CORNELL 
 
 UNIVERSITY 
 LIBRARY 
 
 BEQUEST 
 
 WILLIAM P. CHAPMAN, Jr. 
 
 Class of 1895 
 
 1947 
 
Cornell University Library 
 HG221 .W17 
 
 Monev 
 
 jlliinilllllllllliiiiiiiiiiiiiiiiiiiniiii 
 
 3 1924 032 510 681 
 olin 
 
 Date Due 
 
 MAR17S8 
 
Cornell University 
 Library 
 
 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. 
 
 http://www.archive.org/details/cu31924032510681 
 
BY THE SAME AUTHOR. 
 
 THE ^A'■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 its way 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- 
 stitute what 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." 
 
 It is strange that an institution wholly of man's de- 
 vising should so baffle man's research,^ but it seems, as 
 Prof. Jevons has remarked, that a kind of intellectual 
 vertigo attacks all writers on 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 he will be judged to have 
 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 
 repetition, topics which are usually blended in 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 not be 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 in modern times. 
 "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 
 this broad 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 Italy was 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 and the laws of money, and 
 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 
 Standard for Deferred Payments. Importance of the Money- 
 function, ------ 1 
 
 CHAPTER II. 
 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 
 of the Volume of Money to prevailing Prices ; Effect of the 
 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 
 
 CHAPTER IX. 
 Coinage, ----- . 1(54 
 
 CHAPTER X. 
 
 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 
 Silver Panic, 1867-77 ; Germany and the United States dis- 
 card Silver, ...--- 217 
 
 CHAPTER XIII. 
 " 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 
 Difficulties withstanding Bi-metalism, - - - 243 
 
 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- 
 gin of ths Legal-tender Notes of the United States, - 33C 
 
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 
 not, at the time, want boots, and many more who wanted 
 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 
 of goods, without impairing or destroying their utility. 
 " A store of com, a bag of gold dust, a carcass of meat 
 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 the meat 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, at any 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 at any shop he pleases, and which entitle him to 
 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, 
 cattle and 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 fois que I'usage du numeraire est devenu general, chaqua 
 individu ne doit plus s'inquieter, pour satisfaire tous ses besoins, qua 
 de fournir une chose ou un service rgpondant & un besoin queloonque, 
 certain qu'il est d'obtenir, en gchange de cette cliose ou de ce service, 
 une quantite dgterminde de numeraire, avec laquelle il pourra se 
 procurer les autres choses et les a'ltres services dont il aura besom."— 
 [A. E. Oherbuliez, Science iScon., i, 2il]. 
 
 = " Ce sout deux ^changes au lieu d'un. Mais, grace a ce dedou- 
 blement, on peut effectuer des eotanges innombrables sans attendro 
 le hasard d'une coincidence, presque impossible, de besoins inverses 
 et rJciproques; grace a ce dodoublement, on pout cSder et acqugrir 
 toute sorte de bien par quantit^s tres-exaotes et sans qu'il faille jamais 
 gtablir I'dquivalenoe du maroM par I'introduction d'objets qui Ini sont 
 etrano-ers."— [H. Cernusclii, Mgcanique de I'Soliange, p. 24]. 
 
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 a more 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 avoided if any one 
 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 writers this function of money is treated as 
 even more important than that of a medium of exchange. 
 Thus, Prof. Bowen writes :^ "We can do without money 
 as a medium of exchange, and can even barter com- 
 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 
 or capacity, so tlmt which measures value must liave value 
 in itsdf, or intrinsic value." 
 
 • " L' Evaluation directe de chaque bien par chaque Men est una 
 ci;gr^tion presque impossible. ... La monnaie simplifie tout : au lieu 
 d'evaluer chaque bien par chaque bien, on evalue tous les biens pal 
 un seuL La monnaie est le bien dvaluant; tous les autres biens sont 
 des biens evaluds."— [H. Cernuschi, M&anique de I'^ohange, p. 19.] 
 
 » American Political Economy, p. 293. 
 
6 MONEY. 
 
 And Prof. Eogers says ■} "A little reflectlou will sho^ 
 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 it would still be necessary as a symbol or 
 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 M or £5, and 
 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 possesses length. So to measure value, an 
 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. It is in some cases usual, indeed, 
 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 is no reason why the prejudices, if they are 
 nothing more, of so large and respectable a body of 
 writers should not be regarded in this instance, since the 
 phrase in dispute is biit little descriptive, if not actually 
 misleading. Bearing in mind, then, Prof. Jevons's state- 
 ment of this function, but changing its title to suit the 
 case more precisely, we say that money performs the part 
 in industrial society of a 
 
 STANDAED FOE DEFEEBED PAYMENTS. 
 
 rV. But Prof. Jevons attributes to money still another 
 function in industrial society : 
 
 » The German esonomist Rau thus writes to M. Wolowsld : " La 
 confusion d'idees qui a 6te oocasionnge en France par le terme etalon 
 n'existe pas chez nous, parce que nous ne d^signons pas par le mtoe 
 mot I'unitS de mesure pour les choses matSrielles, soit le volume et le 
 poids des corps, et celle des prix."-[L'or et L'argent, p. 42.] 
 
 M. Wolowski proposes Maluateur, instead of Malon. 
 
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]. 
 
■ THE MONEY-FUNCTION. 13 
 
 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 find them such as to constitute a most onerous and 
 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 waste a 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 
 variations, by consulting which the industrious classes 
 will be less likely to misdirect their labor, and create re- 
 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- 
 liser de 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.' 
 — r^ote 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 active, the other feeble and lame, to be 
 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. 
 
THE MONEY-FUNCTION. 21 
 
 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," is not always one of necessity, but some- 
 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 analysis which we have obtained of the facts 
 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 closely and to apply them firmly, un- 
 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 
 
THE MONEY-FUNCTION. 23 
 
 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 ia their preferences, may be mistaken, or 
 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 
 
THE ELEMENTS OF MONEY. 27 
 
 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 position you 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., i, 198], adding that "where there 
 is no debt, there can be no currency" [p. 196], and at 
 last formulates his definition of money as "Any eco- 
 nomic quantity which a^iebtor 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 plain meaning 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.] 
 
THE ELEMENTS OF MONEY. 29 
 
 Even Prof. Price, whose conception of the primitive 
 function of money 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 of exchange 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 his theory of the exchanges of modern 
 industrial society is built up, that money 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 coinage for higher convenience, we can 
 fully assent to these words 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 
 fetches for its owner the things he is in want of. . . , 
 
 "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- 
 
THE ELEMENTS OF MONEY. 31 
 
 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.] 
 
THE ELEMENTS OF MONEY. 33 
 
 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." — [Bronson, Connecticut Currency, p. 7.] 
 3* 
 
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 article is subject to waste or deterioration, is it un- 
 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 all sorts of good things about our greenbacks, 
 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 
 articles which 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 
 that a given quantity of that commodity shaU then rep- 
 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. 
 It was 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 
 for them 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 
 fusible, highly ductile, silver would have 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 
 la composition d'un meoanisme quelconque, si vous brisez celuici, per- 
 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 supplied ; and that, were there less gold, 
 eacli i)ortion would 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 
 the means 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 the amount of current production have only a sUght 
 effect upon 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 
 of Obtaining Money," declares that " the value of the precious metals. 
 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, 
 1843, Prof. Senior wrote : " The primary cause 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 fostered by 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 heavily, and to the other countries of Europe, 
 in restraints laid upon 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 in the same path, and this famous 
 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 
 brief outbreak of light, to be followed after by darkness 
 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 
 it is something more or other than a tool for a specific 
 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 for its 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 of the debt will be paid in these metals [gold 
 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 ; 
 especially when 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 
 
 lias been 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 in England was not drawn out of any mines in this 
 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." — [Political Economy, 
 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 tvi^enty 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 metals following any important disturbing 
 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 are now in a position to undertake the inquiry 
 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, 
 shall buy 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.] 
 
RELATION OF MONEY TO PRICES. 59 
 
 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 for money, again, consists of all the 
 goods offered for sale. Every seller of goods is a buyer 
 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 of the purchaser. The demand for other 
 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.] 
 
RELATION OF MONEY TO PRICES. 01 
 
 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 out, nor even then, unless drawn out to be expend- j 
 ed in commodities. / 
 
 "It frequently happens that money, to a considerable 
 amovint, is brought into the country, is there actively em- 
 ployed as capital, and again 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 is the 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 be consumed 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 it is of any importance to express by it, 
 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.] 
 
RELATION OF MONEY TO PRICES. 65 
 
 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 direction. We saw that one great reason for 
 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, it was assumed that the farmer would 
 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 
 to the tailor, etc., and the accounts are squared. 
 
 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 "^I'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 in the debtor's and now in the creditor'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- 
 tem, the occasion for the use of money is largely reduced 
 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 this economy in the use of money extends even 
 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 this able writer must not be taken too 
 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. 
 
ECONOMY OF MONEY. 73 
 
 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 
 of its trade, the number and frequency of payments to be 
 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 perform its exchanges, at prices corre- 
 sponding to those which rule in the communities with 
 which it has commercial relations. 
 
 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.] 
 
ECONOMY OF MONEY. 75 
 
 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 
 evil is to be found in the extension and diversification of 
 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 of the game, I find my- 
 self a gainer in proportion to the number of my counters. 
 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 will be found of immediate application 
 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 
 legislation, the necessary result must have been that it 
 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 in ancient, and has all but crushed 
 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 
 ( ualifornian gold was discovered by Anglo-Saxon enter- 
 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, all through the controversy on the resumption 
 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 this, it will be observed, three distinct advantages 
 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 mankind for the labor expended in raising the ad- 
 ditional gold and 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, it would come to be anticipated, would be taken 
 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 
 subjects, fails to recognize the limitations of the human 
 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- 
 ation, as, according to this writer, it was the reduction 
 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 its purchasing power diminished, tlie 
 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 all kinds — 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 with money 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 production and 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 of animated 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 this cause, promotes indus- 
 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 
 ii different 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- 
 diation, which has always the sting of injustice about 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 off on reduced terms, without any violation of 
 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 to be 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 
 positively desirable, on economical grounds, that debts 
 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 I borrow 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 : the money was but the means to that 
 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 is to be permanently reduced by 
 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 interest would then be low; and again, when 
 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 
 nothing is known as to the quantity of either." 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 its abundance of gold, chiefly 
 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,' gold was 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 silver have been taken out in Tipperary; 
 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 Wicklow. Both silver and gold 
 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 of Europe most productive of the pre- 
 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 particles were 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 is no part of the world in which the operations 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 first of Europe 
 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 int^i which commodities are di- 
 vided, those absolutely limited in supply ; those which 
 may be had in unhmited quantity, at a given cost of pro- 
 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 of every other commodity as is produced at a cost 
 equal to its own. 
 
 ■ •■•-•. 
 
 " If gold is above its natural or cost value, money will 
 be of high value, and the prices of all things, labor in- 
 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- 
 dily, if at all ; and the wealth or poverty of a kingdom, 
 measured by its possession of gold and silver, was de- 
 termined, primarily, by the fact of mines being found 
 within its limits ; secondarily, by the military prowess 
 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. 
 
PRODUCTION OF THE PRECIOUS METALS. 109 
 
 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 little to do with the 
 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 
 is made 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. If so, how rapid must have been tht 
 consumption of life and laboring force, when mines 
 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 in production, where the passionate greed ol 
 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 
 close of the sixteenth and the beginning of the seventeenth century. 
 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 galleries where the mineral s 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 of the London " Times " from Cal- 
 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. 
 
PRODUCTION OF THE PRECIOUS METALS. 119 
 
 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 conseqi^ence 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 he was 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 traffic in this particular article, which came chiefly from the 
 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.] 
 
PRODUCTION OF THE PRECIOUS METALS. 121 
 
 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 iron. Now, the English mint experiments, 
 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; if alloyed with tin and copper, on 846 
 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 a minimum, 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 
 of gold and silver coins became almost indefinr ply less 
 11 
 
122 MONET. 
 
 {IS they were witlidrawii from the uses of ordinary com- 
 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. 
 
 It will naturally be asked why, under the principle of 
 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? 
 
 It has already been intimated that the result of re- 
 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 of Europe, 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 
 
PRODUCTION OF THE PRECIOUS METALS. 123 
 
 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 
 dififused by 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 
 
PRODUCTION OF THE PRECIOUS METALS. 125 
 
 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 in the pits, where they soon became buried in 
 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 extracted, would be at an expense that could 
 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 MO^EY. 
 
 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. 
 
PRODUCTION OF THE PRECIOUS METALS. 127 
 
 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 MET ALB. 1 29 
 
 the limits of the Boman Empire; and that, from the 
 fifth century, 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 
 
 It v?as to the decrease thus produced in the supply of 
 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 in numbers 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 security for any kind of property, and less 
 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 until the invasion of Mexico by Cortes, in 
 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 of Mexico aroused the ambition 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 it what 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 
 
 Produce of the mines, 100 
 
 y^ars, - - - 337,500,000 
 Transferred to India and 
 
 China, - - - 33,250,000 
 
 £87,000,000 
 
 £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 
 
PRODUCTION OF TEE PRECIOUS METALS. 133 
 
 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\^een 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 tenl^o^a^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 his own 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 extr^iiie, 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 
 levels." 1 
 
 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: the want 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 
 
PRODUCTION OF THE PRECIOUS METALS. 143 
 
 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 ricli and 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. 
 
PRODUCTION OF TEE PRECIOUS METALS. 145 
 
 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 Political Economy," a work which, with 
 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 to deal? In a word, the production of the precious 
 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 tlie offices of money by the superabundant sup- 
 plies of gold pouring 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 earliest ages had never ceased to exchange its 
 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 is still confined to some of the Presidency towns ; 
 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 daily diminishing and constantly tends to di- 
 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. 
 
 " 111 the present gold moTement, however, the tables 
 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 effects are to be wrought as between na- 
 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 resulting may 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 i^ould require time. 
 
PRODUCTION OF THE PREOIOU.l METALS. 155 
 
 curately with two other distinctions— with the distinc- 
 tion, viz., between raw and manufactared products: 
 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 is to 
 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 rise, wages are not necessarily raised 
 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 tlie hands 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 all values." "We are forced to admit," 
 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, 
 potatoes, coal, timber, iron, tea, coffee, beer, and other 
 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' 
 
PRODUCTION OF THE PRECIOUS METALS. 161 
 
 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 system of 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 first thought on reading these words of Prof. 
 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 of more 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 fall upon them and remain without relief. 
 
 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 to be 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 first achievement in this direction was the establish- 
 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 w^e 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, in his "Oriental Commerce," as composed 
 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 silver money in the 
 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 of platinum is cut into two parts, il 
 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 useful." Notwithstanding this want of adaptation to 
 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 silver. Mr. Toumlin Smith, a high authority, cites 
 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.'* " I do 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 to, states that the "gall," a small piece of sibei 
 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 its sides by the impressions of the mint, its 
 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 v^ill 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 it would seem to be, of 
 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 to be 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- 
 tion of the famous coin first so called because issued 
 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- 
 ity which will allow it to be kept clean and agreeable 
 to sight and 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 the largest amount of standard gold or silver 
 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. 
 
 If, it is said, the amount of coined money in any coun- 
 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 in excess that the 99 oz. into which the coin could 
 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 
 much disco-irage the working it up." This suggestion is, of course, 
 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 ; 
 
 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.] 
 
 silver coins, 
 
 1.50 
 
 «, <i 
 
 2.22 
 
 II II 
 
 2. 
 
 11 II 
 
 2.95 
 
SEIQNICRAOE. 185 
 
 considerable country, the actual expense, to the state, of 
 coining an additional amount may be small. 
 
 The country, then, it is argued, is compensated for the 
 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 exercise of this same right of the sovereign. The 
 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 senses, for himself, and 
 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 
 of March 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 
 is the 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 ; there is the same 
 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 titre des monnaies entrainaient toujours, du moment qu'ik 
 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 suffer more 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 
 
 will at once begin to operate. This principle, called by 
 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 to pay their debts, or effect their purchases, with the 
 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. It is the dealer, and especially the 
 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 till we finally settle it, as 
 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.] 
 
 " Political Economy. In 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 
 classes, an apprehension of larger issues or of further 
 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 less, whether barter, or exchange through the 
 medium of money, shall be resorted to. " In agriculture 
 the world over, full payment in money is highly excep- 
 tional, where it is not wholly unknown. In England, 
 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. 
 
DISCREDIT OF THE COIN. 201 
 
 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. H^owever 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 it meets but one of his 
 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- 
 ter of payment, so as to bring income and outgo together^ 
 and thus secure a mutual cancellation of obligations. 
 
DISCREDIT OF THE COIN. 203 
 
 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. If these methods have to ba carried furthei 
 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 
 will act on the principle announced by Swift's Dyapier : 
 " 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 or apprehended 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- 
 tion of obligations, a body of debased coin, not in excess 
 of the amount 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 necessity was 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- 
 tailed of their flesh to all manner of persons in effect, so 
 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 its normal proportions. On the 27th of 
 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 
 half-groats and pence in proportion. For the fourth and 
 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 ; the Mint at the Tower was set to 
 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 was felt daily and hourly, in almost every 
 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 it was well if no booth 
 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 be paid. Even men of business were often be- 
 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 debtors who will be obliged to meet 
 their obligations in a money which has suddenly become 
 more valuable. We shall have to meet this question 
 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 to meet the condition of the money actually in 
 circulation;^ Locke as the champion of the ancient 
 standard. Of the writings of this great philosopher on 
 this occasion Macaulay remarks: "It may well be 
 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 
 
 ' " The loss from natural abrasion," says Mr. Tooke, " should be 
 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, 
 1872, gold coins to the nominal value of £1,975,716 were cut by the 
 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 silver," wrote Prof. Jevons in 1874, " can 
 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 i^art 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 to the smallest. Economically speaking, what 
 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 first concerns the complaint that the debasement 
 of the coin in which the wages of common labor are 
 paid, is an injury to the working classes. For example, 
 a laborer who is paid on Saturday twenty-two coined 
 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. 
 
