Money

Front matter

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Cornell University Library HG 221.M82

Preface

Notes originally commenced to be used in discussions at the meetings of the Society for the Advancement of Political and Social Science, lately organized in this city, gradually assumed the form of the present work, which is an attempt to analyze and discuss the subject of Money, in its most important, practical phases, more fully than has been done in any of the works that have, as yet, fallen into the hands of the writer.

The conclusions arrived at appear to explain and reconcile all the anomalies that, heretofore, have rendered money so vexed a subject. The views expressed in, this work in regard to the relative value of gold and silver, and the effects of the large influx of gold from new mines, were published in the local press as early as 1851. Every prediction then made on this subject has been fully realized, while not one of those made by the partisans of the theory of the future depreciation of gold and appreciation of silver has been fulfilled. The conclusions in regard to the effect on prices, of bank-note issues, were arrived at and communicated

IV PEEFACB.

to friends long before reading the able works of Fullarton and Tooke, in which similar views are maintained. This is mentioned here, not so much to claim the merit of originality for these conclusions, as with a view to obtain for them the weight due to conclusions arrived at -by different parties, examining the same subject from different points of view.

The constantly increasing division of labor daily increases the exchanges of commodities and services, in which money plays so important a part. The subject of money is, therefore, supposed by the writer to be of sufficient general interest to warrant the publication of the present work. If if; shall aid in dissipating any of the numerous errors and prejudices so long connected with money, and thus increase the power of this instrument to further the well-being and progress of humanity, the object of the writer will be attained and his labors amply compensated.

New Tobk, April 20, 1863.

COITTElNrTS.

Chapter I

Haterials used as money— Coins of antiquity and of the middle agea-Debasement of money in the middle ages, . .... 1

Chapter II

Banks of deposit— Banks of circulation— Opinions of the economists on the subject of money— Principles that control money— Money is a representative— is constantly mistaken for the things it represents— Expense of coinage— Precious melala both capital and representatives of capital— Money the measure of value of all things except itself— To perform successfully its indispensable functions, money must be universally accepted— Coining money does not establish its value— The most important function of money is to represent services rendered, . . 15

Chapter III

Ideas of various authors in regard to money — what regulates value — Opinions of economists in regard to value of money— Effect of increased productions of the precious metals on the value of money, .31

CHAPTER lY.

Opinions of economists and others in regard to relative value of gold and silver —Power of governments to regulate relative value of gold and silver- Examples in the United States and in En ijl and— Opinion of Sir Isaac Newton— Relative value of gold and silver at different epochs — Cause of appfeciation of gold and depreciation of silver— Opinions of Michel Chevalier in retjard to effect of increased productions of gold — Variations in value of gold and silver since the discovery of Californian and Australian gold mines— Exports of silver from France- Error of Great Britain in demonetizing gold in India, 39

Chapter V

An increased production of gold cannot appreciate the value of silver — Opinions of Michel Chevalier and other economists in regard to the relative value of gold and silver — Gold coins without fixed values- Relative production of gold and silver — Belgium rcadopts gold after deraonetizinc; it — Both metals advantageous as money— Neither can well be d'spensed with— Disadvantages of a sirgle standard — ■ Exchange of silver for gold in France — Conclusions in regard to metallic money — Proper remedy for variations in relative value of gold and silver— Proposed universal system of coinage, . . . , .... 56 vi CONTENTS.

Chapter VI

Paper money-Difflculty in the way of its univeraal use-Government paper mouey in France-Law's Bank-A6Bignats-Government paper money ia Enssia^

In the United States •

Chapter VIII

Principles governing paper money-Money as used in modern civilized communities-money need not possess intrinsic value-Money redeemed by commodities and services-Government paper money cannot perform the proper functions of money-Bank notes preferable to Government paper money-Money must represent existing commodities and services-Beneficial functions of the hanks-Banks do not make several issues of notes based on same property-demand for money

hy commerce and industry not unlimited, .

CHAPTER IS.

