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Home -> Orville Marcellus Powers -> Commerce and Finance -> Chapter XVI

Commerce and Finance - Chapter XVI

1. Chapter I

2. Chapter II

3. Chapter III

4. Chapter IV

5. Chapter V

6. Chapter VI

7. Chapter VII

8. Chapter VIII

9. Chapter IX

10. Chapter X

11. Chapter XI

12. Chapter XII

13. Chapter XIII

14. Chapter XIV

15. Chapter XV

16. Chapter XVI

17. Chapter XVII

18. Chapter XVIII

19. Chapter XIX

20. Chapter XX

21. Chapter XXI

22. Chapter XXII

23. Chapter XXIII

24. Chapter XXIV

25. Chapter XXV

26. Chapter XXVI

27. Chapter XXVII

28. Chapter XXVIII

29. Chapter XXIX

30. Chapter XXX

31. Chapter XXXI

32. Chapter XXXII

33. Chapter XXXIII

34. Chapter XXXIV

35. Chapter XXXV

36. Chapter XXXVI

37. Chapter XXXVII

38. Chapter XXXVIII

39. Chapter XXXIX

40. Chapter XL

41. Chapter XLI

42. Chapter XLII

43. Chapter XLIII

44. Chapter XLIV

45. Chapter XLV

46. Chapter XLVI

47. Chapter XLVII

48. Chapter XLVIII

49. Chapter XLVIX

50. Chapter L

51. Chapter LI

52. Chapter LII



Coinage is the process of manufacturing bullion into money
of proper form, weight and fineness. This is done only by the
government, at its mints. Private individuals are not permitted
to coin money, owing to the inducement which
would exist for the practice of fraud and the ease
with which it could be practiced. In ancient times
kings (notably Henry VIII, the first Defender of the Faith)
debased the coin of the realm and thus cheated their subjects
to enrich themselves, but in modern times money is as accurately
coined as human skill is capable.

Gold and silver circulate between different countries by
weight, simply as merchandise, the risk of being defrauded by
inferior quality or adulteration being left entirely to the receiver
of the metals, but in domestic commerce the majority of people
have not the skill nor facilities for weighing or determining the
value of coin received in every transaction, hence the enormous
convenience to have each coin certified as of proper weight and
fineness by the highest authority.

Within the sphere of the subject of coinage Congress must:
1. Fix upon the metal to be the standard of legal money. 2. Es-
Dutiesof tablish a unit of value. 3. Fix the weight and

congress as fineness of the unit and of other pieces, its frac-
tions and multiples. 4. Choose proper inscrip-
tions for the various coins. 5. Determine the weight, fineness
and value of all coins of other metals used as money, compared
with the standard. 6. Decree how much money shall be coined.
In passing upon these questions at different times, our Congress


162 MONEY.

has finally established gold as the standard, one dollar as the
unit, 25.8 grains as the weight, and nine-tenths pure as the
fineness, and made its coinage free and unlimited; that is to
say, all who bring gold bullion can have it coined by paying the
mint charge, or seigniorage. Congress has decreed that a silver
dollar shall consist of 412J grains of silver nine-tenths pure,
and that its coinage shall be restricted.*

It is customary to attribute most of our financial ills, such
as depression in trade, "hard times/' lack of employment and

low prices to a scarcity of money, and to believe
Money 60 ^ na ^- re ^ e ^ li es i n starting the mints to work or

the printing presses to turning out bills. With a
desire to be useful to their constituents our legislators often
undertake to cure the afflictions and poverty of the people by
tampering with natural laws in the financial world, with the
result, however, that they only aggravate the difficulty. The
question then properly rises, how much money does a nation
really need? To answer this is exceedingly difficult, since a num-
ber of elements enter into the problem, some of which are very
difficult to ascertain. First of all, the volume of money which
a nation needs will depend upon the size of i^s population, since
the greater the number of persons engaged in trade the greater
the amount of money required to conduct that trade. Then
again the amount of money must depend to a considerable extent
on the commercial activity of the people. A highly organized
nation will require more money per capita than one of fewer
activities. The more business done, goods manufactured, bought
and sold, the more money a people will require as an instrument
of trade and commerce. The value of the goods also will affect
the question, and the higher the price of the goods the more
value changes hands, and hence the more money will be required
to represent that value and affect its changes. Now the

*At this point let the student ascertain what amount of silver is now
being coined and under what restrictions.


amount of a nation's foreign commerce is easily ascertained
since it must pass through the ports of entry, but the volume
of inland traffic, the innumerable transactions carried on be,-
tween citizens of the same country (and this is by far the larger
part of a nation's commerce) cannot be estimated accurately.
Hence some of the data which enters into the question of the
volume of a nation's money cannot be supplied.

It is also apparent that the rapidity with which money cir-
culates has an important bearing upon the question of volume.
A "nimble penny" will do more business than a
sluggish dime. A dollar which changes hands ten
times serves as a medium of exchange equal to ten
dollars in one exchange. In these days of quick transportation
of goods and rapid interchange of commodities and information
among the people, the volume of money would necessarily need
be very large were it not for the substitutes which have been
devised to take its place.

The substitutes for money in a modern, highly civilized
nation are checks, drafts, money orders, certificates of deposit
and promissory notes. These are representatives of money, and
by their use an immense volume of business is
M?ney ^ ** transacted without the handling of any real money.
The general intelligence of the people by means
of which they are able to properly and safely use the various
forms of business papers, an extensive banking system by which
every town of any importance is provided with banking facili-
ties, the bank clearing houses in all of our large cities whereby
the exchanges between banks are effected with the use of but
a very small fraction of actual money all these, the machinery
of finance combine to reduce the need for a large volume of
the circulating medium.