 " It is quite true," says Mr. Hubbard, " that silver, 
 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 its being by law a twentieth part of a poiind, 
 — 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 or token-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" 
 
SINGLE OR DOUBLE STANDARD f 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 
 field of political economy 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 
 the work 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 to the 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 all standard coins are but so many stamped in- 
 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 of the two metals in the coinage of 
 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,- 
 000 remained in the country in 1834, ' and of that small 
 amount only a very diminutive portion was in active 
 circulation.' " 
 
 "By an act of June 28, 1834, the gold eagle wag 
 made to weigh 258 gr., standard, 899.225, that is, 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 exist siace 1801, had only been developed since 
 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 coins. It seems to be well ascertained that the 
 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 suscepti^ole." — [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 silver dollar remained as be- 
 fore, but the gold dollar was now worth less than before. 
 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 the experience of England and the United States, as 
 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 the Eealm, 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 
 it has 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. But when we come to contem- 
 plate it as composed of two variable elements, it is evi- 
 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. 
 
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 of America took place in 1492, 
 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 : 1 
 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. 
 
 piircliasijQg power was unequally distributed between 
 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'i^ii ; 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 13-J-. These 
 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 silver at tlie French Mint was fixed as 
 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 : 
 
 
 1846. 
 
 1852. 
 
 
 GOLD. SILVEH. 
 
 GOLD. 
 
 SILVER. 
 
 North and South America, 
 
 £1,300,00C £5,250,000 
 
 £13,i300,000 
 
 £7,250,000 
 
 Bussia, 
 
 3,500,00C 1,250,000 
 
 3,500,000 
 
 — 
 
 Em ope, 
 
 — — 
 
 — 
 
 1,250,000 
 
 Asia, Borreo and Africa, 
 
 1,200,000 — 
 
 1,200,000 
 
 — 
 
 Australia, 
 
 - - 
 
 13.000.000 
 
 — 
 
 
 £6,000,000 £6,500,000 
 
 £30,000,000 
 
 £8,000,000 
 
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 altogether. In July, 1850, HoUand de- 
 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 
 
 years, the actual effect upon tlie relation of the two 
 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- 
 tions, teas, coffees, silk, spices, and drugs, to which a 
 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. 
 
 wliicli had 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 rapidity which 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 to have 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 is now rather lower than when 
 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 silver, not only in various currencies, in differ- 
 ent countries, but in all those uses in which the two 
 metals may be indifferently employed." — [145-6°.] The 
 last sentence 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 
 silver which 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, 
 the rising states of Australasia, and some of the better 
 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 is likely to be decided as such, and that, 
 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 3s. M. It would be absurd, however, 
 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 it costs \^\ times as much 
 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 of money 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 loss, and by the consumption of the 
 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 shillings), but steadily rising from five 
 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 -^ould 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- 
 
THE VALUE OF MONET. 249 
 
 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 of the other; but between gold and silver 
 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 it proceeds, upon the relative 
 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. It is probably not without some 
 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 silver ; but for which the historian of English agri- 
 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, 
 at 12.5 for 1, in value, for equal weights. 
 
 "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 it is said that the weight and shape 
 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 that it 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. 
 
THE VALUE OF MONET. 253 
 
 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 the mass 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.] 
 
THE VALUE OF MONEY. 255 
 
 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. But if we open a connection, the water in both 
 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- 
 tallic money, 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.] 
 
THE VALUE OF MONEY. 257 
 
 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 calls electron, and both thus remaining 
 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, and will seek for that which is plentiful, to 
 have it coined^ Moreover the scarce metal, if it is not 
 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.] 
 
THE VALUE OF MONEY. 259 
 
 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 to establish any permanent ratio of exchange, 
 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 of gold shall exchange for one 
 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 
 million pounds 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- 
 tallic electron were made out of this stock there would 
 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 
 
THE VALUE OF MONEY. 261 
 
 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 it, ounce for ounce. 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 size and weight as their present silver 
 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- 
 fied that Mr. Hertzka and his American translator are 
 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. 
 
THE VALUE OF MONEY. 263 
 
 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 all civilized nations; and that immediately 
 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 
 fixed legal rating so widely adopted be sufficient to re- 
 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 it be freely granted that value is 'determined in 
 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. 
 
 value, throTigli its power to make either or both a legal 
 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 
 
THE VALUE OF MONEY. 265 
 
 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 actually held 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.] 
 
THE VALUE OF MONEY. 267 
 
 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 the two was kept at its 
 old point. But now this curious mechanism is broken 
 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 ratios, the disestablishment of silver and 
 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 
 of circulating medium, and is liable to all the objections 
 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."' It is, however, fairly to be questioned whether 
 anything is hereby gained in scientific precision, or for 
 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, 
 in this connection, is meant that the paper, whatever it 
 promises and however it is guaranteed, is not, in fact, 
 whatever be the fiction of law, subject to conversion, on 
 the demand 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 in the transactions of the com- 
 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 limit^e 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 as, what they were intended to be, money 
 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 
 of the money be not excited^ to the extent of driving 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 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 281 
 
 occasion when we had to meet this notion, we put it 
 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- 
 tity of 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 is to serve as a measure of value. 
 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, is based upon the notion, of the gen- 
 esis of which it would be difficult to. give an account, 
 , that each person, having in hand something from which 
 he is willing to part, and having in view many things, 
 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- 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 285 
 
 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 relative values of articles brought to market 
 are determined. The rates at which articles shall be re- 
 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 of articles to eat, and drink, and wear, than his 
 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- 
 cle and 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 this be 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 at Laurium, more than two thousand years 
 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 
 really measured 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. 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 289 
 
 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 how it came about that currency was first given to 
 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 is the 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 give more 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 coarsely and rudely ; then more and more 
 nicely and exactly. The same number of pieces might 
 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 far," however, asserts Lord Lauderdale, "is it 
 fi-om being 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- 
 sibility of conducting exchanges by means of an ideal 
 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 : 
 
 First, the ounce of gold may, from influences 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 
 in whicli the creditor shall be paid may actually embody 
 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- 
 litical Economy," advocated the adoption of a money of 
 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 trade and 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 
 wJiatever could be handled was sure to be falsified. An ide- 
 al coin was 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 likely to be uniform in value than gold."^ — [P. 48.]. 
 " 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 told by the reahsts that an inch is a sensible 
 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. We may change brass and ivory 
 for platina : still she contracts and dilates the best ma- 
 terial we can select, at her caprice or pleasure, and sends 
 us back for any fixed criterion to what we are thus idly 
 deserting, our own pure abstract idea of inches. . . . 
 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- 
 theless most 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 that commodity 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 the only kind of money which 
 cannot 'make wings unto itself and fly away.' It re- 
 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 profitable to take up the his- 
 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- 
 torically most 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 
 s^ate 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 silver and less rum and other mer- 
 chandise, had the first been in greater request at home. 
 . . . 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 : " No sound 
 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 bills of Massachusetts were issued in pay- 
 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 of five per cent. Neither this paper nor that of 
 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 " " 
 
 1721 " " " 15 
 
 1729 " " " 18 
 
 1739 " " " 26 
 
 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 r^otes 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 
 credit was almost at an end. No man could safely enter 
 into a contract which 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 issues," he continues, "called new-ten- 
 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 a new 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, 
 I the issues of that colony being generally confined to oc- 
 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 of the word Bank in the colonial days was 
 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, interest, on mortgage of real estate. In 1721 
 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. A great 
 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 fixed by the courts for the settlement of debts. 
 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, " " " - - . . 150 
 
 1716, " ""--.. 175 
 
 1717, « « « .... 225 
 
 ' Sumner, pp. 35-6. 
 
1722, Exchange 
 
 on London 
 
 1728, 
 
 
 1730, 
 
 
 1737, 
 
 
 1741, 
 
 
 1749, 
 
 
 MASSA CEUSETTS REDEEMS. 32'J 
 
 270 
 " " .... 340 
 
 ""---- 880 
 " " " .... 500 
 
 ""---- 550 
 " " - - - 1100 
 
 The rapid rise between 1741 and 1749 had been due 
 to the large issues involved in the successful expedition 
 against Louisburg. Now, however, Massachusetts led 
 the way towards a restoration of commercial values, 
 though not without that repudiation in which, as history 
 teaches, excessive issues almost invariably result. Par- 
 liament voted to ransom Louisburg from the colonies. 
 The sum coming to Massachusetts was £138,649 ster- 
 ling, which, at 11 : 1, would nearly cancel the paper. 
 Under the enlightened and energetic lead of Hutchinson, 
 the colony was brought to ask that its share of the re- 
 payment be shipped in silver and copper coins, to be 
 used, as far as they would go, in canceling the bills of 
 credit. 
 
 "The silver," says Prof. Sumner, "was sent over and 
 exchanged.' Prices were adjusted to this new measure, 
 and silver remained in circulation when it no longer 
 had a meaner rival. The 'shock' which was appre- 
 hended did not occur. The only shock was to Rhode 
 Island and New Hampshire, who fo^nd their trade 
 transferred to the 'silver colony,' and their paper sud- 
 denly and heavily depreciated. The "West India trade 
 of Massachusetts had been largely done through New- 
 port. It was now transferred to Salem and Boston." 
 
 ' The amount redeemed was £1,792,236 5s. Id. "For years,'' 
 says Mr. Felt, " petitions continued to be laid before the legislature, 
 that parcels of them discovered in old desks, bottoms of leather 
 chairs, and other private places of deposit, might be allowed and ex- 
 changed." — [Massachusetts Currency, p. 131.] 
 
322 MONEY. 
 
 But though Massachusetts thus, by a resolute effort 
 rid herself of the incubus upon 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, viz., partial payments of fifteen 
 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 old French 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 issues of North Carolina were so much out 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 first emission of paper took place in 
 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 race had sprung up who had nc 
 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 
 first and last emissions of paper, was £605,000, of which 
 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- 
 tionary period of our history, we have accounts from a 
 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 States," says Dr. Kamsay, "for a con- 
 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 
 
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 c« 
 
 Q) 
 
 :^ s 
 
 
 O El 
 
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 credit would be allowed to sink in the hands of the 
 holders, and in the September f oUpwing 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 
 
 MONEY. 
 
 
 Jan. 14, - 
 
 8:1 
 
 June 4 and 17, 
 
 20:1 
 
 Feb. 3 and 12, 
 
 10:1 
 
 Sept. 17, 
 
 24:1 
 
 April 2, - 
 
 17:1 
 
 Oct, 14, - 
 
 - 30:1 
 
 May 5, - - 
 
 24:1 
 
 Nov. 17 and 29, 
 
 38.5 : 1 
 
 On the 18th of March, 1780, Congress swallowed all 
 its brave words about public faith and the honor of re- 
 publics, and authorized silver to be received for paper 
 at the rate of 1 : 40. All bills brought in were to be 
 destroyed. Certificates not to exceed in nominal value 
 one-twentieth of the bills thus destroyed were to be re- 
 issued, redeemable in specie after six years, bearing in- 
 terest at five per cent. Funds were to be established 
 by the individual States for their redemption, the faith 
 of the United States being pledged as an additional se- 
 curity. Six-tenths of these bills were to be delivered 
 to the States, in due proportions ; four-tenths to be re- 
 served for the use of Congress. 
 
 Such was the end of the "Continental Currency." 
 The new certificates never acquired to any considerable 
 extent the character of money, and soon sank to one- 
 eighth their nominal value, so that the account of a 
 holder of 1320 in Continental paper money be thus 
 stated : $320 X 4V = $8 in certificates. $8 at .125 = $1 
 in silver. 
 
 So poorly was the security offered by Congress es- 
 teemed by the people that the greater part of the orig- 
 inal issue was not brought in for redemption in the new 
 certificates.^ "It continued," says Mr. Jefiferson, "to 
 
 ' " 88 millions, received into the State Treasuries (at the close of 
 the war) in payment of taxes at the rate of 40 for 1, had been re- 
 placed by bills of the "new-tenor," to the amount of $4,400,000, 
 bearing interest at 6 per cent. Massachusetts, New York and Ehode 
 Island had thus taken up and redeemed their entire quota of the 
 old paper. Connecticut, Delaware^ the Carolinas and Georgia had 
 
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'id^e 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 artful apology for the confessed violation of eco- 
 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 it was the political vice of the situation, 
 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 issue was 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. In that fact is imbedded the entire question, 
 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 spirit of the Assembly had risen with the first 
 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 of Gresham's Law,' specie now 
 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 it flow out of the kingdom. 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 60. The result was that capitalists 
 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 it bore heavily against the interests of 
 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 before, limiting the amount in cir- 
 culation to twelve hundred millions, been violated ; but 
 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 cr^es 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. 
 
May 
 June 
 July 
 Aug 
 Sept 
 
 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 
 
 299 Nov. " " 2,588 
 
 439 Dec. " " 3,575 
 
 808 January 1, 1796, 4,658 
 807 Feb. " " 5,337 
 
 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, the mandates 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 [ii, 222-3] states that a third kind of paper called Re- 
 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 last quoted from Mr. McLeod, con- 
 nects the experience of France, in the matter of Incon- 
 vertible Paper 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, p. 202] ; and Prof. New- 
 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 that all the wars of Napoleon were conducted, 
 on his side, without the use of paper money. Perhaps 
 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 in the most memorable economico-statistical 
 investigation ever undertaken, Mr. Thomas Tooke show- 
 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 rise of the paper price of bullion above the 
 mint price, and a continuous state of the foreign ex- 
 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- 
 triiies on the subject it treats of, and stating them in a more imper- 
 fect form 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 
 coin was 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 
 I lent, instead of the whole."— [Fox Bourne's Life of Locke, ii, 325.] 
 
 ' 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, after the partial resumption of 1817 ? 
 
 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 bullion was 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, it would be as impossible for 
 one nation to be drained of specie, as for New York har- 
 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 it came about, the year 1818 brought a se- 
 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 of May, 1821, to the first of May, 1823, the mint 
 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, 1822. By the same Act the laws which re- 
 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 to meet the successive require- 
 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," pp. 39, 40, 43; WiUiam Ward "Commercial' 
 Legislation of 1846" (quoted by Duncan on Currency, p 116) 
 Thomas Attwooi, " The Scotch Banker," pp. 14, 22, 24. 
 
THE ENOLISH RESTRICTION. 363 
 
 Sir James 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 
 landlords, and the insurrections of a populace without 
 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 of the bill, and what was the ground of 
 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 
 still remain 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 
 sort of assignats, to the amount of 40,000,000 roubles, 
 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 the Eussian 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. If this be true, we may soon hear 
 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 down of government stocks to seventy-five or sixty 
 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 securities." ^ Such absolute silliness takes 
 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 loss of wealth, not to be 
 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 to or taken from Mr. Owen Lovejoy's financial 
 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 legal-tender bill became law February 25, 1862, 
 and it was here seen, as before in France, that the real 
 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 
 total amount 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. 
 
 
 1862 
 
 1863 
 
 1864 
 
 1865 
 
 1866 
 
 
 L 
 
 H 
 
 L 
 
 H 
 
 L 
 
 H 
 
 L 
 
 H 
 
 L 
 
 H 
 
 January, 
 
 
 
 5 
 
 34 
 
 60| 
 
 514 
 
 60 
 
 97^ 
 
 134^ 
 
 36f 
 
 44| 
 
 February, 
 
 n 
 
 4f 
 
 53 
 
 7H 
 
 57i 
 
 61 
 
 96| 
 
 116| 
 
 35| 
 
 41^ 
 
 March, 
 
 H 
 
 ^ 
 
 39 
 
 71* 
 
 59 
 
 69i 
 
 48i 
 
 101 
 
 25 
 
 36^ 
 
 April, 
 
 14 
 
 2i 
 
 46 
 
 59 
 
 661 
 
 87 
 
 44 
 
 60 
 
 25 
 
 29^ 
 
 May, 
 
 2i 
 
 44 
 
 43J 
 
 55 
 
 68 
 
 90 
 
 28f 
 
 451 
 
 25| 
 
 414 
 
 June, 
 
 H 
 
 94 
 
 40^ 
 
 48| 
 
 89 
 
 151 
 
 35f 
 
 47| 
 
 37| 
 
 67i 
 
 July, 
 
 9 
 
 20i 
 
 23i 
 
 45 
 
 122 
 
 185 
 
 38 
 
 46i 
 
 48J 
 
 55| 
 
 August, 
 
 124 
 
 161 
 
 224 
 
 29| 
 
 131i 
 
 162 
 
 404 
 
 451 
 
 46^ 
 
 52i 
 
 September, 
 
 16J 
 
 24 
 
 27 
 
 43i 
 
 85 
 
 155 
 
 42| 
 
 45 
 
 44 
 
 46| 
 
 October, 
 
 22 
 
 37 
 
 40f 
 
 56f 
 
 89 
 
 129 
 
 44 
 
 49 
 
 45| 
 
 54| 
 
 November, 
 
 29 
 
 33J 
 
 43 
 
 54 
 
 109 
 
 160 
 
 45i 
 
 48| 
 
 37i 
 
 48| 
 
 December, 
 
 30 
 
 34 
 
 47 
 
 52f 
 
 111 
 
 144 
 
 44| 
 
 46| 
 
 314 
 
 41J 
 
 Only one manful effort has been made since the con- 
 clusion of the war to rid the nation of the irredeemable 
 paper money brought into existence by the ill-advised 
 legislation of February, 1862. Under the administra- 
 tion of the Treasury Department by Mr. McCuUoch, a 
 reduction of the amount of outstanding legal-tender 
 notes was systematically undertaken; but, before this 
 necessary work had proceeded far enough to accomplish 
 any important results, the pain and terror of the coun- 
 try under the wholesome stringency of the discount 
 market and the puncturing of inflated prices led to the 
 repeal, in January, 1868, of the Act of December 18, 
 1865,^ which had authorized the retirement of legal 
 tenders. 
 
