward under the title of the Tabular
Standard of Value." In other words, such a multiple le-
gal tender would only be applied to correct the single
failing of gold and silver as money, viz., in the function
of a standard for deferred payments. After referring to
the schemes proposed' by Messrs. Joseph Lowe (1822)
and Poulett Scrope (1833), Prof. Jevons proceeds to
say :
—
" Such schemes for a tabular or average standard
of value appear to be perfectly sound and highly valu-
able in a theoretical point of view, and the practical diffi-
culties are not of a serious character. To carry Lowe's
'
There is a considerable body of literature on this point. Mr.
Horton [Silver and Gold, p. 157] appends the following note by Dr
Karl Walcker :
" Further progress in this direction is merely a ques-
tion of time. Count Soden, Eoscher, and Sohaffle have rightly
rscommended Mixed Rents, reckoned by the values c£ the precious
metals, breadstuffs and cloths, and the writer, (Dr. Walcker) has pro-
posed that the state should make obligations expressed in these
terms. . . . Soden's idea is applicable only to taxes, salaries,
state obligations, and perhaps for purchase-money of real estate, etc'

and Scrope's plans into effect, a permanent government

commission would have to be created, and endowed
with a kind of judicial power. The officers of the de-
partment would collect the current prices of commod-
ities in all the principal markets of the kingdom, and
by a well-defined systemof calculations would compute
from those data the average variations in the purchas-
ing power of gold. The decisions of the commission
would be published monthly and payments would be
adjusted in accordance with them."
The thought on reading these words of Prof.
first
Jevons is, that such a scheme would " never do for

Yankees." Yet I am not sure that even the desultory
and peremptory genius of our people would offer a fatal
objection to a system which should place under special
safeguards, like those proposed, the property of char-
itable institutions, trust-funds of whatever description,
the estates of widows and of persons retired from busi-
ness. Certainly, as Prof. Jevons says, " such a standard
would add a wholly new degree of stability to social re-
lations, securing the fixed income of individuals and
public institutions from the depreciation which they
have often suffered." But that this author's suggestion
of the application of a tabular standard to the payment
of debts ofmore than three months' standing, even ordi-
nary commercial debts, would be practicable, I cannot
believe. Commerce must do the best it can with the use
of money and of credit expressed in terms of money.
Business men must protect themselves, trusting to make
good their losses by fresh efforts, or by a turn in values.
They are in the way of doing so. The only plea which
would justify the erection of cumbrous machinery fol
determining the value of more or less permanent charges,
in the case of the classes first referred to, is that they
162 MONEY.
are uot in the way of repairing losses ; that the full ef-
fects of a depreciation of the standard for deferred pay-

ments upon them and remain without relief.
fall
Nor would commerce tolerate such obstruction. It is

true that, as Prof. Jevons claims,' purely speculative en-
terprises would be in a degree discouraged; but it is
certain that legitimate enterprise would be hampered.
It is true that bankruptcies would, to a certain extent,
be avoided; but the same might be effected by any
cause which should induce a slower rate of movement
in production and trade. Nothing is more characteristic
of the commercial spirit than the disposition to take the
evil with the good, roughly to strike the average of gaia
and loss, to charge-off bad debts, looking always to the
future and never regrettiag the past. This spirit leads,
doubtless, into many errors ; but it is the life of the
world of commerce. For one, I cannot believe that mer-
chants and manufacturers will ever submit to a mode of
computation which would render it impossible to cast up
rapidly and decisively, at any moment, the results of a
venture ; but would require every note given or taken in
the course of business to be liquidated like a bankrupt's
estate.
But in the case of those who have definitively retired

from active life, carrying out with them all they will
ever have to support old age and provide for their chil-
dren ; in the case of trustees and guardians, under a sol-
emn responsibihty in the care of estates, where loss is
' " Speculations based upon the frequent oscillations of prices which
take place in the present state of commerce,_would be to a certain
extent discouraged. The calculations of merchants would be less
frequently frustrated by causes beyond their own control, and many
bankruptcies would be prevented." — [Money and the Meohanisai of
Exchange, p. 333.]
PRODUCTION OF THE PRECIOUS METALS. 16S
. more tobe dreaded than gain to be desired in the case

;
of institutions whose funds are sequestered for chari-

table uses from the stock of active capital, this objec-
tion does not lie against the scheme of a multiple legal
tender, which might also, perhaps, be extended to the
cases of loans by savings banks and of loans to gov(!rn-
ments and corporations.
CHAPTER IX.
COINAGE.
Undee Ccinage, as a title in the theory and history

of money, -vre may properly, without reference to the
etymology of the word, take account of all methods of
determining, for easy popular recognition, the quantity
and quality of individual portions of that which has
been adopted into use as money. Some historical forms
of money, however, have not required any such mode
of determination, the divisions being natural, and the
individual portions passing simply loy tale. The shells
and red feathers used in the islands of the Indian Ocean,
the cattle and sheep used by the early Greeks and
Romans, needed only to be counted.'
Coinage, in the sense here given it, embraces more
than the operations of the modern mint. Historically
the achievement in this direction was the establish-
first
ment of a customary or legal form to be given to individ-

ual portions of what was to serve as money. Thus the
Abyssinians, who used rock salt^ as money, had it cut
'
Speaking of the early Mexicans, the historian Prescott says;
" In their deaUngs it is singular that they should have had no knowl-
edge of scales and weights. The quantity was determined by meas-

ure' and number." — [Conquest of Mexico, ii, 140.]
' Pou(!et, in his " Voyage to Ethiopia," says: " They make use of
rook salt for small money. It is as white as snow and as hard as a
CCINA GE. 165
into bricks of uniform dimensions, any considerable de-

parture from which would be easily detected by the eye.
"The first species of metal money," says Mr. Knight,'
" that
was circulated by tale, and not by weight, of which
we have any account, consisted of spikes, or small obe-
lisks, of brass or iron, which were symbols of great
sanctity and high authority."
"Six of these being as many as the hand could con-
veniently grasp, the word oholus and drachma, signifying
spike and handful, continued, after the invention of
coining, to be employed in expressing the respective
values of two pieces of money, the one of which was
worth six of the other."
Another early form of coinage, in the larger sense in
which we here use the term, was that of Eing-money,
which is reported to be still in actual use in Nubia,^
and which once had circulation, not only throughout
Egypt and Ethiopia, but as it would seem, in many dis-
tant countries. The disinterment in Ireland of large
amounts of this money during the present century has
been made use of by writers of a certain school as
^
affording additional evidence connecting the Irish with

the Phenicians. These rings, so called, were not al-
ways or generally welded but wê adapted to be con-
;
nected in the form of a chain, which could thus be

lengthened or shortened according to the financial con-
dition of the owner.
rock. They dig it out of the mountain Softa, and carry it into the
Emperor's magazines, where they form it into bars which they caU
amouli, or into half-bars, which they call courman. Each bar is a
foot in length, and three inches in breadth and thickness."
'
Enquiry into the Symbolical Language of Ancient Mythology.
' Address of Dr. John Lee, President, Numismatic Society oJ
England, 1837-8.
14*
166 MONEY.
Bings known in tlie trade as Manillae, have been, dur-

ing ihis century, extensively manufactured at Birming-
ham (for a long time the seat of the counterfeiting en-
terprise of Great Britain), for export to the coast ol
Calabar, in shape closely resembling the ring-money
found during the same period in Ireland, after an inhu-
mation of centuries.
The Cash,' so called, of Cochin China and China,
conforms somewhat to the same idea. It is described
by Milburn, Commerce," as composed
in his "Oriental
chiefly of tutenage (defined by Webster as Chinese
copper, an alloy of copper, zinc and nickel), 600 pieces
making a quan. This is divided into 10 mace, of 60
"cash" each, the whole being strung together and divid-
ed by a knot at each mace. "There is nothing better,"
Milburn remarks, "and scarce anything else that will
do to carry to Cochin China, than tutenage, which the
king always engrosses to himself." — [P. 442.]
Another early form of coinage was found in the sealed
bags of gold dust which passed without examination
as to quantity or quality in exchange between persons
of repute. The bags of money mentioned in the Script-
ure, in the episode of Naaman and Gehazi, may have
been of this character. On the same principle, quills
of gold-dust are mentioned by Prescott as in use amcng
the early Mexicans, and the like are still current upon
the coast of Africa.
Just when and where the later and now universal
form of coinage, viz., the impress upon pieces of metal
of signs expressive of their weight and fineness, first
appeared, historians are not wholly agreed.
The invention has been claimed severally, for Erich-
' The most important bUhn in the world. — [Chevalier, La Mon>

naie, p. 768.]
COINAGE. 167
tlionius, the two-faced Janus, and Theseus, but these

characters or their present legal representatives may
well be content to relinquish the honor, having good
reason to be more than satisfied if they escape with
their historical existence from the rage of modern
investigation.
To Pheidon, king of Argos, is generally attributed
the fijst coinage of the modern form. He is reported
to liave stamped both copper and money in the silver
Island of -^gina, in order to facilitate commerce and ;
upon the respectable authority of Mr. Grote^ we may

rest comfortably upon this as the true account of this
great invention.
It is in their adaptation to coinage that the metals
possess one of their most important advantages for use
as money. Articles passing by tale will generally be
found to vary not a little in quantity or qiiality, generat-
ing controversies which will do much to retard their cir-
culation as money, and inducing the picking or selecting
of the better specimens ; but it is within the capabilities
of modern art to make the quantity and quality of the
metal contained in coins of the same mintage so nearly
alike that no selfish interest could be served by making
choice between any two of them that may be offered.
The metals, however, differ not a little among them-
selves in the ease and the completeness with which this
result can be effected and it is in this respect that sil-
;
ver and gold, especially the latter, exhibit their most

marked adaptation to use as money. " Platinum," says
Mr. Babbage,^ " cannot be melted in our furnaces, and ia
chiefly valuable in commerce when in the shape of in-
'
History of Greece, iii, 318.
" Economy of Manufactures, p. 121.
168 MONEY.
gots, from whicli it may be forged into useful forma

But when a piece two parts, il
of platinum is cut into
car.not easily be re-united except by means of a chem-
ical process in which both parts are dissolved in an
acid. Hence when platinum coin is too abundant, it
cannot, like gold, be reduced into masses by melting,

but must pass through an expensive process to render
it Notwithstanding this want of adaptation to
useful."
the purposes of coinage, the Eussian government at-
tempted the circulation of platinum money in 1828, but
after a conclusive experience, relinquished the effort in
1845."
In all lands coinage has been one of the most cher-

ished prerogatives of sovereignty. This, however, in
England, at least, only extended to the coinage of gold
and Mr. Toumlin Smith, a high authority, cites
silver.
the declaration of Lord Coke that the king of England

''
hath no prerogative in any other metal than gold and
;
silver " ^ and refers to Boyne's book on the "Tokens of
the Seventeenth Century," for a list of nine thousand
four hundred and sixty-six different sorts of copper
coin,^ issued with different devices and by different peo-
' An account of tlie platinum coinage of Russia is found in Chev-

alier's " La Monnaie,'' sect, vi, chap. 3.
" According to the decisions of Lord Coke, Sir Matthew Hale, and
other jurists, money, to be covered by the king's prerogative, masi
It '.if gold or silver. " Money is that metal, be it gold or silver, which
receives authority by the prince's impress to be current; for, as wax
is not a seal without a print, so metal is not money without the im-
piossion." — [Coke's Littleton.]
' " By all that I can discover, the copper coins of Ireland for three
hundred years past consisted of small pence and half-pence which
particular men had license to coin, and were current only within
certain towns ani districts, according to the personal credit of the
OTSner who uttered them, and was bound to receive them agaiii."^
[Swift, Drapier's letters.]
COINAGE. 169
pie, these being but a part of those actually issued.
Private issues of copper coin were indeed not prohibit-

ed until the Act of 57 George III (c. 46), and then not
on the ground of prerogative, but for the public conven-
ience.
No subjects, says Hallam,' ever enjoyed the right of
coining silver in England without the royal stamp and
« superintendence.'* " Ido not," he adds, " extend this to
tlve fact, for in the anarchy of Stephen's reign, both
bishops and barons coined money for themselves."
In France the prerogative of the king was not seldom
surrendered to the great vassals' through fear, or sold
through cupidity.
Of India Dr. Hunter writes:*
"One of the most cherished insignia of sovereignty
was the striking of coin and little potentates who, in
;
every other respect, acknowledged allegiance to Delhi,

maintained their independent right of coining. As it
was the last privilege to which fallen dynasties clung, so

it was the first to which adventurers rising into power
aspired. While the Mahrattas were still mountain rob-

bers, they set up a mint; and in 1685 the East India
Company, at a period when it had only a few houses
and gardens in Bengal, intrigued for the dignity of
striking its own coin."
'
Middle Ages, i, 204.
Mr. Jacob enumerates thirty-eight Mints in England in 1017,
'
A.D. In the reign of Henry VI there were only eight under Henry ;
VIII but four. During and after the reign of Elizabeth, all coins
were struck in London.

'
Silver and even gold were coined by the Dukes of Brittany, sc
long as that fief continued to exist.
« Annals of Rural Bengal, p. 299.

170 MONEY.
In our further coi:rse I shall use tlie word coinaga

in its ordinary sense, as relating only to tlie operationa
of the mint, in the modern form of determining the
quantity and quality of individual portions of the met-
als used as money.
The progress of the art of coinage was very slow, for
the chemical and mechanical difficulties to be encoun
tered were of the most serious nature.
At first coins were impressed' only upon one side.
'
Mr. Knight, in his work on the " Symbolical Language of Ancient
Mythology," says :
" In examining the symbols in the remains of
ancient art which have escaped the barbarism and the bigotry of the
Middle Ages, we may sometimes find it difficult to distinguish be-
tween those compositions which are mere efforts of taste and fancy,
and those which were emblems of what were thought divine truths.
There is one class, however, the most numerous and important of all,
which must have been designed and executed under the sanction of
public authority, and, therefore, whatever meaning they contain

must have been the meaning of nations and not the caprice of indi-
viduals.
"This is the class of Coins ; the devices upon which were always
held so strictly sacred that the most proud and powerful monarchs
never ventured to put their portraits upon them until the practice
of deifying sovereigns had enrolled them among the gods. Neither
the kings of Persia, Macedonia, or Bpirus, nor even the tyrants of
Sicily ever took this liberty, the first portraits that we find upon
money being those of the Egyptian and Syrian dynasties of Mace-
donian princes, whom the flattery of their subjects had raised to
divine honors. The artists had, indeed, before found a way of grat-
ifying the vanity of their patrons without offending their piety,
which was by mixing their features with those of the deity vsLoso
image was to be impressed ; an artifice which seems to have been
practiced in the coins of several of the Macedonian kings previous
to the custom of putting their portraits upon them.
" It is in a great degree ow.'ng to the sanctity of the devices that
such numbers of very ancient coin have been preserved fresh and
entire."
COINAGE. 171
Milburn in Ms work on
Oriental Commerce, already re-
ferred that the "gall," a small piece of sibei
to, states
worth about fourpence, which forms the only native coin

of Cochin China, has characters only upon one side.
Manifestly, this incomplete form of coinage allowed the
metal to be taken largely from the under side, and
hence led to the extensive corruption of the money in
circulation.
Even when, at a later period, the coin was protected
on both by the impressions of the mint, its
its sides
proper area remained undefined, allowing the edges to

be clipped to an extent which, without impairing the
integrity of the central device, might abstract a quarter
or a third of the metal originally contained. Mr. Seyd
states' that the coin of Persia at present consists of
rough and irregular pieces, so largely clipped that the
Tomans, coins corresponding to the European ducat,
usually pass by weight, and not by tale.
"Little skill and less taste," says Mr. Jacob, "were
shown in the coinage of the Middle Ages." Time will
not allow us to trace step by step the progress^ in the
art of coining, by which the rude pieces of an earlier
" Prseterea in quibusdam nummis inscribitur nomen doi, vel aliou-
jus sancti, et signum orucis ; quod f uit inventum et antiquitus institu-
tum in testimonium veritatis monetae in materia et pondere. Si igitur
Princeps sub ista inscriptione immutet materiam siVe pondus, ipse

videtur tacite mendacium et perjurium committere, et falsum testi-
monium perliibere, ac etiam praevaricator fieri illius praecepti legalis
quo dicitur: Non assumes nomen dei tui in vanum." — [N. Oresme, de
origine, etc., Monetarum.]
' Bullion and Foreign Exchanges, p. 364.
According to Sir James Steuait it was about the time of the
"
Revolution that the custom of weighing the current money went

into disuse in England, owing to the introduction of tlie wheel oj
fly-pre&«!.
—
172 MONEY.
age liave been rej laced by the exquisite productions of

the niodern mint. To this progress no nation has con-
tributed more than the French. Two of the greatest
inventions in the history of the art, the mill and the
screw, and the steam coining-press, the world o^f es tc
that people.^
It is a just subject of pride to Americans that the
Mint of the United States^ is recognized, the world over,
' [Snowden on Coins, xv.] In the light of this fact Prof. Rogers's
remark reads somewhat strangely. " I have been unable to find out
any instance of mechanical genius in. any other race but our own,
except the solitary discovery of the carding-maohine. This, beyond
doubt a great invention, though it consists like all great inventions in
a simple and obvious principle, was discovered by a Frenchman.
. But I have found no other notable invention for saving

. .
human labor which is not the offspring of Anglo-Saxon thought."

[Historical Gleanings, i, 144.]
^ An account of American Coinage wiU be found in articles by
Mr. J. H. Hickok, in the " K Y. Banker's Magazine " for October and
November, 1861.
The first colonial Mint was established in Massachusetts in 1C52,
during the period of the Commonwealth, shillings and sixpences

being issued in large amounts. After the Restoration further coinage
was forbidden, as an invasion of the rights of the crown. It is stated
that the Mint continued to coin under the original date, 1652. Vir-
ginia, by law, instituted a Mint in 1645, and Maryland in 1601 ; but
both schemes .proved futile. Srme brass or copper pieces were
sti'uck, prior to the Revolution, in Carolina and Virginia. An at-
Icnipt to extend the circulation of Wood's famous pence into the

American Colonies failed, though specimens are found as far south as
Carolina. During the Confederation the right of coining was vested
i a the individual states as well as in the federal government. By
(he constitution, Congress has sole power to regulate coinage, as well
IS to control the circulation of foreign moneys. The most important

coinage laws of the United States are those of 1792, 1834, 1837,
1853 and 1873, all of which vîll be referred to in the course of '.i'.psis
aiscussio'is.
'
COINAGE. 173
as of highly exceptional authority. "There can be no

doubt," says Mr. Seyd, "that the United States gold
coin is, as a rule, superior to aU others except that of
Eiussia."
Three gold coins, the Eussian imperials, the French
Napoleons, and the United States Eagles, are bought,
without remelting, by the Bank of England.
On the other hand, Mr. Seyd takes a very unfavora-
ble view of the British mint, as to both its mechanical
arrangements and its official administration ; and I note
that Prof. Jevons' gives his sanction to Mr. Seyd's view.
" The British Mint still enjoys the Eemedy of about
1\ per mille fo,r weight and of about 3 per mille for
fineness. This may have been all very well and equi-
table in olden times, when science had not yet attained
its present high state of development : but the progress
which has been made since then ought surely to entitle
the public to demand that the Eemedy should be re-
stricted now within closer limits."— [Bullion and For-
eign Exchanges, p. 556.]
A very striking admission, as would seem to be, of
it
this imperfection of the British mint operations, was un-

til recently found in the refusal of the mint authorities to
take cut^ sovereigns by weight as standard gold; in-
stead of which, the Bank of England paid only 11. ^\d.
per oz., or about four-ninths per cent, off the mint value
(77.102-(^.). Mr. Seyd also alleges that jewelers in Lon-
'
The Russian half -imperial, 22 carats fine, which has no remedy as
to fineness, Mr. Seyd regards as the most regular coin known to com-
merce; but I do not understand him as giving preference to the
body of Eussian gold coin over that of the United States.
"
Money and the Mechanism of Exchange, pp. 120-1.
° That is, sovereigns which have been stamped as below the weight
required for circulation.
174 MONEY.
don are accustomtd to add six grains of fine gold to ev>

ery oz. of standard gold, in order to insure their prod-
^
ucts passing Goldsmith's Hall.

It is, not improbably, in consequence of Mr. Seyd'a
vigorous attack on the management of the Mint, in his
book, published in 1868, that the authorities, as -we
learn from the fourth edition of Mr. Nicholson's work

on the "Science of Exchanges," published in 1873, now
receive Light gold coin at ll.lO^d. per oz. from the Bank
of England, which pays the holder at the rate of 113d.,
the same as for bullion.
The problem with which the mint has to deal is noi

mechanical_merely, but also chemical.
To make a coin absolutely pure is perhaps possible,
but it could be effected only by a great expenditure of
labor. To bring gold or silver to a fineness of 995 or
996 parts in 1000 is easily accomplished by the refiner,
but to exclude each of the remaining thousandths of

impurity would require an amount of skill and time
increasing as absolute purity were approached. Hence
a certain toleration of impurity is required by practical
considerations. But beyond this, it is seen that the ad-
dition of inferior metals has the effect to harden coin
and thus diminish the loss by abrasion in use. To secure
this desirable result, alloys in definite quantity are pur-
posely introduced.
The earlier gold coins were generally finer than those
of the present time. The Persian coin known as the
Daric, from King Darius, was of a very high degree of
' Fine gold is the technical term for gold absolutely pure. Stand-
ard gold is gold mingled with alloy according to the legal standard
of coinage, which in England is 11 parts fine gold to 1 of alloy
whilo in thp United States it is 9 parts fine gold to 1 of alloy.
ALLOY IN com. 1 75
pnrity, perhaps as great as could be attained by

the
artisans of that day and it was in consequence of the
;
reputation of this coin that the name "Daric" came in

later times tobe affixed to coins of any mintage which
were exceptionally pure, just as, at a later period, the
sovereigns of many countries coined Bezants, in imita-
famous coin first so called because issued
tion of the
from Byzantium.
Egypt had for a long time no native coin, and the
pieces celebrated for their purity under the name of
Aryandics were of Persian mintage. The coins of the
successors of Alexander in Egypt, contained 23 carats,
3 grains of gold, having but one grain of alloy. Bodin,
as quoted by Pinkerton, informs us that the goldsmiths
in Paris in assaying some gold coins of Vespasian, found
in them no more than Y&i part of alloy.
"It does not appear,'' says Mr. Jacob, "that the same
degree of purity was preserved in the silver coined by
the ancients."
Just what degree of fineness will best accomplish the
purpose of hardening the coin, while preserving a qual-
itywhich will allow it to be kept clean and agreeable
to sightand touch, is a somewhat disputed question.
The ratio most generally adopted in modern coinage,
including that of the United States, is 9 1, yielding, that
:
is,coins xo fine. The ratio adopted by the, British

Mint (covering the coinage of India) is 11 1, yielding :
coins Ta" fine. The Russian half-imperial is of this

fineness, as are the gold coins of Brazil. The British
Mint authorities strenuously insist on the ratio 11 1 as :
that best approved in use. Extensive experiments were

conducted' between 1798 and 1802, under the most
'
By Cavendish and Hatchett ; see " Philosophical Transactiona,''
1803.
176 MONEY.
careful observation,and the result as it then appeared

is thus stated by Mr. Jacob. "Our British standard
gold^ is proved by them to be less susceptible of losd
by abrasion than that of any other of the several king-
doms of Europe, or than any that is coined in either
Spanish or Portuguese America." [P. 292.] —
We may conclude with Chevalier^ that the proportion
of one-twelfth alloy is most efficacious, and that we owe
the general adoption of the proportion of one-tenth to
the general desire of the nations to promote decimal
coinage.
As has already ' been stated, in accounting for the
more rapid, abrasion of the earlier coins, the nature of
the metals used in alloying gold and silver is of great
consequence.
"If gold 22 parts fine in 24 were to have the alloy
formed of a mixture of iron and tin, the loss by friction
would be five times as great as it is with the alloy actu-
ally used in the British coinage. With alloy of copper
and tin, the loss would be nearly four times as much."
—[Jacob, p. 294.]
Secondly, it should be noted that the loss by abrasion
depends, also, upon the surface exposed. The smaller
the denomination of the coin, the larger, generally, the
exposure. "Thus it appears by the English experiment
of the officers of the English Mint in 1787, that of the
silver coins then in circulation, the loss on crowns was.
' Grold coins were first minted in England 23 carats, 3^ grains fine.
The Act of 18 Henry VIII introduced the new standard 22 : 2.
From that time till 1663 both standards were used, under different
denominations. Since 1663 all have been 22 : 2.
— [J. E. McCuUoch's
Commercial Dictionary.]
" La Monnaie, p. 225.
• See p. 121.,
ALLOY IN COIN. I77
disregarding fractions, about 3 per cent., en half-crowns

about 10 per cent., on shillings 24 per cent., and on six-
pences 38 per cent. And by another series of experi-
ments made at the Mint in 1816, the loss on sovereigns,
for the average of five years, was 0.726 per cent., and on
half-sovereigns, 0.883 per cent. On half-crowns for the
same average time, 2.28 per cent., on shillings 2.88 per
cent., and on sixpences 3.26 per cent.
" Agreeably to the experiment made at the Mint of the
United States, on the eagle, half-eagle and quarter-eagle,
the loss they severally sustained in fifty years appeared
to be in the proportion of 1, 2, 3,and that sustained by

the dollar, half-dollar, quarter, dime and half-dime,
respectively, 1, 2, 3i, 6, and 10." ^
For a similar reason, with coins of a given denomina-

tion, the thicker the coins the less the rate of loss by
wear in use.
The alloy it needs to be observed is never taken into
account in computing the worth of coin. It is only the
pure metal which gives value in the computations of
exchange; thus, the value of the copper used to alloy
standard gold is less than ttstto, the value of copper
used to alloy standard silver is less than tstt-^ Not
even if amount of standard gold or silver
the largest
were to be estimated for, would the copper be reckoned,
that is, with 750 shillings we should not add one shilling
for the value of the copper contained with 11,000 sover-
;
eigns, we should not add one sovereign on a similar

account.
Even with respect to the silver contained in the gokl
coinage, the inferior metal is not accounted of value.
This has led, as is alleged, to a practice of sending
'
Tucker on Money and Banks, p. 69.
' Seyd, Bullion and Foreign Exchanges, p. 170.

15*
178 MONEY.
British sovereigns to Paris, where the French refiners,

working at lower rates than those of London, part the
metals, remove the silver, supply an equal alloy of cop-
per, and return the gold in ingots (still standard,
22:2) to England to be recoined into sovereigns. The
sovereigns thus coined, 'says Mr. Jacob, are distin-:
guished by their deeper color. On the other hand, in
Australia, where refining is an even more expensive
process than in England, the sovereigns frequently con-
tain silver for their sole alloy, which gives them, says
Mr. Seyd, a pale straw-colored appearance. Such
coins are likely in time to fall into the hands of English
or French refiners, who melt them up for the silver
they contain.
But while gold must contain a very large proportion of
silver to make it worth while to part the metals, a very
small proportion of gold in silver, stated by Mr. Seyd'
at 1 per mille, will repay the expenses of refining.
Mr. Ward states that the silver coined in Mexico
during the revolutionary period, subsequent to 1809,
contained no inconsiderable proportion of gold, which,
in the haste of mining and coining, had not been ex-
tracted. "Many millions
of these dollars," he says, "in
the course of circulation found their way to Europe,
where the refiners of London and Paris, to their great
gain, soon separated the gold from the silver. The
doUars of that description have at length almost wholly
disappeared ; but their melting has added considerably
to the stock of gold in Europe."
In those periods of history when frauds in coinage
were extensively practiced, the exceptionally good rep-
utation of any coin would naturally give it a circulation
' Bullion and Foreign Exchanges, p. 181.

ALLOY I.V COIX 179
in a degree irrespectiye of national boundaries.' The

gold coins of the Eastern Empire known as Bezants had
a wide acceptance over western Europe.
" But a small part of the English circulation between
800 and 1500," says Mr. Jacob, "was of domestic coin-
age." The agnels of St. Louis, which were 23i carats
fine, were brought back in great numbers from the con-
quests in France, and long found favor in the eyes of
the English. Lord Lauderdale, in his " Depreciation
Proved," notes the extensive circulation of Portuguese
moidores in the western counties where they were in-
deed preferred to the national coin. The same writer
states that not less than £1,400,000 in French louis
d'or were,- in a brief space, brought to the English Mint
to be melted, in consequence of a proclamation forbid-
ding them to be taken at more than 17 shillings.
Li our own day we have seen the sovereign^ attain a

wide currency beyond the limits of Great Britain,
though perhaps from its high value it has never com-
manded that almost boundless circulation which has
made the Spanish dollar what Chevalier calls "an uni-
^
versal coin."
' " From the year 1797 to 1806 all foreign coins, except '
Spanish
milled dollars and parts thereof,' ceased to be a legal tender in the
United States ;
yet during that period the gold coins of Great Britain,
Portugal, and France, constituted a large part of the metallic cur-
rency of the United States." "In Uke manner, from 1809 to 1816,
foreign gold coins were no part of the currency recognized by the law,
yet no one who had them found any difficulty in passing them at the
same rate as the current coins of the country, especially if they were
such as the public were familiar with." —[Prof. Tucker, Money and
Banks, pp. 94-5.]
" First coined in 1816.
• Speaking of China, M. Chevalier says: "A cote de I'idgo bien
acquise que les metaux pricieux sent les marohandises et que les
180 MONEY.
piloes monnayees, par consequent, ne doivent circuler que pour leui
poids de fin, on y observe ce fait Strange que le rndtal argent qui y
joue le plus grand role dans les transactions du commerce, soit regu
pour des valeurs fort differentes, par la seule raison de la forme, ou,
pour parler plus exactement, de I'empreinte qu'il porte. Aiiisi la
piastre espagnole, la piastre a colonnes notamment, y est admise pour

une valeur proportionnellement bien superieure k celle d'autres mon
naies tout aussi correctement fabriquees et& ceUe de I'argent t;u lin>
got."- -[La Monnaie, p. 345.]

'
CHAPTEE X.
SEIGNIORAGE.
The expanse of rendering metals into coin has given

rise to one of the vexed questions of Political Economy,
that of Seigniorage.
Shall the value of the coin be computed according to
the market value of the metals in the shape of bullion;
or shall the cost of mintage be added to the value of
the metal taken for the coin ?
On the one hand, it is urged that gold and silver are
worth more in coin than in bullion that they serve an ;
additional use, and thus give rise to a new demand that, ;
to fit them for this use, labor is required over and above
what is necessary to raise the metal from the mine and
bring it into a state of commercial purity; and that the
cost of this labor should appear in the value of the
product.
It is said that there is no more reason why gold in
coin should not be valued higher than gold in bars, than
' " Justa autem et equa monete estimatio est, quando paulo minus
auri vel argenti continet quam pro ipsa ematur: utpote quantum pro
expensis dumtaxat monetariorum oportuerit deduoi. Debet enim
fiignum ipsi materie aliquam addere dignitatem." — [Copernicus, Mo-
nete Cudende Ratio.]
" Sicut ipsa moneta est communitatis, ita f acienda est ad expeesM
communitatis," — [Oresme, de origine, etc., Monetarutn.]
16
182 MONET.
there would be for selling iron in plates, rivets and rods,

at the price of iron in the pig and that, if gold in coin
;
costs more, and is worth more, than in ingots, those who

want the coin, and not the entire community, should pay
for it.
On this principle, many governments cut from the in-

gots brought to the mint enough of the metal to pay the
charges of coinage.
Again it is urged that, in the absence of such a charge,
a great waste of labor will result, of which no one will
secure the benefit, through the unnecessary melting down
of coin for export as bullion, or manufacture as plate.
said, the amount of coined money in any coun-
If, it is
try becomes superabundant, the value, or purchasing

power, of each portion thereof will be lowered, and hence
a movement for its exportation will begin. But a seign-
iorage will put a distinct charge upon the exportation.
If, for example, out of every 100 oz. of gold brought to
the Mint the United States government were to reserve
1 oz. for the expenses of coinage, and give back only 99
oz. in the form of coin, the holder would not melt the
coin for export unless the money of the country were so
much which the coin could
in excess that the 99 oz. into
be melted would purchase more abroad (expenses of
transportation included) than the coin which now repre-
sents the cost of 100 oz. of gold will purchase here.
But if no seigniorage is charged, the exporter will indif-
ferently ship coin or bullion; and vast amounts will be
alternately coined ,and melted, at a constant expense, to
the state, of machinery and labor, with no compensat-
ing advantage to any portion of the community. Thus
free coinage becomes, in the language of Dudley North,
"a perpetual motion found out, whereby to melt and
coin, without ceasiug, and so to feed goldsmiths and
SEIGNIORA GE. 183
coiners at the public charge." ' In the same way, man-

ufacturers of jewelry and plate will, under free coinage,
take coin and bullion indifferently for their purposes.'
Economists have very generally been agreed in recom-
mending that the cost of mintage be charged upon the
coin; yet the most important commercial nation of the
world exacts no seigniorage upon its gold, or principal,
coin. Adam Smith attributes the English law of 1666
[18 Charles II. c. 5], establishing gratuitous coinage, to
the prevailing notions respecting the relation of money
to other forms of wealth, known as the Mercantile The-
ory ;' and its continuance, to the influence of the Bank.
The English system, which has been adopted by Rus-
sia and was followed by the United States until 1853, is
not, however, wholly without a defense. Looking, in
the iirst instance, at the coinage of the amount actually
required for domestic purposes, it is said that the use of
money is of general public benefit, as much as the use of
roads, and that the same policy which abolishes the toll-
gate (by which those who actually travel upon the roads
'
Dr. Adam Smith 'says: "The operations of the mint were, upon
this account, somewhat hke the web of Penelope the work that :
was done in the day was undone in the night. The mint was em-
ployed, not so much in making daily additions to the coin, as in
replacing the best part of it, which was daily melted down."
''
In order to meet this difficulty, Prof. Storoh, the Russian econ-
omist, proposes that a higher standard for gold and silver plate be
established than for coins, so as to compel melters to refme, at an
appreciable expense. "A. V.," the author of a tract addressed to
Loid Godolphin, in 1696, anticipated this suggestion. " When the
coyn hath alloy and not the household plate, etc., it is not so lyable
to be melted down, for the charge and trouble for to separate it wiU
working up." This suggestion is, of course,
much disco-irage the it
appropriate only in countries where there is a standard for p)ate,
gold and silver ware, etc., estabhshed by law or custom.

» See pp. 44-8.
: ;
184 MONEY.
alone pay, and pay, too, exactly in the proportion in

wMcli they travel, which is, of course, right in theory),
and substitutes therefor a service maintained at the ex-
pense of the general treasury, justifies and requires the
making free this other great agent of commercial prog-
ress.
As to the objection that the removal of seigniorage

causes great quantity of coin to be melted down for
export unnecessarily, when some slight delay or trouble,
not commercially appreciable, would suffice to send
abroad bullion instead: it is answered, that the cost of
coinage, with modern appliances, is at most but small.'
Mr. Nicholson, by dividing the expenses of the British
Mint for six months by the number of sovereigns coined
during the year (assuming the Mint to be occupied the
remaining six months in coining silver and bronze pieces)
gets three farthings as the cost of coining a sovereign.^
Moreover, as the Mint, with its machinery, officers and
laborers, has to be maintained,^ in any event, in any
'
The cost, per cent, of value, in coining, is greater proportionately
the smaller the denominations of the coin; and also greater the
smaller the amount issued. According to Prof. Storch, the expense
of coinage, per cent, of value, was, for gold coins as compared with
silver coins, as follows
France, gold coins, 0.29 silver coins,
England, " " 0.70;

Denmark, " "
Russia, " " 0.85;

while in the latter country, the smaU coins of 25 copecks cost 3.4.7
per cent, and those of 10 copecks, 4.44 per cent. The variety of de-
nominations adopted in the coinage also has to do with the expenses
of the mint.
^ Science of Exchanges, p. 101.
° "No mint can be kept constantly at work unless coining be-
comes a kind of manufactory for foreign commerce." — [Harris, Essay
on Money and Coins.]
SEIQNICRAOE. 185
considerable country, the actual expense, to the state, of

coining an additional amount may be small.
The country, then, argued, is compensated for the
it is
expense mvolved m an equality in the value of gold in

coin and in bars, first, by the instantaneousness with
which the export of gold follows the shghtest accumula-
tion in excess; and, secondly, by the fact that, with a
comage of undiminished value, the coins
wiU often, per-
haps generally, not be melted down when exported, but
sent abroad in bags, and will either be returned shortly
in the course of exchange, or, being admittedly worth
their nominal value in bulhon, a kind of quahfied circu-
lation, amounting indeed sometimes to a full and free
circulation, will be given them in foreign countries.
Such a circulation, it is claimed, will amount to an ad-
vertisement of the trade of the country conducting the
coinage, which it can very well afford to pay for, as truly
as a merchant can afford to pay for advertisements in a
newspaper, or a circus-manager for having his fearful
and wonderful pictures displayed along the streets.
Thus it is asserted, not without show of cause, that
the free circulation of English sovereigns in Portugal,'
which has been traditional since sovereigns were first
coined, has been worth more than its cost to British
trade. It wiU be remembered that the prime advantage
anticipated from the coinage of the "trade dollar" by
the Mint of the United States was the advertisement of
our trade with China.
So much for seigniorage in the sense which we have
thus far given to the word, as coveriag, that is, the ex-
penses of coinage. But seigniorage may be made to
have a wider application, and may come to include any
' And, by a sort of political sequence, in Brazil.

'
186 MONEY.
charge wliicli tlie sovereign or tlie state, having the mo-

nopoly of coinage, shall be pleased to make. And this
extent seigniorage has historically had in a degree, at
limes, which has dwarfed all consideration of the actual
cost of performing the service.
So troublesome is it, in economical discussions, to be
obliged to distinguish, continually, between the two sorts
of seigniorage, that M. Chevalier has proposed to apply
the term brassage to the charge for the actual expenses
of coinage, leaving seigniorage to express the charges
which are in the nature of a tax for the benefit of the
sovereign or of the state.
The exercise of the larger right of seigniorage has been
carried to great extremes. Kuding, the English anti-
quarian in the department of money, finds that, at one
period in the reign of Edward IV, the seigniorage on
gold was above thirteen per cent. In the thirty-seventh
year of Henry VII it exceeded sixteen per cent. These,
however, were exceptional instances. The average of
the period eighteenth Edward III to fourth Edward IV
was between three and four per cent. " The seigniorage
on silver," says Jacob, "never seems to have attained

the monstrous height to which that on gold had been car-
ried in some few instances. It was, however, raised or
lowered according to the King's greed or necessities."
The seigniorage exacted by John 11 of France rose at
times, it is stated, to three-fifths, changing, however,
says Le Blanc, almost every week and sometimes oftener.
It is in successive reductions, through the exercise of
sovereign authority, of the quantity of fine gold and
silver in the coin, that we find the explanation of the
use of the word pound in English, and livre in Froneb
'
Inquiry into the Precicus metals, p. 209.
—
— ;
DEBASEMENT OF COIN. 187
coinage. The English pound was once an actual pound

of silver ; but a pound of standard silver is now coined,
not into twenty, but into sixty-six shillings. The " pound
Scots" had been reduced to one-thirty-sixth of its orig-
inal value. Even the material of eoias has been changed
by the same right of the sovereign. The
exercise of this
florin was once a piece of gold; it is now a piece of
silver ; the Spanish maravedi was once a piece of gold
it is now a piece of copper.
Against seigniorage carried further than the cost of
coinage, economists have, in general, raised a decided
protest. " The Hmits beyond which a seigniorage can-
not be advantageously extended," says Ricardo, "are the

actual expenses incurred in manufacturing the coin."
[Reply to Bosanquet, p. 91. J The distinction is, how-
ever, very strongly drawn between a reduction in the
quantity of pure metal in the coin, produced by the in-
troduction of an increased' proportion of alloy, and a re-
duction effected by diminishing the weight of the coin,
preserving the customary fineness.' It is evident that
the difference in the two cases is merely that, in the lat-
ter case, the change is advertised, if not by public proc-
lamation, then, by each man's
and senses, for himself,
the community are enabled to adapt their commercial
transactions to the new state of the coinage ;
^ while the
' " The debasement of coin, in its proper sense, means a reduction
of fineness. This has occurred only in one instance in our silver
•oinage ; or rather, when our 3 cent coin was instituted, by the Act
ofMarch 3, 1851, it was f (.750) fine and was afterwards, by act of
March 3, 1853, raised to .900, the fineness of the larger coins,"

[Letter of James Pollock, Director of tlie U. S. Mint, January 17,
1863.]
" " I have sometimes been surprised," says Mr. Hallam, " at the
facility with which prices adjusted thenrselves to the .quantity of

188 MONEY.
reduction of fineness has generally been in the nature of

a fraud, to be concealed long after it had begun to work
pernicious effects.
" The legend of the Maltese money," says Prof. Eogers,
"ran — 'worn ces sed fides' —designating that the basis of
the currency must be laid in the integrity of those who
issue it. Yet hardly a European gOTernment fulfilled
the duty, even if they understood and acknowledged it.
But the kings of France were the principal offenders.
They diminished the amount of silver in their coins.
This is a temporary wrong, a remediable offense. But
they debased it also, a far more serious and lasting evil.
Philip the Fair was threatened with excommunication
by Boniface the Eighth for this fraud, and was .branded
as long as time lasts by Dante for his offense
"But the greatest offender in this particular was the
unlucky John, the prisoner of Poitiers. Owing . . .
to this king's practices —

whom the romances called the
Good —the value of the currency underwent seventy
changes in ten years. John took an oath of his moneyers
that they would keep his frauds a profound secret, espe-
cially from the merchants To me the weak-
ness of France, during the century 1340-1440, seems to be
directly traceable to economical causes,' to the universal
silver contained in the current coin, in ages which appear too ignorant
and too little commercial for the application of this mercantile prin-
ciple. But the extensive dealings of the Jewish and Lombard usurers
who had many debtors in all parts of the country would of itseli
introduce a knowledge that silver, not its stamp, was the measure oi
value."— [Middle Ages, iii, 348.]
' " In this way," says Mr. Kitchin, " Philip of Valois made ready
to meet the dangers of the groat Hundred Tears' War, which would
so soon break forth upon his shores." — [History of France, p 394.]
" Parmi les gouverne-nents civilisfe, celui de I'Bspagne est le der>
SEIGNIORAGE AND PRICE?. 189
distrust which these royal frauds induced. . . . Exactly

similar results, though perhaps of a less ser.-ous kind,
attended the frauds of Henry YIII, and the Protector
—
Somerset." [Hist. Gleanings, i, 95-7.]
What is the effect of Seigniorage on the purchasing
power of coiQ, that is, on Prices?
Properly to answer this question will require our
most careful reference to the principles we have already,
reached^ respecting the relations of the volume of mon-
ey to the prices of commodities while a correct answer
;
to the question here will afford us a key to the myste-

ries of inconvertible paper money. Let us trace Mr.
Bicardo's views on this point.
Suppose, in a certain country, there ~ are required, for
the purposes of internal trade, 1,000,000 pieces, each
containing 100 grains of fine gold. There are, then,
100,000,000 grains of fine gold in use as money and ; a

certain average level of prices is determined by the rela-
tion between this amount and the demand for money
arising from the exchanges actually needing to be ef-
fected by the use of money.
Now, suppose the principle of seigniorage to be intro-
duced; and the sovereign, out of every 100 grains
brought to the mint, takes one grain for the actual cost
of coinage, giving back, thus, 1,000,000 pieces of 99
grains each, and putting 1,000,000 gra.'ns into his own
storehouse as treasure, or causing it to be manufactured
into plate. There are now only 99,C'00,000 grains of
nier qui ait cru pouvoir clandestinement vioier les monnaies. C'est
ainsi que la monnaie d'or, ddja alt^ree en 1772, fut mise, en 1786, d
875 millieraes. Le titre des monnaies espagnoles f abriquees dans le
nouveau raonde, dtait primitivement de 917 miUi^mes." ^[M. Chev-
alier, La Monnaie, p 51.]
•
See pp. 59-65.
16*
190 MONET.
fine gold in circulation ; but the same number of pieces

of the same mint-value.
Will each piece now purchase as much of other com-
modities as before, or less?
Mr. Eicardo answers, as much.' There is the same
demand for pieces for the purposes of exchange ; there
isthe same supply the same price results.
:
How, then, can we say that money is the measure of

value, and that, to measure value, we must have value,
and that value is proportional to the labor expended?
I gave warning^ that we should have to revise this
view of the Money-function, and we are now getting a
ghmpse of the ground ; but we shall so much better com-
mand the field from a point yet to be reached^ that we
need only make a note of the question here.
But suppose the sovereign proceeds further, and takes
out 10 grains from every 100, putting 10,000,000 grains
into his storehouse ; and issuing 1,000,000 pieces contain-
ing 90 grains each, but of the same official denomination
as before. Will the purchasing power of each piece be
affected? Not at all, says Mr. Eicardo ; is the same
there
demand for pieces to effect exchanges; the same supply:
the value of each piece is therefore maintained, and the
same rate of general prices results.
But let us take a step in a somewhat different direc-
tion, and suppose that the sovereign, instead of placing
'
M. Chevalier apparently dissents. " Comme les especes mon-
nay(5es ne sont qu'une marohandise intermediaire et ne passent qu'
en cette quality, les ohangements que les princes apportaient au poido
ou au monnaies entrainaient toujours, du moment qu'ik
titre des
etal3nt connus, un changement pareil dans les prix." [La Monnaie, —

47.]
» See pp. 4-9.
» See pp. 280-90.
SEIGNIORAGE AND PRICES. 191
tlie 10,000,000 grains, which he has charged as seignior-

age, in his treasury, coins them into piec(js of ninety
grains each, and issues them in purchase of supplies for
his army or his household. Immediately we have a
supply in excess of the demand, and depreciation results.
The 90,000,000 grains, while coined into tlie same num-
ber of pieces of the same official denomination as the
100,000,000 had been, retained the same purchasing
power; but when the 100,000,000 are coined into a larger
number of pieces, the purchasing power of each piece
falls at once.
This is Mr. Eicardo's argument in his "Eeply to
Bosanquet":
"There can," he asserts, "exist no depreciation of
money, but from excess hoivever debased a Coinage may
;
become, it will preserve its mint value ; that is to say, it
will pass in circulation for tJw intrinsic value of the bullion
lohich it ought to contain,^ provided it be not in too great

abundance." — [Pp. 94-5.]
Again :
" While the state alone coins, there can be no
limit to this charge of seigniorage, for by limiting the
quantity of coin, it can be raised to any conceivable
value." — [Political Economy, p. 212.] And still further :
"On the same principle, namely, by a limitation of quan-

tity, a debased coin would circulate at the value it should
bear if it were of legal weight and fineness, and not at
the value of the quantity of metal which it actually con-
°
I must, in candor, confess myself wholly unable to DfTer an ex-
planation of a remark made by the same writer, in his pamphlet on
the "High Price of Bullion," that "if guineas were degraded, by
clipping, to half their present value, every commodity, as well »a
land, would rise to double its present nominal value." There can oe
no doubt that the principle stated in the text contains Mr. Eicardo's
settled view of the subject.
: :
192 MONEY.
tained. In tlie history of the British coinage, we find
accordingly that the currency was never depreciated m

the same proportion that it was debased, the reason of
which was, that it was never increased ia quantity, in
proportion to its diminished intrinsic value." — [/6irf.]
Mr. Eicardo offers the following illustrations of his
principle from the history of English money

"Our silver currency now (1811) passes at a value in
currency above its bullion value, because, notwithstand-
ing the profits obtained by the counterfeiter, it has not
yet been supplied in sufficient abundance to affect its
value."
"It is on this principle, too, that the fact must be ac-
counted for, that the price of bullion previously to the
recoinage in 1696,^ did not rise so high as might have
been expected from the then debased state of the curren-
cy : the quantity had not been increased in the same
proportion as the quality had been debased." — [Eeply
to Bosanquet, p. 96.]
And again, he says of the period previous to 1797

'The silver currency was, during a part of this period,
very much debased, but it existed in a degree of scarcity,
and, therefore, on the principle which I have before ex-
plained, it never sank in its current value."
Now what, according to Mr. Eicardo, would become
of the coins thus in excess?
We have seen that upon his principle there was, in
the case taken, a demand (from trade in its then existing
conditions) for 1,000,000 pieces, of the mint-valae of 100
grains of gold each ; that the fact that the coins were
pinched at the mint till they contained but 90 grains
each, could not alter the purchasing power of the whole
• See pp. 209-12,

GRESHAM'S LAW. ,195
body of 1,000,000 pieces, which would "preserve its mint-

value, that is to say, pass in circulation for the intrinsic
value of the bullion which it ought to contain."
And Mr. Bicardo does not flinch from supposing a
seigniorage of 50 per cent, with the same result : the 50,-
000,000 grains spared by government accomplishing the
same exchanges at the same prices, if coined into 1,000,-
000 pieces of the mint value of 100 grains each, as twice
the amount of gold had done. But, now that, with a
seigniorage of 10 per cent., there are issued, not 1,000,-
000, but 1,111,111, pieces of the mint value of 100 grains
each, depreciation must result. The state of the world's
commerce will not allow the commodities offered for
money in that country to be exchanged, at prices corre-
sponding with those of other countries, by means of a
currency of the mint value of 111,111,100 grains.
Exportation is the sole resource. But which shall be
exported? The whole body of coin has become depre-
ciated: what is to determine which portions shall "leave
their country for their country's good"?
We have supposed the coins to be all issued of a uni-
form weight of 90 grains of fine gold ; but, in the nature
of things, this uniformity cannot long continue. Some

will pass into more active use than others, and hence
will suffermore rapid abrasion. The criminal acts of
the clipper and sweater will be necessarily exercised
with great irregularity upon the circulating coin. Upon
a body of money of unequal value, the principle known
as
GRESHAM'S lAJl
once begin to operate. This principle, called by

will at
the name of Sir Thomas Gresham, the founder of the

17
—
194 MONET.
Eoyal Exchange of London, is that, of two sorts of money

circulating together, the inferior will drive out and re-
place the better. Stated thus, without qualification, as it
usually is, the proposition is not true. It is only when

the body of money thus composed is in excess, that the
bettor part begins to yield place and retire from circula-
tion.
"It is a mistaken theory, therefore, to suppose that

guineas of 5dwt. 8gr. cannot circulate with guineas of
5dwt., or less. As they might be in such limited quan-
tity that both the one and the other might actually pass
in currency for a value equal to Sdict. lOgr., there would
be no temptation to withdraw either from circulation,
there would be a real profit in retaining them."'
[Eicardo, Eeply to Bosanquet, pp. 95-6.]
When, however, the aggregate amount of the two or
more sorts of money in circulation becomes excessive,
that is, greater than the community's distributive share
of the money of the world, the principle of Gresham's Law
begins at once to operate, acting through the desire of
' It is in this way that we explain the phenomenon noted by

Alexander Hamilton when he says in his "Report on the Mint":
" The new Dollar has a currency in all payments in place of tlie old
[which, he had stated, '
by successive diminutions of its weigat and
fineness, has sustained a depreciation of five per cent.'], with scarcely
any attention to the difference between them; " and again he speaks
of " the unequal values allowed in different parts of the union to
coins of the same intrinsic worth."
Mr. Buchanan had neglected this consideration in his reir.arks on
the money in use in tlie British American colonies, and Mr. Eicardo
corrects him as follows :
" Mr. Bu {hanan evidently thinks that the
whole currency must necessarily be brought down to the level of the
value of the debased pieces; but surely, by a diminution of the
quantity of the currency, the whole that remains may be elevated to
the value of the best pieces." — [Political Economy.]
,
ORESHAM'S LA W. 195
men pay their debts, or effect their purchases, with the

to
least valuable commodity which will answer the require-
ments of exchange. By this means the heavier coins are
selected^ for exportation in payment of debts abroad,
where only the actual weight of fine metal will determine
their power in exchange, or for consumption in the arts,
industrial or decorative, at home, where the denomina-
tion of the coin is of equally little account.
It is not to be understood that the mass of the people
engage in this occupation of sifting the coin to get out
the heavier pieces. and especially the

It is the dealer,
dealer in money,^ who, with his scales always at hand

and always adjusted, quickly detects the least difference
in weight, letting the light coins go their way into cir-
culation again, while those of full weight are quietly laid

aside till wanted by the jeweler or the exporter.
We have said that, on Eicardo's principle, it does not

matter whether the loss of the precious metal in the coin
results from an external abrasion from year to year in
circulation, or through the clipping or sweating' of the
'
"Picking or selecting which some persons think to stigmatize
under the affected name of billonnage, or trebuchage." [ChevaUer on—
Gold, Cobden's transl.]
"'Kin"' John of France, when a prisoner in the hands of the En-
glish, employed, it is said, agents to pick the nobles of the first and
second coinage, for transmission to France, and did quite a flourish-

ing business in this way.
'
Peculiarly an English crime " La coupable Industrie de la ro-
:
<rnme semble avoir ete pratiquee en Angleterre qu'ailleurs." [Chev- —

aher, LaMonnaie, p. 81.]
Let us not, however, exclude the English colonicis. The mer-
chants of New York in a petition to Lord Cornbury complained as

196 MONEY.
coin, or from an original abstraction of a certain portion

of the metal at the mint, whether for the expenses of
coinage, or for the profit of the sovereign. In no case
will depreciation result, unless the coin be supplied in
excess.
We cannot too often repeat his words :
" However de-
based a coinage may become, it will preserve its mint-
value, that is to say, it will pass in circulation for the in-
trinsic value of the bullion which it ought to contain, pro-
vided it be not in too great abundance." There is ob-
servable in discussion an inveterate tendency to slip
away from this doctrine, even on the part of those who
in terms accept it in its fuUness. This tendency is due,
I apprehend, to the influence of the idea that money
measures value as the yard-stick measures length, or the
bushel, capacity. It is evident that, were the yard-stick
or the bushel-measure to be treated as we have supposed
the coin to be, that is, were the yard-stick to be shorn of
three or four inches, or the bushel measure to have a
false bottom inserted, we should not avoid disturbance
of relations in buying and selling goods, simply by lim-
iting the number of such yard-sticks and bushel-meas-
ures to the number of the unabridged articles previously
in use.
This idea of money as a measure of value is going to
give us a great deal of trouble we finally settle it, as
till
I hope we shall be able to do when we reach the discus-

sion of Inconvertible Paper Money.
follows: "The people of Boston publicly and avowedly have piao-

ticed to clip and file all the small current money along the con-
tinent, to 25 per cent, loss, which practice and the unlawful profit
coming thereby, did encourage enough to make it their business to

carry it thither and return it again to us and our neighbors, where it
passed for the same value as formerly." — [Documentary History oi
New York.l
DISCREDIT OF THE GOIN. 197
But if tlie abstraction, under the name of seigniorage,

of a portion of the precious metals which the coin for-
merly contained, whether that portion be one per cent.,
or ten, or fifty whether it be to cover simply the cost of
;
coining or to afford a revenue to the sovereign or the

state, does not necessarily affect the purchasing power
of the coin, why is not seigniorage in every way eco-
nomically desirable ?
It meets the charge of coinage, which otherwise falls
upon the state ; it may be used to form a sort of sinking-

fund, against the expense of recoinage,^ whenever that
shall become necessary ; it may even be used as a form
of taxation, to bring a large revenue into the public
treasury. Moreover, it enables a smaller amount of the
precious metals to discharge the office of circulation, and
thus allows a portion of the labor employed in mining
to be directed to agriculture or mechanical industry.
In reply to these arguments it will suffice, at present,
to say that we shall meet them aU again in our discus-
sion of Paper Money, and in a shape, too, where they
can be more conveniently canvassed and more conclu-
sively answered. " The whole charge for Paper Money,"
says Mr. Bicardo, "may he considered as Seigniorage."^
I have thus far made use of Mr. Eicardo's name in
tracing the effects of seigniorage on the purchasing
'
Prof. Jevons brings out this idea in his " Money and the Mechan-
ism of Exchange." He shows that the British seigniorage of 9 per
cent, or thereabouts, on silver coin, more than provides for the issue
of fresh coins as those in circulation are returned, worn or clipped,
to the Mint.— [Pp. 163-4.]
" Economy. In
Political his " Reply to Bosanquet," he says :
" A
Bank-note may be considered as a piece of money on which th«
seitmiorage is enormous ; amounting to all its value."

198 MONEY.
po-wer of coin, the reason being that it seems to me an

important proviso needs to be made in the practical ap-
plication of this doctrine to the actual coinage of any
country at any time. Mr. Eicardo's conclusions are just,
upon his assumption, not expressed, indeed, and this is
where he scarcely did justice to his readers but clearly ;
carried along by Mr. Eicardo in his reasoning, viz., that

the general knowledge, or the popular suspicion, of a re-
duction of the metal in the coin does not operate upon
the public mind to interfere with its circulation.^
In other words, Mr. Eicardo's reasoning assumes that
the demand for money is fixed in the state of produc-
tion and trade, at the time, with the commercial agencies
existing; that the people wiU use so much money, any-
how ; and that the supply of money, that is, the number
of money-pieces, or coins, of a given mint-value, has
alone to do with the question whether depreciation shall
result.
And it needs to be said that such a reduction in the

quantity of metal in the coin may conceivably take place,
nay, there is reason to believe, actually has taken place
in not a few instances, with the full public knowledge of
the fact, and yet without aifecting the currency of the
coin, and hence without affecting the demand for money.
But such is not necessarily, and there is reason to be-
lieve that it has not always been actually the case.
Hence, when we speak of a debased coinage circulating
without depreciation, if not in excess of the amount of
'
Prof. Sumner gives countenance to the proposition, " the worse
the currency, the more mobile it will be," provided it be uniformly
bad. — [Hist. Am. Currency, p. 176.] It takes two to make a bar-
gain. It is true that the worse the currency, the mora anxious the
holder is to pass it off; it is also true that every other person is, 03
that account, less wilKng to receive it.
DISCREDIT OF THE COIN. 199
money of full value which might circulate in the com-

munity at the time, it must be understood always with
the proviso, that nothing in the public mind limits the

circulation of such a debased coinage ; for, should it be
blown upon, should prejudice arise against it to such an
extent that, rather than receive it, people will resort to
barter, in spite of aU its inconveniences, or to extended
credit leading to the mutual cancellation of obligations,^
then we should have a new condition; the demand for
money would be diminished just so far and an amount ;
of coin not in excess of the amount of money of good re-

pute which would circulate freely, might become redun-
dant and hence depreciated.
Such a prejudice against the coin in circulation as is
referred to, might be produced among the ignorant and
unthinking by false reports concerning its weight or
fineness, or by mere abuse of it from the press or from
persons in high positions. Among the more intelligent
an apprehension of larger issues or of further
classes,
debasement might lead to distrust and a reluctance to
receive considerable amounts of it.
As was remarked^ in our analysis of the Money-func-
tion : while barter is, in a large proportion of the ex-

changes of modern industrial society, impracticable, in
respect to other large bodies of exchange operations, it
is simply a question of a little inconvenience or risk,
more or whether barter, or exchange through the

less,
medium of money, shall be resorted to. " In agriculture

payment in money is highly excep-
the world over, full
where it is not wholly unknown. In England,
tional,
the money wages in general far exceed the estimated
See pp. 65-9.

" P. 21.
200 MONEY
value of all the other forms of payments, and rarely con
stitute less than one-half the nominal wages. In Scot-
land, except in the neighborhood of large towns, pay-
ment in kind is very general, while in some parts of the
Highlands little mraiey passes at all between employer
and employed. In Germany, the report of the recent
Commission of the Agricultural Congress proves the
custom of payments in kind to prevail in every province
from East Prussia to Alsace. In France this custom
prevails, to a greater or less extent, in all departments.
In the United States, board to the unmarried laborer
is perhaps the rule ; while in the South, at least, the
payment in kind generally includes the subsistence of

the laborer and his family, and to a considerable extent,
^
other necessaries of life."
Now, it is obvious that in all branches of agriculture

where the produce was suitable for the laborer's con-
sumption, any degree of distrust of the coin in circula-
tion might result in throwing the body of laborers and
employers back in a greater degree upon the condition
of barter. Many employers had reasoned that they
would not be harassed by the small cares and troubled
by the inevitable complaints attending the payment of
wages in kind they would market their crops and pay
;
their workmen the stipulated wages in money, letting

them feed, shelter, clothe, and otherwise provide for
themselves. In this way the employers, while losing the
possible profits of truck, would be relieved from a thou-
sand annoyances and inconveniences would no longei' ;
have to hear the good wives chatter about leaky roofs

and broken windows, or their good men growl over un-
dersized potatoes, thin cider, musty meal or green fire-
' Walker, The Wages Question, p. 20.

'
wood. At the same time, this willingness of the employ-

ers to dispense -with payment in kind had doubtless been
assisted by the growing uneasiness of the laborers and
their readiness to revolt against truck, or at least to give
preference to masters who paid in cash. But a distrust
of the money which had been the ordinary medium of
payments might send both the parties gladly back to
barter. Hôwever strong the workman's educated dislike
of truck, he might choose it rather than be robbed
through a fraudulent money.
It was said that a return to barter might be effected
in the case of all branches of agriculture where the
produce was suitable for the laborer's use. In the case
of the cotton crop, however, the produce of the planta-
tion is not suitable, in its raw state, for personal con-
sumption, and when made up meets but one of his
it
many wants. Even here, however, under such circum-

stances as we are contemplating, both masters and men
would find it for their interest to come to the plan of
paying and receiving wages, in a degree, at least, in arti-
cles necessary for subsistence. The employer might

agree to furnish definite quantities of bacon, corn, and
clothing for the laborer and his family, in return for defi-
nite amounts of work, and thus obviate the use of the
distrusted medium. By thus making one person purvey-
or for large numbers, a great saving would be effected in
the use of coin, for it is retail trade which especially de-
mands the employment of money.
Moreover, the reputation and pecuniary responsibihty
of the employer would permit the extensive introduction
ctf credit, resulting in the mutual cancellation of large
amounts of obhgations, which, in the ordinary course of
trade, would have been separately settled, at their differ-
ent dates of maturity, by the use of money. The plant-
17*
202 MONEY.
er, with his large capital and his growing crop as secu-
rity,might purchase supplies wholesale, not only at lower
rates, but on longer time, than his individual laborers
could do. This would allow him to pay for his supplies
by bills drawn on the consignees of his crop, and thus the
necessity for the use of money be entirely obviated.
in the two ways thus described, a large portion of all
the money ordinarily used in the payment of agricultural
wages and kept in circulation between agricultural la-

borers and the small shop-keepers who supply their
wants, might be released through the operation of a con-
tiaued and ia creasing distrust or dislike of the, coin, aris-
ing from a popular knowledge of its debasement, com-
bined with the natural apprehension of further reductions
in quality, so that an amount not in excess of what would
be the volume of money of full value, might prove re-
dundant.
The former of these methods of reducing the use of
money could not be extensively applied in most branches
of mechanical industry, inasmuch as the product would
generally be found to be suited to few or none of the la-
borers' necessities; but the latter method might come
largely into play just as soon as suspicion attached to
the ordinary /medium of exchange. Unquestionably, to
anticipate somewhat, this was one of the reasons which
explain the rapid depreciation of the Revolutionary pa-
per money. Not only was the amount continually iu-
creasing,under the pressure of the financial necessities
of Congress, but the use of it was decreasing, perhaps
even more rapidly, as men learned, by the bitter experi-
ence of their losses, to make exchanges as far as possible
La kind, and to ask and give accommodation in the mat-
payment, so as to bring income and outgo together^
ter of
and thus secure a mutual cancellation of obligations.
:
A greater or smaller use of money is often not a mat-

ter of necessity, but of couYenience or even of pleasure
or fancy.' If the circulating medium breaks down whol-
ly or in part, the community resorts to barter or to credit,
to a certain extent, with perhaps no
loss whatever indus-
trially, but only a slight increase of personal care and
trouble. methods have to ba carried furthei
If these
and applied to a larger volume of transactions to which
they are less easily adapted, there may be an appreciable
lo«s resulting from the hinderance of production and of
exchange ; but still,- that loss, being definite, may be
preferred to the losses apprehended from those of dis-
trusted money.
In such a temper of the public mind, many dealers
on the principle announced by Swift's Dyapier
will act
" For my own part, I am already resolved what to do. I
have a pretty good shop of Irish stuffs and silks : and
instead of taking Mr. Wood's bad copper, I intend to
truck with my neighbors, the butchers, the bakers and
brewers and the rest: goods for goods." '^
I have not intended, in what has been said, to dispar-
age the importance of the Money-function ; but only to

show that, in any advanced state of industrial society,
there is a margin, often a wide margin, of exchange
transactions which may be occupied by barter or by
money-sales, indifferently, so far as any actual industrial
loss is involved, the use of money being ordinarily re-
sorted to from the force of habit, or from considerations
of convenience which do not go to the real capabilities
of production ; that there is a still larger body of ex-
'
Prof. Jevons has a significant paragraph " 0.. .he Force oi Habit
in the Cinmlation of Money." —[Money, etc., p. 7.3-80.J
"
Dean Swift's works. " Wood hath Liberty to offer his coin, and
we have Law, Reason, Liberty and Necessity, to refuse it."

204 MONEY.
change transactions in respect to whicli the choice be-

tween barter or money-sales is a matter, not of necessity,
but of convenience, within a degree which may allow tho
advantages of the latter method to be offset by evils ex-
]>erienced orapprehended from the use of a distrusted
medium and ; that, from these causes, as well as through
an increased use,of credit allowiag the mutual cancella-
body of debased coin, not in excess
tion of obligations, a
of theamount of money of full value which would, under
the same industrial conditions, have circulated freely in
the community, nfay become redundant and suffer de-
preciation.
It is not, however, let us repeat, at all in the nature of
the case, that a debased coinage, even though the fact
of debasement be publicly known, should depreciate, if
not issued in excess. We freely take nickel five-cent

pieces, the material of which is worth only about half a
cent, or silver fifty-cent pieces, the material of which is
worth even less than half-dollars in our irredeemable

paper money, because we look confidently to have others
take them from us in turn. In like manner, a commu-
nity may continue to accept worn or clipped or debased
sovereigns or eagles without hesitation, so long as the
habit of receiving them suffers no shock, each man tak-
ing tnem, not at all for what is in them, but for what he
can get by means of them.
CHAPTEE XL
EECOINAGE.
The frequent allusions which have been made fcc
losses sustained by the coin from abrasion in circulation

and from the evil arts of the clipper and the sweater,
naturally introduce the subject of Eecoinage.
The three great English reeoinages to which I shall
refer in illustration of the difficulties besetting a refor-
mation of the coin of a country when it has become
greatly and irregularly debased at the mint, or abraded
in circulation, are those of 1560, 1696, and 1774.
In each of these instances, the volume of the coin had
undoubtedly been increased above the quantity of mon-
ey of full weight which would have circulated though ;
in the latter two cases at least, Mr. Eicardo asserts,' not

proportionally to the debasement of quality. Of each
instance it might be asserted that it was not so much the
fact of the general debasement or deterioration of the
coin, as the want of uniformity therein, which induced
confusion in trade. Had all the shillings in King Will-
iam's time been debased to groats, exchanges would
have been effected with comparative ease and equity.
It was because one shilling was worth twelve pence,
another ten, another eight, and another only six, or even
' See p. 192.
18
206 MONEY.
four, that disputes arose at 6Yery payment. "It ia
surely," says Prof. Tucker,' " of far less inconvenience

that there should be a disparity of value of the same
coin at different periods, and these probably distant,
than that there should be a disparity in similar coins
circulating at the same time."
The first recoinage is thus described by Mr. Froude :
" In their first moments of serious leisure, immediately

after the Scotch war, in September, 1560, the council de-
termined, at all hazards, to call in the entire currency and
supply its place with new coin of a pure and uniform
standard. Prices of all kinds could then adjust them-
selves v/ithout farther confusion.
" The first necessitywas to ascertain the proportions of
good and bad money which was in circulation. A public
inquiry could not be ventured for fear of creating a panic,
and the following rudely ingenious method was suggested
as likely to give an approximation to the truth :
'
Some
M^tty person was to go among the butchers of London
(and to them rather than to any other, because they re-
manner of persons in effect, so
tailed of their flesh to all
that thereby of great Kkelihood came to their hands of
all sorts of money of base coin) and to go to a good many
of them — —
36 at least, and after this manner, because
they should not understand the meaning thereof, nor
have no suspicion in that behalf, requiring all of them to
put all the money that they should receive the next fore-
noon by itself, and likewise that in the afternoon by it-
self, and they should have other money for the same,
promising every one of them a quart of wine for their

labors because that there was a good wager laid whether
they received more money in the afternoon whereof nino
;
' Money and Banks, p. 99.

THE RECOINAQE OF 1560. 207
score pounds being received of the butchers after the

manner aforesaid, being all put together, then all the
shillings of three oz. fine and under, but not above,
should be tried and called out, as well counterfeits after
the same stamp and standard as others and after the ;
rest of the money might be perused and compared one

with another.'
"Either by this or some other plan, the worst coin in
circulation was found to be about a fourth of the whole,
while the entire mass of base money of all standards was
guessed roughly at £1,200,000. How to deal with it was
the next question.
"Sir Thomas Stanley offered several schemes to the
choice of the government.
" 1. The testers, worse and better together, might be
called down from sixpence to fourpence a period might ;
be fixed within which they must be brought to the mint,

and paid for at that price. The £1,200,000 would be
bought in for £800,000 the bullion which it contained
;
being recoined and re-issued at 11 oz. fine would be

worth £837,500 ; and the balance of £37,500 in favor of
the government, together with the value of the alloy,
would more than cover the expenses of the process. If
the queen wished to make a better thing of it, the worst
money might be sent to Ireland' as the general dirt-heap
for the outcasting of England's vileness.
' "From 1296 to 1355, the coins of England and Scotland were of
the same weight and purity ; but at the last mentioned epoch the
standard of Scotch money was, for the first time, sunk below that of
England ; and by successive degradations the value of Scotch money,

at the union of the Crowns in 1600, was only a twelfth part of the
value of the English money of the same denomination. It remained

at this point till the union of the kingdoms canceled the separate
coinage of Scotland. The gold and silver coins of Ireland have been
for a considerable period the p.imn as those of Great Britain' but
208 MOnHY.
" 2. The bad coin nJght be called in simply and paid
for at the mint according to its bullion value, a percent-
age being allowed for the refining.
" 3. If the queen would run the risk, she might relieve
her subjects more completely by giving the full value of
fourpence-halfpenny for the sixpence, three halfpence
for the half-groat, and so on through the whole coinage,
allowing three-quarters of the nominal value, and taking
her chance — stiU. with the help of Ireland —of escaping
unharmed.
"Swiftness of action, resolution, and a sufficient num-
ber of men of probity to receive and pay for the moneys
all over the country, were the great requisites. The peo-
ple were expected to submit to the further loss without
complaint, if they could purchase with it a certain return
to security and order. Neither of Stanley's alternatives
were accepted literally. The standard for Ireland had
always been something under that of England. But the
queen would not consent to inflict more suffering on that
country than she could conveniently help. The Irish
coin should share in the common restoration, and be
brought back to normal proportions. On the 27th of
its
September the evils of an uneven and vitiated currency

were explained by proclamation. The people were told
that the queen would bear the cost of refining and re-
coining the public moneys, if they on their side would
bear cheerfully their share of the loss and they were ;
invited to bring in and pay over to persons appointed to

receive it in every market town the impure silver in their
hands.
until 1825 they were nominally rated 8J per cent, higher. This
difference of valuation, which was attended with considerable incon-
veniencss, was put to an end by the Act 6 Geo. IV, c. 79 which
assimilated the currency thi'oughout the empire."
— [J. R. McCuUccb
Commercial Dictionary.]
THE RECOINAGE OF 1696. 209
"For the three better sorts of tester the Crown would

pay the full value of fourpence-halfpenny and for the
and pence in proportion. For the fourth and
half-groats
most debased kind, which was easily distinguishable, it
would pay twopence-farthing. To stimulate the coUeo-
tion, a bounty of threepence was promised on every
pound's worth of silver brought in. Eefiners were sent
for from Germany ; Tower was set to
the Mint at the
work under Stanley and Sir Thomas Fleetwood, and in
nine months the impure stream was washed clean, and
a silver coinage of the present standard was circulating
once more throughout the realm.
"Either a large fraction of the base money was not
brought in, or the estimate of the quantity in circulation
had been exaggerated. There was a balance in favor of
the Crown of £95,135 but the cost of collection, the pre-
;
miums and other collateral losses reduced the margin to

£49,776 9s. M. £35,686 15s. M. was paid for the refining
and reminting, and when the whole transaction was com-
pleted, Elizabeth was left with a balance in her favor of
£14,079 13s. 9d"— [History of England, vii, 467.]
The second great recoinage was that accomplished in

the reign of WUliani III, when Montague was at the head
of the Treasury and Isaac Newton was Master of the
Mint. This great political and financial event is familiar
to every reader, through the picturesque description

given by Macaulay in his 21st chapter. "In the autumn
of 1695, it could hardly be said that the country pos-
sessed, for practical purposes, any measure of the value
of commodities. It was a mere chance whether what
was called a shUliag, was really tenpence, sixpence or a
gi-oat."
210 MONEY.
The officers of tlie exchequer -weighed 57,200 pounds

of hammered money, which had recently been paid in.
The weight ought to have been above 220,000 oz.; it
proved to be under 114,000 oz. Three eminent London
goldsmiths were invited to send a hundred pounds each
in current silver, to be tried by the balance. Three hun-
dred pounds ought to have weighed above 1200 oz. The
actual weight proved to be 624 oz. It was found that a
himdred pounds, which should have weighed above 400
oz., did actually weigh, at Bristol, 240 oz. ; at Cambridge,
203; at Exeter 180; and at Oxford, 116.^
"It may be doubted," continues the eloquent historian,
"whether all the misery which had been inflicted on the
English nation in a quarter of a century by bad kings,
bad ministers, bad parliaments, and bad judges, was
equal to the misery caused in a single year by bad crowns
and bad shillings. . . .
" The evil and hourly, in almost every

was felt daily
place, and by almost every class iu the dairy and on ;
the threshing-floor by the anvil and by the loom on

; ;
the billows of the ocean and in the depths of the mine.