EiTeotB of volume of currency on prices— Effects of American mines in 16th century-Efiects of issues of bank notes in England— Speculations not caused by bank expansions- Bank expansions only necessary to arrest tall of prices after a speculative movement— effects of a limitation of the currency on its value— limitation of issues of Bank of England— momentary eflfecta of limitation of issues and of bank contractions— specie redemption of bank notes— Prices cannot rise so as to stop exports of commodities while they exist in excess of local wants — effects of a depreciated paper currency on exports of commodities — Specie exports — Fears of inadequate supply of gold and silver groundless— Money only sought as means of supplying wants- English " currency principles "^Prices not affected by variations in the volume of the currency as long as the community have full confidence in it — Huskisson's views in regard to money, 126

Chapter X

Paper money as yet far from perfect— will become the universal means of efi'ecting exchanges — Bank of England — Suspension of 1696 — Runs on the Bank in 1720 and 1745— Suspension of 1797 — effects of suspension and increased issues on prices — Price of gold and issues of bank notes during suspension — Cause of rise of prices during suspension, and of fall of prices after resumption — Crisis of 1825 — Bank act of 1844 — Crisis of 1847 and first suspension of act of 1844- Crisis of 1857 and second suspension of act of 1844, 154

CHAPTER SI.

Volume of curreney theory— Credit performs the functions of money— not however always currency— Circulation and loans of Bank of England from 1821 to 1847 — Comments of London Economist, 203

Chapter XII

Volume of hank issues self-regulating- Banks of issue- Banks of circulation — Effects of had harvesta on money market — Duty of banks — Prices greatly dependent on confidence — London and ITew York clearing houses — Bank notes can successfully replace coin in all transactions, , 213

Chapter I

A COREECT appreciation of the functions of money and of the natural laws that govern it, is of vast importance to humanity, from its universal use in the exchanges of commodities and services ; exchanges becoming each day more numerous and indispensable in consequence of the constantly increasing division of labor.

Many things have been used at different times as money : cowrie shells in Africa ; wampum by the American Indians ; cattle in ancient Greece. The Carthaginians used leather as money, probably bearing some mark or stamp. Frederic II, at the siege of Milan, issued stamped leather as mooey. In 1360, John the Good, King of France, who was taken prisoner by the celebrated Black Prince and sent to England until ransomed, also issued leather money, having a small silver nail in the centre. Salt is the common money in

Abyssinia.; codfisli in Iceland and Newfoundland. " Living money," slaves and oxen, passed current with the Anglo-Saxons, in payment of debts.® Adam Smith says that in his day there was a village in Scotland where it was not uncommon for workmen to carry nails instead of money to the baker's shop and the alehouse.f Marco Polo found, in China, money made of the bark of the mulberry tree, bearing the stamp of the sovereign, which it was death to counterfeit. Tobacco was generally used as money in Virginia up to 1660, fifty-seven years after the foundation of that colony. In 1641 the Legislature of Massachusetts enacted that wheat should be received in payment of all debts ; and the Convention in France, during the Revolution, on a proposition of Jean-Bon-Saint Andr6, long discussed the propriety of adopting wheat as money, as the measure of value of all things.^ Platina was coined in Russia from 1828 to 1845.§ But the metals best adapted and most generally used as coin are copper, nickel, silver, and gold ; the two first being now used for coins of small value, to make change, and the two latter, commonly designated " the precious metals," as measures of value and as legal tenders. 0|i the continent of Europe, a composition of silver and copper, called billon, has long been used for small coins, which are made current at a much higher value than that of the metals they contain. In China, Sycee silver is the principal currency, and is merely ingot silver of an uniform fineness, paid and received by weight. Spanish

* Westminster Reyiew, January 1, 1848.

f Wealth of Nations, vol. i, p. 31.

J Die. d'^oononiie Politique, Paris, Monnaie. § Idem.

MOKET. 9

dollars also circulate there, but only after they have been essayed and stamped as proof that they are of the standard fineness.*

As Asia Minor produced gold, its earliest coinage was of that metal. Italy and Sicily possessing copper, bronze was first coined there. Herodotus says the Lydians were the first people known to have coined gold and silver. They had gold coins at the close of the ninth century b. c. ; Greece Proper only at the close of the eighth century b. c. Servius Tullius, King of Borne, made the pound weight of copper current money. The Romans first coined silver 281 B. c._, and gold 207 B. c.