 ' The utter lack of consequence in the financial legislation of Con- 
 gress is 5pen in the history of this bill. It was originally passed 
 
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 the suffering of the past four years. There has 
 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 in which 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 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 377 
 
 which shall be expressed in terms of this one article. 
 This, as we 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 distribute it according to the occasion each coun- 
 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, it runs oif. Paper money 
 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 tomb^e 3. z€ro, ce qui correspond a la 
 banqueroute universelle." — [Ch. le Hardy de Beaulieu.] 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 381 
 
 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 
 the Bank 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. It must not be thought that where the excess of 
 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- 
 
THEORY OF INCONVERTIBLE PAPER MONEY. 383 
 
 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." 
 
 8. When, however, an Inconvertible Paper Money is 
 issued in marked excess, and hence becomes depreciated 
 and fluctuating, the most disastrous consequences, in- 
 dustrially and socially, must ensue.^ 
 
 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 its power 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 toil. A depreciated currency, sudden changes of 
 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 of the whole race of those who are at once idle and 
 
 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. It undermines the virtues necessary for 
 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 it, and to do so he must be able 
 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 discarded it. The use 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, to take his illustration, government 
 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 for interest on the public debt, afforded a reason 
 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 it has been commonly believed to be, the friction 
 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- 
 tistics of prices, which we have to use in the investiga- 
 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 is, val- 
 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 of the bank-note was taken by M. Wolowski 
 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 for payment. "This responsibility, however," says 
 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 presumed to be given, before any one accepts a 
 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 
 facilitated by 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 will perform a greater number of ex- 
 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- 
 tinction between 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, as we have seen, an article is determined to be 
 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 to hand, making payments and discharging dehtS; 
 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 bills, when in 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 the first 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 of ordinary 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 it for what they have to 
 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 it might be impossible to say which was 
 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 of economic definitions Avhicli allow ol 
 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 to meet objections founded on the assump- 
 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 is then taken, and the 
 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 
 it has 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, if I may be 
 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 land and labor. The com- 
 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 in the waters which bear his name. Nor is dis- 
 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 to paper-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 fault of managers or through causes that could 
 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 rentr^e 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 said, purely a banking question, with which in the 
 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 in the same circumstances, 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 power of issue and subjecting it 
 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 will be more of it, in any one place, at 
 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 in to meet the larger demands of the busier sea- 
 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 in the same season. 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 its work this month in France, return next month to 
 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 in an increased activity of what is on hand. Each 
 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 certain waste of energy, which 
 always results from fitful exertions, must be accepted as 
 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 us fix our attention oh the two schools which 
 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 sin^ilar 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- 
 ity and 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 
 metallic money 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 of England 
 and of the other banks of the United Kingdom. 
 
 But perhaps we may say that the ablest defense of 
 the Currency Principle is to be found in the earHer 
 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. 
 
 It was about 1840 that Mr. Tooke, through a new edi- 
 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 
 refer to those in which he maintained the so-called Cur- 
 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, by which it was proven that a thing cannot 
 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 of the Banking Princi- 
 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 
 school, that the convertibility of the notes must be im- 
 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 the mean 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. 
 
 But, answer Mr. Norman and Lord Overstone, when we 
 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 the money of other countries. We do not assert 
 that siicli an eifect can be produced to an indefinite ex- 
 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 in, it is likely to be so sudden and so 
 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 
 " Currency and 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- 
 stances, have been called in from other countries, 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 that an 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 it is impossible to overissue cgnvertible paper 
 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 effect upon the whole currency than ? single pur- 
 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- 
 tional notes, resemble a number of merchants offering to sell corn for 
 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. 
 
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 contraction is 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 in number, on the one hand, — a 
 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 notes by 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 his work 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, as stated by Mr. Tooke in the paragraph 
 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 in 1826, Mr. Tooke quotes Mr. Baring's 
 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. If convertible £5 and £10 notes are 
 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 tolerating bad 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 17s. 'dd. per oz. 
 
 It is in view of this entire exemption of the issue de- 
 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 movements, in rise and in fall, to those of me- 
 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 ; if they take out gold, they diminish it. In 
 this respect they 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 see that the greatest bank in the world is 
 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 this part of the paper money 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 of it in specie, without giving to that body the ex- 
 clusive power 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 principles, and would be the result with a metal- 
 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 of 1844 has been the subject of passionate 
 controYersy. Mr. Bagehot makes the animosity which 
 subsists on this subject the excuse for omitting all dis- 
 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 it is far more 
 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 
 for little else." 1 
 
 Prof. Price asserts that the Act of 1844 did not make 
 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 is needed to give the people good 
 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 failed by hundreds. They were bad bankers 
 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 
 unfit persons 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 will give good money, and 
 that, if notes are truly convertible, they cannot be 
 maintained, or even issued, in excess. 
 
 On the other hand, the authors and advocates of the 
 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 
 of Europe ; ' 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 
 this restriction, though still subject to full responsibil- 
 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 
 to do 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 
 of the year, and yet one have a great balance of pay- 
 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 to be paid in the United States by English 
 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 all parts of Europe, 
 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 good money to pay 
 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 
 the saving of the entire first cost of the circulating me- 
 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, it will be seen, is based directly on 
 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? It was that, until the function of deposit and 
 discount was separated from that of issue, each was cer- 
 tain to be "endangered by influences or affections con- 
 nected with the other." — [^Ihld., 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- 
 posits and circulation on the one side ; gold and secu- 
 rities on the other" [p. 33], and thus deceive themselves 
 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 
 till April, 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 by Public. Held in Resenre Total Amounts o< 
 
 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, it had to replenish it by giving up an exactly 
 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 far the Act may be said to have failed. Mr. 
 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 of the government, or by a large ex- 
 portation of capital for investment, or by 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.'' It is manifest that economical opinion has turned 
 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 
 until all those reserves were actually exhausted, and then a struggle 
 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."^Eoscher, 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 ; it is dependent 
 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 first and 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, previous overtrading 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 if the paper money did the 
 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. This is to be done, as was 
 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 is to say, by a change in the 
 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 that there is no corrective of a drain of gold 
 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, is notthe existing rate of inter- 
 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? It must be confessed that English writers 
 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. 132.] So again: "Not that it is to be 
 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- 
 structive to read these sagacious words from that saga- 
 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- 
 fect its value if he lay down the minimum price which 
 he will take and obstinately adhere to it. This is the 
 way in which the value of money in Lombard Street is 
 settled. The Bank of England used to be a predomi- 
 nant, and is stiU a most important,' dealer in money. It 
 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 until now. We have 
 marked the antagonism of the two schools of English 
 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 
 given by Mr. Eaguet, [Ourreney and Bankinsr. pp. 1. "57-40.] 
 
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 all times formed an important ele» 
 ment of the issues, and in many sections notes for frac- 
 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 notes may 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 
 tests its reality because public opinion frowns on such an act or 
 bank dispW'iure follows it." — [Sumner, Hist Am. Currency, p. 186.] 
 
AMERICAN WRITERS. 485 
 
 his own pleasure, and the obligation of every bank at 
 all times 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- 
 tions, it is because actual money has been brought into 
 the country by the balance of trade ; but a mixed cur- 
 rency is increased by the voluntary and interested ac- 
 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 
 there is 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 
 of the American colonial period: at first, cattle, corn, 
 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 Natii^ual 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.] 
 
 ' A few States sought to remedy this evil by a heavy fine on hanks 
 remaining in suspension. Thus, the discount in Boston on New 
 
494 Monsr. 
 
 Of course, in a country where such things could be 
 done, much more in a country where such things wero 
 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 
 still more 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 fail in 1818, and a second general sus- 
 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 office which had been expected of the Bank of 
 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 down to 1834. Loose- 
 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 even down 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 
 
 numbers " of tl)e 
 
 one with the exact figures of the other. 
 
 
 KESOURCES. 
 
 January, 1809. 
 
 January, 1811. 
 
 Loans and discounts, 
 
 $15,000,000 
 
 $14,578,294 
 
 U. S. 6 per cent, stock, 
 
 2,230,000 
 
 2,750,000 
 
 Other U. S. indebtedness, 
 
 
 57,046 
 
 Due from other banks, 
 
 800,000 
 
 894,145 
 
 Real Estate, - . - 
 
 480,000 
 
 500,653 
 
 Notes of other banks on hand. 
 
 
 
 393,341 
 
 Specie, - . - - 
 
 5,000,000 
 
 5,009,567 
 
 
 $23,510,000 
 
 $24,183,046 
 
 LIABILITIES. 
 
 
 
 Capital stock, . . - 
 
 $10,000,000 
 
 $10,000,000 
 
 Undivided surplus, - 
 
 510,000 
 
 509,678 
 
 Circulating notes outstanding, 
 
 4,500,000 
 
 5,037,125 
 
 Individual deposits, - 
 
 - 8,500,000 
 
 5,900,423 
 
 U. S. deposits, 
 
 
 i,»29,999 
 
 Due to other banks, - 
 
 
 
 634,348 
 
 Unpaid drafts outstanding, 
 
 
 171,473 
 
 $23,510,000 $24,183,046 
 
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 the United 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 the Bank management, our present purpose does 
 not require us to speak. The Bank was killed, whether 
 bj the stroke of justice or the hand of the assassin. 
 The removal of the United States deposits, by the will 
 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 States, had been estimated at $61,- 
 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 
 it had 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 
 the amount of metallic money which would have come into the coun- 
 try and stayed in, had the paper not been issued. If so, while the 
 bank expansion kept behind the speculative expansion, it aUowed the 
 speculative expansion not only to precede but to proceed. In the 
 language of Tooke, it did not kindle the conflagration, but it fed the 
 flames. 
 
 ' See p. 317. 
 
 ' Massachusetts had, in 1829, passed a general banking law which 
 limited the circulating notes to 25 per cent, in excess of the paid-up 
 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. It was to be a redemption in specie, and 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 the New 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 
 of contracts were altered, to the loss now of one party 
 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 first time in our history the possi- 
 bility of regulating the paper money circulation of the 
 country, should specie payments be restored according 
 to the pledge 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 to England, makes the great- 
 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 of coin and bullion under the operation of 
 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 
 w^ere 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 of Sweden 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 
 tern of monthly bank statements has been carried out, there is not it 
 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 science have 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 remarks : "In any other country such a bank would 
 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 it was a banker ; it would waste the 
 money of its subjects, and waste it in ways which in- 
 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 to become 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. 
 
IS PAPER MONEY CHEAP f 523 
 
 that tlie expense of maintaining a gold and silver money 
 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 may fairly be affirmed, the utmost amount of 
 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 
 
 • La Question des Bar.ques, p. '.55. Mr. Hankey computes the 
 gain by the issue of bank-notes b> the Bank of England to be: To 
 the Government, £200,000 nearly; to the Bank, somewhat less than 
 £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'^er, 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 its first cost as an object of g-reat im- 
 portance, which it would be inexcusable to neglect. If 
 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 
 till he 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 settle downwards, causing wide seams 
 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- 
 trial power 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 in common, and the difference be- 
 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 
 less busy 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, 
 chap. xi. passim,. 
 
 Abyssinians use rock salt as mo- 
 ney, 164-5. 
 
 Account, money of, S94-6. 
 
 Adams, Charles Francis, Reflec- 
 tions on the Currency, efforts of 
 bankers to push out their notes, 
 489?i ; inflation of convertible 
 paper money is possible, 519/i. 
 
 Adscripti Metallis, effects of serf- 
 dom upon mining populations, 
 136-7. 
 
 Africa, its yield of the precious 
 metals, 100-1 ; comparatively 
 low value of gold, 133-3.' 
 
 Afghanistan, its yield of the pre- 
 cious metals, 101. 
 
 Agatharchidas, silver once more 
 valuable in Arabia than gold, 
 133, 330. 
 
 Agriculture, payment of wages in 
 kind, 300 ; effects of bad money 
 on the agricultural class of the 
 United States, 519-31. 
 
 Alexander, spoil taken in Persia, 
 109. 
 
 Alison, Sir Arch., History of Eu- 
 rope, argument in favor of an 
 increase of the money supply, 
 81-3, 139 ; necessity of suspen- 
 sion, 1797-1815, 349-50. 
 
 Alley, J. B. [U. S. House Eeps.l, 
 on the Legal Tender Bill, 
 881ra. 
 
 Alloys in coinage, effect of differ- 
 ent alloys, 131-3; siWer not 
 used as alloy by the ancients, 
 131 ; purity of ancient coins, 
 174-5 ; the rule of -h i>s. the 
 rule of -h, 175-6 ; value of al- 
 loy never computed, 177. 
 
 America, discovery of, lead^ng to 
 revival of industry, 81 ; efiects 
 23 
 
 of Spanish American revolu- 
 tions in checlung money supply, 
 83, 139-40 ; production of gold 
 and silver, 1493-1848, chap. vii. ; 
 effects on Europe, 135-7; the 
 Californian episode, chap. viii. ; 
 effect on the silver price of 
 gold, 333-8 ; paper money of 
 the colonial and revolutionary 
 periods, chap, xv., p. 491. 
 
 Amsterdam, Bank of, its origin, 
 463 ; its note issues, 583. 
 
 Animal products, xheir prices rise 
 higher than those of vegeta- 
 ble products under increase of 
 money, 155. 
 
 Arabia, no mines of the precious 
 metals, tOl. 
 
 Arbitration of exchanges, 459. 
 
 Argentine Republic, paper money, 
 369ra. 
 
 Aristotle, JtfieJiomachian Ethics, 
 money as a pledge, 36 ; objec- 
 tion to usury, 96. 
 
 Arnold, Abbot of Lubec, the 
 ransom of Richard I., of Eng- 
 land, obtained by melting 
 church vessels, 118-19. 
 
 Arts, the, consumption of the 
 precious metals, 117-30, 140-1, 
 146-7. 
 
 Ashburton, Lord, advocates the 
 so-called Double Standard, 338re. 
 
 Asia, its yield of the precious 
 metals, 101-3 ; comparatively 
 low value of gold, silver im- 
 ported from Europe, 133-3, 141- 
 3, 335. 
 
 Assignats, the, 336-44. 
 
 Attwood, Matthias, the leader 
 of the " Birmingham School," 
 84 ; the law of the depreciation 
 of inconvertible paper money, 
 388. 
 
530 
 
 INDEX. 
 
 Attwood, Thomas, " The Scotch 
 Banter," 36371. 
 
 Augustus, the accumulation of 
 treasure in his reign, 121, 134-5. 
 
 Australia, gold discoveries, 144 ; 
 effects on society and industry, 
 83 ; Sydney sovereigns contain 
 a large proportion of silver, 178; 
 effect of discoveries on gold 
 price of silver, 383-7. 
 
 Austria, its yield of the precious 
 metals, 106, 140 ; relation of 
 gold and silver in the coinage, 
 338 ; paper money, 368-9. 
 
 Babhage, Charles, The Economy 
 of Manufactures, platinum un- 
 suited for coinage, 167-8; con- 
 ditions of effectual competition, 
 477-8. 
 
 Bagehot, Walter, The Economist, 
 demonetization of silver, 366-7 ; 
 success of French banking, 866; 
 criticism of the Imperial Ger- 
 man bank, 514-17 ; Lombard, 8t. , 
 the controversy over the Act of 
 1844, 463; effects upon Exchange 
 of depreciated paper money, 
 383, 463-4 ; the management 
 of a panic is a mercantile prob- 
 lem, 473 ; power of the Bank 
 of England over the rate of in- 
 terest, 478 ; slow extension of 
 banking in Prance, 512-13. 
 
 Bancroft, George, History of the 
 United States, the money of 
 the early colonists, 308. 
 
 Bamberger, L., the Latin mone- 
 tary union, 343?i. 
 
 " Banking Principle," The, 431, 
 chap. xix. passim, 453-4, chap, 
 xxii. passim. 
 
 " Bank," the word in early New 
 England meant a batch of paper 
 money, 317, 503. 
 
 Banks, Prof. Price's definition of 
 a bank criticised, 68 ; by allow- 
 ing the mutual cancellation of 
 debts banks save the use of 
 money, 68-9 ; competition in 
 issues between banks tends to 
 produce inflation, 436-9 ; no 
 necessary connection between 
 banking and note issue, 445-6 ; 
 the union held by. the advo- 
 cates of the " Currency Princi- 
 ple " to be mischievous, 446-7. 
 