" Nothing could be purchased without a dispute. Over
every counter there was wranghng from morning to
night. The workman and his employer had a quarrel as
regularly as the Saturday came round. On a fair-day
or ar market-day the clamors, the reproaches, the taunts,
the curses were incessant, and no booth it was well if
was overturned and no head broken. No merchant

would contract to deliver goods without making some
stipulation about the quality of the coin in which he
' " A. V." in his letter to Lord Godolphin, gives the results of nu-
merous trials made by him on the current coin. Maeaulay appears

to draw his figures from this source, v,nough the correspondence \t
not complete.
—
THE REQOINA QE OF 1696. 211
was to Even men of business were often be-

be paid.
wildered by the confusion into which all pecuniary
transactions were thrown. The simple and the careless
were pillaged without mercy by extortioners whose de-
mands grew even more rapidly than the money shrank.
The price of the necessaries of life, of shoes, of ale, of
oatmeal, rose fast. The laborer found that the bit of
metal, which, when he receired it, was called a shilling,
would hardly, when he wanted to purchase a pot of beer
or a loaf of rye-bread, go as far as sixpence.
"Where artisans of more than usual intelligence were
collected in great numbers, as in the dock-yard of Chat-
ham, they were able to make their complaints heard and
to obtain some redress; but the ignorant and helpless
peasant was crueUy ground between one class which
would give money only by tale, and another which would
only take it by weight."*
It was to remove this evU, which had gone so far as to
' Dr. Hunter, in his admirable work " The Annals of Rural Ben-
gal," has strikingly shown the suffering of the poorer classes through
the use of an irregularly debased money. " The coinage, the refuse
of twenty different dynasties and petty potentates, had been clipped,
drilled, filed, scooped out, sweated, counterfeited and chahged from

its original value, by every process of debasement devised by Hindu
ingenuity during a space of four hundred years. The smallest coin
could not change hands without an elaborate calculation as to the

amount to be deducted from its nominal value. This calculation, it
need hardly be said, was always in favor of the stronger party. The
treasury officers exacted an ample discount from the landholders
a discount which, when Bengal passed under British rule, amounted
to 3 per cent, after a coin had been in circulation a single year, and
to 5 per cent, after the second year, although no actual depreciation
had taken place. The landholder demanded a double allowance
from the middleman, and the middleman extorted a quadruple allow-
ance from the unhappy tiller of the soil. In a long, indignant letter
on the illegal cesses under which the cultivator groaned, Mr. Keating
212 MONEY.
paralyze trade and threaten the stability of the Mug-

dom, that the great recoinage was effected under the
masterly administration of Newton. The loss on the
clipped and worn pieces was borne by the nation, the
deficiency, exclusiTe of the actual cost of recoinage,
amounting, according to Mr. Bosanquet [Practical Ob-
servations, p. 37°], to £2,415,140.
Of the wild excitement or painfully suppressed anx-
iety with which, according to the temperaments of indi-
viduals, the nation awaited the result of this great
experiment by which the whole coin of the realm was
withdrawn and re-issued, the reader cannot have forgot-
ten Macaulay's most impressive account.
In the recoinage of 1774' gold only was withdrawn,
silver, being no longer the principal money, was allowed
singles out the 'batta,' or exchange on old rupees, as the most cruel
because the least defined. No recognized standard existed by which
to limit the rapacity of the treasury officers. The government held
tlieni responsible for remitting the net revenue in full, and left them
to deduct such a proportion from each coin as they deemed sufficient
to CO /er all risk of short weight. Moreover, so great was the variety
of com in use, that they claimed a further discretion as to what they
would receive at all. Cowries (shells), copper coins of every denom-
ination, lumps of copper without any denomination whatever, pieces
of ircm beaten up with brass, thirty-two different kinds of rupees,
from the full sicca to the viziery, hardly more than half its value,
pagodas of various weights, dollars of different standards of purity,
gold mohurs worth from 25 to 32 shillings each, and, a diversity of
Asiatic and European coins whose very names are now forgotten.
At some treasuries, cowries were taken; at othei's they were not.
Some collectors accepted payment in gold; others refused it; others
again could not make up their minds either way and the miserable
;
peasant never knew whether the coin for which he sold his crop
would be of any use to him when he came to pay his rent." [Pp. —
293-5.]
' So called; Chalmers says it begar Augu.\t 1773 and ended ir
1777. — [Considerations, etc., p. 92.]
" THE ANCIENT STANDARD." 213
to remain in its debased condition. Mr. Huskisson, in

his Bullion pamphlet, states the average reduction of the
gold coin, in 1773, at from four to five per cent.
The Act of 1696 brought out a very full discussion of

the whole system of recoinage. When it is said that
Montague, Somers, Isaac Newton, and John Locke par-
ticipated in the high debate, it is needless to say that
little has since been added to the philosophy of the sub-

ject.
Two issues are involved in a general recoinage. First, \
shall the ancient standard be restored ? We shall see j
this question arising in 1819, in connection with the re-

sumption of specie payments in England ; and we find
the same issue presented in our own day, after a suspen-
sion of sixteen years.
The argument against a return to "the ancient right
standard," to use the proud phrase of the English stat-
ute, is not wholly a plea for repudiation.
It is urged in its behaK that, when the debasement of
the coin has been long in progress, prices have adapted
themselves, painfuUy and irregularly indeed, to the
state of the coin; that contracts for goods, for rents, for
interest, etc., have been based on existing prices ; and
that an abrupt return to the ancient standard will work
great injustice to all debtorswho will be obliged to meet
their obligations in a money which has suddenly become
more valuable. We
have to meet this question
shall
again in connection with the Resumption Act of 1819.
In 1696 Mr. Lowndes, the Secretary to the Treasury,
stood as the champion of the scheme * of lowering the
'
He proposed that the pound of standard silver be coined into 77
instead of 62 shilhngs, which would have eflfeoted a rtiduction of
nearly one-fourth.
:
214 MONEY.
standard meet the condition of the money actually in

to
circulation;^ Locke as the champion of the ancient
standard. Of the writings of this great philosopher on
this Macaulay remarks: "It may well be
occasion
doubted whether, in any of his writings, even in those
ingenious and deeply meditated chapters on language,
which form perhaps the most valuable part of his Es- '
say on the Human Understanding,' the force of his

mind appears jnore conspicuously."
The second issue that arose in connection with the
recoinage of 1696 was this conceding the maintenance :
of the ancient standard, on whom should the loss by

light coin fall?
On this point Prof. Thorold Eogers's objection to the
plan adopted in 1696, must be deemed wholly insuffi-
cient :
"As a matter of abstract justice, it is clear that the

act of coinage, being a, service which the government
does for the public, and being a certificate of the fine-
ness^ contained in the pieces issued, the Exchequer

should not be called on to bear the loss of wear, still
less, losses by fraud." — [Hist. Gleanings, i, 30.]

Now, to say that the government should not bear the
cost of recoinage because it bears the cost of coinage
is not this much like saying that government should not
repair roads because it has in the first instance to make
them?
'
In anticipation of the recoinage of 1774, Mr. Harris, in his very
able essay on " Money and Coins," proposed to reduce the guinea to
20 shillings, to meet the average deterioration of the existing body
of coin, which was estimated to be between 4 and 5 per cent.
''
A singular sUp ; the stamp on the coin is a certificate both of the
fineness and of the weight This fact turns Prof. Rogers's arg .'ment
against himself.
THE CHARGE OF REOOINAGE. 215
But there is a deeper objection to government throw-

Ing-off the cost of recoinage. It is that, while the ser-
vice of which Prof. Eogers speaks was rendered to the
pubhc at large, the accidental present holder of the coin
\
is made to pay the entire cost of that service from the

period of issue, extending perhaps through a score of
years.' Hundreds of persons have handled the coin
and helped to abrade it one alone, he in whose hands
:
it happens to be found at the date of the proclamation,
is made to suffer the entire loss.

But it is not on grounds of justice alone that most of
the governments of Europe have adopted the principle
that the charge of recoinage shall fall upon the public.
Considerations of policy also require it. Great Britain,
whose government still stands out against the princi-
ple, suffers from a steady deterioration of its coin, in
consequence of the reluctance of holders to submit to

loss^ by bringing light sovereigns to the mint. The
Bank of England and its branches, with a few Irish
banks, alone comply with the requirement to cut light
pieces. Other banks and dealers in money, as well as
tradesmen generally, throw the coin back into circula-
tion.
Prof. Jevons estimates' that, in 1868, there were
' " loss from natural abrasion," says Mr. Tooke, " should be
The
repaid by the government, and not by the last holder, for the rea-
son that it has occurred while the coins were performing the func-
tion of a circulating medium."
Mr. Nicholson states that in the three years ending March 31,
'
cut by the
1872, gold coins to the nominal value of £1,975,716 were
Bank; the loss sustained by the owners of the coin amountsd to
£25,415, being -^ of the nominal value.— [Science of Exchanges,
p. 99.]
* Statistical burnal, xxxi, 433-4.
216 MONEY.
about 20,000,000 liglit sovereigns (out of a total of 64,-

500,000, at the most, in circulation) and £5,600,000, in
value, of light half-sovereigns, circulating in defiance of
law. In some agricultural districts the proportion of
light sovereigns rises to 44 per cent. The average defi-
ciency in weight of the sovereigns is computed by Prof.
Jevous at 0.53 per cent.; that of the half-sovereigns at
more than twice as much.
CHAPTEJi Xn.
THE CONCUEEENT CIRCULATION OF TWO METAUS.
In referring to the English coinage, it has been said

that since 1666 no seigniorage has been exacted.
This assertion holds true, however, since 1816, only
of the principal, or gold,money of the realm. On sil-
ver and bronze coin, the seigniorage charged by the
British government is considerable.
" Standard wrote Prof. Jevons in 1874, " can
silver,"
usually be bought by the mint for 5 shillings [gold] per
standard ounce. It is issued to the public [in coin] at
the rate of 5s. 6d. per oz., so that the government re-
ceives a seigniorage of at least 9 per cent, on the nom-
inal value of the coin issued."
" The average coinage of silver at the English mint,"
he continues, " during the last ten years has been £546,-
580, upon which the seigniorage 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 tho cost of the mint establishment."
"At present," he adds, "the price of silver is not
above 4s. lOd. per oz., so that the seigniorage is about
12 per cent., and the profit on coining silver proportion-
19
—
218 MONEY.
ately greater." — [Money and the Mechanism cf Ex-

change, pp. 163-4.]
On the smaller coins of the kingdom a much larger
profit, proportionately, is made by the government.
" The bronze of which the pence are made is worth, ac-
cording to Mr. Seyd, lOcZ. per troy pound, so that the
metallic values of the coins are almost exactly one-
fourth iârt of their nominal values." [Ibid., p. 110.]
That is, the British penny contains one farthing's worth

of metal.
The primary object of this seigniorage on silver and
bronze coins, in England, is not the profit to be derived
from the coinage: but the establishment of a "single
standard" —in this case, gold ; and the remitting of silver
to the position of a subsidiary coinage, to be issued in
arbitrary amounts by the government, and to be legal
tender' only for strictly limited and inconsiderable
sums. Money thus issued is called Billon (from the
French) or Token-money. Even among the nations
which assume to keep both gold and silver in circula-
tion,the policy of making the smaller coins, even the
smaller silver coins, of less than their nominal value,
is now generally adopted.^ Eussia alnjost alone pre-
serves the full actual metallic value of her silver coins,
down Economically speaking, what
to the smallest.
is the relation of token-money to standard-money ?
Only two points under this head require to be noted.
' In Great Britain silver coin is not a legal tender above 40 shil-
lings ;
pence are a legal tender in payments to the amount of 1 shil-
ling only ; half-pence and farthings to the extent of 6 pence only.

' The Report of Mr. Groschen's Committee on the Depreciation of
Silver (1876), and Mr. Ernest Seyd's treatise on "BuUion'and For-
eign Exchanges," contain fuE information respecting the hiUon of the

world.
TOKEN-MONET. 219
The concerns the complaint that the debasement

first
of the coin in which the wages of common labor are

paid, is an injury to the working classes. For example,
a laborer who paid on Saturday twenty-two coined
is
shillings for his week's work, in reality gets less than a

sovereign's worth of silver ; the girl
who is nominally
paid tenpence for her day's work in the mill gets only
about a threepence worth of copper. Here, it is said,
is a manifest iujustice. The wealthy and well-to-do re-
ceive their incomes in the principal coin of the country
which is of full weight and fineness ; the poor are paid
in coins which contain only a part, and perhaps only
a small part, of the metal which would be worth the
sum for which they are made a tender by law. This
complaint, sometimes heard among laborers, was re-
cently given a wider hearing through Colonel Tomline,
a member of the British Parliament. The answer of
Mr. Hubbard appears to be conclusive, so long as such
billon or token-money is not issued in excess.
Mr. Hubbard, " that silver,
" It is quite true," says
rather than gold, is the medium through which the

wages of the laboring classes are paid; but to show
that the laboring classes are injured by the Mint regu-
lations, it must be demonstrated that the shilling they
now receive commands a smaller quantity of the neces-

saries of life than would a shilling coined as an integral
measure of value. The shilling now circulating derives
its purchasing power, not from the silver it contains,
but from being by law a twentieth part of a poiind,
its
— the golden standard. All prices, wholesale or retail,

whether of a bullock or a beefsteak, of a quarter of
wheat or a loaf of bread, are computed upon a gold val-
uation. The artisan's shilling is intrinsically the twen-
ty-second part of a pound, his penny but the four hun-
220 MONEY.
dred and eightietli part of a pound, but how do these

facts affect his interest, if he can always, with twenty
shillings or two hundred and forty pence, secure the
vahie of a pound? "
But suppose billon ortoken-money to be issued in

excess of the real requirements of trade, what will be
the result? Depreciation of course; but how will this
affect the poorer classes? how will it influence retail
prices?
I do not see how such an excess of small coin can in-
fluence peculiarly the condition of the poorer classes,
except through the operation of the principle expressed
by Eoscher, as quoted in the chapter on the Money-
function. Were the members of the community eco-
nomically on equal terms, all would suffer inconven-
ience, but all would suffer alike. If, for example, there
were such a flood of shillings issued by the English

Mint, that those who received them in trade found it
difficult to get rid of them,^ and it became necessary to
submit to a discount, the tradesmen would, it is true,
be compelled to charge the workman more for grocer-
ies, meats and vegetables, which were to be paid for with
' Dr. Hunter says of India :

" Copper coins, when transferred in
large quantities were, and are to the present day, sold ; that is to
say, they do not pass at their full denominational value, but at a

lowor rate, the proportion deducted depending on the locality, and
the cimparative demand for silver or copper coins. Indeed, 'Vie
tendency of copper coins to accumulate in the district treasuries stil]
forms a subject of frequent official correspondence, and a percentage

is in some places allowed to the collectors of the assessed taxes-
such as the municipal police — ^for converting the petty copper pay
ments into rupees." — [Annals of Kural Bengal, p. 298.]
TOKEN-MONET. 221
shillings;but on the other hand, the employer, being

able to exchange at a premium the gold or bank-notes
which he received from the sales of his goods, for shil-
lings with which to pay his workmen, would be able to
give an advance of wages to correspond. The whole
community would doubtless suffer an impairment of
industrial and commercial activity from such an ob-
struction but rich and poor would share this loss alike.
;
If, however, the community were divided, as there is
reason to believe every community is, into the econom-

ically weak and the economically strong, peculiar disad-
vantages might be experienced by certain classes. It
is more than probable that, in the instance given, while
the tradesmen would put up their prices promptly and

perhaps further than was strictly necessary to make
themselves good for the discount to which the shilling
had become subject, the employer would advance wages
tardily and partially.
What would be the effect on prices of a redundancy

of token-money? Speaking of the effort of the Secre-
tary of the United States Treasury to push out the so-
called "fractional currency," Prof. Sumner says:' "In
1872 this issue was forced up to between $40,000,000
and $50,000,000, producing a redundancy and enJiancing
retail prices." The suggestion is an interesting one. Is
it possible that a redundancy of small money should
produce any peculiar effect on retail prices? I see but
two ways in which this can take place. First, retail
prices would have to be advanced to the extent of any
discount actually submitted to by the dealers in turning
'
Hist Am, CuTViBcy, p. 205.
;
222 MONEY.
the small-money whicli they had received from theii

customers into the large-money in which they were tc
pay the merchants and manufacturers from whom they
purchased their goods. But was there in 1872 any dis-
count on "fractional currency," ordinarily submitted to
by retail dealers ? I cannot learn that there was.
The only other way ia which a redundancy of small-
money could produce an enhancement of retail prices,
specially, which occurs to me, is through aggravating
what Prof. Cairnes characterizes as " the excessive fric-
tion" of retail trade.^ The effect of an excess of small-
money in this direction might easily be very consider-
able, increasing the disadvantage which the laboring
classes always suffer, through poverty, ignorance and
inertia, in the purchase of articles for domestic consump-
tion.
SINGLE OR DOUBLE STANDARD ?
As to the expediency of the issue of bronze and cop-

per coins, and even of the minor silver coins, with a
real value below, it may be much below, the mint-price,
there is no great difference of opinion among economists
but the policy adopted in Great Britain, by the Act of
1816, of restricting to one metal the coinage of full
value and of unlimited legal tender, has been very
warmly disputed.
' ' " Competition in retail marltets,'' writes Prof. Cairnes, " is con-
ducted under conditions which may be described as of greater fric-
tion than those which exist in wholesale trade."
Mr. Mill says: "Eetail price, the price paid by the actual con-
sumer, seems to feel slowly and imperfectly the effect of competition,
and where competition does exist, it often, instead of lowering prices,
merely iivid«s the gain among a greater number of dealers"
: f ;
SINGLE OR DOUBLE STANDARD 223
We have now readied tlie ground of the controversy

respecting a Single or a Double Standard for Deferred
Payments that controversy to which Prof. Jevons has
:
applied the phrase, " The Battle of the Standards."

I need not say that this is the question in the whole
economy
field of political which at present awakens the
greatest popular interest and commands the most stren-
uous exertions of professed economists. Unfortunately,
prejudice and passion enter so largely into the contro-
versy as to obscure the true issue in the public appre-
hension, and even not a little in the minds of the con-
testants. Invective has taken the place of investi-
gation; and writers of repute set themselves about
thework of refuting and holding up to ridicule state-
ments which the representatives of the opposing party
would not for a moment accept as embodying their
views.
My only object here will be to set fairly forth, with-
out prejudice, the real issue, and indicate the econom-
ical principles upon which it must be decided. I shall
hope to place side by side the arguments of the two par-
ties tothe controversy in such a manner that either
might accept the representation of its own views without
qualification, much more, without challenge.
The position of the Mono-metallists, or the advocates

of a Single Standard, may be given in the words of Mr.
Nicholson
"We cannot keep gold standard coins and silver
standard coins in circulation side by side in any one

country for a continuance, because the value of one
jnetal when measured in the other is sure to fluctuate
and, as standard coins are but so many stamped in-

all
gots of standard metal,, people will always select the

metal which costs them least when they have a payment
224 MONEY.
to make ; so tliat if more can be got for a given quantity

of one metal in foreign countries than can be got for its
legal equivalent in the other metal, supposing them to

be circulating as stamped ingots side by side, the metal
for which the most can be got will be exported, because
of the two it is the cheapest mode of payment. For in -
stance, if eleved rupees' worth of goods can be got in
England for a sovereign, which is circulating side by
side with rupees as ten in British India, the sovereign
will be exported and the rupees will be kept in India.
" On the other hand, if one sovereign's worth of goods
can be got in England for ten rupees, when rupees are
circulating at the rate of eleven to one sovereign, side
by side with sovereigns in India, the rupees wiU be ex-
ported and the sovereign will be kept in that country."
— [Science of Exchanges, p. 107.]
The treatment two metals in the coinage of
of the
England is thus narrated by Mr. McCuUooh. " From
1257^ to 1664, the value of gold coins was regulated by
proclamation, or, which is the same thing, it was or-
dered that the gold coins then current should be taken
as equivalent to certain specified sums of silver. From
1664 down to 1717, the relation of gold to silver was not
fixed by authority, and, silver being then the only legal
tender, the value of gold coins fluctuated according to
the fluctuations in the relative worth of the metals in
the market. In 1717 the ancient practice was again re-
* "During thi 13th Century," says Prof. Rogers, "and the earhet
portion of the 11 h, the English currency was entirely silver. "Ed-
ward III coined gold in 1344. Macpherson, indeed, has given evi-
dence of a gold coinage under Henry III, of the year 1257, but he
acknowledges that the quantity must have been small, as the exist-
ence of this currency is gene ally unknown.' [History of Agricult- —
ure and Prices, i, 173.]
—
ENGLISH EXPERIENCE. 225
sorted to; and it was fixed that the guinea should be

taken as the equivalent of 21 shillings, and conversely.'
"In 1816, however, a new system was adopted in this
country, it being then enacted (5G George III, c.
68,)
that gold coins should be legal tender in all payments
of more than 40 shillings. The pound of silver bull-
ion that had previously been coined into 62 shillings
was then also coined into 66 shillings, the additional
four shillings being retained by government as a seign-
iorage or duty (amounting to 6if per cent.) upon the
coinage. To prevent the silver coins from becoming re-
dundant, government has retained the power to issue
—
them in its own hands." [Commercial Dictionary.]
From 1717 down to 1797, it is claimed that, while gov-
ernment sought to keep the two metals in concurrent
circulation, at a fixed ratio, only one, that which wag
overrated in the coinage, was in fact the money of the
kingdom. " During a long period previous to 1797, gold
was so cheap, compared with silver, that it suited the
Bank of England, and all other debtors, to purchase gold

in the market, and not silver, for the purpose of carry-
ing it to the Mint to be coined, as they could in that
coined metal more cheaply discharge their debts."
[Eiicardo, Political Economy.]
The experience of the United States with the two
metals is thus given by Prof. Sumner :
" The coinage law under which coins were first struck
in 1794 and 1795, fixed the ratio of gold to silver at one

to fifteen [the silver dollar being 416 gr., 371.25 gr. pure •
and the gold dollar 27 gr., 24.75 gr. pure, the Alloj
counting for nothing]. The actual rate of gold to siher
'
This is held to have overrated gol J, compared with silver, \\ \ pei
sent. —[Liverpool on Coins.]

19*
"
226 MONET.
was at that time different in different countries ;' but in

England it -was 15.2 to 1. Gold was, therefoi'e. under-
rated in the coinage, and it was easier for a deotor to
get silver to the amount of one dollar, than gold to the
amount of one dollar. Silver accordingly became the
real measure used and gold bore a premium." . . .
" Of all the gold that came in and was coined, the Sec-
retary of the Treasury said, 1836, that not over $1,000,-

and of that small
000 remained in the country in 1834, '
amount only a very diminutive portion was in active

circulation.'
"By an act of June 28, 1834, the gold eagle wag

made weigh 258 gr., standard, 899.225, that is,
to its pure
contents were 232 gr. or 23.20 gr. to the dollar. Under
this regulation silver was to gold as 16 : 1. This ratio
was fixed upon in a blaze of exultation about the recent
discoveries of gold in North Carolina, which, though
known to had only been developed since
exist siace 1801,
1828, and extravagant hopes were entertained of finding
'a new Peru,' in the mountains of Georgia and the
Carolinas. It was thought by some that it would en- '
courage the miners' to overrate gold in the coinage.^

In 1837, silver and gold were both made exactly nine-
tenths fine ; biit the pure contents of the silver dollar
remained the same as before, the gross weight being re-
' See p. 233.

" "Another consideration may be adduced in favor of the proposed
reform of our gold seems to be well ascertained that the
coins. It
TJnited States contain one of the most extensive deposits of gold that
has yet been discovered. ... It appears but just to afford to
those employed in collecting that natural product, a certain, and the
highest, home market of which it is susceptiôle." — [Grallatin^ Consid-
erations, etc., 1831 ;
p. 64.]
THE AMERICAN EXPERIMENT. 227
duced to 412.5 gr. The gold dollar now contained 23.22

gr. fine.
"There -were two different dollars after these changes

as mnch as before. The remained as be-
silver dollar
but the gold dollar was now worth less than before.
fore,
The gold dollar had formerly been worth, in the silver

coinage, $1,038, taking the true ratio to be 15.6 : 1, which
was asserted by the best authorities to be the true one
at that time. The new gold dollar was worth, at the
same ratio, in the same coin, 97.5 cts. As before no one
would pay a debt with gold dollars, so now no one
would pay with silver dollars. Silver went out of circu-
lation and became the better metal to export, while for
the same reasons gold became the better remittance this
way. The only silver which could circulate here was
that which was worn or clipped until it was not worth
more than silver was rated at in our coinage. All the
worn-down Spanish pillar-pieces came here, because
they had a value here higher than anywhere else in the
world. While the Mint was coining fine American
pieces, scarcely one was to be seen in circulation. The
people were obliged to use the smooth shillings, which
produced a quarrel at almost every exchange, as to
whether you could 'see the pillars,' until some one
crossed them and they sank into unquestionable dimes.
They were generally overrated at that." — [History of
American Currency, pp. 104-110.]
In 1853 the United States, which had to that time
followed the lead of England, imposed a seigniorage
charge of one-haK of one per cent. By the same act
the government practically abandoned the attempt to
keep the metals in circulation as equally the money of
the land. The silver dollar had disappeared, owing to
being underrated in the coinage, and the law of 1853
228 MONET.
did not touch its legal rating, but the fractional coins
•were purposely made of less than their nominal value,'
upon the principle of the English law of 1816 and be- ;
came legal tender only for sums under $5. The silver
was now coined by the government out ctf purchased
metal, and not out of bullion brought by private par-
ties to the Mint.
I have stated the position of the Mono-metalUsts in

the language of Mr. Nicholson, and have illustrated it
by England and the United States, as

the experience of
recited by Mr. McCuUooh and Prof. Sumner.
Mr. Nicholson's position on this subject is the posi-
tion of the English economists generally, scarcely more
in the present than in the past, though they have not
always been agreed as to the metal which should be
selected to be the principal medium of exchange.
Locke and most of the earlier economists advocated
silver^; of late the opinion of the English economists
has been quite decidedly^ the other way. It was Lord
'
Half-dollar, 192 grains standard, fly fine.
Quarter-dollar, 96 " " " "

" The fact that Locke and the elder economists advocated the use
of silver, has been made use of by Bi-metallists as favoring their
cause. Properly considered, however, it has no such bearing. Sil-
ver has fallen so much in purchasing power since Locke's day, as to
take from it much of the fitness it then had for use as the principal
coin of the realm ; while Locke's arguments against the possibility

cf a concurrent circulation of two metals have precisely the' san.u
\alidity when the preference is given to gold, in these days, as whe;
silver seemed best fitted for unlimited legal tender.
° Subsequently to 1816, and prior to the outbreak of the presen'.
controversy, in 1867, Lord Ashburton was perhaps the most eminen'

advocate of a return to the double standard. Tl .e views of several
English economists upon this question will be referred to in the
course of our further discussion.
SILVER AND GOLD. 229
Liverpool, son of the anthor of the Letter on tlie Coins

of theEealm, who led in the change which resulted as
has been said, in 1816, in the definitive establishment
of gold as the single standard for deferred payments
and the reduction of silver money to the position of n
subsidiary or token coinage.
It will be observed that the argument against the
concurrent circulation of two metals upon equal terms
turns upon the assumption that the relative values of
gold and silver may be expected to vary from time to
time.
Oar first duty clearly is to inquire into the history of
the variation in the comparative purchasing power of
the two metals, from which results, of course, the price
of each as expressed in terms of the other.
The point we have reached requires us to make a dis-
tinction not heretofore found necessary. Economists
have been wont to make this distinction between Yalue
and Price Value is purchasing power power in ex-
:
—
change ; Price is the power to purchase money — it is the
money-value of commodities. Money itself, then, while
ithas value (the value of a given amount of money be-
ing measured by the quantity of commodities it will
purchase), has not price.' This is true so long as we
think of money as one. to contem-But when we come
plate it as composed
two variable elements, it is evi-
of
dent that the price of either may be expressed in terms
-)i the other. Hence, when we speak of the price oi
gf'ld, we mean its silver-value when we speak of the ;
' " On appelle prix d'une chose la quantite de num&aire qu'elle

vaut, c'est a dire, sa valeur exprimSe en numeraire. Chaque chose
n'a qu'un prix, quoi qu'elle ait beaucoup de valours differentes, et
toute chose a un prix, excepte le num&aire lui mime." — [C herbuliez
Science Economiqiie, i, 238.]
20
230 MONEY.
price of silver, we mean its gold-value. When we speai

of the value of either gold or silver, we mean the power
it has to purchase other commodities, including the one
element of money besides itself.
I have already refeiTed to a statement contained in a

fragment of Agatharchidas, that silver was in very early
times more valuable in Arabia than gold, in equal
quantities of the two metals.^ In our own day, three
hundred years after the stream of silver began to pour
from the opened sides of Potosi, the proportionate
value of silver to gold^ in Japan was as one to four.
Throughout European history, however, we have no
record of any approach of silver towards equal value,
in equal quantities, with gold.
"In the reign of Darius, son of Hystaspes," says Mr.
Duncan,' "gold was thirteen times as valuable as silver;
in the time of Plato, twelve and in that of the comic

;
poet Menander, it was only ten. In the epoch of Julius

CsBsar the ratio of gold to silver fell to nine for one."
In 1262 Prof. Eogers finds an account of two pur-
' " The learned researches of Boeckli, Letronne, Humboldt, Jacob

and Bureau de la Malle. . . . They agree in the admission that
originally the value of silver, in some countries, has equaled, if not

exceeded, that of gold." — [Leon Faucher on the Production of the
Precious Metals, Haakey's translation.]
' As represented respectively in the two coins, the Itzi Boo and
the Cobang. " It followed naturally," says Mr. Seyd, " that the
American and European traders, giving dollars for Itzi Boos, speedily
sxchanged the latter for gold Cobangs, drawing gold away from
Japan, at ac enormous profit to themselves. The Japanese, of
course, soon became aware of this, and a revolution in their monetary

valuation took place. The gold Cobang was, after a period during
which its circulation was forbidden on pain of death, reduced to one-
fourth of its previous size." —[Bullion and Foreign Exchajige.s, p. 3 '3.]
• On Currency, p. 135.
1
INCREASE OF SILVER. 231
chases of gold in England which average 9|- :1. In 1292,

only thirty years later, the rate is 12^ 1.— [Hist. Agr. and :
Prices, i, 594^5.] Again :

"
The rate at which Edward III
issued his florins in 1345, takmg the six shillings, which
they were declared to be worth by proclamation, at 1485
grains of ptire silver, is exactly 13.75 : 1. li this ratio
really represented the existing proportions between the
two metals, it would point to a rise of about ten per cent.
in the value of gold, in the course of fifty years."—
[lUd.'] This remarkable rise we shall have occasion to
refer to hereafter,' as of not a little significance. Stand-
ing alone, the fact of so great a rise ia so short a time
would seem to favor strongly the cause of the single
standard, as showing how unreasonable is the expecta-
tion of anything like a permanent relation between gold
and silver but with the explanation which Prof. Rog-
;
ers finds for this rise of gold, between 1262 and 1345, the
case furnishes a very effective illustration to the advo-
cates of the "double standard," or the Bi-metallists.
While the discovery America took place in 1492,
of
the great increase of the volume of the precious metals
was, as we have seen, deferred till the conquest of Mex-
ico in 1521, and even until the opening of the mines of
Potosi in 1545. The bulk of the production of the
Spanish American mines being in silver,* the fall in
' P. 25l!
" Humboldt stated the quantity of silver taken from the American
mines down to about the beginning of the present century, as 46 :
of gold. This would make the value of the silver produced as be-
tween 3 and 4 to 1. Why did not this disproportion of product
cause a greater variation in the value of gold, in terms of silver, than
from 10 or 12 to 15 or 16 ? Mr. Jacob offers in explanation what
was doubtless one of the principal causes concerned :
" The value of
the silver produced since the discovery of America is three times
that of gold ; but thfj loss by wear on silver is four times that of
eold."
:
232 MONEY.
power was unequally distributed between

piircliasijQg
the two metals. As Adam Smith stated it, "both met-

als sank in their real value, or in the quantity of labor
which they could purchase but silver sank more than ;
gold.'
M. Chevalier estimates the fall in the value of silver,
from the discovery of America, as 6 1 that of gold 4 1. : ; :
Prof. Cairnes is disposed to deem both these estimates

excessive. — [Essays in Pol. Econ., p. 124.J
Prof. Leone Levi, in his "History of British Com-
merce," thus traces the effect of the silver discoveries of
America upon the price of gold in the several countries
of Europe
"During the reign of Ferdinand and Isabella, viz.,
from 1474 to 1516, the relative value between gold and
silver in Spain was as 1 lOen^. In the year 1537, and
:
during the reign of Charles V,' the relative value was

fixed at 1 : lOf-H ; during the reign of Philip II it was
established as 1 Vlx'iîi : ; during the reign of Philip III,
as 1 : IS-g- ; during, the reign of Charles II, as 1 IStheteV :

;
and finally on July 17, 1779, the relative value of the

two metals was fixed at 1 16. In the year 1641, Louis :
XIII of France issued an edict which regulated the

proportion between gold and silver at the French Mints,
and this proportion was established at 1 13-2, with the :
view to conform in this respect to the regulations of

foreign countries, where the proportions were as fol-
lows : in Germany as 1:12; in England, as 1 :
13t ; in
the Netherlands, as 1 12^ and in Spain, as : ; These
13-J-.
regulations lasted about a century, when it became nec-

essary again to alter them, and accordingly in the year
1724 an edict was issued by which the proportion be-
' Charles I of Spain.

:
INCREASE OF GOLD. 233

tween gold and French Mint was fixed as
silver at tlie
1 141.
: At tlie time of this last edict the mint regula-
tions of England established the proportions between
gold and silver as 1 to about 15i, and they remained at
the same footing until the new coinage. In 1780 the
relative value between gold and silver was, at Amster-
dam, as 1 14.885; in France, as 1 14.581;
: : in Spain, as
1:15.636; at Yenice, as 1:14.779; at Genoa, as 1:
14.915; at Leghorn, as 1:14.510; in England, as 1:
15.189, and at Hamburg, as 1 14.171.
: In the standard
of British coinage at the present time 1 part of gold is
worth 14i of silver ; in the French, 1 part of gold is equal
to 15i of silver, and in the countries where the silver
standard prevails the proportion varies from 1 : 15-^ to
15i"— [P. 326.^

The wide deviation between the standard of the pres-
ent British coinage and that of France, is, as we have
seen, due to the intention of the British Government
to reduce silver to the grade of subsidiary or token coin-
age.
The discovery of the Californian and AustraUan gold
mines,^ between 1848 and 1851, led to expectations of
' " Speaking very broadly, silver was produced, as compared with
gold, in the proportion of 3 to 1 during the earlier part of the cent-
ury; the proportion fell to .68 to 1 in 1848; to .27 to. 1 between

1852 and 1856; and between 1857 and 1875 it gradually rose to .68
to 1." — [Report of Mr. Goschen's Committee on the Depreciation of
Silver (1876), p. v.]
Prof. Levi gives the following summary cf the product of the
mines in 1846 and 1852

234: MONET.
still further changes in the relation of the two metals.

"At that time," says Prof. Cairnes, "according to all
estimates on the subject, the stock of silver in existence
was at least one-haK greater than that of gold." These
proportions were in twenty years to be reversed.
"Frightened, and not without reason," says Prof.
Levi, "at the possible consequences, some countries,
heretofore anxious to attract and retain gold in circula-

tion even at great sacrifices, showed a feverish anxiety
to banish it In July, 1850, HoUand de-
altogether.
monetized the gold ten florin piece and the GuiUaume.
Portugal prohibited any gold from having a current
value except English sovereigns. Belgium demonetized
its gold circulation. Russia prohibited the export of
silver and France alarmed, but less hasty, issued a

;
—
commission to inquire into the matter." [Hist. British
Commerce, p. 336.]
It was in anticipation of a change so great as to
amount to a practical confiscation of one-quarter, one-
third, or even one-half, of all debts which had been
contracted under the former proportions of gold and
silver established in France by the law of the year XI
(1803), that M. Chevalier wrote his treatise on the
"Probable Fall in the Value of Gold," already referred
to. The conclusions he reached were of the most
alarming nature, and in his view, the situation re-
quired the instant action of the French government to
prevent a social and industrial catastrophe.
The work of M. Chevalier appeared in 1857, when
the production of gold had been proceeding in Cali-
fornia nine years, in Australia six years. Yet though
the rate of gold production had reached a point which
would allow the whole yield (of gold) during the 356
years between 1492 and 1848 to be equahd in ten
INCREASE OF GOLD. 235
upon tlie relation of the two

years, the actual effect
metals,and even upon the purchasing power of the
whole mass of money, realized at the date of his essay,
had been small.
How was this to be accounted for? M. Chevalier
deemed the explanation to be this The new gold had :
been absorbed by France, to replace the silver formerly

in use which, when so replaced in the circulation of
France, flowed away to India and the East in payment
for the rapidly increasing purchases of oriental produc-
and drugs, to which a
tions, teas, coffees, silk, spices,
stimulus had been given both by the opening of the
ports of China and Japan, and by the fact that the new
money came first into the hands of the laboring classes,
allowing them an unwonted indulgence in luxuries of
this character. The explanation of M. Chevalier was
not fanciful. The coinage of gold in France between
1850 and 1857 had been 2,749,693,490 francs, or £109,-
987,735. In a word, and that M. Chevalier's, France
had been the parachute which had retarded the fall in
gold. That state of things, however, could not long
continue. The silver of France would soon be replaced
by gold and the new supplies would soon result in a
;
general and rapid depreciation, first, of the two metals

in mass, and secondly, of silver as compared with gold.
In England, Prof. Cairnes, in the essays heretofore so
frequently cited, and especially in that of 1860, in which
he reviewed M. Chevalier's work, took the same view of
the influence of France in retarding the fall ^ but was ;
inclined to think that the substitution of gold for silver

in France was only a very striking example of a process
' " The fall in the value of gold has thus, up to the present time,
been at once checked and concealed ; checked by being substituted
for sHver, and concealed jy being compared with it."
236 MONET.
wliiclihad been in unobserved operation over a much

wider area, and which would continue after the French
moyement should cease. In India, he noted, where
there was an immense silver currency, the process had
ah'eady begun and signs were not wanting that it would
soon assume more important dimensions. "These
considerations," he remarked, " do not apply to India
alone ; they are applicable, more or less extensively, to
other countries where silver is the currency, and more
particularly to China, where there is a large silver cir-
culation, and where the habits of the people are, in
many respects, similar to those of the people of Hin-
dostan.
"For these reasons we cannot concur in the assump-
tion that,when the movement in the French currency
is concluded, the future action of the new gold must be
concentrated upon the gold currencies of the world.

We think that its effect will still continue to be shared,
though probably in a less degree' than heretofore, by
the other precious metal, and that consequently, the
fall in gold, though accelerated, will not proceed with
bhat rapiditywhich M. Chevalier seems to anticipate."
— [Essays in Political Economy, pp. 144-5.] Writing
in 1872, Prof. Cairnes used the following language:
"The writer can now claim the verdict of events in fa-
vor of the view which he here ventured to maintain
against that taken by M. Chevalier. Indeed, the course
of depreciation has been even less affected by the com-
pletion of the process of substituting gold for silver in
the currency of Frsince, than he anticipated. That
procesfs would seem tohave been completed abont the
year 1861. . . . But he is not aware that any sensi-
ble change in the rapidity of the depreciation of gold
can be traced to that pejiod. ... In point of fact,
;
THE SILVER PANIQ. 237
the price of silver has undergone little change over the

whole of this period, and now rather lower than when
is
M. Cheyaher wrote. This may be partly due to the

increased production of silver in recent years, whicl
would more or less counteract any tendency to an ad-
vance in its price; but I have no doubt that the princi-
pal cause is that assigned —the extensive substitution of
gold for not only in various currencies, in differ-
silver,
ent countries, but in all those uses in which the two

metals may be indifferently employed." — [145-6°.] The
lastsentence of Prof. Cairnes intimates another turn in
the course of gold and silver production.
Whereas between 1852 and 1860 the annual yield of
gold had ranged from 119 to 182.5 millions of dollars,
the yield of silver being estimated at an average for the
term of 40.5 millions, the annual yield of silver from
1864 to 1870 rose to about 50 millions, while the range
of the gold product was between 113 and 121 millions
and for the period 1871 to 1875, the yield of silver rose
from 61 to 71.5 millions, the gold product running down
in 1872 to 101.5 millions, in 1874 to 90.5, and in 1875
to 81.5.1
It was no more than was to be expected from human
nature, that the rapid reversal of the relative amounts
of gold and silver yielded by the mines, in consequence
of the discovery of the marvelous silver deposits of
Nevada, and the continually increasing application of
quicksilver in the treatment of silver ores,^ while the
'
See a paper on the " Causes of the Depreciation of Silver," by
Baron Von Reinaoh, iranslated and published in the " Bankers' Maga-
-'
zine (N. Y.), October, 1876.
" Owing to its affinity for other bodies, silver, unlilie gold, is rarely
found in its native state, but is obtained chiefly from ores. The cost
of producing silver is, therefore, tt all times greatly dependent on
20*
238 MONET
gold mines of California and Australia were falling rap-
idly off in their production, should excite a panic such
as followed the discoveries of 1848 and 1851, though,
this time, it was a prospect of a decline in the value oJ
silverwhich gave the alarm. The adoption of a single,
gold standard by Germany added to the supply of silver
pouring into the countries which still maintained the
lower metals in coinage at a ratio supposed to approx-
imate their respective market values; and the "Latin
Union," constituted under the monetary convention of
1865, and consisting of France, Belgium, Switzerland
and Italy,' were obliged in 1874 closely to limit their
coinage of silver.
Meanwhile the United States had, in 1873, declared

the silver dollar to be no longer legal tender in unlimited
amount as before. Inasmuch, however, as few silver
dollars had been in circiilation after 1834 and as neither
silver nor gold had been in use as money after the sus-
pension of specie payments in 1862, this action of the
United States, though having doubtless its moral effect,
could not directly and presently influence the demand

for silver.
The present is the general situation Austria and :.
Russia alone in Europe represent the single silver

standard and even Austria, since 1870, has been coin-
;
ing gold pieces of 8 and 4 florins, severally, in weight

and fineness identical with the gold 20 and 10 franc
the state of the metallurgical arts and upon the plenty or scarcity
with which quicksilver is produced for the processes of amalgamation.
In mining gold, on the other hand, the problems are mainly me-
chanical.
' Greece has since aoc<*ded to the convention.
ATTITUDE OF THE NATIONS. 239
pieces;
while by a decree of 1873, the gold pieces of
the Latia Union are made current throughout the em-
pire.
" Nevertheless," says Prof. Jevons, " the silver
stand-
ard practically prevails over a large part of the world.
The vast populations of India and China, Cochin China,
the East Indian islands, portions of Africa and the
"West Indies, Central America and Mexico, have a cur-
rency mainly consisting of silver coins, either rupees,
as in India, sycee bars, as in China, or silver dollars,
as in many other places." — [Money and the Mechanism
of Exchange, p. 148.]
The countries having the single gold standard are
Great Britain and Ireland, the Australian colonies and
New Zealand, with many of the minor possessions of
the British Empire,' the German Empire, the Scandi-
navian Kingdoms, Portugal, Turkey, Egypt, the United
States, Chili and Brazil. "Even Japan," says Prof.
Jevons, "has imitated European nations, and intro-
duced a gold coinage of 20, 10, 5, 2, and 1 yen pieces,
the yen being only 3 per mille less in value than the
American gold dollar. The new fractional money of
Japan is to consist of 50, 20, 10 and 5 sen pieces in sil-
ver (the sen corresponding to a cent), and forming a
token-money, at the fineness of eight parts in ten."
The double standard is nominally maintained in Eu-
rope^ by France, Italy, Belgium and Switzerland, con-
'
The currency of Canada, says Prof. Jevons, can hardly be classed
at p.U, at present.
^ Of Holland, Sir Edward Harris writes under date of April 12,
1876 :
" The whole question of the currency, especially that of the
standard to be ultimately adopted in this country, is now under the
consideration of the government." — [See Mr. Goschen's Eeport, p,
128.]
—
240 MONEY.
stituting the Latin Union, and by Spain, Greece and

Koumania, and in the New World, by Peru, Ecuador
and Grenada. Several of these, however, like Austria
and Eussia of the single silver standard, and the United
States, Brazil and Turkey of the single gold standard
countries, have at present an irredeemable paper money
in circulation, so that they contribute little to the ac-
tual demand for either or both metals.
Upon a review of the situation thus disclosed, Prof.
Jevons, whom I cite especially because he has been
conspicuously fair towards the Bi-metallists, as they,
indeed, recognize him to be,^ concludes that the tend-
ency towards the adoption of gold as the sole principal
medium of exchange, is unmistakable.
" The gold standard has thus made great progress,
and it will probably continue to progress. When the
United States return to specie payments, they will cer-
tainly adopt gold and Canada, whose currency can
;
hardly be classed at all at present, must do the same.

The Latin nations, having once abandoned the double
standard, in practice, are not likely to return to it and ;
Austria must follow. An extensive monetary change is
hardly to be expected in Russia. . . .
" Hence we arrive, it seems to me, at a broad, deep dis-

tinction. The highly civilized and advancing nations
of Western Europe and North America, including, also,
and some of the better
the rising states of Australasia,
second-rate states, such as Egypt, Brazil and Japan,
will all have the gold standard. The silver standard,
on the other hand, will probably long be maintained
'
M. Wolowski writes " On peut comparer la r&erve
: et le ton
dont il use quand il parle d'une question h^risSe de graves difficultea
aveo le dogmatisme tranohant qui s'dtale trop souvent uhez nous.''

[L'Or et L' Argent, p. 64.]
THE FUTURE OF SILVER. 241
througliout the Eussian Empire, and most parts of the

vast continent of Asia ; also in some parts of Africa and
possibly in Mexico.
" Excluding, lio-« ever, these minor and doubtful cases,
Asia and Eussia seem likely to uphold silver against
the rest of the world adopting gold. In such a result
there seems to be nothiag to regret."
Prof. Jevons arrives thus at the conclusion that the
double standard will be universally abandoned, and that
the nations will divide as gold standard or sUver stand-
ard nations,^ the former comprising, perhaps we might
say, those countries where a day's labor will purchase
from ten grains upward of fine gold.
But on the other hand, we see going on all around us
an active agitation for the remonetization of silver in
the United States; while abroad, some of the ablest
economists of France and Germany are writing actively
in favor of the double standard, maintaining their cause
with vigor and courage. The question is, therefore, not
yet settled by general consent and the policy of a ;
double standard evidently has more vitality than two

years ago was accorded it,^ after the reverses it had suf-
fered in Germany and the United States. The victory
of the Mono-metallists had been largely through sur-
' " On ne voit done pas de raison pour que, systematiquement, toua
Ics peuples civilises se mettent a repudier I'un des deux mStaux prS-
cieux, et S, reserver absolument I'attribution nionetaire pour I'autre.
Les diverses nations, ou pour mieux dire, les differents groupes d'etats,
pourront etre conduits, par des raisons qui leur_ seront propres, lea
uns a, preferer For, les autres S, pr^Mrer I'argent."— [M. Chevalier,

La Monnaie, p. 171.]
'
"La question du double etalon est revenue. ... A ma
grande surprise, je I'ai vu renaitre, plus vivace que jamais." — [Th.
Mannequin, La Monnaie et Le Double Etalon.]

21
242 MONEY.
prise' and the uncertainty of their conquest brings to

mind the wise words of Bacon " Things will have their
:
first or second agitation; if they be not tossed upon
the arguments of counsel, they will be tossed upon the

waves of fortune and be full of inconstancy, doing and
;
undoing, like the reeling of a drunken man."
'
Especially in the United States. There is no evidence in .support
of the charge made by some Bi-metallists, that the legislation of

1873, demonetizing silver, was obtained by a parliamentary trick,
or was inspired by sinister motives; but it certainly was not pre-
ceded by that thorough discussion, or accomplished with that general
consent of the popular intelligence and will, which are desirable
when changes in fundamental policy are to be made in a fiee country.
CHAPTEE XIII.
"the battle of the standaeds."
The question of a Single or Double Standard is real-
ly, like the question of Protection or of a National Bank,

largely a political question. It is discussed as such,
and I believe be decided as such, and that,
is likely to
too, in the way intimated by Prof. Jevons. I can en-

tertain no doubt that the action of Germany in rejecting
silver was largely influenced by political considerations
on the part of her statesmen, and was rendered more
acceptable to her people by the animosity felt towards
France at the close of a desperate war. On the other
hand, the very phrase, Latin Union, testifies to the
strength of ethnical affinities^ operating upon govern-
ments and people, in inducing concerted action in mat-
ters of monetary standards and coinage.
I cannot but think that the failure to distinguish be-
tween the political and the purely economical consider-
ations which are concerned with this question, has been
the cause of not a little of the confusion which has
arisen in the discussion, as well as of the acerbity, one
might almost say animosity, with which that discussion
has been carried on. The examination of any question
'
Herr Bamberger asserts that nothing prevents the other states of
the Union from breaking away but a feeUng of poHtical dependencs
on France.
244 MONEY.
tliat lias both political and economical bearings, is liable
to degenerate in this way.

Confining ourselves wholly to the economical aspects
of the question, and discharging ourselves, as far as we
may, of all prepossessions on the subject, let us inquire
what of economical truth there is. in the position of the
Bi-metallists. As the first step, we need to ask what
determiues the comparative purchasing power, and,
through that, the terms of mutual exchange, of gold and
silver : the price of silver in gold ; the price of gold in
silver.^
A notion sometimes coming to the surface in discus-

sion is, that the ratio of values follows the ratio of quan-
tities ; that gold is, say, 15-2- times as valuable as silver,
because there are ISl times as much silver as gold.
This notion is cleverly hit-off by Adam Smith :
"The proportion between the quantities of gold and

silver annually imported into Europe, according to Mr.
Meggens's account, is as 1:22 nearly The
great quantity of silver sent annually to the East Indies
reduces, he supposes, the quantities of those metals
which remaiu in Europe to the proportion of 1 14 or 15, :
the proportion of their values. The proportion between

their values must necessarily, he seems to think, be the
same as that between their quantities, and would there-
fore be as 1 22, were it not for this greater exportation
:
of silver.
"But the ordinary proportion between the respective
values of two commodities is not necessarily the same
as that between the quantities of them which are com-
monly in the market.'* The price of an ox, reckoned at
' See pp. 229-30.

° Dr. Smith goes on to remark that "the whole quantity of a cheap
commodity brought to market is commonly not only greater, but
THE VALUE OF MONEY. 245
10 guineas, is abcrat tliree-score times the price of a

lamb, reckoned at M.
would be absurd, however,
3s. It
to infer from thence, that there are commonly in the
markets three-score lambs for one ox." [Wealth of Na- —
tions, i, 222.]
But, again it is said, it is the cost of production which
determines value. This is the usual form of statement
If gold is to silver in value as 15^ : 1, we are carried at
once to the conclusion that costs \^\ times as much
it
to bring an ounce of gold to market, as to bring ar

ounce of silver.
But it is always and everyivhere the relation of sup-

ply to demand that determines value. Cost of produc-
tion only affects value by afifecting the actual or poten-
tial supply. A lower cost of production allows, under
given conditions, a larger supply to be marketed. A
highei cost of production diminishes supply. This is
the only way in which a change in the cost of production

can influence existing values. In the act of exchange, it
does not matter what a thing cost ; the one question is,
what would it cost to replace it. "Labor once spent,"

says Prof. Jevons, " has no influence on the future value
of any article." — [Theory of Pol. Econ., p. 159.] This
principle,which is of great consequence in respect to
any commodity which is brought to market, is of excep-
tional importance in respect to the metals, especially
silver and gold, and in a pre-eminent degree the latter,
because of the fact, so often made use of, that the
amount of any year's production must always bear a
very small propoition to the total stock.
of greater value, than the whole quantity of a dear one. . . .
There are so many more purchasers for the cheap than for the dear
commodity, that not only a greater quantity of it, but a greatoi
value, can commonly be disposed of."
946 MONEY.
But while the above holds true respecting the value

of all commodities, the value ofmoney is, in one respect
subject to a law of its own.
" The value of other things conforms," says Mr. Mill,
"to the changes in the cost of production, without re-
quiting as a condition that there should be any actual
alteration of the supply : the potential alteration is suffi-
cient ; and, if there even be an actual alteration, it is but

a temporary one, except in so far as the altered value may
make a difference in the demand, and so require an in-
crease or diminution of supply, as a consequence, not a

cause, of the alteration in value. Now this is also true
of gold and silver, considered as articles of expenditure
for ornament and luxury but it ; is not true of money.
"If the cost of production of gold were reduced one-
fourth by the discovery of more fertile mines, it migld
happen that there would not be more of it bought for
plate, gilding, or jewelry than before and if so, though ;
the value would fall, the quantity extracted from the

mines for these purposes would be no greater than pre-
viously. Not so with the portion used as money that :
portion could not fall in value one-fourth, unless actu-

ally increased one-fourth ; for, at prices one-fourth high-
er, one-fourth more money would be required to make
the accustomed purchases ; and, if this were not forth-
coming, some of the commodities would be without pur-
chaaers, and prices could not be kept up.
"Alterations, therefore, in the cost of production of
the precious metals do not act upon the value of money
except just in proportion as they increase or diminish its
quantity, which cannot be said of any other commodity."

— [J. S. Mill, Principles of Political Economy, III, ix, 3.J
One or two illustrations will show the importance of
these principles in their application to the value of
THE VALUE OF MONET. 247
money. Suppose the cost of producing silver to rise

suddenly, througli tlie exhaustion of the better mines,
from five shillings per oz. to twenty shillings. Silver
would not, therefore, be worth twenty shillings. On
the contrary, we should have the phenomenon noted by
Mr. Jacob' respecting the period 480 to 680 A.D.: pro-
duction would cease entirely, and, for the moment, sil-
ver would remain at five shillings. From year to year,
however, the stock would be diminished by the wear of
coin, by accidental and by the consumption of the
loss,
metal in the arts, so that, were the demand to remain
the same, the value would slowly and steadily rise, as
was the case from the fifth to the thirteenth century.
The demand, however, probably would not remain the
same. In spite of an increasing economy in the use
of money, the growth of population and the extension
of trade would doubtless afford continually larger occa-
sions for the use of money and by this increase of de-
;
mand the value of silver would still further rise. Such

a process might continue through centuries, the value
of silver having no respect at any time to either the
original cost of the production of the existing volume
(say, five shillings per oz.), or to the cost of reproduc-
bion (say, twenty but steadily rising from five
shillings),
shillings towards twenty shillings, as the varying rela-
tion of supply to demand determined. We have seen that

such a practical cessation of silver mining, leading to the
progressive enhancement of the value of silver, through
demand operating on a stock of metal cut off from all
new supply but subject to unremitting wear and losf,
has actually occurred in the history of Europe.

On the other hand, if we suppose the cost of produo-
•
S(ep. 129.
248 MONEY.
tion to fall suddenly from five shillings per oz., to two,

the value of silver would not in consequence fall to tLat
point. Indeed, for the moment, it might stand at the
old figures, as Mr. Mill has shown. A lower cost of
])roduction -ôuld of course encourage mining, would
draw large bodies of labor and capital into this branch
of industry, and the yield might in a few years be doub-
led, trebled or quadrupled; yet, owing to the large
stock in existence, the stimulus afforded by the most
extravagant profits could not for many years reduce' the
value of silver to a point corresponding to the cost of
production.
The bearing of this principle on the question of the
relative values of gold and silver is clearly seen. The
question is often discussed, as if the value of either
metal depended directly on the cost of production at the
time ; and, as it is evident that the cost of production
must vary from a thousand circumstances, it is con-
cluded that the value of each must fluctuate correspond-
ingly, as to frequency and extent of movement. We
have seen, however, that the influence of changes in the
cost of production upon the value of money is indirect
and distant, giving thus, not only a great steadiness to
the value of either metal used as money, when com-
pared with the body of commodities in the market, but
also, by consequence, a great degree of permanence to
the ratio between the metals themselves.
But, again, a certain additional degree of steadiness

is given to the relation of the two metals by the fact
that they are, in a considerable degree, interchangeable
ia their uses, both as money and in the arts.
"If," says Prof. Cairnes, "anything unfits one com-
modity for measuring the value of another, it is the cir-

cumstance that they may be both applied to common
purposes. No one would think of measuring the fluc-
tuations in wheat by comparing it with oats, because,
both grains being employed for the same or similar
purposes, any change in the value of one is sure to ex-
tend to the other. When, e. g., the wheat crop is in ex-
cess, while the oat crop is an average one, it always
happens that a portion of the consumption which, in
ordinary years, falls upon oats, is thrown upon wheat;'
the effect of which is at once to check the fall in the
price of the more abundant grain, while, by diminishing
the need for the other, it causes it to participate in the
dechne. The influence of the increased abundance of
one commodity is thus distributed over both ; the fall
in price being less intense in degree, in proportion
as it is wider in extent. Now this is precisely what is
happening [1860] in the relations of gold and silver.
The crop of gold has been unusually large the increase ;
m the supply has caused a fall in its value the fall in ;
its value has led to its being substituted for silver ; a

mass of silver has thus been disengaged from purposes
which it was formerly employed to serve and the result ;
has been that both metals have fallen in value together,

the depth of the fall being diminished as the surface
over which it has taken place has been enlarged." — [Es-
says in Pol. Econ., p. 141.]
This interchangeability in the use of the two metals
'
Mr. Tooke takes note of the great consumption of barley in 1838^
involving a marked increase of prije, in consequence of the short

crop of wheat. There is, he says, no doubt that in the course of
that year a great deal of barley, which would otherwise have been
used for malting and distilling, was manufactured into flour, entering
largely into consumption as bread. — [Hist. Prices, iii, 19.]
21*
250 MONEY.
tells so strongly against the position of the Mono-net-

allists that we find them naturally, and doubtless b
perfect candor, taking a rather disparaging view of
the extent to which interchangeability, in fact, exists.
Thus M. Chevalier, who admits' the principle involved,

holds the relation of the two metals in consumption to
be much less intimate than Prof. Cairnes regards them.
Prof. Cairnes compares their relation to that between
two different kinds of breadstuff, M. Chevalier making
it no more intimate than that between bread and meat.
" The value of gold and that of silver depends, in fact,
to a large extent upon circumstances peculiar to each of

them, they being identical in this respect with iron or
copper, bread or meat. It would doubtless be an exag-
geration to say that they are absolutely independent of
each other, for whenever two substances have a com-
mon use, the value of one exercises a certain influence
upon that between gold and silver
of the other; but
this relation is not closer than that between corn and
wine or between bread and meat. Now, who has ever
maintained that so close a connection exists between
these two products that, the price of one being given,
that of the other can thereby be determined?" [On —
Gold, Cobden's translation, p. 38.]
But while there may be dispute as to the degree in
which one of the metals, gold and silver, is, in fact, re-
j
placed by the other, in consequence of changes in cost
of production, there can be none as to the effect of siich
replacement, so far as proceeds, upon the relative
it
values of the two. In his " Theory of Political Econ-

omy," Prof. Jevons, under the title " The Equivalence ol
' " Sans doute I'or et I'argent sont, dans une certaiue mesure,
solidaires et reagissent a ce titre I'un sur I'autre, S, cause de Temploi
amiiltane qu'on en fait pour le monnayage." — [La Monnaie, p. 458.]
THE VALVE OF MONEY. 251
Commodities," says: "We must, in fact, treat beef and
mntton as one commodity of two different strengths,
just as gold at eighteen and twenty carats is hardly
con-
sidered as two, but as one commodity, of which twenty
paits of one are equivalent to eighteen of the other.
"II is upon this principle," he continues, "that we
must explain, in harmony with Prof. Cairnes's view, the
extraordinary permanence of the ratio of exchange of
gold aiid silver. . . . That this fixedness of ratio
does not depend upon the amount or cost of production,
is proved by the very slight effect of the Australian and
Californian gold discoveries. . . .
" The French currency law of the year XI [1803] es-

tablishes an artificial equation — utility of gold = IS-j
X utility of silver. probably not without some
It is
reason that M. Wolowski and other recent French econ-
omists attributed to this law of replacement an impor-
tant effect in preventing disturbance in the relations of
gold and silver."— [P. 129.]
We have now reached the point where we may ap-
propriately consider Prof. Eogers's explanation of the
great rise in the value of gold between 1262 and 1292
A. D.,' a rise which, standing by itself, appears a strik-
ing instance of the variability of the ratio between gold
and but for which the historian of English agri-
silver ;
culture and prices alleges a cause which makes the in-
cident tell stronglj in favor of the position of the Bi-
metallists.
It will be recollected that Prof. Rogers found that in
1262 gold exchanged for silver at 9| for 1 ; and in 1292,

equal weights.
at 12.5 for 1, in value, for
"Such a discrepancy between the value of gold in the
' See p. 230.

252 MONEY.
two quotations, after an interval of only thirty years, ia

sufficiently surprising, and cannot, I think, be explained
except by an increased adoption of gold on the Conti-
nent as a means of currency ; for it will be clear that,
just as a very grsat fall would take place in the value oi
existing stocks of gold, were this metal absolutely de-

monetized, so, e converso, a considerable rise would occur
in its comparative value, if, in the economical history of
any community, or rather of a large number of commu-

nities, gold were increasingly adopted as a measure of
value and a means for carrying on commerce.

"I cannot," continues Prof. Eogers, "agree with the
opinion^ expressed by some economists, that the mar-
ket value of gold will always be relative to its demand in
the arts, unless, indeed, the term be extended so as to
include the art of the moneyer. The price of gold
must be relative to the aggregate of all demands for it,
corrected by the cost of producing it. Now, it
. . .
appears that, at or about the conclusion of the thir-

teenth century, gold currencies became general in Italy.
The Venetians, we are informed, coined gold ducats in
the year 1285, and said that the weight and shape
it is
of these ducats were copied in Germany and Hungary.

It appears, too, that the reputation of the gold coinage
of Brescia and Florence commenced at about 1270 and
1290, respectively, and thatit extended over all Italy,
and even to the whole civilized world, in the next cent-

ury. This extension of a gold currency was, no doubt,
furthered by the migration of the Pope to Avignon, for
the currency of the Curia is entirely gold. These causes,
and the fact that France issued a gold currency as early,
we are told, as the reign of St. Louis, are sufficient to
'
The allusion is to Prof. Senior's view, cited on p. 43.
explain the rise in tlie relative

value of gold to' silver at
tlie conclusion of the thirteenth century."
Of the further rise of gold (about 10 per cent.) be^
tween 1292 and 1345, Pre f. Rogers remarks that it is
"a rise -whifch might occur as a consequence of the in-
creased circulation of gold as a means of currency.
Now, according to Muratori, it was in the first forty
years of the fourteenth century that this gold currency
was so generally extended."
The power thus shown to reside in fashion or law to
affect the value of one of the metals, without reference
to any change in the cost of production, by giving to it
an increased use in coinage, tells, of course, in favor of
the claims of the Bi-metallists ; as does the unprece-
dentedly rapid decline of silver, after it was thrown out
of its office as unlimited legal tender in Germany during
the present decade.
Tet, in spite of the tendencies which have been noted

towards keeping steady the demand and the supply of
gold and silver, we have seen the fact of fluctuations in
value from generation to generation, and even from year
to year, sufficient to send now one, and now another,
of the two metals out of circulation, in countries which,
like France down to the present time, and the United
States to 1873, and England to 1816, attempt to keep
both in circulation at a fixed ratio of exchange. For
purposes of economical reasoning we may assume all
men to be actuated by the desire to make purchases oi
payments, whenever a chance is offered, with that com
modity which it will cost the least effort and sacrifice to
replace. What has the Bi-metaUist to say to this?

The answer is that of the late M. Wolowski, the most
';
254 MONEY.
able and ingenious of the school of writers -who advo-

cate a concurrent circulation. Gold and silver have
not, either in themass or singly, preserved their value
from age to age, or from year to year. The value of a
pound of gold relatively to that of a pound of silver,
has varied from time to time as the value of a pound
;
of gold and a pound of silver jointly to purchase com-

modities has varied. Such variations in purchasing
power are in the very nature of exchange. Absolute
steadiness in value cannot be attained. But to unite
gold and silver in the office of money is to generate a

compensatory action which shall not only tend to re-
duce the variations in their mutual relation, but shall
give to the two, as a mass, a steadiness in comparison
with the general body of commodities which neither
by itself could have. It is in this way that the Bi-met-
allist accounts for the remarkable fact that in several
centuries down to 1873, gold and silver never diverged
'
It has been somewhat hotly disputed whether gold or silver has,
Erom the oiroumstanoes of its production, the greater likelihood of
remaining constant in value. The Mono-metallists now strenuously

claim this advantage for gold on account of its slow consumption
the Bi-metallists allege the production of silver to be the more stable,
making much of the fact that gold is found largely in surface placers
and accidental deposits, while silver is found in veins, and procured
by systematic mining operations. On this point the admission of
M. Chevalier, the foremost champion of the single standard must be
regarded as important: "La plus grande fixity qu'il 6tait assez a la
mode, pendant le premier quart du dix-neuvieme si^cle, de repre-

eenter comme etant I'attribut special de' I'or, est ^minemment proble-
matique ct on peut la considerer comme une fiction. On n'aperjoit
B'lcune bonne raison pour af&rmer que les circonstances, qui de
temps en temps agissent sur la valeur des mdtaux pour la modifier,
soient de nature a affecter I'un beaucoup plus que 1' autre." — [La Men-
naie, p. 171.]
"
far from the ratio of 15 1, even the Australian and

:
Oalifornian discoveries raising the gold price of silver

less than five per cent., the permanent effect not exceed-
ing one and a half per cent.
This claim of a compensatory, or eqnilibratory, ac-
tion under the double standard. Prof. Jevons fully con-
cedes.i "If silver," he says, "becomes more valuable
than in the ratio of 1 15r compared with gold, there
:
arises at once a tendency to import gold into

any coun-
try possessing the double standard, so that it may be
coined there and exchanged for a legally equivalent
weight of silver coin, to be exported again. This is not
a matter of theory only, the process having gone on in
France until the principal currency, which was mainly
composed of silver in 1849, was, in 1860, almost wholly
of gold. France absorbed the cheapened metal in vast
quantities, and emitted the dearer metal, which must
have had the effect of preventing gold from falling and
silver from rising so much in value as they would other-
wise have done. It is obvious that, if gold rose in value
compared with silver, the action would be reversed;
gold would be absorbed and silver liberated. At any
moment the standard of value is doubtless one metal or
the other, and not both ;
yet the fact that there is an al-
ternation tends to make each vary much less than it
would otherwise do. It cannot prevent both metals

falling or rising in value compared with other commod-
ities ; but it can throw variations of supply and demand
over a larger area, instead of leaving each metal to be
affected merely by its own accidents.
"Imagine two reservoirs of water, each subject to in-
"
AI. Mannequin, in his tract " La Monnaie et le Double ^talon
(pp. ] 1-3), undertakes to demonstrate the fualitj of the

compensatoiy
action adduced by M. Wolowski.

256 MONEY.
dependent variations of supply and demand. In tlie
absence of any connecting pipe, the level of the -nater

in each reservoir will be subject to its own fluctuations
only. we open a connection, the water in both
But if
will assume a certain mean level, and the effects of any
excessive supply or demand will be distributed over the

whole area of both reservoirs. The mass of the metals,
gold and silver, circulating in Western Europe in late
years, is exactly represented by the water in these res-
ervoirs; and the connecting pipe is the law of the 7th
Germinal, An XI, which enables one metal to take the
place of the other as an unlimited legal tender." —
[Money and the Mech. of Exch., pp. 139-40.]
"The German Economists," says M. Laveleye,' "have
generally recognized the compensatory action of bi-me-
tallicmoney, even those who are the partisans of the
gold standard. We may, I think," he concludes, " con-
sider it as demonstrated that money of two metals is
less subject to fluctuations in value, within short inter-
vals ; and consequently, entails fewer changes of price,
than money composed of one metal only, for precisely
the same reason that a compensated pendulum made of
steel and copper, is less subject to expansion than if it
were made of a single metal."

And here we note that whatever may be decided re-
specting the comparative advantages of a standard,
wholly and permanently of money of one metal, and an
alternative standard, now of gold and now of silver, ac-
cording to variations in value, M. Chevalier^ and tho
' A rticle translated by Hon. George Walker, and nublisbed in the
N. y. "Banker's Magazine," March, 1877.

" " Mais si les deiix metaux sont etaloi s, il y aura double chance S
courir, car anx variations de I'un, il faut ajouter les variations de
I'autre."- -[M. Chevalier, Proces-verbaux de la Commission Monetaire
de 1867.]
English economists generally, are clearly wrong in as-

serting that the French system exposes the commercial
community to the extreme fluctuations of both metals.
On the contrary,
it is manifest that, instead of prices
following the extreme fluctuations of both metals, prices

will always be governed by the course of that metal
which, at the time, sinks below the legal ratio. The

standard, as Prof. Jevons remarks, always follows the
metal that falls.
Hence, as M. "Wolowski' insists, the variations of

value under the alternative standard are more frequent,
perhaps, but are necessarily reduced in extent; instead
of violent fluctuations, we have gentle oscillations about
a fixed line. On this point M. Wolowski has the com-
plete concurrence of Prof. Jevons in England and of the
Germans Eoscher and Eau. But some of the advocates
of bi-metallic money go even further, and claim that it
is practicable, by a convention of the principal com-
mercial nations on the plan of the Latin Union, to es-

tablish a legal ratio between gold and silver which shall
' " On pretend que les changements sont plus grands quand on
emploie deux metaux pour monnaie', au lieu d'un, oar, dit-on, on subit
alors les variations dos deux mdtaux. On oublie que ces variations,
au lieu de s'ajouter et de grossir en se cumulant, se moderent, au con-
traire, et se compensent. Ce qui serait plus vrai, oe serai t de dire
qu'aveo des deux metaux les variations peuvent etre plus frfiqueutes,
mais qu'elles se trouvent forcfeent beauooup plus faibles, nn se
rapproohant d'une stability parfaite, autant que la possibilite materi-
elle le permet tandis qu'avec un seul metal, les ecarts deviendraient
peut-Stre un peu plus rares, mais ils se prciduiraient d'une fagon plus
vive, en risquant d'alt(Srer I'expression des transactions conclues pour
un terme quelque peu eloigne. La stalilite dos engagement ne
pourrait qu'y perdre." — [M. Wolowslii, L'Or ef L' Argent, p. 49.]
258 MONEY.
have absolute stability, the two' metals forming whai

M. Cernuschi and both thus remaining
calls electron,
in circulation at the same time within the same field.
The following is M. Cernuschi's theory stated in his
own words :
"The abundant metal is the least demanded. Its

tendency is to be depreciated, while the scarcer metal
becomes dearer. But it is evident that, if to increased
production we can continue to oppose increased de-
mand, and to decreased production, decreased demand,
we shall maintain the equilibrium and things will remain
unchanged. This is precisely what we propose to do.
For the demand, which, without the adoption of the
tariff of 152- would be directed to the metal which is
scarce, would, if the tariff were anywhere in force, be

directed to the metal that is abundant. For, if the bi-
metallic law permits each and every one to pay his
debts at will, in gold or silver, every one must see that
the dealers in money will neglect the, metal which is
hard to find,will seek for that which is plentiful, to

and
have it Moreover the scarce metal, if it is not
coined^
in demand, will not rise in price, and the abundant
metal, if active demand springs up, cannot fall." — [Bank-
er's Magazine, N. Y.,'Nov., 1876.]
M. Cernuschi has advocated his theory with abun-
dance of wit and ingenuity but it may fairly be ques- ;
tioned whether he has not, on the whole, prejudiced it

in public estimation by the extent of his claim foi the
power of law over value.
'
If two, why not ten? Sure enough: M. Cernuschi is nothing
daunted by the suggestion. Find him the metals and he will engage
to put them at work, harnessed together at ratios fixed by law:
"Que n'avous-nous la fortune de posseder dix mdtaux mon^tairesl
Les variations dans la valeur de la moanaie sers'ent presque impossi-
bles."— [Or et Ars-oTit. p. fiO.]
Economists have been too uracil disposed to treat

slightingly tlie agency of law in determining tlie de-
mand for, or tte supply of, articles of commerce. Thus,
Mr. Eicardo almost invariably refers to laws prohibit-
ing the melting down of coin, or the export of bullion,
as if they were absolutely nugatory. Mr. Mill, however,
finds himself compelled to say: "The effects of the pro-
hibition cannot have been so entirely insignificant as it
has been supposed to be by writers on the subject. The

facts adduced by Mr. FuUarton show that it required a
greater percentage of difference in the value between
coin and bullion than has commonly been imagined, to
bring the coin to the melting-pot."
But while law can do something, in the way of affect-
ing values, it cannot do everything ; and what it can do

is rather by way of directing or diverting economic
forces, than of squarely opposing their current. The
impotence of government when it sets itself to contro-
vert urgent human interests, has been clearly shown in
innumerable instances. We shall soon be called to
contemplate the strongest governments the world has
ever known, completely baffled in their efforts to give
currency to their legal-tender notes, when issued great-
ly in excess, no brutality of punishment proving suffi-
cient to deter the subject in the pursuit of gaia from

evading, or, if he must, defying, the requirements of the
law.
Hence, when the bi-inetallist claims for the law force
enough any permanent ratio of exchange,
to establish
whatever, between gold and silver, were it 4:1 or 1:1,
he exposes his cause to unnecessary prejudice.
The Austrian economist, Hertzka, thus attacks this
position, using M. Cernuschi's name •
"Whether now Cernuschi believes that it costs, and

260 MONEY.
must always cost, just fifteen and a half times as mucK

to produce gold as to produce silver, or not, we cdnnot
determine. At any rate, he knows that for the cost of
producing one pound of gold, several pounds of silver
can be produced. What happens then, when the law
decrees that one pound exchange for one
of gold shall
pound of silver? Cernuschi understands perfectly that
the value of the circulating medium depends on the
demands of business and the amount of money. He
knows and makes use of the fact in arguing for his
electron, that if the demands of business remain the
same, the purchasing power of the stock of money in
the country, or in the world, remains the same. He
knows, therefore, that the ten thousand million dollars
stock of the, precious metals in the western world must
possess the same purchasing power as now, if the ratio
of value between the two metals which constitute it
were altered. Now this ten thousand million dollars

stock of the precious metals is made up of seventeen
millionpounds of gold for two-thirds of the value, and

one hundred and eighty million pounds silver for one-
third of the value. Hereafter, therefore, if the bi-me-
were made out of this stock there would
tallic electron
be one hundred and ninty-seven million pounds of it,

worth just what the whole is now that is, each pound
;
of it would be worth fifty dollars. Bringing the two

metals to an equality of value, therefore (ratio 1:1),
would have the effect of more than doubling the value
of silver,and reducing gold to less than one-seventh
the value which it now has on the market. What would
be the effect on production? The silver miners would
see their returns more than doubled. Mines which for-
merly did not pay, would now pay richly. New capita]
would flow into silver mining, and it would only depead
on tlie extent of the known mines and the amount of
disposable capital whether the silver product would rise

to four hundred, five hundred, two thousand or three
thousand million dollars per annum. The contrary
effect would be felt upon gold. Since it is not possible
f support seven laborers with the product which one
laborer now gets from a gold mine, the gold mines
would be abandoned, and the production of gold would
cease entirely, unless there might be some mines so rich
that one-seventh of their present yield would be remun-
erative to the labor and capital they employ.
"Inasmuch as there are now one hundred and eighty
million pounds of silver and seventeen million pounds
of gold, that is to say, gold is far rarer than silver, we
cannot assume that mankind will at once esteem gold
and silver in every respect equal because a law of bi-
metalism may so ordain. There will probably still be
human beings who will prefer rings, bracelets, chains
and vessels of gold more highly than similar objects of
silver. As things are now, people put up with silver for
many purposes because gold is so much dearer. "When
bi-metalism establishes equality between the two met-
als, many people will carry all their silver plate to the
mint and have all their articles of luxury made of gold
obtained for ounce for ounce.
it, We must doubt
whether the seventeen million pounds of gold now in
the Occident would suffice for this exchange. There
are probably fifty million pounds of silver plate in ex-
istence, and unless the present taste of the human race

could suddenly be changed, people would present a de-
mand for gold, at the rate of 1 1, in order to get gold
:
plate of the same and weight as their present silver

size
plate without greater cost, which would at once exhaust
the whole stock, in coin or other forms. This dang jr is
22*
:
262 MONEY
tlie greater since the Asiatic peoples, who now possess
far more silver than gold, might be tempted by the ra-
tio of 1:1 to exchange their silver ornaments for gold.
They would prefer gold, although the Bi-metallists

should assure them that it was worth no more than sil-
ver. The demand for gold would indeed increase, fi'oni
the fact above mentioned, that the gold mines would be
unworked, while the production of silver would be
prosecuted with nearly threefold vigor. Gold is con-
sumed slowly but surely, and there are arts which con-
sume it. Some might therefore fear lest gold should
disappear from the earth, and might hasten to buy it
with silver. The universal bi-metallic system thus
pushed to an extreme could not sustain itself for a day,
—
or an hour, or a second." [Wahrung und Handel
chapters translated and published in the " N. Y. Even-
ing Post," 1877.]
The demonstration is complete ; but I am not satis-
Mr. Hertzka and his American translator are

fied that
on equally firm ground when they argue that the ex-
treme case of 1 1 affords a test of the bi-metalhc the-
:
ory, and that, if it be found to fail here, it would fail on

any ratio assumed.
If it is a question of the power of law to hold the
metals in concurrent circulation against admitted ten
dencies to divergence, it cannot be a matter of indif-
ference what the strength of those tendencies shall be.
To drive a horse and a locomotive together, would
probably result in killing the horse without helping-on.
the locomotive. But it does not follow from the failure
to produce effective co-operation between agents so diverse,
that two horses of somewhat unequqZ power cannot he
harnessed and driven together, not only without injnrj

to either, but with a distinct gain in industrial force.
:
There never were two horses of precisely the same rate

and style of movement yet horses are driven in span.
;
The bi-metallic theory proposes to harness two metals of

somewhat diverse tendencies value-wards, aiid to drive
them together. The success of the undertaking will
probably depend on the strength of the impulse to diver-
gence, as compared with the strength of the carriage, of
the harness and of the driver's hand.
Let us take a case :During 1870, the average market
ratio of silver to gold was 1 15.57; during 1871, 1 15.58.
: :
Now suppose that, while the true market ratio was 1

15.57, this had been established as the legal ratio in the
coinage of nations; and that immediately
all civilized
thereafter, there had begun to operate upon the sup-

ply of, or the demand for, one or the other of the met-
als, the forces, which did, in fact, between 1870 and 1871,
bring about the ratio 1 15.58. : Would the fact of a

adopted be sufficient to re-
fixed legal rating so widely
strain that movement towards a change in the market
rating?
I cannot see any reason to say no, when it is consid-
ered that, at any given time,., debts to the amount of
thousands of millions of dollars are outstanding ; while
debts to the amount of hundreds of millions are arriv-
ing at maturity every year and every month. Just so
soon and just so surely as silver, for instance, tended to
become cheaper, from causes affecting the supply, would
the desire of every debtor to pay with the cheaper metal
operate upon the demand for that metal, bringing it
back towards the legal rating.