At the time of the invasion of Britain by Ceesar, the ancient Britons had coins of tin, iron, brass, and gold. The Anglo-Saxons coined silver and brass, but the Norman monarchs rejected the latter, and for along time silver was the sole metal coined. William the Conqueror issued no coins but silver pennies or " sterlings." Henry III first coined gold, in pennies weighing Taotli of a pound tower, which passed for 20c?. Henry VII first coined silver shillings. Silver halfpence and farthings were coined from the time of Edward I to Edward VI. Their small size, particu-

* " There is no coined sUver or gold currency in China ; the only money taken being a copper coin, called cash, of small value, 1,700 representing a Spanish Carolus dollar. Silver, therefore, in bulk, at its pure touch of 100 per cent., takes the place of a coined measure of value, being divided into the Government standard weights called tael, mace, cash, candareem, each having a decimal proportion to the other ; and thus a nominal money is created, although more properly these terms are merely ' denominations of weight.' " (Report of Mr. Consul Robertson on the trade of the port of Shanghai for the year 1855, quoted in Tooke's History of Prices, vol. vi, p. 679.)

1* larly after the reduction of the weight of the silver coins, caused them to be discontinued ; and James I directed farthing tokens of brass and copper to be struck, but they were of such inferior value that they soon fell into disuse. The first copper coinage in England was in 1672, under Charles II, who also coined tin in 1684. James II attempted to give currency to gun metal and pewter, but the attempt was soon given up. Henry VII, in 1489, coined the first sovereigns, of gold 23 carats 3^ fine. Henry VIII, in 1544, coined half, quarter, and eighth sovereigns, of the present standard of 22 carats fine. Charles II, in 1675, coined the first guinea, called thus because made of African gold.

In 1797, during the suspension of the Bank of England, the deficiency of the silver coinage was so great in England, that it was attempted to be supplied by the issue of Spanish dollars, stamped with the mark of the king's head. They were issued at 4s. 9d., but were called in again in the course of the year ; but the practice was resumed at various periods during the war. In 1811 the Bank of England was permitted to strike and issue silver tokens, to pass current for 5s, 6d, 3s., and Is. 6dJ^

The sovereigns of Europe extensively falsified the moneys they coined, by diminishing their weight and the fineness of the metal they were made of, to facilitate the liquidation of their debts. Under Servius Tullius, 550 B. c, the as or pondo contained a Eoman pound of copper. In 175 b. c. it had been reduced to | oz. or aVth part of its original weight. The livre in France, * Macleod, Theory and Practice of Banking, vol. i, p. 168.

under Charlemagne, contained 12 ounces of pure silver, but was gradually reduced by his successors, particularly by Philip le Bel * and by the first sovereigns of the house of Valois. John the Good made seventy-one alterations in the value of the coin in nine years, alternately increasing and decreasing the quantity of pure metal it contained. For example, by an edict of November 27, 1359, the marc of pure silver was ordered to be coined into 18 livres ; by an edict of January 22, 1360, into 54 livres ] March 21, 1360, into 125 livres ; March 31, 1360, into 12 livres ; April 25, 1360, into 16 livres ; May 28, 1360, into -12 livres ; June 29, 1360, into 20 livres ; &c., &c.f To appreciate fully the effects of these fluctuations in the value of the coin, it must be remembered that after a currency has been for a time depreciated, as much injustice is done by raising, as was previously done by depressing its value. Philip le Bel

* "In January, 131 >, a new debasement of the coin, which lasted until September, 1313, reduced the liwe to fra. 13.66. This standard was followed by another that raised the livre to frs. 18.37, which was established at the moment when an extraordinary subsidy was to be levied, to which Philip le Bel became entitled by the custom of those times, on the occasion of his eldest son's being made a knight. Philip le Bel, at his death, left the livre at about ^ths of its value at the moment of his accession to the throne, but in the mean time he had caused it to alter in value twenty-two times in the last nineteen years of his reign ! He had designed to reestab- Itih the finances, whereas he only succeeded in destroying many private fortunes, in causing the royal authority to fall into contempt, in exciting intestine hatreds, and in producing a bloody riot in the streets of Paris." (Natalis Wailly, Researches on the Monetary System of St. Louis, quoted in the Journal des Economistes of Paris, September, 1862.)