 Banks, in Northern Europe orig- 
 inated in the corruption of the 
 coin, 463-4; 
 
 In the United States, 491- 
 509 ; declaring dividends while 
 insolvent, 493-4 ; career be- 
 tween 1811 and 1837, 495-563 ; 
 improvements in the system 
 after 1837, 503-6 ; career be- 
 tween 1844 and 1860, 506-8; 
 the national banking system 
 adopted in the Civil War, its 
 characteristics, 507-9. 
 
 Of Scotland, 509-11 : Swe- 
 den and Holland, 513 ; Ger- 
 many, 514-16. 
 
 Bank of England under the Ee- 
 striction, 348-61 ; its note is- 
 sues, 403 -4n, 413-4; theoiy 
 of the management in 1819, 
 443, 456-7 ; in 1832, 444 ; the 
 Act of 1844, 447-51, 514-17 ; 
 operation of the Act, 452-71 ; 
 raising the rate of discount, 
 473-5 ; power of the Bank over 
 the rate of interest, 477-8 ; 
 Prof. Price considers its re- 
 serves excessive, 524, 527. 
 
 Of Prance, its monopoly of 
 issue, 43871 ; the suspensions 
 of 1848 and 1870, 365-6 ; suc- 
 cess of its management, 511-13. 
 Of the United States, The 
 Pirst, 491-3, 499 ; the Second, 
 495-6, 500-1. 
 
 Bank- Notes, are they money ? 
 377, 395-400 ; a sort of com- 
 pulsion to receive them, 483-3. 
 
 Baring, Sir Francis, reply to Mr. 
 Boyd, 353. 
 
 Baring, Mr., specie circulation 
 in Prance, 440-1. • 
 
 Barbarians, The, effect of the in- 
 vasions on the production of 
 precious metals within the Em- 
 pire, 13r-8. 
 
 Barter, difficulties of, 1-3 ; still 
 used to a great extent, 21 ; may 
 be greatly increased by dis- 
 credit of the coin, 198-204 ; or 
 of inconvertible paper money, 
 379. 
 
 Bastiat, P., money witnesses that 
 the bearer has rendered a ser- 
 vice to society for which he 
 is entitled to an equivalent, 
 36-7 ; increase of money sup. 
 
IMDEX. 
 
 531 
 
 ply does not enrich, a commu- 
 nity, 77-8. 
 
 Baudeau, M., money is an order 
 payable at the will of the bear- 
 er, 28. 
 
 Baxter, Robert, T/^e Panic tf/1866: 
 fluctuations in the Bank of 
 England rate of discount, 454ra; 
 rights of issue should be taken 
 from the Bank, 468ft. 
 
 Beaulieu de, Ch. le. Hardy, Traite 
 Elimentaire d'Economie Poli- 
 tique, danger of over-issue of 
 inconvertible paper money, 380. 
 
 Belgium, relation of gold and 
 silver in the coinage, 238-40. 
 
 Bengal, Dr. Hunter's account of 
 its money and coin, 169, 211-12, 
 320, 294. 
 
 Berkeley, Bishop, Tlie Querist, 
 " ideal" money, 290)i ; a nim- 
 ble sixpence, 418n.. 
 
 " Billon," or token-money, 218 ; 
 influence on the poorer classes, 
 219-30 ; on retail prices, 230-1. 
 
 Bi-metallists, their position, chap. 
 xui.jpassim. 
 
 Blanc, Louis, the "Assignats," 
 343, 84471. 
 
 Bodio, Prof., the bank statistics 
 of Italy, 513». 
 
 Borneo, its yield of gold, 102. 
 
 Bosanquet, Charles, effect of laws 
 prohibiting export of bullion, 
 56n ; cost of the recoinage of 
 1698, 313; his buUion pam- 
 phlet, 353. 
 
 Bo wen. Prof., American Political 
 Economy, m.oney as a " meas- 
 ure of value," 5, 383. 
 
 Boyd, Mr., Ms letter On the Cir- 
 culation, 353. 
 
 Brassage, term proposed by M. 
 Chevalier to cover actual ex- 
 penses of coinage, 186. 
 
 Brazil, use of gold by the na- 
 tives, 130 ; yield of gold, 134 ; 
 product falls ofE after the mid- 
 dle of the 18th century, 140 ; 
 circulation of English sove- 
 reigns, 185 ; relation of gold 
 and silver in the coinage, 339. 
 
 Bresson, M., Eiit. Financ. de la 
 France, the "Assignats," 344- 
 5. 
 
 Bronson, Dr. H., Connecticut Our- 
 rency, furs as money, 38ra ; 
 
 the money of the early colo- 
 nists, 306-7 ; the Connecticut 
 paper issues, 308-16. 
 
 Bullion Report, The, 301, 853^, 
 396. 
 
 Burke, Edmund, Bank of Eng- 
 land paper is of value in com- 
 merce, because in law it is of 
 none, 28?i ; over-issues of in- 
 convertible paper money, 381- 
 3. 
 
 Burmah, inhabitants use lead as 
 money, 37 ; its yield of the 
 precious metals, 101. 
 
 Cacao, used as money by the 
 Mexicans, 35. 
 
 Cairues, Prof., Esmys in Pol. 
 Economy, the influence of the 
 Mercantile Theory, 47 ; depre- 
 cates the considerable increase 
 of the precious metals, 78-9 ; 
 the new gold supplies proceed 
 from country to country with 
 appreciable intervals, 86 ; the 
 American discoveries cause a 
 great expansion of oriental 
 trade, 135 ; produce pauperism 
 in England, 136ra, ISlrn ; influ- 
 ence of the Calif ornian and Aus- 
 tralian discoveries on the con- 
 dition of different countries and 
 industrial classes, 234-7 ; influ- 
 ence of the interchangeable use 
 of gold and silver on the price 
 of either, 248-9. 
 
 Some Leading Principles of 
 Pol. Economy, competition in 
 retail markets, 232. 
 
 Logical Method of Pol. Econ- 
 omy, the conditions of Econo- 
 mic Deflnition, 408-9. 
 
 Calhoun, J. C, advocates issue of 
 Treasury Notes, 495. 
 
 California, gold discoveries, 144 ; 
 effects on industry and society, 
 83 ; on the gold price of silver, 
 333-7. 
 
 Canada, anomalous condition of 
 its money, 239 n.. 
 
 Capital, is money capital? 23-3 ; 
 a bank lends capital as the 
 agent of the owners, 68 ; 
 amount of capita], relatively to 
 demand, determines rate of in- 
 terest, 94-5 ; popular confu- 
 sion between nioney and. oapi- 
 
532 
 
 INDEX. 
 
 tal, 95 ; imduly rapid conver- 
 sion of circulating into fixed 
 capital, one of tne causes of 
 crises, 473-4, 501-3, 519. 
 
 Carey, H. C, his argument for in- 
 crease of the money supply, 84 ; 
 for non-exportable money, 301. 
 
 " Cash," The, of China, 166. 
 
 Cattle, used as money by the an- 
 cients, 31-3 ; mil carry them- 
 selves, 33 ; are not uniform in 
 quality, 33-4 ; cost much to 
 keep, and are liable to loss and 
 injury, 34 ; cannot be divided 
 without loss of utility, 35. 
 
 Celebes, its yield of the precious 
 metals, 103. 
 
 Cemuschi, M., Mecanique de 
 I'Eehange, a sale for money is 
 only half a transaction, Zn ; 
 " La Monnaie est le bien evalu- 
 ant," 571 ; importance of the 
 money function, IBm ; money is 
 sterile, 33m. 
 
 His bi-metallic theory criti- 
 cised by Hertzka, 359-61, 266?i. 
 
 Ceylon, its yield of the precious 
 metals, 103. 
 
 Chalmers, G., Considerations, etc., 
 recoinage of 1774, 213; bank- 
 ers pushing out their notes, 
 488?i. 
 
 "Chao," Chinese paper money, 
 303. 
 
 Cheapness claimed for conver- 
 tible paper money, 409-13 ; does 
 it pay? 531-8. 
 
 Check system, reducing the de- 
 mand for money, 70 ; are checks 
 money? 398-9. 
 
 Cherbuliez, M., Science Eeono- 
 tniqy^, money a medium of ex- 
 change, 3 ; distinction between 
 Price and Value, 3397(. 
 
 Chevalier, M., Za Monnaie, small 
 cost of rendering bullion into 
 coin, and coin into bullion, 41 ; 
 exportation of money now gen- 
 erally permitted by govern- 
 ments, 4671 ; the reduction of 
 debts by a progressive increase 
 of the money supply is in the | 
 line of progress, 94 ; the art of j 
 mining lost in the Middle | 
 Ages, 13071 ; value of Medina's 
 discovery, 13371 ; the Chinese 
 " cash," 166 ; platinum coinage 
 
 of Russia, 16871 ; the proportion 
 of iV alloy in the coinage, 176 ; 
 the Spanish dollar a universal 
 coin, 179-8071; corruption of 
 the coin of Spain, 18971 ; efEect 
 of seigniorage on price, 190 ; 
 private frauds on coin, pecu- 
 liarly an English ofEence, 19571 ; 
 future of mono - metallism, 
 241?i ; comparative stability of 
 gold and silver, 35471 ; money 
 a material equivalent, 375 ; 
 danger of over-issue of incon- 
 vertible paper money, 37871 ; 
 the word "currency," 39571, 
 400?i ; distinction between mo- 
 ney and bank notes, 408m; 
 approves of competition in bank 
 issues, 438-40; credit in a panic, 
 49071. 
 
 On Gold [Colden's Transla- 
 tion], 145-51, 234^7; import- 
 ance of the money function, 
 14 ; amount of metallic money 
 in commercial countries nearly 
 stationary, 71 ; the new gold 
 supplies distributed "by 
 jerks," 86 ; estimate of produc- 
 tion before 1848, 148 ; efEect of 
 American discoveries on rela- 
 tion between gold and silver, 
 233 ; the influence of the inter- 
 changeable use of the two metals 
 on the price of either, 250 ; the 
 future of mono-metallism, 256. 
 
 China, its yield of the precious 
 metals, 101; its "cash/' 166; 
 extensive circulation of the 
 Spanish dollar, 179-80 ;. paper 
 money, £03-371. 
 
 Circulating Capital, unduly rapid 
 conversion into fixed capital, 
 473-4, 501-2, 519. 
 
 Circulation, in the monetary sense, 
 is a thing of degrees, 400-1. 
 
 Clearing House, the Bankers' 
 Bank, its agency in saving the 
 use of money, 69. 
 
 cupping the coin, 194-5, 211-13. 
 
 Cochin China, its yield of the pre- 
 cious metals, 101 ; its " cash," 
 166 ; the " gall," 171. 
 
 Cod, as money in Newfoundland, 
 32. 
 
 Coin, loss of metal by abrasion, 
 121-3 ; by clipping and sweat- 
 ing, 194-5, 311-12. 
 
INDEX. 
 
 533 
 
 " Coin Bank " notes in Calif omia, 
 509. 
 
 Coinage, chap. x. ; origin and ear- 
 ly forms, 164-7 ; a prerogative 
 of sovereignty, 168 ; mechan- 
 ical problems, 170 ; alloys, 
 174-8 ; improvements in the art, 
 172 ; American coinage, 173 ; 
 wide circulation of certain 
 coins, 178-80; on whom, shall 
 the cost of coinage fall ? [Seign- 
 iorage] 181-6 ; on whom l^e 
 cost of recoinage t 214-6. 
 
 Coke, Lord, metal not money 
 without the stamp, 168. 
 
 Colwell, Stephen, Ways and 
 Means of Payment, cancellation 
 of indebtedness, 68. 
 
 Collamore, Jacob [tJ. S. Senate], 
 opposes the issue of legal-ten- 
 der notes, 372. 
 
 Competition in issues between 
 banks, leading to inflation, 
 436-9 ; in the U. S., 480-1. 
 
 Congress, the Continental, issues 
 of paper money, 300, 326-35, 
 371-2. 
 
 Congress of the United States, 
 issues of legal tenders during 
 the GivU War, 369-75. 
 
 Conkling, Roscoe [XJ. S. Ho. 
 Reps. J, opposes the issue of 
 legal-tender notes, 3'^3. 
 
 Connecticut, Colonial paper 
 money, 308-9, 311-16 ; revolu- 
 tionary issues, 328-9. 
 
 Continental Currency, The, 326- 
 35. 
 
 Convertible Paper Money, Part 
 
 m. 
 
 Theory, chap, xviii. ; The Cur- 
 rency Principle vs. the Banking 
 Principle, chap, xix.; in Eng- 
 land, chap. XX.; in the United 
 States — other examples — chap. 
 xxi ; Theory, concluded, chap, 
 xxii. 
 
 Convertibility of Banlc Notes, 
 how much is implied ? 479-85, 
 493-4; conversion under the 
 New Tork law meant discount, 
 505 ; the lack of convertibility 
 in United States paper money 
 479-85, 493-4, 500», 517-18. 
 
 Convicts, employed in mines, 
 136-7. ^ . ^ 
 
 Copernicus, N., Monete Ouaenae 
 
 Ratio, seigniorage, 181»i ; bale- 
 ful effects of bad money, 
 383re. 
 
 Copper, as money, 37-8 ; coinage 
 of copper not covered by the 
 prerogative of the English 
 crown, 168 ; legal tender in 
 limited amount, 218; discount 
 on copper coins in India, 220ra. 
 
 Coquelin, M., approves competi- 
 tion in bank issues, 438-9. 
 
 Com [Indian], as money, in Mas- 
 sachusetts, 33. 
 
 Corn Rents, 157-8 ; " Bread com 
 the real and paramount stand- 
 ard of value " [Homer], 159. 
 
 Corsica produces no gold or sil- 
 ver, 103. 
 
 Counterfeiting, of American rev- 
 olutionary paper money, 330 ; 
 of French assignats, 345 ; of 
 small notes, 443 ; of New Eng- 
 land bank notes, 506?i. 
 
 Courcelle-Seneuil, M., Operations 
 de BanqtLe, inconvertible paper 
 money need not depreciate, 
 278ra ; fluctuations of such 
 money caused by political 
 events, 384m ; definition of 
 paper money, 39671 ; convertible 
 paper money will operate pre- 
 cisely hke metallic money, 
 433», 438?i ; the issue of bank 
 notes not a concern of govern- 
 ment, 498» ; the Bank of France 
 a government institution, 51271. 
 
 Cowries [shells], as money, 25. 
 
 Crawford, Secretary, bank paper 
 money in the United States, 
 1811-15, 493, 1815-19, 495 ; con- 
 vertibility in some States not 
 even ostensible, 5007i. 
 
 Credit, relation between long 
 credit and discredit, 50671. 
 
 Credit-System, The, reduces the 
 use of money, 65-9. 
 
 Creditor class, how affected by 
 changes in the money supply, 
 89-94, 136, 267-70, 317-18, 343, 
 377. 
 
 Crises, treatment of, see Panics ; 
 crisis in England, 1792-3, and 
 1810-11, 43471 ; 1818, 358 ; 1825, 
 43471, 433, 473-4 ; 1836-7, 434 ; 
 1846-7, 42471, 466-8, 476 ; 1866, 
 474 ; in the United States, 1814, 
 492-5; 1818-19, 495; 1825, 
 
534 
 
 IXDEX. 
 
 495-6; 1837-9, 505-6; 1873, 
 375, 474. 
 
 Custom, in economics, protects 
 the weaker, 886-7. 
 
 Currency, as a substitute for the 
 word money, 375-6, 395-6. 
 
 " Currency Principle," The, 431, 
 423n, 453-4, chap, six.; pro- 
 gress of this opinion up to the 
 act of 1844, 448-51. 
 
 Dacia, working of the mines in- 
 terrupted by the invasion of the 
 Barbarians ; the slaves join the 
 invaders, 138. 
 
 Dallas, Secretary, state of United 
 States bank-paper money in 
 1814, 494. 
 
 Dates, as money in Africa, 33. 
 
 Debts, their burden diminished 
 by an increase of the money 
 supply, 88-94, 136 ; the relation 
 of the volume of indebtedness 
 to the question of bi-metallic 
 money, 363^, 268-9 ; efiects of 
 resumption, 359-64. 
 
 Definitions, Economic, admit of 
 exceptions [Cairnes], 408-9. 
 
 Denmark, use of gold in early 
 times instead of iron, 130. 
 
 Denominator in Exchange [com- 
 monly called Measure of 
 Values], 4-9, 64^5, 196, 280-90, 
 376-7. 
 
 Deposit System [Bank], reduces 
 the use of money, 70. 
 
 Depreciation of inconvertible 
 paper money, how measured ? 
 360^, 374, 379-81, 987-91; 
 effect on Foreign Exchanges, 
 382 ; involves fluctuations of 
 value, 383-4 ; is depreciation 
 of convertible paper money 
 possible ? 439-32, 517-21. 
 
 Deterioration, liability to, a seri- 
 ous objection in money, 34^5, 
 cf. chap. xi. 
 
 Dignity, National, Mr. E. G. 
 Spaulding's conception of, 370?i. 
 
 Dillaye, S. D., review of Presi- 
 dent White on the paper money 
 of France, 338, 344?!. 
 
 Discredit of the coin, 198, 304; 
 of inconvertible paper money, 
 279. 
 
 Distribution of Wealth, how 
 affected by the use of money, 
 
 30-1 ; by the use of bad money, 
 220-1, 384-7, 519-31. 
 