Let be freely granted that value is 'determined in
it
the relation between demand and supply. The position

of the Bi-metallists is that government can influencie
the demand for gold and silver and hence influence the i
264 MONEY.
power to make either or both a legal

value, throTigli its
tender in the payment of debts. Only in this way,
however, as I apprehend the matter at least I do not ;
see how the establishment of a fixed legal ratio is to
operate against the tendency towards divergence, so

far as the body of current purchases are concerned.
When Hertzka's translator, after giving his demon-
stration of the impossibihty of keeping gold and silver
in concurrent circulation at a ratio far wide of the mar-

ket ratio, say 1 : 1, draws the conclusion that "In what- :
ever degree the legally fixed ratio should differ from the
market ratio, in that degree the results described would
;
follow " and again :
" All this holds true, according to its
measure, of any other legal ratio than 1:1, if it were not

the true ratio of the market," he overlooks the impor-
tant principle stated by Mr. Mill, that, in efforts to- ,
wards certain ends, " small means do not merely produce

small effects; they produce no effects at aU."
I have assumed, for purposes of illustration, the causes

operating to produce a change in the market rate to be
slight. Thus, I compared the years 1870 and 1871, when
the ratios were respectively 1 15.57 and 1 15.58.
: : It is
reasonably certain that in such a condition, the fixing of
the former ratio universally,by law, would not have di-
minished by one ounce tlie amount of gold brought into
existence in 1871 first, because, with capital and labor
;
committed to the production of gold, so slight a reduction

in the profits or wages of the occupation would not close
a single mine or contract its operations ; and secondly,

because in a degree the prod action of silver involves the
production of gold,^ and vice versa. But the efficiency
'
Pliny called attention to the fact that, in his day, gold and silvci
were invariably found together, though in varying proportions

;
of such a measure as that proposed would not necessa-

rily be limited to a condition whore the causes operating
on the supply tended to bring about a divergence so
slight as that indicated. It is entirely reasonable to
suppose that a tendency to a very considerable diver-
gence, operating through a considerable period of time,
might be restrained by the force of law making either
metal, indifferently, tender in payment of debts. Even if
we are not prepared to assent to Mr. Horton's assertion*
that "Wolowski's position would stand the shock of a
second Siberia, Australia, California, or all combined,"
we may rationally believe that the consent of the lead-
ing commercial nations'* in establishing a ratio of ex-
change between gold and silver would operate with suf-
ficient force upon the demand for that which might tend
to become the cheaper, to preserve an equality, in spite
" In every species of gold," he said, " there is a proportion of silver

in some one-tenth, in others one-ninth, in others one-eighth."
Many persons speak of the wonderful silver mines of Nevada who

are not aware that a very large proportion of the value of the metal
extracted is in gold. The production of the Comstock Lode is stated
to be about 45 per cent, in gold and 55 per cent, in silver. — [See Re-
port of Mr. G-oschen's Committee, Q. 478-88; Chevalier, La Mon-
naie, pp. 362-4 Seyd's Bullion and Foreign Exchanges, pp. 136-7.]
;
Silver and Gold, 144.

"
"En 1803, on a gvalu5 le taux du prix du change entre I'or et

'^
I'argent dans la proportion de 1 S. 15 et demi; malgre les variations
enormes de la production des metaux pr&ieux, ce rapport est encore
eelui qui se pratique sur la marchd libre en 1868. Ajoutez a la
Bolidarite naturelle qr.i unit les deux metaux appeles a se combiner,
dans le meme oface, la solidarite Iggale qui resultera de I'adoption
commime, dans tous les Etats Civilises, du meme taux de change
2ntre les deux monnaies, et les legeres oscillations auxquelles la
valeur relative de I'or et de I'argent a etg sujette depuis soixante-cinq
aus, deviendront plus rares and plus restreintes encore."—[M. Wo-

lowski, L'Or 3t L' Argent, p. 31.]
23
266 MONEY.
of tlie discovery of many new fields of puduction, ia

spite of many inventions in the mechanical and metal-
lurgical processes involved in raising the metals and
bringing them to market, and in spite of wide and last-
ing changes in the demand for either metal for use in
the industrial and decorative arts.
The extensive fall in the value of sUver since 1873,

which is often referred to as proving the unfitness of sil-
ver to be joined with gold iu the office of money, ap-

pears to me to show most strikingly the power of legis-
lation in keeping the two metals together. If gold and

silver actuallyheld a course through three centuries so
nearly parallel; yet, when silver was demonetized by
the United States and Germany, and the Latin Union
ceased to coin silver in unrestricted amount, the price
of gold, expressed in terms of silver, mounted upwards in
four years from 15.63 to 17.77, rising momentarily even
to 20.17 : these two facts taken in connection would seem
to afford a very strong proof of the effects of their inter-
changeable use as money,^ in keeping their market val-
ues together. As Mr. Bagehot said in September, 1876 j
"The cardinal present novelty is, that silver and gold
are, in relation to one another, simply ordinary commod-
' That the changes in the comparative purchasing power of the

two metals between 1873 and 1876 were wholly or mainly due to
changes in supply, or to changes in demand disconnected from the
acts of governments dealing with the legal relations of gold and
3i.7er, I really cannot conceive any intelligent and candid man as
-low mai-ataining. That it was so held in perfectly good faith, for a
year or two after the demonetization, I do not doubt

" Qu'on suppose les Frangais preaant tout S, coup le vin en aver-
sion, se portant a admirer les peuples adonnes S. la biSre et voulant
jes imiter: il est certain que le vin se depr&ilrait et que le prix de

a bi&e s'disverait." — [H. Cernuschi, Or et Argent, p. 9.]
ities. Until now they have not been so. A very great
part of the world adhered to the bi-metallic system,
which made both gold and silver legal tender ; which es-
tablished a fixed relation between them. In conse-
quence, whenever the values of the two metals altered,
these countries acted as equalizing machines. They took
the metal which fell; they sold the metal which rose,
and thus the relative value of thetwo was kept at its
old point. But now mechanism is broken
this curious
up. There is no great country now really acting on this
system. The Latin Union, it is true, adhere to the
name; but they have abandoned the thing. As they
do not allow silver to be coined except in limited quan-
tities, they have no longer an equalizing action. They
no longer receive the depreciated, and part with the ap-
preciated, metal and therefore the two metals are now
;
exchanged for one another, just as other commodities.

Tlte gold price of silver is noiv like the gold price of tin, for
the first time in history, without artificial regulation, and
free from
'
tJie manipulations of government."
But while the Bi-metallists assert the conciirrent cir-

culation of the two metals to be good as a permanent
policy,inasmuch as it limits the extent of the variations
in the value of money, they have an argument of per-
haps even greater force, one certainly which appeals
more strongly to the popular mind, in the considera-
tion that, both metals having been so widely in use
under fixed and
ratios, the disestablishment of silver
its reduction to the lank of mere merchandise must
suddenly and largely diminish the supply of money
The Economist, Sept 2, 1876.

—
•268 MONEY.
available for the payment of debts and permaneul

charges of all sorts, private or national, contracted un-
der a money of both metals. "We have already, in
Chapter IV, dwelt very fully on the economical effects
of fin increase in the Money-supply, inciting to a tem-
porary activity in production, as well as diminishing the
burden of obligations derived from the past, in favor
generally of the industrial classes. The object of the
—
Bi-metallists at least of the European Bi-metallists '
is not so much to favor the debtor class by diminishing
the weight of debts, as to prevent those debts being ar-

tificially increased by a diminution in the stock of
money, through the demonetization of one of the pre-
cious metals.
"It maybe safely asserted," says Mr. Laveleye, "that
the demonetization of silver is a great injustice, since it
modifies all contracts to the detriment of those whose

interests are most worthy to be considered,'* viz., the
debtors."
"We have already dwelt so fully on the consequences
of a reduction in the Money-supply of the world, that
it is only necessary to point out the relation of the sub-
ject to the question of the so-called single or double
'
I say the European Bi-metallists, because it is not to be con-
cealed that the paj'ty here is largely re-inforced from the ranks of
the inflationists and repudiationists of the political struggles of 1868,
1874, and 1876. It i= n tiisfuriiaie of the present position of those who

disinterestedly advocate bi-metalism in the United States, that they
have such associates. The fact, however, furnishes no just cause for
misrepresenting their views.
"'Laveleye is, indeed, right," remarks Hertzka, "so far as he
makes tlie point that the debtors are, in general, the active producers,
while the creditors, whether for large or small amounts, are in gen-
eral passive consumers." — [N. Y. Evening Post's translation.] On
this point, see pp. 89-94,
TSE VALUE OF MONEY. 269
standard.. Mr. Seyd estimates' that the stock of gold

and silver now current as coin, or existing as bullion, is
6,750 millions of dollars, of which 3,250 millions is in
silver. Assuming that 700
millions of silver would re-
main in use after the adoption of the single gold stand-
ard by the nations commonly known as civilized, Mr.
Seyd reaches the result that the Money-supply would
be reduced 38 per cent, by the demonetization of silver.
"The total production of both metals," says Mr. Lave-
leye, "has remained stationary during the past nine
years, and in the last two years it has rather declined.
Is this, then, the time to prohibit the use of one of
these metals?"
It was the argument from the effects of a diminution
of the Money-supply which mainly determined the
mind of Hamilton, with whom Jefferson and Gallatin
concurred, in favor of the concurrent use of the two
metals.
"Upon the whole, it seems to be most advisable, as
has been observed, not to attach the unit exclusively to
either of the metals: because this cannot be done ef-
fectually without destroying the office and character of
one of them as money, and reducing it to the situation
of a mere merchandise. ... To annul the use of
either of the metals as money is to abridge the quantity
medium, and is liable to all the objections
of circulating
which arise from a comparison of the benefits of a full
with the evils of a scanty circulation." — [A. Hamilton,
Eeport on the Mint.]
These objections are not of less force than in Mr.
Hamilton's day. On the contrary, they have acquired
greater importance with the vast extension of imperial,
'
N. T. Banker's Magazine, April, 1877.
270 MONEY.
national, state, and municipal indebtedness wliicli hag

characterized the present century. Whatever makes il
harder to pay the war debts of the world, and the obli •
gations contracted for purposes of public display or

public convenience, works great injury to all productive
interests, discourages enterprise, and breeds pauper-
ism.' This is not a consideration to be put out of sight
because of the greater convenience and simplicity of
operation which the Mono-metallists think they find in
the use of gold as the sole money of commerce. I do
not' say that no considerations could outweigh this in-
crease of the burden of existing debts. I agree with
Mr. Horton,^ that it is a practical question, in which ad-
vantages and disadvantages should be fairly balanced ;
and, that this may be done, it is very desirable that

the question should be discussed without excitement or
prejudice.
The question is also largely a political one. The con-
currence of the Latin Union, Germany, Great Britain
and the United States would, I do not question, estab-
lish a bi-metallic money on a durable basis, subject to
change only in the event of developments of a revolution-
ary nature, not to be anticipated, in the production of
the precious metals. But the very mention of such a
condition shows how largely the question is political.
" " La suppression de 1' argent am^nerait une revolution veritable.

L'or, appele d rSgir seule le marche universel, augmenterait de valeui
dans une progression rapide et constante, qui porterait atteinte a la
foi des contrats, et qui aggraverait la situation de tous les debitcurs,
& coiamencer par I'Etat." — [M. Wolowski, L'Or et L' Argent, p. 29.]
^ ''It is a purely practical question whether substantial unity with
bi-metallic money is more for the interest of the world, than mathe-
matical and metrical unity with thi adoption of the single gold
"tandard." — [Silver and Gold, p. 143.]
THE VALUE OF MONEY. Ill
What is tlie likelihood of Great Britain retracing the

course in which she has persisted since 1816? Small
as is the likelihood of that being done, I should be dis-
posed to believe it far more probable than that Ger-
many would rescind her recent action, acknowledge be-
fore French economists her error, and join her late en-
emy in a monetary convention to put gold and silver
on the basis which Napoleon established. But all
these are political considerations which have no place
in an economical treatise.
PART II.
INCONVERTIBLE PAPER MONEY

—
CHAPTEE XrV.
THE THEOEY OF INCONVEETIBLE PAPER MONET.
It has been rather tlie fashion with political econo-

mists to refuse the name Money to any medium of ex-
change which is not "a material recompense or equiva-
lent."' however, fairly to be questioned whether
It is,
anything hereby gained in scientific precision, or for

is
the popular understanding of the subject. For myself,

I can see no valid objection to the scientific acceptance
of the popular term. Paper Money. The presence of the
word paper so far qualifies and explains the word mon-
ey,^ as to show that a material recompense or equiva-
lent is not meant. No one is likely to be misled by the

use of the term ; nor am I confident that this use of the
term does not conform to the highest conception of the
Money-function. Certainly, the word Currency has
proved a most disastrous substitute, inducing infinite
' " La monnaie n'est done point un signe ; c'est un corps, une sub-
stance precieuse ;
je ne saurais trop le redire, c'est, en meme temps,
une mesure commune des valeurs, et un equivalent." — [M. Chevalier,
La Monnaie, p. 56.]
" Get attribut d'equivalent est essentiel a la
monnaie." [Ihid.]
" Whether we should speak of anything which is not a material
recompense or equivalent, as Money, without the qualifying v/ord,
paper, is a question which we can best discuss when we come to
speak of convertible paper money, i. e., bank-notes.

276 MONET.
confusion and contradiction. By the -word Inconvertible,

meant that the paper, whatever it
in this connection, is
promises and however it is guaranteed, is not, in fact,
whatever be the fiction of law, subject to conversion, on
thedemand of the holder, into metallic money.
» While some political economists, as has been said,
deny the propriety of applying, with or without qualifi-
cation, the word money to any medium of exchange
which is not a material recompense or equivalent, others
^dmit the use of the word as applied to paper rpsting
upon authority, that is, to the issues of government, but
not as applied to paper resting upon confidence, that is,
to the issues of banks. The distinction is thus express-
ed by Mr. Huskisson " Paper resting upon confidence
:
is what I have described as circulating credit, and con-
sists in engagements for the payment on demand of any

specific sums of money, which engagements, from a gen-
eral trust in the issuers of such paper, they are enabled
to substitute for money com-
in the transactions of the
munity. Paper resting upon authority^ is what, in
common language, is called paper money, and consists
in engagements issued and circulated under the sanction
and by the intermediate intervention of the public pow-
er of the state. Paper, such as alone used to be current
in Great Britain before the restriction on the Bank, was
strictly circulating credit. The paper current
in Aus-
tria, Russia, etc., is properly denominated paper money."
— [Depreciation of the Currency, p. 3.]
Inconvertible Paper Money is often discussed as if it
'
Prof. Storoh makes the same distinc'ion :
" On reserve le nom de
papier-monnaie a des billets que le souverain ordonne de recevoir en
payement a la place du numeraire mStallique."
Billets de hangue, Prof Storch characterizes as hilleU de conjiance.
THEORY OF INCONVERTIBLE PAPER MONEY. 277
resulted from a degeneration of convertible paper money.

But this has not been the case historically in the greater
number of instances where Inconrertible Paper Money
has come into existence. It appears to me, moreover,
that we get a much better view of the nature and op
erations of such money by taking up the inquiry close
upon our analysis of the effects of seigniorage upon
price.'
Several expressions of Mr. Eicardo have already been

quoted to the effect that a bank-note may be regarded
as a coin upon which the seigniorage is enormous, ex-
tending to its whole nominal amount. While some ex-
ception might possibly be taken to this statement re-
garding a bank-note,^ there can be none to its application
to government paper. We said that, by Mr. Eicardo's
reasoning, a seigniorage of 10 per cent., or even of 50 per
cent., on coin would not alter the purchasing power of
each piece, provided only the pieces were not supplied
in excess of the amount of money of full value which
would circulate as the community's distributive share
of the world's stock of money.
No more, if we suppose the seigniorage to be carried
out to 100 per cent.y and instead of debased coin, pieces
of paper to be issued, costing so little in their produc-
tion that, for purposes of economical reasoning, we may
say they cost nothing, would the purchasing power of
each piece be diminished, provided the pieces were no!
issued in excess. Upon this poiat there is substantial
unity among economists.'
'
See pp. 190-7.
" Because of tlie reserves of coin necessary to keep up a bank-note
circulation, which must, in any philosophical view be regarded as
entering into the cost of the bank-notes so circulated.

'
Mr. Tooke states that depreciation is not a necessary conse-
quence of inconvertibility.
:
278 MONEY.
"It is on this principle," says Mr. Eicardo, "that pa-

per money circulates. The whole charge for. paper
money n>ay be considered as seigniorage. Though it
has no intrinsic value, yet by limiting its quantity its
value in exchange is as great as an equal denomination
of coin, or of bullion in that coin. . . . On these prin-
ciples it will be seen that it is not necessary that paper
money should be payable in specie to secure its value
it is only necessary that its quantity should be regulated
according to the value of the metal which is declared to
be the standard. If the standard were gold of a given
weight and fineness, paper might be increased with
every fall in the value of gold, or, which is the same
thing in its effects, with every rise in the price of goods.
" Dr. Smith," he continues, " appears to have forgotten
his own principle in his argument on Colony Currency.'
Mr. James Wilson remarks that if inconvertible paper be kept

somewhat belo-w the amount of the currency required, " there is no
reason whatever why such notes should suffer depreciation." — [Cap-
ital, Currency and Banking, p. 42.]
"Experience," says Prof. Price, "has proved that it need not of
necessity suffer any depreciation of value." — [Principles of Currency,
p. 156.]
" La valeur de ce papier, resultant uniquement de I'usage auquel il
sert, est limitê par cet usage miSme. Si les emissions etaient me-
dioores, le papier-monnaie pourrait valoir autant que la monnaie
mStaUique." — [M. CouroeUe-Seneuil, Operations de Banque, p. 370.]
'
Prol Sumner appears to have followed Dr. Smith in his criticism
of the notes of the Land Bank of Massachusetts. "A note for $1
payable twenty years hence in gold, without interest, when interest
is 3 per cent., is worth 55 ceats; or, if interest is 6 per cent., 31
cents." — [Hist. Am. Currency, p. 29.] This is to look on these notes

as an investment, and not what they were intended to be, money
as,
circulating from hand to hand. In the same vein, Mr. Horton saya
of the greenbacks, " Present payment in silver is more desirable than
future payment in gold." — [Silver and Gold, p. 61.] That does no<
appear. Indeed, the market quotations contradict the statement.
TEEORJ OF INCONVERTIBLE PAPER MONEY. 279
Instead of ascribing the depreciation of that paper to

its too great abundance, he asks whether, allowing the
colony security to be perfectly good, a hundred pounds,

payable fifteen years hence, would be equally valuable
with a hundred pounds to be paid immediately. I an-
swer yes, if it be not too abundant."— [Pol. Econ.J
This statement needs, however, to be carefully guard-
ed by the proviso which was offered ^ in respect to a de-
based coinage, viz., that the popular distrust or dislike
money be not excited^ to the extent of driving the
of the
people down to barter, in which case an amount of mon-
ey, whether of paper or of debased coin, not in excess
of the amount of a money of full value which would
freely circulate, may become redundant, whereupon de-
preciation will follow.
This proviso, which is often wholly neglected ^ in dis-
cussions respecting Inconvertible Paper Money, is of
capital importance.
It has been said that historically we do not find that
Inconvertible Paper Money has usually originated in a
degeneration of paper money which was once convert-
ible. We may have occasion to note instances of the
latter kind when we come to speak of convertible paper
'
See pp. 197-204.
'•'
This is not at all a matter of course. " Discredit,'' says Mr. Tooke,
" is not an essential element in variations of the value of an incon-

vertible paper."— [History of Prices, 1839-47, 177.]
^
Thus Prof. Price writes :
" The pubHc has a certain definite want
for notes to use in the daily operations of buying and selling"
I
Principles of Currency, p. 156.]; and in the immediate connection
adds :
" It is plain that the prohibition to pay the notes can make no
difference •in the extent of the use which exists for the notes; so fat
as this reaches, it is immaterial whether the notes will, or wiD not,
be paid on demand." —[P. 157.]

280 MONEY.
money [Part III] ; but for tlie present let us consider

only those in which goyernments, generally to meet the
exigencies of state, most frequently in war, but also, in
not a few instances, for purposes of peaceful expendi-
ture, and sometimes with the avowed object of furnish-
ing a plentiful and cheap medium of exchange, have put
forth paper money, having the quality of legal tender in
payment of debts between man and man, and generally
receivable at the treasury^ in payment of taxes and
other obligations from the citizen, or subject, to the
state, without any provision being made for the conver-
sion of such paper money into the coin of the country.
Can Inconvertible Paper Money measure values?

We have reached a point which requires us to go
back to the analysis of the Money-function [Chapter I].
At the time, warning was given^ that the necessity might
arise for re-opening the question as to a measure of val-
ue. Inasmuch as primitive money, constituting as it
does a material equivalent or recompense, possesses
value in itself (according to the usual significance of
that phrase), the notion has arisen and has become al-
most universal, that money serves as a measure of value,
as yard-sticks and bushel-measures serve respectively
as measures of length and of capacity.' On the first
"Note the effect produced upon the circulation of

'
the paper
money of China by the government refusing to receive it in pay-
—
ment of taxes." [P. 303, note.]
= Pp. 9-10.
' Un instrument de mesure, a moins d'impossibihte absolue, ce qui
n'arrive pas pour la monnaie, doit etre de meme nature que la chose
qu'il sert a mesure. ; il doit etre long si cette chose est longue, pesant
si elle est pesante, capable si elle est capable, etc., etc., comme Ifi
occasion when we had

meet this notion, we put it
to
oyer as not essential to be considered in dealing with
metallic money of full value.
Again, when, after dealing with metallic money of full
value, we came to deal with the subject of seigniorage,
and to contemplate a debased coinage in circulation, the
question instinctively arose,' how such money could
possibly measure values? and this time, again, the dis-
cussion was postponed.
We must now fairly meet the issue and settle it, if we
are to have any peace in the further course of our in-
quiry into the principles of money. Fairly to start with
the question, let us take up again the statements of the
economists whom we quoted on this subject in our first
chapter.
"At what rate," writes Prof. Jevons, "is any exchange
to be made? ....
How much heef for liow much
flax, or how much of any one commodity for a given quan-
tityof another ? In a state of barter the price-current
Hst would be a most complicated document, for each
commodity would have to be quoted in terms of every
other commodity, or else complicated rule-of-three sums
would become necessary All such trouble
is avoided, if any one commodity be chosen and its ratio
m^tre, comme le gramme, comme le litre, qui sont respeotivement
long pesant et capable. La momiaie est dans le mSme cas; c'est
ce qui fait dire aux eoonomistes qu'eUe doit etre une marchandise,
o'est-a-dire, une richesse, puisque les marchandises sont des richesses.
Mais la richesse qui est caract^risee a la fois par le travail et i:ti!ite,
deux choses subordonnees aux circonstances si variables de la pro-

duction et de la consommation, est essentiellement variable; variable
par consequent doit etre I'instrument qui sert a la mesurer."— [Th.
Mannequin, La Monnaie et la Double Btalon.]
'
See p. 190.
^:
282 MONEY.
of exchange with each other commodity be quoted. . ,
The chosen commodity becomes a common denominator

or common measure of value, in terms of which we esti-
mate the values of all other goods, so that their values
become capable of the most easy comparison." [Money —
and the Mech. of Ex., pp. 5-6.]
And Prof. Eogers says " A little reflection will show
:
that some measure of value must needs be adopted in

all societies whose condition is superior to mere barbar-
ism Even if money were not a physical ob-

ject, it would still be necessary as a symbol or calculus.
We need some, common measure of value, as we need meas-

ures of length —
and capacity." [Pol. Econ., p. 22.]
And Mr. Mill writes of the inconveniences of barter
"The first and most obvious would be the want of a
common measure of values of different sorts. If a tailor
had only coats and wanted to buy bread or a horse, it
would be very troublesome to ascertain hoio much bread
lie ought to obtain for a coat, or how many coats he should
give for a horse. The calculation must be recommenced

on different data every time he bartered his coats for a
different kind of article, and there could be no current
price or regular quotations of value. Whereas noAV
each thing has a current price in money, and he gets
over all difficulties by reckoning his coat at £4 or £5,
and a four pound loaf at 6d. or Id." — [III, 7, 1.]
I have already remarked upon the confusion which

prevails in the statements of these writers respecting
this function of money, as shown more conspicuously in
the extended passages quoted in Chapter I. These
economists, eminent for their general correctness of
thinking and accuracy of expression, have here, after
showing the desirableness of a "common denominator"
(Jevons), "a unit of calculation" (Mill), "a symbol or
THEORY OF INCONVERTIBLE PAPER MONET. 283
calculus" (Eogers), at once concluded that one of the

functions —in the Tiew of Prof. Bowen' the most impor-
tant function —of money to serve as a measure of value.
is
And clearly, as Prof. Bowen states, if money is to meas-

ure value, it must itself possess value, as that which
measures length or capacity possesses length or capac-
ity.^
That a common denominator is not necessarily a

measure has been shown.^ But let us look further into
the matter.
In examining the text-books on the subject of Money,
it is noticeable that in almost all the illustrations given
of primitive exchange, one person of a trade is assumed
to be dealing with a single member of another trade;
and the writer directs the attention of his readers solely
to these two parties to the exchange actually effected.
' " We can do without money as a medium of exchange, and can

even barter commodities for other commodities without the use of
any medium. But we cannot do without money as a common
standard or measure of value."
° " 4 ineasure must he homogeneous with the thing measured ; as
that which measures length or capacity must itself possess length or ca-
pacity, so that which measures value must have value in itself." — [Prof
Bowen, PoL Econ., p. 293.]
Tin objet destinS a ^tre mesure de valeur doit necessairement avoir

une valeur lui-meme. — [Art. Argent, Repertoire G-enerale d'Econ-
omie, Sandelin.]
" How was the tailor to discover how many loaves he ought to get
for liis coat, or the mason to learn how much briokworlc he was to
make for the garment ? " . . . "It [money] supplied the indis-
pensable convenience of a measure cf value ; it provided the means
for learning the comparative worth of every commodity. This com-
parative worth is measured by identically the same process as that ly

which the length or weight of anything is ascertained." — [Price, Prin-
ciples of Currency, pp. 39-40.]

• See pp. 7-10.
,
284 MONEY.
It is the hatter, the baker, the tailor. But is not this to

render a correct analysis impossible, by the very condi-
tions of the case ? Is not Competition of the essence of
trade, at least in that state of industrial sopiety in which
money appears ? I deal, indeed, with but one tailor, or
hatter, or baker, in any single transaction but it is be- ;
cause there are two tailors, two hatters, two bakers, c.r
three, or five, or more, than I am able to answer Prof.
Jevous's question, how much of any one commodity for
a given quantity of another ? Mr. Mill asks, how much
bread ought the tailor to obtain for a coat ; how many
coats should he give for a horse ? The answer is, he
ought to get as much bread as any one baker, having, at
the time and in his place, more need for a coat than any
other baker of the town or the neighboring towns, will
give him for the coat he has to sell ; he should give as
many coats for a horse as he finds he has to do, after
numerous owners of horses, having severally visited nu-
merous tailors, have come, each for himself, to the deci-
sion how many coats, at the lowest, such a horse as the
tailor wants to buy, is worth.
Now, is any common measure of value needed for the
""'
purpose of the above-contemplated exchanges? ' - '
The statement that money is needed as a measure of

value in exchange, based upon the notion, of the gen-
is
esis of which it would be difficult to. give an account,

, that each person, having in hand something from which
he is willing and having in view many things,
to part,
which, in differing degrees, he wishes to obtain, can more
easily determine the amount of labor involved in the
production of the one article —money, than he can suc-
cessively determine the amount of labor involved in the
production of the various articles which he -may, now
and then, here and there, desire to obtain with the pro-
ceeds of his industry ; while each other producer in turn

is able to compare the amount of labor in his own prod-
uct with that contained in a given quantity of this one
article —money—which thus becomes the common meas-
ure of value for all commodities. The prices (i. e., the
values, ia terms of money,) of all articles, being thias
commonly measured, become mutually comparable.
If the term, common measure of value, has any sig-
nificance, it is this:^ no less: no more.

This is not, however, even in theory, the process by
which the market
relative values of articles brought to
are determined. The rates
which articles shall be re-
at
spectively exchanged are reached through the relations
of supply to demand. When the economist says that,
as a rule, equah amounts of labor are exchanged against
each other in trade, he means no more than that, if, in
the existing relations of supply to demand, the prod-
ucts of labor in one occupation fail to command the
products of an equal amount of labor in another occupa-
tion, labor and capital will pass from the occupation
whose products are at a disadvantage in exchange, into
the occupation whose products have the advantage in ex-
change, until the equilibrium is restored. It is only
when laborers find that, ty working at one occupation,
they get for themselves fewer of the comforts, luxuries,

and necessaries of life than they would by working in
another occupation, that transfei' of labor takes place,
and the supply of the products of the former occupation
is diminished tiU their price rises to a point which al-
lows wages to be paid equal to those received by la-
borers elsewhere. Now, money, as the common denomi-
• " The cost price of the goods is compared with the cost price oj
the gold."— [Prof. Price, Principles of Currency, p. 159.]

24*'
286 MONEY.
nator of values, allows the laborer witli great ease and

accuracy to determine whether he is receiving less or
more and drink, and wear, than his
of articles to eat,
neighbor Brown, who works at another trade. He
would find it very difficult to make an exact comparison
between the supplies, of all sorts, coming in the course
of a day, a week, a year, into his own house and into
Brown's, respectively but if he learns that Brown re-
:
ceives $1.25 a day, while he receives only $1.20, he knows

at once that Brown's occupation is the more remunera-
tive, and in just what degree.
But we must get rid decisively of all remnants of the
notion that things exchange on a basis of equality be-
\
cause they have cost equal amounts of labor. The
\ proposition already quoted from Prof. Jevons, "Labor
I
once spent has no influence on the future value of any
/ article," applies throughout the whole length and breadth
of exchange. Products often exchange for only half

what they cost they often exchange for twice what they
;
cost. It is simply a question of the demand for an arti-
cleand the supply of it. The cost of production only

comes in as influencing the supply. The past cost of
production has regulated the present supply the pres- ;
ent cost of production will regulate the future supply.

If thisbe so where goods are exchanged for goods, it
is not the less so where goods are exchanged for money.
An ounce of silver buys a bushel of wheat not at all be-
cause each has cost a day's labor. The silver may have
been dug out Laurium, more than two thousand years
at
ago, at the cost of labor necessary to produce twelve
bushels of wheat. The wheat itself may sell for one-
half as much more than last year, for no other reason
than that two nations in Europe have fallen to cutting
throats. It is simply a question of supply and demand.
THEORY OF INCONVERTIBLE PAPER MONEY 287
Present cost of production —days' labor—only enters to

affect the supply hereafter.
But the further to show the fallacy of this notion, let
us for a moment suppose that in barter the amounts of
labor involved in the production of commodities are
reallymeasured against each other, and that this meas-
urement serves as the basis of exchange that it is in ;
this way we get an answer to Prof. Price's question, how

the tailor is to discover how many loaves he ought to
get for his coat ; or the mason to learn how much brick-
work he is to make for the garment? Could we find any
article which would less advantageously answer the re-
quirements of a common measure of value than the
present money of the world, gold and silver? In the
first place, we have the fact that, owing to the special
conditions governing the production of these metals,
taken in connection with the peculiar principle which
regulates the purchasing power of money, the value of
gold or silver may be hundreds of years behind the cost
of production or scores of years in advance of it.^ In
the second place, we may fairly say that men in general
know less about the conditions, as to cost of production,
under which gold and silver are brought to market, than

they do about the corresponding conditions under whicli
nineteen-twentieths, if not ninety-nine hundredths, of the
articles they deal in are produced. Almost any man may
know something personally, or form, second-hand, some
sort of an idea, of the cost of producing wheat, or cattle,
or clothes, or chairs. How few things does he buy of

whose respective costs of production he knows so little
as he does regarding that of gold or silver ! A man has

an almost indefinitely better opportunity to compare the
' See pp. 246-8.

288 MONEY.
amount of labor involved in tlie production of the com-

modity he has to sell, with that involved in the pro-
duction of spices in the islands of the Indian Ocean,
than he has to make the same comparison with respect
to gold, raised, as it chiefly is, in regions not onl}- remote
but comparatively inaccessible, yielding irregularly and
sjiasmodically, the industry shifting its seats and suffer-
ing changes of condition, not only from generation to

generation, but from year to year.
I apprehend that this notion of money serving as a
common measure of value is wholly fanciful ; indeed the
very phrase seems to indicate a misconception. Value
is a relation. Relations may be expressed, but not
measured. You cannot measure the relation of a mile
to a furlong : you express it as 8 : 1.
But how can anything perform the office of a common

denominator in exchange, unless it possesses what Prof.
Bowen calls "intrinsic value;" unless, in Chevalier's
phrase, it constitutes a material equivalent or recom-
pense? With a view to answering this question, let us
take, not a debased coinage, containing but a part of the
silver or gold it purports to contain, nor a paper money
consisting of the notes of banks which promise to pay
coin on demand, and which hold a certain amount of
coin for that purpose, but a paper money costing as
nearly nothing as may be,' but limited by restrictions,
natural or legal, to a definite amount. Let, for exam-
ple, these be nothing but curiously colored bits of paper
with a government stamp Tipon them which it is felony
' The principle de minimis non cwatvir holds true in economies as

ill law.
to imitate. No redemption of these need be promised
by the government. Like some of the paper money of
our early colonial days, they may simply bear the inscrip-
tion, five dollars, five shillings, or what not.
Now let it for once be granted that a demand is ere-
ated for this paper by a law making it legal tender, at
certain rates, for debts contracted, or by the
offer of
the government to receive it for taxes,' or by a
general
conviction that it "will do" for a medium of exchange.
These are no unreasonable suppositions. A score of
such moneys are, as we shall see, in existence to-day, cir-
culating freely throughout large communities.
No mat-
ter howcame about that currency was first given to
it
these colored bits of paper, we assume them in circula-

tion, men being willing to take them for what they
have
to sell, knowing that with them they can obtain what
they wish to buy.
A demand for these bits of paper being once created,
every barrel of flour, every cow and calf, every pair of
boots, brought into market will be offered for them, the
desire and effort of each possessor of these commodities
being to get the most pieces he can for his stock, while
it isthe desire and effort of each possessor of the paper
to get for a given number of pieces the greatest number
of bushels of wheat, the best, if not the largest, pair of
boots, the choicest cow or calf, which can be had. Is
it not evident that this would result in establishing ex-
changing-proportions between the different commodities
'in the market? Every holder of the paper money would
be willing to givemore pieces for a cow than for a calf,

for a cow in good condition than for a lean one; and
' "A prince may give a certain value to mocej', by receiving it iu
taxes." — [Adam Smith.]
25
;
290 MONEY.
thus the commodities would speedily become differen-

tiated, at first coarselyand rudely then more and more ;
nicely and exactly. of pieces might

The same number
at first be given for a load of wheat as for a milch cow
but, in that case, of the many farmers who had both
cows and wheat, and knew the comparative cost and
trouble of raising them, many would bring loads of
wheat and few would drive cows to market, till the hold-
ers of the paper would begin to bid more pieces lor
cows and fewer for loads of wheat, and the prices of the
two would assume proportions closely corresponding to
their respective costs of production.
IDEAL MONEY.
I suppose it was an apprehension of this use of money

as a common denominator, to express and record rela-
tions in exchange,^ which lay beneath the doctrine of
" Ideal Money," advocated in England by many writers
down through the discussions attending the Bullion Re-
port and the resumption act of 1819, giving rise to the
"
famous controversy on the question, "What is a pound?
The economist of highest repute who has been claim-
ed by the more recent advocates of " ideal money " as
the champion of their cause, was Sir James Steuart.
" His work," says Lord Lauderdale, "has been copi-
' " Whether the terms, crown, livrc, pound sterUng, etc., are not
to be considered as exponents or denominations? And whether

gold, silvrer and paper are not tiolcets or counters for reckoning, re-
cording or transferring such denominations ? Whetlier, the denom-
inations being retained, although the bullion were gone, things might
not nevertheless be rated, bought and sold, industry promoted, and
a. ciiculation of commerce maintained ? "
— [Bisliop Berkeley's Querist
Noa 25 and 26, A.D. 1710.'
—
IDEAL ifONEY. 291
ously quoted as affording authority for this strange and

unintelligible doctrine of the advantage of conducting
the circulation of a country
by abstract currencies, rep-
resenting imaginary denominative values."^ [Deprecia- —
tion Proved, p. 70.]
"So however, asserts Lord Lauderdale, "is it
far,"
fi-ombeing true that Sir James Steuart sanctions the

opinion that the circulation of a country can be conduct-
ed by paper representing no metallic currency, and en-
joying no denominative value, that those who are really
acquainted with his writings must consider such a rep-
resentation as a gross perversion of his doctrine, for he
distinctly states that 'some intrinsic value or other
piust be found out to form the basis of paper money,
for without that,it is impossible to fix any standard
worth for denominations contained in the paper.' "

\_IUd., p. 73.]
I venture to think that Lord Lauderdale and the ad-

vocates of an ideal money are both right and both wrong
respecting Sir James Steuart's views. The fact is, this
able writer not only contended for the theoretical pos-
conducting exchanges by means of an ideal
sibility of
money, or a money not embodied ia material form, but

held that there were certain marked advantages^ herein.
' " The idea of a currency without a specific standard was, I be-
lieve, first advanced by Sir James Steuart . . . directly at van-
anoe with the general principles he endeavors to establish." — [Ei-
cardo's Proposals, p. 14.]
" " The advantages found in putting an intrinsic value into that
substance which performs the functions of money-of-aocount is com-

pensated by the instability of that intrinsic value, and the advantage
obtained by the stability of paper or symholical money is compensated
by the defect it commonly has of not being at all times susceptible
of realization into solid property, or intrinsic value.'' Sir James ia-

:
292 MONEY.
If tlie writers who have stumbled over Sir James

Steuart's seemingly contradictory expressions would
recall tlie circumstances under wkicli his treatise was
written, tliat is, prior to tlie recoinage of 1774, when the
current coin was so debased that a guinea might contain
an amount of gold 10, 20, or even 30 per cent, below the
mint standard, and hence the question. What is a pound ?'
became a practical and serious one, they would find less
difficulty in understanding his distinction between mon-

ey-of-account and money-coin.
Briefly, Sir James held that when an article of so-
called intrinsic worth, such, e. g., as gold, is taken at once

as the standard and the actual means of deferred pay-
ments, the creditor is liable to wrong from one or both
of two causes
ounce of gold may, from influences
First, the affecting
the production of that metal, come to represent a much
smaller expenditure of labor than when the contract was
made. The possible range of such an effect is seen in
tracing the history of the production of the precious
metals. — [Chap. 4-7.]
stances the habit of trade among the savages upon the African coast
of Angola, "where there is no real money known.' The inhabitants
there reckon by macoutes, and in some places this denomination
is subdivided into decimals, called pieces. One macoute is equal to
ten pieces. This is just a scale of equal parts for estimating the
trucks they make.'' Lord Lauderdale, in his " Depreciation Proved,"
E.ays that the macoutes were pieces of net- work used by the natives as
a covering, perhaps against insects. There are, however, few writers

who have not, with Sir James Steuart, followed the statements of
travelers that the macoute is a mere name or symbol. It figures in a
score of treatises, from Montesquieu to Mill, as an illustration of ideal
money.
'
"The disorder of the English coin has rendered the standard of
a pound sterling quite uncertain. To say that it is 1718.7 grains of

fine silver, is quite ideal." — [Pol. Economy, Book III, part ii, ch. 8 1
IDEAL MONEY. 293
Second, irrespective of and additional to this, tho coin

be paid may actually embody
in whicli the creditor shall
a smaller amount of the metal than was in contempla-
tion at the time the contract was made, owing to contin-
ued abrasion in use, or to further debasement at the
mint. Not only may the average value of the coin be
thus reduced but the corruption and debasement of the
;
coin may proceed very irregularly. Here are two sover-

eigns and two shiUings, one of each kind of coin badly
worn ; one fresh. The heavy shilling which is nominally
-2*0 part of a sovereign, may be iV part of the light sov-
ereign. The light shilling may be only -jV part of the
heavy sovereign. In such a coinage, what is a sover-
eign? what is a shilling? and what is the relation of a
shilling to a sovereign? The actual range historically of
such an effect may be seen by reference to Chap. II.
Now Sir James Steuart's position on both these points

is incontrovertible. AH coined money is subject to vari-
ations, it may be important variations, on these several
accounts.'
Moved by
these considerations Sir James, in his "Po-
Economy," advocated the adoption of a money of
litical
account which should be distinct from the actual coin

of the country.
" The value of commodities depending upon a general
combination of circumstances relative to themselves and
to the fancies of men, their value ought to be consid-
ered as changiag only with respect to one another ; con-
sequently, anything which troubles or perplexes the as-
'
It is, of course, conceivable that the two effects should in a de-
gree neutralize each other. The changes in gold production tending
to make the coin more valuable, might coincide with abrasion, etc.,
tending to make the coin less valuable.

: : ,
294 MONEY.
certaining those clianges of proportion by the means of

a general, determinate and invariable scale, must be hurt-
ful to tradeand a clog upon alienation." . . .
"Money, which I call of account, is no more than an

arbitrary scale of equal parts, invented for measuring the
respective values of things vendible. Money-of-account,
therefore, is quite a different thing from Money-coin.
. . . Money, strictly and philosophically speaking, is
an ideal scale of equal parts." . . .
Just what the writer means by a money-of-account

will best be seen by Dr. Hunter's description of the
monetary system which Sir James, as the adviser of the
East India Company, caused to be introduced into India
in consequence of the general corruption of the coin.
" The actual coin at any single mint could not be select-
ed as the standard, for no mint could be trusted, and

was sure to be falsified. An ide-
wJiatever could be handled
al coinwas accordingly invented, by which all rupees
might be valued, and one of the Company's earliest and
soundest iinancial advisers has left on record the process
"
' When a sum of rupees is brought to a shroff (banker
or money-changer), he examines them piece by piece,
ranges them according to their fineness, then by their
weight. Then he allows for the different legal battas
(deductions) upon siccas and sunats; and, this done, he
values in gross by the current rupee what the whole quan-
tity is worth. The rupee current, therefore, is the only
coin fixed by which coin is at present valued and the :
reason is, because it is not a coin itself, and therefore can

never be falsified or worn.' " ^
— [Eural Bengal, p. 300.]
' The quotation is from Sir James Steuart's worlc on the Coin o£
Bengal, addressed to the East India Company. Among the regula-
tions proposed by Sir James is the following
IDEAL MONET. 295
Now by sucli a system as Sir James Steiiart caused

to be introduced into India, the scheme of a "determi-
nate and invariable scale" for the expression of value is
realized. Under such a system in England, the shilling

"woiild always be the twentieth part of a pound and be
twelve times the penny. It will be observed, however,
that this does not obviate the use of the metals : of a ma-
terial medium of exchange. It merely makes the coin
merchandise, bought and sold according to this "scale."
Of course, this impedes the freedom and the fullness of
circulation, and thus we may say that Sir James's
scheme assists money to perform its function as a de-
nominator of values, at the expense of its efficiency as
a medium of exchange. Whether this would be desir-
able or not in any given situation, would depend upon
the general condition of the circulating coin. With a
coinage in such a condition as Macaulay describes, writ-
ing of England in 1696,' and as Dr. Hunter describes as
existing in India ^ down to a more recent date, commerce
would doubtless be facilitated by the authoritative an-
nouncement of a standard by which coins, in all con-
siderable transactions, should be bought and sold by
test and weight. If this retarded their circulation, it
would make at least a tardy justice possible between

man and man.
" The Company, therefore, having resolved to put an end to all
confusion in future, do for this purpose determine that the rupee

current shall be the standard money of Bengal ; and that, in order to
preserve it merely as a standard, consisting of a determinate quantity

of fine silver, they hereby forbid the making of any current coin of fhi
exact value, or which shall ever carry the denomination of a rupee
current to the end that this denomination of money may at no time

be subject to the inaccuracy of coinage or of wearing in circulation."
See pp. 209-11.
» See pp. 211-2.
:
296 MONEY.
"We have said that a money of account for registering

values, as determined by the state of the market, and
for measuring the obligations of debtors, does not nec-
essarily dispense with the "material equivalent or rec-
ompense," as a medium of exchange. "Although mon-
eys of account," says Kelly's Cambist, "be not repre-
sented by real coins,^ yet their intrinsic value may be
determined by their known relations or proportions to
certain coins." A money of account of such a character
is, therefore, not properly an ideal money merely be-
cause it refers to a non-existent coin.
During the discussions in Great Britain attending the

Bullion Beport and the Act of 1819, the kingdom being
then in a state of suspension, plans for an Ideal Money
altogether irrespective of metal were ui-ged with not a
little persistency. A few quotations from the pam-
phlets of Messrs. Gloucester Wilson and Perceval Eli-
ot will serve sufficiently to give an idea of the nature
and extent of their claim for a money without material
embodiment
"Mediums of currency are all properly, in so far as
they have any real import, personificatioi^s of abstract
value.
"What is called the equivalency of some of them,
' " What is the reason why no nations that I know keep their ac-
counts by any specific coin? Neither the pound sterling, nor the
livre, nor the German florin, nor the Flemish schilling, nor the Span-
ish piastre, ducat, or maravedi, nor the Portugal re, nor, in short,
the rupee current in Bengal, are real and specific coins."

— [Steuart,
Coin of Bengal, p. 12.]
Since this was written, the pound sterling has been coined andei
the name of the sovereign.
—
IDEAL MONEY. 297
whetlier imaginary or even truly real, is, as far as it in-

terferes with their abstract character as measures, a
mere remaining leaven of savage barter.
"Their greater or less grossness of personification
shows the skill to which we have arrived in laying our
vessel near the wind. "^[Gloucester Wilson, Defense of
Abstract Currencies, p. 93.]
It appears to be Mr. Wilson's idea that currency, like
saints, can only be perfected when completely rid of the

flesh.
" Gold is, as it were, the vernacular tongue of curren-
cy; we speak it perhaps more glibly than we do any
other but it by no means follows, nor is it indeed true,
;
that we construe it so grammatically as we do the ac-

quired language of paper."^ \_I'bid.'\
" The gold is no more essential to the guinea than the
brass or ivory of the ruler is to its inches." [P. 44.] —

"Paper, as the mere abstract expression of value, is
more be uniform in value than gold."^ [P. 48.].
likely to —
" The abstract idea of a pound will be far more uniform
in value than any fixed quantity of gold or silver."— [P.
49.]
"I am by the reahsts that an inch is a sensible
told
object, because it can be shown me on brass and ivoity
rulers. . Even this slight personification exposes
. .
our degrees to error Nature mocks all such endeavors

:
to bind her sensible objects in strict subjection to

the
mind's abstractions. may change brass and We

ivory
for platina she contracts and dilates the best ma-

: still
terial we can select, at her caprice or

pleasure, and sends
us back for any fixed criterion to what we are thus idly

inches.
deserting, our own pure abstract idea of . . .
Measures are all in their nature purely abstract."— [Pp.
116-7.]
25*
'
298 MONEY.
Mr. PerceTal Eliot adopts the following line of argu-

ment "Whatever in itself possesses an embodied form
:
and an intrinsic value, must, as a mateiial commodity,

be subject to variation, under the universal principle
of the relative proportions of product and demand.
And, paradoxical as it may S3em iu theory, it is never-
thelessmost incontrovertibly true in practice, that it is

the very attribute of intrinsicality which necessarily im-
poses the quality of variation. It is the ideal money
only which admits of invariable value, because it is not
formed of substantial and therefore variable materials."
—[Observations on the Fallacy of the Supposed Depre-
ciation of Paper.]
It is scarcely worth while to separate the parts of
truth and error in these paragraphs.
We have seen that a paper money, expressing simply
the will of the sovereign, or accepted, irrespective of any
intrinsic worth, by the general consent of the people,
Lmay serve as a medium of exchange, and, if confined
within the limits of money of gold or silver, may re-
i
main without necessary depreciation. ^
'
We have seen, moreover, that, though destitute of
value, in the sense of the economists, such money will
serve to express and record the relative values, the com-
parative purchasing power, of Commodities.
And the writers quoted are undoubtedly right in urg-
ing that the affixing of such a scale to any material com-
modity, like gold, must result in something less than
perfect justice in deferred payments, through the depre-
ciation or appreciation of the metal due to changes oc-
cun-ing meantime in the cost of production, if not also
' " It is submitted," says Lord Lauderdale, " to the refined ingenuity
of this gentleman's mind, that an immaterial army would alsc have
the advantage of being invulnerable."
INCONVERTIBLE PAPER MONEY. 299
to the deterioration or debasement of the specific por-

tion, or portions, of thatcommodity which the debtor is
to pay and the creditor to receive. That the wrong done
to one or the other party to long contracts may be not
slight, but serious, and at times even ruinous, will be ad-
mitted by all who are familiar with the history of money
and of the production of the precious metals.
If, then, a money, consisting of colored bits of paper,

of a cost so small as to be inappreciable, may serve as a
medium of exchange, and may register the comparative
purchasing power of commodities, and thus perform the
function ordinarily spoken of as measiirmg values, and
may even act as a standard for deferred payments, to fix
the obligations of debtors —why should not such money

be adopted by all civilized communities, and the vast
amount of wealth and labor now expended in raisin;^
gold and sUver from the mines be applied to occupationw
more immediately productive of health, comfort and hap-
piness to mankind? This question may perhaps be<
more intellfgently answered after a rapid glance at the
history of Inconvertible Paper Money. But, first, let us
note one characteristic of this monej', a knowledge of
which is necessary to an understanding of its history.
It has been said that, while Inconvertible Paper Money

has, in certain instances, resulted from the degeneration
of paper money originally convertible, yet, that, foi
the present, we would confine ourselves to the consider-
ation of those alone which have been put forth by gov-
ernment, as an act of authority, the circulation of the
paper being primarily due to, or at least largely depend-
ent on, the force of law.
It follows, pretty much as of course from the state-
: —
300 MONEY.
mcnt made, that such paper has no circulation beyond

the territory over which the authority of the issuing gov-
ernment extends. Limited circulation, non-exportabili-
ty —then, may be regarded as of the essence of this
money. Indeed, this has been, by not a few, regarded
as one of its crowning excellencies. John Law claimed
for his paper money, that no nation could draw it away
from France.
"Let it be remembered," said the Continental Con-
gress in their address to the people September 13, 1779,
"that paper money is money which
the only kind of
cannot 'make wings unto and fly away.' It re-
itself
mains with us it is ever ready and at hand for the pur-

;
poses of commerce or taxes, and every industrious man

can find it."
Mr. Duncan says of the political economy of his

school :
" It affirms that every independent state is en-
titled to issue legal tender for its own internal purposes,
in discharge of private debts and public taxes, within its
own realm ; such legal tender not possessing intrinsic
value, but only a conventional value derived from the
authority of the state which calls it into existence. . .
"Thus secure of being always kept within the realm

of the state which created it, this legal tender would be
the special monetary instrument by which all fiscal obli-
gations and mercantile liabilities would be discharged

at home." — [On Currency, p. 28.]
Mr. Wells in his tract, "Eobinson Crusoe's Money,"

makes the following citations to the same effect
"Beyond the sea, in foreign lands, it [the greenback]
jS fortunately not inoney ; but when have we had such
a long and unbroken career of prosperity in business as
since we adopted this non-exportable currency?"
[Hon. W. D. Kelley, Ho. Keps., 1870.]
INCONVERTIBLE PAPER MONEY. 301
"Doe'=i or does not our duty to ourselves and the

world at large demand that we maintain permanently a
non-exportable currency? The affirmative of
. . .
this question is also in perfect harmony with the prac-

tice and experience of leading nations and in harmony
with the teachings of sound economic science." — [H. C.
Carey—letter to Hon. M. W. Field, Sept., 1875.]
This fact of non-exportabihty brings us face to face
with the vital characteristic of an inconvertible currency,
viz., that its amount is not subject to regulation by the
law which, as we have seen, distributes the metallic
money of the world, aniong the several nations and
communities, according to the requirements of their
trade.
We have seen that if the amount of the precious met-
als in any country becomes excessive, that is, reaches a
height which, with the number of exchanges now requir-
ing to be effected by the use of money, will not allow the
commodities of that country to be exchanged at prices
on a level (making due allowance for all the charges of

transportation) with those of other countries, a move-
ment at once begins for the importation of commodities
and the exportation of gold or silver, which tends to re-
store the equilibrium.
With the money we are now contemplating, however,
no such security against redundancy and consequent

depreciation exists. "If," say the authors of the Bull-
ion Eeport, " the issue is of inconvertible paper, prices
will rise. The progress may be as indefinite as the
range of speculation and adventure in a great commer-
cial country."
26
CHAPTEE XY.
ILLUSTEATIONS OF INCONYEKTIBLE PAPER MONEY.
We have perhaps gone far enough in the theory of
the subject, to make it up the his-

profitable to take
tory of Inconvertible Paper Money, after which we shall
return to consider morfe attentively the relations of this
form of money to the industrial welfare of the commu-
nity.
In looking about for illustrations of the natural course
of Inconvertible Paper Money, we are offered an unfort-
unately large number of instances to pick from. M.
Wolowski notes that' Poland alone of European nations
preserved itself from this evil down |;o the time of its
final subjugation; while centuries^ before France, Spain
'
Les Finances de la Russia, p. 148. Prince Adam Wiszniewski,
in his " Histoire de la Banque de Saint Georges de Genes," says :
" Si
la Pologne avait eu, en 1792, une banque bien constituee, elle eut
mis sur pied cent mille hommes, qui auraient sauve son independ-
ance,"etc., etc. — [P. xxix.] This is, however, rather a cry of grief
from a patriotic Pole, than a sober statement of the financial and
military possibilities of the situation in 1792.

"'
Col. Yule says :
" The issue of paper money in China is at least
as old as the beginning of the 9th Century. In 1160, the system

had gone to such excess that government paper, equivalent in nom-
inal value to 43,000,000 ounces of silver, had been issued in six
years ; aad there were local notes besides, so that the empire was
flooded with rapidly depreciating paper." —[The Booli of Ser Marco
Polo, i 381°.l
—
PAPER MONEY OF CHINA. 303
or Sweden had tasted tlie sweets of paper money, lllar-

co Polo, in visiting China, found in circulation a money
made of the inner bark of the mulberry tree, the pieces
having value according to their size. These notes were
issued "with as much solemnity and authority as if they
were of pure gold or silver."^ The Persians had paper
money in 1294. The notes were direct imitations of the
Chinese. Even the Chinese characters appeared as
part of the device.- The Chinese name chao was applied
to them. " Expensive preparations were made for this
object; offices called C/iao-^/iana/«s were erected in the

principal cities of the provinces, and a numerous staff
appointed to carry out the details."^ After two or three
days of enforced circulation the markets were closed,
the people rose, the officials were murdered, and the
project was abandoned. Col. Yule informs us that the
' '•
And tlie Kaan causes every year to be made such a vast quantity
o£ tLis money, which costs him nothing, that it must equal all the
Ij'easure in the world. With these pieces of paper, made as I have
described, he causes all payments on his own account to be made;
and he makes them to pass current universally over all his kingdoms,
provinces and territories, and whithersoever his power and sover-
eignty extends. And nobody, however important he may think
himself, dares to refuse them on pain of death. And, indeed, every-
body takes them readily, for wheresoever a person may go through-
out the Great Kaan's dominions, he shall find these pieces of paper
current, and shall be able to transact all sales and purchases of goods
by means of them just as well as if they were coins of pure gold."
[Chap, xxiv.]
Col. Yule attributes the downfall of the svstem to the refusal of
the Ming dynasty to receive the paper in payment at the treasury,
requiring coin from the people, while paying out paper in disburse-
ments on government account. In 1448, the chao of 1000 cash was
worth but 3. After 1455, there is no mention of it in Chinese history.
' Col Yule's Notes to Majco Polo, oh. xxiv;
304 MONEY.
Japaneiie, also, liad a paper currency in the fourteentt

century ; but lie offers no details respecting it.
In illustration of the tendencies of Inconvertible Pa-

per Money, we select, as most instructive, as well as his-
toricallymost important, -the paper money of our own
colonial period and of the Revolutionary Wai', the as-
signats of France, the notes of the Bank of England
during the period of the so-called Eestriction, 1797-
1819. The episode in French history associated with
the name of John Law, 1717-21, is dwelt upon by most
writers on money but I am disposed to think there is
;
sufficient show of truth in Mr. Duncan's plea^ that the

miseries of 1720-1 were the result of downright swin-
dling on the part of the Eegent Orleans and his rascally
associates, in which Law became, by more or less of
compulsion, the tool, to make it inexpedient to select
this out of the many instances offered to illustrate the
natural course of Inconvertible Paper Money. We
shall do better to take instances where issues were
made in undoubted good faith, and where, consequently,
the results may with more confidence be traced to in-
herent tendencies.
The colonial period of American history offers exam-
ples of inconvertible paper issues in great variety. We
find here the three usual forms of paper: that issued
on landed security;^ that based on taxes; and that rep-
resenting the pure credit or authority of the government.
'
On Currency, pp. 72-3.
' The reader will please bear in mind the definition given [p. 276]
of Inconvertible Paper Money. It is paper money not, in fact, sub-

ject to conversion into metallic money on the demand of the holder.
AMERICAN PAPER MONET. 305
We have paper issued to meet the current annual exi-
gencies of the treasury, corresponding to the Exchequer
BUls of England paper issued for war expenses paper
;
;
issued, of choice, for the professed purpose of affording

a circulating medium ; and paper issued as a loan for
the promotion of industry. No field could be richer in
all known varieties.
THE PAPEK MONET OF THE COLONIAL PEEIOD.
In the early days of settlement great complaints arose

of the scarcity of the circulating medium. Sir Walter
Scott's comparison of Great Britain to the image in
Belshazzar's dream : the money of London, the head,
being of fine gold ; the circulation of the fertile prov-
inces of England, like the breasts and arms of the image,
of silver; that of the southern parts of Scotland, of
brass and copper ; while the Highlands and the remoter
parts must needs be content with iron and clay, would
require a new term to be introduced to express the con-
dition of the colonies on the shores of North America.
Hence we find the colonists in the South resorting, as
has been stated, to tobacco and rice as a medium of ex-
change, while those of New England made use of corn
and cattle in large transactions, . and, in smaller ex-
changes, of "wampum" made of black and white beads,
or parts of shells, the black (inclining to blue, and often
so denominated) of the quohoag, the white of the peri-
winkle.' Bullets were for a time resorted to as small
change below a shilling.
Notwithstanding the scarcity of general capital, and
the especial scarcity of metallic money, owing to the slow
' " The stem or stock of the periwinkle, when all the shell is bi likei?
ofif," explains Roger Williams.

:
306 MONEY.
growth of foreign trade among a people having every-

thing to create for themselves, some silver came into
the colonies, as the result of exchanges with the West
Indies, and small amounts were brought over by immi-
grants from Europe. This money the colonists sought
to detain by declaring it of legal value superior to its
mint value at the place of coinage. Thus the money of
the provinces came to be of less value than sterling.'
By these acts the colonists dehberately cut themselves

oil from the monetary circulation of the world.^ " The
impossibility of maintaining a metallic currency, in a
sâte of colonial dependence," says Mr. Bancroft, "was
assumed as undeniable." — [Hist. U. S., iii, 387.]
"Was this action necessary? If there was room for
choice, was it wise ?
"The attempt of our forefathers," says Dr. Bronson,
' " The pound has four different values in the United States," says
Prof. Tucker. " In New England, Virginia, Kentucky, Tennessee, Ohio,
Indiana and Mississippi the pound is $3^, and the dollar, 6s.
In New York and North Carolina, 2|, " " " 8s.
In Pennsylvania, N. Jersey and Del., 2f, " " " 7s. Qd.
In South CaroUna and Georgia, 4f,

" " " 4s. 8A"
I think Prof. Tucker is in error as to the value of the shilling in
Ohio.
In his "Notes on Virginia,'' Jefferson writes: "How it has hap-
pened that, in this as well as the other American States, the nominal
value of coin was made to differ from whatsit was in the country we
had left, and to difl'er among ourselves, too, I am not able to sav
with certainty." — [Query xxi.]
" In the report of a Committee of the R. I. Assembly, m 1749, ihe
following proposition is enunciated as the basis of the colony's ac-
tion respecting money
" This will always be the case with infant countries that do not
raise so much as they consume ; either to have no money, or if they

h.avfc it, it must be worse than that of tl eir richer neighbors, to com
pel it to stay with them.-"'
;
AMERICA N PA PER MONEY. 307
"to get along without the currency of the old world was
unwise and unprofitable. The unwieldy and inconven-
ient substitutes they adopted were practically expensive,
costing more, there is reason to believe, than good hard
money. By fixing the prices of the selected commodities
very much above the specie rates, they made them, as far
as could be done bj' legislation, the exclusive currency,
threw out of use the coin in the country, destroyed the
market for it among themselves, and drove it to other
lands. . . . They were poor indeed; their surplus
earnings were small, but they had a surplus nevertheless
hence their need of money. They had all along a trade
(quite limited for the first few years) with England, Man-
hadoes (New York) and the West Indies. At first they
shipped peltry, fish and lumber and afterwards, pipe
;
staves, hoops, beef, pork, peas, fat cattle, horses, etc., and
brought back manufactured goods, sugar, molasses, cot-
ton, wool, biUs of exchange, silver and rum. They would
have brought more and less rum and other mer-
silver
chandise, been in greater request at home.

had the first
. . Had the colonists withheld opposing legislation

.
and rejected substitutes, commerce would have supplied

them with all the coin they needed (which was but little),
in spite of themselves." — [Connecticut Currency, p. 9.]
In the same view, Prof. Sumner remarks sound :

" No
economist can hesitate how to decide this question. The

losses occasioned by a bad currency far exceed the gains
from imported commodities. The history of the United
States from the landing of Winthrop to to-day, is a reit-
erated proof of it."— [History, American Currency, p. 6.]
Notwithstanding the complaints of the scarcity of
money and the shifts to which the settlers were reduced
for a medium of exchange, the first issues ol paper mon-
ey were those of Massachusetts, which grew out of the

—
308 MONEY.
disastrous expedition against the Frencli in Canada, ir

1690. The Massachusetts were issued in pay-
bills of
ment to the soldiers of the expedition, and were at first

at a considerable discount, "at least one-third," says Mr
Felt.i The colony sought, however, to hedge around
their credit by calling in a portion of the issues, promis-
ing early redemption of the remainder, and making tho
bills receivable for taxes at the treasury, at a premium
of five per cent. These measures proved suificient, and
the paper remained at par for nearly twenty years.
The ice having been broken under the stress of war,
paper money continued to be issued, from time to time
in anticipation of annual taxes ; but the amounts so
issued were not excessive. A second expedition against
Canada was contemplated in 1709, and in preparation
for it, extensive issues were made. £30,000 new and
£10,000 old bills were put out in 1709. In 1711, the ex-
pedition, equally disastrous with that of 1690, took place,
and £10,000 more paper was issued.
New Hampshire, Rhode Island, Connecticut, New
York and New Jersey, joined in the expedition and fol-
lowed the example of Massachusetts in emitting "bills
of credit." "I believe," says Dr. Bronson, "the paper
money of Massachusetts emitted before Connecticut had
bills of her own, did not circulate in the latter colony."
[Conn. Curr., p. 29.]
Connecticut copied the provision of Massachusetts
making the bills receivable at
the treasury at a pre-
mium Neither this paper nor that of
of five per cent.
the other colonies was made legal tender in private pay-
ments; but in 1718, to encourage the currency of the
bills, it was enacted by Connecticut that a debtor who
' Massachusetts Currency, pp. 50-1.

GOLONTAL PAPER MONEY 309
should tender payment in the bills of the colony should

not be liable to have execution levied on his estate or
person, or be imprisoned upon any recovery of judg-
ments granted against him. It was the same subterfuge
to which the Parliament resorted during the Restriction
period. To save the honor of the British name, tlie
Bank of England notes were not made a legal tender;

but all remedy was taken away from the creditor, if the
notes were tendered.
The Connecticut money, through beiag issued only for
the expenses of government, and not upon loan, and be-
ing provided for, in a degree, by special taxes, appears
to have maintained a comparatively good reputation.
Thus, the author of the tract entitled " Currencies of the
British Plantations in America," written in the interest
of the British merchants who suffered by the depreciation
of the colonial paper, states that Connecticut " emitted
bills only for the present necessary charges of govern-
ment, upon funds of taxes, until, 1733, having granted a
charter for trade and commerce to a society in New
London, this society manufactured some bills of their
own; but this currency being soon at a stand-still, the
government was obliged, in justice to the possessors, to
emit ^50,000 upon loan, to enable those concerned in
the society to pay off the society's bills in colony bills."
Ehode Island, on the contrary, receives severe treat-
ment at the hands of this writer. "A handful of people,"
he says, "admitting of no instructions from the king.
Council, or Board of Trade and Plantations, have lately
made a very profitable branch of trade and commerce by
negotiating their own paper money in various shapes."
And the author notes the "promiscuous currency," in the

four governments of New England," of the paper emis-
sions of each and every colony, by which "tho king's in-
26*
310 MONET
stnictions to the commissioned governments are evaded
by tlie popular charter governments, rendering them oi
no effect."
We have seen Massachusetts first (1690), and after-
wards (1709-11) the other New England colonies, with

New York and New Jersey, drawn into issues by the
disastrous expeditions against Canada which followed
the English Eevolution of 1688. The taste for paper
money once acquired, the colonists were not disposed to
go back to the rude currencies of wampum and bullets,
com and cattle, or even the scanty circulation of acci-
dental dollars from the West Indies. Issues of paper
followed fast one upon another, in spite of efforts to re-
strain them made by the Crown, which was moved
thereto by the clamors of British merchants, who found
their profits seriously impaired by the uncertain charac-
ter of the colonial money.
But it deserves to be noted as a most instructive fact,
that redundancy and depreciation came primarily not so
much from increasing emissions as from withdrawing
the safeguards thrown around the bills at their issue,
extending the time for which they were to circulate, fail-
ing to impose and collect the taxes which had been vot-
ed for their redemption, or even re-issuing bills which
had been redeemed and brought into the Treasury for
cancellation. By every such device the people of the
colonies sought to deceive themselves and the Crown as
to the real nature and extent of their issues. Prof.
Sumner' attributes to the chafing of the colonists under
the restriction and final prohibition of paper money by
the Crown, much of the force which the Eevolutiouai-y
movement acquired later in the century.
' History of American Currency, p. 30.

CONNECTICUT PAPER MONEY. 311
Of all tlie New England colonies, Connecticut, as has

been intimated, managed her earlier emissions -with
most caution and judgment. At the first, and indeed
generally, her issues were made wholly for government
expenses, and not upon loans to promote industiy.
Habitually, too, the redemption of the bills was special-
ly provided for by the assignment of taxes.
"Il the earlier legislation of Connecticut," says Dr.
Bronson, "the same law which authorized the emission
of bills of credit, levied a tax, payable within a certain
period, to sink the whole issue, together with the five
per cent, advance. At first this period was one and two
years, then six years, then eight, nine, twelve, and again
eight years. After the close of the war, in 1713, the time
was frequently shortened. I discover no instance in which
this tax was neglected. The same principle of providing
by taxation for all biUs put in circulation was observed
so far as can be ascertained, with regard to the re-issues.
I know not whether these taxes were all gath-
ered in accordance with the original intention. As they
were levied in gross sums and required additional legis-
lation for their apportionment, according to lists, very
possibly they were not. But I have met with no law, till
after the Eevolution, for their postponement, in the man-

ner which was common in Massachusetts." — [Connecti-
cut Currency, p. 37.]
We may not unfairly suppose that the fact that Con-
necticut had a charter to lose made her more mindful
tlian her sisters of the proclamation oi Anne (1704), fix-
ing the- value of money in the colonies, the Act of Parlia-
ment of 1707, and the instructions to colonial governors
in 1720.
Perhaps, also, we may conjecture with the historian
that the good reputation of Connecticut in this matter
: '
312 MONEY.
was due in part to the circumstance that, in making up

the statutes of the colony for publication, all laws or-
dering paper issues were oddly enough overlooked,^ and
that the Assembly had no representative of the king
present to report these doings.
But the common circulation of the paper of the New
England colonies had before long the effect to deprive
the people of Connecticut^ of much of the benefit of their
prudence and self-restraint in issue, and ultimately made
them careless of their credit.
The course of depreciation is thus stated by Dr. Bron-
son
1710 1 oz. silver plate was worth 8 shillings in paper.
" " " "
1721 12 "
" " "
15
1721
" " "
18
1729
" " " 26
1739
In May 1740, it required 28 shillings in paper to buy
an ounce of silver, and Connecticut undertook the work
of reformation. £30,000 in "new-tenor"^ biUs were to
'
Bronson, Connecticut Currency, pp. 44-5.
" October, 1719, the bills of other colonies were recognized. The
regular taxes of that session might be paid " in biUs of credit of this
colony, with the usual advance [5 per cent], or in the true bills, with
four signers [the larger bills], of the Province of the Massachusetts
Bay, or in the true bills of New York, Rhode Island or New Hamp-
shire, without any advance upon them.'' Later, this recognition of
the New Hampshire and Rhode Island issues had to be withdrawn.

^
The good people of New England borrowed this device. " The
Mongols," says Col. Yule, "commenced their issues of paper money
long before they had transferred the seat of their government to
China. Kublai made such an issue in the first year of his reign
(1260), and continued to issue rôtes copiously to the end. In 1287
he put out a complete new currency, one note of which was to ex-
change against five of the previous series of equal nominal value 1

GONNEGTICUT PAPER MONEY. '3I3
be issued, of which £8,000 should be devoted to cancel-

ing the depreciated "old-tenor" bills, the remainder to
be loaned out on mortgage. These bills were made a
legal tender, but this clause was repealed upon an inti-
mation from the Board of Trade.
The threatening attitude of the royal government in
1740 appears to have checked the emissions of paper
money for four years but the outbreak of the war with
;
France led to enormous issues between 1744 and 1746,

amounting to £131,000.
"These last emissions" says Dr. Bronson "broke the
camel's back. . . . An ounce of silver which, in
1739, could be bought for 28 shillings in paper, and in
1744 32 shillings, cost, in 1749, 65 or 60 shilUngs. Trade
was embarrassed and the utmost confusion prevailed.
No safe estimate could be made as to the future, and
creditwas almost at an end. No man could safely enter
into a contractwhich was to be discharged in money at
a subsequent date. Prudence and sagacity in the man-
agement of business were without their customary re-
ward."
"The new he continues, "called new-ten-
issues,"
or, instead of benefiting the currency and preventing
depreciation, had a disastrous effect. They damaged the
old emissions, produced new oomphcations, introduced
more confusion, and sunk rapidly in value. A break-
The italics and punctuation-marks are Col. Tule's. Had he btet

familiar with tiie early history of New England, he never would
have wasted a good exolamation-point in that way. " In both
ifisues,'' eontinues Ool. Tuie, "the paper money was, in official valua-
tion, only equivalent to half its nominal value in silver," The Caro-
linians issued paper at a tenth its nominal value in silver. Col. \" uie
says, " the paper money was called chao." The American colonies
made chaos of it.
27
314 MONET.
down through their agency became necessary. In the

expectation, however, that they would fare better in the
general wreck, they did not sink so low as the old emis-
sions. They came finally to be worth in the proportion
of 1:3.5. . . . They were never used as the ordinary
medium of exchange. Accounts were kept and payments
made as, previously, in old-tenor. If new-tenor billr
were employed in a business transaction, they were con-
verted by multiphcation into old-tenor." — [Conn. Curr.
65-6.]
In 1751, Parliament, moved by the representations of
the British merchants, passed a law applying to His
Majesty's colonies of Rhode Island, Connecticut, Mas-
sachusetts and New Hampshire, declaring that it should
not be lawful for the governors of these colonies to give
assent to any act whereby bills of credit should be cre-
ated or issued, under any pretense, or whereby said bills
should be re-issued, or the time set for their redemption
extended. Such acts were to be void, and any represent-
ative of the Crown who should fail of his duty therein,
was to be dismissed from office.
Acts creating J)iUs for the expenses of the current

year, not to run over two years, were excepted from the
operation of this act nor was the law to extend to paper
;
issued in extraordinary emergencies, as in case of inva-

sion; provided a fund should be established for sinking
the same within five years, but such bills were in no case
to be constituted a legal tender.
Connecticut made some feeble and hesitating efforts
to comply with this law, as to the redemption of her
bills, giving one oz. of silver for 58s. 8c?. in paper, or at
the rate of Is. for 8s. lOd. The notes of Ehode Island
were put under the ban, and large amounts of bills re-
ceived at the Treasury in payment of taxes were burned.
CONNECTICUT PAPER MONEY. 315
Before, however, the entire outstanding issues could be

canceled, war with France broke out in 1755, and the
remaining bills sank to 88 shillings per oz.
This extreme discredit proved the way out of the em-

barrassments of trade. Accounts began to be kept in
"proclamation money;" the necessities of the war were
provided for by the issue of notes running from two to
five years, bearing interest at 5 per cent, per annum,
which were paid out to the public creditors "as their

value should be at the time." Taxes were imposed suf-
ficient to sink the notes at maturity. " The notes," says
Dr. Bronson,^ "seem to have all been paid at maturity
or before. I find no evidence that those which had once
reached the treasury were ever re-issued." "Strictly
speaking, they do not appear to have constituted a part
of the currency." "During all this period, coin was the
standard of value, contracts were made and debts paid
in it, or its equivalent. Government bills, like ordinary
commodities, were converted into it, before their value
could be stated."
"Under the circumstances," continues this judicious
writer, "it is not surprising that the government credit
was preserved and the par value of its paper maintained.
The experiment proved how much better, more profitable
and more honorable, it was to raise money in the ordi-
nary way, paying what it was worth, than to attempt it by
the fraudulent, interest-saving method previously resort-
ed to."
This, however, did not close the experience of colonial

Connecticut with paper money. Between October, 1771,
and October, 1774, £39,000 in bills of credit, bearing no
interest, running two years, were issued for the expenses
' Connecticut Carrcncj, pf. 82-3.

'
316 MONEY.-
of government, seasonable and sufficient taxes being

provided for their redemption. " Twenty-fi-^-e years had
elapsed since bills of this kind had been emitted. They
introduced anew paper-money era but as they did not ;
oxceed the sum required by the trade of the colony, and

were not interfered with by the notes of the adjoining
governments, they did not depreciate."
Such was the condition of Connecticut at the out-
break of the Revolution.
We have traced somewhat at length the colonial ex-

I perience of Connecticut in the matter of paper money,
the issues of that colony being generally confined to oc-
I
casions of public necessity.

Turning to Rhode Island, we find a colony in which
the issue of bills of credit, arising out of similar exigen-
cies, created an appetite for paper money which, by in-
dulgence, grew to an overmastering passion, of the force
,of which we could have no more striking indication than
the fact that the unwillingness of that State to submit its
right of independent issue was the principal, if not the
[Sole, cause of Rhode Island's absence from the Consti-
/ tutional Convention of 1787, which devised the subsist-
ing Union of the States.
As the history of Connecticut currency has been writ-
ten by Dr. Bronson, that of Rhode Island has been
written by Mr. Potter. It will not be necessary to enter
greatly into detail in following the course of paper-
in oney inflation in this colony. There is a beautiful
simplicity about the Rhode Island issues which con-
duces to brevity of description. The characteristic dif-
'
Bronson. p. 84.
RHODE ISLAND ISSUES. 317
ference between them and the Connecticut emissions is /
that they were generally of choice, and for the expressed

object of advancing trade and promoting manufactures.
"An important distinction," says Mr. Potter, "is here
to be noticed, between bills emitted for the supply of ;
the treasury, which emissions were generally in small

sums, as occasion required, and a Bank, which was an
emission generally of a large sum, not for the exigencies
\
of gOYcrnment, but to be loaned out, at interest, to the \
people, on mortgage security, for a term of years."