Dante says of PhiUp le Bel :

f E. Cartier, Kevue Numismatique of Paris, 1838, pp. 104-108.

coined gold 22 carats fine ; Philip de Valois coined it 23, 22, and 21 carats fine ; John the Good, 21 and 18 carats fine. Charles V, surnamed the "Wise, restored the coin to a fixed weight and fineness, under the advice of Nicole Oresme, Bishop of Lisieux, who wrote an admirable treatise, published both in Latin and French, on the origin, nature, functions, and mutations of money, in which he says : " If the truth were not maintained in regard to the weight and fineness of the coin, it would be a vile falsehood and a fradulent deception. It is just and proper for a sovereign to condemn and punish false coiners. But what if he himself commits that which it is his duty to punish with death in others ? The coin does not belong to the sovereign, but to those who possess it. Neither sovereign nor state has the right to alter the yalue, weight, or fineness of money. The effigy of the sovereign or the stamp on the coin is a proof of its weight and quality. A sovereign who alters the value of the coin in weigbt or fineness is a liar, commits perjury, and bears false testimony." * The falsification of the coin was, however, continued in France till the beginning of the reign of Louis XV. The reduction of the livre from 1497 to 1602 was from 2,225 to 1,208 centigrammes of pure silver. In 17'^9 the livre only contained y/j^ths of the pure silver it contained in the time of Charlemagne.

In England the coin was also debased by the sovereigns. From the Conquest to the present time, however, all the English silver coins are of the standard of 11 oz. 2 dwts. fine and 18 dwts. alloy, except for the short period of sixteen years, from the 34th Henry VIII * Journal dca Economistes, Paris, September, 1862, pp. 372, 373.

MONET.

to the 2d Elizabeth, during which the standard was greatly debased. " Henry VIII stands recorded with iniamy as the first English sovereign who debased tbe sterling fineness of the coins." » The shilling of William the Conqueror contained 266 ,-V grains tower or 249 f grains troy of pure silver. It was reduced by Edward VI, in 1550, to 21^ grains tower or 20 grains troy. In 1552 it was made to contain 94,-=^ grains tower or 88/0 grains troy. The English mint used the tower pound until the 18th Henry VIII, when it was replaced by the troy pound, which has been used ever since, and is | oz. heavier than the tower pound.

The following table exhibits the various modifications made in the silver coinage of England :

Slanaard, or finu Bil\'er. in pound or 12 oz.

Standard silver coined

irto

per pound 1 per poTETid

Tower. | Tioy.

Grain.s Troy

of standard

silver in one

penny.

Grains Troy

of floe silver iia

one penny.

Conqaest, A. D. 1066

11 OZ. 2 dwt.

20.81

28 Krtward I, " 1800

20 8

20..55

18 Edward III, " 18:44

22 2

20 " " 1346

22 9

18.50

26 " " 1350

25 6

16.65

SO

13.87

4 Edward IV, ^' 1464

87 6

11.10

18 Henry VIII, " 1626

9.87

84 •• " 1548

10 oz. dwt.

8.83

86 " " 1544

8 Edward TI, " 1549

6|

8.33

4 " " 1550

6»

1.67

6 " " 1552

11 1

7.37

1 Elizabeth, " 1558

11 2

7..50

48 " " 1601

It 2

7.16

56GeoreeIII, " 1816

11 2

^i

6.727

Pure gold is said to be 24 carats fine. The carat is an Abyssinian weight divided into 4 grains, and the grains into quarters. A carat grain is equivalent to

* Ruding, Annals of Coinage, vol. i, p. 300.

2^ dwts. When gold coins were first made at tlie English mint, the standard of the gold put in them was 23^ carats 3^ grains fine, and ^ grain alloy ; and so it continued without any variation to the 18th Henry VIII, who in that year first introduced a new standard of 22 carats fine and 2 carats alloy. Henry VIII made his gold coins of both these standards, and this practice was continued by his successors until 1633. From that period to the present time, the gold of which the coins of England have been made has invariably been of the new standard of 22 carats fine. Standard gold has been coined in England since ,1717 into 31. 17s. 10|d per oz. By the act of 1844, the Bank of England is obligated to purchase all the gold bullion and foreign coins of standard fineness at 31. I7s. 2d. per oz. The debasement of the coins was universal during the middle ages. In Scotland, previous to 1296, the pound of silver was coined into 20 shillings. In 1601, £36 or 720 shillings, were coined out of the same quantity. The gold ducat or sequin, when first coined in Venice in 1284, was equivalent to 3 Italian livres ; to-day it would be worth 22 livres. The florin, originally a gold coin of the value of about 10 shillngs sterling ($2.50), is now a silver coin worth about 20 pence sterling (40 cents). The Spanish coin maravedi, in 1220 weighed 24 grammes (370 grains troy) of gold ; it is now a small copper coin equal to 2V2 of an English penny. The Eussian rouble of 1700 is worth 2tVV of the roubles of 1821.