 Distribution, territorially, of the 
 precious metals, through the 
 agency of price [Eicardo's 
 statement], 49-57, 133; Prof. 
 Caimes's qualification of Eicai- 
 do's statement, 150-7 ; Prof. 
 Sumner's statement, 356-8 ; re- 
 tarded distribution, 388, 390-1, 
 518. 
 
 Divisibility, as an element of 
 money, 35-6. 
 
 "Double Standard" of Value. 
 The bi-mctallists object to the 
 term, 11 ; the question of the 
 Standard discussed, 332-71. 
 
 Drake, Dr., Exchequer bills in 
 the reign of William III., 406. 
 
 Drummond, Henry, Elementary 
 Propositions respecting the Cur- 
 rency, convertible paper money 
 may be issued in excess, 431-2. 
 
 Duncan, J., On Currency, rela^ 
 tive value of silver and gold, 
 330 ; advocates the use of in- 
 convertible paper money, 308 ; 
 the fate of John Law's bank 
 does not indicate inherent ten- 
 dencies of such money, 304. 
 
 Dupont de Nemours, Notes toTur- 
 got's Des Bichesses, the use of 
 money favors small savings, 18ra. 
 
 Economy in the use of money, 69. 
 
 " Economist," The, 73, 147, 266-7, 
 366, 514^17. 
 
 "Elasticity" of paper money, 
 414-19. 
 
 "Elastic Limit System" of note 
 issues [Jevons], 515 16. 
 
 EHot, Perceval, advocates .' ' ideal" 
 money, 398. 
 
 Elizabeth, Queen, the recoinage 
 of her reign, 306-9. 
 
 England, less coin in 1838 than 
 fifty years before, 69 ; its rela- 
 tion to the gold supplies after 
 1851, 151-3 ; increase of coin 
 between 1851 and 1860, 156 ; 
 its coinage, 168-9 ; the mint at- 
 tacked by Mr. Seyd,- 173-4; 
 former circulation of foreign 
 coin, 179 ; debasement of the 
 coin under Henry VIII. and 
 Edward VI., 186 ; the recoin- 
 ages of 1560, 1696, 1774, chap. 
 
INDEX. 
 
 535 
 
 si. ; the policy of throwing oS 
 the expense of recoinage, 315- 
 16; adopts the single gold stand- 
 ard in 1816, S33 ; the bank re- 
 striction, 347-65 ; account of 
 convertible paper money in 
 England, chap. xx. 
 
 Ethiopians used carved pebbles 
 as money, 35. 
 
 Europe, its yield of the precious 
 metals, 103. 
 
 Exchange of notes between banks, 
 essential to true convertibility, 
 480-1, 505-6. 
 
 Exchange, bUls of, axe they 
 money? 401-3. 
 
 Exchanges, the Foreign, aiford a 
 test of the depreciation of in- 
 convertible paper money, or 
 debased coin, 353 ; influence of 
 bad money upon, 383-3, 463-4 ; 
 Mr. GOschen's theory of, 458- 
 64 ; regulation of note issues 
 according to the exchanges, 
 464^9. 
 
 Exchequer bills, are they money t 
 405-6. 
 
 Exportation of gold and sUver 
 prohibited, 45 ; prohibition not 
 wholly ineif octual, 55-6 ; the 
 causes of, 56-7, 356-8 ; does 
 exportation of bullion decrease 
 the quantity of money ? 468-70. 
 
 Farming of Mines, effect upon 
 production, 114^-15, 135-6. 
 
 Paucher, Leon, Eussian restric- 
 tions on gold mining, 143» ; 
 relative value of silver and gold, 
 330ra ; advocates restriction on 
 bank issues, 439. 
 
 Felt, J. B., History of Massa- 
 chusetts Currency, the paper 
 money of Massachusetts, 308, 
 330-1. 
 
 Fessenden, W. P. [IT. S. Senate], 
 on the Legal Tender bill, 378. 
 
 Forbes, J. M., premature railway 
 construction in the United 
 States, 473re. 
 
 France, less coin in 1838 than be- 
 fore the Revolution, 70 ; its 
 yield of the precious metals, 
 105 ; coinage, 169 ; inventions 
 in coinage, 173 ; debasement of 
 the coin by early kin^s, 186-7 ; 
 its disasters, 1340-1440, attri- 
 
 buted to this cause, 188-9 ; 
 payment of agricultural wages 
 in kind, 300 ; relation of gold 
 and silver in the coinage, 353 ; 
 the Revolutionary assignats, 
 336-45 ; the mandats, 346 ; 
 the suspension of 1848, 365 ; of 
 1870, 366, 383-3 ; banking sys- 
 tem, 438n, 511-13; paper-money 
 banking in the French Colo- 
 nies, 513. 
 
 Free Banking, free trade in bank- 
 ing is free trade in swindling 
 [Tooke], 438 ; what Lord Over- 
 stone regards as truly free 
 banking, 449 ; the New York 
 Free Banking Law, 504-5. 
 
 Froude, J. A., History of Eng- 
 land, the recoinage of 1560, 
 303-9. 
 
 Frugality encouraged by the use 
 of money, 18. 
 
 Fuggers, The, eminent miners, 
 115 n,. 
 
 Fullarton, John, Regulation of 
 Currencies, power of law to 
 prevent melting of coin, 359 ; 
 circulation of bills of exchange, 
 401 ; convertible paper money 
 will operate precisely like me- 
 tallic money, 433 ; exports of 
 bullion made from hoards, 
 470re ; bank money in the Unit- 
 ed States not convertible, SOOre. 
 
 Gairdner, Charles, "Elasticity" 
 
 of bank money, 414, 
 Gallatin, Albert, Consideraiions 
 on the Currency, etc., advocates 
 the higher rating of gold in the 
 United States coinage, 336)i ; 
 favors bi-metallic money, 369 ; 
 effects of resumption of specie 
 payments after a long suspen- 
 sion, 360re ; a sort of compul- 
 sion to take bank notes, 483 ; 
 the first Bank of the United 
 States, 493 ; tho use of bad 
 ! money is false economy, 535». 
 ! Gamier, Joseph, Traite de Fi- 
 i nances, the " assignats " of the 
 Revolution, 336, 339, 344 ; Aus- 
 I trian paper money, 368w ; defi- 
 r nition of paper money, 396??. 
 Germany, payment of agricul- 
 j tural wages in kind, 300 _; rela- 
 ! tion of gold and silver in the 
 
536 
 
 INDEX. 
 
 coinage, 233, 338, 266; paper 
 money baaking, 514-17. 
 
 Geyer, Ph., Theorie und Praxis 
 dea Zettelbankwesens, converti- 
 ble paper money may be issued 
 in excess, 433m. 
 
 Gtibbou, E., importance of the 
 money function, 14. 
 
 Gilding on metals and china un- 
 known to the ancients, 119ra ; 
 largely practised in the middle 
 ages, 130. 1 
 
 Gold, properties fitting it for use 
 as money, 39-40 ; use in the i 
 arts, 43 ; the field of prodnc- j 
 tion, 99-106 ; economic condi- ■. 
 tions of production, 106-116, j 
 237-871, 254n. ; regarded in early ; 
 ages as treasure, not money, 
 108-9 ; history of production, I 
 chaps, vi.-viii. ; relation to sil- : 
 ver in the coinage of England, : 
 317-18, 334r-5 ; of the United 
 States, 335-8 ; variations in its : 
 power to purchase silver, 226- i 
 30 ; effect of the American dis- ; 
 coveries, 381-3 ; of the Call- ' 
 fomian and Australian discov- 
 eries, 333-4; replaces silver in 
 the coinage of France, 235-6 ; 
 change in production after 1865, 
 337 ; no* generally advocated 
 as the sole metal of unlimit- 
 ed legal tender, 338-9 ; inter- 
 changeable use of silver and 
 gold, efEect on the price of 
 either, 346-53 ; what is the 1 
 power of law to preserve steadi- 
 ness of value between gold and , 
 silver ? 253-67 ; no true par of ] 
 exchange between a gold and a ; 
 silver country, 461. i 
 
 "Gold Xotes" in the United, 
 States, 509. 
 
 QOschen, G. J., Report of the Com- I 
 mittee on the Depreciation of \ 
 au,i)er, 218, 233ra, 265re ; Theory 
 of the Foreign Exchanges, mean- 
 ing of the word exchange, i 
 458 ; the elements of foreign ' 
 indebtedness, 460 ; exchange \ 
 between countries having dif- j 
 ferent money metal, 46171 ; j 
 raising the rate of interest 1 
 to stop a drain of bullion, 
 475-7. j 
 
 Gouge,Wm, M. , History of Pa/per I 
 
 Money andBankinginthe Unit- 
 ed Spates, 485. 
 
 Graham, Sir James, Coin and Cur- 
 rency, effects of the Eesump. 
 tion Act of 1819, 363-4; the 
 country bank circulation, 451. 
 
 Greece, cattle used as money in 
 ancient times, 31; copper skew- 
 ers, do., 33 ; its yield of the 
 precious metals, 106; accedes 
 to the Latin Monetary Union, 
 338vi. 
 
 Greed, in the economic sense, op- 
 posed to a true sense of self- 
 interest, 111 ; destructive ef- 
 fects upon mining, 113-15. 
 
 Gresham, Sir- Thos., his wealth 
 largely in rings and chains, 
 118; his theorem, or "law," 
 respecting inferior currencies, 
 193-5. 
 
 Hallam, Heniy, History of the 
 Middle Ages, coinage a prero- 
 gative of the crown, 169 ; ad- 
 justment of prices to debase- 
 ment of coin, 187-8. 
 
 Hamburg, Bank of, its note is- 
 sues, 523. 
 
 Hamilton, Alex., Report on tlie 
 Bank, irregularity of the coins 
 of the United States, 194 ; ad- 
 vocates concurrent circulation 
 of gold and silver, 269 ; over- 
 issues of inconvertible paper 
 money, 379; government should 
 regulate bank issues, ^9,n. 
 
 ECankey, T., On Banking, Bank 
 of England notes are not re- 
 issued, 403«. ; the circulation of 
 Great Britain, 451» ; saving by 
 the issue of bank notes, 523m. 
 
 Harris, Joseph, Essay on Money 
 and Coins, free coinage, 184a ; 
 proposes to reduce the standard 
 of the coin, 214. 
 
 Hartz Mountains, discovery of sil- 
 ver, 104m ; yield of silver, 105. 
 
 Hayti, paper money, 369m. 
 
 Henry Vni. corrupts the coin of 
 England, 189. 
 
 Hertz, Haitwig, bank notes cir- 
 culate without scrutiny, 402m. 
 
 Hertzka, Th., Wdhrung und Han- 
 del, attacks M. Cemuschi's posi- 
 tion, 259-61 ; the debtor class 
 laigely producers, 268m. 
 
INDEX. 
 
 537 
 
 Hadreth, Richard, History of the 
 United States, redemption of 
 the Revolutionary issues, 333- 
 
 371. 
 
 Eohhes, Thomas, Nutrition of a 
 Cammonwealtli, importance of 
 the money function, 167«.. 
 
 Holland, relation of gold and 
 silver in the coinage, 332-4, 
 289; paper-money baling, 513. 
 
 Homer, Francis, com, " the real 
 and paramount standard of all 
 values," 159 ; the bullion re- 
 port and resolutions ; was Mr. 
 Ricardo ill-treated ? 353-4. 
 
 Horton, S. D., Silver and Gold, 
 money as a store of value, 12n. ; 
 should the fear of exciting the 
 spirit of repudiation lead to 
 concealment of economic truth ? 
 93?i ; his view of bi-metallism, 
 265, 270; value of "green- 
 backs " and silver, 278n.. 
 
 Horton, V. B. [U. S. Ho. Reps.], 
 opposes the issue of legal- tender 
 notes, 373. 
 
 Hubbard, J. Or., replies to Col. 
 Tomline on the influence of 
 billon upon the poorer classes, 
 219-20 ; large notes in the cir- 
 culittion of the Bank of Bug- 
 land, 404». 
 
 Humboldt, Alex, v., high pur- 
 chase power of gold, 41 ; esti- 
 mate of the production of the 
 precious metals in America, 
 132-3 ; estimate of the export 
 of silver to the East, 141; com- 
 parative production of silver 
 and gold, 231n. 
 
 Hume, David, money, "the oil 
 which renders the motion of 
 the wheels more smooth and 
 easy," 78?i ; advantages of a 
 considerable increase in the 
 supply, 79-81 ; effect of the 
 American discoveries on prices, 
 135tt ; the paper money of Co- 
 lonial Pennsylvania, 332. 
 
 Hungary, its yield of the precious 
 metals, 105, 140. 
 
 Hunter, William, Annals ofRyb- 
 ral Bengal, coinage in India, 
 169, 211-1371; discount upon 
 copper coins, 230« ; Sir James 
 Steuart's introduction of a mon- 
 ey-of-account, 291-5. 
 23* 
 
 Huskisson, W., Depreciation of 
 tlie Currency, England, in 1835, 
 "within twenty-four hours of 
 barter," 15 ; relation between 
 the existing volume of money 
 and ruling prices, 60 ; condition 
 of the English coin in 1773, 
 213 ; distinction between paper 
 money and circulating credit, 
 376 ; prohibition of the melting 
 of the coin, 352. 
 
 " Ideal" Money, as the denomina^ 
 tor of values, 8-9, 290-9, 376-7. 
 
 niyria, its yield of the precious 
 metals, 106. 
 
 Inconvertible Paper Money, 
 Theory, chap. xiv. ; illustra- 
 tions, chaps, xvi.-xvii. ; Theory, 
 concluded, chap. xvii. 
 
 India, small yield of the precious 
 metals, 101 ; movement of sil- 
 ver to, 109-10, 141-2, 146-7 ; use 
 of silver in ornaments, 157ra ; 
 ProfessorCaimes anticipates the 
 early adoption of paper money, 
 147-8 ; coinage, 169 ; relation of 
 gold and silver in the coinage, 
 339-40. 
 
 Interest, rate of, how afEected by 
 increase of money supply, 94-8; 
 raising the rate to check the 
 drain of bullion, 475-6 ; power 
 of the Bank of England over 
 the rate, 477-8. 
 
 Ireland, its yield of the precious 
 metals, 103 ; relation of its 
 coin to that of England, 206-7 ; 
 paper-money banks, 450-1. 
 
 Iron as money, 37. 
 
 Italy produces no gold or sUver, 
 103 ; relation of gold and silver 
 in the coinage, 338 ; gold coin- 
 age in the thirteenth century, 
 353 ; inconvertible paper money, 
 369 ; bank statistics, 513ft. 
 
 I Jacob, William, Inquiry into the 
 j Precious Metals, " compenAiovia 
 I value " of gold, 41 ; an increase 
 ; of money supply temporarily 
 \ incites industry, 87 ; origin of 
 his " Inquiry," 100 ; history of 
 gold and silver production, 
 chaps, v.-viii. passim ; the 
 English mints, 169 « ; coinage 
 in wie middle ages, 171 ; among 
 the ancients, 175 ; melting of 
 
538 
 
 INDEX. 
 
 English sovereigns in Paris, 
 178 ; circulation of foreign coin 
 in England, 179 ; debasement of 
 English, coin, 183 ; comparative 
 production and consumption of 
 gold and silver, 230». 
 
 Japan, its yield of the precious 
 metals, 103 ; relation of gold 
 and silver in the coinage, 330, 
 239 ; paper money, 303 -4. 
 
 Jefierson, Thomas, favors bi-me- 
 tallic money, 269 ; the money 
 of the colonies, SOS/t ; the paper 
 money of the Revolution, 831-3. 
 
 Jevons, Professor, Money and the 
 Mechanism of Exchange, anal- 
 ysis of the money function, 
 1 14 ; fluctuations in the value 
 of gold, 158 ; tabular standard 
 for deferred payments, 159- 
 63 ; the English mint, 173 ; 
 seigniorage on silver coinage 
 furnishes a fund for recoinage, 
 19 1 ; the concurrent circulation 
 of silver and gold [the " dou- 
 ble standard"], chaps, xii.-xiii. 
 passim ; the " measure of 
 value," 381-4 ; competition in 
 issues may cause inflation, 
 436» ; the " elastic limit" sys- 
 tem of bank issues, 514-15ft. 
 
 Theory of Political Economy, 
 " Labor once spent has no in- 
 fluence on the future value of 
 any article," 345 ; equivalence 
 of commodities, 350-1 ; abraded 
 coin in England, 315-16 ; esti- 
 mate of the proportion of money 
 to gross income in England, 74«.. 
 
 John II., of France, corrupts the 
 coin, 186, 188 ; practises on the 
 English coin, i95/(. 
 
 Joplin, T.,The Currency Question, 
 the bullion report, 353. 
 
 Kelley, W. D., advocates non-ex- 
 portable money, 3O0. 
 
 Kitchin, G .^f ., History of France, 
 corruption of the coin, ISSra. 
 
 King, Lord, his thoughts on the 
 Bank of England restriction ; 
 his theory of inconvertible pa- 
 per money, 353 ; his demand 
 on his tenants, 355. 
 
 Knight, R. P., 2%e Symboliaai 
 Languageof Ancient Mythology, 
 spikes the first form of coinage, . 
 
 165 ; sacredness of devices on 
 ancient coins, 170. 
 Kossuth, Louis, his attempt to- 
 introduce paper money into 
 Hungary, 368?!.. 
 
 Laboring Classes, chief sufferers 
 by bad money, 310-11, 330-1, 
 384-6. 
 
 Languedoc, its mines of silver, 
 105. 
 