\
The use word Bank in the colonial days was

of the
peculiar. "With us the word signifies an institution for
conducting the functions of deposit, of exchange, and of
discount, with generally a building of its own, and with
permanent officials. A Bank in Ehode Island or Mas-
sachusetts was simply a batch of paper money.
The first emissions of Ehode Island were in 1710, ag-
gregating £7,000, in sums from £5 down to 2 shillings.
In 1715, £30,000 was issued (£5 to 1 shilling), which,
with £10,000 more the same year, became known as the
First Bank. The bills were loaned for ten years, at 5
per cent, on mortgage of real estate. In 1721
interest,
came another Bank, of £40,000, five years loan, interest

payable in hemp or flax, the reason for the emission be-
ing, in addition to the alleged scarcity of specie, the ex-
pediency of encouraging the growth of these staples.
In 1728, under pressure from the colony's debtors,
the time of payment for previous loans was extended,'
' "New claimants who desired to come under this shower oi

wealth clamored for new banks on the ground of 'justice' and
'
equality.' All who had rsceived loans joined as a compact body in
favor of further issues. All new issues to others depreciated the
currency and enabled them to pay back more easily. Fowever,

they did not in many cases pay at all, either principal c interest
:
318 MONEY.
and a Third Bank, of £40,000, was emitted, tliis time or

account of tlie decay of trade and commerce and small —
wonder! In 1731 and 1733 came other Banks, the lat-
ter for £100,000."
"The emissions of paper money," says Mr. Potter,
"were generally opposed by the merchants and business
men, and the more intelligent part of the community.
They were generally advocated by the multitude who
were indebted and distressed in pecuniary circum-
stances, as a measure of relief. It was an easy way of
paying old debts. . . . Pretenses were never want-
ing. The colony was in debt, the fort was out of repair,
or a new jaiP or court-house was to be built. And
when the specie had been driven away by the increase
of paper money, the 'scarcity of silver' was a fresh ex-
cuse for further issues."
Of the interest of the emission of 1781, a bounty was
established on flax, hemp, whale oil, whalebone, and
codfish. Of the interest of the Bank of 1733, as that of
1721, half was to be divided ratably among the towns.
From this time forward, paper money became the
principal subject of political controversy. "Governors
Having accumulated large arrears, they decamped, and when process

issued could not be found. The mortgaged estates were found en-
tangled in inextricable confusion. The legislatures, composed largely
of men in the system, would allow no extreme measures. Fore-
closures were rare, and did not pay for the trouble and excitement
they caused." — [Sumner, Hist. Am. Currency, p. 21.]
' The Pennsylvania issue of April 10, 1775, was for the purpose A
erecting a jail in Philadelphia. It bore on the reverse a picture of
that building, known as the Walnut Street Prison. Mr. Phillips says
" These notes are commonly but incorrectly believed to represent the
Independence Hall."
" North Carolina issued paper to build a. palace for the governor,
A isLmtiar project was started in New Jersey." — [Sumner, p. 39.]
: ;
BSDDS ISLAND ISSUES. 319
were elected and turned out, as the different interests

happened to prevail." The debtor party needed only
to come into power once in ten or five years, to secure
the privilege of paying their creditors off at pretty much
any rate they might choose to fix, as convenient and
agreeable to themselves.
In 1738 a Bank of ^100,000 was issued with new pro-
visions for securing the interest of the mortgages, of
which the colony had thus far been largely defrauded.
In 1740, for fitting out a privateer against the Spaniards,
£20,000 were issued. These bills were declared to be
equivalent to a certain amount of silver. The rates at
which they passed in circulation showed the inefficacy of
mere assertion. Now began the denominations of Old )
and Neiv-tetior, which we noted in the history of Connect-

icut. In 1741 the Assembly made 6s. 2d. of the new- \
tenor equal to 27 shillings of the old. In 1749, a Com- I
mittee of the General Assembly presented the foUowing

as the condition of the paper money issues
Outstanding of the Bank of 1728, - - £8,000
1731, - - 12,000
1733, - - 40,000
1738, - - 90,000
1740, 20,000
1743, - - 40,000
£210,000
This in addition to bills issued to supply the treasury
mostly in 1746-7—£110,444.
This, for a colony no larger than Ehode Island, might
seem sufficient to promote manufactures and encourage
trade, but it was not, and in 1751 the Ninth Bank was
issued, this time for £25,000, but on new plates. great A
deal was hoped for from this circumstance. The issue
was for giving bounty on flax, woolen manufactures and

'
320 MONEY.
the fisheries. The bills were to be made equal to silver

at 6s. 2d. per oz. ; which was to be equal to IBs. &d. new-
tenor, or 54 shillings old-tenor.
But why pursue the narrative? The colony, under
the complete domination of the debtor party, had con-
tinued its issues to the almost total destruction of trade
and industry. In 1763, the war with France being con-
cluded. Parliament re-enacted the prohibition of colonial
acts for issuing paper money; and a scale of deprecia-
tion was by the courts for the settlement of debts.
fixed
It put the Spanish milled dollar at the rate of £1 in old-
tenor notes. September 1764, old-tenor bills were or-
dered to be received in payment of a tax, at 23-5- : 1 of
lawful money. February, 1769, 6 shillings lawful money
were ordered to be reckoned equal to £8 old-tenor.
By act of 1770, the old-tenor notes were to be ex-
changed at this rate and no longer allowed to circulate.
Massachusetts had led the way in the emission of pa-

per money in 1690. The history of the issues of this
colony has been written by Mr. Felt. These took both
forms described, that of issues for the current ex-
penditures of government, or for extraordinary war ex-
penses, and that of Banks, or loans to the public, for
the promotion of the shipping, fishing, or manufactur-
ing interests. The following table shows the deprecia-
tion of the paper money :
1706, Exchange on London - . _ 135

1713,
1716,
1717,
"
"
«
""--..
"
« ....
"
«
- - . . 150
175
225
' Sumner, pp. 35-6.

1722, Exchange
:
322 MONEY.
But though Massachusetts thus, by a resolute effort

rid herself of the incubusupon her trade and industry,
treasury-certificates, bearing interest, were systematic-
ally issued, without prejudice to the public interests,
until the outbreak of the Revolution.
It has been stated that Now York and New Jersey,

joining with the New England colonies in the second
expedition against Canada, had followed the lead of
Massachusetts in issuing paper money. Of the issues
of New York the author of the tract, " Currencies of the
British Plantations in America," writing in 1740, states
/that they were originally issued in 1709, bearing inter-
'
est, but that this was taken off in 1710, "
upon pretense
that it occasioned them to be hoarded up as bonds, and
did frustrate their currency."
Of the Jersey paper money the same writer remarks
" The Jersey bills keep their credit better than those of
Pennsylvania and New York, for these two reasons:
First, New York bills not being current in Pennsylvania,
and Pennsylvania bills not current in New York, but
Jersey bills current in both, all payments between New
York and Pennsylvania are made in Jersey bills. Sec-
ond, In tlie Jerseys, failure of the loan-payments at the day
appointed is confessing judgment, and thereafter only 30
days' redemption of mortgage is allowed."
The history of the New Jersey paper money has been
written by Mr. Henry Phillips, Jr.
Of all the colonies issuing paper money, none deserves
more attention from the student of political economy
than Pennsylvania.
" In our colony of Pennsylvania," wrote David Hume
to the Abbe Morellet, "the land itself, which is the
chief commodity, is coined and passed into circulation.'
THE MIDDLE STATES. 323
The phrase of Hume appears earlier in the tract of

Benjamin Franklin ^ (then a young man of twenty-three
years), published in 1729, entitled "A Modest Enquiry
into the Nature and Necessity of a Paper Currency."
"For as bills issued upon money security," wrote the
youthful philosopher, "are money, so bills issued upon
land are in effect coined land."''
The paper-money loan-system of Pennsylvania was as
follows: The trustees of the loan-office were to lend
out the bUls of the colony upon real security of at least
double the value, for a term of sixteen years, to be re-
paid in yearly installments, with interest. Thus, one-
sixteenth of the principal was to be yearly paid back.
The interest was applied to the public services. The ;
principal was, for the first ten years, to be let out again
to fresh borrowers. The new borrowers, from year to i
year, were to have the money for only the remaining

part of the term of sixteen years, repaying by fewer and
proportionately larger installments. During the last
six years of the sixteen, the sums paid in were not to be
reloaned, but the notes burned, so that the whole might
be called in, and the accounts completely settled at the
end of the term. Of this system. Governor Pownall
'
Prof. Sumner says :
" The great philosopker was not unbiased in
nis judgment." — [P. 19°.] Franklin, in his autobiography, gives the
following account of his interest in the emissions: "My friends

there,who considered that I had been of some service, thought fit to
reward me by employing me in printing the money; a very profitable
job, and a great help to me."
The following play upon words occurs in the correspondence of
°
Wm. Short and Q-ouverneur Morris: "There is a plan for paper

money now before the Assembly. . . . Some insist on calling it
papier terre, and the idea was near passing." —[Wm. Short to G.
Morris, Sept. 12, 1790, Paras.] Mr. Morris replies: "Apropos of this
currency, this papier terre, I could tell them of a country where there
is a papier terre, now mort et enierre."
324 MONEY.
wrote :
" I will Tenture to say that there never was a
wiser or a better measure, never one better calculated
to serve the uses of an increasing country ; that there
never was a measure more steadily or more faithfully
pursued for forty years together, than the loan-office in
Pennsylvania."
In spite of Governor Pownall's panegyric, however,
what with increased loans and the" extension of the
terms of repayment, this system, the perfection of what
Mr. McLeod^ calls Lawism, viz., the basing of currency
upon land, was not found incompatible with a deprecia-
tion represented by the rise of exchange on London,
first to 160 :100, and later, in 1748, to 180 or igO.''
When the paper money of Pennsylvania was, with

that of the other colonies, outlawed by the act of Par-
liament of 1763, Dr. Franklin wrote a pamphlet protest-
ing against the act.
"In Maryland," says the writer of the tract so fre-

i
quently quoted, " silver continued at proclamation value
until 1734, with a considerable concomitant truck-trade
as a medium, viz., tobacco. They then emitted £90,600
sterling in bills, which, though payable to the possessors
in sterling, well secured, the sum being
too large, and
the periods too long, payments of fifteen
viz., partial
years period each, exchange immediately rose from 85
to 100 and 150 per cent."
The history of "Virginia paper money has been written
by Mr. Phillips. That history, through the colonial
period, is brief and comparatively barren. No bills of
credit existed in Virginia before the oldFrench War.
In 1755 an iSsue of £20,000 was authorized to meet the
' Economical Philosophy, ii, 338.

' Sumner, p. 36.
THE SOUTHERN STATES. 325
expenses of the Braddock expedition. The notes were
to bear interest at five per cent.; were lawful tender
in
payment of debts, and the penalty of death was de-
nounced for altering or counterfeiting them. In the same
yeiar a further issue of
^40,000 was made to discharge
the bounties proposed by the government for killing or
capturing hostile Indians, £30 being offered for each
scalp. Frequent issues took place between 1755 and
1775, but we have little information respecting the de-
gree of depreciation which resulted.
The North Carolina were so much out of
issues of
proportion to the requirements of the colony's trade,
that exchange on London rose in 1740 to 1400 100. :
A full account of the paper money of South Carolina,

is given by Dr. Eamsay
in his history of that colony
and State. The emission of paper took place in
first
connection with the expedition against St. Augustine

in 1702, being for £8,000. In 1712, a Land Bank was
established; the issue was for £52,000, the interest and
one-twelfth of the principal to be repaid annually. A
fourth emission took place in 1716, in connection with
the war against the Yamasses.
In 1736 the provincial House of Commons carried
their point, an increase of paper money, against the
King's Council; and an emission of £210,000 took place,
to be loaned at 8 per cent.
Dr. Eamsay records ^ the powerful and dignified pro-
test offered by Arthur Middleton and other opponent!?
of this measure; and notes it as remarkable that the
struggles over the emission of 1736, and in particular
this protest, were not referred to in the Revolutionary
debates over paper money.
*
History of South Carolina, ii, 93.
28
326 MONEY.
"In the interval a new up who had nc

race had sprung
personal knowledge of them. Tradition was obscure,
history was silent. Newspapers gave no information.
Old official records were seldom examined or referred
to. From these causes the Carolinians of 1776 had lit-
tle advantage from the knowledge of what their fathers
had done in 1736 or 1719."

Under the effects of these emissions, exchange on
London had risen by 1740 to 800 100. :
The author of the tract on the "Currencies of the

British Plantations" charges bad faith against the South
Carolinians of this time. " Their legislatures have been
most notoriously guilty of breach of public faith in not

canceling their bills." Writing in 1740, he declares
that^ there were then outstanding about £250,000 in
province bills, whereof above X100,000 were " without
fund or period." " The whole amount issued in bills of
credit by provincial South Carolina," says Dr. Eamsay,
"in the sixty-eight years which intervened between the
and last emissions of paper, was £605,000, of which
first
more than two-thirds were secured by mortgaged prop-

erty."
THE PAPER MONET OF THE EEVOLUTION.
Of the emissions of Paper Money during the Eevolu-

we have accounts from a
tionary period of our history,
great variety of sources. Inasmuch as those author-
ized by the Continental Congress were made under a
single and constant impulse, viz., the overwhelming
financial necessities of the new government, engaged in
a desperate struggle for existence, the facts can be
briefly stated.
The question has sometimes been raised by econo-
mists whether issues of Inconvertible Paper Money are
ever really necessaiy, even in time of war. However
REVOLUTIONARY PAPER. 327
this question miglit be decided with reference to ordi-

nary governments, the situation of the Continental Con-
gress must be admitted to have been highly exception-
al. In only a qualified sense was it a government at
all. It had no- coercive power. It could not levy taxes.
Even its moral authority over the constituent States was
very slight. Its requisitions for money, its recommen-
dations of policy, were treated with neglect, if not with
open contempt. The States, with one or two honorable
exceptions, hardly made a show of doing their duty by
the government of the Confederation. There are few
more distressing chapters in history than that which re-
cords the delinquency of the States which had pledged
life, fortune and sacred honor to the cause of American
independence.
The first emission of Continental bills of credit was
ordered in June, 1775, the amount being $2,000,000 in ;
July $1,000,000 was ordered; in Novembei, $3,000,000.

During 1776 the emissions amounted to $19,000,000.
"The United Kamsay, "for a con-
States," says Dr.
siderable time derived as much benefit from this paper
creation of their own, though without any established
funds for its support or redemption, as would have re-
sulted to them from the free gift of as many Mexican
dollars. . But there was a point, both in time
. .
and quantity, beyond which this congressional alchemy

ceased to operate. That time was about eighteen
months from the date of their first issue and that quan-
;
tity about $20,000,000."— [History of the United States,

ii, 308-9.]
Whether or not Dr. Eamsay has correctly estimated
the amount of Continental bills which might have circu-
lated without depreciation, no room was left for doubt
by the close of 1776 that the limit had been passed,
:
328 MONEY.
Depreciation, that unmistaljable sign of excess, had al-
ready proceeded so far that the bills stood at 50 per

cent, discount.
The worst feature of the situation was that the States,

despite remonstrance and entreaty, continued also to
emit bills of credit. The Continental Congress coulJ
not tax the people ; the States would not. In most of
the States scarcely an effort was made from first to last

to meet the charge of the war manfully by assessment
and contribution.^ With a public morality deeply per-
verted by the colonial experience of paper money, with
the false start of 1775-6, and with the apprehension on
the part of each that its neighbors would take advan-
tage of any forbearance it might exercise to fill the
channels of circulation with their bills, the States fell
without a struggle into the wretched policy of constant-

ly increasing issues of constantly depreciating paper.
Mr. Shuckers gives the following table of the State is-
sues. [It will be noted that in some States, from lack
of the requisite data, the total issues are not distributed

among the several years of the war.]
* The following, from the observations on the finances of the

United States, addressed by Congress to the French Minister, con-
tains a frank acknowledgment of the unwillingness to resort to tax-
ation to meet the expenses of the war
"America having never been much taxed, nor for a continued length
of time, being without fixed government, and contending against
what was once the lawful authority, had no funds to support the
war and the contest heing upon the very question of taxation, the levy-
;
ing of imposts, unless from the last necessity, would have been mad-
less. To borrow from individuals without any visible means of
repaying them, while the loss was certain from ill success, was
visionary. A measure, therefore, which had been early adopted, and
thence became familiar to the people, was pursued. This was tlie
issuing of paper notes representing specie, for the redemption o1

which the public fait! was pledged."
REVOLUTIONARY PAPER. 329
o o o o oo o O
O OO O CO o oo
o
O o
o o uo o
CD >0 (M O O
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_
lO
O
0_ O O
<N
OD
t^
1:^ CO
oo~ (xT rn" lO" _ Q0~
^. _. «j"
•I CDrHrHCDi— (C<1-^lOTtH(M»0
-^ -^
-
<M lO
00^ t^ ii:) i-H^ CO CO i-H c:) CO
co" r-Tr-Ti-T"^'^ (xTco^ccT
«* (N CO CO
o o
o o
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o
o~
00
<&
o
CO
lOo o o
o o
o
(MOO o o
i-T o~ o" o~ o~
rH
-*
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00
CO
CO
o
la
m
(N
i>r to
00 (M
o o O
O o o
o O o
o l-~ o
0~
CD~ (N"
00
1^ ^
CO CO
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I
o
CO
lO
,
330 MONEY.
"It seems to be pretty clear," says Mr. Shuckers,

" that the issues of continental bills of credit were ma-
terially in excess of the emissions authorized by CoU'
gress." — [Finances, etc., of the Revolution, p. 110.]
In the face of a premiiim on silver of more than 100

l)er cent., Congress resolved that the nominal value of
gold and silver had been raised, just as in England,

during the Bullion Controversy, the government de-
clared that the bank-note had not fallen, but the guinea
had risen, in value. Efforts were made to suppress the
teU-tale premium and those were denounced
; as enemies
of liberty who recognized a specie price, as distinguished
from a paper price, of commodities. In spite of all,
however, the depreciation went on through 1777, as the

emissions continued. The authorized issues of the year
were $13,000,000. The situation was now complicated
I by the fact that the British authorities began to dissem-
jinate counterfeits of the Continental money, as they sub-
'
sequently did in respect to the assignats of revolutionary
France. Extensive counterfeiting also went on at home.
And still we find the States disregarding the entreaties
of Congress to undertake in earnest the taxation of their
citizens, in place of a resort to further issues. More at-
tention was paid to the recommendation by Congress,
in November, 1777, of laws to limit prices, and to au-
thorize supplies to 'be seized in the hands of "forestall-
ers" and "engrossers." Many of the States passed
stringent laws to repress the premium on silver and to
restrain speculators from forestalling and engrossing the
market with a view to secure the anticipated rise of
prices due to continued inflation. Public meetings
were held to denounce speculation, and mob-law was not
infrequently resorted to against the holders of goods,
with the same popular applause which had greeted the
:
REVOL UTIONAR Y PAPER. 331
destruction of the stamped paper in 1765. All such

measures, however, were powerless to keep up the
credit' of the Continental paper. As prices rose, the
necessities of the government increased. The emissions
authorized during 1778 amounted to $63,500,000.
In December of that year Congress, in a public ad-
dress, indignantly repelled the insinuation that the bills
of creditwould be allowed to sink in the hands of the
holders,and in the September foUpwing issued a second
address of the same purport.
" We should pay an ill compliment to the understand-
ing and honor of every true American, were we to ad-

duce many arguments to show the baseness or bad pol-
icy of violating our national faith, or omitting to pursue
the measures necesSary to preserve it. A bankrupt,
faithless republic would be a novelty in the political
world, and appear among reputable nations like a com-
mon prostitute among chaste and respectable matrons.
. . . Apprised of these consequences, knowing the
value of national character and impressed with a due
sense of the immutable laws of justice and honor, it is
impossible that America should think M-ithout^horror of

^
such an execrable deed."
The emissions of 1779 amounted to $140,000,000, of
the coin value, according to Mr. Jefferson, of $7,329,278.
The course of depreciation during the year was as
follows
'
Napoleon was wont to say, " Tout peut se rStablir." It may
be so, but, as M. Thiers observes, there is nothing which it is so diffi-
cult to restore as the reputation of paper money.

" " That the money should finally sink, or that it should be re-
deemed by a scale of deprec'ation, were events neither foreseen noi

expected by the bulk of ihe i eople.— [Ramsay, Hist, of South Can>
Una, ii, 98.]
12
REVOL UTIONAR Y PA PER. 333
circulate and to depreciate till the end of 1780, when it

had fallen to 75 1, and the money circulated from the
:
French army' being, by that time, sensible in all the

States north of the Potomac, the paper ceased its circu-
lation altogether in those States. In Virginia and North
Carolina it continued a year longer, within which time
it fell to 1000 1, and then expired, as it had done in the
:
other States, without a single groan." Or, as Dr. Earn-

say more poetically expresses it, "Like an aged man,
expiring by the decays of nature, without a sign or a
groan, it gently fell asleep in the hands of its last pos-
sessors."
Of the effects produced upon society and industry by

paper money thus rapidly depreciating, it cannot be
necessary to enter into an analysis. " The property of
the inhabitants," says Dr. Eamsay, "in a considerable
degree changed its owners. Many opulent persons, of
ancient families, were ruined by selling paternal estates
for a depreciating paper currency, which, in a few weeks
would not replace half of the real property in exchange
for which it was obtained. Many bold adventurers
made fortunes in a short time by running in debt be-
yond their abilities. Prudence ceased to be a virtue and
rashness usurped its place. The warm friends of Amer-
ica, who never despaired of their country, and whc
cheerfully risked their property in its support, lost their
taken up none ; the remaining States had taken up and replaced but
a part of their c iota." — [Hildreth, Hist. U. S., .ii, 446.]
' Not only the silvr.r brought over by the French, but that dis-
bursed by the British troops within their lines, served to fill the void
in the circulation, so soon as the paper money was got cut of the
way.
28*
—
334 MONEY.
property, while the timid who looked forward to the re-

establishment of British government, not only saved
their former possessions, but often increased them.''
[History of South Carolina, ii 98.]
On every hand breaches of trust and violations o\
commercial honor were committed under the stress of a

terrible temptation, even, and perhaps especially, by
those who had been most honored and trusted. In the
language of Mr. Justice Story, the tender and maximum
laws "entailed the most enormous evils on the country,
and introduced a system of fraud, chicanery and profli-
gacy which destroyed all private confidence and all
industry and enterprise."
"Time and industry," writes Dr. Ramsay, "soon re-
paired the losses of property which the citizens sus-
tained during the war, but both for a long time failed
in efi'acing the taint which was then comniunicated to
their principles."
It was the experience here recited which impressed
our fathers with their horror of paper money, and
which led to a prohibition of its issue by the States,
under the Constitution.*
Says Mr. Madison in the "Federalist": "The extension
of the prohibition to bills of credit must give pleasure to
every citizen in proportion to his love of justice, and
his knowledge of the true springs of public prosperity.
The loss which America has sustained since the peace
[1783] from the pestilent efi'ects of paper money on the
necessary confidence between man and man; on the
necessary confidence in the public councils ; on the in-
'
In the interval between the close of the war and the adoption of
the couodtution, several States fell back upon paper money. Khode
Island, which had been the worst ofl'ender as a colony maintained the
same reputation as a State.
R EVOL UTIONAR Y PAPER. 335
dustry and morals of the people, and on the character

of republican government, constitutes an enormous debt
against the States chargeable with this iU-advised meas-
ure."
;
CHAPTER XYI.
ILLUSTEATIONS OF INCONVEETIBLB PAPER MONEY. EEVOLU-

TIONAEY FEAJSfCE: ENGLAND UNDER THE EESTEICTION.
The experience of France in the matter of paper mon-

ey is most instructiye. Our space will only serve to
trace the course of the revolutionary issues.
The financial embarrassments of the governmeiit in
1789 were extreme. Many taxes had ceased to be pro-
ductive ; the confiscated estates not only yielded no
revenue but caused a large expense, and, as a measure
of resource, the finance committee of the Assembly re-
ported in favor of issues based upon the confiscated
lands.^ But the
bitter experience of France through
the Mississippi schemes of John Law, 1719-21, made
the Assembly and the nation hesitate. Dr. Ramsay
notes that the debates in the South Carolina Legislature
over the paper money of 1736 were not alluded to in
the discussions concerning the revolutionary issues forty
years later. But the lapse of seventy years had not
effaced the recollections of the miseries of France under
the Regent.
Necker, the Minister, stood firm in his opposition to
the issue of paper money, even as a measure of resource
' "L'idê des assign ats remonte a 1787." — [J. Gamier, Traitd de
Finances, p. 408.]
;
THE FRENCH ASSIGNATS. 337
but the steady pressure of fiscal exigencies, togethei

witli the influence of the fervid orators of the
Assembly,
gained a continually increasing support to the proposi-
tion of the committee. Nor were there wanting those
who argued that the change of times and circumstances
had altered the conditions of a paper issue so far as to
make that safe and beneficial under the republic which,
under the Regent, had spread misery and disaster over
France. "Paper money," argued Martineau, before the
Assembly, " paper money under a despotism is danger-
ous. It favors corruption: but, in a nation constitu-
tionally governed, which itself takes care of its own
notes, which determines their number and their use,
that danger no longer exists."
"It was constantly urged, and with a great show of
force," says President White, "that, if any nation could
safely issue paper money, France was now that nation
that she was fully warned by a severe experience
that she was now a constitutional government, con-
trolled by an enlightened, patriotic people; not, as in
the days of the former issue of paper money, an abso-
lute monarchy controlled by politicians and advent-
urers ; that she was able to secure every franc of her
paper money by a virtual mortgage of a landed domain
of vastly greater value than the entire issue that, with ;
men like Bailly, Mirabeau, and Necker at her head, she

could not commit the financial mistakes and crimes
from which France had suffered when at the head stood
John Law, and the Regent, and Cardinal Dubois."^
Surely there is something of a family resemblance be-
tween these arguments and the pleas we have heard in
the United States during the last sixteen years. Pain-
'
Paper Money Inflation in Prance.
29
338 MONEY.
fully instructive it is to note how feeble a subterfuge

suffices to break the force of political experience, undei
the temptations of immediate interest or the stress of
rising passion.
But, while the issue of paper based on the public do-

main was urged as a measure of resource, and with
much apology for the confessed violation of eco-
artful
nomical principles, the leaders of the Assembly were
secretly actuated by a political purpose, viz., by widely
distributing the titles to the confiscated lands (for such
the paper money in effect was) to commit the thrifty
middle class of France to the principles and measures

of the revolution.^ In a recent review of President
White's pamphlet, just quoted, Mr. Dillaye has sought
to show that
was the political vice of the situation,
it
the revolutionary and sacrilegious origin of the title to

the domain pledged for the payment of the paper, and
not any economical vice in the paper itself, as a form of
money, which was mainly concerned in the subsequent
depreciation and discredit of the assignats.
Oratory, the force of fiscal necessities, the half-con-
fessed political design, prevailed at last over the warn-
ings of experience ; and a decree passed the Assembly
authorizing an issue of notes to the value of four hun-
dred million francs, on the security of the public lands.
To emphasize this security the title of assignats
was ap-
plied to the paper. This issue also bore interest and
' This reason was be Idly avowed by Mirabeau: "Partout oii se
plaoera un assignat^monnaie, IS s<irement reposera avec lui un voeu

secret pour le credit des assignats, un dSsir de leur solidity ; . . .
partout oQ. se trouvera un porteur d' assignats, vous compterez un

defenseur nScessaire de vos mesures, un crSancier interessS Si vog
succes."
;
THE FRENCH AS8IGNATS. 339
ptirported to be payable at sight, though none in fact

"were ever paid.^
Mirabeau, who had declared paper money to be tho
nursery of tyranny, corruption' and delusion, a veritable
orgy of authority in delirium, now threw himself with
all the force of his passionate nature into the contest on
the side of the assignats. It is in vain, he declared, to
assimilate assignats, secured on the solid basis of these
domains, to an ordinary paper money having forced cir-
culation. They represent real property, the most secure
of all possessions, the soil on which we tread.^
The issuewas made the assignats went into circula-
;
tion ; and soon came the inevitable demand for more.

Now appeared, as subsequently in the case of the Unit-
ed States legal tenders in 1862, that the real battle had
been made over the first emission. Talleyrand, indeed,
who had advocated the former, opposed the later issue,
and with his accustomed sagacity struck the vital point
of the controversy : You can, he said, arrange it so
that the people shall be forced to take a thousand francs
in paper for a thousand francs in specie ; but you never
can arrange it so that the people shall be obliged to
give a thousand francs in specie for a thousand francs
in paper. imbedded the entire question,
In that fact is
and on account of that fact the whole system fails.^

But Talleyrand was to learn that the genius he had
aided to invoke was not to be conjured by either
phrases or ideas. Necker, too, still prophesied of evil
but the Assembly had risen with the first

spirit of the
emission, which no manifest evils had followed, and for
a time the ghost of John Law was laid.
'
J. G-arnier, TraitS de Finances, p. 409.
' White, Paper Money Inflation in France.
' White, p. 21.
340 MONEY.
Tlie advocates of the assignats took a bold and ag-

gressive tone. Mirabeau declared that the precious
metals were at the best employed only in the secondary
arts. The paper money proposed was to represent the
first and most real property, the sole source of produc-
tion, the land itself. " Paper money, we are told, will
become superabundant. Of what paper do you speak?

If of a paper without a solid basis, undoubtedly ; if of
one based on the firm foundation of landed property,

never. . . . There cannot be a greater error than
the fear, so generally prevalent, as to the overissue of
assignats. It is thus alone you will clear off your debts,
pay your troops, advance the revolution. He-absorbed
progressively in the purchase of the national domains, this
paper money can never become redundant, any more than
the humidity of the atmosphere can become excessive,
which descends in rills, finds the river, and is at length
lost in the mighty ocean."
The decree for a further issue of eight hundred mil-
lions passed, September, 1790. Though the opponents
of the issue had lost heart and voice, they still polled
423 votes against 508. To conciliate a minority still so
large, contraction was provided for by requiring that
the paper when paid into the Treasury should be burn-
ed, and the decree contained a solemn declaration that
in no case should the amount exceed twelve hundred
millions. June 19, 1791, the Assembly, against feeble
resistance, violated this pledge and authorized a further
issue of six hundred millions.
Under the operation Gresham's Law,' specie now
of
began to disappear from circulation. In vain were those
who hoarded coin denounced as enemies of liberty. The
'
See p. 193.
TEE FRENCH ASSIGNAUS. 341
revolutionary government could confiscate estates, but,

as we have seen, was powerless to maintain their former
value. It could issue assignats, and make them legal
tender; but, as Talleyrand had warned the Assembly
while it could force a man to receive a thousand francs
in paper for a thousand francs which he had lent in
specie, it could not oblige him to give a thousand francs
of specie still in his possession for a thousand francs, or
ten thousand francs, in paper, unless it was for his in-
terest to do so.
But the statesmen and journalists of Prance would not
even acknowledge that it was the prompting of self-in-
terest which detained the specie from circulation and
made flow out of the kingdom.
it It was the work of
the enemies of France, of English and Bourbon emis-

saries, seeking the overthrow of liberty, which produced
the increasing discredit of the paper money and the
growing scarcity of gold and silver.
And now came the collapse of French industry.
" "What the bigotry of Louis XIY and the shiftlessness
of Louis XV coiild not do in nearly a century, was ac-

complished by this tampering with the currency in a few
months. Everything that tariffs and custom-houses
could do was done. Still the great manufactories of
Normandy were closed those of the rest of the kingdom
;
speedily followed, and vast numbers of workmen, in all

parts of the country, were thrown out of employment.
In the spring of 1791 no one knew whether a
piece of paper money, representing 100 francs, would, a
month later, have a purchasing power of 100 francs, or
90 francs, or 80, or The result was that capitalists
60.
declined to embark their means in busiuess. Enterprise

received a mortal blow. Demand for labor was still
further diminished. The business of France dwindled
342 MONEY.
into a mere living from hand to moutL.. Tliis state of
thiags, too, wliile bore heavily against the interests of

it
the moneyed classes, was still more ruinous to those in

more moderate, and most of aU to those in straitened,
circumstances. "With the masses of the people the pur- .
chase of every article of supply became a speculation, a

speculation in which the professional speculator had an
immense advantage over the buyer. Says the most
brilliant of apologists for French Revolutionary states-
manship, Commerce was dead, betting took its place.' "
'
^
Soon we observe the spectacle, familiar in the colo-

nial assemblies of America, of the debtor class invad-
ing the legislature with their impudent demand for fresh
issues, the further to scale down debts. A new issue was
made of three hundred millions. To appease the op-
position of the minority, to quiet the apprehensions of
the people and to put a stop to the depreciation, it was
declared that the actual circulation should never be al-
lowed to exceed sixteen hundred millions. " What this

promise was worth," says President White, "may be
judged from the fact that, not only had the declaration
made hardly a year amount in cir-
before, limiting the
culation to twelve hundred been violated but
millions, ;
the declaration made hardly a month before, in which

the Assembly had as solemnly limited the amount in
circulation to fourteen hundred millians, had also been
repudiated." In a word the pledge of the Assembly had
become worth just as much as a drunkard's promises,
and no more. In February, 1792, assignats had been
more than 30 per cent, below par. During the spring
and summer came two more issues of three hundred mil-
lions each. In December an official statement was put
forth that thirty-four hundred millions had been issued,
'
White, pp. 30-4.
THE FRENCH ASSIGNATS. 343
of wMch six hundred had been burned, leaving twenty-

eight hundred millions in circulation.
And here appeared a fresh basis for issues. The pa-
per money had been put forth on the security of tha
confiscated estates of the Church. The seizure of
the lands of the emigrant nobles, as the enemies of
France, offered a larger ground for these issues, which
Mirabeau had assured the nation could never become
excessive. Still, as the assignats poured from the treas-
ury in increasing volume, the cry of the scarcity of the
circulating medium grew louder. Soon that cry gave
way to another, not unfamiliar in the same connection.
"Bread or Blood" riots took place in the streets; stores
and shops were plundered by famished wretches the ;
government was driven by sheer stress of violence to

feed the capital.^ The government service itself was
scarcely to be maintained, for the wholesale resignations
of officials, driven out by the depreciation of the money
in which their salaries were paid.
In logical order came the next resort of baffled power.
Maximum laws were enacted, as has been related of
the American Eevolutionary government, with only the
effect still further to diminish supplies of food and fuel,
as producers withheld the goods for which they were
forbidden to take a price which would enable them to
replace their stock. The inhabitants of the cities of
France were put on an alloTvance of food, like sailors
drifting at sea in open boats. Still the depreciation of
this money, based unshakably on "the only real prop-

erty; the sole source of production, the soil on which
we tread," went on. Against the Premium on Silver,
the revolutionary government which had struck down
' " To supply five armies and a vast Capital, with the mere powei
of issuing assignats."— [Thiers, The Consulate and the Empire.]

—
344 MONEY.
Church and State, which had confiscated one-third and

more of the real property of France, and was strong
enough to send every morning tumbril-loads of freshly
—
convicted Frenchmen peasants, priests, and nobles
to the guillotine, directed its utmost force. By law ol
April 11, 1793, the purchase of specie was forbidden un-

der penalty of six years in irons. In August, a law
prohibited the sale of assignats below their nominal
value, on penalty of twenty years in chains. Soon came
another law, punishing with death investments of capi-
tal in foreign countries.
Towards the end of 1794 there had been issued 7,000

millions in assignats; by May, 1795, 10,000 millions;
by the end of July, 16,000 millions by the beginning
; of
1796, 45,000 millions, of which 36,000 millions were in
actual circulation.^
' White, pp. 53-4.

" Sans compter le papier-monnaie que les insurg^s de la Vendee, et
de la Bretagne mirent en circulation." — [Q-arnier.]
Mr. Dillaye, in a recent pamphlet, has attacked this statement,

which is found in a hundred works of reputation. His sole authority
appears to be Louis Blanc. I do not profess to have investigated

the subject; but nothing which Mr. DiUaye adduces strikes me as
suflScient to throw doubt on the accepted figures of the issues for

1795-6.
M. Joseph G-arnier, in his " Traits de Finances " [p. 408], gives the
following itemized statement from a work of M. Ramel, former
Minister of Finance : The numbers represent milhons of francs.
Assignats crês par I'assemblee constituante (lois des 21 Ddc, 1789
17 Avril, 1790, 19 Juin, 1790), - . 1,800
Assignats cre& par I'assemblee legislative, - - . goo
" " directement par la Convention, - . 7 278
" " par les Comites autoris^s, )
" " '

^^'^°^
par le Directoire, ] '
45,581
M. Bresson gives a total differing by jnly two or three millions.
^ :
TEE FRENCH ASSIONATS. 345

M. Bresson gives the following table of depreciation:'
24 livres in coin were worth in assignats
April 1, 1795^ 238 October 1, 1795, 1,205
May 299 Nov. " " 2,588
June 439 Dec. " " 3,575
July 808 January 1, 1796, 4,658
Aug 807 Feb. " " 5,337
Sept 1,101
At the last, "an assignat professing to be worth 100
francs was commonly exchanged for 5 sous 6 deniers
in other words, a paper note professing to be worth £4
sterling passed current for less than 3(i. in money."
The downward course of the assignats had unques-
tionably been accelerated by the extensive counterfeit-
ing of the paper in Belgium, Switzerland, and England.
There is reason to believe that the government of the
latter country directly encouraged this discreditable en-
terprise, as it had done the counterfeiting of the Conti-
nental money during the American Kevolution. So
completely had the country, to all appearances, been
drained of its specie, that, when General Bonaparte set
out, early in 1796, to take command in Italy, he carried
with him in his carriage the "military chest" of his
army, containing 2,000 gold louis, which were all the
authorities could place at his disposal to carry on war
in a foreign land. M. Bresson says there is still extant
an order-of-the-day, signed by B(»rthier, announcing
that each general officer would receive four louis to fit
him out for the campaign.

Now appears that last resort of finance under a de-
preciating paper an issue under new names and new
:
'
Hist. Financi&e de la France, ii, 225.
' Twiss, Progress of Political Economy, p. 203.
29*
346
•
MONEY.
devices. We have seen this in the history of Connecti

cut, giving rise to the distinction of "new-tenor" and
"old-tenor"; and we have seen that much importance
was attached in Rhode Island to the consideration that
the new paper should be issued on plates virgin of pre-
vious impressions. In Massachusetts, by 1747, this
financial expedient had been so often resorted to, that
the paper money of the colony had to be distinguished
as old-tenor, middle-tenor, and new-tenor, the latter
being further divided as new-tenor-first and new-tenor-
second.^
In the desperate extremity to which the revolutionary
government was reduced in 1796, it had resort to a sim-
ilar expedient. Territorial Mandates were ordered to
be issued for assignats at 30 : 1, the mandates to be di-
rectly exchangeable for land, at the will of the holder, on
demand. Eight hundred millions were to be used in
canceling the assignats the remainder to be applied to
;
the exigencies of the government. For a brief time

after the first limited emission, themandates rose as
high as 80 per cent, of their nominal valiie but soon ;
additional issues sent them down even more rapidly

than the assignats had fallen.^ Soon they were worth
but Touo part of their nominal value. As one mandate
was worth 30 assignats, remarks Mr. McLeod, the lat-
ter might be reckoned at 30000 .
This course was run and finished' before the 1st July,
1796, at which date the whole system was demolished.
'
Sumner, p. 31.
" " FrappS de mort des sa naissanoe." — [Bresson.]
' Bresson 222-3] states that a third kind of paper called Re-
[ii,
BcHptions metoMiques, was created by the Directory but that the ;
career of this paper was so brief that there was not even time to en-
grave the plates for it.
ENGLISH BANK RESTRICTION. 347
A. new decree authorized every man to transact business

in the money and on the terms he chose. Mandates
were only to be taken at their market value, which was
published every day from the Treasury.
"No sooner," says Mr. McLeod,' "was this great blow
struck at the paper currency, of making it pass at its
current value, than specie immediately re-appeared in
circulation.^ Immense hoards came
forth from their
hiding places goods and commodities of all sorts being
;
very cheap, from the anxiety of their owners to possess

money, caused immense sums to be imported from for-
eign countries. The exchanges immediately turned in
favor of France, and in a short time a metallic currency
was permanently restored. And during all the terrific
wars of Napoleon the metallic standard ivas always main-
tained at/idl value"
ENGLAND UNDER THE EESTEICTION.
The sentence quoted from Mr. McLeod, con-

last
nects the experience of France, in the matter of Incon-
vertiblePaper Money, with that of England.
In 1793 the two countries became at war. Besides
the coin of the realm, which was variously estimated
from 22.5 millions [Tooke] upwards, the money of Great
Britain, excluding Ireland, consisted of notes issued
by the Bank of England, by the country banks some —
—
hundreds in number not, as they largely are now,
joint-stock banks, but often small traders, and by the
Scotch banks, few and strong.
" Eoonomioal Philosophy, ii, 353.

°
M. Thiers states that considerable a nounts of specie had ap-
peared in circulation, especially Spanish piastres in the southern
provinces, even during the currency of the mandates.
:
348 MONEY.
The Lords' Committee of 1819 estimated tlie circula-

tiou of the kingdom as folloivs
Coin, - £25,000,000
Bank of England, - - - - 10,500,000
Country Notes and Scottish, - - 7,000,000
Total, £42,500,000
The war continued for three years without the sus-
pension of specie payments, or, apparently, any serious
apprehensions of such a result. At least, suspension
was not regarded as a necessary concomitant of a state
of war. In 1796, however, the government borrowed
heavily of the Bank of England^ for war expenses and, ;
to the great dissatisfaction of the directors, postponed

or refused the promised repayments. The Bank, re-
duced to extremity, began to contract its circulation.
At this juncture came a rumor of French invasion, and
the news of an actual, though, as it turned out, acci-
dental appearance of the enemy off the coast. A run on
the country banks ensued, which caused them to make
heavy demands on the Bank of England. So far, the
narrative belongs to the history of Convertible Paper
Money.
By the 27th of February the specie reserve of the
Bank was reduced to £1,000,000, when an Order in
Council forbade the Bank to pay further in specie till
the will of Parliament should be made known. In May

=
Parliament passed an act restraining the Bank from
specie payments,'' the Bank being placed in the attitude
' " It was owing to the too intimate connection between the Bank
and Government that the restriction became necessary; it is to that
cause, too, that we owe its ooEtii uaice." — [Ricardo, High Price of
BuUion.]
' The bank could only issue cash for sums under 20 shillings But
if any person lodged specie in the bank, ho might be repaid to the
extent of three-quarters the sum lodged, if it exceeded £500
ENGLISH BANK RESTRICTION. 349
of desiring to pay specie but not being permitted and ;
this so-called Restriction was continued from time to

time by various acts, the Bank in the earlier portions of
the period professing its readiness to resume specie pay-
ments, should the public interest allow.
Two questions arise respecting the suspension. Was
it inevitable, when and as it occurred? Would it event-
ually have become so, had it been for a time averted?
Upon the first point we have the high authority of
Mr. Tooke and Mr. Kicardo, in giving a negative answer.
Mr. Tooke says "I do not think that the suspension
:
of cash payments was, at that time, of absolute neces-

sity. I have never entertained the least question but
that, if the Bank had contiuued to pay and to suppress
its notes as it issued treasure, the crisis would have
been got over."
Mr. Eicardo "If the Bank had continued paying in
:
cash, probably the panic would have subsided before

the coin had been exhausted."
On the second question the weight of opinion, outside
the professed economists, inclines perhaps to the ulti-
mate necessity of suspending cash payments during a
severe and protracted war.This way of looking at the
subject has probably been strongly confirmed ia the
mind of the present generation by the easy collapse of
the United States in 1862 and of France in 1870.

Sir Archibald Alison has left the strongest assertions
of the necessity of the act of 1797. "No one can doubt
that it was in the great extension of the currency, which
took place from 1797 to 1810, that the resources were
mainly found which provided both for the long-con-
tinued efforts with which the war was attended, and the
gigantic expenditure of its later years.— [History of Eu-
rope.]
30
350 MONET.
"Vain," he remarks elsewhere, "would have been

the numerous advantages, physical and political, which
Great Britain enjoyed during the contest, if a fortunate
combination of circumstances, joined to uncommon wis-
dom on the part of its government, had not established
a systejn of currency in the heart of the empire adequate
to the wants of its immense dependencies, capable of
expansion at will, according to the necessities of the
times, and not liable to be drawn off at particular peri-
ods by the balances of trade or the military necessities

of foreign states. The vast and imperious de-
. . .
mand for the precious metals, and especially gold, for
the use and maintenance of the immense armies con-

tending on the Continent, of necessity drained away
nearly the whole of the precious metals from the coun-
try at the very time when they were most required for
the support of domestic credit, or the cost of warlike
establishments. When such a drain for specie set in
from foreign parts, certain ruin must have ensued if the
empire had possessed no resources within itself to sup-
ply the place of the precious metals which were taken
away."
On the other hand, Prof. Sumner has said respecting
the alleged necessity for suspension: "Political Econ-
omy emphatically declares that it never can be neces-
sary." — [Hist. Am. Currency,and Prof. New-
p. 202] ;
comb, in his "Financial History of the United States,"

1861-5, has made a very strong and suggestive argu-
ment on the same side.' Nor can we put out of sight
' '•
The military power of a nation is measured by the amount of
industry which it can divert into the channels of war." . , .
That amDunt "is not increased by the possession of any sort of

money." ["The latter only facilitates the diversion by making it
easier to measure eaoh man's share of the public burden."] . . .
THE ENGLISH RESTRICTION.
351
the fact thatall the wars of Napoleon were
conducted,
on his without the use of paper money. Perhaps
side,
we may fairly say that the question is one of Pinance
rather than of pure Political Economy; that
is, a ques-
tion in which the statesman must take counsel of the
economist, but always with respect to distinctly political
considerations.
But though England thus entered upon a career of
inconvertible paper, the prudence and firmness of the
Bank management during the first eleven or twelve
years prevented any considerable increase of issues over
the amount of metalKc money which would have circulat-
ed in the kingdom. It was indeed alleged and commonly
believed between 1797 and 1808, that the notes of the
Bank were largely in excess. The disturbance of com-
mercial relations and the effects of war taxation had
produced such fluctuations in markets, and had carried
the prices of certain articles to such an extravagant
height, as almost necessarily to create the belief referred
to. But most memorable economico-statistical
in the
Thomas Tooke show-
investigation ever undertaken, Mr.
ed the opinion to be erroneous. His grand result was,
that, during the first twelve years of the suspension, the
exchanges were as favorable as they had been on an
average of ninety-six years, or of any ten consecutive
years preceding 1797.
In 1809, however, appeared a wide divergence be-
tween the mint price of gold^ and its market price in
" It depends upon and is measured by what the nation is able to pro-
duce over and above what is necessary for its subsistence." . . .
" Gold is a sinew of war in no higher sense than quicksilver or
platinum, or anything else for which we can obtain munitions of war.''

'
The attempt of Parliament to restrain by law the melting and
exportation of gold and silver coins, led to an absurd complication,
352 MONET.
Bank of England notes. The mint price of an ounce of

standard gold being £3 17s. IQ^d, the market price had
risen in 1811 to £4 4s. &d., in 1812 to M 15s. 6d., in 1813
to £5 Is., and in 1814 tt £5 4s.
The perturbations of exchange and of prices in the

first years of the century had aroused the attention of
thoughtful publicists in England. In 1800 Mr. Boyd
addressed a letter to Mr. Pitt, ascribing the whole of
the fall in the exchanges and the rise in the price of
provisions to excessive issues of the Bank of England.
This drew forth a reply from Sir Francis Baring. In
1802 Mr. Henry Thornton published his treatise on
"Paper Credit," from which extracts have already been
made. In 1803 Lord King published his "Thoughts on
the Bank of England Restriction," a work of which Prof.
Senior wrote in 1846 :
" It contains so full and, in the
main, so true an exposition of the theory of paper mon-
ey, that, after more than forty years of discussion, there
is little to add to it or to correct." The doctrine known
as "Lord King's doctrine" is thus stated by Mr. McLeod
[Economical Philosophy, ii, 303] :
"The paper price of bullion above the

rise of the
mint and a continuous state of the foreign ex-
price,
changes below the limits of the real exchange, are the
proof and the measure of the depreciation of an incon-
vertible paper currency."
In 1809, the divergence between the mint and the
whicli is thus stated by Mr. Huskisson in his pamphlet on the " De-
preciation of the Currency ' :
" The state of the law therefore, is this : The possessor of a heavy
guinea, which i? intrinsically worth about 24s. 6d in bank paper,
who should exchange it for more than 21s. of that paper, would be
liable to fine and imprisonment. The more fortunate possessor of a

light guinea is e::titled by law to exchange it for what it will fetch,
which would be about 24s. 3d"

THE ENGLISH RESTRICTION. 355
market price of bullion rapidly increasing, Mr. David

Ricardo published his memorable pamphlet on the
"High Price of Bullion." The doctrines of this pam-
phlet being attacked by Mr. Charles Bosanquet, Mr. Ri-
cardo published a reply, which remains the masterpiece
of this great economist.
In 1810 the subject was brought to the attention of
Parliament, and a committee known as the Bullion
Committee was appointed. Mr. Horner was chairman
and Messrs. Huskisson and Thornton were among the
members. The report was rendered in June, 1810. The
doctrines of the report were nearly those of Mr. Ricardo.'
'
Mr. Joplin, in his " Analysis and History of the Currency Ques-
tion,'' asserts that Mr. Rioardo felt himself ill-treated, in that credit
for his ideas was not given him by the Committee. Mr. Joplin goes
so far as to invent the term Hornerizing as expressive of the borrow-
ing of ideas without permission and without acknowledgment. Mr.
Eioardo may have had the feeling attributed to him ; but the charge
of seeking to build up reputation out of other men's brains is not
one which can justly be brought against Francis Horner.' In his
letter to J. A. Murray, Mr. Horner makes the following frank ad-

missions :
"I can let you into the secret, however, that the Report is in truth
very clumsily and prolixly drawn, stating nothing but very old doc-
on the subject it treats of, and stating them in a more imper-
triiies
fectform than they have frequently appeared in before. It is a

motley composition by Huskisson, Thornton and myself, eac> having
written parts, which are tacked together without any care to give
them a uniform style, or a very exact connection. One great merit
the Report, however, possesses; that it declares in very plain and
pointed terms both the true doctrine, and the existence of a great
evil growing out of the neglect of that doctrine." In a subsequent
letter to Jeffrey, July 16, 1810, he seems to admit that the author-
.ship of the doctrines of the Report should be more publicly known
"I will do a short article for you, this time, to do justice to Mr. Ri-
cardo and Mr. Mushet, who called the public attention to this very
important subject at the end of last year." — [ii, 51.]

!
354 MONEY.
The report of the Bullion Committee led t<. a war of

pamphlets which is wholly without parallel ii the his-
tory of economical literature.' The doctrines of the re-
port were defended by Mr. Eicardo and Mr. Huskisson.
They were attacked by two schools of writers, who dif-
fered among themselves almost as widely as they differ-
ed from the buUionists. They were, first, the authori-
ties and friends of the Bank of England (including the
government), who denied the existence of any increase

of circulation or indeed that the issues of the Bank re-
;
quired any regulation not implied in good banking. Sec-

ond, the advocates of paper-money inflation. It is to
the thorough discussion of the money question between

1809 and 1811 that we owe one of the greatest advances
of economical science.
The practical recommendation of the Bullion Com-
mittee had been that the Bank should be required to re-
sume cash payments within two years. This provision
formed the last of a series of sixteen resolutions moved
by Mr. Horner, in the House of Commons, May 6, 1811.
A counter-set of three resolutions was moved by Mr.
Vansittart, the third being the memorable one, food for
unending laughter " That the promissory notes of the
:
Bank of England have hitherto been, and are at this

time held to be, equivalent to the legal coin of the
realm." This in the face of the fact that British gold
coinwas selling at a premium of nearly 20 per cent, in
Bank of England notes
The buUionists were beaten, and the House adopted,
151 to 75, Mr. Vansittart's resolutions, even to the If et.
Against the resolution of Mr. Horner for speedy re-

sumption, the government triumphed 180 to 45.
' The fullest collection of Bullion pamphlets in this country, so fai
as I am aware, is in the valuable Watkiiison library of Hartford.

THE ENGLISH RESTRICTION. 355
During ttis year Lord King issued a circular to his

tenants, demanding payment of his rents in specie or its
equivalent. For this act Lord King was vehemently
denounced as unpatriotic, and an act was passed by
Parliament, known as Lord Stanhope's Act, making it
an offense to buy or sell guineas at more than their de-
nominative value in the notes of the Bank of England.
Lord King's object in making this demand upon his ten-
ants was to bring about a gold price and a paper price for
ren'is and commodities within the kingdom, as a means
of strongly attracting public attention to the fact of de-

preciation, and securing a general interest in the resump-
tion of specie payments.^
But though the buUionists were beaten in the imme-

diate parliamentary struggle, the principles of the Re-
port won their way to the general conviction of the
public mind of England, and the actual resumption, ten
years later, was accomplished under their leadership.
The war closed in 1815. The average paper price of
gold which had stood at X5 4s. per ounce in 1814,
sank to £4 13s. &d., where it remained through 1816.^
'
In view of the abuse heaped upon Lord King, it is interesting to
find the philosopher Locke, who took so prominent a part in the re-
form of the coinage in 1696 [see p. 213], writing to his friend Clarke,
in May, 169£ :
" I shall, I think, in the beginning of July have some
•money paid me in, and perhaps some sooner. Pray tell me whether
I cannot refuse clipped money for I take it
; not to be the lawful
coin of England, and I know not why I should receive half the value
lent, instead of the whole."— [Fox Bourne's Life of Locke,

ii, 325.]
I
'
This was the year, it will be remembered, in which, under Lord
Liverpool's leadership, England adopted the single gold standard,
remitting silver to the office of subsidiary coin. —[See p. 225.]

356 MONEY.
In 1817 the premium encountered a further fall, until

for the time there occurred what Mr. Tooke called "a
spontaneous re-adjustment of the value between gold
—
and paper to a perfect equality." [Hist. Prices, ii, 60.]
At this point the directors of the Bank undertook
voluntarily the redemption of their one and two-pound
notes, dated prior to January 1, 1816. Under this offer
as Mr. Francis states,' scarcely any demand was made or
the Bank coffers, the amount of cash paid out for the re-
demption of these notes, held principally by the poorer
classes, not exceeding £1,000,000. In October of the
same year bhe directors, encouraged by the results of
this partial experiment, announced that they would pay
gold for their notes of all denominations issued prior tc
January 1, 1817. From this position the Bank was
obliged to recede. A demand for gold set in which re-
sulted in draining away over X5, 000,000, and, on the
report of Mr. Peel, the House, in two nights, passed a
bill restraining further payment.
Thus, though the vessel had drifted in to land, and
had fairly touched the shore, it was borne away by a
counter-current and carried out again to sea.
What was the cause of the advance of the gold pre-
mium, resumption of 1817 ?
after the partial
Mr. Francis, adopting the Bank view, says the bull-
ion operators stepped in as soon as payment of large
notes was offered and took off the gold. But what
made it for the interest of the dealers in bullion tc take
gold away? The exchanges were unfavorable. But
why, persist the bullionists, were the exchanges unfa-
vorable ?
Prof Sumner thus summarizes the bullionist argu-
History of the Bank of England, i, 316.

TEE ENGLISH RESTRICTION. 357
ments : "The balance of imports and exports never can

move tlie exchanges either above or below par more
than just enough to start a movement of bullion. On a
specie system, any outflow of bullion would bring down
prices and immediately make a remittance of goods
more profitable than one of bullion, and if the exporta-
tion of bullionwas artificially continued (as for instance
to pay the expenses of a foreign war), it would reduce
prices until a counter-current would set in and restore
the former relative distribution all the world over. If
all nations used specie, or even paper and specie in
only due proportion, would be as impossible for
it
one nation to be drained New York har-

of specie, as for
bor to be drained of water by the tide, and on the same
supposition, it would be as absurd for the Secretary of
the Treasury or a committee of Congress to regulate the
currency, as for the same powers to see to it that New
York harbor gets its fair share of water, on every tide.
. If, therefore, there is an outflow of gold,
serious and long continued, accompanied by an un-
favorable exchange, it is a sign that there is an inferior
currency behind the gold which is displacing it.
" The surplus of imports of goods above the exports

of goods is nothing but the return payment for this ex-
port of gold, and is not a cause, but a consequence. If,
finally, we want to turn this tide and produce an influx,

there is only one way to do it,and that is simply to re-
move the inferior currency. As for waiting for the bal-
ance of trade to turn and bring gold into a country
which has a depreciated paper currency, one might as
well take his stand at the foot of a hill and wait for it
to change into a declivity before climbing it." — [Hist.
Am. Currency, pp. 264^5.]
This is the familiar doctrine of Eicaido. I have said
30*
—
358 MONEY.
tliat the general truth of the doctrine cannot be ques-

tioned, though some qualification of its severity may at
times require to be made in application to particular
cases.-"^
Consistently with the above views, the buUionists

should allege that the re-appearance of the premium in
1818 was due to an increased issue of bank-notes, and
so indeed they do.'' Mr. Toote, however, declares that
the restoration of the value of the bank-note during the
first six months of 1817 had coincided with an enlarge-,
ment of the Bank issues, as compared with any previous
period: he attributes the disturbance at the close of
1817 and throughout 1818 to the large loans negotiated
in England for the French and Russian governments.
[Hist, of Prices, ii, 52 ; 60-l.J
However came about, the year 1818 brought a se-
it
vere commercial crisis and numerous failures occurred,

compelling the attention of Parliament to the subject
of the Restriction. Each House appointed a committee
which conducted a separate investigation. Against
strong opposition from "the City," where the effects of
an effort towards resumption were greatly dreaded, and
in spite of the remonstrances of the Bank, the House of
Commons committee reported a bill based on the doc-
trines of the Bullion Report of 1810.
"This memorable bill," says Mr. Francis, "provides
that, from the first of February to the first of October,
the Bank shaU deliver on demand gold of standard fine-
' How, for example, would Prof. Sumner explain the recent influx
of gold into the United States, which has " a depreciated paper cur-
rency " ?
^ "Adhering to the doctrine that the issues could not affect the
exchanges, it [the Bank] continued to expand the circulation while

paying out gold." — [Sumner, Hist. Am. Currency, p. 285.]
TEE ENGLISH RESTRICTION. 359
ness, not less than 60 oz., in exchange for bank-notes at
£A Is. per oz. From the first of October, 1820, to the first
of October, 1821, the same plan to be adopted ; but the
gold to be at the rate of .£3 19s. 6d per oz. Prom the
first May, 1821, to the first of May, 1823, the mint
of
ptice of gold of £3 17s. lOld. per oz. to be the rate,
with the adoption of the same plan and from the first ;
of May, 1823, the notes to be paid in the gold coin of

the empire if required. . . . They were permitted
also the option of paying in specie on or after the first
of May, By
the same Act the laws which re-
1822.
strained the exportation of gold and silver coin, or pro-
hibited it from being melted, were repealed." — [Hist, of
the Bank of England, i, 325.]
The debate on the bill brought out two questions, be-
sides the more general one of the expediency of attempt-
ing to secure resumption by legislation, instead of wait-
ing for "a spontaneous re-adjustment," like that of 1817,
which might become permanent, or, as the American
phrase is, "growing up to the currency."
The first question was, shall the ancient standard be
restored? This is the same question which we saw
arising at the recoinages of 1696 and 1774. For twenty
years specie payments had been suspended during the :
latter portion of this term prices had been greatly

raised by excessive issues. The government had con-
tracted debts amounting to many hundred millions of
pounds, representing loans for war purposes, made in
money whose purchasing power was reduced by the
causes indicated. Private indebtedness, commercial
and industrial, to an enormous amount had also been
incurred. Should the money of the realm now be re-
stored to its fuU value, and creditors thus be enabled
to exact in coia the full nominal amount of loans made
360 MONET.
in, or of sales at prices predicated upon, the depreciat-

ed money ? ^
The other question followed naturally upon the first
What was the degree of depreciation of the Bank of
England note?
Mr. Eicardo and the buUionists were bound to hold
that the depreciation was measured ^ by the premium
on gold, which at this time had sunk to 3 per cent.;
and these figures became a sort of catch-word in the
debates on the Act of 1819, and in the fierce discussions
over the wisdom and justice of that Act which extended
through the fifteen years next succeeding. The ques-
tion whether, in a country having an Inconvertible Pa-
per Money, the premium on gold measures the depreci-
ation, may be deferred to the next chapter. It is enough
here that this was the theory of the upholders of the

Resumption Act of 1819, and it was probably through
their confident assertions that the depreciation of the
Bank of England notes was very slight that they were
' " One of the most fatal effects of that suspension is the great and
unavoidable distress which attends a return to a specie currency,
particularly when the suspension has been of long continuance. While
this lasts, the loss falls on the creditors ; but new contracts are daily
made, founded on the existing state of the currency ; and should the
suspension continue twenty years, as was the case in England, as
almost all the contracts in force and not yet executed, at the time
when specie payments are resumed, must have been made when the
currency was depreciated, the obligation to discharge them in specie
is contrary to equity, falls on the debtors, who are always the part
of the community less able to bear the burden, and proves more
cilamitous than the suspension had been." — [A. Gallatin, Considera-
tions, etc., pp. 37-8.]

" " The effect produced by the depreciation has been most ac-
curately defined, and amounts to the difference between the market

and the mint price of geld." — [Eicardo, Reply to Bosanquet]
THE ENGLISH RESTRIOflON. 361
able to carry that measure, which they accomplished

under the championship of Mr., afterwards Sir, Eobert
Peel, who had opposed Mr. Horner's resolutions, and
who frankly admitted that he went into Committee with
a very different opinion from that he at present enter-
tained. The debate, in breadth and force of argiiment,
fellmuch below that of 1811.
After the passage of Peel's Act, whether in conse-
quence of it or not, the premium on gold fell even fast-
er than was necessary meet the successive require-
to
ments of the law. In February, 1819, gold had been
worth ,£4 Is. M. In February, 1820, it sold at X3 19s.
Wd. In February, 1821, it was worth only the mint
price £3 17s. lO^c^., and on May 1, 1821, in advance of
the date fixed, the Bank, on its own instance, under per-
mission of Parliament, resumed cash payment. Thus
closed what Lord Overstone has called " the dark age of
Currency."
The effects of Peel's Act have been the subject of ve-

hement controversy. To this law, primarily, was at-
tributed by one party the long succession of commer-
cial disasters, producing deep and settled industrial
distress, which followed the peace. The reduction in
the world's supply of the precious metals through this
period, due to the Spanish- American revolutions, was
not so fully apprehended by the popular mind but the ;
restriction upon the issues of the Bank of England, and

th 3 obligation to pay in gold debts contracted under
Inconvertible Paper Money, were of a nature to compel
the attention of the least thoughtful. It is not at all
surprising that the commercial and industrial misfort-
unes of the succeeding period were laid at the door of
the Act of 1819.
362 MONET.
Whatever may have been the logical effect of Mr. Ki-

cardo's declaration/ that the depreciation of the Bank
of England notes was but three per cent., the public
mind had followed it out to a conclusion that the
effect of resumption on prices would be slight. When,
therefore, the most extensive disturbances in trade
followed resumption, and the prices of the most im-
portant articles fell through many degrees, bringing
to distress, if not to ruin, large manufacturing and ag-
ricultural interests, it was natural enough that the dis-
tress should be charged to the Act of 1819. The the-

ory of that Act, it was alleged, had been wrong. Mr.
Kicardo had been egregiously mistaken^ in saying that
the depreciation was but three per cent. The depreci-
ation had been 30, 40, or even 50 per cent. ; and the en-
forced resumption had aggravated to this extent the
burden of all fixed charges, private and public, includ-
ing the enormous debt with which England had issued
from the twenty-two years' struggle. Of all who took
a part in the controversy over the wisdom and justice
of the Act of 1819, its ablest and boldest assailant was
' "If," says Mr. Tooke [History of Prices, ii, 117], "it had been
an object with the legislature, when the state of the currency was
brought before it in 1819, to maintain the prices which had been the
consequence of scarcity and speculation, no means were open to it
but to degrade the standard hy between 30 and 50 per cent, at a time

when, by the ordinary tests of the price of gold and the exchanges,
the utmost depreciation o' the paper did not exceed between 3 and
5 per cent."
^ It is a favorite assertion with writers on this side the question,
Uiat Mr. Eicardo subsequently recanted his opinions as to the extent
of the depreciation, and admitted Ms error. See Sir James Graham,
"Corn and Currency," WiUiam Ward "Commercial'
pp. 39, 40, 43;
Legislation of 1846" (quoted by Duncan on Currency, p 116)
Thomas Attwooi, " The Scotch Banker," pp. 14, 22, 24.
THE ENOLISH RESTRICTION. 363
SirJames Graliam. His tract, " Corn and Currency,"

published in 1826, contains an unmeasured denuncia-
tion of that measure.
"Whether we regard private debts or public burdens,
the effects of the measure of 1819 have been to enact,
that for every less sum owing a greater shall be paid;
prices falling, but pecuniary engagements remaining un-
diminished, the farmer has no profit, the landlord no
rent, the manufacturer no customer, the laborer no em-
ployment a revolution of property and a derangement
;
of the whole frame of society must necessarily ensue.

. . It has conferred on the fund-holder a benefit
.
to the extent of the depreciation of the money which

he advanced in many cases this is equal to 35 per cent.
;
But this rise of the fundlord is affected by ruin of the

landlord. Estates which have been held from gen-
eration to generation in the same family are rapidly
changing owners; and, as the country gentleman re-
tires, the fund-holder advances. . . . Amidst the
ruin of the farmer and the manufacturer, the distress of
and the insurrections of a populace without
landlords,
bread and without employment, one class flourished
and was triumphant: the annuitant and the tax-eater
rejoiced in the increased value of money; in the sacri-
fice of productive industry to unproductive wealth, in

the victory of the drones over the bees." Sir James
Graham appealed to the example of France and the
United States at the close of the preceding century, in
support of the justice and expediency of a reduction of
the standard to meet the facts of the circulation.
"In the example of France we find retributive jus-
tice; in the example of America, prospective wisdom:
but in vain shall we seek to discover the slightest ves-
tige of either virtue in the British enactments of 1797
—
364 MONEY.
and 1819. Here by law we depreciated the currency, '
and, by a solemn resolution of the House of Commons,'

denied the fact of depreciation. Here by law we raised
the value of money, and, instead of avowing our pur-
pose and preparing for its effects, we mystified the in-
tention and were blind to the result."
But, while the opponents of the act of 1819 indulged
in the very extravagance of vituperation, Mr. Tooke''
has undertaken to demonstrate that that measure was,
in fact, absolutely nugatory, causes, commercial and
financial, operating independently of it to bring about
resumption without reference to the law, and, as we
have seen, in advance of its requirements.
"If, then," says Mr. Tooke, "Peel's Bill was thus in-
operative and therefore innocent of
all the evils which
have been so abundantly, and with so much superflu-

ous eloquence, laid to its charge, it may be asked, what
was the merit and what was the ground of
of the bill,
the importance attached to
it by its promoters? . . .
The merit of th6 measure was, as it has since turned

out, independent of the event. That merit consisted in
the sanction which it afforded to the principle that the
Bank has the power, by the regulation of its issues, to
preserve the value of its paper on a level with that of

gold and the importance attached to it by its promoters
;
is fully justified by the consideration that, at the time
when it was under discussion, there was fair ground for

contemplating circumstances under which the compul-
sory clauses of the act would come into operation."
1
Hist, of Prices, ii, 108-9.]
It might well be thought that the history of the Bank
' Mr. Vansittart's, quoted on p. 354.

' See his letter to Lord Grenville 1829.
suspsisrsiON' m franck sof?
Rostriction more properly belongs in a later depart-

ment of our inquiry, inasmuch as the notes of the Bank
were never, in any sense, government paper, and hence
their inconvertibility from 1797 to 1821 might be Te-
garded as resulting from the degeneration of a convert-
ible paper money. But, as the government took the in-
itiative in the suspension, and as the question whether
the Bank should resume specie payments (which, for a
time, the directors professed to be not only able and
willing,but desirous, to do,) was always treated as a
question of government policy, the account of the great
English suspension has been introduced here.
OTHEK EXAMPLES.
England, presents the last example of a great commer-

cial nation, after a long period of suspension, freeing
itself from the evils of inconvertible paper, and re-adopt-
ing the money of the world. France, Russia, Austria,
Italy, and the United States, of the more important
countries of the globe, with a number of smaller states,
have, at various times, lapsed into this condition, and
stillremain under irredeemable paper money, though
in France and the United States the government has
pledged itself to an early resumption, and the premium
on gold has approached a minimum.
In France the Revolution of February caused the
government in 1848 to authorize the Bank of Franco to
suspend specie payments. So closely, however, were
the issues limited that the notes of the Bank were not
depreciated beyond 2 or .3 per cent., and this only for a
brief period. M. Wolowski states' that this forced cir-
culation lasted only about four months.
'
La Question des Banques, p. 258.
366 MONEY.
The occurrence of the war with Germany in 187C

caused a suspension by the Bank, which has lasted to
the present time but during all this period the condi-
;
tion of her circulation has constituted a triumph of

sound finance. Although irredeemable, her paper has
never been allowed, at any moment, to become greatly
in excess. The premium in gold has never gone above
1.5 per cent, and, during the greater portion of the period,
has been 6, 4, or even less, per mille. " The failure of the
French armies," wrote the late Mr. Bagehot, in Novem-
ber, 1874, " has not been more striking than the success
of French banking." This is the country which we saw
run such a mad career, under the leadership of her ora-
tors, but now, under the guidance of statesmen and econ-
omists, offers the world a model of cautious, conservative,

honorable finance.
The Eussian paper money dates back to 1768, when a
amount of 40,000,000 roubles,
sort of assignats, to the
were put in circulation, in direct payments by the gov-
ernment, on the commencement of the war with Turkey.
"The manifesto accompanying the issue of this paper,"
says Mr. Tooke,' "left it in doubt whether the payment
to bearer was to be in copper or silver ; and, according
to Storch, opinions were still divided when he wrote in
1815." "The agio" says Mr. Tooke, "in favor of silver
varied only fi-om 1 to 3 per cent, in that interval, while
there was an ayio of 1 5 per cent, in favor of paper
:
against copper."
In 1787, however, a sudden addition was made of 60,-
000,000 roubles, accompanied by a pledge that no moie

should be issued ; but a series 9f exhausting wars with
' Hist, of Prices, ii, 67. For Eussian paper money see also, i,
140-1 ; ii, 209-16.

RUSSIAN PAPER MONEY. 357
Sweden, Turkey, Poland, Persia, and France, caused a
successive increase of tlie paper till, in 1810, the amount
outstanding was computed at 577,000,000. The pre-
mium on silver 1 had risen to 400. During the progress
of the depreciation, the customs-dues were paid in paper,
the rates in silver, as fixed by law, being converted into
paper rates, according to the premium ruling at the time.
In 1839 the emperor, by a manifesto, ordained the
adoption of cash payments, by making the paper rouble
in circulation payable in silver on demand, in the pro-
portion of 3-^ : 1.
The aggressive enterprises of Eussia have since in-

volved her in i^cw financial embarrassments, and at the
outbreak of the present war gold stood at 12 to 16 per
cent, premium at St. Petersburg. Mr. Seyd^ offers the
following significant remark respecting the Eussian
paper money : "As regards the rouble notes in circula-
tion in theEussian Empire, it is stated that the impe-
rial government itself is not aware of the actual totals
issued, and has thus lost control over its liabilities in
reference to the same ; moreover, a large quantity of
successfully forged notes is in circulation, which the
authorities hesitate to suppress, fearing a further dis-
turbance of credit. be true, we may soon hear
If this
of something more serious than a mere farther depre-
ciation of Eussian paper money."
'
Mr. Tooke notes as a curious fact, that the value of Eussian paper
money increased coincidently with the invasion of the French armies
in 1812, insomuch that the exchange for the rouble, which a few
months before had been 14d, rose, by the time the French reached
M isoow, to 24d — [Hist, of Prices, i, 140.] Mr. Tooke attributes this
singular phenomenon to the fear that the export of Eussian produce
would be cut ofif by the French, leading to the disposition to buy

largely in advance, at almost any rate.
" BuUion and Foreign Exchanges, pp. 52-3.

;
368 MONEY.
Paper money has long been the curse of Austria,' but

the present epoch of inconvertible paper began in 1848
through the revolutionary movements of that year.
The existing government-issues amount to about one
hundred and fifty millions of dollars, American money,
circulating equally in both divisions of the empii-e.^
The fluctuations of the gold premium in Austria have
been very considerable, very largely depending, as it
would seem, on political events.
"Twice already," says Herr Max Wirth,' "in 1859 and
1866, efforts have been made to return to hard money
but on both occasions they were frustrated by impend-
ing wars." In the latter year the exigencies of the war
with Prussia drew the empire into a condition of al-
most hopeless insolvency. In May, 1866, there were in
circulation notes amoimting to fifty-four millions of
dollars of American money: by the end of the year
' " La papier monnaie est, depuis la fin du sieole dernier, a la suite
de la guerre de Sept Ans, I'ulc^re de rAutriohe." — [J. Garnier, Traits
de Knanoes, p. 411.]
° During the complications with Hungary in 1861, a suit was
brought in the English Court of Chancery [the Emperor of Austria
vs. Day and Kossuth] to compel the defendants to deliver up to be
canceled 23 tons weight of paper money, to the value of over 100

million florins, engraved by order of the exile Kossuth, and purport-
ing to be the notes of the Hungarian nation. The Court decided
that it could not interfere to prevent a revolution in the Austro-
Hungarian Empire, or on account of any alleged hostility to the polit-
ical rights of the plaintiff as sovereign of Hungary; but that the

inte.ided introduction of the notes into Hungary constituted a dam-
age to the property of the plaintiff as sovereign, and to the property
of his subjects, whom he had a right to represent in an English court.
The Court ordered the money to be reduced to paper pulp, and
then returned to the defendants.
' International Eeview, May-June, 1876.
UNITED STATES LEGAL TENDERS. 36S
these had been increased to $100,000,000. The highest

point was reached in May, 1873, when the issues stood
at $170,000,000.
The forced circulation of paper in Italy is of more re-
cent date ; but the issues have been rapidly increased,
and a corresponding depreciation, from 12 to 20 per
cent., has resulted. In Spain, says Mr. Seyd, "the state
of things is so uncertain that the relative value
between
paper money and metallic money can no longer be fixed
with any degree of accuracy." Turkey, besides a med-
ley of debased coin, has notes of the Imperial Ottoman
Bank, practically irredeemable, circulating at a varying
discount.
Most of the states of Central and South America sus-
tain paper money in circulation, at a discount ranging
upwards to 399 parts in 400.'
The present paper money of the United States was first
issued in 1862, in the amount of $150,000,000, as a meas-

ure of resource, the recognized alternative being the sell-
ing of government bonds below par in gold. The choice
was admittedly in the power of the government;^ but
'
The paper money of the Argentine Eepublio, at the last quotation
I have observed, was at 96 per cent, discount. The EepubHc of

ffayti recently had 300,000,000 piastres of paper money. The rate
of exchange was authoritatively fixed at 300 paper dollars for one of
coin. The Eeport of the United States Commissioners to San
Domingo, in 1871, showed that the latest issue of paper was at 10 to
20 per cent, discount. " Credit notes," so called, an earlier issue,
were received by the government at the rate, fixed by decree, of
one doUar silver for 30 dollars paper — 96f per cent, discoun'*
" Treasury notes," so called, a stiU earlier issue, were received at the
rate of one dollar silver, to 400 dollars paper —

99f per cent, discount.
°
The author of the bill declared "its great object" to be '
to pre-
vent all forcing of the government to sell its bonds in the market to
the highest bidder for coin."— [Speech of February 19.]

370 MONET.
the Committee of Wa;ys and Means, through, their choseu

spokesman, Mr. E. G. Spaulding, "objected to any and
every form of shinning by government through Wall
'
'
or State Streets, to begin with ; objected to the knock-

ing downgovernment stocks to seventy-five or sixty
of
cents on the dollar, and finished with firmly
. . . ,
refusing to assent to any scheme which should permit

a speculation by brokers, bankers, and others in the
government Such absolute silliness takes
securities." ^
the whole narrative out of the domain of serious history,

and transfers Mr. Spaulding to the comic stage. When
men speaking for the legislature of thirty millions of
people can think of preventing speculation in stocks,
declare a forced circulation of paper preferable to the
sale of six per cent, bonds below par in gold by a gov-
ernment at war for its very existence, and talk abo'ut vin-
dicating the power and dignity of the government,^ by
'
This is language used by the " New York Tribune " in its account
of Mr. Spaulding's position in the interview between the Secretary of
the Treasury, the Committee on Ways and Means of the House of
Representatives and the Bank Committees of the principal cities, in
January, 1862. As Mr. Spaulding adopts the language without

qualification in his History of the Legal-tender Act of 1862, it may
fairly be taken as expressive of his views.
" "But, sir, knowing the power of money, and the disposition there
is among men to use it for the acquisition of greater gain, I am un-

wilUng that this government, with all its immense power and re-
sources, should be left in the hands of any class of men, bankers or
money-lenders, however respectable and patriotic they may be.
The government is much stronger than any of them. Its capital is
much greater. It has control of all the hanhers' money, and all the
IroJcers' money, and all the property of the thirty millions of people
under its jurisdiction. Why, then, should it go into Wall Street,
State Street, Chestnut Street, or any other street, begging for mon-
ey ? ... I prefer to assert the power and dignity of the govern-
ment by the issue of its own notes." —[Mr. Spaulding's speech of
January 28.]
!
UNITED STATES LEGAL TENDERS. 371
the passage of a legal-tender act, wliat but financial folh

in action can be expected ?
Mr. Spaulding's language was not only not rebuked
by the Congress which, in this supreme crisis of the na-
lional destiny, was to make choice of "ways and means"
for conducting a mighty war, it was far exceeded in de-
bate, not by a furious and desperate minority driven to
the waU, but by the leaders of the House, the chairmen
of important committees, occupying positions which in
England, France, or Germany would be filled by men
profoundly versed in public right, in constitutional law,
and in finance.
Sneers and
flings at "brokers and hawkers on 'change,"
"hucksteriag capitalists," "money-shavers," "harpies,"
"jobbers and money-changers," abounded in all the de-
bates on the legal-tender bill introduced by the Commit-
tee. And so, "in the vigor of a nation not yet taxed a
single dollar for the cost of this war,"' the Congress of
the United States chose to inaugurate a period of forced
circulation, rather than sell its six per cent, bonds below
par, though at the time the ordinary rate of commercial
interest in most of the towns and cities of the land ex-
ceeded six per cent.^ What be
loss of wealth, not to
computed except by thousands of millions what injury ;
to national reputation and to private character, were in-

volved in this measure
None of the pleas which might be urged to excuse the
Continental Congress for resorting to the issue of irre-
' Speech of Hon. J. S. Morrill.

"
Mr. Spaulding states that the 7-30 notes could not at this time
be paid out from the Treasury except at a discount of two per cent
This was a sufficient reason for forced circulation 1 He wa.s, how-
ever, good enough to say :
" When money can be obtained at par on
six per cent, bonds, I would prefer to have that done to the issuing
o very large amount of legal-tender notes."

372 MONEY.
deemable paper, can be offered in behalf of the Congress

of 1862. The Continental Congress had no coercive au-
thority, no powers of taxation, not even over foreign
goods arriving at the ports of the country. It could
obtain funds only by the contributions of the several
States, which were free to grant or to withhold what was
asked. Moreover, the people of almost every State had
been debauched by the effects of their colonial issues,
shrinking from the very thought of taxation, and resort-

ing with fatal facility to the manufacture of paper
money.
The Congress of the United States in 1862 had aihple
powers it could lay its taxes directly upon the trades
;
and occupations of the people, and upon every form of

wealth, in every stage of production or exchange, ex-
cepting upon domestic goods in act of exportation.
The people of the United States were not backward.
They were prepared to bear the burdens of the war, not
only with a noble patience, but with cheerfulness ; and
in fact, during the later years of the war and for years
after, they did submit without complaining to as clumsy
and irritating a system of taxation as has been devised
in recent times. There was no failure anywhere, except
in the leaders of Congress.
All, however, did not fail alike in this emergency.
The little State of Vermont offered, through Eepresent-
ative' Morrill and Senator CoUamore, a most manly re-
sistance to the passage of the Act. Nor can much be
added from Mr. Owen Lovejoy's financial
to or taken
programme "I
would issue interest-bearing bonds of
:
the United States, and go into the markets and borrow

money, and pay the obligations of the government.
This would be honest, business-like, and, in the end,
' Kow Senator.

UNITED STATES- LEGAL TENDERS 373
economical." Messrs. Horton and Eoscoe Conkling in

the House, and Messrs. Fessenden and Sumner in tlie
Senate, also showed an enlightened appreciation of
financial principles.
The became law February 25, 1862,
legal-tender bill
and was here seen, as before in France, that the real
it
bdttle had been fought upon the first issue. Although

the Chairman of the Committee had stated that, in his
judgment, the $150,000,000 provided for by the Act was
a maximum, on the 11th of July following Congress au-
thorized another issue ' of $150,000,000, and on the 3d
of March, 1863, still another issue of equal amount. In
the summer of 1864, the premium on gold having risen,
in consequence of excessive issues, to 150 per cent,
Congress passed an Act, June 30, declaring that the
totalamount of United States notes should at no time
exceed $400,000,000,^ " and such additional sum, not ex-
ceeding $50,000,000, as may be temporarily required for
the redemption of temporary loans." Meanwhile the
National Banking System had been established and was
somewhat slowly going into operation, issuing notes
which were redeemable in legal tenders, and hence a
direct addition to the Inconvertible Paper Money of the
'
March 17, 1862, demand notes, issued prior to the Legal-tender
Act, to the amount of about $60,000,000, were made legal tender to
the same extent as the notes authorized by the Act of February 25.
"
Prof. Sumner finds in the $400,000,000 restriction a marked
characteristic of our paper money system. It is, he says, "redun
dant, but fixed in amount." This he terms a peculiar feature, " un-
precedented, so far as I have been able to learn, in the history of
paper money."— [Hist. Am. Currency, p. 211] We may suppose
that Prof. Sumner, finds the pecuharity of our present situation, not
in the fact that a limit is set by law to the amount of paper, but in
the fact thai the limit so set has been maintained.
32
:
374 MONEY.
country. The following table exhibits the course of the

premium on gold during the first five years of forced
circulation
Table of Highest and Lowest Premium Rates of Gold, hy Months,
January, 1862, to Decemher, 1866.
;
UNITED STATES LEGAL TENDERS 375
Prof. Sumner notes^ that the turning-point at which

the contraction of the legal-tender notes met the expan-
sion of the national bank-note circulation was at the
date of the repeal of the Act of 1865. By Mr. McCul-
loeh's withdrawal of paper, the legal tenders had been
reduced to $356,000,000, while the national bank issues
stood at $294,000,000.
It is not within the scope of this work to propose or
discuss schemes for the resumption of specie payments.
The hard experience of four years of prostrate industry
and collapsed credit has brought the nation to the
point where the market value and the legal rating of
United States notes closely approach each other. The
exhausted swimmer thus borne in towards the shore
may again be carried out to sea with a turn of the tide.
A single manful effort would suffice to re-establish our
national credit, and place industry on a sound basis.
On the other hand, delay and evasion now may render
vain all There has
the suffering of the past four years.
never been wanting for the achievement of specie pay-
ments more than the public virtue among the people
strongly to desire it, the moderate intelligence among
our rulers to choose the simple means that are pointed
out by all experience, and the courage, in both people
and rulers, to bear for a brief time the pain of the sur-
gery and the cautery which alone can bring healing.
with only six dissenting voices in the House of Representatives
yet as soon as it began to produce its normal and necessary results,
such as any man of plain sense would have anticipated, the Act was
resciijded. What but confusion and disaster can be expected where
laws concerning fundamental policy are thus heedlessly enacted and
repealed ?
'
Hist. Am. Currency, p. 212.
: ;
CHAPTER XVn.
THE THEOKY OF INCONVERTIBLE PAPER MOMET, CONCLUDED.
The principles of money, as they have been stated in

the progress of our inquiry, and the experience recited
in the two preceding chapters, appear to justify the fol-
lowing conclusions
1. A paper money, of mere convention, having no
"iutrinsic value" in the sense inwhich that phrase is
commonly used, may become the general medium of ex-'
change in any community, being freely received by all
having goods to sell, in the confidence that it will, in
due course, be taken by others. This acceptance of a

paper money may become so general and complete that,
for a time at least, it cannot be distinguished from the
acceptance of the precious metals.
2. Given the fact of a general desire on the part of
producers for one article of uniform quality v^hich is
susceptible of easy division, we have fulfilled all the re-

quirements of a common denominator in exchange. The
effort of every dealer to obtain as much as possible of
this one article for each and every part of his stock
the aim of every producer to bring to market the prod-
uct requiring least labor which will command a given
quantity of this article in exchange, these must result
in ranging all commodities, according to the cost of re-
placing them, upon a scale of value, the degrees of
which shall be expressed in terms of this one article.

This, aswe have seen, a money of mere convention is
competent to effect.
3. Such money, so long as its popular acceptance con-
tinues, performs the office of a standard for deferred
payments, -well or ill, according as its amount is regu-
lated. We have seen hoiiv inadequately, at times, the
precious metals have discharged this money-function.
The advocate of inconvertible paper, or "ideal" money,
does not, therefore, admit the mere fact of depreciation,
or the existence of a premium on gold and silver, to be
proof of the failure of such money to perform its office.
It may, the rather, be proof that gold and silver have

failed, in part, to discharge their function as a standard
for deferred payments. In the phrase of the anti-bull-
ionists of 1810-9, it may
be, not that paper has fallen,
but that gold and silver have risen. The object of a
standard for deferred payments being to secure the pay-
ment, at the maturity of obligations, of substantially
the same purchasing power that was in contemplation
of the parties at the formation of the contract,
' it is
conceivable that a paper money might be so regulated

as to preserve a more uniform value, from generation to
generation, than the precious metals have maintained
during any considerable period of the world's history.
We have seen^ that that is the weak point of the pre-
cious metals in their use as money.
4. Such a money, being released from all natural con-
ditions of production, with whatever advantages, actual
or theoretical, may be found in that fact, becomes sub-
ject to piirely arbitrary regulation as to its amount.
We have seen that, while the production of gold and
' See pp. 157-9.

,
378 MONEY.
silver is subject to great changes, it yet requires a term

of years, often considerable, to influence greatly the
value of the existing supply; and that, whatever the
stock at any period, there is a force constantly operat-
ing to distributeaccording to the occasion each coun-
it
try and each community may have for its use, preserv-
ing thus its value uniform' the world over.
Inconvertible Paper Money, however, may be in-
creased indefinitely at will. It costs twice as much
labor to raise two thousand ounces of gold from the,
mine as to raise one thousand ounces. It costs no more
to print a thousand two-dollar bills, or ten-dollar bills,
than to print a thousand one-dollar bills. "We saw the

assignats of France mount by two or three milliards a
month, between May, 1795, and January, 1796. Nor
does any force operate to distribute an excess of issues
throughout the commercial world. Limited circulation
is the essential characteristic of Inconvertible Paper
Money.
The possibilities of evil, therefore, which lie in the
abuse of the power of issuing such money, are almost
infinitely greater than those which inhere in a metallic
circulation.
5. The danger of overissue is one which never ceases
to threaten an Inconvertible Paper Money.'^ The path
winds even along the verge of a precipice. Vigilance
must never be relaxed. The prudence and self-restraint
of years count for nothing, or count for but little, against
'
The cost of transportation being taken into the account.
' AprSs un delai plus ou moins bref, le papier-monnaie a toujoura
'•
subi una ddpvdciation. A cette r^gle je ne connais qu'une excep-

tion, celle du papier-monnaie Smis par le royaume de Prusse, oi
I'attention la plus sorupuleuse a et^ apportSe S, ce que I'^missioc
rest^t tr&-bornee." — [Chevalier, La Monnaie, p. 675.]
:
THEORY OF INGONYERTIBLE PAPER MONEY. 379
any new onset of popular passion, or in the face of a

sudden exigency of the government. From this danger
a people receiving into circulation an Inconvertible Pa-
per Money can never escape. A
single weak or reckless
administration, one day of commercial panic, a mere
rumor of invasion, may hurl trade and production down
the abyss.
"The emitting of paper money by the authority of
the Constitution," said Mr. Hamilton, in his "Report on
the Bank," "is wisely prohibited to the individual
States by the national Constitution : and the spirit of
that prohibition ought not to be disregarded by the gov-
ernment of the United States. Though paper emissions,
under general authority, might have some advantages
not applicable, and be free from some of the disadvan-
tages which are applicable, to the like emissions by the
States separately : yet they are of a nature so liable to
abuse, and, it may even be affirmed, so certain of being
abused, that the wisdom of the government will be
shown in never trusting itself with the use of so seduc-
ing and dangerous an expedient. ... In great and
trying emergencies there is almost a moral certainty of
its becoming mischievous. The stamping of paper is
an operation so much easier than the levying of taxes,

that a government, in the practice of paper emissions,
would rarely fail in any such emergency to indulge itself
too far in the employment of this resource."^
6. Not only does the danger of overissue never cease
to menace a community having such money in circula-

tion, but the moment an overissue in fact occurs, the
impulse to excess acquires violence by indulgence. The
reason is obvious. To metallic money the formula of
supply and demand applies. Demand creates supply
supply satisfies demand. If metallic money is brought

'
380 MONET.
in excess into any country, Paper money it runs oif.
cannot run off. It makes a swamp wherever it is poured

out. There is no outlet for such money. When in ex-
cess, prices rise, and may rise indefinitely without being
corrected by international commerce. Consequently
the government which has issued paper money as a
measure of resource soon finds its necessities increas-
ing. It has to purchase services and supplies at higher
rates. Soon speculation sets in " forestalling " and ;
" engrossing " begin to operate on the stock of the nec-

essaries of life, and prices rise more and more rapidly.
President White thus remarks upon the second issue
of assignats in Revolutionary France " In : this compara-
tive ease of a new issue is seen the action of a law in
finance as certain as the action of a similar law in nat-
ural philosophy. If a natural body be allowed to fall
from a height, in obedience to gravitation, its velocity is
accelerated, by a well-known law in physics, in a con-

stantly increasing ratio : so in issues of irredeemable
currency, in obedience to the theories or interests of a
legislative body, or of the people at large, there is a nat-
ural law of rapidly increasing issue and depreciation.'
. . . . Nearly all Frenchmen now became desper-
ate optimists, declaring that inflation is prosperity.
' " Une inevitable fatalite pousse les gouvernemente qui en font
usage vers I'abus ; car le papier-monnaie est toujours cr^^ dans des
moments de crise ou les ressources ordinaires sent insuffisantes et un

premier excSs dans remission du papier, rendu necessaire par des
dfe'penses exoessives, am^ne la diSprSoiation qui entraine une diminu-
tion correspondante du produit des impots ; oela oblige le gouverne-
ment S. de nouvelles emissions pour augmenter ses ressources en
compensant le deficit de recette, et ainsi de suite jusqu'a ce que la
valeur du papier-monnaie soit tombê 3. z€ro, ce qui correspond a la
banqueroute universelle." — [Ch. le Hardy de Beaulieu.]

Throughout France there came temporary good feeling.

The nation was becoming fairly inebriated -with paper
money. The good feeling was that of a drunkard after
his draught and it is to be noted, as a simple histor-
;
ical fact, corresponding to a physiological fact, that, as

the draughts of paper money came faster, the periods
of succeeding good feeling grew shorter."
It will have been observed that the instances among
those given in Chapters XV and XYI, where continence
in issue was most conspicuously exhibited, were those of
theBank of England during the Eestriction, and the
Bank of France in 1848, and again from 1871 to the
present time. No one, I think, can question that the
prudence and self-restraint here shown were due to the
fact that, in the case of neither Bank, did the issues in-
ure directly to the benefit of the government, whatever
the exigencies of state.'
"Real money," said Edmund Burke, "can hardly

ever multiply too much in any country, because it will
always, as it increases, be a certain sign of the increase
of trade, of which it is the measure, and, consequently,
of the soundness and vigor of the whole body. But
this paper money may and does increase without any
increase of trade, nay often, when trade greatly declines,
' One of the most amusing things to be found in that eminently

amusing serial, the " Congressional Globe," is the remark of Mr. J. B.
AUey, of Massachusetts, in his speech in favor of the Legal-tender
Act of 1862 :
" There can he no more issues than the real necessities of
the government require. The government cannot make issues, like the
-
banks, for pro/it. Its issues must necessarily be limited to its absolute
wants." There is every reason to believe that the issues of the Con-
tinental Congress and the French Revolutionary Assembly were
limited to the absolute wants of the government, and, in fact, fell con-
siderably short of supplying those wants.
32*
H82 MONEY.
for it is not the measure of the trade of the nation, hut of the
necessity of its government, and it is absurd and must he
ruinous, that the same course which Tlaturally exhausts the
wealth of a nation, should- likewise he the only productive

cause of money."
"There has never been a government yet," says Prof
Perry, in his " Elements of Political Economy," " of the
lany which have issued irredeemable paper, which had
the wisdom and firmness to resist for any great length
fot time the strong temptation to overissues
When once the press is set at work, it must work on
with livelier speed ; because just in the ratio of the de-
preciation is the greater amount required."
7. must not be thought that where the excess of
It
inconvertible paper is small, the effects on trade and
production are therefore slight. In no degree whatever
can the money of any commercial community depart
from the money in which international balances are dis-
charged, without inducing obstruction and creating ap-
prehensions to which modern trade, with its highly de-
veloped and sensitive organization, will not subject it-
self, or will do so only on the payment of a heavy fine
on the part of the community offending.

"The circulating medium of a commercial commu-
nity," said Mr. Webster, in his speech on the Bank Bill
of 1815, "must be that which is also the circulating
medium of other commercial communities, or must be
capable of being converted into that medium without
loss. It must be able, not only to pass in
payments
and receipts among individuals of the same society and
nation, but to adjust and discharge the balance of ex-
changes between different nations."
We have seen with what sagacity the Management of
the Bank of Prance since 1871" have succeeded in pre-
—
venting any considerable discount upon their notes

when exchanged for gold. Yet Mr. Bagehot, in his
work, "Lombard Street," remarks: "The note of the
Bank of France has not, indeed, been depreciated
enough to disorder ordinary transactions. But any de-
predation, however small, even the liability to depredation,
without its reality, is enough to disorder exchange transac-
tions. They are calculated to such an extremity of fine-
ness that the change of a decimal may be fatal, and may
turn a profit into a loss. Accordingly London has be-
come the sole great settling-house of exchange transac-
tions in Europe, instead of being, as formerly, one of
two."
When, however, an Inconvertible Paper Money is
8.
issued in marked excess, and hence becomes depreciated

and most disastrous consequences, in-
fluctuating, the
dustrially and
must ensue.^
socially,
A depredated paper money is always a fluctuating money.
This is so for two reasons (a) The demand for money
:
in any community undergoes a continual variation.

This is seen in the almost perpetual bullion-movement
to and from countries having a metallic or a convertible
paper money. The volume of money never stands at a
mean. It is in incessant motion, like the waters of the
sea, now rising, now falling, on every shore. It is only by
the freedom of this movement that steadiness in values
is obtained. An Inconvertible Paper Money, however,
as we have seen, has no outlet through foreign trade, and
fluctuation in its value is therefore inevitable, (b) The
' " Quanquam innumere pestes sunt quibus regna, principatus et

respublice deorescere solent, hseo tamen quatuor (meo judioio) potis-
sime sunt: discordia, mortalitas, terre sterilitas et monete vilitas."
[Copernicus, Monete Cudende Ratio.]

384 MONEY.
I
fact of depreciation creates a prejudice against tMs forno

of money whicli impairs its circulation, as has been
preriously noted/ but, in doing this, acts very irregu-
larly, according to popular rumor, the issue of battles,
the prospects of alliances, the results of elections. The
operation of causes like these can clearly be seen in the
table of the depreciation of the United States legal ten-
der, 1862-6, which appears on p. 374 M. Courcelle-
Seneuil has noted that the market price of the paper
money of the Eevolution was nearly as much affected
by political events as by the extent of the issues.^
A money of inconvertible paper being thus at once
depreciated, as compared with specie, and fluctuating
in itspower to purchase commodities in general, be-
comes a grievous tax upon production while if it gives ;
to trade for a time excessive profits at the expense of

consumers, only does so by making exchange highly
speculative, putting all the sober virtues at a disadvan-
tage, generating wasteful habits of transacting business,
and in the result dividing the increased profits among a
larger number of shops and stands.
It is, however, upon the condition of the laboring
classes that a fluctuating paper money works its worst
effects.
"The very man of all others," said Mr. Webster,

" who has the deepest interest in a sound currency, and
who suffers most by mischievous legislation in money
matters, is the man who earns his daily bread by his
daily A depreciated currency, sudden changes of
toil.
prices,paper money falling between morning and noou,

and falling still lower between noon and night, these
' See p. 279.

^ Op&ations de Banque, p. 372.
:
THEORY OF INCONVERTIBLE PAPER. MONET. 385
things constitute the Yery harvest time of speculators,

and whole race of those who are at once idle and
of the
crafty But the laboring man, what can he
hoard? Preying on nobody he becomes the prey of all."
And on another occasion the same great statesman
said: "A disordered currency is one of the greatest
political evils. undermines the virtues necessary for
It
the support of the social system and encourages pro-
pensities destructive to its happiness.' It wars against
industry, frugality and economy, and it fosters the evil
spirits of extravagance and speculation. Of all the con-
trivances for cheating the laboring classes of mankind,
none has been more effectual than that which deludes
them with paper money. This is the most effectual of
inventions to fertilize the rich man's fields by the sweat
oi^the poor man's brow.
"Ordinary tyranny, oppression, excessive taxation,
these bear lightly on the happiness of the mass of the
community, compared with fraudulent currencies and
the robberies committed by a depreciated paper."
Of the exceptional disadvantages which the laborer
experiences through the use of a fluctuating paper mon-
ey, I may perhaps offer here the explanation I have
given in another place :^ In the competition which the
laborer has incessantly to maintain, both with his em-
ployer and his fellow-laborers, his interest will not c^me
to him, he must go to and to do so he must be able
it,
to identify it and locate it with precision and assur-
Under date of October 25, 1810, M. Montalivet, Napoleon's ilia-
ister of the Interior, writes to the prefects

" La papier-monnaie est consideree par I'Empereur comme le plus
grand fleau des nations, et comme etant au moins au moral, ce que

la pes^te est au physique.''
' The Wages Question.
33
386 MONEY.
ance. Witli bad money in circulation, the laboier, in

making his demand on his employer for wages, must
foUo-w blindly around after prices, guided only by a
general sense of the inadequacy of what he is at pres-
ent receiving. Acting without intelligence, it is a matter
of course that his interests are in some degree sacrificed.
It was in view of this inability of the laboring classes,

through poverty, ignorance, and inertia, to meet sudden
and violent changes of condition, that Mr. Mill assigned
to "Custom" in economics the same beneficent function
which it has performed in government, as "the most
powerful protector of the weak against the strong."
Usage, habit, constitute a barrier which in a degree
preserves the economically weak from the bustlings and
jostlings of the market-place, and gives them room to
stand. A fluctuating paper money breaks down this
barrier and involves all classes in a furious and inces-
sant struggle, in which the feeblest are sure to go doAvn
and be trampled on.
But it is not alone in competition with the employer
that the laborer is put at a disadvantage. If it is diffi-
cult for him to secure the adjustment of his wages to

the varying cost of living, much more difficult is it for
him to hold his own in the contest with the retail deal-
er. He expends his earnings in hundreds of small pur-
chases. If those earnings come to him in depreciated
paper, and are to be expended in commodities at inflat-
ed prices, how can he tell what he ought to pay per
pound, per bushel, or per yard? He knows nothing
about the conditions of the production of the articles he
purchases, and has no longer a traditional price to
guide him. Formerly, if an article of domestic con-
sumption rose, he was in the mood to resist the advance.
He disputed the higher price he alleged the custom-
;
THEORY OF maONVERTTBLE PAPER MONEY. 387
ary price ; lie held off buying ; he inquired elsewhere.

With a community in this temper, retail prices will not
be wantonly advanced nothing less than a substantial
;
reason will succeed in establishing a new price, and

that new price will be kept down to something like the
necessity of the case.
With bad money, however, this hold of the retail
buyer upon customary price is broken. The laborer
loses his reckoning. When prices go up, he cannot
judge where they should stop. After finding advance
upon advance established, in spite of his questioning
and complaints, he becomes discouraged. He pays
without dispute whatever the shop-keeper demands.
Then it is the retail dealer gathers his largest profits
and works his worst extortions.
But one question remains under this department of

our subject Does the premium on gold in a country
:
having Inconvertible Paper Money measure the depre-

ciation ? This is perhaps the most difficult question in
the theory of Money.
"There is for me, I confess," says Prof. Price, "a cer-
tain obscurity as to the law which regulates the depre-
ciation of inconvertible notes."
On the one hand, it is difficult to see how, in any de-
gree of consistency with Mr. Eicardo's law of the distri-
bution of the precious metals, it should be otherwise
than that the premium on gold measures the deprecia-
tion of the paper. On the other, it seems almost im-
possible, in the face of facts, to accept the doctrine as
applied to England, 1819-21, or to the United States,
1865-8. All the statistical tables, showing the prices of
commodities, which are accessible, seem to prove that
:
388 MONEY.
the power of the paper to purchase commodities in gen-

eral was, in the instances referred to, much further di-
minished than its power to purchase gold.
Mr. Mathias Attwood, the leader of the "Birming-
ham," or Inflation School, in England, 1823 to 1832,
thus undertook to explain the matter
" In a rise of prices occasioned by the exclusive use
of paper money, the great demand for bullion, that for
circulation, ceases at once. The bullion market then
receives supplies from the quarter whence previously
its principal demand originated. In the same manner,
when a metal standard is again resorted to, a new de-
mand for gold at once takes place, precisely at that
moment when, in consequence of a contraction of the
general demand for money, a reduced demand exists for
all other commodities. Gold bullion, consequently, is,
of all commodities, the last and the least to rise in a
general rise of prices occasioned by the depreciation of
paper money, and the last>and the least to fall in a gen-
eral fall of prices occasioned by the restoration of that
depreciation."
The former part of this paragraph is true, and would
serve to explain a temporary divergence
extending
through a few months following the act of suspension,
or of resumption; but it is difficult to see how, upon
accepted principles, this failure of gold to follow other
commodities, in either the general rise or the general
faL, could be protracted through a period of years. We
may readily admit that gold rises last, but why, in the
long run, least? After time has been given for the re-
adjustment, through the ordinary operations of trade,
why does not gold, if it remains below
its value in the
country' having a depreciated currency, flow abroad

where its power in exchange is greater?
RATIO OF DEPRECIATION. 389
One item, indeed, we find, which accounts, in a certain

degree, for the failure of gold to rise in price correspond-
ently to other commodities, under Inconvertible Paper
Money. The former demand for gold was made up of
the occasions for its use in all commercial countries, in-
cluding that which has now discardedThe useit. of it
in that country being abandoned, the total demand is so

far diminished, and until the supply has been reduced
by the very gradual process of consumption, the value
of each portion must fall. But this cause would, at the
most, be sufficient to produce only a small part of the
effect to be accounted for in the cases immediately un-
der consideration.
An explanation, somewhat similar to Mr. Attwood's,
was offered by Mr. J. S. Eopes, in a paper published in
the proceedings of the "American Social Science Asso-
ciation."— [Vol. v.]
" Gold has been practically deprived of its chief func-
tion in the community, and, like all other commodities
under similar circumstances, its exchangeable value has
been greatly depreciated. We may illustrate this by
the supposition that our government had been able and
wiUing to make and strictly enforce a law prohibiting
the use of wheat, in any form, for food. Can any one
doubt that in such a case the price of flour would be
greatly depressed, and that it would depend chiefly
upon the demand in foreign countries for whatever ex-
changeable value it might retain."
"What Mr. Bopes here adduces is true, and would be
sufficient to account for a divergence such as we are
inquiring about, extending through a certain period of
re-adjustment. If, government
to take his illustration,
were to prohibit the use of wheat for food in the United
States, the price here of flour would doubtless bo greatly
390 MONEY.
depressed for a time, until tlie existing stock liad been

sliipped to a better market, or had moulded in store.
But why should wheat thereafter be produced at all,
except at prices corresponding, (expenses of transporta-

tion being considered) to those ruling abroad?
So of gold; the fact that the United States, in 1862,
discarded the use of gold coin as the general money of
commerce, retaining it for specific uses only, viz., in pay-
ments at the Treasury, inwards for customs-dues, out-
wards on the public debt, afforded a reason
for interest
for a lowering of the purchasing power of gold here suf-
ficient to drive a portion of the existing supply abroad.
It also afforded a reason for a permanent depression in
the purchasing power of gold, the world over, so far as
might be involved in a reduction of the general demand
for gold through the cessation of the United States' de-
mand for it. But beyond this, it is difiicult to see any
virtue in the explanation offered.Why should this ac-
tion of the United States government, in 1862, diminish
the purchasing power of gold in Boston or New York,
in 1865, or 1873?
There certainly appears to be an effect on prices, in
countries having a depreciated paper money, not ac-
counted for by the premium on gold. The belief seems
to be quite general among intelHgent persons, many of
them familiar with the principles of economics, that the
'
premium on gold does not measure the advance of gen-
eral prices. Fully agreeing with Prof. Price as to the
obscurity which still rests on this subject, I can only
suggest, first, that the time required for the international
re-adjustment of the precious metals, after any disturb-
ance of supply and demand, may be longer, much longer,
than has been commonly believed to be, the friction
it
and inertia of trade extending that re-adjustment ovei

RATIO OF DEPRECIATION. 391
considerable interyals, and giving to the local values of

gold and silver a degree of persistency attributed to
them by few economical "writers secondly, that the sta-
;
which we have to use in the investiga-

tistics of prices,
tion of this subject, are not fairly representative of the

whole body of commodities and services to be exchanged
throiigh the use of money, and thus, that while the
prices of the commodities ordinarily taken for the pur-
poses of this comparison are enhanced considerably
above the price of gold, in paper, other large bodies of
commodities and services, not easily to be embraced
in such computations, have experienced a less consider-
able rise, tending to establish an average of general
prices approximating the price of gold.
PART III
CONVERTIBLE. PAPER MONEY.

CHAPTEE XVin.
THE THEOEY OF CONYEKTIBLE PAPEE MONET.
"We saw, in opening the subject of Inconvertible Pa-

per Money, that objection exists on the part of many,
perhaps most, economists to the use of the word Money
except in connection with "a material recompense or
equivalent" —gold, silver or copper, or grains and seeds,
or living money, — articles having, as the phrase val- is,
ue in themselves, independently of convention.

It would at fitst seem that this objection would have
less force in application to paper convertible at pleasure
into coin. But on the contrary, we noted that Mr.
Huskisson and Prof. Storch, who admit the use of the
term, paper money, as applied to irredeemable govern-
ment issues, reprehend its use in reference to paper is-
sued by bankers, promissory of coin and convertible at
the pleasure of the holder. In this these economists
are generally followed by recent writers. Hence the
wide adoption of the word Currency,' which Mr. Mc-
'
''La langue aiiglaise a un mot gSn^rique qui erabrasse la mon-
naie, le billet de baiique, le papier-monnaie, ou assignat, non convert
ibie en esp§oes, le ch(5que et toute autre espece de titres qu'on peut
mettre dans la circulation et qu'aocepte plus ou moins le commun dea
hommes; c'est le mot de Currency. Notre langue n'en offre pas
r^quivalent parfait."-^[Chevalier, La Monnaie, p. 64.]

:
396 MONEY.
Leod denounces as a "Yankeeism," though he seems to

think that the term has passed into too general use to
be now extruded on either philological or national
grounds.
On the same side, Mr. Tooke cites Johnson's Diction-
ary — " Money : metals coined for the purposes of com-
merce;" and proceeds to remark: "In no instance, I be-
lieve, will it be found that Mr. Locke, or Mr. Harris, or
even the first Lord Liverpool, included promissory notes
issued by banks and returnable to the issuers, at the

will of the holder, in exchange for coin, in their use of
the word Money. , . . The Bullion Eeport of 1810
affords no sanction to such a use of the word." ^
— [Hist,
of Prices, ii, 155.]
It would be wrong to say that definitions are of small
account in the treatment of economical questions, yet,
as was remarked in connection with our discussion of
Inconvertible Paper, I see no harm in the use of the term
paper money. It has venerable sanction, for Adam Smith
uses it. It can create no false apprehensions, for the ad-
jective, or component word, paper, does not allow it to
be conceived that a material equivalent or recompense
is intended.
Moreover, it appears to me, I confess, that the usual
' The I'rench writers, MM. Jos. Gamier and Courcelle-Senouil,

make a distinction between paper money and money of paper. By
the former term they embrace government issues, resting upon au-
thority ;
by the latter, bank-notes, resting upon confidence
"Les billets de banque, payable a vue et au porteur, sont de la
raonnaie de papier; ils ne sont point du papier-monnaie. On a

reserve ce nom a des titres sur lesquels le gouvernement qui les (Smet
ou qui autorise leur emission, n'a stipulS aucune promesse de rem-

bourseraent, ou n'a stipule que des promesses auxquelles il a manquS."
—[Courcelle-Seneuil, Operations de Banque, p. 370.]
—
BANK-NOTES ARE MONEY. 397
objection to tlie word Money, as applied, even without

qualification, to paper, fails to note a point of vital im-
portance in the connection. It is said that the bank-
note is a form of credit.^ But do we not here overlook
the distinction between the relation of the buyer to the
seller,where the bank-note is employed, and the relation
of the holder of the note to its issuer? As between the
buyer and the seller, a bank-note is money, if it is ac-
cepted in final payment of goods, or discharge of debts,
without recourse to the person from whom it is received.
As between the holder and the issuer, it remains a form
of credit, and is required to be redeemed upon demand,
in specie. Is it, however, the relation of the holder to
the issuer, or the relation of the buyer to the seller,
which determines the influence the note shall have upon
prices? Clearly, the latter. And it is the influence of
the bank-note on prices with which we are concerned.
The question of final payment, as between the holder
and the issuer, is a hanking question. So long as the
paper passes from hand to hand and is accepted, wheth-
er with or without force of law, by the creditor in final
discharge of debts, or by the seller in fuU payment for
goods, without further resort, in theory or in practice, to
the buyer or the debtor, I am disposed to think it must
be deemed to be money. It may be good money. It
may be bad money. But in its universal acceptability,
however obtained ; in the fact of its general currency as
a medium of exchange, we have the single condition of
money realized. This was the position of Col. Torreus
in his work on the JLnglish Bank Act of 1844. The
'
Thus Prof. Price says that bank-notes "stacl on a level with
the entries in a shop-keeper's books. They are matters of account
debts whose payment is deferred." — [Principles of Currency, p. 178.J
34
;
398 MONEY.
same view was taken by M. Wolowski

of the bank-note
in his work, "La Question des Banques," and by Mr.
Nicholson in his work, "The Science of Exchanges."^
A bank-note, so long as its currency remains, serves
a? the medium of exchange: it serves as the standard
for deferred payments, precisely as the piece of gold
which it replaces in circulation : and if anything serves
as a common measure of value,'^ it is the paper that does
so, and not the thing promised by the paper.' Fcr
these reasons I see no objection to the use of the word
Money, as apjalied to bank-notes or convertible paper.
But it is said, if bank-notes are money, why are not
checks money?
Simply because checks are a form of credit, both be-
tween the holder and the issuer and between the buyer
and the seller; while, between the buyer and the seller,
the bank-note, as has been remarked, is, in effect, final
' " Nous oroyons que si I'oii tient compte des r&ultats pratiques, on
reconnaitra corcbien la distinction ^tablie, en prinoipe, entre la mon-
naie et le billet, s'eiFace dans la ciroulation. . . . S'il n'est pas
line monnaie dans la rigueur scientifique du terme, il en a tous les
attributs." — [Wolowski.]
"Bank-notes, or transferable promises to pay coin to bearer on
demand, circulating side by side with coin .in endless succession
liquidating debts like coin, and which, when in circulation, all busi-
ness people are, as it were, compelled to take, are absolutely money."
— [Nicholson.]
" On this point, see pp. 4-9 ; 280-90.
" This was the argument of Lord Mansfield :
" Bank-notes are
not, like bUls of exchange, mere securities or documents for debts,

nor are so esteemed, but are treated as money in the ordinary cense
and transaction of business, by the general consent of mankind and ;
on payment of them, whenever a receipt is required, the receipts

are always given as for money, and not as for securities or notes,'
—[1 Burrows, 452-7.]
'
BANK-NOTES ARE MONEY. 399
payment. Now, it is not the relation of holder and issu-

er, but of buyer and seller, with which we have to do in
the theory of Money.
I say the bank-note is, in effect, final payment, as be-
tween buyer and seller. In the English law, the re-
ceiver of a bank-note has a limited resort to the person
fi'om whom he takes it, in case the bank should fail be-
fore it had been in his (the receiver's) power to present
it payment. "This responsibility, however," says
for
Mr. McCulloch, " seldom exceeds a couple of hours, and
can hardly, in any case, exceed a couple of days. In

practice it is never resorted to, and every one is thus en-
couraged, reckoning on the facility of passing it to an-
other, to accept bank-paper, 'even though he should
doubt the ultimate solvency of the issuer.' "
This characterization by Mr. McCuUoch appeals for
its correctness to the observation of the reader. We
take bank-notes with no other scrutiny, at the most,
than to satisfy ourselves that they are not counterfeit.
We never think of going at once with them, or sending
them by an agent, to the place of issue, to demand the
coin, in order that, if payment should be refused, we
may have recourse to the persons from whom we re-
ceived them ; and, though the responsibility of the per-

son passing the note expires within two or three hours,
or, at most, within two or three days,^ we hold the note
for days or weeks, according to our occasions for ex-

penditure, and, in probably ninety-nine cases out of a
'
Mr. MoOuUocli here quotes Thornton on Paper Credit.
"
Indeed it has been decided in several States of the American
Union that the acceptance of bank-notes constitutes a sufficient
payment, even though the bank be insolvent at the time, provided the
tender was made by the debtor or purchaser in good faith.

:
400 MONEY.
Kundred, we should be wholly unable to tell from wliom

we receired any particular bill.'
In this view, the bank-note, while it remains a form of
credit; as between the holder and the issuer, effects final
payments between the buyer and seller, and is thus
money.^
A check, on the other hand, is, as a rule, received on
the credit of the person who draws it ; has a circulation
closely limited by personal or business acquaintance;
passes generally by successive indorsements ; its history
appears' upon its face and upon its back; and it thus
remains a form of credit, not only between the bank
and the drawer, but between buyer and seller, iu all the
transactions in which it is employed.
The above distinction fairly leads to the remark that
Circulation, in the monetary sense, is a matter of degree.*
'
Mr. Francis speaks of a note coming in to the Bank of England
which had been out for about a century and a quarter.
' " Anything which freely circulates from hand to hand, as a com-
mon acceptable medium of exchange, in any country is, in such
country, money, even though it ceases to be such, or to possess any

value, in passing into another country. In a word, an article is de-
termined to be money, iy reason of the performance hy it of certain

functions, without regard to its form or substance." — [Appleton's Cy-
clopaedia.]
' M. Rossi, though preserving a distinction between bank-notes
and money, recognizes as of great importance the fact that bank-
notes leave no trace of their movement from hand to hand. Thus,
in his Report of 1840 to the Chamber of Peers, he says
" lis se distinguent de tout autre billet en ce que le porteur, quel
qu'ait 6t6 le nombre des intermSdiaires, n'a de recours que contre la
Banque, et qu'il ne reste pas meme de trace legale des nombreuses

transmissions qui peuvent s'etre op&€es.''
* M. Chevalier has justly remarked :
" Lors qu'on traitera de pays
differents, il sera rationnel et opportun de classer dans la currency,
pour quelques-uns, des titres qui, par rapport a d'autres, ne sauraient
BANEf-NOTES ARE MONET. 401
Bank-no bes, from the ill repute of the issuers, might con-
ceivably become of such slow, difficult and limited cur-
rency, as to fall out of the category of money, that is,
men might come to accept them only as subject to the

responsibility of the persons tendering them, and might
carefully observe the legal conditions of enforcing thai
responsibility, keeping a record of persons, places and
times, carrying the matter on their minds, and giving up
other occupation in order to present the notes prompt-
ly, within the days or hours necessary to get to the place
of issue. In such a condition of the public mind, bank-
notes would not be money. On the other hand, checks
might be so drawn and authenticated as to pass in cir-
culation so rapidly, with such wide acceptance, with so
little of resort, as to become practically money. The
same test should be applied to Bills of Exchange, which
are asserted by Mr. FuUarton and others to be money
in the same sense as bank-notes. Mr. FuUarton cites
the habit of Lancashire and the West Riding of York,
and some other manufacturing districts of England,
where bills of exchange were employed during a long
series of years, to the almost total exclusion of bank-
notes, the bills being drawn for all sums down to £5.
Mr. McCuUoch's criticism of this claim is in the main

just. " Bills are
almost all drawn payable at some dis-
tant period, and those into whose hands they come, if
they be not in want of money, prefer retaining them in
their possession, in order to get the interest that accruers
upon them. But the principal distinction between notes
and bills is, that every individual, in passing a bill to
etre presentes comme dignes de oet honneur, et investis de oeite

prerogative. En un mot, la classification dans la currency est u:. fait
relatif, el sujet a conditions, et non pas un fait absolu et gdngraL"—
[La Monnaie, p. 669 ]

402 MONEY.
another, lias to indorse it, and by doing so makes him-

self responsible for its payment. 'A bill circulates,'
says Mr. Thornton, 'in consequence chiefly of the confi-
dence placed by each receiver of it in the last indorser,
his own correspondent in trade, whereas the circulation
of a bank-note is owing rather to the circumstance of
the name of the issuer being so well known as to give it
an universal credit.' It is clear, therefore, that a great

deal more consideration is always required, and may be
fairly presumedbe given, before any one accepts a
to
bill of exchange in payment, than before he accepts a
bank-note. The note is payable on the instant, without

deduction —the bill not until some future period; the
note may be passed to another without incurring any
risk or responsibility, whereas every fresh issuer of the
bill makes himself responsible for its value. Notes
form the currency of all classes, not only of those who
are, but also of those who are not engaged in business,
as women, children, laborers, etc., who in most instances
are without the power to refuse them, and without the
means of forming any correct conclusion as to the solv-
ency of the issuers.^ Bills, on the other hand, pass
only, with very few exceptions, among persons engaged in
business, who are fully aware of the risk they run in
taking them."
And yet I should not wish to say that if bills of ex-
change were made for small amounts, and their curreucy
facilitatedby exceptional provisions, so that the public
became familiarized with their use, they might not ac-
quire, here and there, now and then, a degree of facility
'
The G-erman economist, Hartwig Fertz, as quoted by M. Wo-
lowski, dwells particularly on this feature of the case, that persona
taking bank-notes do not, and in fact cannot, verify their value,

: —
BANK-NOTES .1 RE MONET. 4OS
in circulation,
and an indifference to the question of re-
course, which would give them the quality of
money.
Indeed there is something, it' appears to me, in Mr.
Tooke's claim that the larger Bank of England notes
are not money, in the sense in which the smaller
ones
are. The difference between a large and a small note,
as to the length of time for which they severally re-
main out, the freedom with which they are taken, and
the number of transactions in which they are used, is
very marked.
The life of a bank-note ' in days, says Prof. Levi, may
be taken to have been as foUows
£5 ^10 X20-100 £200-500 £1000
1844 105 87 38 14 12
1871 79 64 26 8 9
— [Hist. Br. Commerce, p. 481.J
It is best, perhaps, to treat all bank-notes as money
for purposes of economical reasoning, yet we should not
fail to recognize the consideration that, just as the same
amount of money
perform a greater number of ex-
will
changes in the same time in one country than in another,
so, within the same country or district, the same amount
of bank-notes of one denomination may perform a much
greater work in exchange than would an equal amount
in other denominations.
Adam Smith has shown the importance of this dis-
tinction. "The circulation of every country, may," he
says, "be considered as divided into two different
branches, the circulation of the dealers with one another,
' " The Bank of England never re-issues its notes. As they come
ill. they are laid aside and kept seven years, and then burned. The
whole number is not destroyed together, but at different times, and
as many are burned as correspond with the new notes issued."
[Hankey on Banking, p. 62.]
404 MONET.
and the circulation between the dealers and the consum-

ers. Though the same pieces of money, whether paper or
metal, may be employed sometimes in the one circulation,

and sometimes in the other, yet, as both are constantly
going on at the same time, each requires a certain stock
of money of one kind or another to carry it on.
" Paper money may be so regulated as either to con-
fine itself very much to the circulation between the dif-
ferent dealers, or to extend itself likewise to a great part
of that between the dealers and the consumers. Where
no bank-notes are circulated under ten pounds value, as
in London, paper money confines itself very much to the
circulation between the dealers. When a ten pound
bank-note comes into the hands of a consumer, he is
generally obliged to change it at the first shop where he
has occasion to purchase five shillings' worth of goods,
so that it often returns into the hands of a dealer before
the consumer has spent the fortieth part of the money.
Where bank-notes are issued for so small sums as twenty
shillings, as in Scotland, paper money extends itself to
a considerable part of the circulation between dealers

—
and consumers." [Wealth of Nations, i, 323.]
Upon these paragraphs, Mr. Tooke remarks : "Adam
Smith is the first, I believe, who pointed out the dis-
tinctionbetween bank-notes of the lower denominations,
which served chiefly for the purposes of retail trade,
and the higher, which were in use principally between
dealers and dealers.^ Tlw higher ones do not circulate
' Mr. Hubbard, Q-overnor of the Bank of England, 1853-5, testified

before the Committee of 1857, that within the five years preceding,
an addition of £2,000,000 had been made to the circulation of £5 and
£10 notes, and an equal diminution had taken place in £50 to £1000
notes, the aggregate issues remaining unchanged but the pur Jiasing
power being increased by the substitution.
MONET IS 'THAT MONEY DOES: 405
rtoio, even among 'dealers, excepting cattle-dealers and

horse-dealers, having been superseded by a general use
of banking accommodations, and consequently by checks
and book credits."— [History of Prices, 1839-47, p. 159.]
Not only have bills of exchange and checks been held
by many writers to be money in the same sense as
bank-notes, but bank deposits have been embraced in
the same category,' on the ground that they are used to
discharge debts and purchase commodities, and that
they thus perform the functions of money. But nothing
can perform the functions of money which is not money,
for, we have seen, an article is determined to be
as
money solely; by reason of its performance of certaiu
functions. Money is that which passes from hand to
hand in final discharge of debts and full payment for
goods. The bank-deposit system allows the mutual
cancellation of vast bodies of indebtedness which would,
without this agency, require the intervention of an act-
ual medium of exchange ; but deposits are not such a
medium. In a word, deposits, like every other form of
credit, save the use of money they do not perform
; the
functions of money. Money is tJiat Money does.
There seems to be little reason to question that Ex-

chequer Bills, as they are called in England, or Treas-
ury Notes, as they have been known in the United
States, being acknowledgments of the Exchequer, or
Treasury,. which are received in payment of taxes, may,
if issued in small sums, serve as money, passing from
'
This view is maintained by Mr. Condy Raguet (Currency and
Banking, pp. 191-4), and Prof. Amasa Walker (Science of "Wealth,
pp. 151-4). The opposite view is taken by Mr. Tooke (History of

Prices, i, 152-3°, ii, 337-8°, iii, 123-4, 256), Mr. Nicholson (Science
of Exchanges, pp. 41-2), and Lord Overstone (Tracts, etc., pp. 199,
200, 343.)
34*
406 MONEY.
hand making payments and discharging dehtS;

to hand,
fully and finally, without recourse. In the reign of
William III, considerable amounts of exchequer bills
were issued as low as £5 and .£10, "which," says Dr.
Drake, "answered the necessities of commerce, among
the meaner people, for the necessaries of life." "These
biUs," he adds, "passed in payment as so many count-
ers." When, however, as is more commonly the case,
treasury notes or exchequer bills bear interest, that fact,
in a considerable degree, retards their circulation. As the
weight of interest accumulates towards maturity, they
gradually sink out of circulation, dropping to the level
of ordinary investments yielding interest. Such notes
or when in
bills, large denominations, are commonly
not money at all.
'
Perhaps already some reader has exclaimed impa-

tiently, what is the effect of these distinctions but to
render any conclusive definition of money impossible?
If bills of exchange or checks may, here and there, now
and then, become money; if bank-notes, on the other
hand, may, in possible circumstances, fall out of the
category of money, how are we ever to know what
money is and what is money? Would it not be better
to say that gold and silver are money and that nothing
else is and adopt some other term for those forms of
:
paper which are substituted for gold and silver in trade ?

But we do not get rid of the difficulty of saying, in
any given case, just what is money and what
is not mon-
ey, if we contemplate gold and silver alone. On the

contrary, a money of the precious metals only must al-
ways be subject to two peculiar deductions of large but
indefinite extent. In thefirst place, gold and silver are
MONE Y IS TEA T MONE Y D OES. 407
being continually taken in exchange for other commod-

ities where they are not received as money. In such
exchanges gold or silver, even if in coin, is not money,
It becomes, notwithstanding the impress of the mint, an
article ofordinary merchandise, accepted, not with a
view to being soon parted with, on the same terms aud
in the same form in which it was received, but that it
may pass at once into consumption, perhaps as the ma-
terial of elaborate manufacture. In the second place,
of the gold or silver money of a country a large but al-
ways unknown share is in hoards or reserves, neither
paying debts nor making purchases, and hence not
money.
Indeed, the question, money or not money, is, in re-
spect to anything that could be taken, wholly a question
of degree—the degree of the extent and facility of its
use in exchange. We say that money is any commod-
ity which attains such a measure of popular acceptabil-
ity that men habitually receive what they have to
it for
sell, knowing that it will in due time, that is, at any
time, command in exchange what they may wish to buy.

As we have seen, two commodities may be used as mon-
ey at the same time or one may be working its way into
;
general currency, while another, the heretofore recog-

nized medium, is losing its popular acceptance. At any
given moment might be impossible to say which was
it
in the greater degree the money of the community; it

might be difficult, at another moment, to say whether
either was money or not. These considerations, how-
ever, while going far to impair the authority of all statis-
tics of monetary circulation, do not cast the slightest
doubt on the nature of the Money-function or its im-

portance, or render it impossible to reason respecting it
with accuracy and assurance.
:
408 MONEY.
The impatience economic definitions Avhicli allow ol

of
exceptions is very widely manifested, appearing in many
treatises, even those of great merit. M. Chevalier ex-
hibits it ia the discussion of the very subject on which
we have dwelt at such length, viz., the question whether
bank-notes are money.' Yet many of the most impor
taut distinctions in political economy are those dra'\m
between classes of commodities, of services, or of per-
sons, where yet individuals cannot with assurance be
identified as belonging to either class. Prof. Cairnes.
has well stated this condition of economic definition

"In controversies about definitions, nothing is more
common than meet objections founded on the assump-
to
tion that the attribute on which a definition turns ought
to be one which does not admit of degrees. This being
assumed, the objector goes on to-show that the facts or
objects placed within the boundary line of some defini-
tion to which objection is taken, cannot, in their extreme

instances, be clearly discriminated from those which lie
without. Some equivocal example then taken, and the
is
framer of the definition is challenged to say in which

category it is to be placed. Now it seems to me that an
objection of this kind ignores the inevitable conditions
under which a scientific nomenclature is constructed,
alike in political economy and in all the positive sciences.
In such sciences, nomenclature, and therefore definition,
is based on classification, and to admit of degrees is the

character of all natural facts. ... It is, therefore,
' " Les personnes qui veulent que le billet de banque soit de la
monnaie, n'ont jamais pu tracer une ligne de demarcation qui fut nette
entre le billet de banque et la lettre-de-change, ou le billet-a-ordre.

Si Ton dit que le billet de banque passe de main en main sans en-
dossement, on peut repondre que les lettres-de-change en hlanc sont
dans le mcme ( as," etc., etc. — [La Monnaie, p. 59.]
ADVANTAGES OF PAPER MONEY. 409
no valid objection to a classification, nor consequently,
to the definition founded upon it, that instances may be
found which fall, or seem to fall, on our lines of demar-
tation. This is inevitable in the nature of things.
But
ibis notwithstanding, the classification, and therefore the
definition, is a good one, if, in those instances which
do
not fall on the line, the distinctions marked by the
defi-
nition are such as it is important to mark."— [Character
and Logical Method of Pol. Economy.]
The motive for the issue of Convertible Paper Money

is twofold :
first, the greater convenience of paper as
compared with gold, and in a still higher degree as
compared with silver.'
A thousand sovereigns weigh upwards of twenty-one
pounds troy silver of the same value, fifteen or sixteen
;
times as much. Such an amount of metallic treasure

would not only be exceedingly cumbersome, but its pres-
ence could hardly escape observation, inviting not only
to robbery but to graver violence.
The second motive for the issue of Convertible Paper
Money is its greater cheapness {i. e., to the issuer), since
ithas been ascertained that a much larger amount of
paper can be kept in circulation than is held of specie
for redemption ; and the issuer of the paper derives a
In his recent letter on the silver question, Mr. Wells has dwelt
spoTtively on the cumbrousness of silver, at its present purchasing
V0V3T, as an argument against the rehabilitation of that metal as
unlimited legal tender concurrently with gold. " The wheelbarrow,
m fact, will become the essential, and possibly the fashionable, porte-
monnaie for all who purpose to engage in any considerable moneyed

transactions." The sufficient answer to Mr. Wells's objection is that
the bank-note has been in use two hundred years,
35
410 MONEY.
profit from the interest on all notes loaned, above the

coin and bullion in his possession.
It is commonly said that paper money thus issued
represents specie, but we shaU do well to decline, with
Mr. Tooke [Hist, of Prices, iii, 224], and Prof. Price, to
admit a term so vague and misleading. "I cannot," says
the latter, " accept the word represent
'
' in currency, for
I can never understand its meaning. It has no definite
meaning for me, nor, as far as I can perceive, for any
one else." — [Principles of Currency, p. 69.]
Were a paper money to be based upon the full amount
of specie needed for its redemption entire, the question
whether it would be more or less expensive to the com-
munity, as a whole, would depend upon the ratio between
the loss of coin by abrasion in use, and the expense of
putting out and keeping out paper promissory of coin.
It might be that, in a given state of the arts of coinage,
on the one hand, and of engraving, paper-manufacturing,
and printing, on the other, the cost of replacing gold by
paper would be an expensive one. At another time, the
charge of issuing notes might be much below the value
of the metal lost from year to year by abrasion; and
hence, the country as a whole, would be a gainer by the
substitution of paper for the full amount of coin held for
redemption.
Looking, however, to the interest of any private issu-
ing body, it will appear that the cost of maintaining
such a circulation would be greater by the whole expense

of engraving, printing, and issuing the paper. But with
a reserve of coin and bullion, such as the experience of
modern banking has ascertained to be -sufficient to meet
all demands reasonably to be anticipated, the profit to
the issuing body may be very considerable.

"The gold and silver money,'' wrote Adam Smith,
DANGERS OF PAPER MONEY. 4,\l
"which circulates in any country may very properly be

compared to a highway, which, while it circulates and
carries to market all the grass and corn of the country,
produces itself not a single pile of either. The judi-
cious operations of banking, by providing,
be if I may
allowed so violent a metaphor, a sort of wagon-way
through the air, enable the country to convert, as it
were, a great part of its highways into good pastures
and cornfields, and thereby to increase very considera-

bly the annual produce of its The com-
land and labor.
merce and industry of the country, however, it must be
acknowledged, though they may be somewhat augment-
ed, cannot be altogether so secure when they are thus,
as it were, suspended upon the Daedalian wings of paper
money, as when they travel about upon the solid ground
of gold and silver."— [Wealth of Nations, i, 321.J
The closing sentence quoted from Dr. Smith intimates
a contingency to which Convertible Paper Money is al-
"
ways, in a greater or less degree, subject, namely, a " run
upon the banks for the redemption of their notes, which
shall exhaust their reserves of specie. Icarus, it will be
recollected, set out with Daedalus on his flight through
the air, but, by soaring too near the sun, which, after the
manner of Lord Bacon, we may conjecture to represent
the fierce blaze of competition, his wings of wax were
melted, so that he fell out of the aerial highway and was
drowned which bear his name. Nor is dis-
in the waters
aster possible merely. Miscarriages enough have oc-
curred on these "wagon-ways through the air," in the
brief history of the United States, to give a name to
every bay and cape upon our coast.
Yet though the issue of bank-notes on a partial basis
of specie, under the doctrine of chances, is always, in
the nature of the case, at a certain risk, this does not
412 MONEY.
constitute a fatal objection topaper-money banking, if it

be otherwise desirable. Men and
communities rightly
take the necessary risk of collisions and boiler explo-
sions for the sake of the saving in time and the gain in
power which they derive from the use of steam-cars and
steamboats.^ So it might be with disasters to which,
from the managers or through causes that could
fault of
neither be controlled nor anticipated, paper-money bank-
ing should be found subject.
Just what proportion between notes and specie-re-
serves will, in the balancing of gain against loss, leave
the largest net result in favor of such a system, is a
purely banking question. Lord Overstone, a very con-
servative writer, who will often be quoted in the remain-
ing pages of this work, regards one-third bullion as suf-
ficient even in a country where communication is so apt
and quick as in England [Tracts, pp. 455-6]. This is
the proportion actually taken in many countries of Eu-

rope, as the legal'^ minimum reserve. It is clear, however,
that the conditions of issue must differ so widely, from
time to time, and place to place, as to make it impossi-
ble to apply the same rule to all banks with any benefit.
A bank whose notes circulate among a rural popula-
'
Wolowski, La Question des Banques, p. 385.
' Of the rule of one-third specie, M. Wolowski writes :
" SI la
Ban que a €i4 imprudente dans les emissions, la precaution est in-
sufflsante ; si, au contraire, la Banque est prudemment et loyalement
administree, la reserve metallique, du tiers ne tarde pas a, paraaitre

excessive, oomme condition absolue. L'observation et I'expiSrience
peuvent apprendre, non sons forme de regie gdncrale, mais ponr
chaque place de commerce et pour chaque banque, selon la nature
et le mouvemen t des affaires, quelle doit etre la reserve mStalliqufc
combinee avec la rentrê des cr€ances." — [La Question des Banque'
p. 202.]
THE RESERVE. 413
tion,going twenty or fifty miles in all directions from

the place of issue, where intelligence of" disaster would
make its way slowly, where panic would be impossible,
from the mere lack of contiguity, and where the expense

of presenting a small note at the bank-counter might
equal or exceed its value, is in a very different position
from one whose notes are mainly held in the city where
they are issued. Here the whole population can be
brought into the streets by the stroke of a beU intelli- ;
gence of evil spreads rapidly, a,nd the contagion of panic

acts with terrific force.
The question of
specie-reserve is, however, as has
been banking question, with which in the
said, purely a
theory of Convertible Paper Money we have little or
nothing to do. The banks of a country might have re-
serves of two-thirds, or four-fifths their issues, putting
them beyond all reasonable apprehension of a failure to
redeem their notes on demand and yet it would be an
;
open question, whether they might not issue notes in ex-

cess, and thus subject the community to the effects of
inflation. In a word, the question of the reserve is a
question as to what is good for the banks and the actual
holders of their notes. Beyond this is the question, what
is good for the community.
Bank-notes, in the modern sense, were first issued in
Sweden. The bank which, in 1668, became the Bank of
Sweden, was first founded by Palmstruck, in 1656. The
first note was issued in 1658,^ nearly forty years before
the Bank of England was chartered.
The Bank of England, until 1759, issued no notes of
less value than .£20.^ The practice of issuing bank-notes
Palgrave, Notes on Banking, p. 87.

' Francis, Hist. Bank of England, i, 172.
414 MONEY.
as the ordinary money of circulation began in Scotland

long before it did in England, the Bank of Scotland issu-
ing £X notes as early as 1704. Sir Henry Parnell and
Mr. Thornton assign the close of the war of the Ameri-
can Revolution as the date when the first considerable
extension of paper-money banking in England took place.
"We have seen that superior convenience and compara-

tive cheapness are claimed for Convertible Paper Money.
By some writers a third advantage is alleged, respecting
which, however, wide difference of opinion exists.
Prof. Price, in his work on the "Principles of Curren-
cy," so often quoted in these pages, gives at considerable
length, and with general approval, a letter of Mr. Charles
Gairdner, manager of the Union Bank of Glasgow, who
alleges concerning bank paper money, that " it confers a
third advantage, in respect that the amount of money in
circulation in any country being a fluctuating quantity,
an increase or diminution in the amount of paper money
in circulation may take place without disturbing the
stock of coin which forms the reserve."
Mr. Patterson, author of a work entitled "The Sci-
ence of Finance," writes " The grand value of a note
:
circulation nowadays, at least in this country where

the economj'- of banking is so fully developed, consists,
not so much in the extent to which it economizes specie,
as in its power of ready expansibility,
by which it can
be made to neutralize the ever recurring fluctuations in
the supply of specie, or in the monetary requirements of
the community.
" The amount of these fluctuations is comparatively
trivial, and they are exceedingly transient. Neverthe-

less, if any obstacle prevent the expansion of the note
"ELASTIC CURRENCY." 415
circulation at such times, the effects are tremendous.

Not only trade, but the banking system itself, is liable
to be pulled to the ground."
— [P. 37.]
On
the other hand, as opposed to those who hold that
one of the advantages of paper money is that it forms a
medium more "elastic" than metalhc money, are two
schools of writers, one of which holds, with Mr. Tooke in
his later works, not only that elasticity is not desira-
ble, but that, in the very nature of the case, it cannot
exist; the second, which holds, with Mr. Tooke in his
earlier works, and with Lord Overstohe, that such capa-
bility of expansion exists in Convertible Paper Money,
but is eminently undesirable, and indeed forms the great
drawback to the motives of superior convenience and
cheapness, in the issue of such money.^
In the question thus disputed, as to the expansibility
of bank circulation over and above, or otherwise than,
the expansibility of metallic money, lies the whole phi-
losophy of Convertible Paper Money.
If the writers of the one school are correct, and such
money cannot expand or contract otherwise than as
metalhc money would same circumstances, the
in the
problem is a very simple one. Nothing but good bank-
ing is needed to give the people good money.
'
I have elsewhere [see p. 191] confessed my inabUity to reconcile
with Mr. Eicardo's often repeated opinions as to the effects of seign-
iorage on prices, a sentence from his "High Price of BuUion.'' I
have now to admit that I am wholly without an explanation of the

following sentence in Mr. Eicardo's "Proposals for an Economical
and Secure Currency " :
" Amongst the advantages of a paper over a
metallic circulation, Biay be reckoned as not the least, the facility
with which it may be altered in quantity as the wants of commerce
and temporary circumstances may require, enabling the desirable
object of keeping money at a uniform value to be, as far as it is prac-
ticablo, securely and cheaply attained."

416 MONET.
On the otlier hand, if such issues are subject to expan-

sion and contraction otherwise than as metallic money,
those who hold with Lord Overstone find the necessity
of rigidly guarding the and subjecting it
power of issue
to regulations not such merely as are prescribed by cor-
rect banking principles, but such also as are requireil
for the protection of the community against bad money,
as the result of undue expansion or contraction.
And, first, a word and a word only, as to the desirable-

ness of the so-called "elasticity" of a Convertible Paper
Money.
We have seen that elasticity is also predicated of In-
convertible Paper Money by its advocates and admirers,
but upon examination we found that there is no elas-
ticity whatever in such a money, in the sense of its
giving under pressure, to resume its shape after pres-

sure is withdrawn. There is no more elasticity in a cir-
culating medium composed of inconvertible notes, than
there is in a lump of dough, which may be pulled out to
any length, at least until it breaks apart, but never flies
back when the distending force is withdrawn.
But is there elasticity, in any proper sense, in a Con-
vertible Paper Money? Those who demand that money
shall be "elastic," mean by this that there shall be more
of it at one time than at another. Is this elasticity ? A
rubber band is elastic, but there is no more of it at one
time than at another. It will cover more ground at oua
time than at another but it only does so by becoming
thinner. There be more of
it, in any one place, at
will
one time than at another, but, for this reason, there is
less of it in some other place. There is no more rubber
when the band is stretched, than there was before. Now,
"ELASTIC OURRENCY." 417
elasticity in this, the true sense, belongs eminently to

metallic money. No class of commodities known to
men, yield more quickly under pressure, or react more
pi'omptly. If an exceptional demand arises anywhere,
gold or silver responds with an alacrity which would
be unattainable by any article not possessing great val-
ue for its bulk, and not, at the same time, that article in
which the values of all commodities are expressed for
purposes of exchange. But while, in obedience to eco-
nomical impulses, however sUght, there may be more of
such money in any one place, at one time than at another,
the total amount is not, on that account, increased.
There is less at the same time in some other place, or in
all other places. This fact is essential to create that
tension which shall make it certain that, when the excep-
tional demand in the first indicated place shall cease,
the volume of money wiU be promptly and accurately
redistributed, according to the prevailing conditions of
international commerce.
With a Convertible Paper Money, however, no such
assurance exists. Enlarged local demand is not met by
a supply drawn from the general reservoir, to be re-
turned again after the exigency is over to the common
circulation, but by issues of local origin and local accept-
ance.
But it is said, trade everywhere needs more money at
one season of the year than at another, and, as the
amount of metallic money can be no greater in spring
than ir. autumn, in summer than in winter, paper issues
come meet the larger demands of the busier sea-
in to
sons, to which the precious metals are incapable of re-
sponding. It is unquestionably true that more ex-
changes require to be effected by the use of money at
one season of the year, in any given place or withi a any

35*
418 MONEY.
given occupation,, than at other seasons, but to the olaini

hereupon made that the amount of money should be
susceptible of increase by local issues, three things are
objected.
First. The periodical occasions for a larger use of
money, on the part of different trades and different local-
ities, go far to offset each other. The busy time of the
manufacturer is not necessarily the busy time of the
agriculturist; lumber and cotton are not moved to
market same season.
in the In the same way trade
reaches its height in different sections and countries at
different periods of the year, so that money may be do-
ing work this month in France, return next month to
its
England to meet the demands of Lancashire, and go two

weeks later to Glasgow, in the usual November drain
northward, to satisfy the wants of the iron trade of
Scotland.
Secondly. It does not follow from the fact that more
exchanges are to be effected by the use of money, that
more actual pounds or dollars are requisite. Money, as
we have seen, is a quantity of two dimensions, the num-
ber of "pieces of gold, or silver, or paper, and their rate
of movement.' A scarcity of money will first make itself
felt what is on hand. Each

in an increased activity of
piece will accomplish more payments in the same time.
A rising rate of interest makes the use of money worth
more, and hence it will not be allowed to remain so long
idle in the pocket or the drawer. If the merchant or
the manufacturer has to pay eight per cent., in place of

six, for discounts, he will calculate his outgoings and
incomings more closely, in order to reduce the average
' " Whether sixpence twice paid be not as good as a shilling once
paid?"— [Bishop Berkeley's Querist, No. 478.]
"ELASTIC OURRENarr 419
amount lying in his till. He will deposit moie promptly

to secure the higher interest ; he will take more pains
in collecting sums due from his customers, with whom
the money might otherwise have tarried a day or a week
longer.
Thirdly. While there is a tendency, in a normal con-
dition of production and trade, to a greater demand for
money at one period than at another, a certain strin-
gency at such times is desirable as exerting a whole-

some repression upon speculative movement. The pres-
ent industrial and commercial organization of the world
powerfully tends to gather production into great waves
with corresponding intervals of depression —overpro-
duction succeeded surely by stagnation. This cannot
be wholly prevented. A which
certain waste of energy,
always results from fitfulmust be accepted as
exertions,
among the economical conditions of this age. But it is
utterly undesirable that the tendency should be quick-
ened and strengthened by the facility of issues of local
origin and circulation.
Passing now from the views of those who, with Mr.

Patterson, hold that facility of increase in a Convertible
Paper Money, any other in kind or degree than subsists
in money of gold or silver, is both practicable and de-
sirable, let our attention oh the two schools which
us fix
agree in regarding any action of such money varying

from the action of metallic money, under the same con-
ditions, as eminently undesirable, but differ as to the
possibility of such a divergence.

First, as to the undesirableness of divergence :
" A
mixed currency of coin and convertible paper," says
Mr. Wilson, " ought to conform to the action of a pure-
ly metallic currency."
—
420 MONEY.
"A currency when composed of bank-notes and coin,'
says Mr. Nicholson, "ought to be made by law to

fluctuate in its amount exactly as a currency composed
of coin only would have fluctuated under sinîlar cir-
cumstances."
"We are willing," said Mr. Tooke, "to consider a me-
tallic currency as the type of that to which our mixed
circulation of coin and paper ought to conform."
"I consider," said Mr. George Warde Norman, "a
metallic currency to be the most perfect currency, except
so far as respects inconvenience, in some respects, and
cost. In everything else a metallic currency is the most
perfect, and should be looked upon as the type of all
other currencies."
"What, asks Lord Overstone, " is the test of misman-
agement of the circulation ? I presume the answer will
not be disputed. Fluctuations of the amount of paper
issues not corresponding to those of bullion." — [Tracts,
etc., p. 168.]
"The sole duty," he declares, "to be performed in

regulating a paper currency is to make its amount vary
as the amount of a currency exclusively metallic would
vary under the same circumstances." [^Lhid., p. 36, cf,
pp. 27, 58, 73, 115, 168, 172, 189, 191, 362.]
These are the expressions of writers of both schools,
and it will be seen that neither school yields to the other
in the completeness and emphasis with which it asserts
that a Convertible Paper Money should conform precise-
ly, in all its operations, to the movement of metallic
money.
"But, further," says Mr. Tooke,* "we contend that it
has so conformed and must so conform, while the Tjaper

is strictly convertible."
History of Prices, 1839^7, p. 218.

"ELASriG CURRENOT." 421
It is on tliis point that we see joined the issue

wliicli divides the two schools of economists known re-
spectively by the titles, The Currency Priaciple and the
Banking Principle.
36
—
CHAPTEE XIX.
THE CURKENCY PRINCIPLE VS. THE BANKING PEINCIPLE.
Having seen how closely the two schools agree in

holding it to be a desideratum that Convertible Paper
Money shall operate in all cases precisely as metallic
money would do, we now note how widely they diverge
/on the question of the practicability of an action in the
lone form of money different from what would occur,
under similar circumstances, in the other.
"An expanded or inflated currency of bank-notes,"
"
says Prof. Price,' is an absurdity, nothing better than
pure nonsense." And again, "A convertible paper
money encounters a most sohd and objective obstacle to
excess."
"We hold it," says Mr. Wilson,* "as an incontroverti-
ble fact, that there can be no variation whatever in the
quantities, values, or general action of a currency purely
metallic, or of one composed of coin and convertible
paper ; and that the principle of convertibility alone is
a perfect guarantee that, in all cases and in every rc-
' Principles of Currency, p. 110. Of his predecessors in the de-

liartment of Money, Prof. Price writes: " Mr. Tooke discerned the true
answer. Mr. Mill, with some little wavering, and a few others, have
seen the light." [Tbid.}
" Capital, Currency and Banking, p. 66, cf. 82.
—
" THE CURRENCY PRINCIPLE." 423
specfc, tlie one currency would strictly conform with the

other."
Prominent also among writers of this school was Mr.
Fullarton, the author of a work of exceeding ability on
the "Regulation of Currencies."
" I contend," says Mr. Fullarton, " that there not only
ought to be such correspondence, but that there always

is; that, wherever the convertibility of paper is perfect
and secured from all delay or impediment, the coin of

full standard value in weight and fineness, and the traf-
fic in the metal, whether coined or uncoined, absolutely
free and unrestricted, there the bank issues, if left to
themselves, must necessarily fluctuate in conformity to
the principles which govern the supply of the standard
metal."!
Conspicuous among the English economists who

maintained "the Currency Theory," so called,^ that is,
who held to the practicability of a divergent action of

the two forms of money, and to the consequent necessity
of regulating issues upon principles different from, or
additional to, mere banking principles, was Lord Over-
stone, once Samuel Jones Loyd, an eminent banker, and
a writer of marked originality and power. Alluding to
' " Lorsqu'on ^tudie avec attention les prinoipes de la circulation
monetaire, que nous venons d'exposer, on demeure convaincu qu'une

ou plusieurs banques de circulation operant sur un march^, et ne
commettant pas de fautes dans leurs escomptes, ne peuvent jamais
^mettre trop de billets, quels que soient leurs efforts dans ce but)
parce que leurs emissions ont une limite naturelle et ndcessaire."

[Courcelle-Seneuil, Op. de Banq., p. 207-8.]
^ " We are not aware," says Mr. Wilson, " of any reason for this
appellation to the doctrine ; but we use it as a well-known distinc-
tion." — [Capital, Currency and Banking, p. Gl°.]

424 MONEY.
the former consent of economists as to the similar ac-

tion of the two forms of money in all cases, Lord Over-
stone wrote in 1840 : "It is now discovered that there is
a liability to excessive issues of paper, even while that
paper is convertible at will." ' This proposition Lord
Ovorstone maintained during his life with great assidu-
ityand much ingenuity. It was to the failure of the
government properly to regulate the amount of paper
money in England (consisting of Bank of England and
country notes) prior to 1844, so as to enforce upon it
an action conforming precisely to what the action of

metallicmoney would have been, that Lord Ovorstone
attributed the disasters "of the four great drains"^ be-
tween 1824 and 1840 and when the act of 1844, based
;
upon the principles advocated by him, if not, as general-

ly believed,' designed and proposed by him, established
' Tracts, p. 138.

" The drain terminating in the crisis of 1825, the drain which
continued from the year 1830 to the year 1832, the third drain,
which began in the end of the year 1838, and terminated in the year
1836, and the last drain, which began in 1838 and ended in the
autumn of 1839.
Mr. Tooke, on the other hand, denied that there was any disturb-
ance whatever, of either banking or mercantile credit, in 1832. The
effects of 1836, he asserted, were confined to the American and East
Indian trade. He asseverates that there was not any crisis in 1839, any
failures, or any difficulty in obtaining discounts. " The whole of the
phenomena of that year are resolvable into a moderately increased
rate of interest, during a very short interval, and an uneasiness in
the minds of the public at the unsafe position in which the Bank
hail, by want of foresight, suffered itself to be placed." — [Hist, of
Prices, 1839-47, pp. 263-270.] He makes the only real crises of En-
glish financial history prior to 1850 to be those of 1792-3, 1810-1
1825 and 1847.
' Lord Overstone disclaimed all credit foi the Act. " I never ex-
changed one word upon the subject of the Act with Sir Robert PeeL
MR. TOOKE'S VIEWS. 425
the paper circulation upon principles -n-liich, in Ms opin-

ion,' secured its action in exact conformity to that of
metallic money, Lord Overstone found in the subsequent
financial disasters of England only the natural results
of commercial misconduct in speculation and overtrad
ing,which were ineyitable in the constitution of things
and would have occurred equally under any form of cir-
culation.
With Lord Overstone were Mr. George Warde Nor-
man and Col. Torrens, while Sir Eobert Peel, adopting
their views, carried through Parliament the Act which
now regulates the circulation of the Bank
England of
and of the other banks of the United Kingdom.
But perhaps we may say that the ablest defense of
the Currency Principle to be found in the earHer
is
works of Mr. Thomas Tooke, the same writer who after-

wards came to be recognized as the leader of the op-
posing school. We find these views in the first edition
of his great work on Prices, published in 1823, and in
his tract on the "State of the Currency," published in
1826. From these earlier works of Mr. Tooke I shall
frequently quote in the further discussion of this most
difficult subject, not at all in the spirit of citing a man
against himseK, or with any view to break the force of
his later utterances; but simply because I find his
statements of the Currency Principle, at the time he
. . . By the Act of 1819, Sir Eobert Peel placed the monetaiy

system of this country upon an honest foundation, and he was ex-
posed to great obloquy for havii g so done. By the Act of 1844, ho
has obtained ample and eflBicient security that this honest foundation
of our monetary system shall be effectually and permanently main-
tained."
'
For the general development of Lo'd Overstone's views, see
"Hardcastle on Banks," pp. 177-8 cf. pp. 203, 209.