 "Latin Union" [Monetary Con- 
 vention of 1865], 338-40, 243, 
 366. 
 
 Lauderdale, Lord, Depreciation 
 Proved, circulation of Portu- 
 guese coins in England, 179 ; 
 criticism of Sir J. Stouart, 
 390-1 ; of Perceval Eliot, 298. 
 
 Laveleye,M., compensatory action 
 of bi-metallic money, 356 ; en- 
 hancement of the burden of 
 debts through demonetization 
 of silver, 368. 
 
 Law, its power to prevent the ex- 
 port of bullion, 55-6ft, 851-3« ; 
 to vmite silver and gold at a 
 fixed ratio, 358-64 ; invoked 
 against the premium on silver 
 and gold, 331, 343-4. 
 
 Law, John, non-exportability an 
 advantage in money, 300 ; his 
 connection with the Mississippi 
 scheme in France, 304, 336. 
 
 "Lawism" [McLeod,] the basing 
 of ^money upon land, 334. 
 
 Lead, used as money, formerly 
 cheaper than iron, 37. 
 
 Levi, Prof., History of British 
 Commerce, relative value of 
 gold and silver, 333-3 ; effects 
 of Californian and Australian 
 discoveries, 334; "life" of a 
 bank note, 408 ; the bank en- 
 quiry of 1833, 444?i. 
 
 Liverpool, Lord, On the Coins of 
 the Sealm, the coinage act of 
 1717, S25ra. 
 
 The Second Lord, advocates 
 the single gold standard, 328-9. 
 
 Locke, John, England draws its 
 money from other countries, 
 56 ; money " drained into stand- 
 ing pools," 71 ; estimate of the 
 amount of money needed in 
 England, 74 ; breadstuffs as tha 
 standard for deferred payments. 
 
INDEX. 
 
 539 
 
 159 ; Locke's part in the recoin- I 
 age of 1696, 313-14 ; objects to 
 receiving clipped money, 355 ; 
 currents of trade, 519. 
 
 London, as a centre of Exchange, 
 gains at the expense of Paris, 
 383. 
 
 Lorraine, its mines of silver, 105. 
 
 Lovejoy, Owen [U. S. Ho. Reps.], 
 opposes the issue of legal-ten- 
 der notes, 373-3. 
 
 Lowe, Joseph, scheme for a tabu- 
 lar standard, 160-1 
 
 Lowndes, Wm., proposes to re- 
 duce the standard of the coins, 
 213-14. 
 
 Lubbock, Sir John, analysis of 
 payments into the bank, 73. 
 
 Macaulay, Lord, History of Eng- 
 land, the recoinage of 1696, 
 309-13. 
 
 Macedon, spoil taken by Paulus 
 .Shnilius, 109. 
 
 Maclaren, J., History of the Cur- 
 rency, why should the power 
 to maJie a fortune be cherished 
 at the expense of fortunes that 
 have been made ? 93 ; the Bank 
 of England takes up the circula- 
 tion which the country banks 
 relinquish, 44771. 
 
 Macpherson, History of Com- 
 merce, bankers pushing out 
 their notes, 488 ra. 
 
 Madison, James, The Federalist, 
 prohibition to the States of the 
 issue of "Bills of Credit," 
 334-5. 
 
 Maine, Sir H. S., Early History 
 of Institutions, cattle used as 
 money, 31-3. 
 
 Majorca produces no gold or sil- 
 ver, 103. 
 
 Malay peninsula, its yield of 
 precious metals, 101. 
 
 Malthus, Rev. T. R., attacks 
 Rioardo's statement of the dis- 
 tribution of the precious metals, 
 53 
 
 Man'dats, territorial, succeed the 
 Assignats in France, 346. 
 
 Mannequin, M., La Monnaie etle 
 Double ttalon, revival of bi- 
 metallism, 341» ; dissents from 
 M. Wolowski as to the com- 
 pensatory action of the two 
 
 metals, 355n ; the "measure of 
 value," 280-171. 
 
 Mansfield, Lord, bank notes are 
 money, 898w. 
 
 Manufactured products, their 
 prices less afEected by increase 
 of money supply than the 
 prices of raw materials, 154-5. . 
 
 Maitin, M., his account of gold 
 in the " Western Islands," 108?i. 
 
 Martineau, M., advocates the is- 
 sue of " assignats," 337. 
 
 Maryland, attempt to establish 
 u mint, 172?i ; colonial paper 
 money, 324 ; revolutionary is- 
 sues, 338-9. 
 
 Massachusetts, com and beaver 
 as money, 33 ; cattle received 
 in payment of taxes, 34 ; first 
 emission of "Bills of Credit," 
 1690, 307-8; further issues, 
 330 ; redemption, 11 : 1, 331 ; 
 revolutionary issues, 328-9 ; 
 fine on banks remaining in 
 suspension, 493-4» ; bank act 
 of 1839, 503ra. 
 
 McCulloch, J. R,, an increase of 
 the money supply always bene- 
 ficial, 93 ; competition in issue 
 between banks, 436-7 ; Com- 
 mercial Dictionary, English 
 gold coinage, 176 ; relation of 
 Scotch and Irish to English 
 coinage, 306-7» ; relation of 
 gold and silver in the English 
 coinage, 324^5 ; bank notes are 
 money, 309-400 ; compulsion to 
 take them, 483 ; the faults of 
 the American banking system, 
 500 ; success of Scotch bank- 
 ing, 510. 
 
 McCulloch, Hugh, effort as Secre- 
 tary of U. S. Treasury to re- 
 tire legal-tender notes, 374-5. 
 
 McLeod, H. D., Principles of 
 Economical Philosophy, "mo- 
 ney is the representative of 
 debt," 36-7; the Mercantile 
 system, 44-6 ; circulation, a 
 quantity of two dimensions, 63 ; 
 the use of money saved by the 
 cancellation of debts, 67 ; down- 
 fall of the " assignats," 346-7 ; 
 the word currency, 396 ; Arbi- 
 tration of Exchanges, 459 ; Ex- 
 change between gold countries 
 and silver countries, 461« r 
 
540 
 
 INDEX. 
 
 failure of the Act of 1844, 
 466-8. 
 
 "Measure of Value," does money 
 sei-ve as a measure of value? 
 4r-9, 64r^, 196, 280-90, 376-7. 
 [See " Denominator in Ex- 
 change."] 
 
 Medina, a Mexican miner, dis- 
 covers the quicksilver process, 
 133. 
 ' Medium of Exchange, 1-4, 204 ; 
 inconvertible paper money may 
 serve as, 876. 
 
 Mercantile Theory and System, 
 44-8 ; Adam Smith attributes 
 to it the English law of free 
 coinage, 183. 
 
 Merivale, C, History of the Bo- 
 mans, the habits of the Romans 
 respecting the use of gold and 
 silver as ornaments, 119m. 
 
 Metals as money, 36-43. 
 
 Mexico, cacao used as money, 35 ; 
 tin as money, 37 ; yield of the 
 precious metals, 133-3 ; com- 
 pared with Peru, 137 ; effects 
 of revolutions upon the pro- 
 duction of the precious metals, 
 139-40 ; early inhabitants had 
 no knowledge of scales or 
 weights, 164 ; nsed quills of 
 gold dust, 166. 
 
 Mflbum, Wm., Oriental Com- 
 merce, old clothes are good 
 money in St. Jago, 25n. ; pad- 
 dy at Porto Novo, 82ra ; the 
 " cash " of China, 166 ; the 
 " gaU" of Cochin China, 171. 
 
 MUl, James, Commerce Defended, 
 coin in international transac- 
 tions passes only at its bullion 
 value, 393ra. 
 
 Mill, John Stuart, Principles of 
 Political Economy, money a 
 machine for doing a particular 
 work, 4^5 ; the need of a 
 " measure of value," 6-8, 383- 
 4 ; the prohibition of export of 
 bullion not wholly ineffectual, 
 65-6 ; the relation between the 
 money supply and prices ; bor- 
 rowing capital is habitually 
 spoken of as borrowing money, 
 94-5ra ; the economic condition 
 of the production of money, 
 107 ; competition in retail mar- 
 kets, 2337i ; effect upon the 
 
 value of money of a change in 
 the cost of producing it, 246 ; in- 
 fluence of custom in economics, 
 386 ; bullion movements often 
 take place without affecting the 
 prices of commodities, 470m. 
 
 Mining of the precious metals, 
 economic conditions, 107 ; in 
 early ages largely non-econ- 
 omical, 108-10 ; prejudiced by 
 the passion of sudden gain, 111- 
 15 ; effects of the system of 
 farming the mines, 114-15, 125- 
 6 ; effects of war and civil con- 
 vulsion, 115-16, 139-iO; the 
 art of mining lost in the mid- 
 dle ages, 130. 
 
 Minorca produces no gold or sil- 
 ver, 103. 
 
 Mints of England, India, Prance, 
 169; inventions in coinage, 178; 
 Mint of the United States, 172- 
 3 ; of Massachusetts colony, 
 173 ; of Russia, 173. 
 
 Mirabeau, M., advocates the is- 
 sue of " assignats," 338-9. 
 
 Mixed Currency, a term applied 
 to Convertible Paper Money by 
 Mr. Norman and Prof. A. Walk- 
 er, 487. 
 
 Money. Metallic money. Part I. : 
 The money function, chap. i. ; 
 the occasion for money comes 
 from trade, 1, 48-9 ; money as a 
 medium of exchange, 2-4, 304, 
 376 ; as a so-called "measure 
 of values," or denominator in 
 exchange, 4r-9, 64-5, 196, 280-6, 
 376-7 ; as a standard for de- 
 ferred payments, 10-11, 90, 157- 
 9, 877-8 ; as a store of value (?), 
 11-13 ; the several functions 
 need not be united in one sub- 
 stance, 13-14, 158 ; money must 
 be "particular," 14; importance 
 of the money function, 14-31 ; 
 money is in political economy 
 what blood is in the anim^ 
 economy, 17-18 ; encourages 
 small savings, 18 ; stimulates 
 production, 19, 79-84 ; helps the 
 classes which are economical- 
 ly feeblest, 30, 220-1; Prof. 
 Price's view that the analysis 
 of primitive money yields "the 
 fundamental principles " of all 
 currency, 21-2 ; is money ca- 
 
INDEX. 
 
 541 
 
 pital ? 22 ; is it productive ? 23 ; 
 the elements of money, chap. 
 ii. ; general acceptability, 24- 
 5 ; Is money the representative 
 of debt ? 36-8 ; is it a guaran- 
 tee ? 29-30 ; always a means to 
 an end, 30 ; various articles 
 used as money — pebbles, beads, 
 wampum, shells, feathers, 25 ; 
 grain, cattle, 31 ; rice, -to- 
 bacco, copper skewers, nails, 
 bullets, 32 ; tea, dates, furs, 
 33 ; portability in money, 38 ; 
 uniformity, 33-4 ; non-liability 
 to deterioration, 34 ; suscepti- 
 bility to division, 35-6 ; com- 
 parative steadiness of value, 
 36 ; the metals as money, 33 ; 
 iron, lead, tin, 37 ; copper, 38 ; 
 silver, 38-39 ; gold, 39-41. 
 
 Money, by the Mercantile 
 theory, regarded as the sole or 
 principal wealth, 44-8 ; how 
 much does a community re- 
 quire ? 48-9, 57-63 ; territorial 
 distribution of money through 
 the agency of price, chap. iii. ; 
 Ricardo's statement, 49-57, cf. 
 150-7, 356-8, 388, 390-1, 518 ; 
 relation between the existing 
 body of money and ruling 
 prices, 58-62 ; money a quan- 
 tity of two dimensions, 62-3, 
 418 ; " rapidity of circulation," 
 Mr. Mill criticises the phrass, 
 63 ; serves as a denominator of 
 values when it is not tlie me- 
 dium of exchange, 64-5 ; de- 
 mand for money diminished by 
 extension of credit, 65-9, 197- 
 304 ; by the deposit and check 
 system, 70-3 ; the amount of 
 money required by any com- 
 munity depends on a variety of 
 circumstances, 73-4 ; it is not 
 necessary that it should be 
 known, 74 ; poor countries 
 will have little money, 74-5 ; 
 importance of the money supply, 
 chap. iv. ; the law of distribu- 
 tion applies, whatever the value 
 of money, 76 ; Bastiat illustrates 
 the proposition that increase 
 of money does not enrich a com- 
 munity, 77-8 ; Prof. Caimes 
 deprecates any considerable in- 
 crease, 78-9 ; Hume's argument 
 
 in favor, 79-81 ; Alison's claim, 
 81-4 ; pleas for a progressive 
 increase of the money supply 
 considered ; stimulus to in- 
 dustry, 85-8 ; reduction of taxa- 
 tion, 88-9 ; reduction in the 
 burden of debts, 88-94; the 
 money supply and the rate of 
 interest, 94-8. 
 
 The production of the pre- 
 cious metals, chaps, v.-viii. 
 
 Elements of the problem of 
 the money supply ; economic 
 conditions of the production 
 of money, 106-7 ; of the min- 
 ing of gold and silver, 107- 
 116 ; consumption of the pre- 
 cious metals in the arts, 117- 
 20 ; loss by abrasion of coin, 
 121-2 ; exportation to the East, 
 122-3, 141-2, 146-7. 
 
 Prof. Cairnes' exposition of 
 the effects of an increase of the 
 money supply upon diilereut 
 countries, 150-2 ; upon difEer- 
 eut commodities and industri- 
 al classes, 153-7; the larger the 
 proportion of wealth that goes 
 to the laborer, the greater the 
 necessity for coin, 156. 
 
 Corn rents instead of money 
 rents, 157-9 ; a tabular stand- 
 ard for deferred payments, 159 - 
 63. 
 
 Effects of seigniorage upon the 
 purcliasiug power of coin, 189- 
 93 ; use of money discouraged 
 by loss of reputation leading to 
 extension of credit and barter, 
 198-204, 379 ; effect upon the 
 value of money of a change in 
 the cost of producing it, 346-8. 
 
 Inconvertible paper money. 
 Part II. Need money he a ma- 
 terial equivalent ? 275-6 ; the 
 theory of inconvertible paper 
 money, chap. xiv. ; illustra- 
 tions, chaps, xiv. , xv. ; " ideal " 
 money, money of account, 
 390-9 ; does war render ne- 
 cessary a suspension of spe- 
 cie payments ? 336-7, 349-51 ; 
 is the premium on gold the 
 measure of depreciation? 361- 
 4, 374, 379-81, 387-91 ; the 
 danger of excessive issues, 377- 
 82 ; the evils of excessive is- 
 
542 
 
 INDEX. 
 
 sues, 333-5, 341-4, 383-4; es- 
 pecially to tte poorer classes, 
 384^7. 
 
 Convertible paper money. 
 Part III. Theory, chap, xviii. ; 
 the currency principle vs. the 
 hanking principle, chap. xix. ; 
 convertible paper money in 
 England, chap. xx. ; in the 
 United States ; other examples, 
 xxi. ; theory concluded, chap, 
 xxii. 
 
 What is money ? hank notes ? 
 395-8 ; checks? 398-9 ; bills of 
 exchange? 399^03 ; the larger 
 bank notes ? 403 ; bank depos- 
 its ? 404 ; exchequer bills ? 405- 
 6 ; money is that money does, 
 405-7. 
 
 Convenience of paper money, 
 409, 533 ; cheapness of bank 
 notes, 409-11; per contra, 522-8 ; 
 "elasticity," 414-19 ; a conver- 
 tible paper money should ope- 
 rate precisely as metallic money 
 would under the same circum- 
 stances, 419-20 ; opposing views 
 as to whether it will so operate, 
 chap. xix. passim, 517-21 ; the 
 American bank-paper money 
 often of questionable converti- 
 bility, 479-85, 493-4, 500, 517- 
 18. 
 
 Mongols, The, issue paper money, 
 302-4, 313n. 
 
 Mono metallists, their position de- 
 fined, 238-4, see chap, xii.- 
 xiii. passim. 
 
 Montague, Charles, the coinage 
 of 1696, 209-13. 
 
 Montesquieu, M., J)e I'Esprit des 
 Lois, relation between the ex- 
 isting volume of money and 
 ruling prices, 59m. 
 
 Moors, The, in Spain, their habits 
 in working mines, 105ra. 
 
 Morrill, J. S. [U. S. House Rep.], 
 opposes issue of legal-tender 
 notes, 371-2, 
 
 Morris, Gou verneur, "papier- 
 terre," 333. 
 
 Murchison, Sir R., Siluria, gold 
 found superficially ; silver in 
 deep mines, 103m. 
 
 National bank system of the U. 
 S., 507-9. 
 
 Neaves, Mr., the English Bank 
 Act of 1844, 448". 
 
 Necker, M , opposes issue of the 
 assignats, 336-9. 
 
 Netherlands, the Bank of, 513. 
 
 Nevada silver mines, 337 ; pro- 
 portion of gold in silver ores, 
 365n. 
 
 Newcomb, Prof., gold and silver 
 coin, unproductive capital, 33m; 
 inconvertible paper no true re- 
 source in war, 350-1. 
 
 New England, wampum used as 
 money in early times, 35 ; clip- 
 ping the coin, 196m ; early 
 forms of money, 805-7 ; resort 
 to paper money, 308 ; issues 
 prohibited by Parliament, 314 ; 
 N. E. maintains specie pay- 
 ments through the war of 1 812, 
 492 ; N. E. banks in 1839, 501m ; 
 superiority of the N. E. bank 
 notes, 506. 
 