;
426 MONET.
held it, to be more satisfactory than those of any other

wiiter. This is, of course, to accord great importance
to Mr. Tooke's subsequent recantation of this theory

and his long opposition to it; and yet I am disposed tc
think that the historian of English prices was nearei
the tnath in his earlier than in his later works.
was about 1840 that Mr. Tooke, through a new edi-
It
tion of the first two volumes of his work on Prices, final-
ly parted company with the advocates of the Currency
Principle, and for the first time announced the views
which he afterwards consistently maintained. Mr.
Tooke quotes^ and accepts Mr. FuUarton's account of
his progress in the theory of Money :
"At the time of that publication in 1823, Mr. Tooke's

mind appears to have been strongly imbued with the
prevailing notions that prices are liable to rise and fall
with the increase or diminution of the amount of bank-
notes in circulation that banks have it in their power
;
to increase at pleasure the quantity of paper money

and that the efflux and influx of gold are to be regulated
by regulating the issues of the banks.
"He adhered to these doctrines after he had refuted
them by his discoveries, and seems to have parted with
them at last only by degrees and with reluctance, under
the pressure of his growing convictions."
In speaking, then, of the early works of Mr. Tooke, I
which he maintained the so-called Cur-
refer to those in
rency Principle and in speaking of his later works, to
;
those in which he maintained what in opposition is

called the Banking Principle.
The reasons given by the writers who support the
'
History of Prices, 1839-47, pp. xi-xii.
:
MR TO ORE'S VIEWS. 427
Banking Principle, for denying the possibility of the in-

flation of Convertible Paper Money, are two
First, that the additional notes, requisite for inflation,
cannot be got out.
Second, that, if once out, they would not stay out.
Thus Mr. Wilson says : "A currency ' augmented with-
out any corresponding augmentation of internal trade'
[Horner] implies a quantity of notes retained in circula-
tion, at the will of the issuers, which the public do not
require. Now, the public do not receive notes from a
banker without paying interest for their use ; and, how-
ever low that may be, they will take no more than they
absolutely require —nor do they retain notes in their
possession beyond what the convenience of trade re-
quires ; and, therefore, if issued in excess of that quan-
tity,and if convertible, a portion would instantly be re-
turned upon the issuers."
Mr. Wilson insists that, throughout the, entire opera-
tion of issue, banks are wholly passive, giving out just
what the community require, and no more, or, as Prof.
Price expresses it, serve as " mere shops for the sale of
tools." " The prices of commodities," says Mr. Tooke,
" do not depend upon the quantity of money, . . .
but, on the contrary, the amount of the circulating me-

dium is the consequence of prices."
The first reason does not seem to me entitled to much
respect. It reads very much like the old catch in the
logic books, was proven that a thing cannot

by which it
move. A thing, if it move at all, must move either

where it is or where it is not. It cannot move viliere it
is not. It cannot move where it is. Therefore it cannot
move at all. And yet we know that objects move. And,
as Mr. Eicardo says, the argument by which it is sought
fco demonstrate that bank-notes cannot be issued ia ex-
428 MONEY.
cess of the amount of metallic money, would also suffice

to prove that not an ounce of the silver of Potosi, or of
the gold of Cahfomia, could have got into circulation.
"Let us suppose all the countries of Europe to carry
on their circulation by means of the precious metals,
and that each were at the same moment to establish a
bank on the same principles as the Bank of England.
Could they, or could they not, each add to the metallic
circulation a certain portion of paper? and could they,
or could they not, permanently maintain that paper in
circulation? If they could, the question is at an end;
an addition might, then, be made to a circulation already
sufficient, without occasioning the notes to return to the
bank in payment of bills due.
"If it is said they could not, then I appeal to experi-
ence, and ask for some explanation of the manner in
which bank-notes were originally called into existence
and how they are permanently kept in circulation. . .
"If the principle advanced by the bank directors be

correct, not a bank-note could ever have been perma-
nently kept in circulation, nor tuould the discovery of the
mines of America have added one guinea to the circulation
of England. Tlie additional gold would, according to this
system, have found a circulation already adeg unte and in
ivhich no more could be admitted." —[Kicardo, Beply to
Bosanquet.]
The question of keepir.g out Convertible Paper Money

in excess, is a wholly distinct question ; and the argu-
ment of the advocates of the Banking Principle, at this
point, is entitled to more respectful and careful treat-
ment.
A metallic money, if it becomes excessive, is reduced
by exportation.
MR. TOOKK'S VIEWS. 429
A Convertible Paper Money, if it becomes in excess,

cannot be exported, in its present shape ; but may be re-
duced by the return of the notes to the issuer, with a
demand for gold for exportation.
An Inconvertible Paper Money can be reduced neither
by direct exportation nor by return to the issuer.
The question at issue is -whether, in the case of a Con-
vertible Paper Money, the reduction takes place with the
certainty and celerity required to avoid the consequences
of inflation.
It is claimed by the advocates Banking Princi-
of the
ple, that there is a Law of Reflux which constitutes an
ample security against inflation.
Before proceeding to argue this question, let it be
said that it is admitted generally by writers of this
must be im-
school, that the convertibility of the notes
mediate and unconditional, in order to secure the full
working of the principle. "A paper money," says Adam
Smith, "consisting in bank-notes, issued by people of
undoubted credit, payable upon demand without any
condition, and in fact always readily paid as soon as
presented, is in every respect equal in value to gold and
silver money. . . .
" It would be otherwise, indeed, with a paper money

consisting in promissory notes, of which the immfediate
payment depended, in any respect, either upon the good
will of those who issued them, or upon a condition
which the holder of the notes might not always have it
in his power to fulfill, or of which the payment was not
exigible till after a certain number of years, and which
in themean time bore no interest." . . .
" Some years ago the different banking companies of

Scotland were in the practice of inserting into their
bank-notes what they called an optional clause, by
36*
430 MONET.
wliicli they promised payment to the bearer, either as

soon as the note should be presented, or, in the option
of the directors, six months after such presentment, to-
gether with legal interest for the said six months." Ad •
vantage, says Dr. Smith, was often taken of this by di-
rectors to induce note-holders to take, cash down, a part

of —
what they wanted. [Wealth of Nations, i, 326.]
Given a paper money immediately and uncondition-
ally convertible, "the reflux," says Mr. Tooke, "takes
place chiefly in two ways by payment of the redundant
;
amount to a banker on a deposit account, or by the re-

turn of notes in discharge of securities on which ad-
vances have been made. A third way is that of a return
of the notes to the issuing bank by a demand for coin.
The last seems, in the view of the currency theory, to
be the only way by which a redundancy, arising from
the unlimited power of issue, which they assume to ex-
ist, admits of being corrected, in a convertible state of
the paper ; it is certainly the one least in use." — [Hist,
of Prices, 1839-^7, p. 185.]
The paragraph here quoted requires us to note a dis-
tinction which did not emerge until comparatively late
in the discussion. How, ask the advocates of the Bank-
ing Principle, can a convertible currency be maintained
in excess? If we say that the paper is issued in excess,
we assert that it is depreciated. If depreciated, a pre-
mium on gold will arise, the faintest beginnings of which
will be sufficient to bring the paper back to the bank,
to secure the profit arising from the premium.
Norman and Lord Overstone, when we
But, answer Mr.
say that Convertible Paper Money is issued in excess,
we do not mean that paper is depreciated in comparison
with gold. We assert that tlie whole irwmy of the country
paper- and gold, undistinguvih lUy, is depreciated in compar-
MR. TO ORE'S VIEWS. 431
ison with themoney of other countries. We do not assert

that an eifect can be produced to an indefinite ex-
siicli
tent, or maintained for an indefinite period. We admit

that snch a depreciation of the whole body of the mon-
—
ey of a country its lower "local value" must so en- —
courage imports and so discourage exports, as ultimate-
ly to bring the volume back to the level of a purely me-
tallic money. But we assert that the inflation may pro-
ceed so far and be maintained so long, as to originate
evils of the most momentous character in the produc-
tion and trade of a country. We also assert, that when
the reaction sets be so sudden and so
in, it is likely to
violent as not only to bring the volume of money back

to the proper level, but for a time to carry it even below
that level, which fact will, of itself, become a new cause
of industrial and commercial distress and loss.
Such was the position of the Currency School. Con-
vertibiUty is a security against permanent excess of the
currency, and fixes a limit beyond which irregularity
cannot be carried but the principle comes into opera-
;
tion only through the medium of prices. This had been

Mr. Tooke's own view, in his pamphlet of 1826. " It
not unfrequently requires an interval of some length, be-

fore the commodities which are interchangeable with
other countries are aff'ected by an excess in circulation,
in such a degree as to produce the effect of increased
import and diminished export." [P. 90.] —
"It is very true," said Mr. Norman in his work on
" Currencyand Banking," " that convertible paper cannot
permanently be depreciated that it must at length be-
;
come equivalent to the specie it represents ; but, under

certain circumstances, the adjustment may be long de-
ferred." ,
"Mere convertibility of the paper," said Mr. Henry

432 MONEY.
Drummond,* "is sufficient to prevent its ultimate de-

preciation, and to make the currency right itself. . . .
But mere convertibility is not sufficient to prevent rti-

inous vacillations, ebbs and flows, to an immense ex-
tent. . .The mere convertibility of paper can-
.
not check depreciation until it has proceeded great

lengths."^
It needs to be borne in mind that the advocates of
the Currency Principle do not generally assert that the
banks can force their notes into circulation, irrespective
of the condition of trade nor do they generally claim
;
that the speculative impulses which allow inflation to

take place are due, primarily or principally, to re-
dundancy of money. "Fluctuations in the amount of
the currency," said Lord Overstone,' "are seldom if
ever the original and exciting cause of fluctuations in

prices and in the state of trade. The buoyant and san-
guine character of the human mind ; miscalculations as
to the relative extent of supply and demand; fluctua-
tions of the seasons changes of taste and fashion leg-
; ;
islative enactments and political events excitement or ;
depression in the condition of other countries connected

with us by active trading intercourse ; an endless vari-
ety of casualties acting upon those sympathies by which
masses of men are often urged into a state of excitement
or depression ; these, all or some of them, are generally
the original exciting causes of those variations in the
state of trade to which the report refers. The manage-
'
Elementary Propositions respecting the Currency.
" The doctrine that paper money is liable to be issued in excess,
has been strongly supported by Ph. G-eyer in his work, " Theorie und
Prsixis des Zettelbankwesens." Not a few of the German econ-
omists incline to the same view.
• Tracts, etc., p. 167.
—
MR. TO OKU' S VIEWS. 433
ment of the currency is a subordinate agent ; it seldom

originates, but it may and often does exert a consider-
able influence in restraining or augmenting the violence
of commercial oscillations."
"When speculation isionce on foot," wrote Mr. Tooke
in 1826, "with a circulation of the expansive nature of
ours, the rise of any one article may not only be in a
ratio far greater than the occasion really calls for, but,
by increasing the aggregate of the circulating medium,
may cause indirectly a rise in other commodities."
[State of the Currency, p. 45.]
Again, writing of English trade in 1824: "This in-
crease of the circulation at the present time, when the
urgent necessity of a reduction of the issues, or, at
any rate, of a limitation of them, was so strongly indi-
cated, could not fail of promoting, though it had not ex-
cited, the tendency which then existed to extravagance
of speculation. . . . The Bank had not kindled the
fire, but, instead of attempting to stop the progress of
the flames, it supplied fuel for maintaining and extend-
ing the conflagration." — [Hist, of Prices, ii, 178.]
And of the final consequences of such inflation, he
says: "The factitious increase of a medium of paper
and credit, raising the prices of commodities and of the
public funds above the level which the metallic basis of
the currency can support, must be succeeded, not only
by a destruction of all that artificial medium, but by a
temporary contraction of the circulation below the level
from which that enlargement took place." — [State of the
Currency, p. 63-4.]
It will be observed that Mr. Tooke, in these sentences,

quoted from his earlier works, asserts that inflation (be-
yond the limits of metallic money) only takes place

when a tendency to speculation, otherwise induced,
already exists.
434 MONEY.
"In the absence of inducement from the state of the

markets to speculate in goods, if extra notes were is-
sued, they would either have returned in the shape of de-

posits into the hands of the Bank, or have remained in-
ert in the drawers of bankers." — [Hist, of Prices, ii, 64.]
I confess that to my miud there appears no more dif-

ficulty in believing that the commercial community will
take up and hold more money when agitated by a specu-
lative impulse and flushed with expectation of extraor-
dinary gains,' than in believing that water will retain
more of a certain salt in solution when heated than
when cold. "The public," says Mr. Wilson, "do not
receive notes from a banker without paying interest for
their use, and, however low that may be, they will take
no more than they absolutely require." But is it true

that men are always equally solicitous to save on their
interest account? always equally careful in expenditure?
Surely not. At one time the man of business is mainly
intent on saving, seeking not so much to enhance his
gross profits, which, iu the state of trade, he may know
is impracticable, as to economize in his outgoings.
These are ordinary times, duU times, when opportuni-
ties for exceptional gains do not present themselves.
At another time, the man of business gives his thought,

his effort, his care, more to gaining than to saving ; he
is ready to spend liberally, it may be lavishly, because
' "In most countries, but especially in England, there is at all
times a profusion of enterprises to be undertaken ; of experiments
to be tried; of schemes to be worked out; of improvements to be

made ; of ingenious men to be set up with capital ; of trades already
profitable to be made more so by vast extensions." — [Wm. New-
march, The New Supplies of Gold, p. 71.]
MR. TOOKE'S VIEWS. 43i;
he sees, or thinks he sees, opportunities to make excep-

tionally high profits on his ventures. These are good
times, flush times. At such a period, men do not scru-
tinize the contents of their tills, or the entries in their
doposit-books, to see if they can contrive to reduce their
dead stock or their interest account.
Again, though speculation and overtrading do not
usually originate in an excess of money, the fact that
they find in circulation a medium which can be rapidly
increased at will, without cost, and which will thus re-
spond without strain, so to speak, to the risiag demands
of trade, surely must enable speculation and overtrading
to proceed faster and further than would be practicable
if the money needed to support the higher prices had to
be called in from foreign countries, and actual solid

value given in exchange for it. When, therefore, Mr.
Wilson asserts that the public do not "retain notes in
their possession beyond what the convenience of trade
requires," the advocate of the Currency Principle re-
joins that the higher prices resulting from a general
speculative movement of trade actually require more
money and hence
; that the public will retain the addi-
tional amount of notes in circulation, paying for their
use, for the same reason which led them to retain, and
pay for the use of the notes previously in circulation.
It is manifest that, if banks have the ability in times
of speculative impulse thus to increase their issues, or

if there is in trade, without any conscious purpose on
the part of bank managers, a tendency to call out paper
money from the banks more rapidly or more extensively
than metallic money would, under the same circum-
have been called in from other countries,
stances, this,
movement will necessarily be assisted by

436 MONEY.
COMPETITION AMONG ISSUEES.
"The paper issues of this country," wrote Lord Over-

stone in 1840, "are . . . competing issues,' each
endeaToring to encroach upon the other, and to appro-
priate to itself, at the expense of its competitors, a
larger proportion of the whole circulation of the coun-
try. . . . Hence it arises thatan expansion by one
issuer may very naturally lead to a corresponding ex-
pansion by the other issuers. Such is the legitimate
result of competitive action."^
In the same view, Mr. McCulloch says of the country
banks of England prior to 1844: " Being a very numer-
ous body, comprising several hundred establishments,
scattered over aU parts of the country, each is impressed
with the well-founded conviction that all he could do in
the way of contraction would be next to imperceptible,
and no one ever thinks of attempting it so long as he is
satisfied of the stability of those with whom he deals.
On the contrary, every banker knows, were he to with-
draw a portion of his issues, that some of his competitors
would most likely embrace the opportunity of filling up
' Prof. Jevons finds " an evident flaw " in the position of those
writers who hold that impossible to overissue cgnvertible paper
it is
money. "When prices,"he says, ''are at a certain level and trade

in a quiescent state, a single banker is, no doubt, unable to put '-to
circulation more than a certain quantity of bank-notes. He cannot
produce a greater upon the whole currency than ? single pur-
effect
chaser can, by his sales or purchases, produce upon the market for
corn or cotton. But a number of bankers, all trying to issue addi-
number of merchants offering to sell corn for
tional notes, resemble a
future deUveryj and the value of gold will be affected, as the price
of corn certainly is."— [Money and the Mechanism of ExchangQ
pp. 314-5.]
» Tracts, pp. 97-8, cf. pp. 115, 122-3.
a
MR. TOOKJS'S VIEWS. 437
np the vacuum so created, and that consequently he

should lose a portion of his business, without in any
degree lessening the amount of paper afloat. Hence, in
nineteen out of twenty cases, the country banks go oji
increasing their aggregate issues long after the exchange
has been notoriously against the country and when at ;
last they are compelled, because of the altered state of
thinfj;s in the metropolis, to pull up, the chances are

ten to one that the contractionis carried to an improper
extent."— [Notes to Smith's "Wealth of Nations.]

In consonance with their general views, the advo-
cates of the Currency Principle hold to the necessity of
closely restricting the power of issue,' while the advo-
cates of the Banking Principle cannot admit this to be
necessary.
" Eival issuers," said Lord Overstone, " equal in
power and unlimited number, on the one hand,
in —
single issuer, limited in his franchise but invested with
plenary power for the discharge of them, on the other
hand — ai-e the respective principles." — [Tracts, etc., p.
117.]
Indeed, as the advocates of the Banking Principle
hold that Convertible Paper Money cannot be issued in
excess, they are bound to hold a high degree of com-
petition in issues to be desirable. Individual issuers,
writes Prof. Price,'* " are proved by experience to cover
' "We do not want an ab.indant supply of cheap promissory pa-

er."— [Sir Robert Peel.]
' While Prof. Price asserts that the principles of money have noth-
ing to do with the question whather tliere shall be one issuer or
many, this being a matter " of pure detail, of time and place, of local
circumstances and habits " [p. 152], ho admits that, as a branch of
hanhing, the power of issue is so liable to abuse as properly to be*
3ome the subject of regulation by the State.

" It may be perfectly reasonable for the law to say that no mnn
438 MONEY.
the land far more speedily and more effectually tliar

the notes of a central institntion." — [Principles of Cur-
rency, p. 153.]
The question of holding the power of issue under
strict control, or of breaking it up \_frdctionne'ment du
privilege d'emission^ among many institutions, with the
result of competition in issues, has also divided the
economical opinion of France, where the monopoly of
the Bank of France^ makes the question a very practical
one. MM. Chevalier, Coquelin and Courcelle Seneuil,^
shall be allowed to incur so vast a debt to the publiu, to an immense

aggregate of individuals, all accepting these debts as a matter of
course, almost without any choice in the matter, unless he gives
some security for repayment."
" The individual efforts of each private person for himself are in-
sufficient to procure the safety which is indispensable for him and
the rest of the world. The state must be summoned to do what it
alone can perform."

Mr. Tooke, even in his later writings, strongly asserted the ne-
cessity of a government regulation of issues, as a branch of banking.
" I agree," he says, " with a writer in one of the American papers,
who observes that free trade in banking is synonymous with free
trade in swindling." ..." The claims of right to such freedom

of action in banking ought to be strenuously resisted. They do not
rest in any manner on grounds analogous to the claims of freedom
of competition in production. . . . The issue of paper substitutes
for coin is no branch of productive industry. It is a matter for regu-
lation by the State with a view to general convenience, and comes

within the province of police." — [Hist, of Prices, iii, 206-7.]
' This monopoly was threatened, curiously enough, as an incident
to the annexation of Savoy, after the Italo-Franco- Austrian war
The Bank of Savoy, having rights of issues while that province be-
longed to Italy, claimed to retain those rights after annexation,
which would have substituted an unintentional duopoly for the pre-
viously existing monopoly.
''
' Soit qu'une seule banque jouisse du privQ^ge exclusif d'Smettrs
des billets, soit que plusieurs banques, stimulSes par la concurrence
: ;
MR. TOOKE'S VIEWS. 439

with whom are perhaps the majority of well-known
writers, have advocated competition in issues, deeming
the American system the most desirable for imitation.
M. Wolowski, with whom are MM. Eossi and Leon
Faucher, has defended the restrictive and regulative
principles of the English system.
SMALL NOTE ISSUES.
Besides the question of competition in issues, still

another, that of small notes, entered prominently into
the discussions respecting Convertible Paper Money
in England, prior to the Act of 1844. In 1826, Mr.
Tooke had written
" There is one part of that circulation which ought
not, upon any footing, or with any modification, to be
any longer tolerated. I mean the notes under £5.
These are, in every point of view, a most objectionable
medium of exchange. Tliey offer greater facilities for
being issued in excess tJian notes of a Jiigher denomination ;
and they almost invariably exclude specie entirely from the
districts luhere they pass current. . . .
"It is quite idle to contend that the lower classes

have the option of refusing to take the country notes.
Practically, in the great majority of instances, they have
not and cannot have any such option."
The public sentiment of England was set strongly
against small notesby the experience of 1825, which
Mr. Tooke had in mind when writing the above para-
graph ; and, as is well known, small notes are excluded
fi'om the circulation of the kingdom. The same objec-
essayent de forcer les emissions, le resultat est exaotement le m^me

il est impossible de depasser le chiffre &x6 par les besoins du service
ies Sdhaxigva." —fOp. de Banque, p. 200.]

44:0 MONEY.
tion to small notes has been exhibited by economical

writers generally on this side the Atlantic.
On the other hand, Prof. Price sees no reason, so far
as the principles of currency are concerned, why small
notes should not issue without restraint; and declares
Ihat "one-pound notes are a glory to Scotland at this
A-ery hour." — [Principles of Currency, p. 154.] Mr. Wil-
son, in hiswork on "Currency and Banking," makes a
plea for the issue of one-pound notes by the Bank of
England, declaring that the money of the kingdom would
be greatly economized thereby. The prejudice against
one-pound notes, he asserts, arose during the Suspen-
sion; but should in reason have equally applied to
five-pound notes. The strictly economical arguments
of those who advocate the suppression of small notes
are three : first, by Mr. Tooke in the paragraph
as stated
cited, that they are more liable to be issued in excess
than larger notes, being at best but imperfectly convert-
ible \i. e., the holders being, through ignorance, through
poverty, or through distance, unable in fact to present
them for redemption]. It was probably due to this
cause that when the Bank of England, in 1817, as pre-
viously recited [see p. 356], ofi'ered to redeem in coin
its one-pound and two-pound notes, a small demand
was made upon its coJBfers, while an offer to redeem the
larger notes brought in such a mass of paper for re-
demption as compelled the Bank to abandon its projec t.
Second, that the circulation, among the masses of the
people, of coin which would (by Sir Thomas Gresham's
law) be displaced by small notes, constitutes the best
possible reserve for the banks issuing notes.
' In his
work published Mr. Tooke quotes Mr. Baring's
in 1826,
evidence before the Committee of 1819 as showing, by
the example of the Bank of France in 1817 and 1818,
"the comparative facility with which the coffers of a
MR. TO ORE'S VIEWS, 441
bank which has suffered too great a reduction of its re-

serves by imprudent issues of paper, may be replen-
ished out of a circulation consisting in great proportion
of coin, notwithstanding a coincident demand for large
payments abroad."'
"Their bullion," said Mr. Baring, "was reduced by
imprudent issues from 117,000,000 francs to 34,000,000
francs, and has returned, by more prudent and cautious
measures, to 100,000,000 francs. It must, however, be
always recollected that this operation took place in a
country every part of the circulation of which is sat-
urated with specie."
And it is at this point that a fair criticism of Prof.
Price's position respecting small notes suggests itself.
On the assumption that bank-notes are convertible, that

able writer throws not a little ridicule upon the small-
note-prohibition. £5 and £10 notes are
If convertible
good, why not convertible £1 and £2 notes?
But the
specie circulation which the £1 and £2 notes would re-
place is one of the prime means relied upon by many
economists of Prof. Price's own school, for making the
higher notes convertible. If a paper money is convert-
ible, it is, as Prof. Price admits, not because it is called
so, but because it is made so and kept so.
The third argument of those who advocate small-
note-prohibition is that, while the small notes are im-
perfectly convertible, being liable to be put out and kept
otit in excess in ordinary times, owing to the want of in-
formation on the part of holders, or their inability to
I)resent the notes for redemption promptly and in the
right place, the very ignorance of the masses may at
times render this the most dangerous element of the
money of a country, since the uneducated are the first
' State of the Currency, p. 111.

37*
442 MONEY.
subjects of panic, and, after toleratingbad monej for a

long period, are apt, on the occurrence of any alarm, to
rush to the opposite extreme and give way to unreason-
ing apprehensions, besieging the doors of the bank, be-
yond aU control or influence by argument or persuasion,
and bringiQg down mischief upon themselves and the
community. The issue of small notes, said Mr. Horsley
Palmer, "renders the bank liable to a very great sud-
den demand. . . . The holders of small notes are
the lower orders of the people, whose fears are more ex-
tensively acted upon iu times of distrust." It was the
testimony of the officers of the Bank of England that

this portion of the issues was the main source of dan-
ger in 1825.
The argument, in this connection, from the higher
claim which the poorer classes, by reason of their help-
lessness, have upon the consideration of government, is
mainly a political argument and we need not entertain it
here.
The argument from the greater facility of counterfeit-
ing^ in the case of small notes, is at least worth notic-
ing. The Act for authorizing the Bank of England to
stop payment, in 1797, was followed, as a matter of ne-
cessity,by an Act enabling the Bank to issue notes under
£5. The result was a monstrous increase of forgery.
In the twenty-one years preceding 1797 there had been
but five or six executions for this crime. In the twenty-
one years between 1797 and 1818, 313 persons suffered
death for counterfeiting bank-notes.
"Doubtless, too, they can be more easily foi-ged; and this is a

practical reason of great weight. Still it is not a reason derived
from any principle of currency ; it is a reason of mechanics, of manu-
facturing, on which a political economist need not dweE when ex-
pounding the principles of currency." — [Price, Principles of Currency
p. 155.]
CHAPTEE XX.
CONTEETIBLE PAPER MONEY IN ENGLAOT).
Such, -witli the incidents described, being the issue be-

t-ween tlie two schools of English economists, advocating,
severally, -what are known as the Currency Principle and
the Banking Principle, let us trace the progress of the
doctrines of the former school up to their embodiment
in the Bank Act of 1844.
In 1819, says Lord Overstone, " terminates the Dark
Age of Currency." Up to this date the directors of the
Bank had stood on the Banking Principle, maintaining
that good banking was all that was necessary to give the
country good money and ; in the very year named the
Bank sent to a Parliamentary Committee a resolution
[March 25] in the following words :
" That this Court cannot refrain from adverting to an
opinion strongly insisted on by some, that the Bank has

only to reduce its issues to obtain a favorable turn in
the exchanges, and a consequent influx of the precious
metals ; the Court conceives it to be its duty to declare
that it is unable to discover any solid foundation for
such a sentiment."
But the views of the directors did not prevail. " The
reports of the select committees of both Houses oi
Parliamen/-. upon the expediency of resuming cash pay-
— '
444 MONEY.
ments, in 1819, were founded upon the adoption of the

doctrine, of the BuUionists, and from that time it may
be said that the principles of currency, as expounded
by them, have supplanted the so-called practical views
which had previously prevailed, and have been recog-
nized by the public sentiment, as the code of laws by
which the monetary system of the country ought to be
—
governed." [Lord Overstone, Tracts, p. 53.]
" The nest well-defined step," continues Lord Over-
stone, " in the progress of public intelligence upon the
subject of currency was at the period of the appointment
of the Parliamentary Committee, preparatory to the
renewal of the bank charter, in 1832.^ The evidence
given by the most intelligent of the Bank directors on
that occasion contrasts in the most extraordinary man-
ner with the evidence given, under similar circum-
stances, only thirteen years before." [Ibid., p. 58.]
Yet, notwithstanding this movement of public senti-

ment and of Bank opinion on the subject, the position
of the Bank relative to the money-supply of the king-
dom was still, in the opinion of the Currency School,
exceedingly unsatisfactory. "The banking reserve was
a vague and undefined quantity. It was the power of
issuing any amount of notes, until the gold was finally
' Lord Overstone [Tracts, pp. 4£, 52, 53], though himself a banker,
expresses great conte'npt for the uninstruoted ''
practical views " of
the Bank and the City. Prof. Price, who holds widely diiferent
opinions, concurs heartily in this sentiment —see his " Principles of
Currency," pp. 1-6.
' "Many matters of moment date from that inquiry; such as the
publication of the accounts of the Bank, the pubhcation of the
amount of bullion held by the Bank, and the partial adoption of the
principle of currency by which the Bank of England, as well as the
eojntry banks' circulation, should be regulated by the state rf foreign
—
exchanges." [Tievi, Hist. Br. Cora., p. 204.]
—
PAPER-MONEY BANKING. 445
exhausted ;" while "a reduction of deposits was deemed

a sufficient set-off against a reduced amount of bullion."
—{lUd., p. 328.]
The root of the evil, in this writer's view, lay in the
union, in the same institution, of the two functions of a
bank of issue and of a bank of deposit and discount.
As to the absence of any necessary relation between

banking and paper money, there is substantial unanim-
ity among economists.
"This accidental, or rather non-essential, connection
of notes with banking," says Prof. Price, " is alas the !
parent of interminable confusion. It is the plague spot

of all currency ; the foreign and insoluble ingredient,
which will neither itself crystallize, nor suffer the other
elements to crystallize." — [Principles of Currency, p.
104.]
In the same view, Mr. Norman : "No correct notions
can ever be formed upon the subject of currency, unless
the business of issue be clearly separated in the read-
er's mind from the other transactions which form the
real and legitimate employment of the banker."
"Issuing," says Mr. Nicholson, ." is creating money;
banking is managing money after it has been issued."
[Sc. of Exchanges, p. 46.]
But no writer has so fully developed the theme that
there is no necessary connection between banking and
paper money as Lord Overstone :
"A bank of issue is intrusted with the creation of the

circulating medium, a bank of deposit and discount is
concerned only with the use, distribution or applica-
tion of that circulating medium. The sole duty of the
former is to take efficient means for issuing its paper
38
446 MONET.
money upon good security, and regulating the amount

of it by one fixed rule. The principal object and busi-
ness of the latter is to obtain the command of as large
a proportion as possible of the existing circulating me-

dium, and to distribute it in such a manner as shall
combine security for repayment with the highest rate of
profit."— [Tracts, p. 31.] " The principles upon which
these two branches of business ought to be conducted

are perfectly distinct and never can be reduced to one
and the same rule."— [IM., p. 63, cf. pp. 30, 115, 139,
142, 181, 219.]
While, however, economists are substantially agreed
as to the absence of any necessary connection between
banking and paper money, Mr. Tooke and the advo-
cates of the Banking Principle do not admit that the
union of the two functions in the same institution is in
any way objectionable. On the contrary, it may not
only be more economical ; it njiay better serve the wants
of the community, each function being more fully per-
formed by reason of the other being carried on under
the same management.
The advocates of the Currency Principle, on the other
hand, hold the union of the two functions to be pro-
ductive of evil. The banker inevitably sympathizes
with expansive speculations ; therefore he should not
issue currency.' The union of the two functions, of cir-
culation and of deposits, is bound to cause confusiouj

both in reasoning and in action.
The separation of the banking and the issue depart-
ments of the Bank of England was, therefore, the first
object of the economists of the Overstone school, as
rendering possible a regulation of the Bank issues ac-
' LoT-d Ove-stone, Tracts, cf. pp. 32, 39, 03, 115, 143, 177, 249-50
THE BANK A CT OF 1844. 447
cording to their principles. "A repeal of the Union,"

Lord Overstone wrote in 1840, "is essential to good
gOYernment in monetary affairs." ..." The com-
mon crown may still rest upon the brow of the sover-
eign of Threadneedle Street, and she may be permitted
to wield one sceptre of authority over her separated
departments. But she must consent to hold a Com-
mittee of Treasury in the Bullion Office, as well as in
the Discount Parlor, and must govern them through
the instrumentality of a distinct system of laws, appro-
priate to each and in harmony with their respective
purposes. The interest and well-being of the one must
no longer be interfered with or endangered by influences
or affections connected with- the other." — [Tracts, p.
145.]
That repeal was effected by the Act of 1844,' and the
two departments of the Bank of England are now as dis-
tinct as the customs and internal revenue bureaus of
our own government. By that Act the Bank is allowed
to issue ^£14,000,000 of notes upon its securities. It is,
moreover, provided that, on provincial banks ceasing to

issue notes, the Bank may be empowered, by Order in
Council, to issue upon securities two-thirds of the notes
which such banks had been authorized to put forth.
Under this condition,^ the secured issue has risen to

£15,000,000. But for every other note which the Bank
may put into circulation, an equal amount of coin or
'
Supplemented by the Act of 1845. I shall, however, speak of
the whole body of this legislation as the Act of 1844.

'
Mr. Maclaren states that the application on the part of the Bank
of England, to issue notes in Heu of those no longer issued by the
country banks, did not originate with the Bank directors, but wag
made by them at the instance of the government. — [History of the
Currency, p. 282.]
:
448 MO MET.
bullion must be paid in. Nor is it for the directors to
say whether more notes shall thus issue or not. The
Bank is boi'jid by law to buy bullion from whomsoever
offers it, at £3
per oz.
17s. 'dd.
view of this entire exemption of the issue de-

It is in
partment from the will of the directors, that Prof. Price
speaks of the Bank as " The Automaton." [Principles —
of Currency, pp. 138, 144.J "It is not," he says, "a de-
partment of the Bank in any sense. It is a self-acting
institution of the State, working on the Bank's premises,
and directed by rules laid down by the State, and abso-
lutely beyond the control of the Bank directors."
In the language of Mr. Neaves, former Governor
"The issue department is out of our hands altogether.
We are mere trustees under the act of Parliament to
see that these securities are placed there and kept up
to that amount, and in no case can any creditor of the
Bank touch that which is reserved for a note-holder."
In the provisions regulating the note-issues which

have been recited we have the second grand feature of
the Act of 1844, viz., the establishment of the paper
circulation upon a basis which, in the view of the Over-
stone school of economists, secures the exact conform-
ity of its rise and in fall, to those of me-
movements, in
tallic money. The amount of secured circulation being
fixed at an amount (£15,000,000) below that to which it
is reasonably to be supposed the metallic circulation of
the country could, in any event, be reduced, the fabric
above that is built up wholly out of specie.^ Not a £5
' All notes over the secured circulation, are " only so many certifi-
cates of the deposit of a corresponding amount of bullion." — [Nichol-

son, Science of Exchanges, p. 44.]
The bank is permitted to hold one-fourth it« Rpsnie resfrvoo in

THE BANK A GT OF 1S44. 449
note can be issued from tlie Bank of England unless the

corresponding quantity of bullion has been deposited.
Not a ,£5 note can disappear, except by accidental loss^
unless a corresponding quantity of bullion has been
taken away in exchange for it.
In Lord Overstone's phrase, the principle of the Act
is :
the amount of securities invariable ; the fluctuations
in notes to correspond to fluctuations in the specie on
deposit.' This, in his opinion, constituted " free bank-
ing" in the best sense.
"If they [the people] bring in gold, they increase the
circulation they take out gold, they diminish it. In
; if
this respectthey are perfectly free agents neither law ;
nor authority interferes with them and thus the regu- ;
lation of the amount of the currency is strictly in the

hands of the public."— [Tracts, p. 320.]
Thus we bank in the world is
see that the greatest
not, as a bank, an issuer of notes, a manufacturer of
paper money. Nor are the joint-stock banks of Lon-
don, with their enormous deposits and discounts, de-
pendent in the smallest degree for their power or their
profits on note circulation. No London bank can issue
notes, nor can any bank which has been chartered since
May 6, 1844, while the issues of the English banks then
existing are limited to their ordinary outstanding circu-
silver, but is not obliged to buy silver as it is obliged to buy gold.

Accordingly, the Bank in the crisis of 1847 refused to buy silver or
make alvances upon it. Lord Overstone justifies this action " In a :
country where the standard is gold, silver is a commodity, and mjist

be treated as any other commodity. It is not expedient that the
Bank should be compelled to make advances on commodities."—
[Tracts, p. 299.]
' Tracts, pp. C-7 27, 60, 77-8.
450 MONET.
lation before tHat date. The Irish and Scotch banks,'

however, can issue bank-notes above the amount of
their circulation in 1844, provided that for every note
so issued they possess a corresponding amount of coin.
Here we have the third great feature of the Act of

1844, viz., the restriction, so far as was deemed consist-
ent with vested interests, of the country bank circula-
tion. It was in paper money of the

this part of the
kingdom, prior to 1844, that the advocates of the Cur-
rency Principle found the main source of the evil of ex-
cessive inflation or contraction.
"We impose upon the Bank of England," wrote Lord
Overstone in 1837, "the duty of regulating the value of
the currency and providing for the payment of the
whole ofit in specie, without giving to that body the ex-
clusivepower of issuing the paper money, or investing it

with any direct control over the conduct of rival issu-
ers."^
"This is the vital objection to our country issues," he
wrote in 1840, " that they expand and contract with
prices, contrary to what ought to be the result upon '
sound and would be the result with a metal-

principles,
lic circulation." Col. Torrens had said: "When the
Bank of England decrees contraction, the country banks
of issue, instead of resisting, obey and suffer." "It
would," rejoined Lord Overstone, "have been more
consonant, as we conceive, to the real course of events,
had he said the country banks of issue first resist, then
suffer, and in the end submit."^
'
In Ireland and SuotUiud bank-notes are not a legal tender. In
England Bank of England notes are a legal tender everywhere
except at the Bank or its branches.
' Tracts, p. 12, cf. pp. 14-5, 91-6, 179, 221, 20C, 350-1.
Ihid., p. 101.
THE BANK A OT CF 1844. 451
"It is of tlie nature of the circulation of the country

bants," wrote Mr. Tooke in 1826, " to be extended un-
der circumstances favorable to speculation, upon the
prospect of an advance of prices, or upoi^ the opening
of new fields of enterprise, and to be diminished under
the opposite circumstances."
"
In periods of excess," wrote Sir James Graham at
the same time, "the issues o:^ the country bankers have
greatly exceeded the rate of increase by the Bank of

England and in periods of contraction the diminution
;
has been more violent and unlimited."

Within the limits imposed upon the issues of the
English country banks and the Irish and Scotch banks,
the secured circulation, exclusive of that of the Bank of
England, authorized by the acts of 1844 and 1845, was
as follows:
'England and "Wales, - - . £8,689,937
Scotland, 3,063,000
Ireland, 6,354,494
Total, - - - - £18,107,431
The amount of bank-notes so authorized at the date,
June 30, 1866, was £16,360,140. Tlie amount actually
issued was £14,687,546.1
' Hankey on Banking, p. 12. The return of the circulation on
October 27, 1875, shows that the English banks, which cannot in
any case exceed their fixed issues (as previous to 1844), were below
that amount £1,365,910. The Irish and Scotch banks, which can
exceed their issues of 1844 so far as they hold specie for all addi-
tional notes, had taken advantage of that provision, the Irish to the
extent of £1,884,369, the Scotch, £3,489,146. The gold and silver
held by the Irish banks at this date was £3,393,001; that by Ihe
Scotch, £4,401,849.
452 MONEY.
THE OPERATION OP THE ACT OP 1844.
The Act been the subject of passionate

of 1844 has
controYersy. Mr. Bagehot makes the animosity which
subsists this subject the excuse for omitting all dis-
on
cussion of it in his interesting work, " Lombard Street.'
" If you say anything about the Act of 1844, it is lit-
tle matter what else you say, for few will attend to it.
Most critics will seize on the passage as to the Act,
either to attack it or defend it, as if it were the main
point. There has been so much fierce controversy as to
this Act of Parliament, and there is still so much ani-
mosity, that a single sentence respecting far more
it is
interesting to very many than a whole book on any

other part of the subject. Two hosts of eager dispu-
tants on this subject ask of every new writer the one
question, are you with us, or against us? and they care
1
for little else."
Act of 1844 did not make
Prof. Price asserts that the
the Bank of England note any safer. This may be con-
ceded by the advocates of the Act, for it is of the es-
sence of the Currency Principle that something more
than good banking needed to give the people good
is
money; that issues may take place under perfectly

sound banking which will involve production and trade
in great perturbations, and even bring them down in
disaster and ruin, while yet the individual note-holder
has no reason to doubt the ultimate solvency, or even
the immediate solvency, of the bank, which reaps a
,
profit from its inflated issues in the period of prosperi-

ty, and in time of stringency and pressure may, by the
exercise of firmness and good judgment, secure excep-
tionally high rates of interest without danger.
' Lombai-d Street, p. 2.

'
THE BANK ACT Oi 1844. 453
In other words, the Currency Principle assumes that

the interests of the general community, and of the com-
mercial and manufacturing classes in particular, are not
necessarily identical at all times with the interests of the
banks, in such a sense that the observance by the latter
of their own interests in the issue of paper, will sub-
serve the interests of the former, without restriction or
regulation devised for the public good.
But while Prof. Price asserts that the Act of 1844 has
added nothing to the safety of the Bank of England
note, he freely concedes the merit of that Act in the reg-
ulation of the country circulation.
"The matter," he says, "is quite otherwise with the
notes of country banks throughout England. These
banks had by hundreds. They were bad bankers
failed
and often lost their means and then those who held their
;
notes were involved in ruinous losses. Bank- . . .
ers who conducted their business ill were manifestly

unfitpersons to be intrusted with the function of sup-
plying public money. They were bad makers, bad man-
ufacturers, unfit to be trusted with the work as bad as
;
a mint whose sovereigns could never be relied upon for

quality. The remedy came iu the Act of 1844, and
whatever may be said of the Act then passed, it is cer-
tain that, so long as it remains in force, the special dis-
asters of 1825 can never recur."

Here comes out strongly the antagonism of the Bank-
ing to the Currency Principle. The country issues
were formerly mischievous, because issued by "bad
makers, bad manufacturers." The rules of good bank-
ing were not observed. The currency manufactured

was not, in fact, convertible. This admission saves the
•
Principles of Currency, pp. 136-7.
38*
;
454 MONEY.
principle that good baiiking good money, and

will give
that, if notes are truly convertible, they cannot be
maintained, or even issued, in excess.
the other hand, the authors and advocates of the
On
Act of 1844 have felt bound to prove that the operation
of the Act, aside from its effects on the country circula-
ticn,has been beneficial to the production and trade of
England; and this is not only in the very nature of the
case a hard thing to do, but there are some very ugly
facts in the way.
These facts are, first, that the fluctuations in the rate
of discount are much more frequent in England since
than before the Act of 1844, and are more frequent in
London since that Act than in other monetary centres
ofEurope secondly, that the operation of the Act has
;
'
been thrice suspended by the intervention of govern-

ment, as a necessity of the financial situation.
Let us take these objections in inverse order. The
fact of the necessity of the occasional suspension of the
Act, the writers of the Currency school refuse to accept
as affording any disparagement of its usefulness ; and
they certainly have a controversial advantage in that
they can show that this opinion is not an afterthought
but that the question of the possible suspension of the
Act was entertained before its passage, and incidentally
to the discussion of its principles. Thus, Lord Over-
'
Mr. Eobert Baxter adduces the following facts: For the first
eleven years of the operation of the Act the changes of the rate of
interest were 28; in the second series of eleven years, 106. The
average amount of change in the rate for the first period was under
1 per cent; the average of the second period over 3 per cent.
"While in the twenty-two years between 1844 and 1866 there were
134 changes in the rate of interest at the Bank of England, there
were only 52 at the Bank of France. — [The Panic of 186G, pp. 12-5.]
:
SUSP-ENSIONS OF THE ACT OF 1844. 455
stone, in 1840,drew up and printed his "Thouglita on

the Separation of the Departments of the Bank of En-
gland," which was reprinted during the pendency of Sir
Eobert Peel's bill in 1844. In this pamphlet he dealt
with the question, whether a drain might not, in excep-
tional circumstances, be carried so far as to render the
maintenance of a fixed rule mischievous and even highly
dangerous to the community, reaching this conclusion
" If the danger is deemed to be of such a nature as to
require an eiScient provision against it, this is to be
found, not in a general abandonment of the attempt to
place the management of the circulation under some
fixed principle, but in that power, which all govern-
ments must necessarily possess, of exercising special
interference in cases of unforeseen emergency and
great state necessity." — [Tracts, p. 282; cf. pp. 301-2.]
Having thus admitted the possible occasion for a sus-
pension of the Act prior to its passage, the advocates of
the Currency Principle can argue, without any discom-
fiture in the result, that the three suspensions of 1847,
1857, and 1866 were only the proper administrative re-
laxations of a rule of conduct which they declare to be,
in general, sound and beneficial.
What is meant by a suspension of the Act of 1844?
It is popularly supposed in this country to imply the
suspension of specie payments and it is not unusual
;
to meet with statements to the efi'ect that the Bank of

England has failed three times since 1844. The sus-
pension of the Act of 1844 does not touch the obligation
of the Bank to pay bullion for its notes on demand.
This it has never failed to do since the resumption in
1821. It is not from any stress upon the issue depart-
ment, but from the exigencies of the banking depart-
ment, that the necessity for government int-srference has
in every case arisen.
456 MONET.
The suspension of tlie Act of 1844 amounts simply to

this: whereas the law says that the Bank shall issue
notes above X15,000,000 only upon the actual deposit
of corresponding quantities of bullion, the government
has in the three specific instances referred to authorized
the management to act, temporarily, without reference to
though still subject to full responsibil-
this restriction,
ity for the redemption of notes in specie on demand
Out of the three instances the Bank has actually taken
advantage of the permission afforded but once, viz., in
1857, and then only to the extent of £800,000.
To the charge that fluctuations in the rate of discount
have become more frequent in England since 1844 than
they were before, and are more frequent now in Lon-
don than in other monetary centres, the advocates of
the Act of 1844 reply that the increase since 1844 is due
to the growing extent and complexity of commercial re-
lations and the greater facility of communication while ;
the fact that London suffers more frequent changes

than any other monetary centre is due to the high and
responsible position which she occupies in international
transactions, the effects of all disturbances being felt
there as they are felt nowhere else, the disadvantage
arising herefrom constituting the necessary price of the
great advantage which London enjoys as, in the lan-
guage of Burke, "the Exchange of the World."
We have now reached the point where we may in-
quire rather more precisely than we have yet been able

todo into the rationale of the scheme for governing the
monetary circulation of England. Prior to 1819 the
Bank directors professed' to be governed, not by the
'
See Bagebot Lombard Street pp. 175-6.
CHANGES m RATE OF DISCOUNT. 457
state of the exchanges or by the price of gold, but by the

demand for discount, having reference to the amount
already advanced to the individual, to the solidity of the
paper, and to the appearance of its being v/anted for
strictly commercial purposes. These were good and
sufficient banking rules. We have already seen that the
Court, in 1819, passed a resolution declaring that thej
saw no grounds for the sentiment that the Bank had
only to reduce its issues to obtain a favorable turn in
the exchanges and a consequent influx of the precioup
metals ; and that the Act of that year was passed in op-
position to the views of the Bank. By 1827, however,
the directors had been so far moved from their position
as to rescind the resolution of 1819. In 1832 occurred
the Recharter, when the Bank directors showed a still
further change of views on the subject of the regulation

of issues and from that time to 1844 the following was
;
the accepted principle of management : The issues

were to be regulated in amount with constant reference
to the state of the foreign exchanges ; and the increase
or diminution of gold in the hands of the Bank was to
be taken as the only certain and safe test of the favora-
ble or unfavorable state of the exchanges. Consequent-

ly the amount of paper issues was to be made to vary
with direct reference to fluctuations in the amount of
bullion in the Bank. This having been from 1832 the

theory of the management of the circulation, the Act of
1844 was regarded by the Overstone economists as en-
abling and requiring the theory to be simply and surely
realized in practice.
39
4-58 MONEY.
FOREIGN EXCHiNGES.*
"The phrase 'Foreign Exchanges,'" says Mr. Go-

Bchen, " is in itself vague and ambiguous, being mora
frequently usel to express the rates at which the ex-
changes in question are effected than the exchanges
themselves—the prices rather than the transactions.
That which forms the subject of exchange is a debt ow-
ing by a foreigner and payable in his own country,
which is transferred by the creditor or claimant, for a
certain sum of money, to a third person, who desires to
receive money in that country, probably in order to as-
sign it over to a fourth person in the same place, to
whom he in his turn may be indebted." — [Pp. 1-2.]
The dry goods importers of New York, let us suppose,
sell to Chicago in a given time English goods to the
value of $5,000,000. The grain exporters of New York
send abroad $5,000,000 worth of grain received from
Chicago. Shall the New York grain exporters send
$5,000,000 to Chicago, and the dry goods dealers of Chi-
cago send $5,000,000 —perhaps the same notes in un-
broken packages —to New York ? Clearly this would
involve waste and unnecessary risk. Instead of this,
the dry goods dealers of Chicago, having sold their

stock into the country at a profit, pay upon the order of
the New York importers of dry goods $5,000,000 to the

grain shippers of Chicago, who, out of this sum, pay the
'
Four excellent works on this subject are available: Goschen'a
" Theory cf the Foreign Exchanges " ; Nicholson's " Science of Ex-
changes ''; Tate's "Cambist, or Manual of Exchanges"; Seyd'h
" BulUon and Foreign Exchanges." Wm. Blake's work, " Observa-
tions on Exchange," published early in the century was the besi
work on the subject in its day, but all it contains wUl be found in
later publications.
THEORY OF THE EXCHANGES. 459
grain growers and realize their own profit. The New

York grain exporters, selling the grain in Ijondon at a
profit, pay, on the order of their Chicago creditors, $5,-
000,000 to the New York importers of dry goods. But
since these latter have to pay the West of England man-
ufacturers, not in New York but in London, they ar-
range with the grain exporters not to bring home the
proceeds of their sales in Mark Lane, but to transfer to
them the right to draw for the amount upon the pur-
chasers. This is done, and the New York dry goods
importers, now become the creditors of the English grain
importers, direct these by letter to pay the claims of the
English manufacturers of kerseys and broadcloths.
Here we have a simple case of direct exchange, domestic
and foreign. It is seen that no money passes between
Chicago and New York, or between New York and
London.
As an illustration of indirect foreign exchange, we
might take the relations of England, China, and the
United States.
The United States sell little to China and buy much
from her, and are therefore debtors largely to the Chi-
nese England buys largely from China, also, but sells
;
to her even more largely, and is therefore the creditor

of the Chinese. China, through the operations of ex-
change, says to the United States : Pay to* England, up-
on this my warrant, what you owe to me. It is done,
and the actual transfer of money, first from New York

to Canton, thence to be shipped to Liverpool, is avoided.
"This circuitous method," says Mr. McLeod, "is

called the Arbitration of Exo-liange. . . . When only
three places are used in the operation it is called simple
arbitration; when more than thre'e are 'employed it ia
called compound arbitration."

i60 MONEY.
It thus appears that what is termed Exchange is

merely the familiar principle of the cancellation of mu-
tual indebtedness, applied to trading communities and
nations. As, however, it ordinarily involves the calcu-
lation of indebtedness in foreign moneys, the technical
term, exchange, is retained, even when no actual chang-
ing of domestic for foreign coins is required, and, in-
deed, where the whole transaction is performed without
any transfer of money.
I said " without any transfer of money." This may be
done when the indebtedness between one country and
another, or between one country and all others (when
the arbitration of exchange is resorted to), is equal in
amount and coincident in time. But it will easily ap-
pear that the chances are very small, under modern
commercial relations, that such an equivalence of debts
should occur. While many elements' have to be taken
into account in ascertaining the balance of international
indebtedness arising from all the transactions of a year,
it is clear that the failure of coincidence in the matur-
'
The cause commonly looked to, to explain a divergence between
the amounts of debts owing by a country and the amounts falling due
to that country, is the excess of imports over exports, or vice versa,
as shown by the customs returns of trade. But this mode of ascer-
taining the balances of international obhgations is insufficient. The
other elements indicated by Mr. Goschen are (1) Freight and Insur-
ance, since the goods may be carried both ways, and both voyages
insured by the shippers and insurers of one country. It is in this
way the balance of payments is made so often to turn in favor of
England. (2) Interest on bonds held abroad, and commissions and
profits earned by resident foreigners to be remitted abroad, also sums
earned in wages to be sent back to relations. By all these ways
American indebtedness is largely increased. (3) The expensef of

foreign travel. (4) The disbursements of fleets on foreign stations
and armies in foieiarn countries.
RATES OF EXCHANGE 461
ing of obligations may introduce further divergence as

to the amounts owing and falling due at any given date
within the year. Two nations might conceivably come
under equal obligations to each other during the course
and yet one have a great balance of pay-
of the year,
ments to make in the spring, and the other in the au-
tumn.
"When the payments between any two places or coun-
tries, at a given time, exactly balance each other, ex-
change will be at par. In the instances given above,
London owing New York as much as New York owes
London, every New York merchant will be able to
purchase a debt owing in London at its face-value, and
vice versa. Exchange between two places is at par when,
by paying gold in one place, you may have an equal

quantity of fine gold paid to your agent, or on your or-
der, in the other place; or by paying silver' in the one
place, you may have the command of an equal amount
of fine silver in the other.
On the other hand, if, at a given date, there is a
larger sum United States by English
to be paid in the
merchants than in England by American merchants,
every American merchant who has the right to receive
money from England can sell his right to some English
merchant who is bound to pay money in the United
States for more than the face -value of his claim, be-
cause there will not be enough of English claims on
America to satisfy all American claims on England.
'
There can be no true par of exchange between countries having
a different metal as the legal standard, only " a usual rate." [McLeod, —
Econ. Phil., ii, 290.]
" Gold," says Mr. Goschen, " is simply merchandise in such coun-
tries as have a silver currency, and silver is merchandise in such
countries as have a gold standard ; and according to the price of the
. rrorchandiKe at a given moment, so will the pyr'nanEre flif^tuntp."
462 MONEY.
On the other hand, every English merchant who has

the right to receive money from the United States will
sell his right for less than its face-value.
To what extent will the premium on "bills" rise?
To that only which will induce an export of bullion.
When, in the instance given, those American merchants
who hold claims upon England demand more than the
cost of purchasing gold in England, shipping to the
United States, insuring it on the voyage and paying cer-
tain incidental charges, English merchants having to
pay debts in the United States will send bullion.'
It has been said that exchange between two places is
at par when a man in one place by paying in gold can
have an equal amount of fine gold paid to his agent or
order in the other place. It will be observed that ex-
changes are effected with reference to the fine gold con-
tents of the coins of the several countries.^ If, therefore,
the coinage of any country be debased, the effect on the
exchanges will be immediately felt. It was in the sense
of this evil that the first banks of Northern Europe had
their origin.^
' "When the Fienoh exchange is at 25 francs 10 centimes to the

pound sterling, it pays to send gold fi-om England to France. When
the exchange is 25 35,
: it pays to send gold from France to England.
The mint par being taken at 25 : 22-^, we have, thus, a margin of
12J centimes, or ^ per cent, either way, and 25 centimes or 1 per

cent, between the two extreme points." [Seyd, Bullion and Foreign —
Exchanges, p. 394.]
" " When British goods, sold abroad, are paid for in money, it is not
the denomination of the foreign coin which the merchant regards;
it is the quantity of gold and silver it contains." — [James MiU, Com-
merce Defended.]
" " Chose singuhfire ! L'fitablissement destinS & consolider la rig-
oreuse precision de la monnaie metallique, a servi de point de ddpaxt
a I'invention qui la menace " 1
— [M. Wolowski, Journal des Econ-
omiftps. Oct., 1868.1
EFFECT OF BAD MONET ON EXOHANQE. 463
"Before 1609," says Adam Smith, "the great quantity

of clipped and worn foreign coin, which the extensive
trade of Amsterdam brought from parts of Europe, all
reduced the value of its currency about nine per cent,
below that of good money fresh from the mint. Such
money no sooner appeared than it was melted down, or
carried away, as it always is in such circumstances.
The merchants, with plenty of currency, could not al-
ways find a sufficient quantity of pay good money to
their bills of exchange
and the value of those bills, in
;
spite of several regulations which were made to pre-

vent it, became in a great measure uncertain.
"In order to remedy these inconveniences, a bank was
established in 1609 under the guarantee of the city.
This bank received both foreign coin and the light and
worn coin of the country at its real intrinsic value in
the good standard money of the country, deducting only
so much as was necessary for defraying the expense of
coinage and the other necessary expense of manage-
ment. For the value which remained after this small
deduction was made, it gave a credit in its books. This
credit was called bank-money, which, as it represented
money exactly according to the standard of the mint,
was always of the same real value and intrinsically
worth more than current money. It was at the same
time enacted that all bills drawn upon of negotiated at
Amsterdam of the value of six hundred guilders and up-
wards should be paid in bank-money, which at once
took away all uncertainty in the value of those bills."
Where the money of a country consists mainly of de-
based coin, we have seen that the effect on the exchange
is unfavorable to trade. Much more injurious is paper
money which is not convertible upon demand into coin.
"We have already cited Mr. Bagehot's remark that "any

464 MONEY.
depreciation, however small, even the liability to depre-

ciation without its reality, is enough to disorder ex-
change transactions;" and we saw that to this cause
Mr. Bagehot attributes the fact that Paris has, since
1871, ceased to be one of the two exchange centres of
the world, and that practically the whole of this great
agency, with its important franchises so directly affect-
ing the control of commerce, has come into the hands of

London bankers. If this be true of a paper money
slightly depreciated, the effects of greatly inflated and
rapidly fluctuating paper must be mischievous in the
highest degree. No advantage that could be alleged in
favor of Inconvertible Paper Money, even allowing for
me-
the saving of the entire first cost of the circulating
dium, would compensate any progressive country for
the disturbance of commercial relations and the uncer-
tainty introduced into all international monetary trans-
actions by this cause.
With this brief glance at the general theory of the
subject, we are prepared to take up again the English
scheme of regulating the bank issues with reference to
the exchanges.
NOTE-ISSUES AND THE EXCHANGES.
"When the exchanges are in an unfavorable state,"

said Lord Overstone, "I apprehend that is evidence
that the relation of the money of the country to the
commodities of the country is such that it is more prof-
itable to export money than to export commodities;
and the action on the part of the managers of the circu-
lation ought to be directed to restoring such a relative
state between money and commodities as shall render it
the interest of the community at large to export such a
—
BANK REGULATION OF THE EKCHANQES. 465
quantity of commodities as shall prevent a further ex-

port of money." — [Evidence on Banks of Issue, 1840.]
This doctrine, be seen, is based directly on
it will
Eicardo's position that a country will not export bullion
instead of goods unless there is an inflated circulation.
Again Lord Overstone says: "The only safe course
is to consider a continuous drain of gold from the Bank
as conclusive evidence ... of the necessity of ef-
fecting' a corresponding reduction of circulation."
But if the policy of regulating the note-issue by the
state of the exchanges was the avowed policy of the
Bank in 1832, wherein lay the importance of the Act of
1844? was that, until the function of deposit and
It
discount was separated from that of issue, each was cer-
tain to be "endangered by influences or affections con-
nected with the other." [Îhld., p. 145.] The banker
inevitably sympathizes with expansive speculations;
therefore he should not issue currency. The managers
of the Bank, in its compound character, were certain^
not more ia their published accounts than in their
reasonings and calculations, to "blend together de-
positsand circulation on the one side gold and secu- ;
on the other" [p. 33], and thus deceive themselves

rities
and impose upon the public with an appearance of
'
At okce : cf. pp. 23, 75, 242, 247, 253, 265. "A system of early,
?teady and continuous contraction, in the place of that which has

been late in its commencement, sudden and violent in its operation,
and irregularly carried out." — [P. 243.]

" Thus, probably, calm, deliberate and judicious preparation from
1833 to 1836, wh-lst tb3 bullion decreased from £11,000,000 to
£6,000,000, would have obviated the confusion and despair which
ensued in 1837, when the alarm occasioned by a very low state of
the bulUon acted abruptly upon an unprepared community."— [P.

260.]
39*
;
466 MONEY.
strength which the circulation proper did not possess

while the banking reserve would remain "a vague and
undefined quantity, the power of issuing any amount of
notes until the gold was exhausted" [p. 328], a reduc-
tion of deposits beiag deemed a sufficient set-off against
a reduced amount of bullion [p. 34]. The separation

of the departments made it impossible for the Bank
managers to mislead the public or misunderstand their
own situation. Moreover, it substituted for a policy of
the directors a rule of law, which could only be changed
by the act of a responsible government.
How far has the Act of 1844 accomplished its avowed

object of regulating the note-issues with reference to the
exchange ?
"It was expressly declared," says Mr. McLeod, "that

it was the purpose of the Act to cause a withdrawal of
bank-notes from circulation, i. e.,from tJie public, exactly
equal in quantity to the gold withdrawn from the Bank,

in strict accordance with the 'Currency Principle,'
and it was supposed that, if the directors neglected this
duty, the 'mechanical' action of the Act would compel
them to fulfill it.
"No occasion arose for testing the powers of the Act

tillApril, 1847. The well-known disasters of 1846
caused a steady drain of bullion from the Bank to com-
mence in September. But the Bank made no alteration
in its rate of discount till January, 1847, when the bull-
ion was below £14,000,000, when it raised it to 3^.
Having lost another million in a fortnight, it raised dis-
count to 4 per cent. But it made no alteration till it
had lost £3,000,000 more, and then it raised discount-to

5 per cent.
SAS THE act' OF 1844 FAILED? 467
BANK-NOTES.
Held in Resenre Total Amounts o<

Held by Public.
by the Bank. Bullion.
Aug. 29, 1846, £20,426,000 £9,450,000 £16,366,000
Not. 7, 20,971,000 7,265,000 14,760,000
Jan. 9, 1847, 20,837,000 6,715,000 14,308,000
Jan. 30, 20,469,000 5,704,000 12,902,00C
March 6, 19,279,000 5,715,000 11,596,000
April 3, 19,855,000 3,700,000 10,246,000
April 10, 20,243,000 2,558,000 9,867,000
"These figures show the utter futility of the idea that

as the bullion diminishes the Act could compel a re-
duction of notes in the hands of the public, for the
notes in circulation were within an insignificant trifle
as large in amount when the bullion was only £9,867,-
000, as when it was £16,366,000. Whence did
. . .
this failure arise ? From this very simple circumstance.

The framers of the Act supposed that there is only one
way of extracting gold from the Bank, namely, by
means of its notes, and that, if people want gold, they
must bring in notes, and consequently as the gold comes
out, notes must go in. But as a matter of simple bank-
ing business, there are two methods of extracting gold
—
from the bank namely, by notes and checks. Those
persons who have credit in its books may go and pre-
sent checks, and thus draw out every ounce of gold from
the banking department, without a single bank-note be-
ing withdrawn from the public.
"In fact, instead of withdrawing the notes from the
public, as was intended by the Act, the directors threw
the whole effect of the drain of gold on their own re-
serves, and that happened in this way The public has ;
two methods of drawing gold fropa the banking depart-

'
468 MONEY.
ment, namely, by notes and checks; but the banking

department has only one method of drawing gold from
the issue department, namely, its notes in reserve. And
when the Bank felt a drain on its banking department
for gold, had to replenish it by giving up an exactly
it
equal amount of notes, and thus the whole drain fell

on its own reserves."
But can we conclude with Mr. McLeod that the Bank
Act is a failure because it does r.ot secure the reduction
of the amount of notes in circulation, correspondently
with a reduction of the bullion in bank, during a foreign
drain? Doubtless the authors of the Act expected this,
and in so Act may be said to have failed. Mr.

far the
Eicardo and, following him. Lord Overstone and Mr.
Norman, had regarded the bullion in the country as
practically all money in circulation, affecting prices.
If, then, bullion was imported,^ it resulted that prices
' " The remedy for this state of things, wliioh involves such serious
disturbances from foreign demands for gold and from recurring panics,
is to disconnect altogether the issue department of the State from the
banking operations of the Bank of England, so that the State shall
issue and find gold to redeem the paper as asked for, and that the
Bank may, like every other bank in the kingdom, confine its respon-
sibility to the receiving and returning its customers' capital, without
concerning itself with the currency at all." —[Robert Baxter, Statis-
tical Journal, June, 1876.]
" To say that the amount of notes should only be equal to what
a metallic currency would have been, is a very intelligible prop-
osition; and, as we have observed, several banks have been con-
structed on that principle. But no bank constructed on this principle
ever did, or by any possibility could, do a banking business for profit.
These banks were pure banks of deposit ; they did no discount busi-
ness whatever." — [McLeod, Eoon. Phil., ii, 474.]
^ " There can be no great addition to the bullion of a country, the
lurrency of which is of its standard value, without causing an in-
crease in the quantity of money." — [Ricardo, Reply to Bosanquet.]
HAS THE ACT OF 1844 FAILED? 469
were raised and the importation of goods was in that de-

gree encouraged. If bullion was exported, prices fell,
and the exportation of goods was in that degree encour-
aged.
The position of the opponents of the Act of 1844 was
that bullion might come into the country in large
amount without entering into the circulation' as money,
and hence affecting prices while, in another situation,
;
when there should be a drain caused (as they assert, in

opposition to Mr. Kicardo and Lord Overstone, a drain
might be caused) by a great demand for foreign expend-
iture on the part by a large ex-
of the government, or
portation of capital for investment, orby a failure of
crops in the countries from which the raw materials of
manufacture are imported, or by the loss of domestic
' " Only that portion of coin, or money, whicli is at any time in
the hands of the public employed in performing the exchange of

commodities, is entitled to be deemed circulation." — [Wilson, Capital,
Currency and Banking, p. 17.] Again, the internal circulation may

diminish coincidently with a large import of bullion, under cer-
tain circumstances. — [P. 21.] "This is in direct opposition to the
principle of Sir Robert Peel's Bank Measure, and of the doctrine of

currency so ably advocated by Mr. Loyd [Lord Overstone], Mr. Nor-
man and Col. Torrens, who, in common with Sir Robert Peel, place
implicit confidence in the eflFect of an import of bullion to increase
the circulation, to raise prices, to encourage imports and to correct
the exchanges." — [P. 22.]
"It may not be deemed an extravagant supposition," says Mr.

Tooke, " that there might occasionally be, under a perfectly metallic
circulation, fluctuations, within moderately short periods, to the ex-
tent of at least 5 or 6 million 3 sterling, in the import and export of
bullion, perfectly extrinsic of the amount or value of the coin circu-
lating as money in the hands of the public, and perfectly without
influence on the general prices of commodities, as equally without

general prices having been a cause of such fluctuations." — [Hist, of
Prices, 1839-47, p. 225.'!
40
470 MONEY.
harvests, the bullion or coin for export will be tnken out

of the reserves of bankers and out of hoards/ and not
from the coin actually circulating. Thus Mr. "Wilson,
in 184:7, claimed that no drain in England had ever gone
so far as to touch the money in the hands of the peo-
ple.'' manifest that economical opinion has turned
It is
strongly towards the belief that bullion, often and to a
considerable extent, leaves a country or returns to it
without reference to the state of the currency' and with-
out affecting prices.
It appears to me that the merit of the Bank Act of
1844 is in its influence upon the circulation, not in
crises, but in times of prosperity, when the seeds of evil
'
Mr. FuUarton, in his " Regulation of Currencies," assumes the ex-
istence of extensive hoards of metallic money out of which, under the
metallic system, drains are met. This is probably true to a consider-
able extent of France.
" " When a drain sets in, which merely means, when it becomes
profitable to export the commodity, gold, such demand will act on
the stocks of bullion, and on the coin in the reserves of bankers, but
not directly on the coin constituting the actual circulation, at least
were actually exhausted, and then a struggle
until all those reserves
would commence between those who required coin for circulation

and those who required it for export. To this point a drain never
yet has proceeded with a convertible currency, nor can we conceive
any circumstances under which it is likely to do so."— [Capital, Cur-
rency and Banking, p. 65.]
" An moyen de ces reserves [de caisse], des payements tres-consid-
erables peuvent s'effectuer de peuple S, peuple, sans que la circulation,
ni, par consequent, le prix de I'argent, en soient de part ni d'autre le
moins du monde affectes."Êoscher, Wolowski's Transl., §125.]

' " It is a fact now beginning to be recognized, that the passage
of the precious metals from country to country is determined much
more than was formerly supposed by the state of the loan market in
different countries, and much less by the state of prices." [J. S. Mill, —...
Pol. Econ., Ill, viii, 4.]
;;
EAS THE ACT OF 1844 FAILED? 471
are being sown in a soil apt to receive and ferment

them.
"Fluctuations to a greater or less extent," wrote Mr.
Tooke in 1826, "are inseparable from the course of
commercial affairs. The business of production or sup-
ply proceeds wholly upon anticipation dependent ; it is
or the seasons and on an endless variety of casualties

while consumption or demand may be influenced by
changes of habit, fashion, legislative enactments, and
by political events. The contingencies which may ex-
cite a spirit of speculation and enterprise on the one
hand, and disappoint expectation and defeat calculation
on the other, are therefore innumerable." — [State of the
Currency, p. 65.]
The advocates of the Currency Principle, who main-
tain that there is a liability to excessive issues of paper
that, when speculation is once on foot, the public will
receive and retain a larger amount of bank-notes, which
will enter into the circulation, raise prices, and thus
still further stimulate the speculative impulse, leading
to overtrading and distorted production, may still fairly
assert for the Act of 1844 an important and salutary

infliuence.
It would be quite enough to justify the Bank Act if
it could be established that its "mechanical" action is
to put commercial crises further apart, and to diminish

their intensity when, in spite of its conservative action,
they occur. No power inheres in any monetary system
to prevent excessive speculation with its evil results on
production and trade. Money is, at the most, but a tool
of commerce. We have seen abundant illustrations of

its power to work mischief when perverted from its right
uses, but the office of a true money is simple and its in-
fluence limited. It does' a great work in saving laboi
472 MONEY.
in the exchanges of commodities, and in measuring and

registering the mutual obligations of the parties to con-
tracts; but this is all its legitimate service. Having
almost unlimited power to curse, its beneficence is
bounded bj its normal function, as it has been described.
Granting the possibility of issuing and maintaining
bank-notes in excess, it appears to me that a salutary
effect, in restraining issues during the times when spec-
ulation is insidipusly preparing future convulsions of
trade and productive industry, may justly be ascribed
to the Act of 1844. Its failure by purely mechanical
action, irrespective of the discretion of the directors, to
reduce the note-issues correspondently with a loss of
bullion on the occasion of a drain, only illustrates the
proposition of Mr. Bagehot,' that the problem of man-
aging a panic is primarily a mercantile one.
THE TEEATMENT OF PANICS AND CRISES.
When panics and crises occur, as they will under any

monetary system, though not with the same fi-equency
and severity under all, they are to be dealt with, not by
the heroic method of contraction, but on the principle
of re-inforcing the parts firstand especially assaulted
with the most liberal support from the whole industrial
and commercial body. Whether paper money occasion-
ed the mischief or not, the mischief has already been
done when the panic begins. Curative and sanative
measures are not necessarily in the line of preventive
measures. It was superstition which in the Middle Ages
gave to the weapon which had made the wound a pe-
culiar efficacy in performing the cure.
' Lombard Street, p. 52.

THE TREATMENT OF PANICS. 473
A panic implies, sometimes, previousovertrading and

the distortion of productive industry; sometimes, the
unduly rapid conversion of circulating into fixed capital'
of limited uses, or, not infrequently, of no use at all/'
Paper money may or may not, in the given instance,

have contributed to this result; but, however it came
about, when the panic is once upon the country there

is only one thing which can be done, and that is to
spread the strain as widely as possible. This is to be
done by borrowing. Even money did the
if the paper
mischief, it is, in the presence of a panic, of no more
consequence than the knife which gave the wound from
which the patient lies bleeding. The knife may be of
great interest to the coroner ; it is worth nothing for the
purposes of the physician.
Panic indicates, we repeat, either' that the proportion
'
See Mr. Wilson's account of this process in England during the
railway mania which preceded the catastrophe of 1846-7. — [Capital,
Currency and Banking.]

° In his evidence before the Committee on Banking and Currency,
at Washington, 1874, Mr. Forbes remarked concerning the New
Tork Banks in 1873 " Their capital needed for legitimate purposes
:
was practically lent out on certain iron rails, railroad ties, bridges
and rolling stock, called railroads, many of them laid down in places
where these materials were practically useless.''
Mr.Condy Raguet remarks respecting the early " internal improve-

ments " of Pennsylvania " The process which has in reality taken
:
place has been the mere transmutation of stone and lime, wood and
iron, from a form in which they possessed a value, into one in -w '_ich
they possess no value; and the conversion of a large quantity of
brea'd and meat, whisky and rum, butter and milk, sugar and coffee,
coats and jackets, coal and wood, hay and oats, into roads and canals,
without the possibility of a reconversion to those original elements."

— [Currency and Banking, p. 63.]
'
I am supposing that the solvency of the bank-note is not in ques-
tion among the mass of holders, in such a way as to cause a ruE

474 MONET.
existing between fixed and circulating capital has been

profoundly disturbed by speculative investments, or
that the relations between the different classes of com-
modities which make up the circulating, capital of the
country have been distorted and perverted by specula-
tive overtrading, and consequent overproduction in cer-
tain lines.
At once to re-inforce the parts which have been
weakened by such disturbance of relations between
fixed and circulating capital, or between the different
classes of circulating capital, and in time to distribute
the strain as far as may be over the entire system : this
is the problem in a panic. be done, as was
This is to
said, by borrowing, generally through the banking
agency. Of course, what is thus borrowed must ulti-
mately be repaid. No expedient can restore the wealth
which has been squandered in the extravagant living
which a period of overtrading inevitably induces, or re-
place the capital which has been, to all present, prac-
tical purposes, lost by being directed prematurely and
excessively into speculative enterprises. Nothing but
industry and frugality will suffice to repair the waste of
energy and resources of which a panic, such as occurred
in England in 1866 and in the United States in 1873, is
the certain retribution; but the very salvation of the
existing machinery of production and trade may depend
on the ability to distribute the strain over a larger sur-
face than that which is first attacked, and to give time
fur the forces of repair and restoration to operate. This
is done by
upon the bank for redemption. This sort of panic is now not
known in England. We have seen that Prof. Price, who severely
criticises the Act of 1844 in many rerpects, concedes that it lias
placed the country circulation above the discredit which attached to
it in 1825.
RAISING THE RATE OF INTEREST. 475
EAISIKG THE RATE OF INTEREST.
"Wlien the exchanges," says Mr. Goschen, "are man-

ifestly against any country, and it is perceived that a
balance of indebtedness is the cause, the equilibrium
can be restored only in two ways ; the one being the in-
crease of exports and diminution of imports, the other
an advance in the rate of interest.
"When the payments for imports continue for any
length of time in excess of the receipts from exports,
the redress of the balance can only take place by ceas-
ing to incur liabilities, that by a change in the
is to say,
course of trade. . But what we are at present

. .
most concerned to examine is the operation of a high

rate of interest in those more usual cases where we have
to deal with temporary fluctuations and sudden emer-
gencies, such as may be caused by the loss of a harvest,
or by a period of general national extravagance, ending
in a critical inflation of prices, or by excessive warlike
expenditure.
"In such times, when the resources of a country are
crippled for the moment and its debts increased, it is
most desirable, and indeed absolutely indispensable,
that not only bankers and merchants, but also the pub-
lic at large, should clearly understand how quick and
effectual a relief may be afforded by a high rate of inter-
est, which is, indeed, the natural result of such a state

of things. Those who imagine that what is called an
oppressive rate of interest adds to the losses and difii-

culties against which the community have at such peri-
ods to contend, seem very much in error. . . . The
efficacy of that corrective of so-called unfavorable ex-
changes, on which we have been dilating, has been most
thoroughly tested since the Bank of England has adopt-
:
476 MONEY.
ed the system of varying its minimum rate of discount

more rapidly and more exfjpnsively than was its practice
in former years. The fact has been that almost every
advance in the bank rate of discount is followed by a
turn of the exchanges in favor of England; ind, vice
versa, as soon as the rate of interest is lowered, the ex-
changes become less favorable. . . . Foreign cred-
itors give their English debtors a respite, and prefer to
wait longer for remittances, gaining interest meanwhile
at the profitable English rate."Mr. Goschen concludes
"It is clear no corrective of a drain of gold
that there is
and all its attendant consequences more powerful and

effectual than a rapid advance in the rates of discount.
It is the only mode by which that which is on the point
of being lost may be retained, or that which is actually
gone may be replaced and its natural effect is, not to
;
produce a scarcity of money,' but to remedy

. . .
and correct this scarcity by offering a premium to the

rest of the world to send their capital or money to the
dearest market." —
[Foreign Exchanges, pp. 128-48.]
Such is the theory of regulating the exchanges which

is at present generally accepted in England, and which
has, since the panic of 1847, governed the action of the
Bank in periods of drain. It will be seen that it differs
widely from the scheme of correcting the exchanges

which was maintained by Mr. E-icardo, Mr. Norman,
and Lord Overstone. Not that the two schemes are
necessarily antagonistic in practice but setting out with
;
different' explanations of the cause of the drain, they

proceed to treat the evil with different remedies.
' Mr. Goschen doubtless means a scarcity of " moneyed capital."

—
HArSTNG THE RATE OF INTEREST 477
But it may be asked, notthe existing rate of inter-
is
est the necessary outcome of the existing supply of,
and the existing demand for, capital? If so, how can
the Bank of England, or any other fiscal agent, control
that rate? must be confessed that English writers
It
are much inclined to speak after this fashion. Even
Mr. Goschen gives way to the tendency so far as to
make admissions, which, if confirmed, would take from
his philosophy of drains and the exchanges all value as
a guide in practical conduct.
Thus he writes : "It may be said that an advance in
the rate of interest has been spoken of as if money
could artificially be made dear. But the fact is, as has
already been pointed out, that, when a considerable ef-
flux of specie is taking place, the rate of interest will
rise in the natural course of things. The abstraction

caused, by the bullion shipments will of itself tend to
raise that rate; and banking establishments will, in
their own interest (which wiU be identical with that of
the public), accelerate this result as far as lies in their
power."— [P. So again: "Not that it is to be
132.]
supposed that the> Bank of England itself can make
money dear or cheap;" and again: "The real impor-
tance of a variation in the minimum rate of the Bank
does not consist in the power exercised over, but in the
indications afforded by, the money market." [Ibid., p.
133.]
In contrast with such weak admissions by Mr. Go-
schen, which are really destructive of his own theory
of the exchanges and of foreign
drains, it will be in-
words from that saga-
structive to read these sagacious
cious economist, Charles Babbage. "The principle
that price at any moment is dependent on the relation
of the supply to the demand, is true to the full extent
40*
—
478 MONEY.
only when the whole supply is in the hands of a very

large number pf small holders, and the demand is
caused by the wants of another set of persons, each of
whom requires only a very small quantity." [Econo- —
my of Manufactures, p. 141.]
Mr. Bagehot presents the matter thus :
" A very con-
siderable holder of an article may for a time vitally af-
he lay
fect its value if down the minimum price which
he will take and obstinately adhere to it. This is the
way which the value of money in Lombard Street is
in
settled. The Bank of England used to be a predomi-
nant, and most important,' dealer in money. It
is stiU a
lays down the least j)rice at which alone it will dispose
of its stock, and this for the most part enables other
dealers to obtain that price or something near it."
[Lombard Street, p. 114]
This is a just view of the relations of the Bank of En-
gland to the rate of discount, and it gives significance
and practical importance to Mr. Goschen's theory of the
regulation of the exchanges.
' " At Dutcli auctions an upset or maximum price used to be fixed
by the seller, and be came down in his bidding till he found a buyer.
The value of money is fixed in Lombard Street in much the same
way, only that the upset price is not that of all sellers, but that of
one very important seller, sorne part of whose supply is essential." —
[Lombard Street, p. 115.]
CHAPTER XXI.
CONTEKTIBLE PAPEB MONEY IN THE UNITED STATES.
In turning to the United States we are required at

once to deal with a question which has been intimated
at several points in precediag chapters, but which I
have thought it best not to move have until now. We
marked the antagonism two schools of English
of the
economists, professing severally the Currency Principle
and the Banking Principle, upon the question whether
Convertible Paper Money can be issued in excess.
But what is Convertible Paper Money? Just how
much is implied in convertibility?' We cannot pro-
ceed far in our discussion of American paper money
unless we reach a precise understanding on this point,
for it is to be noted that some of the strongest advo-
cates of the Banking Principle in England charge that
the paper money of the United States has, to a very
great extent, not been convertible in any true sense;
and hence they give warning that their conclusions rel-
ative to the impossibility of excessive issues and per-
manent depreciation do not apply to our case.
Since our English cousins are inclined to deny the
convertibility, in their sense of that term, of our paper
' "Convertibility in the Currency is like conscientiousness in a

man; it has many grades." — [Sumner, Hist Am. Currency, p. 116.]
: '
480 MONEY.
money, let us ask what were the peculiarities of our

American system, say between th»i resumption of spiscie
payments after the war of 1812-5 and the outbreak of
the civil war in 1861, which tended to defeat the full
convertibility of our bank issues; the convertibility,
that is, not in the legal, but in the economical, sense.
In the first place we had the fact of competing issues.
This was the consideration most strongly insisted upon
by Mr. "Webster and the advocates of the Second Bank
of the United States. In quoting Mr. Webster's speech
on the Bank Lord Overstone said
" The very existence of specie payments in this coun-
try at the present moment is attributable to the influ-
ence of one predominant issuer, charged with the re-
sponsibility of maintaining the convertibihty of its
notes. Without the Bank of England to warn by its

example and to control by its power, the paper issues
would have been regulated in no degree by the state of
the exchanges, but solely in accordance with the appar-
ent wants of commerce and the demands of the trading
world. Increasing issues would have accompanied de-
creasing bullion, until even the appearance of a mutual
connection would no longer be presented."
In the second place we had the fact of the want of
any traditional habit, maintained by the force of a
strong public sentiment throughout the banking com-
munity, for the due exchange of bank-notes among the
banks themselves.^ This is the point Mr. Wilson es-
pecially insists upon.
"By an agreement between the different banks, they
' Remarks on the Management of the Circulation, 1840.

' It is from the want of a system of mutual exchange of notes
lliat, in American Banking statistics, . the column, " Notes of other
banks/' assumes so much inportanoe.
AMERICAN PAPER-MONEY BANKING. 481
never called upon each other to pay their notes in spe-

cie and thus each bank always held large quantities
;
of the notes of other banks for which they did not de-
mand payment; and such was the political prejudice
against the payment of specie, that any private individ-
ual who demanded the payment of specie to any large
amount was marked as a common victim by the banks."
— [Capital, Currency and Banking, p. 268.]
There was no time when this statement of Mr. Wilson
would have applied without quaUfication to banks in
all sections of the United States yet it holds true in a
;
high degree of the banks of the country as a whole

during a considerable portion of our financial history.
The earliest and most important effort to secure a
prompt and regular redemption of notes was through
the so-called " Suffolk Bank system " of Massachusetts,
aftei'wards extended throughout New England, by which
all the country banks were brought, by threats of out-
lawry against their circulation, to keep a deposit in the
Suffolk Bank ample to redeem their notes on presen-
tation. The effect of this system, which became the
great distinguishing fact of the New England paper
money, was to give the bank-notes of that section a wide
acceptance all over the Union.
The third feature of the paper money system of the
United States which militated against convertibility
was the issue of smaU notes.' This affects convertibil-
' " Small notes," said Mr. Webster in his speech on the Bank," in
1832, " have expelled dollars and half-dollars from circulation in all the
States in which such notes are issued. On the other hand, dollars and
half-dollars abound in those States which have adopted a wiser and
safer policy. Virginia, Pennsylvania, Maryland, Louisiana, and some
other States, I think seven in all, do not allow their banks to issue
notes under $5." A sketch of the history of small-note issues is
1."57-40.]
given by Mr. Eaguet, [Ourreney and Bankinsr. pp.
482 MONEY.
ity in two ways : first, tlie notes pass chieflj' in the

hands of those persons who are least of all likely tc
present them for redemption, except under the influence
of panic. Second, they expel the specie which should
"saturate the circulation"^ and afford a supply, in' case
of need, to the reserves of the banks. In England notes
are not allowed under £5 ($25). In Scotland the
"small-note system" prevails, but there no notes are
issued under £1 ; while in the United States notes of
$1 and $2 have at times formed an important ele»
all
ment and in many sections notes for frac-

of the issues,
tions of a dollar have been issued, driving even the
smallest pieces of silver out of circulation.
A fourth fact in the paper-money system of the Unit-
ed States during the period of which we speak, was a
public sentiment always unfavorable, and at times act-
ively hostile, to the presentation of notes for redemp-
tion.
The natural pressure of trade upon the dealer, or the

laborer, to receive bank-notes without scrutiny of their
character, is at the best so strong as somewhat to im-
pair convertibility, even where no artificial obstacle is
interposed.
"The taking of them in payment," says Prof. Price, "is
not so purely a voluntary act as the taking of a check.
There is a kind of semi-compulsion pressing on the man
to whom they are offered. The tradesman who rejected
them would run the risk of losing his customer, who
might be tempted into the rival shop where no objec-
tion would be made to his money; offense might be
given to the numerous friends and customers of the
bank throughout the town. No doubt there is always
' See p. 441.

AMERICAN PA PER-MONE Y 3ANKIN0. 483
the remedy of demanding gold for them but the habit of;
the world is against that process."— [Principles of Cur-

rency, p. 133.]
"Everybody knows," says Mr. McCuUoch, "that,
wliatever notesmay be in law, they are in most parts of
the country practically and in fact legal tender.^ The
bulk of the people are without power to refuse them.
The currency of many extensive districts consists in
great part of country notes, and such small farmers or
tradesmen as should decline taking them would be ex-
posed to the greatest inconveniences." [Commercial —
Dictionary.] i
But there was more than the unavoidable pressure of

trade to compel the citizen of the United States to take
bank-notes without scrutiny, and to allow him in turn
to pass them off in exchange without presenting them at
the bank for redemption.
" The habit of calling for specie," says Prof. Sumner,
"had never been formed, and it was sternly discoun-
tenanced by public opinion."'^ — [History of American
Currency, p. 157.]
' " It was the catastrophe of the year 1814," says Mr. Gallatin,
" which first disclosed, not only the insecurity of the American bank-
ing system as then existing, but also that when a paper currency,
driving away and superseding the use of gold and silver, has insinu-
ated itself through every channel of circulation and become the only
medium of exchange, every individual finds himself in fact com-
pelled to receive such currency, even when depreciated more than
twenty per cent, in the same manner as if it had heen a legal tender."
— [Considerations, etc., p. 6.]
' Of the power of public opinion in such a matter the people oft
the United States ha->'e recently had a striking illustration in the
practical exclusion of greenbacks, during and since the war, from

ordinary circulation on the Pacific Coast. Though legal tender, nr
man dared to ofler United States paper money for a debt contracted
484 MONEY.
We have noted certain characteristics of Americar

paper money prior to the forced circulation given to
United States treasury-notes in 1862, which distinguish
it in a marked degree from that of England during the
same period, and especially from the later form of En-

glish paper money as organized under the Bank Act of
1844 The features noted were all such as to impair
more or less seriously the convertibility of the bank-
note, and thus, even in the view of the advocates of the
Banking Principle, to take away the security which they
think they find for the conformity of paper to metallic
money; while in the view of those who hold the Cur-
rency Principle, the features of the American system, as
noted, must have aggravated in a high degree that tend-
ency to excessive issues, and hence to depreciation,
which, as they assert, inheres in all paper money not
based, as was the paper money of Hamburg and Am-
sterdam, through many generations, cent, per cent., on
the precious metals but which evils may be brought
;
within narrow limits in a system like that of England,

where the circulation is controlled by one dominant in-
stitution where banking traditions enforce the frequent
;
interchange and mutual redemption of paper where is- ;
sues are restricted to notes of the higher denominations

and the circulation is thus surcharged with specie in the
hands of the people and of the small dealers and, lastlv, ;
where both law and public sentiment make it the un-

challenged right of every holder to demand specie ' at
in United States gold money and

;
all the large commercial transac-
tions of that section went on upon a gold basis, under the sufficient
protection of a consolidated public sentiment, which did not lose its
power over the debtor even in face of a premium of 150 per cent.
' " Convertibility
is not enough, if it is only nominal, and i£ no one
because public opinion frowns on such an act or

tests its reality
—
bank dispW'iure follows it." [Sumner, Hist Am. Currency, p. 186.]
AMERICAN WRITERS. 485
his own
pleasure, and the obligation of every bank at
alltimes to pay specie, without condition, without de-
mur, and without retaliation.
The writers of the earlier period cf our history who

were most conspicuous in their opposition to issues of
paper not severely restricted and regulated to prevent
excess were Messrs. Wm. M. Gouge, and Condy Ea-
guet, both of Philadelphia, and Prof. Tucker, of Vir-
ginia.
The near contemplation of the evils of excessive issues
and oft-recurring bank suspensions made the first men-
tioned of these writers somewhat less discriminating
than was just in his stuictures upon banks and the issue
of paper money, and while his " History of Paper Money
and Banking in the United States " forms a valuable
portion of our economical literature, its generalizations,
and at times its specific statements, require qualifica-
tion. Mr. Eaguet's work is founded upon the doc-
trines of the English Banking School, as to the impossi-
bility of issuing and maintaining an excess of converti-
ble paper ; but the author clearly apprehended the fact
that the American bank issues did not meet the require-
ments of convertibility' in the economical, if they did
in the legal, sense.
'
"In the management of the numerous banks of the United
States an inexcusable ignorance of first principles has been repeat-
edly manifested, and hence we have seen repeated expansions and

contractions of a highly prejudicial nature. . . . The ignorance
of some, the speculative avarice of others, and the desire common to
all to amass large profits, are constantly operating to effect an ex-

pansion of the currency to the utmost limits of tension." —[Currency
and Banb'ng, p. 106-7.]
i86 MONEY.
Prof. Tucker, also, found thai the American system of
paper issues suffered from the lack of genuine con rex\\.
bility and that, in consequence, the circulation was now

;
inflated and now deficient, with very mischieTous effects

upon trade and production.'
In a later period of our history Prof. Amasa'Walker
has upheld the views of the English Currency School,
maintaining not merely that the American system lack-
ed the requisite of convertibility but that paper mon- ;
ey issued in excess of the specie held for its redemption,

under whatever system of management, tends inevitably
to fluctuate otherwise than metallic money. In his
pamphlet on "Money," published after the panic of
1857, and in his treatise, "The Science of Wealth," ^'pub-

lished after the Civil War, Prof. Walker maintained this
proposition with an earnestness and force which have
had a great effect in checking the assent which Mr.
Tooke's defection from the Currency Principle had done
much to secure to the doctrine of the English Banking
School, that paper money redeemable in specie on de-
mand cannot be got out, or kept out, in excess of the
volume of metallic money, which under the same cir-
cumstances would have been in circulation.
' " Whatever may be the mischiefs of overtrading and a gambling,

speculating spirit in the community, and they are for the time very
great, banks must be considered responsible for a large portion of it.
. . . The banks, by affording aliment to this spirit, give it a force

and vigor of mischief it could not otherwise attain." —[Money and
Banks, p. 188.]
" "Nous ne saurions taire I'expression^d'une admiration sincere

pour cet ouvrage capital: Science of Wealth, ouvrage digne d'etre mis
au premier rang de ceux dont Tdtude de I'dconomie politique pent
le mieux s'enorgueillir." — [M. Wolowski, Journal des Economistea.
October, 1868.]
PROF. A. WALKERS VIEWS. 487
The following is Prof. Walker's statement of the vital
principle of a Convertible Paper Money, or, as he terms
it; a Mixed' Currency :
"IT IS NOT GOVERNED BY THE LAWS OP VALUE.
" The great principle of value is : demand creates sup-

ply ; supply satisfies demand.
"A mixed currency is not regulated in this way. In
so far as it has not value, it is not controlled by the laws
of value. It is put out by bank managers at their

pleasure and for their profit. It is not produced by la-
bor. This last fact removes the gravitation which alone
can secure a currency. It makes it a thing to be blown
about by every breeze, carried up or carried down with
the currents or whirled around in the eddies of trade.
It should be stable,and not sport for the winds. There
should be a reason for the putting out or taking in of
every dollar of money; and that reason should be found
in the laws of value.
"Now, these laws control the expansion or contraction
of money, or a value currency. If it is increased, as it
may be in the natural course of commercial transac-
because actual money has been brought into
tions, it is
the country by the balance of trade but a mixed cur- ;
rency increased by the voluntary and interested ac-

is
tion of bank managers, without regard to the laws of

value, and without the addition of a dollar to the real
money or wealth of the country. The increase of mon-
ey [metallic] by importation takes place in obedience
to causes that are gradual and appreciable; and any
'
Compounded of value and credit, in uncertain proportions. The
same^term was fv squently employed by Mr. Norman, in England.
488 MONEY.
one who watches the course of commerce can antic-

ipate its arrival. If it comes in excess from any un-
usual source, it easily and naturally passes off to other
countries till the balance is restored. . . .
" We
have found that the quantity of a mixed currency
is not governed by the laws of value. On the contrary,
we find laws positively mischievous substituted for the
wholesome operation of supply and demand.
"First, of expansion. The more there is issued of a
mixed currency, the more will be wanted. The supply
does not satisfy the demand,it further excites it. Like
an unnatural stimulus taken into the human system, it
creates an increasing desire for m.ore. There are two
reasons for this : one, that, as the currency is expanded,
prices are raised correspondingly, and more currency is
demanded to effect the same exchanges the other, that
;
the speculation inevitably following the rise of prices

leads to an enormous extension and repetition of indebt-
edness, which requires for its discharge a greatly in-
creased amount of the circulating medium. . . . AH
this is quickened and helped by the fact that the man-
ufacturers of the currency are ready and eager to crowd
upon the public all it will take.'
' That bank managers make distinct efforts to enlarge their circu-
lation is notorious. Chalmers, in his " Estimates," says :

" The coun-
try bankers tried various projects to force a greater number of their
notes into circulation than the business of the nation demanded."
Maopherson, in his " History of Commerce," in speaking of the coun-
try banks, says :
" Whose eagerness to push their cotes into circula-
tion had laid the foundation of their own misfortune." Mr. Wake-
field, in his evidence before the Agricultural Committee of the House
of Commons, in 1821, says: " Up to the year 1813, there were banks
in almost all parts of England forcing their paper into circulation at
an enormous expen.'se to themselves, and in most instances it had
been done to their own ruin. There were bankers who gave com-
PROF. A, WALKERS VIEWS. 489
"Secoii(Jly, of contraction. We
have seen the forces
that raise the currency higher
and higher. The . . .
cause which limits the expansion and finally

produces
contraction, is the liabiUty of the notes to be presented
for payment in money.
" The occasion for this cause to
operate may be al-
most anything— a political convulsion, an adverse bal-
ance of trade, a failure of some large trading or banking
company, or an unaccountable mood of the popular
mind. "We will take that which is most common and
sensible— an adverse balance of trade. If it be large, the
demand for specie which it occasions will create a pro
found sensation among the banks. With actual money
thereis under these circumstances no reason for ex-
citement or alarm; ten millions of dollars of the cur-

rency will discharge that amount of debt abroad, and
the currency at home is reduced but so much.
"A mixed currency has in itself no power whatever
to satisfy a foreign creditor. If ten million dollars are
to be paid abroad, it must be taken from the specie of
missions, and they sent persons to the markets to take up notes of

other bankers." Even the Bank of England, Mr. Tooke says,
adopted in 1823 "new modes of accommodation to individuals in
order to induce them to borrow at 4 per cent." — [State of the Cur-
rency, p. 73.] The forms which these efforts have taken in the
United States have at times been almost ludicrous. Enterprising
banks have sent agents hundreds of miles to exchange their notes at
hotels, stores, railway offices, etc., for those of other banks. Mr.
Eaguet refers to the practice of loaning notes, with the express
understanding that the borrower was not to put them into circulation
within a certain distance of the place of issue. " Some new writer
upon the wealth of nations," said Mr. Charles Francis Adams in 1837,
" might make an edifying chapter by explaining in more detail all
the tricks that have been resorted to for the purpose of puffing up
the circulation." —[Reflections on the Currency, p. IB.""
41*
—
i90 MONET.
the banks, the basis of the currency is so much dimin-

ished, and the circulation must be curtailed accordingly j
that is, notes must be brought in and not put out again
till the basis is restored. If the proportion of specie,
as is the case on an average in this country, is only as
one to five of notes, then the export of ten milUon dol-
lars must cause a contraction to the extent of fifty mil-
lion dollars at home. The removal of so much currency
causes stringency, and stringency causes suspicion.
Vague apprehensions abound everybody becomes pru- ;
dent, many are scared. Here is another reason for con-

traction. With a value currency, the fact that it was es -
pecially wanted would be a reason why it should stay.

Not so with credit money it won't bear to be lacked in
;
the face.' . . .
"It should be borne in mind that these contractions

and expansions are not imaginary, not possible only, not
merely occasional, nor at all local ; but they occur fre-
quently and everywhere within the field of such a cur-

rency.
"But, it may be asked, are there not natural tides in
business, irrespective of a mixed currency? Certainly;
but they are never aggravated or intensified until they
end in panic or ruin. They are calculable and health-
ful. They are tests of business character. They may
go to the extent of exposing the emptiness of bad con-
cerns, but never destroy those that are good. When
they occur, money will be wanted to pay debts; but,
when one debt is paid, there is just as much money as
before with which to pay others. The pressure does
' " Dans un sauve-qul-peut, tout systSme f ond^ sur le credit doit
s'^crouler, car le sauve-qui-peut est le negation mime du credit."

[Chevalier, La Monnaie, p. 67.]
;
:
AMERICAN PAPER-MONEY BAKKS. 491
not annihilate any part of the currency. The party who

receives a payment does not put the money away in
vaults, not to appear again till the crisis is past. The
means of payment can be reduced only by the amount
actually sent out of the country. Gold and silver are
as little injured by panic as by fire."
—
[Science ol
Wealth, pp. 155-60.]
We have
seen what was the character of the money
American colonial period: at first, cattle, corn,
of the
wampum, and buUets, slowly superseding a barter trade
then, smaU. supplies of silver and copper, brought in
from the West Indies and from Europe, constantly com-
plained of as inadequate then, bills of credit, an incon-
;
vertible paper money, beginning with the Massachusetts

issues of 1690, extending in 1709 to the other New En-
gland colonies, and to New York and New Jersey, and
soon overspreading the whole settled country from New
Hampshire to Georgia. This money more or less fully
maintained itself, in spite of the inhibitions of the roy-
al governors, the Crown, and Parliament, until the out-
break of the Eevolution caused the issue, in overwhelm-
ing amount, of the soon depreciated and discredited
"Continental Currency."
In 1790 there were three banks in the United States
the Bank of North America,' in Philadelphia, the Bank
of New York, in the city of that name, and the Bank of
Massachusetts, "established in the Town of Boston"
[A. Hamilton, Report on the Bank]. In 1791 was char-
tered the First Bank of the United States, with a capital
'
This had been Robert, Morris's bank during the last years of the
Eevolution. It had gone under a Pennsylvania Charter, and is still
doing business under the Natiiûal Banking Act.

;
492 MONEY.
of $10,000,000, having power to issue notes payable or

demand in specie. It is significant of the administra-
tion of public affairs in this country at that period
that, though the act chartering the Bank provided that
a report of its condition should be laid before the Sec-
retary of the Treasury vsrhenever required, " but not oft-

ener than once a week," the records of the Treasury De-
partment do not show that any formal reports were
ever rendered during the twenty years of its existence
and the only balanced statements to be found showing
the state of the Bank are two contained in letters of
Secretary Gallatin, March 2, 1809, and January 24, 18H.>
On the refusal of Congress to recharter the Bank^ in
1811, large numbers of State banks sprang into exist-
ence, almost all of the usual American joint-stock type,
on the principle of limited liability.' The outbreak of
war in 1812 caused the failure of nearly all of these, out-
side New England which still maintained specie pay-
ments, drawing silver in large amounts from the States
in suspension. The funds of the United States, which
had been deposited in the insolvent banks, were in great
measure lost.*
The check of redemption, even to the very limited ex-
'
Report of the Comptroller of the Currency, 1876, pp. 8-9.
" " It is our deliberate opinion that the suspension [of 1814] might
have been prevented at the time when it took place, had the former
Bank of the United States been still in existence." — [Gallatin, Con-
siderations, etc.] ,
'
"The banks in America are under limited responsibihty, while
in this country, with the exception of the Bank of England, the Bank
of Ireland, and one or two of the chartered banks in Scotland, the
issuing bankers are liable to the whole extent of their property."—
[Tooke, Hist, of Prices, 1839-47, p. 257.]
* ITefirly $9,000,000 of Treasury funds were,, in 1814, in suspended

banks. .
: ;
AMERICAN PAPER-MONEl BAN&:S. 498
tent in wMcli it had existed, being withdrawn by the

suspension, the banks continued to pour out their notes
until the issues, which stood in 1811 at $28,000,000,
reached, according to Secretary Crawford, $62,000,000
to $70,000,000 in 1813, and $99,000,000 to $110,000,000
in 1815. The vague form of these statements is signifi-
cant, not only of the absence of all regulation of issues,
but even of public intelligence respecting the facts of
issue. The action of the banks in a state of suspen-
sion, under the wretched system of easily condoning
bankruptcy which has done so much to pervert the
trade and production of the United States, to lower the
national standard of morality, and even to infect our
politics with dishonesty, is thus described by Mr.
Baguet
" Banks, when they default in their payments, not only
never ask the indulgence of their creditors for any

specified extension of time, but they do not even think
themselves under obligations to pay interest to their
creditors for the funds they forcibly detain from them
nay, they very frequently, in tJie midst of their inaolvenaj,
declare dividends of the very profits which actually be-

long to their creditors, who, and not the stockholders,
are entitled to interest for their withholden funds. Ex-
cepting where legislative enactments have forbidden
dividends under a suspension of payments, instances are
extremely rare wherein a sense of justice on the part of
the directors of banks has led them to refrain from such
manifest injustice, and the consequence has been that
a direct inducement is thereby created for taking no steps
towards a resumption of payment."^— ICxntrencj and

Banking, p. 158.]
remedy by a heavy fine on hanks

'
A few States sought to this evil
remaining in suspension. Thus, the discount in Boston on New

:
494 Monsr.
Of where such things could be

course, in a country
done, much more where such things wero
in a country
done frequently and without rebuke, it was rank non-
sense to talk of convertibility.' In 1814 Mr. Dallas,
Secretary of the Treasury, wrote
"The multiplication of State banks in the several
States has so increased the quantity of paper currency
that it would be difficult to calculate its amount, and
stillmore difficult to ascertain its value. There . . .
exists at this time no adequate circulating medium

common to the citizens of the United States." The de-
preciation of the bank paper at the close of the war
reached in some instances twenty or twenty-five per
cent. Throughout 1816 the banks continued to issue
largely their discredited notes, while floods of unchar-
tered paper were poured out, in notes of all denomina-
tions from six cents upwards.
The war with Great Britain had given rise to the
treasury-note system, which was extensively resorted
England bank-notes having gone up in 1809 to 10, 30, and in some

cases 50 per cent., the legislature o£ Massachusetts passed an Act
in January, 1810, affixing a penalty of 2 per cent, per month, payable
by the bank to the bill-holder, for refusal or failure to redeem notes
on presentation.
' " By convertibility of the paper, according to the ordinary significar
tion of the term when applied to bank-notes in this country, is meant
that the holder of a promissory note, payable on demand, may require
payment in coin of a certain \Veight and fineness, and in the event
of refusal or demur, such payment is enforced hy law against tie
issuer to the utmost extent of his property. The issuer, whether a pri-
vate or joint-stoch hanker, is considered to have failed ; the circulation
of his notes is at an end, and he is subject to the process vsual in casei
of insolvency ; while ar.ything like fraud on the part of the hanker is
visited with severe penalties," — [Tooke, History of Prices, 1839-47, p.
251.]
;
JTT^ SECOND UNITED STATES BANK. 495
to' and contributed to the general excess of the circulat-

ing medium. Of this measure Mr. Calhoun was always
a strenuous advocate.^ This measure the banks, natu-
rally enough, opposed. The treasury-notes were not of
forced circulation ; they failed to be paid at maturity
and general distrust and commercial distress ensued.
The evils of the financial situation led to the estab-
lishment, in 1816, of the Second Bank of the United
States, with a capital of $35,000,000, notes not to be is-
sued below $5. The regulation of the circulation was
looked for from this powerful fiscal agent. But the
country was already on the verge of a crisis. The State
banks began to 1818, and a second general sus-
fail in
pension occurred in 1819, extending through the two

years following. The paper money afloat at once ran
down, as estimated by Secretary Crawford, from $99-
110,000,000 in 1815, to $45-53,000,000 in 1819. The
Bank of the United States sustained heavy losses, and
its financial condition was only re-established by an im-
portation of $7,000,000 in specie, at the expense of half
a million. Still another shock was experienced in 1825,
but this manifestly had not originated in the United
States, having been communicated from England, where
the suffering was far more severe. In the United States
' And, again, 1837-1843, so that between 1812 and 1843 the
treasury-note issues aggregated $84,611,828. — [N. Y. Banker's Maga-
zine, July, 1861.]
" " It is like an individual using his notes of hand, having a short
date to run, to meet his engagements. The return of these would
soon embarrass him ; to avoid which, to enable him to plunge m^re
deeply in debt, the resort, on the part of the thoughtless, is usually
to a mortgage. Such, I apprehend, is the case in the present in-

stance ; for what is a permanent loan but a mortgage upon the
wealth and industry of the country ?
"
—[Speech in opposing the Lean
Bill of 1841.]
496 MONEY.
the crisis was not particularly a bank crisis. Most

of the banks that suspended proved to have failed utterly.
Again, in 1828 and 1829, considerable pressure was ex-

perienced by the money market, as the consequence of
extensive overtrading in 1827.
The which had been expected of the Bank of
office
the United States was performed only in part. How

far the management was at fault for the degree of failure
which occurred it is not our part to inquire.^ Practical

inconvertibility characterized the issues of the joint-
stock banks of the United States Loose- down to 1834.
ness of management, the want of legal regulation, the

absence of any authoritative and effective business tra-
ditions and maxims, with, in not a few cases, purposed
swindling of the most outrageous character,^ committed
always with entire impunity, make the early history of
paper-money banking in the United States exceedingly
discreditable.^ The popular term, "Wildcat Banking,"
'
President Van Buren, in his message of 1839, arraigns tlie Banlj
as follows :
" At every period of banking excess it took tlie lead.
In 1817 and 1818; in 1823, in 1831, and in 1834, its vast expansions,
followed by distressing coni;ractions, led to those of the State insti-
tutions. It swelled and maildened the tides of the banking system,

but seldom allayed or safely directed them.''
" Prof. Sumner gives the following brief but eloquent account of
the Farmers' Exchange Bank of Gloucester :

" Its capital was $1,-
000,000. Only $19,141.86 were fever paid in, andof this the direct-
ors withdrew what they paid in, leaving $3,081.11. One Dexter
bought out eleven of the directors lor $1,300 each, paid out of the
bank's funds. He borrowed of the bank $760,265. When it failed
it had $86.46 in specie; bills unknown; the Committee estimated

them at $580,000."— [Hist. Am. Currency, p. 62.] See also Mr. Ra-
guet's account of the Newbern and Cape Fear bank* of North Caro-
lina [Currency and Banking, p. 118].
' " La triste histoire des banques des Etats Unis n'est que trop
connue : elle a ete si fdconde en d€sastres que des hommes consid-
VICES OF AMERICAN BANKING. 497
not inaptly describes mucli, the greater part, indeed, oJ

the operations of American banking of a period reach-
ing evendown to 1837. The worst faults of our national
genius here made their worst manifestations. Those
who should only know the people of the United States
through the banking of that age might well have the
most contemptuous idea of them.
The vices of character which permitted the discredit-
able operations which have been known as banking in
pretty much every
part of the country, by turns, and
in some from first to last, may be indicated as follows :
1. The national haste to be rich. Americans are not

avaricious. No people expend what they acquire more
liberally, whether for personal gratification or in public
benefactions. But if an American is going to be rich

any time, he wants to be rich right off. He is impa-
tient of everything which does not yield immediate re-
sults. There is, however, no work in which the present
has to be more distinctly subordinated to the future
than banking none in which habit on the part of the
;
public, and reputation on the part of those who solicit

patronage, have so much to do as in deposit banking.
The reputation of the banker, the habit of deposit
among the community, can only be slowly built up.
erables, des financiers de premier ordre, Gallatin, par example, en

etaient venus, en dernier lieu, a se demander si les dangers qu'entralne
le billet de banque, ne devait pas faire renonoer 5 I'emploi de cet
mstrument de la circulation." — [Wolowski, La Question des Banques,
p. 381.]
"The farmers of Illinois, Michigan and Wisconsin, would rather

encounter war, pestilence, or famine than the old style of unsecured
or imperfectly secured bank-notes, by which they were robbed at
frequent intervals during the twenty-five years preceding the war.'

—[Horace White, International Review, Nov., 1877.]
498 MONEY.
2. The national arrogance, combined with the iguo-

rance of finance which characterizes both our statesmen
and our men of business, creating a contempt for the
wisdom of the ages and the experience of other peoples
in all that relates to industry and trade.
3. The rapidity of the national growth, wliich would
have outstripped the natural development of any bank-

ing system, however well and fairly founded. The same
cause has compelled us to put up with rude and clumsy
contrivances, or mere make-shifts, in many departments
of activity besides banking.
4. A false view of money which regards coin as the
proper subject of governmental regulation, but consid-
ers the manufacture of paper money, which will drive
coin out of circulation and take its place, as a branch of
ordinary business with which the state has no right to
interfere.*
So completely without regulation, or even inspection,

was the so-called Convertible Paper Money of the United
'
"If," said Mr. Hamilton, in his Report on the Bank, "the paper
of a bank is to be permitted to insinuate itself into all the revenues
and receipts of a country ; if it is even to be tolerated as the substi-
tute for gold and silver in all the transactions of business, it becomes,
in either view, a national concern of the first magnitude."
"Is it not," asked Mr. Ricardo, "inconsistent that government
should use its power to protect the community from the loss of one
shilling in a guinea ; but does not interfere to protect them from the
loss of the whole twenty shillings in a one-pound note?" — [Proposals

for a Secure and Economical Currency.]
Per contra, M. Courcelle-Seneuil, who favors the American system,
says, in his " Operations de Banque " :
" Les droits rSgaliens . . .
n'ont rien de commun avec les Amissions de biUets payables ^ vue et

au porteur."— [P. 352.]
VICES OF AMERICAN BANKING. 49G
States in this period, that it is scarcely possible to re-

cover any of the facts of banking capital, circulation,
deposits, or specie reserve. Hardly a statistical frag-
ment survives as an indication to the student of money.
It is impossible to tell accurately what was the total
circulation of the country at any time. There is only
too much reason to suppose that the officers of many
banks did not themselves know the liabilities of the in-
stitutions whose affairs they were conducting. I have
alluded to the astonishing fact that but two returns of
the First Bank of the United States are in existence or
are known ever to have been rendered. One of these
was manifestly trumped up after the date.
'
"When such a state of things could exist in regard to

the national bank of the United States, intended as a
'
This is easily seen by comparing the " round
500 MONEY.
regulator of the general circulation, and subject to im-

mediate supervision by the Treasury Department, it is
matter of small wonder that the numerous small and

scattered State banks furnish no data for the student of
money. Notes issued under such a system, or lack oi
system, were, in every economical seiise, inconvertible

The pretense of conversion ' could only be maintained
under a general consent not to apply the test of redemp-
tion; a consent enforced upon recusants by a stringent
public opinion, and, in border communities, there is
reason to believe, by a sharp compulsion.

The state of things described in the foregoing pages
almost justifies the severe language of Mr. McCuUoch :
"Had a committee of clever men been selected to de-

vise means by which the public might be tempted to en-
gage in all manner of absurd projects, and be most eas-
ily duped and swindled, we do not know that they could
have hit upon anything half so likely to effect their ob-

ject as the existing American banking system. It has
no one redeeming quality about it, but is, from begin-

ning to end, a compound of quackery and imposture."
— [Commercial Dictionary.]
"No person," says Mr. Fullarton, in his "Regulation
of Currencies," "who has given any attention to the ev-
idence respecting the state of the American paper cir-
culation, will venture to affirm that, even previous to

the universal and spontaneous suspension of cash pay-
ments in May, 1837, that circulation was really and prac-
tically convertible."
Of the war made by President Jackson on the Bank

of theUnited States, of the criminations and recrimina-
'
Mr. Crawford, Secretary of the Treasury, in his report of 1820,
speaks of States " whe;e the convertibility is not even ostensible."
THE CRISIS OF 1837-43. 501
tions of that scurrilous period, of the merits or demer-

its of Bank management, our present purpose does
the
not require us to speak. The Bank was killed, whether
bj the stroke of justice or the hand of the assassin.
The removal United States deposits, by the will
of the
of the President, and the selection of State institutions
as depositories of the public funds, incited the formation
of many new banks and a rapid increase of issues. It is
about this time that we begin to have reliable statistics
of the paper money of the United States. The aggre-
gated circulation of the banks, exclusive of that of the
Bank of the United
had been estimated at $61,-
States,
000,000 in 1830. By 1834 it had risen to nearly $95,-
000,000, while it was further increased to $149,000,000
between that date and 1837. As the result of the panic
of the latter year, the circulation fell off to $116,000,000.
The year following it rose to $135,000,000, only to fall
to $107,000,000, as the result of the crash of 1839, sink-

i'ng to $84,000,000 in 1841, and to $58,500,000 in 1843.
The panic of 1837, the second and heavier shock of

1839,' and the long and dreary prostration of industry
lasting until 1843, were the result of speculative over-
trading, mainly after 1833, leading to a general distor-
tion of productive industry, and to speculative invest-
ments, especially in western lands and mines, in rail-

roads and canals, in corner lots and river fronts, which,
even had they been intelligently made, would iidve far
' " The New England and New York banks held out bravely, but,
takinn- the country over, this was the real collapse of the banking
Bystem which had been growing up. Three hundred and forty-three
out of eight hundred and fifty banks closed entirely, and sixty-twn
partially."— [Sumner, Hist Am. Currency, p. 151.]
42*
502 MONEY.
outnin the possible growth of the country, locking ap

in unremunerative enterprises the capital needed to
conduct the manufactures and trade of the nation. Lan-
guage could not well exaggerate the extent to which this
misapplication of capital and this distortion of produc-
tion had been carried. The whole head was sick and
the whole heart faint. Pew things remained sound, and
these were not unsuspected. Even the ordinary com-
mercial machinery of the country was carried away in
the crash which followed. The train was wrecked upon
the track, and it took years to clear away the debris and
get the ordinary agencies of trade, viz., exchanges, com-
mercial correspondence, business good-will, and in some
cases even the facilities of transportation, again in
working order.
That the evils of the period 1834 to 1843 were in great
measure due to vices of paper-money banking is not to
be questioned. The opening of the '
' great West " would
doubtless have led to much wild adventure, industrially
and commercially ; and it is of the American genius to
take large risks boldly. But the facility of issue, with-
out the reality or scarcely the pretense of redemption,

made the banks, even those which had been reasonably
well founded, reckless as to the nature of the enterprises
which they assisted ; while the money thus put into cir-
culation, without "reflux," enhanced prices and still
further stimulated both speculative investments and
speculative trading.^ When the audacity of the better
' Prof. Sumner expresses the opinion that between 1833 arid. 1837
" the bank expansion only kept pace with the speculative expansion
and rise of prices, and that the
issues, although opposed to aU sound
rules of banking,and sure in the end to prostrate bankers and

dealers together, were not made faster than they were called for."
[Hist. Am. Currency, p. 157.] Doubtless they were not. The ques-
THE NEW YORK SYSTEM. 503
institutions failed, hundreds of "wildcat" or '"coon-

box" banks, without capital, without a constituency,
with no past and no future, whose managers risked noth-
ing and had nothing, came forward with offers of notes
to speculators who planned to biiild cities in the wilder-
ness, or contractors who wished to construct roads and
bridges without materials, tools, or means of paying
wages. Again, as in early New England,' a bank meant
a batch of paper money.
The severe experiences of this period led in some
States^ to legislation designed to place the issue of bank-
notes on a sounder basis. New York led off with an en-
actment, afterwards widely imitated in other States,
which secured to its paper money, though still converti-
ble only in a very limited sense, far more stability than
ithad before possessed.
New York had already been the scene of an effort to
secure the liabilities of banks. Under Gov. Yan Buren
an Act was passed, in 1829, establishing the so-called
"Safety Fund System," under which forty banks were
organized. A common fund was to be created by con-
tribution, annually, of one-half per cent, of the capital
of each bank, until three per cent, of such capital should
have been paid in. This fund was to be made applica-
ble to the payment of the circulation and other indebt-
tion is, whether these issues increased the aggregate circulation abo7e
amount of metallic money which would have come into the coun-
the
had the paper not been issued. If so, while the
try and stayed in,
bank expansion kept behind the speculative expansion, it aUowed

the
expansion not only to precede but to proceed. In the

speculative
but it fed the
language of Tooke, it did not kindle the conflagration,
flames.
See p. 317.
'
banking law which

Massachusetts had, in 1829, passed a general
'
per cent, in excess of the paid-up

limited the circulating notes to 25
capitfi
504 MONEY.
ednoss of any individual bank contributing whicli should

become insolvent. In 1841-2, eleven of these banks
failed, their aggregate liabilities far exceeding the total
Safety Fund. An extraordinary levy had therefore to bo
made, the amount required being advanced by the State
out of the proceeds of a special loan. After 1842 the
Safety Fund was made applicable only to the payment
of circulating notes.
In 1838 the Free Banking System of New York was
established, under which the circulating notes were to
be secured by a deposit of United States or New York
stocks, or bonds and mortgages on improved and pro-
ductive real estate. In 1840 a law was passed requir-
ing each bank to redeem its notes at an agency of the
bank in New York City, Albany, or Troy. Two of the
strongest banks in New York City about this time inau-
gurated a plan of redemption similar to that of the
"Suffolk Bank System" in New England. These pro-
visions did not, however, prove sufficient to secure even
the ultimate, much less the immediate, convertibility of
the paper issues. Previous to 1843 not less than twenty-
nine banks organized under this system had failed, their
aggregate circulation being about $1,250,000, while the
securities held for redemption brought less than half
that sum. Subsequent acts of the legislature increased
the proportion of securities to notes issued.
This is the scheme of Secured Circulation, known as
the New York system, which, as stated, has been widely
imitated in the legislation of other States, and on which,
to a considerable extent, the present National Bank law
of the United States was framed.
The plan of basing a circulation upon securities' is
' "Monnayer la rente est tout aussi perilleux que de monnayer If
terre." —[Wolowski, La Question des Banques, p. 397.]

THE NEW YORK SYSTEM. 505
not economically approved^ It does not give convert-

ibility, in the sense of preventing excessive issues, even
.
in the view of the advocates of the Banking Principle

It does not even secure the perfect acceptability of the
notes as a medium of exchange, since the receiver de-
sires to be assured that they will, at any moment, be
worth what he takes them for, whereas the New lork
system, at the best, only gives him a pledge that, at a
future date, when the bank shall be wound up and the
securities disposed of, he wiU receive that which he may
need for this day's subsistence of his family, or to meet
the present pressing wants of his business.
Indeed, it is to be noted that the New York system,
even as amended by the subsequent legislation referred
to, did not profess to secure precise convertibility.
"Redemption in the New York law," says the Comp-

troller of the Currency, in his report of 1873, "meant
discount. was to be a redemption in specie, and it
It
was founded upon the avowed principle that specie was
worth more, and was more desirable to hold, than the
circulating notes authorized."
But, while theNew York system can not be accepted
as based on sound principles of money, or even of bank-
ing policy, it proved, at the time, so great a check upon
the wild and reckless paper-money banking that had
prevailed almost universally throughout the country, and
it had so clear an effect in educating the public mind to
more correct views of the banking function and of the

responsibilities attaching to note-issues that it should
be spoken of with respect b y the historian of American
money.
Even more important was the system of mutual re-
demption, first instituted in New England by the volun-
tary action of the Boston banks, and by the New York

43
506 MONEY.
law of 1840 made compulsory upon the banks of thai

great commercial State.
"The rates of discount in the New York market,"
says the Comptroller of the Currency in the report jusi
quoted, " upon the bank-notes issued and in general cir-
culation varied from i of 1 per cent, to 1\ per cent.,

while many bank-notes that had a local circulation were
quoted at from 5 to 10 per cent, discount. The notes
of the New Yorle and New England hanks,^ only, circidated
throughout the whole Union, like the National Bank currency
of to-day.'
The painful experience of 1837-43, and the discussions

regarding money and banking which that experience
called out; the reduction in the average term of com-
mercial credit;^ the growth of a public sentiment to crit-
icise and condemn excesses in paper-money issues, and

the formulation of maxims and precepts more or less
fully recognized by bank managers as binding upon
them the dying out of the rage for Western speculation,

;
and the general conviction, inspired by the sufferings of

the preceding period, that wealth is to be produced, not
'
The 5tla Annual Eeport (1858) of the Board of Managers for the
Suppression of Counterfeiting brings out the fact that the devices of
New England banks were especially affected by the counterfeiting
fraternity, on account of the freedom with which the notes of that
section passed everywhere without particular scrutiny.

''
" Long credit is not one of the least of the bad effects of paper-
money. . . . Long credit, thus obtained, does in turn forward a
bad currency. . . . Insensibihty of discredit does naturally fol-
low long credit." — [Tract, The Currencies of the British Plantations
in America.] It would be difficult to put more moral and economica!
philosophy into three sentences.
AMERICAN PAPER MONEY, 1844-60. 507
discovered ; and, lastly, the legislation wliich has been

described, though far from fulfilling the requirements of
cither good banking or good money: all these causes
combined to place the trade and industry of the United
States on a sounder basis between 1844 and 1860. Yet
the paper money still tended to excess on the occurrence
of every speculative impulse. Rising prices inevitably
distorted production, creating an excess of those com-
modities which first felt the force of the upward move-
ment, and, in the end, disturbing the foreign exchanges
of the country. Excess was surely followed by deficien-
cy, expansion by contraction, as the downfall of prom-
ising schemes created suspicion and alarm, or as the
outward drain of specie brought upon the banks the ne-
cessity of reducing their liabilities to meet impending
danger. By such oscillations trade was made highly
speculative, often to the verge of gambling; the terms
now of one party
of contracts were altered, to the loss
and now of another; false impulse and false direction
were frequently given to labor and capital, entailing
great waste of productive energy. Believing, as I do
with M. "Wolowski, that, of all human agencies, money
is that one which costs least for the work it performs,
I cannot doubt that the United States by the use of
such a vicious medium of exchange lost every few years,
through misdirection of effort, waste in expenditure, and
impairment of industrial force,enough to have provided
a metallic money of full value, adequate to aU tlie de-
mands of their domestic trade.
As an incident of the Civil War, a system of national
banks was created, and the notes of the State banks
were taxed out of cir 3ulation. As the new banks came
into existence when the country was in a state of sus-
pension, and their notes have in the fourteen years in-
508 MONET.
tervening been redeemable, in fact, only in the legal-

tender bUls, an account of them does not belong to the
department of Convertible Paper Money. In the fact of
a uniform law for all the issuing banks of the United
States is found for the time in our history the possi-
first
bility of regulating the paper money circulation of the

country, should specie payments be restored according
to thepledge of the government. It is not, however, to
be expected that a people so impatient of slow gains, so
deeply penetrated, moreover, with the belief that ia the
domain of wealth something can be made out of noth-
ing, and much easily out of little, wiU bring themselves
to submit to the restraints of law and tradition which

in England, France, Germany and Sweden reduce the
evils of paper issues to a minimum.
In the present mixed condition of the money of the

United States,^ there are seven distinct species in circu-
lation, or known to the law.
1. Gold coins, legal tender to any extent but, in; fact,
at present used (except per force of special contract) for

but two purposes: in payment of customs duties, and
of interest on the public debt.
2. Silver and nickel coins, a token or subsidiary mon-
ey ; legal tender only in hmited amounts.
3. Legal-tender notes issued by the National Treas-
ury, known popularly as Greenbacks, limited in amount
by law.
4. The small residue of paper "fractional currency,"
which has not been superseded by the new debased
silver coinage.
' See article, " Our National Currency," by Prof. Amasa Walker,
in the "International Review," March, 1874.
OUR PRESENT MONEY. 509
5. National bank-notes, issued by 2089 banks,' under

a degree of regulation by government; redeemable in
lawful money of the United States ; secured by deposit
of United States stocks.
6. Coin-bank notes. By the Act of Congress of July
12, 1870, the Comptroller of the Currency was author-
ized to issue to " any national banking association de-
positing the bonds of the government bearing interest
payable in gold, circulating notes of different denomina-
tions of not less than five dollars, to an amount not ex-
ceeding eighty per cent, of the par value of the bonds
deposited ; -nhich notes shall bear upon their face the
promise to pay them in the gold coin of the United
States." By the official report of 1876 there were nine
of these banks, all in California, with an aggregate cap-
ital of $4,450,000 and a circulation of $2,090,500.
7. Gold notes, in denominations of twenty dollars and
upwards, furnished by the government to all who depos-
it coin for that purpose with the Treasurer of the United
States. These notes, like the former paper money of
Genoa, Hamburg and Amsterdam, are simply receipts
for gold. They form the ideal circulating medium, a
money combining the convenience of paper with the se-
curity and stability of coin.
OTHEE EXAMPLES.
The country which, next makes the great-

to England,
est figure in discussions of paper-money banking, is
Repoet of 1876.
Capital, $499,802,232
Surplus, 132,202,282
•Undivided profits, - - - - 46,445,216
Loans and Discounts - - - $'^27,574,979
Circulation,
292,166,039
510 MONEY.
Scotland. The remarkable success of tJie Scottish

banks ^ and the high degree of convertibility maintained
by their paper, has afforded the advocates of unrestrict-
ed issues their favorite illustration. And to those who
hold that paper-money banking inevitably leads to bank-
ruptcy, as has so often been the case in England and
the United States, the example of Scotland is a sufficient
answer. But we have seen that, conceding the solvency
of -the banks, conceding them to "good makers, good
manufacturers"^ (Price), and to be able abundantly to
protect their own interests and to secure their note-hold-
ers, the question remains whether there is not the liabil-
ity to an excessive issue of notes under speculative im-

pulses in the commercial or industrial body, giving full-
er scope and freer play to such impulses than they could
obtain through the use of metallic money, and thus lead-
ing to overtrading and the consequent distortion of pro-
ductive industry, or to extravagant investments and the
consequent depletion of the circulating capital available
to conduct the current business of the community.
' Mr. MoCuUoch remarks :

" The destruction of country banks in
England has upon three different occasions, in 1792, in 1814, 1815
and 1816, and in 1825 and 1826, produced an extent of bankruptcy
and misery that has never perhaps been equaled, except by the
breaking up of the Mississippi scheme in France. In 1826 forty-
three commissions of bankruptcy were issued against country bank-
ers, and from 1809 to 1830 no less than three hundred and eleven.
During the whole of this period not a single Scotch bank gave way."
" " The difference between the two results in no
way proceeded
from any variation in the systems of currency adopted in the two
comitries. The method of issuing notes and providing for their con-
vertibility was identical in both. The failure in the one case and the
success in the other were exclusively events of banking, in no degree
events of currency. . . . The Scotch issuers of notes were good
bankers and kept their mcney ; the English were bad bankers and
lost it." —[Principles of Currency, p. 128."!
FRENCH PAPER-MONET BANKING. 511
Upon this point tlie sxxccess of Scotch banking proves

nothing either way. "Were we discussing the princi-
ples of banking/ no country could afford more instruc-
tion. In the discussion of the principles of money it
has only a secondary importance. Prior to the Act
of 1844 Lord Overstone was able to/ assert that "all the
evils to which a trading community is exposed : fluctua-
tions of prices, recurrence of commercial pressure, stag-
nation of markets, losses by insolvency, occur with as
much frequency and intensity under the Scotch System
of Currency, as under that which exists in England."^
To the paper money of France, ^ however, even this
' An account of Scotch banking is given by Mr. Inglis Palgrave,

in his " Notes on Banking," pp. 10-26 ; of. Gilbart on " Banking," 311,
319, 424^5 ; Tooke, " History of Prices," iil, 205, 263 ; Nicholson, " Sci-
ence of Exchanges," 45-9 ; Wilson, " Capital, Currency and Banking,"
2, 3, 97-8, 102, 234. Two facts are of especial importance in ex-
planation of Scotch banking successes. The first is that all land ia
registered (as is not the case in England), enabling the public easily
to ascertain the amount of real property possessed by the partners of
the bank who, except only in the case of the Bank of Scotland and
the two chartered banks, are bound jointly and severally; and, on
the other hand, enabling the bank management to ascertain the
amount of real property owned by persons applying for loans. The

second consideration is the fewness of the Scotch banks and their
great individual strength. In 1873 there were but eleven banks,
with eight hundred a,nd one branches. By the evidence before the
Committee of 1841 it appeared that one bank in Scotland had 20,000

depositors. Perhaps quite as important to be remembered in this
connection as either of the above considerations, is the shrewd Scot-
tish sense and the strong Scottish will.
' Tracts, etc., p. 114, cf. pp. Ill, 274.

"
The Bank of France was established in 1800. Previously to 1848
the Bank had sustained competition in issues from joint-stock banks
in the large cities ; but in that year, these became, by force of law,
branches of the Bank of France. Thus the Revolution brought about

—'
512 MONEY.
redoubtable champion of restricted issues is compelled

to concede a quality as stable as belongs to metallic
money. "Probably," he wrote in 1840, "the circulation
of that country undergoes no fluctuations but such as
would occur with a circulation exclusively metallic."
We have seen with what caution and firmness the Bank
has on two occasions maintained the currency of its
notes, even in a state of suspension. Mr. Seyd makes
the statement, as quoted by Mr. Nicholson, that on a
mass of commercial paper held by the Bank of France
between Aug. 13, 1870, and July 6, 1872, amounting to
868,000,000 francs, there had been a loss of but one-
third per cent. Financial abilities such as are indicated
by a result like this, and a circulation "saturated with
specie,"^ have combined to secure the close approach,
if not the exact conformity, of the paper money to the
movements and bullion under the operation of
of coin
supply and demand, in spite of the fact, which accord-
ing to the views of the Currency School would seem to

render such an achievement impracticable, that the
Bank considers good mercantile bUls a sufficient basis
for the issue of notes.
Mr. Bagehot, in his work, "Lombard Street," calls
our attention to the fact that, while the law con-
templates a branch of the Bank of France in each
the centralization of the banking system in France, as the Civil War

did in the United States. M. Courcelle-Seneuil says: "La banque
de France n'est pas un etablissement commercial seulement ; c'est
aussi, et avait tout, un instrument politique, une banque d'fitat."
[Op. de Banque, p. 212.]

' lUd.^ p. 206.
" Dowj to 1848 the Bank of France issued no notes of less than
500 francs ($100). In that year issues of 200 and 100 franc notes
wêre authorized.
SWEDISH PAPER-MONEY BANKING. 513
department, branches in fact exist in only sixty out

of eighty-six departments, so slowly does the bank-
ing system make its way in that country. This is
the more noticeable because in the French colonies
banks of issue have acquired no small importance, pros-
perous institutions existing in Martinique, Guadaloupe
Reunion, Guiana, and Senegal, while within two or three
years a bank of issue has been created at Noumea in
New Caledonia.
We have said that the issue of convertible notes was
first undertaken in Sweden, nearly forty years before the
Bank of England was established. Mr. Palgrave, in his

interesting " Notes on Banking," seems disposed to place
Swedish paper money first in point of merit as well as
of time.' By the Act of 1874 the power of paying bank-
notes with other paper was taken away. Even the notes
of the Bank ofSweden do not satisfy the demand for
redemption. Notes when presented at the head office
of an issuing bank must be paid unconditionally with
the lawful gold coin of the realm.
Sound banking principles have long been traditional
in Holland, and the Bank of the Netherlands maintains
a reputation hardly second to any. Its management ia
notable for the large specie reserves, which are said to

be greater proportionately than those of any other
bank in Europe.
' " If we except Italy, where for two or three years past tlie sys
monthly bank statements has been carried out, there is not it
tern of
Europe any country whose bank statistics are more carefully com^
piled, or more general, than Sweden." — [N. Y. Banker's Magszine
February 1877.] The excellence of the Italian accounts is due t<
the eminent abilities of Prof. Louis Bodio, the chief of the Centra
Statistical Bureau of the kingdom, whose contributions to economiosi
and political sciencehave been many and great.
43*
;
514 MONEY.
Prior to the vmification of Germany nearly everj

State possessed a system of paper-money banks, all
of one general type, though with varying provisions for
the security of the shareholder, the depositor, and the
note-holder. Thus, -while in Bavaria a specie reserve
of only one-fourth the circulation was reqiiired, in
Leipsic the reserve was two-thirds. The more usual
proportion of specie required by law, or established hy
banking tradition, was one-third. Of all the German
banks the Koyal Bank of Prussia, with its numerous
branches in the commercial cities of the kingdom, was
the most important. Both the proper operations of

banking and the issue of notes for circulation were habit-
ually conducted by the banks of Germany with great care
and good judgment. Since the French war a new bank
law has been promulgated. The most important feature
is the creation of a Central Bank of Issue for the empire.
Of the scheme of the new bank, the " Economist " re-
marks: "It looks as if its framers had consulted the
books of all the principal schools of banking and curren-
cy, had seen what they recommended to make banking

safe, and had taken something from each." The principle
of limiting the ," uncovered circulation," borrowed from

the English Bank Act of 1844, appears in the Bank Act
of Germany, the Bank being authorized to issue only
250,000,000 marks beyond the coin held for redemption
'
but-this' check upon issues is greatly impaired by a pro-

vision that issues above the maximum may be made by
the Management under the penalty of a tax of five per
cent, on all such excess.' The principle of the separa-
" The other banks, thirty-two in number, coming under the New
Banking Law, are allowed an uncovered circulation of 1.35,000,000
marks.
* Of the liberty of increasing the issues under a tax of 5 per cent.,
an arrangement which Prof. .Tevons terms the " Elastic Lirtiit Sy«-
GERMAN PA PER-MONET BANKING. 515
tion of the departments of baBldng and issue,
winch, we
have seen, was held to be of vital importance in the
En-
glish Act, is not adopted in the German law. Upon this
failure to take the one principle of the EngKsh Act with
the other, the "Economist" comments: "First,
there
are no special securities and bullion set apart on which
the notes are issued. There is no ground for saying
that the convertibihty of the note is in any special way
maintained the note-holder and the depositor are on a
;
par. Secondly, what strikes even deeper at the princi-

ple of the Act of 1844 according to its original idea, a
decrease in the amount of coin and bullion, is not neces-
sarOy followed by a decrease in the note circulation.
The first principle of the Peelite legislation, that a com-
bined currency of the precious metals and notes should
fluctuate as if it had been exclusively metallic, is not
complied with."
The new Imperial Bank is to be in the highest sense
a government institution. The shareholders neither
reign nor govern ; they have neither the form nor the
essence of power. Respecting this great fiscal and po-
litical agent, the article we have already quoted, from
the pen of one of the first of recent authorities on bank-
ing, the late Mr. Bagehot, makes the following suggest-
ive "In any other country such a bank would
remarks :
be the most dangerous of

all institutions. The govern-
ment would be a bad banker, and would be a worse
tern " of circulation, that author says :

" This provision is designed to
avoid the suspension of the law during times of crisis, and it is quite
possible that we might with advantage introduce a similar modifica-
tion into our own currency law. But the fine, or tax, upon the ex-
cessive issue ought surely to be much rr-ore than 5 per cent., and in
this country should not be less than 10 per cent." —[Money and the
Mechanism of Exchange, p. 319.]
516 MONEY.
gOTernment because was a banker it would waste the

it ;
money and waste it in ways which in-

of its subjects,
jured them. And how such an engine may be worked
in Germany during a time of civil trouble no one can
foresee; but at present we believe it will work very
well." After referring to the highly successful manage-
ment of the Bank of Prussia, which is absorbed into
the new Bank, Mr. Bagehot continues: "We believe
that the new Bank will carry on its business in the
same cautious way, because its managers will be much
the same men and guided by the same motives. The
Bank will be safe —not because its constitution has re-
semblances to that prescribed to the Bank of England by
the Act of 1844:, for those resemblances are unreal ; nor
because it contains a theoretical provision for the bene-
fit of note-holders, for that provision could not be
worked for their benefit and might hamper the Bank;
nor because its business is cramped by stiff and foolish
rules.^ It will be safe, if it is safe, because it is, in the
last resort, ruled by a most cautious and able adminis-
tration, which will heed everything, which wiU waste and
venture nothing, and which, above all things, will keep
an immense sum of actual cash in store,^ in readiness
for, and as a security against, trouble. And this is a
most characteristic example of many cases in which,
under a most pedantic exterior, the German mind con-
ceals a most simple, rude and tremendous essence."
'
Sucli as requiring tlireo signatures to all bills discounted, etc.
' The Bank of Prussia, at the last return quoted by this writei
held 72 per cent, m specio upon all its deposits acd circulatioru
CHAPTEE XXn.
THE THEORY OF CONVEETIBLE PAPEK MONEY, CONCLUDED.
The account given in tlie preceding chapter will per-

haps allow ns with advantage to recur for a moment to
the theory of Convertible Paper Money as presented in
Chapter XIX.
The question of supreme importance in this branch
of our subject respects the Reflux. Is the check on over-
issue sufficient, under good legal regulation and with
good banting administration, to keep such a money
strictly within the bounds of metallic money?
We saw in the United States a paper money, nomi-
nally convertible, at times seemingly in great excess, and
again brought by a rapid contraction under the influ-
ence of panic to a point which we must believe to have
been below the amount of specie which would have cir-
culated had it not been replaced by cheaper money.
Yet, notwithstanding the apparent excess of paper in
the periods of relative inflation, we do not find that a
premium on gold habitually existed, or was recognized
in the quotations of the market. In small amounts, for
exceptional purposes, gold could almost always be had
for notes at par.
Now if these two facts did really co-exist as appeared,
the doctrine of' Lord Overstone and Mr. Norman found

U
518 MONET.
here a practical illustration. The whole mass of the

money of the country, specie and paper together, was
depreciated.
How could this be? Why did not gold, if it was de-
preciated in comparison with the mass of commodities,
go abroad where it had a greater purchasing power?
This is the question with which the advocates of the
Banking Principle assume to close the discussion.
An answer covering a part of the ground of the objec-
tion has already been offered. If, as the accounts given
by Prof. Cairnes and others of the movement of the gold
supplies make it appear, gold may from its own excess
reach a local value distinctly below that which it has
elsewhere, and may maintain this value through consid-
erable intervals, it certainly may be true that gold,
reaching a lower local value through excess of paper,
may remain under depreciation for a period sufficient to
allow no slight effects to be wrought on industry and
trade through the enhancement of prices operating, as
every such cause does, very irregularly upon the mass of
commodities in the market and upon the wages of dif-
ferent kinds of labor, and also through the incentive

given to speculative investments depleting the capital
requisite for current production in favor of a thousand
wanton schemes for great and sudden gain.^
' Mr. Charles Francis Adams, in 1837, expressed the opinion " that
there may be a particular stage of currency not narrowly observed
as yet, when, the paper having increased very rapidly, and the gold
and silver not having yet taken its direction into the foreign trade,
such an unusual quantity of the circulating medium may exist for a
time as to force up the price of commodities and thus communicate

a prodigious impulse to the speculating enterprise of a community."
— [Reflections upon the present state of the Currency in the United
States.]
EFFECTS ON AMERICAN A QRICULTURE. 519
But anotter economical cause remains to be adduced,

whicli will account for the protraction of this lower local
value of gold (as part of a monetary circulation) through
periods long enough to allow the most serious mischief
to be wrought.
We have quoted from Mr. Tooke's pamphlet of 1826
the following sentence: "It not unfrequently requires
an interval of some length before tJie commodities tvJiich
are interchangeable tvith otlier countries are affected by an

excess in circulation in such a degree as to produce the
effect of increased export." Let us dwell on the words
which have been emphasized.
All the commodities produced in a country are not
equally and indifferently the subjects of foreign trade.
Every country pays for its imports with certain com-
modities in preference to others. Of two articles that
may be exported, a reduction of price in one will often

quicken the export far more than a proportional re-
duction in the other while as between two articles, one
;
of which is habitually exported and the other not, a

slight reduction in the former case may prove sufficient
to cause a vast increase of shipment, while a large re-

duction in the latter case may not start the movement
of a pound, a bushel, or a yard. " Currents of trade,"
said Locke, "like those of waters, make themselves

channels out of which they are as hard to be diverted
as rivers that have worn themselves deep within their
banks." Only a great flood suffices to produce an over-
flow.
Now, nature had clearly pointed out what should be
the chief exports of the United States, in the period to
which we refer, that is, in what class of commodities,
predominantly and by preference, we should pay for the
goods we purchased, or discharge the debts we had con-
520 MONEY.
tracted. These were tlie products of tlie field, the farm,

and the forest, in respect to which the United States
enjoy advantages nowhere equaled. The cost of pro-
duction of these articles was so low, owing to the extra-
ordinary natural endowments of the country, that the
American agriculturist, after paying the cost of trans-
portation to European markets, could bring home as the
proceeds of his sales what enabled him to Uve with a
degTee of comfort and enjoyment known to the manual
labor class of no other people in the world. A vast
volume of such products have flowed from the United
States, year by year, through the whole history of their
foreign trade. These were the natural, one might say
the necessary, exports of the country.
Prom this condition of our agriculture it resulted that
corn and cotton, provisions, lumber and naval stores,
continually tended tobecome the cheapest commodities
which we had to export. Gold might through excess
of paper issues become cheaper here than abroad but ;
the products enumerated were cheaper still. Gold, of

course,would go abroad under no other motive than the
desire to make purchases or pay debts, but for these
purposes other commodities were in a higher degree
available.
The effect of the employment of such money upon the
interests of the agricultural class may bp indicated as
follows : The price brought by that portion of the
crop which was exported was, of course, the price at
which the whole crop was sold. But in carrying on
their production and in their domestic consumption,
the agricultural class found themselves compelled to
purchase the products of other occupations and trades
which produced goods wlich were to be consumed
wholly within the country, and produced them, more-
IS PAPER MONEY CHEAP! 521
over, under proteetion from foreign competition, either

through a high cost of transportation, as in the case of
bulky articles, or through heavy imposts laid for rev-
enue or with the avowed purpose of excluding the for-
eign article In the case of such products there was
clearly nothing but domestic competition to keep down
prices and the money of the country having been, as
;
we have assumed, depreciated from excess, the prices

of these products would stand at a higher level, rela-
tively to cost of production, than the prices of the
products first enumerated. If the situation has been
correctly given, there has been throughout our history
a tendency to deplete the agricultural classes and all
engaged in producing exportable articles, for the benefit

of the classes which were engaged in producing articles
to be consumed at home under conventional or natural
protection; and the prime agent in this operation has
been our bank paper money.
Such was the theory of the case advanced by Prof.
Amasa "Walker, and it seems to me to account for the
existence of the depreciation which he alleges occurred
at intervals in the money of the country, while yet no
premium on gold appeared. What, but for the condi-
tion of things recited, would have been the premium on

gold, was levied as a tax on the agricultural interest.
Their products were made cheaper than gold or silver,
and thus became the preferred exports of the country,

while other trades and occupations sold their goods
^vithin the country at prices which were advanced by
the excess and consequen'; depreciation of the local
money.
DOES IT "pay"?
Eejecting the plea that elasticity is a desirable ele-

ment in money, we have seen that two 'idvantages arc
£522 MONEY.
claijDed for conTertible paper : one, its liiglier conven-

ience in use, owing to tlie great weight of tlie masses of
metallic money, even of gold, required in the larger
transactions of commerce, which, were the metal to be
actually employed, would cause difficulty in transport-
ing, handling, and counting money, besides inviting by

so open a display of treasure to crimes of violence ; the
second advantage claimed for such money being its
comparative cheapness, a portion only of the gold or

silver which would form the metallic money of a coun-
try being retained as the basis of paper issues.
The first of these advantages would clearly appertain
equally to a paper money like that of Hamburg and
Amsterdam in former times, like the rouble notes once
issued by the Commercial Bank of St. Petersburg,^ and
like the present coin-certificates of the United States
Treasury. The only advantage remaining, then, for a
paper money issued in excess of coin and bullion held
for redemption, over a paper money based on the full
amount of specie which it promises to pay, is its com-
parative cheapness.
Is such a money really cheap? Does it "pay" to sub-
stitute credit for value in the circulation?
I shall not undertake to argue that a money of bank

paper only nominally convertible, like that of the Unit-
ed States before the Civil War, issued upon a minimum
of specie even after the bitter experiences of 1837 and
the reformatory legislation which followed, is not cheap.
I apprehend that there are few thoughtful and intelli-
gent Americans who will not accede to this statement of
Prof. Perry " There can be no hesitation in affirming
:
'
In 1840 the bank had outstanding notes based, cent, per cent., on
reserves nf coin and buUion, to an amount not less than 1 14 miUioB
roubles or about $95,000,000 of our money.
f
IS PAPER MONEY CHEAP 523
that expense of maintaining a gold and silver money

tlie
for all the

wants of the whole country might have been
met, many times over, from the losses resulting from
this bank paper system." — [Pol. Econ., p. 306.]
If, as maybe affirmed, the utmost amount of
fairly
metallic money which would have circulated in the
United States between 1816 and 1860 would not have
reached ten per cent, of the aggregate annual income of
the country, a single commercial disaster checking pro-
duction to the extent of one-third only, through a period
of four months, would involve a loss equal to the cost,
out and out, once for all, of a metallic money sufficient
for all the wants of the country. How often have the
mills and furnaces and factories of the United States
been on three-quarters, two-thirds, one-half time, and
that, not through months, but through years Bad !
money has not done all the mischief, but it has done
enough completely to justify Prof. Perry's assertion.
But turning from the United States, where value and
credit were so compounded in the circulation that the
mixture became, like Lady Smart's ale, " strong of the
water," only, let us ask whether there is true economy
in the substitution of credit for value in the money of a
country where sound banking principles are observed,
where the banks frequently exchange their paper and
ample reserves are maintained to secure the redemption
of notes on demand by a public which is not intimidated
by mob-violence, by public sentiment, or by bank perse-
cution.
M. Wolowski estimates' the saving by the use of
des Bar.ques, '.55. Mr. Hankey computes the

•
La Question p.
of bank-notes b> the Bank of England to be: To

gain by the issue
the Bank, somewhat less than
the Government, £200,000 nearly; to
£100,000.— [On Banking, pp. 4, 9.] ^
—
52* MONEY.
credit as an element of money in GreEit Britain and Ire-

land at -sic of the capital, and toW of the revenue of
the United Kingdom. If, howe'êr, purely banking
principles were to prevail as to the volume of re-
serves,^ with the issue of £1 and £2 notes as recom-
mended by Mr. Wilson and Prof. Price, the saving could
undoubtedly be made twice or three times as great, with-
out involving any sensible increase of risk to the note-
holders of the kingdom. Would this be true economy?
Of course, if the reader is prepared to accept the prop-
osition of the economists of the Banking School, so ably
maintained by Messrs. Tooke and Wilson, that Convert-
ible Paper Money cannojb appreciably vary from the
course of a metallic money of full value, he must regard
such a saving in cost as an object of g-reat im-
its first
portance, which would be inexcusable to neglect. If

it
money is merely a tool of trade, it should be made no

more expensive than is required for its highest efiiciency.
On the assumptions of the Banking School, a paper mon-
ey secured by a reserve of coin and bullion to the full
value of the circulation would be as wasteful as ivory-

handled forks in a hay field, or nickel-plated spades in
a railway cut.
But if, on the other hand, there is reason to believe

that a paper issued above the amount of specie held for
redemption, however carefully managed, tends to excess
in greater or less degree, we must, I think, conclude
that there is no tru6 economy in effecting such a saving
in the first-cost of the circulating medium. No money
'
Prof. Price mourns over the large reserves of the Bank of En-
gland under the Act of 1844. He holds the circula'ion to be
"needlessly and excessively, and therefore wastefuUy, seouied."
'Principles of Currency, p. 143, cf. pp. 190, 193, 201.]
THE BEST MONEY IB THE CHEAPEST 525
is cheap which does not perfectly answer its purpose,'
for money, as M. Wolowski has said, is of aU societary
institutions that which accomplishes its work
at the
least relative expense.^
Perhaps the best illustration we could offer on this
point is one taken from the foundation of a large
build-
ing, say a cotton factory. The builder opens the ground
and digs till he gets below the reach of frost, perhaps
tillhe comes to solid rock. He puts in stone and ma-
son-work at the cost of thousands of dollars, which will
form no occupied part of the structure, will furnish no
room for spindles or for storage. The system of paper-
money banking in the United States attempted the same
kind of economy as if the builder of the cotton factory
should lay its foundations so grudgingly that
it would
from time to time downwards, causing wide seams

settle
to appear in the upper stories, exciting alarm in the
minds of employer and workmen, involving costly out-
lays for shoring up walls, bracing floors and putting in
new partial foundations at great disadvantage, with the
result, at the best, of a weak, shaky structure, liable at
any time, and certain at some time, to come down in
ruins.
' " To dispense with barns would be a greater annual saving than
that which arises from the substitution of a pjper to a metallic cur-
rency. Some favorable seasons occur when the farmer might thresh
his wheat on a temporary floor exposed to the weather, and dispense
with a barn. Yet, in our climate, every prudent farmer prefers
security to a precarious advantage, and would consider it a most
wretched economy not to incur the expense necessary for that object.
Similar is the economy of that expensive instrument, the precious
metals, if the substituted paper currency is insecure." — [Gallatin,
Considerations, etc., p. 20.]
' "Aucune invention humaine n'est plus utile que la monnaie;

aucune institution sociale n'impose moins de dSpense." —[Journal des
Economistes, October, 1868.]
52f) MONEY.
Such folly as tliis the writers whose views we are con-

sidering would denounce as earnestly as the most. stren-
uous BuUionist. But they still insist that the founda-
tion may be reduced greatly in its extent and in the
quality of the material used, not only without bringing
the factory down in a heap, but without showing a crack
from cellar to garret. All this might be while yet with
such a foundation the factory would shake under the
tread of a thousand feet and the pulsations of its pow-
erful engines sufficiently to cause a great loss of power,
great waste of stock, and to interfere largely with the
uniformity of the product, on which depends much of
its commercial value.
So is it, I am disposed to believe, with credit intro-
duced into the money of a country. It may cause no
catastrophe, may threaten no disaster, while yet it may
jar the whole structure of industry and trade, and cause
the machinery of production and exchange to operate
with less of precision and force than would otherwise
be the case.
The great fact of modem industry, under the wide di-
versification of production, the localization of trades
and the minute subdivision of labor, is waste of indus-
trialpower through the tendency to a divergence of de-
mand and supply, leading now to an overproduction
which is never fully utilized now to a cessation of in-
;
dustry which is carried by the timidity of merchants,

manufacturers, and bankers far beyond what is necessary
to equalize production and clear the market. Oscilla-
tions in demand and supply are indeed inevitable in
the nature of things but our modern system, by which
;
two or three towns make half the goods of a certain sort

which the whole world consumes, extends these oscilla-
tions into wide-reaching fluctuations, which in the ag-
THE BEST MONEY IS THE CHEAPEST 527
gregate largely reduce production from its econoiaical

maximum, and render tlie employment of labor irregu-
lar and precarious. This tendency must, as it appears
to me, be in a greater or less degree, but always
with
unfortunate results, aggravated by the issue of paper
money not based, cent, per cent., on the money of inter-
national commerce.
But it is difficult for one to contemplate such stores of
gold and silver as would be required for the basis of a
paper circulation into which no proportion of credit
should enter, without feeling that here is waste. Prof.
Price looks down into the cellars of the Bank of En-
gland, where lie £20,000,000 of gold, and exclaims : "A-
spot more identical with the deep AustraHan mine can-
not well be imagined." ' Identical! No two places on
earth have so little common, and the difference be-
in
t-n^pen them is all the more striking because of the pres-
ence of the same metal in both. In the Australian mine
the gold has no value : it will not answer one human
use ; it is not available to purchase a single commodity
or pay the smallest debt. In the vault of the Bank of
England the gold has an immediate value it embodies ;
a vast amount of labor expended in raising it from the

mine, in reducing it to a state of commercial purity and
in bringing it half around the world it will command ;
in exchange the most precious products of English la-
bor; it is ready to be shipped east or west, north or

south, to purchase the teas of China, the grain of Amer-
ica, the furs of Siberia, or the spices of the Indian Ocean.
But, says the same writer, in speaking of the with-
drawal of gold from the Bank, "it is the idle, the unused,
'
Principles of Currency, p. 198 :
'' Transferred from a mine to a
cellar." — [P. 201.] Prof. Price frequently brings up the same imaga
!
528 MONEY.
the temporarily-anniliilated resources, slumbering in the

cellar, which are lessened." — [P. 219.] Is the gold in the
vault idle, unused, temporarily annihilated? Is the
bridge which bears up the train of freight or passengers
lessbusy than the snorting, puffing engine which draws
the cars? Are blocks of stone unused when laid deep
under ground in the foundation of a building which
serves the purposes of industry, of art, or of govern-
ment? Surely there is lack of scientific imagination
in that view of the gold in the vaults of the Bank which
regards it as idle and unused, when its true and faithful
symbols are running their busy course above ground
and outside the walls, effecting the daily exchanges of
thirty millions of people
;
INDEX.
Abeasion of coin in use, 121-3, of Spanish American revolu-

chap. xi. passim,. tions in checlung money supply,
Abyssinians use rock salt as mo- 83, 139-40 ; production of gold
ney, 164-5. and silver, 1493-1848, chap. vii.
Account, money of, S94-6. effects on Europe, 135-7; the
Adams, Charles Francis, Reflec- Californian episode, chap. viii.
tions on the Currency, efforts of effect on the silver price of
bankers to push out their notes, gold, 333-8 ; paper money of
489?i ; inflation of convertible the colonial and revolutionary
paper money is possible, 519/i. periods, chap, xv., p. 491.
Adscripti Metallis, effects of serf- Amsterdam, Bank of, its origin,
dom upon mining populations, 463 ; its note issues, 583.
136-7. Animal products, xheir prices rise
Africa, its yield of the precious higher than those of vegeta-
metals, 100-1 ; comparatively ble products under increase of
low value of gold, 133-3.' money, 155.
Afghanistan, its yield of the pre- Arabia, no mines of the precious
cious metals, 101. metals, tOl.
Agatharchidas, silver once more Arbitration of exchanges, 459.
valuable in Arabia than gold, Argentine Republic, paper money,
133, 330. 369ra.
Agriculture, payment of wages in Aristotle, JtfieJiomachian Ethics,
kind, 300 effects of bad money
; money as a pledge, 36 ; objec-
on the agricultural class of the tion to usury, 96.
United States, 519-31. Arnold, Abbot of Lubec, the
Alexander, spoil taken in Persia, ransom of Richard I., of Eng-
109. land, obtained by melting
Alison, Sir Arch., History of Eu- church vessels, 118-19.
rope, argument in favor of an Arts, the, consumption of the
increase of the money supply, precious metals, 117-30, 140-1,
81-3, 139 ; necessity of suspen- 146-7.
sion, 1797-1815, 349-50. Ashburton, Lord, advocates the
Alley, J. B. [U. S. House Eeps.l, so-called Double Standard, 338re.
on the Legal Tender Bill, Asia, its yield of the precious
881ra. metals, 101-3 ; comparatively
Alloys in coinage, effect of differ- low value of gold, silver im-
ent alloys, 131-3; siWer not ported from Europe, 133-3, 141-
used as alloy by the ancients, 3, 335.
131 purity of ancient coins, Assignats, the, 336-44.
;
174-5 ; the rule of -h i>s. the Attwood, Matthias, the leader

rule of -h, 175-6 value of al-
;
of the " Birmingham School,"
loy never computed, 177. 84 the law of the depreciation
;
America, discovery of, lead^ng to of inconvertible paper money,

revival of industry, 81 ; efiects 388.
23
,
; ;
530 INDEX.
Attwood, Thomas, " The Scotch Banks, in Northern Europe orig-

Banter," 36371. inated in the corruption of the
Augustus, the accumulation of coin, 463-4;
treasure in his reign, 121, 134-5. In the United States, 491-
Australia, gold discoveries, 144 509 declaring dividends while
;
effects on society and industry, insolvent, 493-4 career be- ;
83 Sydney sovereigns contain

; tween 1811 and 1837, 495-563 ;
a large proportion of silver, 178; improvements in the system

effect of discoveries on gold after 1837, 503-6 career be- ;
price of silver, 383-7. tween 1844 and 1860, 506-8;

Austria, its yield of the precious the national banking system
metals, 106, 140 relation of
; adopted in the Civil War, its
gold and silver in the coinage, characteristics, 507-9.
338 paper money, 368-9.
;
Of Scotland, 509-11 Swe- :
den and Holland, 513 ; Ger-

Babhage, Charles, The Economy many, 514-16.
of Manufactures, platinum un- Bank of England under the Ee-
suited for coinage, 167-8; con- striction, 348-61 its note is- ;
ditions of effectual competition, sues, 403 -4n, 413-4; theoiy

477-8. of the management in 1819,
Bagehot, Walter, The Economist, 443, 456-7 in 1832, 444
; the ;
demonetization of silver, 366-7 ; Act of 1844, 447-51, 514-17 ;

success of French banking, 866; operation of the Act, 452-71
criticism of the Imperial Ger- raising the rate of discount,
man bank, 514-17 Lombard, 8t.
; 473-5 power of the Bank over
;
the controversy over the Act of the rate of interest, 477-8

1844, 463; effects upon Exchange Prof. Price considers its re-
of depreciated paper money, serves excessive, 524, 527.
383, 463-4 ; the management Of Prance, its monopoly of
of a panic is a mercantile prob- issue, 43871 the suspensions
;
lem, 473 ; power of the Bank of 1848 and 1870, 365-6 suc- ;
of England over the rate of in- cess of its management, 511-13.

terest, 478 ; slow extension of Of the United States, The
banking in Prance, 512-13. Pirst, 491-3, 499 the Second,
;
Bancroft, George, History of the 495-6, 500-1.