 Newfoundland, inhabitants used 
 dried cod as money, 33-3. 
 
 New Hampshire,, colonial paper 
 money, 308 ; its issues put under 
 the ban in other colonies, 313m. 
 
 New Jersey, colonial paper mon- 
 ey, 308, 333 ; revolutionary iS' 
 sues, 328-9. - 
 
 Newmarch, Wm., an increase of 
 the money supply a benefit to 
 society, 78 ; great number of 
 enterprises at any time await- 
 ing encouragement, 434m. 
 
 "New Tenor" Bills of Credit, 
 813-14, 319, 346. 
 
 New York, colonial paper mon- 
 ey, 808, 833 ; revolutionary is- 
 sues, 338-9; N. T. banks in 
 1839, 501m; "Safety Fund" 
 banking system, 503-4 ; Free 
 Banking Law, 504-5 
 
 Nicholson, N. A., Science of Ex- 
 changes, the British Mint, 174 ; 
 expense of coinage, 184 ; loss by 
 "cut" sovereigns, 255m; the. 
 position of the mono-metallists, 
 323-4 ; bank notes are money, 
 398 ; are deposits money ? 405m ; 
 convertible paper money should 
 fluctuate precisely like metallic 
 money, 430 ; no necessary con- 
 nection between banking and 
 paper money, 445 ; the Act of 
 1844, 448». 
 
INDEX. 
 
 543 
 
 Norman, George Warde, Be- 
 marks on Currency and Bank- 
 ing, modern economy of money, 
 69, 70; advocates the "Cur- 
 rency Principle," 425, 430-1, 
 517-18; no necessary connection 
 between banking and paper 
 money, 445. 
 
 Normanby, Lord, Paris in 1848 
 reduced to barter, 15ra. 
 
 Noric Alps, tbeir yield of tte pre- 
 cious metals, 106. 
 
 Nortb, Dudley, free coinage "is 
 perpetual motion found out," 
 183-3. 
 
 North Carolina, yield of gold, 
 144, 336 ; Colonial paper mon- 
 ey, 334. 
 
 Norway, its yield of the precious 
 metals, 104. 
 
 "Old Tenor" Bills of Credit, 
 313-14, 319, 346. 
 
 Oresme, N., De Origine, etc., 
 Monetarum, usury is against 
 nature, 96?i ; sanctity of de- 
 vices on coin, 171ft; seignior- 
 age, 181ra. 
 
 Overstoue, Lord, bank deposit 
 system reduces the demand for 
 money, 70-1 ; are deposits cur- 
 rency ? 405?i ; banking reserves, 
 413 ; convertible paper money 
 should operate precisely like 
 metallic money, 430 ; it may be 
 issued in excess, chap. xix. 
 passim, 517-18 ; progress of the 
 "Currency Principle," 443-7; 
 objections to the union of bank- 
 ing and issue, 446-7 ; regula- 
 tion of note issues by the Ex- 
 changes, 464-5 ; effects of com- 
 petition on issues, 480 ; success 
 of Scotch banking compatible 
 with commercial disasters, 511 ; 
 French bank-note circulation 
 has conformed to movements 
 of metallic money, 511-13. 
 
 Palgrave, R. H. Inglis, Notes on 
 Banking, Swedish bank mon- 
 ey, 413, 518 ; Scotch banking, 
 511?i. 
 
 Panics, how to treat them, 473-6. 
 
 Paris, ceases to be a centre of in- 
 ternational exchanges, 383. 
 
 Parnell, Sir H., Paper Money, 
 
 etc., paper-money banking in 
 England, 414. 
 
 Patterson, R. H., The Science of 
 Finance, "elasticity" of bank 
 money, 414-15. 
 
 Peel, Sir Robt., his part in the Re- 
 sumption legislation of 1817-19, 
 356-64; the Act of 1844, 434?i. 
 
 Pennsylvania, Colonial paper 
 money, 333-4; Revolutionary 
 issues, 338-9. 
 
 Perry, Prof., Elements of Pol. 
 Economy, money stimulates all 
 the processes of production, 
 19 ; value, in general, only 
 suitable for loaning when in the 
 form of money, 95re ; danger 
 of over-issues of inconvertible 
 paper money, 383 ; losses in the 
 United States by bad bank 
 money, 533-3. 
 
 Persian Empire, its treasures 
 largely derived from conquest, 
 110 ; purity of its coin, 174r-5. 
 
 Persia, its yield of the precious 
 metals, 101 ; irregular coinage, 
 171 ; paper money in thirteenth 
 century, 303. 
 
 Peru, use of silver in the arts, 
 130 ; its yield of the precious 
 metals, 133-8 ; compared with 
 Mexico, 137 ; decline in pro- 
 duction, 140. 
 
 Petty, Sir Wm., estimate of the 
 amount of m.oney needed in 
 England, 74 ; money the fat of 
 the body politic, 78?i. 
 
 Pheidon, king of Argos, first 
 coined money, 167. 
 
 Phenicians, The, open the mines 
 of Greece, 106 ; exchange the 
 silver of Europe for the gold of 
 Asia, 109-10. 
 
 Philip of Macedon, lack of trea- 
 sure, 108-9. 
 
 Philippine Islands, their yield of 
 the precious metals, 103. 
 
 Phillips, Henry, Jr., the Pennsyl- 
 vania paper money, 318re ; New 
 Jersey do., 333 ; Virginia do., 
 334. 
 
 Platinum, xmsuited for coinage ; 
 the Russian experiment, 167-8. 
 
 Pliny, gold and silver always 
 found together in Spain, 364-5?i. 
 
 Poland, alone of European nations 
 without paper money, 303. 
 
544 
 
 INDEX. 
 
 Pollock, James, tlie coin of tlie 
 United States, 187. 
 
 Polo, Marco, the gold product 
 of Japan, 103 ; the paper money 
 of China, 303-3. 
 
 Portability, as an element of 
 money, 33. 
 
 Portugal, small yield of the pre- 
 cious metals, 103 ; circulation 
 of "moidores" in England, 
 179 ; of "sovereigns " in Portu- 
 gal , 185 ; relation of gold and 
 silver in the coinage, 234, 339. 
 
 Potosi, discovery of silver, 104k, 
 133. 
 
 Potter, E. E., the Khode Island 
 paper money, 316-30. 
 
 Poucet, M., Ethiopians use rock 
 salt as money, l64?i. 
 
 Pownall, Governor, the paper 
 money of Pennsylvania, 333. 
 
 Precious Metals, The, deemed the 
 sole or principal wealth, 44-8 ; 
 their distribution through the 
 agency of price, 49-57 ; the field 
 of production of, 99-106 ; the 
 economical conditions of pro- 
 duction, 106-7 ; the production 
 and distribution once large- 
 ly non-economical, 108-11 ; in 
 more recent times, largely un- 
 economical, 111-15 ; effects of 
 war and civil convulsion, 
 115-16 ; history of production ; 
 Augustus to Columbus ; money 
 famine of the middle ages, chap, 
 vi. ; from 1193 to 1848 ; the dis- 
 covery of America ; fall in the 
 value of gold, and still more of 
 silver, chap. vii. ; the Calif ornian 
 and Australian episode ; effect 
 on the silver price of gold, 
 chap. viii. 
 
 Premium on gold and silver under 
 inconvertible paper money ; in 
 revolutionary France, 340-1, 
 345-7; in England, 853-64; 
 other examples, 365-9, 374 ; 
 does the premium measure the 
 depreciation ? 360-4, 387-91 ; 
 on bUls of exchange, the limits, 
 463. 
 
 Prescott, W. H., Conquest of 
 Mexico, tin used as money, 37 ; 
 Mexicans had no knowledge of 
 scales and weights, 164 ; used 
 quills of gold dust, 168 ; Uoii- 
 
 guest of Peru, silver used in the 
 mechanical arts, 130. 
 
 Price, distinguished from value, 
 339-30. 
 
 Price, Prof., Principles of Cur- 
 rency, ' ' Currency has its origin 
 in the division of labor," Ira ; 
 money "an interposed com- 
 modity," 3 ; the analysis of 
 metallic money gives "the 
 fundamental principles of all 
 currency," 31-3 ; money, a 
 guarantee, 39 ; only a tool for 
 a specific use, 30-1 ; influence 
 of the Mercantile Theory, 47-8 ; 
 Prof. Price misapprehends Mr. 
 Mill, 01 ; money measures goods 
 where it dges not actually ex- 
 change them, 64w ; Prof. Price's 
 definition of a bank criticised, 
 68;i ; only three per cent, of 
 payments into a hank made in 
 cash, 71-3 ; inconvertible paper 
 money need not depreciate, 
 3'i8?J ; the public has a definite 
 want of bank notes, 379»i ; the 
 " Measure of Values," 383)1 ; 
 the law of the depreciation of 
 inconvertible notes obscure, 
 387 ; bank notes, a form of 
 credit, 3977i ; the word "repre- 
 sent," 410 ; convertible paper 
 money cannot be inflated, 433 ; 
 banks may be regulated by the 
 State, 437-8ra ; small notes not 
 objectionable, 440 ; "jiractical 
 men " in finance, 444ra ; no ne- 
 cessary connection between 
 banks and paper money, 445 ; 
 the Bank Act of 1844, 448, 
 453-3 ; a sort of compulsion to 
 take bank notes, 483-8 ; success 
 of Scotch banking, 510ra ; Prof. 
 Price deems the reserves of 
 the Bank of England excessive, 
 534-8. 
 
 Prussia, the Royal Bank of, 514, 
 516». 
 
 Pyrenees, The, discovery of silver, 
 104?!. ; their silver mines, 105. 
 
 Eaguet, Condy, Currency and 
 Banking, are deposits " cur- 
 rency ? " 405ra ; conversion of 
 circulating into fixed capital, 
 473)1 ; faults of American pa- 
 per-money banking, 485 ; banks 
 
INDEX. 
 
 545 
 
 declaring dividends while in- 
 solvent, 493 ; swindling banks, 
 490-7ra. 
 
 Railroads, diminish the use of 
 money, 73. 
 
 Ramsey, Dr., History of 8outh 
 Carolina, Colonial paper money, 
 335 - 6 ; revolutionary issues, 
 331», 334-4; History of the 
 United States, effects of the 
 "Continental Currency," 337. 
 
 Rau, Prof., on the word fuaio-n, 
 lift ; compensatory action of 
 hi-metallic money, 357. 
 
 Receinage, chap. si. ; the Eng- 
 lish recoinages of 1560, 306 
 of 1698, 309; of 1774, 313 
 should " the aucient standard 
 be restored? 313; on whom 
 should the cost of recoinage 
 fall ? 314. 
 
 "Reflux," The, 439, 517-31. 
 
 Represent, the use of the word 
 in the philosophy of money, 
 410. 
 
 Reserves, banking, the ratio of 
 oae-third, 413-18; of the Bank 
 of Netherlands, 513 ; of the 
 banks of Germany, 514, 516n ; 
 of the Bank of England, 
 deemed by Prof. Price to be 
 excessive, 534^8. 
 
 Restriction, the English, 347- 
 65. 
 
 Resumption, the English, 1819- 
 21, 359 - 64 ; contemplated in 
 the United States, 374-5. I 
 
 Retail trade, its volume must 
 be equal to that of wholesale ' 
 trade, 73 ; the " friction " of re- \ 
 tail trade increased by bad 
 money, 331-3, 386-7 ; only the | 
 smaller bank notes used in re- 
 tail transactions, 403-5. 
 
 Revolution, the American, paper- 
 money issues caused by, 336- 
 35. 
 
 Rhode Island, first colonial is- 
 sues, 308-9 ; bills put under the 
 ban by Connecticut, 314 ; nine 
 successive " banks," 316-30 ; 
 revolutionary issups, 338 - 9 ; 
 relapse into paper issues after 
 the war, 334. 
 
 Ricardo, David, apparent contra- 
 diction of views, 191?i, 415ra ; 
 was Mr. Ricardo ill-treated by 
 
 Mr. Horner? 353; Tlie Eiffh 
 Price of Bullion, the territorial 
 distribution of the precious 
 metals through the agency of 
 price, 49-50 ; money cannot be 
 exported to excess, 51 ; modern 
 economy of money, 69 ; the sus- 
 
 _ pension of 1797, 348 ; Proposals 
 
 'for a Secure and Economical 
 Currency, Sir James Steuart's 
 "ideal" money, 391 )i ; "elas- 
 ticity" of paper money (?), 
 415?i ; governments should reg- 
 ulate bank issues equally with 
 coin, 498« ; Reply to Bosanquet, 
 no considerable addition can 
 be made to the bullion in a 
 country without an increase 
 of money, 61ra ; actual cost 
 of coinage the proper limit 
 of seigniorage, 187 ; effect of 
 seigniorage on prices, 189-90, 
 194, 197 ; his theory requires a 
 qualification, 198-304, 379 ; the 
 premium on gold is the meas- 
 ure of depreciation, 360re ; can 
 money be issued, if the circu- 
 lation is already full? 437-8; 
 importation of bullion increases 
 the quantity of money, 468?! ; 
 Political Economy, effects of 
 seigniorage on prices, 190-3 ; 
 the whole charge for paper 
 money may be considered as 
 seigniorage, 197, 377-9. 
 
 Rice, as money in early Carolina, 
 33. 
 
 Richard I. of England, his ransom 
 obtained by melting church ves- 
 sels, 118-19. 
 
 Ring money, 165-6. 
 
 Rogers, Prof., Political Econo- 
 my, need of a measure of 
 value, 6 - 7 , 383 - 3 ; money 
 necessary to the division of 
 labor, 17w ; Notes to Adam 
 Smith, proportion of money 
 to income in England, 74» ; 
 production of the precious met- 
 als, 1849-08, 145-6n; Histori- 
 cal Cleanings, attributes all 
 great inventions to Anglo-Saxon 
 thought, 173ra ; corruption of 
 the coin the cause of French 
 disasters, 1340 1440, 188-9; 
 who should bear the cost of 
 coinage ? 314 ; Hilary of Ag- 
 
546 
 
 INDEX. 
 
 ricuUure and Prices, lead 
 cheaper ttan iron, down to the 
 Great Plague, 3T;i ; early gold 
 coin of England, 234/; ; rela- 
 tion of gold and silver, 1362- 
 1345, 330-1, 351-3. 
 
 Roman Empire, Alison attrib- 
 utes its downfall to failure of 
 the mines, 81 ; invasions of the 
 barbarians cut off the supply 
 of the precious metals, 127-8. 
 
 Romans, their mode of con- 
 structing mining shafts, 105re ; 
 their use of gold and silver in 
 ornament, 119-30 ; unskilled in 
 mining, they farm the mines, 
 134^5. ^ 
 
 Eoscher, Prof., Principes d'JEeo- 
 nomie Politique [Wolowski's 
 translation], money the blood 
 of the commercial body, 16- 
 \ln ; helps those who are eco- 
 nomically feeblest, 30, £30 - 1 ; 
 prices in different countries, 
 58)1 ; recommends mixed rents, 
 160?i ; compensatory action of 
 bi-metallic money, 257 ; bul- 
 lion movements do not always 
 affect the quantity of money, 
 470ft. 
 
 Rossi, M., characteristics of the 
 bank note, 400» ; advocates re- 
 striction of bank issues, 439. 
 
 Ending, Eogers, debasement of 
 English coin, 186. 
 
 Eussia, furs used as money, 
 83 ; prohibits export of the 
 precious metals, 46 ; its gold 
 mines described by Herodotus, 
 re-discovered in eighteenth cen- 
 tury, 106 ; increased produc- 
 tion after 1833, 140 ; trial of pla- 
 tinum money, 168 ; mint, 173 ; 
 maintains the full metallic 
 value of its small coins, 318 ; 
 relation of gold and silver in 
 the coinage, 338 ; government 
 paper money, 366-7 ; bank pa- 
 per money, 523. 
 
 Salt (rock) used by the Abyssin- 
 
 ians as money, 164. 
 San Domingo, paper money, 369ra. 
 Sardinia, its yield of the precious 
 
 metals, 103. 
 Saxony, its yield of the precious 
 
 metals, 105. 
 
 Scotland, its yield of gold, 103 ; 
 payment of agricultural wages 
 in kind, relation of its coin to 
 that of England, 207 ; bank 
 notes convertible formerly on 
 condition, 429-30 ; under the act 
 of 1844, 450-1 ; its banking sys- 
 tem, 509-11. 
 
 Scott, Sir Walter, Letters on the 
 Cvrrency of Scotland, difficulty 
 of keeping the precious metals 
 in circulation in poor countries, 
 75, 305. 
 
 Scrope, Poulett, his scheme for 
 a Tabular Standard, 160-r. 
 
 "Secured Circulation," in Eng- 
 lish Bank Act of 1844, 447-51 ; 
 in the Kew German law, 514-15. 
 
 Seigniorage, on whom should 
 the cost of coinage fall? 181; 
 the economists generally favor 
 seigniorage, 188 ; the English 
 free coinage, 183; arguments in 
 its favor, 183-6 ; M. Chevalier 
 proposes the term Brassage to 
 cover actual mint expenses, 186; 
 seigniorage abused ; extensive 
 debasement of coin, 186-7; ef- 
 fects on prices, 189-93 ; the 
 whole charge for paper money 
 may be consideredas seignior- 
 age ; the theory of seigniorage 
 offers the best approach to the 
 discussion of paper money, 377. 
 