United States, the money of Bank- Notes, are they money ?
the early colonists, 308. 377, 395-400 a sort of com-
;
Bamberger, L., the Latin mone- pulsion to receive them, 483-3.

tary union, 343?i. Baring, Sir Francis, reply to Mr.
" Banking Principle," The, 431, Boyd, 353.
chap. xix. passim, 453-4, chap, Baring, Mr., specie circulation
xxii. passim. in Prance, 440-1. •
" Bank," the word in early New Barbarians, The, effect of the in-
England meant a batch of paper vasions on the production of
money, 317, 503. precious metals within the Em-
Banks, Prof. Price's definition of pire, 13r-8.
a bank criticised, 68 by allow- Barter, difficulties of, 1-3 still
; ;
ing the mutual cancellation of used to a great extent, 21 ; may

debts banks save the use of be greatly increased by dis-
money, 68-9 competition in
; credit of the coin, 198-204 or ;
issues between banks tends to of inconvertible paper money,

produce 436-9
inflation, no 379.
;
necessary connection between Bastiat, P., money witnesses that

banking and note issue, 445-6 the bearer has rendered a ser-
;
the union held by. the advo- vice to society for which he
cates of the " Currency Princi- is entitled to an equivalent,
ple " to be mischievous, 446-7. 36-7 ; increase of money sup.
;
IMDEX. 531
ply does not enrich, a commu- the money of the early colo-
nity, 77-8. nists, 306-7 ; the Connecticut
Baudeau, M., money is an order paper issues, 308-16.
payable at the will of the bear- Bullion Report, The, 301, 853^,
er, 28. 396.
Baxter, Robert, T/ê Panic tf/1866: Burke, Edmund, Bank of Eng-
fluctuations in the Bank of land paper is of value in com-
England rate of discount, 454ra; merce, because in law it is of
rights of issue should be taken none, 28?i over-issues of in-
;
from the Bank, 468ft. convertible paper money, 381-

Beaulieu de, Ch. le. Hardy, Traite 3.
Elimentaire d'Economie Poli- Burmah, inhabitants use lead as
tique, danger of over-issue of money, 37 its yield of the ;
inconvertible paper money, 380. precious metals, 101.

Belgium, relation of gold and
silver in the coinage, 238-40. Cacao, used as money by the
Bengal, Dr. Hunter's account of Mexicans, 35.
its money and coin, 169, 211-12, Cairues, Prof., Esmys in Pol.
320, 294. Economy, the influence of the
Berkeley, Bishop, Tlie Querist, Mercantile Theory, 47 ; depre-
" ideal" money, 290)i a nim- ; cates the considerable increase
ble sixpence, 418n.. of the precious metals, 78-9 ;
" Billon," or token-money, 218 ; the new gold supplies proceed
influence on the poorer classes, from country to country with
219-30 on retail prices, 230-1.
; appreciable intervals, 86 ; the
Bi-metallists, their position, chap. American discoveries cause a
xui.jpassim. great expansion of oriental
Blanc, Louis, the "Assignats," trade, 135 produce pauperism
;
343, 84471. in England, 136ra, ISlrn influ- ;
Bodio, Prof., the bank statistics ence of the Californian and Aus-
of Italy, 513». tralian discoveries on the con-
Borneo, its yield of gold, 102. dition of different countries and
Bosanquet, Charles, effect of laws industrial classes, 234-7 ; influ-
prohibiting export of bullion, ence of the interchangeable use
56n cost of the recoinage of
; of gold and silver on the price
1698, 313; his buUion pam- of either, 248-9.
phlet, 353. Some Leading Principles of
Bo wen. American Political
Prof., Pol. Economy, competition in
Economy, m.oney as a " meas- retailmarkets, 232.
ure of value," 5, 383. Logical Method of Pol. Econ-
Boyd, Mr., Ms letter On the Cir- omy, the conditions of Econo-
culation, 353. mic Deflnition, 408-9.
Brassage, term proposed by M. Calhoun, J. C, advocates issue of
Chevalier to cover actual ex- Treasury Notes, 495.
penses of coinage, 186. California, gold discoveries, 144
Brazil, use of gold by the na- effects on industry and society,
tives, 130 yield of gold, 134
; ;
83 on the gold price of silver,
;
product falls ofE after the mid- 333-7.

dle of the 18th century, 140 ;
Canada, anomalous condition of
circulation of English sove- its money, 239 n..
reigns, 185 relation of gold
;
Capital, is money capital? 23-3 ;
and silver in the coinage, 339. a bank lends capital as the
Bresson, M., Eiit. Financ. de la agent of the owners, 68
France, the "Assignats," 344- amount of capita], relatively to
5. demand, determines rate of in-
Bronson, Dr. H., Connecticut Our- terest, popular confu-

94-5 ;
rency, furs as money, 38ra ;

sion between nioney and. oapi-
; ;;;
532 INDEX.
tal, 95 ; imduly rapid conver- of Russia, 16871 the proportion ;
sion of circulating into fixed of iV alloy in the coinage, 176 ;
capital, one of tne causes of the Spanish dollar a universal

crises, 473-4, 501-3, 519. coin, 179-8071; corruption of
Carey, H. C, his argument for in- the coin of Spain, 18971 efEect ;
crease of the money supply, 84 ;

of seigniorage on price, 190
for non-exportable money, 301. private frauds on coin, pecu-
" Cash," The, of China, 166. liarly an English ofEence, 19571
Cattle, used as money by the an- future of mono metallism,
-
cients, 31-3 ; mil carry them- 241?i ; comparative stability of

selves, 33 are not uniform in
; gold and silver, 35471 ; money
quality, 33-4 cost much to
; a material equivalent, 375
keep, and are liable to loss and danger of over-issue of incon-
injury, 34 cannot be divided
; vertible paper money, 37871
without loss of utility, 35. the word "currency," 39571,
Celebes, its yield of the precious 400?i ; distinction between mo-
metals, 103. ney and bank notes, 408m;
Cemuschi, M., Mecanique de approves of competition in bank
I'Eehange, a sale for money is issues, 438-40; credit in a panic,
only half a transaction, Zn ;
49071.
" La Monnaie est le bien evalu- On Gold [Colden's Transla-
ant," 571 ;importance of the tion], 145-51, 234^7; import-
money function, IBm ; money is ance of the money function,
sterile, 33m. 14 ; amount of metallic money
His bi-metallic theory criti- in commercial countries nearly
cised by Hertzka, 359-61, 266?i. stationary, 71 the new gold
;
Ceylon, its yield of the precious supplies distributed "by

metals, 103. jerks," 86 estimate of produc-
;
Chalmers, G., Considerations, etc., tion before 1848, 148 efEect of ;
recoinage of 1774, 213; bank- American discoveries on rela-

ers pushing out their notes, tion between gold and silver,
488?i. 233 the influence of the inter-
;
"Chao," Chinese paper money, changeable use of the two metals

303. on the price of either, 250 the ;
Cheapness claimed for conver- future of mono-metallism, 256.

tible paper money, 409-13 does ; China, its yield of the precious
it pay? 531-8. metals, 101; its "cash/' 166;
Check system, reducing the de- extensive circulation of the
mand for money, 70 ; are checks Spanish dollar, 179-80 ;. paper
money? 398-9. money, £03-371.
Cherbuliez, M., Science Eeono- Circulating Capital, unduly rapid
tniqy^, money a medium of ex- conversion into fixed capital,
change, 3 distinction between
; 473-4, 501-2, 519.
Price and Value, 3397(. Circulation, in the monetary sense,
Chevalier, M., Za Monnaie, small is a thing of degrees, 400-1.
cost of rendering bullion into Clearing House, the Bankers'
coin, and coin into bullion, 41 Bank, its agency in saving the
exportation of money now gen- use of money, 69.
erally permitted by govern- cupping the coin, 194-5, 211-13.
ments, 4671 the reduction of
; Cochin China, its yield of the pre-
debts by a progressive increase cious metals, 101 its " cash," ;
of the money supply is in the |

166 the " gall," 171.
;
line of progress, 94 the art of ;

j
Cod, as money in Newfoundland,
mining lost in the Middle 32. |
Ages, 13071 ; value of Medina's Coin, loss of metal by abrasion,

discovery, 13371 the Chinese; 121-3 by clipping and sweat- ;
" cash," 166 ; platinum coinage ing, 194-5, 311-12.

; ;
INDEX. 533
" Coin Bank " notes in Califomia, Ratio, seigniorage, 181»i ; bale-
509. ful effects of bad money,
Coinage, chap. x. origin and ear-
; 383re.
ly forms, 164-7 ; a prerogative Copper, as money, 37-8 ; coinage
of sovereignty, 168 ; mechan- of copper not covered by the
ical problems, 170 alloys,
; prerogative of the English
174-8 improvements in the art,
; crown, 168 legal tender in
;
172 American coinage, 173

; limited amount, 218; discount
wide circulation of certain on copper coins in India, 220ra.
coins, 178-80; on whom, shall Coquelin, M., approves competi-
the cost of coinage fall ? [Seign- tion in bank issues, 438-9.
iorage] 181-6 on whom lê Com [Indian], as money, in Mas-
;
cost of recoinage t 214-6. sachusetts, 33.

Coke, Lord, metal not money Corn Rents, 157-8 " Bread com ;
without the stamp, 168. the real and paramount stand-

Colwell, Stephen, Ways and ard of value " [Homer], 159.
Means of Payment, cancellation Corsica produces no gold or sil-
of indebtedness, 68. ver, 103.
Collamore, Jacob [tJ. S. Senate], Counterfeiting, of American rev-
opposes the issue of legal-ten- olutionary paper money, 330 ;
der notes, 372. of French assignats, 345 ; of

Competition in issues between small notes, 443 of New Eng- ;
banks, leading to inflation, land bank notes, 506?i.

436-9 in the U. S., 480-1.
; Courcelle-Seneuil, M., Operations
Congress, the Continental, issues de BanqtLe, inconvertible paper
of paper money, 300, 326-35, money need not depreciate,
371-2. 278ra fluctuations; of such
Congress of the United States, money caused by political
issues of legal tenders during events, 384m ; definition of
the GivU War, 369-75. paper money, 39671 ; convertible
Conkling, Roscoe [XJ. S. Ho. paper money will operate pre-
Reps. J, opposes the issue of cisely hke metallic money,
legal-tender notes, 3'^3. 433», 438?i the issue of bank
;
Connecticut, Colonial paper notes not a concern of govern-

money, 308-9, 311-16 revolu- ; ment, 498» the Bank of France
;
tionary issues, 328-9. a government institution, 51271.

Continental Currency, The, 326- Cowries [shells], as money, 25.
35. Crawford, Secretary, bank paper
Convertible Paper Money, Part money in the United States,
m. 1811-15, 493, 1815-19, 495 con- ;
Theory, chap, xviii. ; The Cur- vertibility in some States not

rency Principle vs. the Banking even ostensible, 5007i.
Principle, chap, xix.; in Eng- Credit, relation between long
land, chap. XX.; in the United credit and discredit, 50671.
— —
States other examples chap. Credit-System, The, reduces the
xxi Theory, concluded, chap,
;
use of money, 65-9.
xxii. Creditor class, how affected by
Convertibility of Banlc Notes, changes in the money supply,
how much is implied ? 479-85, 89-94, 136, 267-70, 317-18, 343,
493-4; conversion under the 377.
New Tork law meant discount, Crises, treatment of, see Panics ;
505 the lack of convertibility
;
crisis in England, 1792-3, and
in United States paper money 1810-11, 43471 1818, 358 1825, ; ;
479-85, 493-4, 500», 517-18. 43471, 433, 473-4 1836-7, 434 ;
Convicts, employed in mines, 1846-7, 42471, 466-8, 476 1866, ;
136-7. 474 in the United States, 1814,

;
^ . ^ 492-5; 1818-19, 495; 1825,
Copernicus, N., Monete Ouaenae
;
534 IXDEX.
495-6; 1837-9, 505-6; 1873, 30-1 ; by the use of bad money,

375, 474. 220-1, 384-7, 519-31.
Custom, in economics, protects Distribution, territorially, of the
the weaker, 886-7. precious metals, through the
Currency, as a substitute for the agency of price [Eicardo's
word money, 375-6, 395-6. statement], 49-57, 133; Prof.
" Currency Principle," The, 431, Caimes's qualification of Eicai-
423n, 453-4, chap, six.; pro- do's statement, 150-7 ; Prof.
gress of this opinion up to the Sumner's statement, 356-8 ; re-
act of 1844, 448-51. tarded distribution, 388, 390-1,
518.
Dacia, working of the mines in- Divisibility, as an element of
terrupted by the invasion of the money, 35-6.
Barbarians ; the slaves join the "Double Standard" of Value.
invaders, 138. The bi-mctallists object to the
Dallas, Secretary, state of United term, 11 the question of the
;
States bank-paper money in Standard discussed, 332-71.

1814, 494. Drake, Dr., Exchequer bills in
Dates, as money in Africa, 33. the reign of William III., 406.
Debts, their burden diminished Drummond, Henry, Elementary
by an increase of the money Propositions respecting the Cur-
supply, 88-94, 136 ; the relation rency, convertible paper money
of the volume of indebtedness may be issued in excess, 431-2.
to the question of bi-metallic Duncan, J., On Currency, rela^
money, 363^, 268-9 ; efiects of tive value of silver and gold,
resumption, 359-64. 330 advocates the use of in-
;
Definitions, Economic, admit of convertible paper money, 308 ;

exceptions [Cairnes], 408-9. the fate of John Law's bank
Denmark, use of gold in early does not indicate inherent ten-
times instead of iron, 130. dencies of such money, 304.
Denominator in Exchange [com- Dupont de Nemours, Notes toTur-
monly called Measure of got's Des Bichesses, the use of
Values], 4-9, 64^5, 196, 280-90, money favors small savings, 18ra.
376-7.
Deposit System [Bank], reduces Economy in the use of money, 69.
the use of money, 70. " Economist," The, 73, 147, 266-7,
Depreciation of inconvertible 366, 514^17.
paper money, how measured ? "Elasticity" of paper money,
360^, 374, 379-81, 987-91; 414-19.
effect on Foreign Exchanges, "Elastic Limit System" of note
382 ; involves fluctuations of issues [Jevons], 515 16.
value, 383-4 ; is depreciation EHot, Perceval, advocates ideal" .'
'
of convertible paper money money, 398.

possible ? 439-32, 517-21. Elizabeth, Queen, the recoinage
Deterioration, liability to, a seri- of her reign, 306-9.
ous objection in money, 34^5, England, less coin in 1838 than
cf. chap. xi. fifty years before, 69 its rela-
;
Dignity, National, Mr. E. G. tion to the gold supplies after

Spaulding's conception of, 370?i. 1851, 151-3 increase of coin
;
Dillaye, S. D., review of Presi- between 1851 and 1860, 156

dent White on the paper money its coinage, 168-9 the mint at-
;
of France, 338, 344?!. tacked by Mr. Seyd,- 173-4;

Discredit of the coin, 198, 304; former circulation of foreign
of inconvertible paper money, coin, 179 ;debasement of the
279. coin under Henry VIII. and
Distribution of Wealth, how Edward VI., 186 the recoin-
;
affected by the use of money, ages of 1560, 1696, 1774, chap.

;;
INDEX. 535
si. the policy of throwing oS
; buted to this cause, 188-9 ;
the expense of recoinage, 315- payment of agricultural wages
16; adopts the single gold stand- in kind, 300 ; relation of gold
ard in 1816, S33 the bank re- ; and silver in the coinage, 353 ;
striction, 347-65 account of ; the Revolutionary assignats,
convertible paper money in 336-45 the mandats, 346
;
England, chap. xx. the suspension of 1848, 365 of ;
Ethiopians used carved pebbles 1870, 366, 383-3 banking sys- ;
as money, 35. tem, 438n, 511-13; paper-money

Europe, its yield of the precious banking in the French Colo-
metals, 103. nies, 513.
Exchange of notes between banks, Free Banking, free trade in bank-
essential to true convertibility, ing is free trade in swindling
480-1, 505-6. [Tooke], 438 what Lord Over- ;
Exchange, bUls of, axe they stone regards as truly free

money? 401-3. banking, 449 the New York ;
Exchanges, the Foreign, aiford a Free Banking Law, 504-5.

test of the depreciation of in- Froude, J. A., History of Eng-
convertible paper money, or land, the recoinage of 1560,
debased coin, 353 influence of 303-9.
;
bad money upon, 383-3, 463-4 Frugality encouraged by the use

;
Mr. GOschen's theory of, 458- of money, 18.

64 regulation of note issues Fuggers, The, eminent miners,
;
according to the exchanges, 115 n,.

464^9. Fullarton, John, Regulation of
Exchequer bills, are they money t Currencies, power of law to
405-6. prevent melting of coin, 359 ;
Exportation of gold and sUver circulation of bills of exchange,

prohibited, 45 prohibition not;
401 convertible paper money ;
wholly ineif octual, 55-6 the will operate precisely like me-
;
causes of, 56-7, 356-8 does tallic money, 433

; exports of ;
exportation of bullion decrease bullion made from hoards,

the quantity of money ? 468-70. 470re bank money in the Unit- ;
ed States not convertible, SOOre.

Farming of Mines, effect upon
production, 114^-15, 135-6. Gairdner, Charles, "Elasticity"
Paucher, Leon, Eussian restric- of bank money, 414,
tions on gold mining, 143» Gallatin, Albert, Consideraiions
;
relative value of silver and gold, on the Currency, etc., advocates

330ra advocates restriction on
; the higher rating of gold in the
bank issues, 439. United States coinage, 336)i
Felt, J. B., History of Massa- favors bi-metallic money, 369 ;
chusetts Currency, the paper effects of resumption of specie

money of Massachusetts, 308, payments after a long suspen-
330-1. sion, 360re a sort of compul-
;
Fessenden, W. P. [IT. S. Senate], sion to take bank notes, 483 ;
on the Legal Tender bill, 378. the first Bank of the United
Forbes, J. M., premature railway States, 493 tho use of bad
;
construction in the United ! money is false economy, 535».

States, 473re. !
Gamier, Joseph, Traite de Fi-
France, less coin in 1838 than be- i
nances, the " assignats " of the
fore the Revolution, 70 its ; Revolution, 336, 339, 344 Aus- ;
yield of the precious metals, I trian paper money, 368w defi- ;
105 coinage, 169

;
inventions ;
r
nition of paper money, 396??.
in coinage, 173 debasement of ;
Germany, payment of agricul-
the coin by early kin^s, 186-7 ; j
tural wages in kind, 300 rela- _;
its disasters, 1340-1440, attri- ! tion of gold and silver in the

; ;
536 INDEX.
coinage, 233, 338, 266; paper Money andBankinginthe Unit-

money baaking, 514-17. ed Spates, 485.
Geyer, Ph., Theorie und Praxis Graham, Sir James, Coin and Cur-
dea Zettelbankwesens, converti- rency, effects of the Eesump.
ble paper money may be issued tion Act of 1819, 363-4; the
in excess, 433m. country bank circulation, 451.
Gtibbou, E., importance of the Greece, cattle used as money in
money function, 14. ancient times, 31; copper skew-
Gilding on metals and china un- ers, do., 33 ; its yield of the
known to the ancients, 119ra precious metals, 106; accedes
largely practised in the middle to the Latin Monetary Union,
ages, 130. 1 338vi.
Gold, properties fitting it for use Greed, in the economic sense, op-
as money, 39-40 ; use in the posed to a true sense of self-
i
arts, 43 ; the field of prodnc- interest, 111 ; destructive ef-

fects upon mining, 113-15.
j
tion, 99-106 ; economic condi- .
tions of production, 106-116, Gresham, Sir- Thos., his wealth

j
237-871, 254n. ; regarded in early largely in rings and chains,

;
ages as treasure, not money, 118; his theorem, or "law,"

108-9 ; history of production, respecting inferior currencies,
I
chaps, vi.-viii. ; relation to sil- 193-5.

:
ver in the coinage of England, :
317-18, 334r-5 ; of the United Hallam, Heniy, History of the

States, 335-8 ; variations in its Middle Ages, coinage a prero-
:
power to purchase silver, 226- gative of the crown, 169 ; ad-

i
30 ; effect of the American dis- justment of prices to debase-

;
coveries, 381-3 ; of the Call- ment of coin, 187-8.

'
fomian and Australian discov- Hamburg, Bank of, its note is-
eries, 333-4; replaces silver in sues, 523.
the coinage of France, 235-6 ; Hamilton, Alex., Report on tlie
change in production after 1865, Bank, irregularity of the coins
337 ; no* generally advocated of the United States, 194 ; ad-
as the sole metal of unlimit- vocates concurrent circulation
ed legal tender, 338-9 ; inter- of gold and silver, 269 ; over-
changeable use of silver and issues of inconvertible paper
gold, efEect on the price of money, 379; government should
either, 346-53 ; what is the 1 regulate bank issues, ^9,n.
power of law to preserve steadi- ECankey, T., On Banking, Bank
ness of value between gold and of England notes are not re-
,
silver ? 253-67 ; no true par of issued, 403«. ; the circulation of

]
exchange between a gold and a Great Britain, 451» ; saving by

;
silver country, 461. the issue of bank notes, 523m.

i
"Gold Xotes" in the United, Harris, Joseph, Essay on Money

States, 509. and Coins, free coinage, 184a
QOschen, G. J., Report of the Com- proposes to reduce the standard
I
mittee on the Depreciation of of the coin, 214.

\
au,i)er, 218, 233ra, 265re ; Theory Hartz Mountains, discovery of sil-

of the Foreign Exchanges, mean- ver, 104m ; yield of silver, 105.
ing of the word exchange, Hayti, paper money, 369m.
i
'
458 ; the elements of foreign Henry Vni. corrupts the coin of

indebtedness, 460 ; exchange \
England, 189.
between countries having dif- Hertz, Haitwig, bank notes cir-
j
ferent money metal, 46171 ; j culate without scrutiny, 402m.

raising the rate of interest Hertzka, Th., Wdhrung und Han-
1
to stop a drain of bullion, del, attacks M. Cemuschi's posi-

475-7. tion, 259-61 ; the debtor class
Gouge,Wm, M. , History of Pa/per j
I laigely producers, 268m.

; ;
INDEX. 537
Hadreth, Richard, History of the Huskisson, W., Depreciation of

United States, redemption of tlie Currency, England, in 1835,
the Revolutionary issues, 333- "within twenty-four hours of
371. barter," 15 ; relation between
Eohhes, Thomas, Nutrition of a the existing volume of money
Cammonwealtli, importance of and ruling prices, 60 condition ;
the money function, 167«.. of the English coin in 1773,

Holland, relation of gold and 213 distinction between paper
;
silver in the coinage, 332-4, money and circulating credit,

289; paper-money baling, 513. 376 ; prohibition of the melting
Homer, Francis, com, " the real of the coin, 352.
and paramount standard of all "
Ideal" Money, as the denomina^
values," 159 ; the bullion re-
tor of values, 8-9, 290-9, 376-7.
port and resolutions ; was Mr.
niyria, its yield of the precious
Ricardo ill-treated ? 353-4.
metals, 106.
Horton, S. D., Silver and Gold,
Inconvertible Paper Money,
money as a store of value, 12n. Theory, chap. xiv. illustra-
;
should the fear of exciting the
tions, chaps, xvi.-xvii. ; Theory,
spirit of repudiation lead to
concluded, chap. xvii.
concealment of economic truth ?
India, small yield of the precious
93?i ; his view of bi-metallism,
metals, 101 movement of sil-
;
265, 270; value of "green-
ver to, 109-10, 141-2, 146-7 use
backs " and silver, 278n.. ;
of silver in ornaments, 157ra

Horton, V. B. [U. S. Ho. Reps.],
ProfessorCaimes anticipates the
opposes the issue of legal- tender
early adoption of paper money,
notes, 373.
147-8 coinage, 169 relation of
; ;
Hubbard, J. Or., replies to Col.
gold and silver in the coinage,
Tomline on the influence of
339-40.
billon upon the poorer classes,
Interest, rate of, how afEected by
219-20 ; large notes in the cir-
increase of money supply, 94-8;
culittion of the Bank of Bug-
raising the rate to check the
land, 404».
drain of bullion, 475-6 power
Humboldt, Alex, v., high pur- of the Bank of England over
;
chase power of gold, 41 esti-

;
the rate, 477-8.
mate of the production of the Ireland, its yield of the precious
precious metals in America,
metals, 103 relation of its
;
132-3 estimate of the export
;
coin to that of England, 206-7 ;
of silver to the East, 141; com-
paper-money banks, 450-1.
parative production of silver
Iron as money, 37.
and gold, 231n. Italy produces no gold or sUver,
Hume, David, money, "the oil 103 relation of gold and silver
;
which renders the motion of in the coinage, 338 ; gold coin-
the wheels more smooth and age in the thirteenth century,
easy," 78?i ; advantages of a
353 inconvertible paper money,
;
considerable increase in the 369 bank statistics, 513ft.

;
supply, 79-81 effect of the
;
American discoveries on prices, Jacob, William, Inquiry into the

I
135tt ; the paper money of Co- Precious Metals, " compenAiovia

j
lonial Pennsylvania, 332. value " of gold, 41 an increase

I
;
Hungary, its yield of the precious of money supply temporarily

;
metals, 105, 140. incites industry, 87

\
origin of
;
Hunter, William, Annals ofRyb- his " Inquiry," 100 history of

;
ral Bengal, coinage in India, gold and silver production,

169, 211-1371; discount upon chaps, v.-viii. passim ; the
copper coins, 230« Sir James
;
English mints, 169 « coinage ;
Steuart's introduction of a mon- in wie middle ages, 171 among ;
ey-of-account, 291-5. the ancients, 175 ; melting of

23*
;
.
538 INDEX.
English sovereigns in Paris, 165 sacredness of devices on

;
178 circulation of foreign coin

; ancient coins, 170.
in England, 179 debasement of ; Kossuth, Louis, his attempt to-
English, coin, 183 comparative ; introduce paper money into
production and consumption of Hungary, 368?!..
gold and silver, 230».
Japan, its yield of the precious Laboring Classes, chief sufferers
metals, 103 relation of gold
; by bad money, 310-11, 330-1,
and silver in the coinage, 330, 384-6.
239 paper money, 303 -4.
; Languedoc, its mines of silver,
Jefierson, Thomas, favors bi-me- 105.
tallic money, 269 the money ; "Latin Union" [Monetary Con-
of the colonies, SOS/t the paper ; vention of 1865], 338-40, 243,
money of the Revolution, 831-3. 366.
Jevons, Professor, Money and the Lauderdale, Lord, Depreciation
Mechanism of Exchange, anal- Proved, circulation of Portu-
ysis of the money function, guese coins in England, 179 ;
1 14 fluctuations in the value

; criticism of Sir J. Stouart,
of gold, 158 tabular standard
; 390-1 ; of Perceval Eliot, 298.
for deferred payments, 159- Laveleye,M., compensatory action
63 ; the English mint, 173 of bi-metallic money, 356 en- ;
seigniorage on silver coinage hancement of the burden of

furnishes a fund for recoinage, debts through demonetization
19 1 the concurrent circulation
; of silver, 368.
of silver and gold [the " dou- Law, its power to prevent the ex-
ble standard"], chaps, xii.-xiii. port of bullion, 55-6ft, 851-3« ;
passim ; the " measure of to vmite silver and gold at a
value," 381-4 competition in; fixed ratio, 358-64 invoked
;
issues may cause inflation, against the premium on silver

436» the " elastic limit" sys-
; and gold, 331, 343-4.
tem of bank issues, 514-15ft. Law, John, non-exportability an
Theory of Political Economy, advantage in money, 300 his ;
" Labor once spent has no in- connection with the Mississippi
fluence on the future value of scheme in France, 304, 336.
any article," 345 equivalence "Lawism" [McLeod,] the basing
;
of commodities, 350-1 abraded of ^money upon land, 334.

;
coin in England, 315-16 esti- Lead, used as money, formerly

;
mate of the proportion of money cheaper than iron, 37.

to gross income in England, 74«.. Levi, Prof., History of British
John II., of France, corrupts the Commerce, relative value of
coin, 186, 188 practises on the
; gold and silver, 333-3 effects ;
English coin, i95/(. of Californian and Australian

Joplin, T.,The Currency Question, discoveries, 334; "life" of a
the bullion report, 353. bank note, 408 the bank en- ;
quiry of 1833, 444?i.

Kelley, W. D., advocates non-ex- Liverpool, Lord, On the Coins of
portable money, 3O0. the Sealm, the coinage act of
Kitchin, G .^f ., History of France, 1717, S25ra.
corruption of the coin, ISSra. The Second Lord, advocates
King, Lord, his thoughts on the the single gold standard, 328-9.
Bank of England restriction Locke, John, England draws its ;
his theory of inconvertible pa- money from other countries,

per money, 353 his demand 56 money " drained into stand-
; ;
on his tenants, 355. ing pools," 71 estimate of the ;
Knight, R. P., 2%e Symboliaai amount of money needed in

Languageof Ancient Mythology, England, 74 breadstuffs as tha ;
spikes the first form of coinage, standard for deferred payments.

;
;;
.
INDEX. 539
159 Locke's part in the recoin-

; metals, 355n the "measure of
I
;
age of 1696, 313-14 objects to

; value," 280-171.
receiving clipped money, 355 ; Mansfield, Lord, bank notes are
currents of trade, 519. money, 898w.
London, as a centre of Exchange, Manufactured products, their
gains at the expense of Paris, prices less afEected by increase
383. of money supply than the
Lorraine, its mines of silver, 105. prices of raw materials, 154-5.
Lovejoy, Owen [U. S. Ho. Reps.], Maitin, M., his account of gold
opposes the issue of legal-ten- in the " Western Islands," 108?i.
der notes, 373-3. Martineau, M., advocates the is-
Lowe, Joseph, scheme for a tabu- sue of " assignats," 337.
lar standard, 160-1 Maryland, attempt to establish
Lowndes, Wm., proposes to re- u mint, 172?i colonial paper ;
duce the standard of the coins, money, 324 revolutionary is- ;
213-14. sues, 338-9.

Lubbock, Sir John, analysis of Massachusetts, com and beaver
payments into the bank, 73. as money, 33 cattle received
;
in payment of taxes, 34 first ;
Macaulay, Lord, History of Eng- emission of "Bills of Credit,"

land, the recoinage of 1696, 1690, 307-8; further issues,
309-13. 330 redemption, 11 : 1, 331
;
Macedon, spoil taken by Paulus revolutionary issues, 328-9

.Shnilius, 109. fine on banks remaining in
Maclaren, History of the Cur-
J., suspension, 493-4» bank act ;
rency, why
should the power of 1839, 503ra.
to maJie a fortune be cherished McCulloch, J. R,, an increase of
at the expense of fortunes that the money supply always bene-
have been made ? 93 the Bank ;
ficial, 93 competition in issue ;
of England takes up the circula- between banks, 436-7 Com- ;
tion which the country banks mercial Dictionary, English

relinquish, 44771. gold coinage, 176 relation of ;
Macpherson, History of Com- Scotch and Irish to English

merce, bankers pushing out coinage, 306-7» relation of ;
their notes, 488 ra. gold and silver in the English

Madison, James, The Federalist, coinage, 324^5 bank notes are ;
prohibition to the States of the money, 309-400 compulsion to ;
issue of "Bills of Credit," take them, 483 the faults of ;
334-5. the American banking system,

Maine, Sir H. S., Early History 500 success of Scotch bank- ;
of Institutions, cattle used as ing, 510.

money, 31-3. McCulloch, Hugh, effort as Secre-
Majorca produces no gold or sil- tary of U. S. Treasury to re-
ver, 103. tire legal-tender notes, 374-5.
Malay peninsula, its of McLeod, H. D., Principles of
yield
precious metals, 101. Economical Philosophy, "mo-
Malthus, Rev. T. R., attacks ney is the representative of
Rioardo's statement of the dis- debt," 36-7; the Mercantile
system, 44-6 circulation, a
tribution of the precious metals, ;
53 quantity of two dimensions, 63 ;
Man'dats, territorial, succeed the the use of money saved by the

cancellation of debts, 67 down-
Assignats in France, 346. ;
La Monnaie etle fall of the " assignats," 346-7

Mannequin, M.,
ttalon, revival of bi- the word currency, 396 Arbi- ;
Double
tration of Exchanges, 459 Ex-
metallism, 341» dissents from
;
;
Wolowski as to the com- change between gold countries

M. and silver countries, 461« r
pensatory action of the two
;
540 INDEX.
failure of the value of money of a change in

Act of 1844,
466-8. the cost of producing it, 246 in- ;
"Measure of Value," does money fluence of custom in economics,

sei-ve as a measure of value? 386 bullion movements often ;
4r-9, 64r^, 196, 280-90, 376-7. take place without affecting the
[See " Denominator in Ex- prices of commodities, 470m.
change."] Mining of the precious metals,
Medina, a Mexican miner, dis- economic conditions, 107 in ;
covers the quicksilver process, early ages largely non-econ-

133. omical, 108-10 prejudiced by ;
'
Medium of Exchange, 1-4, 204 ; the passion of sudden gain, 111-
inconvertible paper money may 15 effects of the system of;
serve as, 876. farming the mines, 114-15, 125-

Mercantile Theory and System, 6 effects of war and civil con-
;
44-8 Adam Smith attributes

; vulsion, 115-16, 139-iO; the
to it the English law of free art of mining lost in the mid-
coinage, 183. dle ages, 130.
Merivale, C, History of the Bo- Minorca produces no gold or sil-
mans, the habits of the Romans ver, 103.
respecting the use of gold and Mints of England, India, Prance,
silver as ornaments, 119m. 169; inventions in coinage, 178;
Metals as money, 36-43. Mint of the United States, 172-
Mexico, cacao used as money, 35 3 of Massachusetts colony,
;
;
tin as money, 37 ; yield of the 173 of Russia, 173. ;
precious metals, 133-3 com- Mirabeau, M., advocates the is-

;
pared with Peru, 137 effects sue of " assignats," 338-9.

;
of revolutions upon the pro- Mixed Currency, a term applied

duction of the precious metals, to Convertible Paper Money by
139-40 early inhabitants had
; Mr. Norman and Prof. A. Walk-
no knowledge of scales or er, 487.
weights, 164 nsed quills of Money. Metallic money. Part I.
; :
gold dust, 166. The money function, chap. i. ;

Mflbum, Wm., Oriental Com- the occasion for money comes
merce, old clothes are good from trade, 1, 48-9 money as a ;
money in St. Jago, 25n. pad- medium of exchange, 2-4, 304,

;
dy at Porto Novo, 82ra the 376 as a so-called "measure

; ;
" cash " of China, 166 the of values," or denominator in

;
" gaU" of Cochin China, 171. exchange, 4r-9, 64-5, 196, 280-6,
MUl, James, Commerce Defended, 376-7 as a standard for de- ;
coin in international transac- ferred payments, 10-11, 90, 157-

tions passes only at its bullion 9, 877-8 ; as a store of value (?),
value, 393ra. 11-13 the several functions ;
Mill, John Stuart, Principles of need not be united in one sub-

Political Economy, money a stance, 13-14, 158 ; money must
machine for doing a particular be "particular," 14; importance
work, 4^5 ; the need of a of the money function, 14-31
" measure of value," 6-8, 383- money is in political economy
4 ; the prohibition of export of what blood is in the anim^
bullion not wholly ineffectual, economy, 17-18 encourages ;
65-6 the relation between the

; small savings, 18 stimulates ;
money supply and prices bor- production, 19, 79-84 helps the
; ;
rowing capital is habitually classes which are economical-

spoken of as borrowing money, ly feeblest, 30, 220-1; Prof.
94-5ra ; the economic condition Price's view that the analysis
of the production of money, of primitive money yields "the
107 competition in retail mar-
; fundamental principles " of all
kets, 2337i ; effect upon the currency, 21-2 ; is money ca-
;
; "
;
INDEX. 541
pital ? 22 is it productive ? 23
;
;
in favor, 79-81 Alison's claim, ;
the elements of money, chap. 81-4 pleas for a progressive

;
ii. general acceptability, 24-

; increase of the money supply
5 Is money the representative
; considered stimulus to in-
;
of debt ? 36-8 is it a guaran- ; dustry, 85-8 ; reduction of taxa-

tee ? 29-30 always a means to
; tion, 88-9 reduction in the
;
an end, 30 various articles

; burden of debts, 88-94; the
used as money —
pebbles, beads,
wampum, shells, feathers, 25
money supply and the rate of
interest, 94-8.
;
grain, cattle, 31 rice, -to- ; The production of the pre-

bacco, copper skewers, nails, cious metals, chaps, v.-viii.
bullets, 32 tea, dates, furs,
; Elements of the problem of
33 portability in money, 38
; ;
the money supply ; economic
uniformity, 33-4 non-liability ; conditions of the production
to deterioration, 34 suscepti- ; of money, 106-7 of the min- ;
bility to division, 35-6 com- ; ing of gold and silver, 107-

parative steadiness of value, 116 consumption of the pre-
;
36 ; the metals as money, 33 ;

cious metals in the arts, 117-
iron, lead, tin, 37 copper, 38 ; ; 20 ; loss by abrasion of coin,
silver, 38-39 gold, 39-41.
;
121-2 ; exportation to the East,
Money, by the Mercantile 122-3, 141-2, 146-7.
theory, regarded as the sole or Prof. Cairnes' exposition of
principal wealth, 44-8 how ; the effects of an increase of the
much does a community re- money supply upon diilereut
quire ? 48-9, 57-63 territorial ; countries, 150-2 ; upon difEer-
distribution of money through eut commodities and industri-
the agency of price, chap. iii. al classes, 153-7; the larger the
Ricardo's statement, 49-57, cf. proportion of wealth that goes
150-7, 356-8, 388, 390-1, 518 to the laborer, the greater the
relation between the existing necessity for coin, 156.
body of money and ruling Corn rents instead of money
prices, 58-62 money a quan-
; rents, 157-9 a tabular stand-
;
tity of two dimensions, 62-3, ard for deferred payments, 159 -

418 " rapidity of circulation,"
; 63.
Mr. Mill criticises the phrass, Effects of seigniorage upon the
63 serves as a denominator of
; purcliasiug power of coin, 189-
values when it is not tlie me- 93 use of money discouraged
;
dium of exchange, 64-5 de- ; by loss of reputation leading to

mand for money diminished by extension of credit and barter,
extension of credit, 65-9, 197- 198-204, 379 effect upon the ;
304 by the deposit and check

; value of money of a change in
system, 70-3 the amount of
; the cost of producing it, 346-8.
money required by any com- Inconvertible paper money.
munity depends on a variety of Part II. Need money he a ma-
circumstances, 73-4 it is not ; terial equivalent ? 275-6 the ;
necessary that it should be theory of inconvertible paper

known, 74 poor countries
; money, chap. xiv. illustra- ;
will have little money, 74-5 ;

tions, chaps, xiv. xv. " ideal , ;
importance of the money supply, money, money of account,

chap. iv. the law of distribu-
; 390-9 does war render ne-
;
tion applies, whatever the value cessary a suspension of spe-

of money, 76 Bastiat illustrates
;
cie payments ? 336-7, 349-51
the proposition that increase is the premium on gold the
of money does not enrich a com- measure of depreciation? 361-
munity, 77-8 Prof. Caimes ; 4, 374, 379-81, 387-91 the ;
deprecates any considerable in- danger of excessive issues, 377-

crease, 78-9 ; Hume's argument 82 ; the evils of excessive is-
; ;
542 INDEX.
sues, 333-5, 341-4, 383-4; es- Neaves, Mr., the English Bank
pecially to tte poorer classes, Act of 1844, 448".
384^7. Necker, M
opposes issue of the
,
Convertible paper money. assignats, 336-9.

Part III. Theory, chap, xviii. Netherlands, the Bank of, 513.
;
the currency principle vs. the Nevada silver mines, 337 pro- ;
hanking principle, chap. xix. portion of gold in silver ores,

convertible paper money in 365n.
England, chap. xx. ; in the Newcomb, Prof., gold and silver
United States other examples,
; coin, unproductive capital, 33m;
xxi. ; theory concluded, chap, inconvertible paper no true re-
xxii. source in war, 350-1.
What is money ? hank notes ? New England, wampum used as
395-8 checks? 398-9 bills of
; money in early times, 35 clip-
; ;
exchange? 399^03 the larger ; ping the coin, 196m early ;
bank notes ? 403 bank depos- ; forms of money, 805-7 resort ;
its ? 404 exchequer bills ? 405-

; to paper money, 308 issues ;
6 money is that money does,

; prohibited by Parliament, 314 ;
405-7. N. E. maintains specie pay-

Convenience of paper money, ments through the war of 1 812,
409, 533 cheapness
; of bank 492 N. E. banks in 1839, 501m ; ;
notes, 409-11; per contra, 522-8 superiority of the N. E. bank

"elasticity," 414-19 a conver- notes, 506.
;
tible paper money should ope- Newfoundland, inhabitants used

rate precisely as metallic money dried cod as money, 33-3.
would under the same circum- New Hampshire,, colonial paper
stances, 419-20 opposing views
; money, 308 its issues put under ;
as to whether it will so operate, the ban in other colonies, 313m.

chap. xix. passim, 517-21 the New Jersey, colonial paper mon-
;
American bank-paper money ey, 308, 333 revolutionary iS' ;
often of questionable converti- sues, 328-9. -
bility, 479-85, 493-4, 500, 517- Newmarch, Wm., an increase of

18. the money supply a benefit to
Mongols, The, issue paper money, society, 78 great number of ;
302-4, 313n. enterprises at any time await-

Mono metallists, their position de- ing encouragement, 434m.
fined, 238-4, see chap, xii.- "New Tenor" Bills of Credit,
xiii. passim. 813-14, 319, 346.
Montague, Charles, the coinage New York, colonial paper mon-
of 1696, 209-13. ey, 808, 833 revolutionary is- ;
Montesquieu, M., J)e I'Esprit des sues, 338-9; N. T. banks in

Lois, relation between the ex- 1839, 501m; "Safety Fund"
isting volume of money and banking system, 503-4 Free ;
ruling prices, 59m. Banking Law, 504-5

Moors, The, in Spain, their habits Nicholson, N. A., Science of Ex-
in working mines, 105ra. changes, the British Mint, 174 ;
Morrill, J. S. [U. S. House Rep.], expense of coinage, 184 loss by ;
opposes issue of legal-tender "cut" sovereigns, 255m; the.

notes, 371-2, position of the mono-metallists,
Morris, Gou verneur, "papier- 323-4 bank notes are money, ;
terre," 333. 398 are deposits money ? 405m

;
Murchison, Sir R., Siluria, gold convertible paper money should

found superficially silver in fluctuate precisely like metallic
;
deep mines, 103m. money, 430 no necessary con- ;
nection between banking and

National bank system of the U. paper money, 445 the Act of ;
S., 507-9. 1844, 448».

; ;
INDEX. 543
Norman, George Warde, Be- etc., paper-money banking in
marks on Currency and Bank- England, 414.
ing, modern economy of money, Patterson, R. H., The
Science of
69, 70; advocates the "Cur- Finance, "elasticity" of bank
rency Principle," 425, 430-1, money, 414-15.
517-18; no necessary connection Peel, Sir Robt., his part in the Re-
between banking and paper sumption legislation of 1817-19,
money, 445. 356-64; the Act of 1844, 434?i.
Normanby, Lord, Paris in 1848 Pennsylvania, Colonial paper
reduced to barter, 15ra. money, 333-4; Revolutionary
Noric Alps, tbeir yield of tte pre- issues, 338-9.
cious metals, 106. Perry, Prof., Elements of Pol.
Nortb, Dudley, free coinage "is Economy, money stimulates all
perpetual motion found out," the processes of production,
183-3. 19 value, in general, only
;
North Carolina, yield of gold, suitable for loaning when in the

144, 336 Colonial paper mon-
; form of money, 95re ; danger
ey, 334. of over-issues of inconvertible
Norway, itsyield of the precious paper money, 383 losses in the
;
metals, 104. United States by bad bank

money, 533-3.
"Old Tenor" Bills of Credit, Persian Empire, its treasures
313-14, 319, 346. largely derived from conquest,
Oresme, N., De Origine, etc., 110 purity of its coin, 174r-5.
;
Monetarum, usury is against Persia, its yield of the precious

nature, 96?i sanctity of de-
; metals, 101 ; irregular coinage,
vices on coin, 171ft; seignior- 171 ; paper money in thirteenth
age, 181ra. century, 303.
Overstoue, Lord, bank deposit Peru, use of silver in the arts,
system reduces the demand for 130 ; its yield of the precious
money, 70-1 are deposits cur-
; metals, 133-8 compared with
;
rency ? 405?i banking reserves,

; Mexico, 137 ; decline in pro-
413 ; convertible paper money duction, 140.
should operate precisely like Petty, Sir Wm., estimate of the
metallic money, 430 ; it may be amount of m.oney needed in
issued in excess, chap. xix. England, 74 money the fat of
;
passim, 517-18 ; progress of the the body politic, 78?i.

"Currency Principle," 443-7; Pheidon, king of Argos, first
objections to the union of bank- coined money, 167.
ing and issue, 446-7 regula- Phenicians, The, open the mines
;
tion of note issues by the Ex- of Greece, 106 exchange the

;
changes, 464-5 ; effects of com- silver of Europe for the gold of

petition on issues, 480 success
; Asia, 109-10.
of Scotch banking compatible Philip of Macedon, lack of trea-
with commercial disasters, 511 sure, 108-9.
French bank-note circulation Philippine Islands, their yield of
has conformed to movements the precious metals, 103.
of metallic money, 511-13. Phillips, Henry, Jr., the Pennsyl-
vania paper money, 318re New ;
Palgrave, R. H. Inglis, Notes on Jersey do., 333 Virginia do., ;
Banking, Swedish bank mon- 334.

ey, 413, 518 ; Platinum, xmsuited for coinage
Scotch banking,
511?i. the Russian experiment, 167-8.
Panics, how to treat them, 473-6. Pliny, gold and silver always
Paris, ceases to be a centre of in- found together in Spain, 364-5?i.
ternational exchanges, 383. Poland, alone of European nations
Parnell, Sir H., Paper Money, without paper money, 303.
; ;;
544 INDEX.
Pollock, James, tlie coin of tlie guest of Peru, silver used in the
United States, 187. mechanical arts, 130.
Polo, Marco, the gold product Price, distinguished from value,
of Japan, 103 the paper money
;
339-30.
of China, 303-3. Price, Prof., Principles of Cur-
'
Portability, as an element of rency, Currency has its origin '
money, 33. in the division of labor," Ira

Portugal, small yield of the pre- money "an interposed com-
cious metals, 103 circulation
;
modity," 3 the analysis of ;
of "moidores" in England, metallic money gives "the

179 of "sovereigns " in
;
Portu- fundamental principles of all
gal 185
,
relation of gold and
;
currency," 31-3 money, a ;
silver in the coinage, 234, 339. guarantee, 39 ; only a tool for

Potosi, discovery of silver, 104k, a specific use, 30-1 influence ;
133. of the Mercantile Theory, 47-8 ;
Potter, E. E., the Khode Island Prof. Price misapprehends Mr.

paper money, 316-30. Mill, 01 money measures goods ;
Poucet, M., Ethiopians use rock where it dges not actually ex-
salt as money, l64?i. change them, 64w Prof. Price's ;
Pownall, Governor, the paper definition of a bank criticised,

money of Pennsylvania, 333. 68;i only three per cent, of ;
Precious Metals, The, deemed the payments into a hank made in

sole or principal wealth, 44-8 cash, 71-3 ; inconvertible paper ;
their distribution through the money need not depreciate,

agency of price, 49-57 the field 3'i8?J
; the public has a definite ;
of production of, 99-106 the want of bank notes, 379»i the

; ;
economical conditions of pro- " Measure of Values," 383)1

duction, 106-7 the production
; the law of the depreciation of
and distribution once large- inconvertible notes obscure,
ly non-economical, 108-11 in 387 bank notes, a form of
; ;
more recent times, largely un- credit, 3977i the word "repre- ;
economical, 111-15 effects of sent," 410

; convertible paper ;
war and civil convulsion, money cannot be inflated, 433 ;
115-16 history of production

; banks may be regulated by the ;
Augustus to Columbus money State, 437-8ra

; small notes not ;
famine of the middle ages, chap, objectionable, 440 "jiractical ;
vi. from 1193 to 1848

; the dis- men " in finance, 444ra no ne-
; ;
covery of America fall in the ; cessary connection between

value of gold, and still more of banks and paper money, 445
silver, chap. vii. the Californian
; the Bank Act of 1844, 448,
and Australian episode effect 453-3 a sort of compulsion to
; ;
on the silver price of gold, take bank notes, 483-8 success ;
chap. viii. of Scotch banking, 510ra Prof. ;
Premium on gold and silver under Price deems the reserves of

inconvertible paper money in the Bank of England excessive,
;
revolutionary France, 340-1, 534-8.

345-7; in England, 853-64; Prussia, the Royal Bank of, 514,
other examples, 365-9, 374 516».
does the premium measure the Pyrenees, The, discovery of silver,
depreciation ? 360-4, 387-91 ;
104?!. their silver mines, 105.
;
on bUls of exchange, the limits,

463. Eaguet, Condy, Currency and
Prescott, W. H., of Conquest Banking, are deposits " cur-
Mexico, tin used as money, 37 ;
rency " 405ra
? conversion of ;
Mexicans had no knowledge of circulating into fixed capital,

scales and weights, 164 used ; 473)1 ; faults of American pa-
quills of gold dust, 168 ; Uoii- per-money banking, 485 ; banks
; ;
INDEX. 545
declaring dividends while in- Mr. Horner? 353; Tlie Eiffh
solvent, 493 swindling banks,
; Price of Bullion, the territorial
490-7ra. distribution of the precious
Railroads, diminish the use of metals through the agency of
money, 73. price, 49-50 money cannot be
;
Ramsey, Dr., History of 8outh exported to excess, 51 modern ;
Carolina, Colonial paper money, economy of money, 69 the sus- ;
335 - 6 revolutionary issues,

;
_ pension of 1797, 348 Proposals ;
331», 334-4; History

of the 'for a Secure and Economical
United States, effects of the Currency, Sir James Steuart's
"Continental Currency," 337. "ideal" money, 391 )i "elas- ;
Rau, Prof., on the word fuaio-n, ticity" of paper money (?),

lift ; compensatory action of 415?i governments should reg-
;
hi-metallic money, 357. ulate bank issues equally with

Receinage, chap. si. the Eng- ; coin, 498« Reply to Bosanquet,
;
lish recoinages of 1560, 306 no considerable addition can

of 1698, 309; of 1774, 313 be made to the bullion in a
should " the aucient standard country without an increase
be restored? 313; on whom of money, 61ra ; actual cost
should the cost of recoinage of coinage the proper limit
fall ? 314. of seigniorage, 187 ; effect of
"Reflux," The, 439, 517-31. seigniorage on prices, 189-90,
Represent, the use of the word 194, 197 ; his theory requires a
in the philosophy of money, qualification, 198-304, 379 the ;
410. premium on gold is the meas-

Reserves, banking, the ratio of ure of depreciation, 360re can ;
oae-third, 413-18; of the Bank money be issued, if the circu-

of Netherlands, 513 of the ; lation is already full? 437-8;
banks of Germany, 514, 516n ;
importation of bullion increases
of the Bank of England, the quantity of money, 468?!
deemed by Prof. Price to be Political Economy, effects of
excessive, 534^8. seigniorage on prices, 190-3
Restriction, the English, 347- the whole charge for paper
65. money may be considered as
Resumption, the English, 1819- seigniorage, 197, 377-9.
21, 359 - 64 contemplated in Rice, as money in early Carolina,
;
the United States, 374-5. 33. I
Retail trade, its volume must Richard I. of England, his ransom

be equal to that of wholesale obtained by melting church ves-
'
trade, 73 the " friction " of re-

; sels, 118-19. \
tail trade increased by bad Ring money, 165-6.

money, 331-3, 386-7 only the Rogers, Prof., Political Econo-
; |
smaller bank notes used in re- my, need of a measure of

tail transactions, 403-5. value, 6 - 7 , 383 - 3 money ;
Revolution, the American, paper- necessary to the division of

money issues caused by, 336- labor, 17w ; Notes to Adam
35. Smith, proportion of money
Rhode Island, first colonial is- to income in England, 74»
sues, 308-9 ; bills put under the production of the precious met-
ban by Connecticut, 314 nine ; als, 1849-08, 145-6n; Histori-
successive " banks," 316-30 cal Cleanings, attributes all
revolutionary issups, 338 - 9 great inventions to Anglo-Saxon
relapse into paper issues after thought, 173ra corruption of
;
the war, 334. the coin the cause of French

Ricardo, David, apparent contra- disasters, 1340 1440, 188-9;
diction of views, 191?i, 415ra ;
who should bear the cost of
was Mr. Ricardo ill-treated by coinage ? 314 Hilary of Ag-
;
; ;;;
546 INDEX.
ricuUure and Prices, lead Scotland, its yield of gold, 103

cheaper ttan iron, down to the payment of agricultural wages
Great Plague, 3T;i early gold; in kind, relation of its coin to
coin of England, 234/; ; rela- that of England, 207 bank ;
tion of gold and silver, 1362- notes convertible formerly on

1345, 330-1, 351-3. condition, 429-30 under the act ;
Roman Empire, Alison attrib- of 1844, 450-1 ; its banking sys-

utes its downfall to failure of tem, 509-11.
the mines, 81 invasions of the
; Scott, Sir Walter, Letters on the
barbarians cut off the supply Cvrrency of Scotland, difficulty
of the precious metals, 127-8. of keeping the precious metals
Romans, their mode of con- in circulation in poor countries,
structing mining shafts, 105re 75, 305.
their use of gold and silver in Scrope, Poulett, his scheme for
ornament, 119-30 ; unskilled in a Tabular Standard, 160-r.
mining, they farm the mines, "Secured Circulation," in Eng-
134^5. lish Bank Act of 1844, 447-51
Eoscher, Prof., Principes d'JEeo-
^ in the Kew German law, 514-15.
nomie Politique [Wolowski's Seigniorage, on whom should
translation], money the blood the cost of coinage fall? 181;
of the commercial body, 16- the economists generally favor
\ln helps those who are eco-
; seigniorage, 188 the English
;
nomically feeblest, 30, £30 - 1 ;

free coinage, 183; arguments in
prices in different
countries, its favor, 183-6 M. Chevalier
;
58)1 ; recommends mixed rents, proposes the term Brassage to

160?i ; compensatory action of cover actual mint expenses, 186;
bi-metallic money, 257 bul- ; seigniorage abused extensive ;
lion movements do not always debasement of coin, 186-7; ef-

affect the quantity of money, fects on prices, 189-93 the ;
470ft. whole charge for paper money

Rossi, M., characteristics of the may be consideredas seignior-
bank note, 400» ; advocates re- age the theory of seigniorage
;
striction of bank issues, 439. offers the best approach to the

Ending, Eogers, debasement of discussion of paper money, 377.
English coin, 186. " Selecting" the coin, 195.
Eussia, furs used as money, Senegambia, inhabitants use iron
83 ; prohibits export of the as money, 37?i.
precious metals, 46 ; its gold Senior, Prof., the value of
the
mines described by Herodotus, precious metals depends on their
re-discovered in eighteenth cen- value as materials of manufac-
tury, 106 increased produc-
; ture, 43w, 252; the markets of
tion after 1833, 140 trial of pla-
; the world are England's mines
tinum money, 168 mint, 173 ; of gold and silver, 56.
;
maintains the full metallic Seyd, E., Bullion and Foreign

value of its small coins, 318 Exclianges, use
;
of lead as
relation of gold and silver in money, 87 the properties of ;
the coinage, 338 government

; silver, 38-9 of gold, 41 ; ex- ;
paper money, 366-7 ; bank pa- port of money from Eussia

per money, 523. 4671 ; on coinage, 171-80 esti- ;
mates the stock of gold and sil-

Salt (rock) used by the Abyssin- ver, 369 paper money of Rus-
;
ians as money, 164. sia, 867: of Spain, 869 ; P^rlq

San Domingo, paper money, 369ra. and London Exchange, 463;i
Sardinia, its yield of the precious management of the Bank of
metals, 103. Prance, 513.
Saxony, its yield of the precious Shuckers, J. W., The Finances,
metals, 105. I
etc., of the BevoluOon, the
;
INDEX. 547
"Continental Currency," 328- 40 Smith's refutation of the

;
30. Mercantile Theory, 46 retail ;
Siberia, discoveiy of its auriferous must equal wholesale trade,

sands, 143. 72-3 extent of the effect of
;
Sicily, producea no gold or silver, the American discoveries upon

103. prices,135; disapproves the Eng-
Silesia, its yield of the precious lish system of free coinage, 183;
metals, 105. effect of the American discov-
Silver, properties fitting it for use eries on the relative value of
as money, 38 use in tlie arts,
; gold and silver, 333 ; ratios of
43 the field of production. 9i)-
; values do not follow the ratios
103 in early ages regarded as
; of quantities, 344^5 ; reason for
treasure, not money, 108-9 ;
the depreciation of "Colony
economic conditions of pro- Currency," 278-9 value given ;
duction, 108-lfi, 33r-8ft, 354re; to money by its being received

history of production, chap, vi.- for taxes, 389?i distinction be-
;
viii. relation to gold in the coin-

; tween large and small bank
age of England, 317-18, 334-5 ;
notes, 403-4 cheapness of
;
of the United States, 335-8 ;

paper money, 400-1 paper ;
variations in its power to pur- money must be convertible un-

chase gold, 329-80; effect of conditionally, 439-30 origin of ;
the discovery of America, 351- the bank of Amsterdam, 463.

3 of the Californian and Aus-
; Smith, Toumliu, the cppper coins
tralian discoveries, 333-4 ; re- of England, 168.
placed by gold in the coinage Snowden, J. R., On Gains, French
of France, 1849-58 ; export to inventions in coinage, 173.
India, 335-6 ; change in com- South Carolina, Colonial paper
parative production of silver money, 335-6 ; revolutionary
and gold, 1865-71 ; effect on issues, 338-9.
gold price of silver, 337 ; ex- Spain, its yield of the precious
tensive demonetization of sil- metals, 104^5 ; universal circu-
ver, further effect on its gold lation of the Spanish dollar,
price, 338 ; advocated by Locke 179-80; relation of gold and
as the sole metal of unlimited silver in the coinage, 232-3,
tender, 338; interchangeable use 340 paper money, 369.
;
of silver and gold, its effect on Spauldin^, E. G., Financial His-

the price of either, 348-53 tory of the War, origin of the
may form one-fourth the re- United States legal-tender notes,
serves of the Bank of Eng- 370-1
land, the Bank in 1847 refused Speculation is not initiated by is-
to make advances on deposits of sues of bank paper money, 433-
silver, 448-9» there can be no
; 3; but is promoted thereby, 433-
true par of exchange between 5, 471-2, 502-3, 519-30, 526-7.
a silver country and a gold Standard of value, the term an
country, 461. unfortunate one, 11-13 " sin- :
Slaves employed in mines, 136 ;

gle " or "double" standard,
the extension of the Eoman 333, chaps, xii.-xiii. passim.
power diminishes the supply Standard for deferred payments,
and makes slaves too costly to 11-13, 90-3 ; Corn Rents substi-
be employed in mines, 137. tuted, 157-9 a tabular stand-
;
Small note issues, economical ob- ard proposed, 159-63 how far ;
jections to, 439-43, 481-3. inconvertible paper money will

Smith, Adam, Wealth of Nations, perform the office, 377.
a guinea is a bill for goods, 38, Stanhope's Act, 355.
38 nails as money, 83» the
; ;
Stanley, SirThomas, his plan for
durableness of the metals gives the recoinage of 1530, 207-8.
them great steadiness of value, Statistics of bank issues in En^-
; '
548 IXDEX.
land, 444m; U.S.,

; 499-501;
truck preferred to the
168n.
Sweden and Italy, 5i3w. use of bad money, 303.
Steuart, Sir James, Political Sycee silver, 101-3.
Economy, coinage in England,
171?i Ms theory of "ideal" Tabular
; standard for deferred
money, 290-6 Coin of Bengal, ; payments, 159-63.
a money-of-account, 294-5. Talleyrand, M. advocates the first ,
Story, Judge, effects upon public but opposes the second issue of
morality of the paper money of " assignats," 339-40.
the Revolution, 334. Taxation, is it reduced by an in-
Storch, Prof. how to prevent the
, crease of money? 88 9; paper
melting of the coin for pur- money as an escape from taxa-
poses of manufacture, 183 cost tion, 338ra. ;
of coinage, 18471 distinction Taxes, paper money received in

;
between paper money and bank payment of, 289, 803m, 308, 813.
notes, 276a. Tea, as money, in China, and at
St. Petersburg, notes of the Bank the Russian fairs, 83.
of, 322. Telegraphs, diminish the use of
Sugar, as money, in the West In- money, 73.
dies, 33. Tender, silver in Great
legal,
Sumatra, yield of gold, 102.
its Britain, in limited amounts,
Sumner, Charles [U. S. Sen- 318 ; in the U. S., 228 ; the pa-
ate], on the legal-tender bill, per money of the colonies, 308-
373. 9 of the Continental Congress,
;
Sumner, Prof., History of Ameri- S30-1, 334 of the French as-

;
can Currency, "the worse the signats, 389-44 of the U. S.

;
currency, the more mobile," treasury notes, 369-74.

198» ; effect upon retail prices Thrace,
its silver mines, 106.
of an excess of " fractional cur- Thibet, its yield of the preciotis
rency," 231 relation of gold
; metals, 101.
and silver in the coinage of the Thiers, A., difficulty of re-estab-
U. S., 225-27 depreciation of lishing the credit of paper men-
;
notes payable at a future date, ey, 331 the "assignats," 343?i, ;
278 the money of the early

; 347w.
colonists, 307 the colonial is- Thornton, Henry, Paper Credit,
;
sues of paper money, 310, 317- 353 money, an order for goods, ;
18w, 331, 323; suspension of spe- 26 the causes of the exporta-

;
cie payments never necessary, tion of money, 53 4 the pow- ;
350 the buUionist view of the

; er of manufacturing cheaply,
exportation of money, 356-8 more valuable than any stock
on the U. S. legal-tender notes, of bullion, 56 bills of ex- ;
373-375 convertibility of bank

; change are not money, 403 ; pa-
notes, lacking in the bank- per-money banking in Eng-
paper money of the U. S., land, 414.
484-5; swindling banks, 496 Tin, used as money, 87.
;
the crisis of 1839, 500; were Tobacco, Es money, in early Ma-

the bank issues prior to 1837 ryland and Virginia, 33.
in excess ? 502 3n. Token-money, see BUlov.
"Sweating" the coin, 194-5. Tomline, Col., the influence of
Sweden, iron used as money, 37m; billon, or token-money, on the
its yield of the precious metals, poorer classes, 219.
103-4 paper-money banking, Tooke, Thomas, State of the Cur-
;
413, 513. rency, causes of the exportation

Switzerland, relation of gold and of money, 54, 519 his earlier
;
silver in the coinage, 338-9. views of bank money, 435-6,

Swift, Dean, TTie Drapier's Let- 433-4, 451 ; the causes of spec-
ters, the small coin of Ireland, ulation, 471 ; bankers pushing
;: ;
INDEX. 549
out their notes, 489>i"; History Uniformity in quality, as an ele-
of Prices, economy in tlie use ment of money, 33-4. -
of money through savings United States, gold product of
banks, 71 who should hear
; the Atlantic coast, 144 of the ;
the cost of recoinage 1 315?i Pacific coast after 1848, 144-5 ;

effect of a short crop of wheat relation of the U. S. to the gold
upon the price of barley, 349?i supplies after 1843, 151-3 the ;
inconvertible paper money does mint, 173-3 former circulation ;
not necessarily depreciate, 279 «; of foreign coins, 179 payment ;
Russian paper money, 366-67 of agricultural wages in kind,

;
definition of money, 396 are 300 relation of gold and sil-

; ;
the larger bank notes money ? ver in the coinage, 335-7, 338,
403-5 are deposits ? 405?i the
; 366 paper money of the revolu-
;
;
word "represent," 410; con- tion, 336-35; paper money of the

vertible paper money must op- civil war, 369-75 its paper- ;
erate precisely like metallic money banking, chap. xxi. its ;
money, 415, 430 ; it will do so, bank notes of very limited con-
430, chap. xix. passim [his ear- vertibility, 479 characteristics ;
lier views opposed to this, 435- of its paper-money banking, .
6, 438 4, 451, 519] approves 480-3, 497-8; writers, 485-91

;
the regulation of banks by gov- history, 1811-37, 491-503 ef- ;
ernment, 438/1 export of bul- ; forts at reform, 503-6 experi- ;
lion need not decrease the quan- ence, 1844-61), 503-8, 518 19
tity of money, 569re paper- the natural export of the U. S.,
;
money banking in the U. S., 519-30 effects of bank money ;
493ft-494. on the agricultural class, 530-1;

Torrens, Col. bank notes are mon-
, losses by bad money, 533-3
ey, 397 advocates the " Cur-
; present monetary system, 507-9.
rency Principle," 435 the Eng- Ural Mountains, gold mines, 140.
;
lish country bank circulation,

Value, distinguished from price,
450.
329-30; money as a denominator
Trade, arises out of the division
of values, 4-9, 64-5, 380-9, 376-
of labor, gives rise to the use
7 steadiness of value import- ;
of money, 1.
ant in money, 36.
Transylvania, its yield of the
Van Buren, President, arraigns
precious metals, 108.
the second Bank of the U.S.,
Treasury notes, are they money ?
496n.
405-6 in the U. S., 494-5.
;
Vansittart, N., his resolutions,
Truck, its extension favored by
354, 364.
bad money, 198-304. Vegetable products do not rise so
Tucker, Prof Money and Banks,
. ,
high under increase of money
advantages derived from the use
as animal products, 155.
of money, 17-18 slavery in- ;
Verii, Count, Delia Pol. Econ.,
creasing the demand for money, money the universal merchan-
73» abrasion of coin, 177 cir-
;
dise, 34;i.
;
culation of foreign coins in the

Virginia, attempt to establish a
TJ. S., 179 ; irregularity of the colonial paper
mint, 173re ;
coin, 303 the money of the
;
money, 324r-5 ; revolutionary
Colonies, 306w; faults of Ameri-
issues, 338-9.
can paper-money banking, 485-6.
Turgot, M. , Des Bichesses, all com- Wakefield, E., bankers pushing
modities, in some sense, money, out their notes, 488!i.
14. Waloker, Dr. Karl, a tabular stand-
Turkey, its yield of silver, 10» ; ard only a question of time, 160.
relation of gold and silver in the Walker, Amasa, Science ofWealth,
coinage, 339-40 ; paper money, are deposits currency ? 405ra ;
389. his views on convertible paper

; ;;
550 INDEX.
money, or mixed currency, circulation is withdrawn from

486-91 the eilect of bad money
; productive uses, 33-3 incon- ;
on the agricultural classes of vertible paper money need not

the U. S., 519-21. depreciate, 378?i convertible ;
Wampum, as money, 35, 305. paper money should operate

War, its effect on the mining of precisely like metallic money,
the precious metals, 115-16 419 it will so operate, chap,
;
does war render necessary a xix. passim ; does the exporta-

suspension of specie payments ? tion of bullion diminish the
330-7; quantity of money ? 469-70
Ward, H. G., Mexico, effects of conversion of circulating into
Spanish American revolutions fixed capital, 473 ; vices of the
on mining industry, 139-40, 178. American system of paper-
Ward, Wm., Commercial Legisla- money banking, 480.
tion of 1846 ; did Ricardo re- Wirth, Max, paper money of Aus-
cant? 363ra. tria, 368-9.
Webster, Daniel, international Wiszniewski, Prince, believes
money, 383; the laboring classes that a well-founded bank would
the principal sufferers by bad have saved Poland, 303.
money, 384-5 effect of com- Wood, Wm., his pence, 168m,
;
peting issues, 480 ; small-note 173«. .
issues, 481. Wolowski,M., ontheword jftoZon,

Wells, David A., importance of lira the origin of bank money,
;
the money function, 15, 16 463m L'Or et I' Argent, com-

;
what amount of money is re- parative steadiness in value of

quired to carry on exchanges ? the precious metals, 40?i effect ;
76 ; silver too cumbrous for of uniting gold and silver in

general use as money, 409?i. the coinage at a fixed ratio, 253-
Wheat, as money, 31. 65 ; Les Finances de la Sussie,
White, A. D., Paper Money Infla- Poland the sole European na-
tion in ffrancB, the narrative of tion without paper money, 303
the "assignats," 337-44 dan- ; La Question des Banques, no
ger of over -issue of inconverti- instrument costs so little, rela-
ble paper money, 380-1. tively, as money,
33k the ;
White, Horace, evils of American French suspension of 1848,

paper-money banking, .497?i. 365?!. bank notes are money,
;
" Wild Cat " banking in the U. 898 the banking reserve,
;
S., 503-3. 413 a advocates restriction of

;
William III., the recoinage of his bank issues, 439 ;

papei'-money
reign, 309-13. banking in the U. S., 496-7?i
Wilson, Gloucester, Defense of issuing paper money on securi-
Abstract Currencies, "ideal" ties not approved, 504)! ; saving
money, 396-7.- by issue of bank notes Eng- in
Wilson, James, the monetary cir- land, 533-4 no money cheap
;
^ culation of India, 148 ; Capital, but good money, 535 «.

Currency, and Banking, the use
of money ample compensation Yule, Col. notes to Marco Polo, ,
for its cost, 33 ; coin actually in 302-4, 312».

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What is the author trying to convey about the term 'Currency'?

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CORNELL

WILLIAM P. CHAPMAN, Jr.

3 1924 032 510 681

The original of tliis book is in

tine Cornell University Library.

There are no known copyright restrictions in

the United States on the use of the text.

THE ^A'AGES QUESTION. A

POLITICAL ECONOMY. Advanced

POLITICAL ECONOMY. Briefer

POLITICAL ECONOMY. Elemen-

answered well to the cloudiness of the popular mind on

Somethmg more, however, tlian a correct terminology

is needed to resolve the deep, dark questions -wMcli con-

discussions. Sir Walter Scott, in his "Letters on the

for the whole race of writers on Money. "In your ill-

shown no excess of controversial zeal, no lack of court-

A great degree of originality is not claimed for the

new analysis of the function of Money in recording and

registering for mutual comparison the values of all com-

Bicardo's propositions respecting the circulation of de-

which are usually blended in

ment are here separately taken up and subjected to an

years by my honored father, and I cannot claim to be

The philosophy of money owes little to the cultiva-

' See his communication to the French Academy, in M. Wolowski'

preparing the way for the arms of Edward III and

which kingdoms, principalities and republics are wont

which concerns money, is considered by few, and those

publicists to investigate the cause of the evil and to re-

least bring about some good result by enlightening tbe

present advantage nor even the stress of warlike exi-

The Primitive Pdnotion op Monet :

The Medium of Exchange; the Denominator of Values; the

The Elements of Monet :

General Acceptability, Portability, Divisibility, Non-liability to

Deterioration, Comparative Stability of Value. The Metals as

The Territorial Distribution of Monet :

The Mercantile Theory; how much Money does a Community

Credit System and of Banks in reducing the Demand for

Consequences of a Reduction of the Volume of Money ; Effects

The PRODtrcTioN or the Precious Metals :

The Elements of the Money^supply : Consumption of the Metals

ans; Loss of Mining Populations; the Silver Famine of the

The Discovery of America; the Mines of Mexico and Peru; the

The Califomian and AustraHan Episode; rapid Increase of the

of the Effects upon Different Classes and Countries; Corn-

Coinage, ----- CHAPTER

Billon, or Token-money Effect on the Poorer Classes, and on

Eetail Prices. " Single or Double Standard ? " ; the Experi-

ence of England and the United States; Variations in the

of the French Coinage Law; the Gold Panic, 1850-9; the

card Silver, ...---

" The Battle of the Standards "

The Interchangeable Use of Gold and Silver restrains the tend-