 " Selecting" the coin, 195. 
 
 Senegambia, inhabitants use iron 
 as money, 37?i. 
 
 Senior, Prof., the value of the 
 precious metals depends on their 
 value as materials of manufac- 
 ture, 43w, 252; the markets of 
 the world are England's mines 
 of gold and silver, 56. 
 
 Seyd, E., Bullion and Foreign 
 Exclianges, use of lead as 
 money, 87 ; the properties of 
 silver, 38-9 ; of gold, 41 ; ex- 
 port of money from Eussia ; 
 4671 ; on coinage, 171-80 ; esti- 
 mates the stock of gold and sil- 
 ver, 369 ; paper money of Rus- 
 sia, 867: of Spain, 869 ; P^rlq 
 and London Exchange, 463;i ; 
 management of the Bank of 
 Prance, 513. 
 
 Shuckers, J. W., The Finances, 
 I etc., of the BevoluOon, the 
 
INDEX. 
 
 547 
 
 "Continental Currency," 328- 
 30. 
 
 Siberia, discoveiy of its auriferous 
 sands, 143. 
 
 Sicily, producea no gold or silver, 
 103. 
 
 Silesia, its yield of the precious 
 metals, 105. 
 
 Silver, properties fitting it for use 
 as money, 38 ; use in tlie arts, 
 43 ; the field of production. 9i)- 
 103 ; in early ages regarded as 
 treasure, not money, 108-9 ; 
 economic conditions of pro- 
 duction, 108-lfi, 33r-8ft, 354re; 
 history of production, chap, vi.- 
 viii. ; relation to gold in the coin- 
 age of England, 317-18, 334-5 ; 
 of the United States, 335-8 ; 
 variations in its power to pur- 
 chase gold, 329-80; effect of 
 the discovery of America, 351- 
 3 ; of the Californian and Aus- 
 tralian discoveries, 333-4 ; re- 
 placed by gold in the coinage 
 of France, 1849-58 ; export to 
 India, 335-6 ; change in com- 
 parative production of silver 
 and gold, 1865-71 ; effect on 
 gold price of silver, 337 ; ex- 
 tensive demonetization of sil- 
 ver, further effect on its gold 
 price, 338 ; advocated by Locke 
 as the sole metal of unlimited 
 tender, 338; interchangeable use 
 of silver and gold, its effect on 
 the price of either, 348-53 ; 
 may form one-fourth the re- 
 serves of the Bank of Eng- 
 land, the Bank in 1847 refused 
 to make advances on deposits of 
 silver, 448-9» ; there can be no 
 true par of exchange between 
 a silver country and a gold 
 country, 461. 
 
 Slaves employed in mines, 136 ; 
 the extension of the Eoman 
 power diminishes the supply 
 and makes slaves too costly to 
 be employed in mines, 137. 
 
 Small note issues, economical ob- 
 jections to, 439-43, 481-3. 
 
 Smith, Adam, Wealth of Nations, 
 a guinea is a bill for goods, 38, 
 38 ; nails as money, 83» ; the 
 durableness of the metals gives 
 them great steadiness of value, 
 
 40 ; Smith's refutation of the 
 Mercantile Theory, 46 ; retail 
 must equal wholesale trade, 
 72-3 ; extent of the effect of 
 the American discoveries upon 
 prices,135; disapproves the Eng- 
 lish system of free coinage, 183; 
 effect of the American discov- 
 eries on the relative value of 
 gold and silver, 333 ; ratios of 
 values do not follow the ratios 
 of quantities, 344^5 ; reason for 
 the depreciation of "Colony 
 Currency," 278-9 ; value given 
 to money by its being received 
 for taxes, 389?i ; distinction be- 
 tween large and small bank 
 notes, 403-4 ; cheapness of 
 paper money, 400-1 ; paper 
 money must be convertible un- 
 conditionally, 439-30 ; origin of 
 the bank of Amsterdam, 463. 
 
 Smith, Toumliu, the cppper coins 
 of England, 168. 
 
 Snowden, J. R., On Gains, French 
 inventions in coinage, 173. 
 
 South Carolina, Colonial paper 
 money, 335-6 ; revolutionary 
 issues, 338-9. 
 
 Spain, its yield of the precious 
 metals, 104^5 ; universal circu- 
 lation of the Spanish dollar, 
 179-80; relation of gold and 
 silver in the coinage, 232-3, 
 340 ; paper money, 369. 
 
 Spauldin^, E. G., Financial His- 
 tory of the War, origin of the 
 United States legal-tender notes, 
 370-1 
 
 Speculation is not initiated by is- 
 sues of bank paper money, 433- 
 3; but is promoted thereby, 433- 
 5, 471-2, 502-3, 519-30, 526-7. 
 
 Standard of value, the term an 
 unfortunate one, 11-13 : " sin- 
 gle " or "double" standard, 
 333, chaps, xii.-xiii. passim. 
 
 Standard for deferred payments, 
 11-13, 90-3 ; Corn Rents substi- 
 tuted, 157-9 ; a tabular stand- 
 ard proposed, 159-63 ; how far 
 inconvertible paper money will 
 perform the office, 377. 
 
 Stanhope's Act, 355. 
 
 Stanley, Sir Thomas, his plan for 
 the recoinage of 1530, 207-8. 
 
 Statistics of bank issues in En^- 
 
548 
 
 IXDEX. 
 
 land, 444m; U.S., 499-501; 
 Sweden and Italy, 5i3w. 
 
 Steuart, Sir James, Political 
 Economy, coinage in England, 
 171?i ; Ms theory of "ideal" 
 money, 290-6 ; Coin of Bengal, 
 a money-of-account, 294-5. 
 
 Story, Judge, effects upon public 
 morality of the paper money of 
 the Revolution, 334. 
 
 Storch, Prof. , how to prevent the 
 melting of the coin for pur- 
 poses of manufacture, 183 ; cost 
 of coinage, 18471 ; distinction 
 between paper money and bank 
 notes, 276a. 
 
 St. Petersburg, notes of the Bank 
 of, 322. 
 
 Sugar, as money, in the West In- 
 dies, 33. 
 
 Sumatra, its yield of gold, 102. 
 
 Sumner, Charles [U. S. Sen- 
 ate], on the legal-tender bill, 
 373. 
 
 Sumner, Prof., History of Ameri- 
 can Currency, "the worse the 
 currency, the more mobile," 
 198» ; effect upon retail prices 
 of an excess of " fractional cur- 
 rency," 231 ; relation of gold 
 and silver in the coinage of the 
 U. S., 225-27 ; depreciation of 
 notes payable at a future date, 
 278 ; the money of the early 
 colonists, 307 ; the colonial is- 
 sues of paper money, 310, 317- 
 18w, 331, 323; suspension of spe- 
 cie payments never necessary, 
 350 ; the buUionist view of the 
 exportation of money, 356-8 ; 
 on the U. S. legal-tender notes, 
 373-375 ; convertibility of bank 
 notes, lacking in the bank- 
 paper money of the U. S., 
 484-5; swindling banks, 496 ; 
 the crisis of 1839, 500; were 
 the bank issues prior to 1837 
 in excess ? 502 3n. 
 
 "Sweating" the coin, 194-5. 
 
 Sweden, iron used as money, 37m; 
 its yield of the precious metals, 
 103-4 ; paper-money banking, 
 413, 513. 
 
 Switzerland, relation of gold and 
 silver in the coinage, 338-9. 
 
 Swift, Dean, TTie Drapier's Let- 
 ters, the small coin of Ireland, 
 
 168n. ; truck preferred to the 
 use of bad money, 303. 
 Sycee silver, 101-3. 
 
 Tabular standard for deferred 
 payments, 159-63. 
 
 Talleyrand, M. , advocates the first 
 but opposes the second issue of 
 " assignats," 339-40. 
 
 Taxation, is it reduced by an in- 
 crease of money? 88 9; paper 
 money as an escape from taxa- 
 tion, 338ra. 
 
 Taxes, paper money received in 
 payment of, 289, 803m, 308, 813. 
 
 Tea, as money, in China, and at 
 the Russian fairs, 83. 
 
 Telegraphs, diminish the use of 
 money, 73. 
 
 Tender, legal, silver in Great 
 Britain, in limited amounts, 
 318 ; in the U. S., 228 ; the pa- 
 per money of the colonies, 308- 
 9 ; of the Continental Congress, 
 S30-1, 334 ; of the French as- 
 signats, 389-44 ; of the U. S. 
 treasury notes, 369-74. 
 
 Thrace, its silver mines, 106. 
 
 Thibet, its yield of the preciotis 
 metals, 101. 
 
 Thiers, A., difficulty of re-estab- 
 lishing the credit of paper men- ' 
 ey, 331 ; the "assignats," 343?i, 
 347w. 
 
 Thornton, Henry, Paper Credit, 
 353 ; money, an order for goods, 
 26 ; the causes of the exporta- 
 tion of money, 53 4 ; the pow- 
 er of manufacturing cheaply, 
 more valuable than any stock 
 of bullion, 56 ; bills of ex- 
 change are not money, 403 ; pa- 
 per-money banking in Eng- 
 land, 414. 
 
 Tin, used as money, 87. 
 
 Tobacco, Es money, in early Ma- 
 ryland and Virginia, 33. 
 
 Token-money, see BUlov. 
 
 Tomline, Col., the influence of 
 billon, or token-money, on the 
 poorer classes, 219. 
 
 Tooke, Thomas, State of the Cur- 
 rency, causes of the exportation 
 of money, 54, 519 ; his earlier 
 views of bank money, 435-6, 
 433-4, 451 ; the causes of spec- 
 ulation, 471 ; bankers pushing 
 
INDEX. 
 
 549 
 
 out their notes, 489>i"; History 
 of Prices, economy in tlie use 
 of money through savings 
 banks, 71 ; who should hear 
 the cost of recoinage 1 315?i ; 
 effect of a short crop of wheat 
 upon the price of barley, 349?i : 
 inconvertible paper money does 
 not necessarily depreciate, 279 «; 
 Russian paper money, 366-67 ; 
 definition of money, 396 ; are 
 the larger bank notes money ? 
 403-5 ; are deposits ? 405?i ; the 
 word "represent," 410; con- 
 vertible paper money must op- 
 erate precisely like metallic 
 money, 415, 430 ; it will do so, 
 430, chap. xix. passim [his ear- 
 lier views opposed to this, 435- 
 6, 438 4, 451, 519] ; approves 
 the regulation of banks by gov- 
 ernment, 438/1 ; export of bul- 
 lion need not decrease the quan- 
 tity of money, 569re ; paper- 
 money banking in the U. S., 
 493ft-494. 
 
 Torrens, Col. , bank notes are mon- 
 ey, 397 ; advocates the " Cur- 
 rency Principle," 435 ; the Eng- 
 lish country bank circulation, 
 450. 
 
 Trade, arises out of the division 
 of labor, gives rise to the use 
 of money, 1. 
 
 Transylvania, its yield of the 
 precious metals, 108. 
 
 Treasury notes, are they money ? 
 405-6 ; in the U. S., 494-5. 
 
 Truck, its extension favored by 
 bad money, 198-304. 
 
 Tucker, Prof . , Money and Banks, 
 advantages derived from the use 
 of money, 17-18 ; slavery in- 
 creasing the demand for money, 
 73» ; abrasion of coin, 177 ; cir- 
 culation of foreign coins in the 
 TJ. S., 179 ; irregularity of the 
 coin, 303 ; the money of the 
 Colonies, 306w; faults of Ameri- 
 can paper-money banking, 485-6. 
 
 Turgot, M. , Des Bichesses, all com- 
 modities, in some sense, money, 
 14. 
 
 Turkey, its yield of silver, 10» ; 
 relation of gold and silver in the 
 coinage, 339-40 ; paper money, 
 389. 
 
 Uniformity in quality, as an ele- 
 ment of money, 33-4. - 
 
 United States, gold product of 
 the Atlantic coast, 144 ; of the 
 Pacific coast after 1848, 144-5 ; 
 relation of the U. S. to the gold 
 supplies after 1843, 151-3 ; the 
 mint, 173-3 ; former circulation 
 of foreign coins, 179 ; payment 
 of agricultural wages in kind, 
 300 ; relation of gold and sil- 
 ver in the coinage, 335-7, 338, 
 366 ; paper money of the revolu- 
 tion, 336-35; paper money of the 
 civil war, 369-75 ; its paper- 
 money banking, chap. xxi. ; its 
 bank notes of very limited con- 
 vertibility, 479 ; characteristics 
 of its . paper-money banking, 
 480-3, 497-8; writers, 485-91 ; 
 history, 1811-37, 491-503 ; ef- 
 forts at reform, 503-6 ; experi- 
 ence, 1844-61), 503-8, 518 19 ; 
 the natural export of the U. S., 
 519-30 ; effects of bank money 
 on the agricultural class, 530-1; 
 losses by bad money, 533-3 ; 
 present monetary system, 507-9. 
 
 Ural Mountains, gold mines, 140. 
 
 Value, distinguished from price, 
 329-30; money as a denominator 
 of values, 4-9, 64-5, 380-9, 376- 
 7 ; steadiness of value import- 
 ant in money, 36. 
 
 Van Buren, President, arraigns 
 the second Bank of the U.S., 
 496n. 
 
 Vansittart, N., his resolutions, 
 354, 364. 
 
 Vegetable products do not rise so 
 high under increase of money 
 as animal products, 155. 
 
 Verii, Count, Delia Pol. Econ., 
 money the universal merchan- 
 dise, 34;i. 
 
 Virginia, attempt to establish a 
 mint, 173re ; colonial paper 
 money, 324r-5 ; revolutionary 
 issues, 338-9. 
 
 Wakefield, E., bankers pushing 
 out their notes, 488!i. 
 
 Waloker, Dr. Karl, a tabular stand- 
 ard only a question of time, 160. 
 
 Walker, Amasa, Science ofWealth, 
 are deposits currency ? 405ra ; 
 his views on convertible paper 
 
550 
 
 INDEX. 
 
 money, or mixed currency, 
 486-91 ; the eilect of bad money 
 on the agricultural classes of 
 the U. S., 519-21. 
 
 Wampum, as money, 35, 305. 
 
 War, its effect on the mining of 
 the precious metals, 115-16 ; 
 does war render necessary a 
 suspension of specie payments ? 
 330-7; 
 
 Ward, H. G., Mexico, effects of 
 Spanish American revolutions 
 on mining industry, 139-40, 178. 
 
 Ward, Wm., Commercial Legisla- 
 tion of 1846 ; did Ricardo re- 
 cant? 363ra. 
 
 Webster, Daniel, international 
 money, 383; the laboring classes 
 the principal sufferers by bad 
 money, 384-5 ; effect of com- 
 peting issues, 480 ; small-note 
 issues, 481. 
 
 Wells, David A., importance of 
 the money function, 15, 16 ; 
 what amount of money is re- 
 quired to carry on exchanges ? 
 76 ; silver too cumbrous for 
 general use as money, 409?i. 
 
 Wheat, as money, 31. 
 
 White, A. D., Paper Money Infla- 
 tion in ffrancB, the narrative of 
 the "assignats," 337-44 ; dan- 
 ger of over -issue of inconverti- 
 ble paper money, 380-1. 
 
 White, Horace, evils of American 
 paper-money banking, .497?i. 
 
 " Wild Cat " banking in the U. 
 S., 503-3. 
 
 William III., the recoinage of his 
 reign, 309-13. 
 
 Wilson, Gloucester, Defense of 
 Abstract Currencies, "ideal" 
 money, 396-7.- 
 
 Wilson, James, the monetary cir- 
 
 ^ culation of India, 148 ; Capital, 
 
 Currency, and Banking, the use 
 
 of money ample compensation 
 
 for its cost, 33 ; coin actually in 
 
 circulation is withdrawn from 
 productive uses, 33-3 ; incon- 
 vertible paper money need not 
 depreciate, 378?i ; convertible 
 paper money should operate 
 precisely like metallic money, 
 419 ; it will so operate, chap, 
 xix. passim ; does the exporta- 
 tion of bullion diminish the 
 quantity of money ? 469-70 ; 
 conversion of circulating into 
 fixed capital, 473 ; vices of the 
 American system of paper- 
 money banking, 480. 
 
 Wirth, Max, paper money of Aus- 
 tria, 368-9. 
 
 Wiszniewski, Prince, believes 
 that a well-founded bank would 
 have saved Poland, 303. 
 
 Wood, Wm., his pence, 168m, 
 173«. . 
 
 Wolowski,M., ontheword jftoZon, 
 lira ; the origin of bank money, 
 463m ; L'Or et I' Argent, com- 
 parative steadiness in value of 
 the precious metals, 40?i ; effect 
 of uniting gold and silver in 
 the coinage at a fixed ratio, 253- 
 65 ; Les Finances de la Sussie, 
 Poland the sole European na- 
 tion without paper money, 303 ; 
 La Question des Banques, no 
 instrument costs so little, rela- 
 tively, as money, 33k ; the 
 French suspension of 1848, 
 365?!. ; bank notes are money, 
 898 ; the banking reserve, 
 413 a ; advocates restriction of 
 bank issues, 439 ; papei'-money 
 banking in the U. S., 496-7?i ; 
 issuing paper money on securi- 
 ties not approved, 504)! ; saving 
 by issue of bank notes in Eng- 
 land, 533-4 ; no money cheap 
 but good money, 535 «. 
 
 Yule, Col. , notes to Marco Polo, 
 302-4, 312».