The average daily transactions in the Bank Clearing House
of London is 34,000,000 which if paid in gold coin would
weigh about 364 tons, and would require fifty heavy, two-horse
drays to transport it. If paid in silver it would weigh 5,150
tons. The clearings in the New York Clearing House average
daily about $250,000,000, and yet this vast volume of trans-
actions is settled by the use of less than 5 per cent, of the
amount in actual coin or legal tender notes, and even this
amount, except for sums less than $5,000, is often paid by means
of clearing house certificates.

When business is prosperous, that is when a large volume of
sales are made or goods manufactured, so that a greater quantity

of money is required to carry on the commerce of
seif-Reguiating the country, gold is attracted from abroad, and

like other commodities, seeks the place of strongest
demand. Like water, it seeks its level. On the contrary, the
history of the past teaches us that when trade slackens and a
smaller volume of the circulating medium only is required, if
the several kinds of money are founded on gold as a standard,
or are redeemable in gold, there will be an outflow of gold until
the excess is relieved. But if on the other hand the circulating
mediums are not upon a gold basis but are in the nature of fiat
money, there will be a general depreciation of the whole volume
of the currency. Thus the law of supply and demand affects
to a certain extent the quantity as well as the value of a nation's
money. Then again the volume of money in circulation affects
the prices of all other commodities. A scarcity of gold means
low prices of all commodities measured by gold, because the
scarcity of any commodity makes it dearer, and the dearer gold
is the greater its purchasing power the more things it will buy.
And the more plentiful gold is, or other money equivalent to
or redeemable in gold, the lower will be the prices of all other
commodities, because money will be cheaper, and will purchase
less. Fluctuations to any considerable extent in the volume and
value of the money of a country, especially if sudden, must
necessarily be very injurious to the welfare of the people, because
they unsettle values and make the future of time contracts


From the foregoing we may conclude that the volume of a
nation's currency is not necessarily a measure of its wealth,
and that the wisest and safest method of regulating the amount
of money in circulation is to leave it perfectly free to follow the
inevitable laws of supply and demand. As a nation grows
older its laws more stable, wise and just, it will attract money
from other nations, as well as add to its supply by the product
of the mines, and its volume of money gradually increases to
meet the requirements, the same as the amount of wheat or
cotton raised.

Monometallism consists in fixing upon a single metal as the
standard of value. The two metals chiefly used as money are
gold and silver. Of these silver is more widely
Monometallism and plentifully distributed than gold. It is usually
formed in larger deposits and is more easily mined,
hence its value is much less than that of gold. If the relative
commercial values of the two metals would always continue
precisely the same, the government could ascertain that value
and fix the legal ratio accordingly, but the production of the
two metals does not continue uniform, and hence their values
are subject to change. An increase in the output of silver or a
decrease in the production of gold, or vice versa, causes the com-
mercial values of the two metals to fluctuate and thus change the
actual or commercial ratio between them. Now, according to
Gresham's Law, as before explained, when two metals are legal
tender, and one is cheaper than the other, the cheaper invariably
drives the dearer out of circulation, because a debtor will always
pay in the cheapest coin which his creditor is compelled by law
to receive.

From the establishment of our coinage system in 1792 until
1873 gold and silver were both legal standards of value, coined
in unlimited quantities. The ratio from 1792 to 1834 was 15
to 1, but since the commercial value of silver was slightly below
this ratio, gold was gradually driven out of circulation and so

166 MONET?.

continued almost without interruption until in 1834. In 1820
Mr. Raguet wrote to the "National Gazette" to explain the reason
for "the disappearance of gold from the United States." Two
years later he wrote on the same subject, saying that "although
the coinage of gold continued to he large ($1,319,030 in 1820)
not a gold coin was anywhere to be seen in circulation." The
gold was exported as fast as the mint turned it out with its
weight and fineness fixed. To change this state of affairs Con-
gress in 1834 changed the ratio to 16 to 1. This ratio over-
valued gold and thence it became the cheaper money. Silver
was driven from our shores, and fractional coin was kept in cir-
culation only by making the half dollar, quarter dollar and
dimes short in weight. In 1873 silver was demonetized, leaving
gold as the sole standard, and reducing silver to the position of
subsidiary coin. In this capacity it now circulates with gold.
The argument of the monometallists is that in no other way can
both metals be kept in circulation than by making one a standard
and the other subsidiary coin. History seems to support their

England adopted the gold standard for herself and her colo-
nies, including Australia, in 1816. Germany demonetized silver
Single and went to the gold standard in 1871. Her ex-

standard ample was soon followed by Denmark, Norway and

Nations Sweden. The gold standard also exists in Portu-

gal, Turkey, Egypt and a few South American states. The silver
standard prevails in Russia and Austria in Europe; China, India,
Central America and Mexico.

Bi-metallism means the use of two metals, gold and silver,
as standards of value. Those who advocate bi-metallism contend

that there is not sufficient gold to supply the
Bi-metaiiism money need of the world, and that if the gold

standard were universally adopted it would cause
a gold famine which would be exceedingly disastrous to the
financial welfare. It is further contended that by placing the


entire burden as a standard of value upon one metal the use and
importance of that metal is accordingly augmented and its value
increased, causing a corresponding decline in the values of all
other commodities.

But the strongest argument in favor of the double standard
is that one metal acts as a check upon the fluctuations of the
other. If two metals are equal as money standards, and one,
for instance gold, should rise in value, this would bring the
cheaper metal into more active use, thereby relieving the pressure
on gold, or lessening the demand for it, and causing it to fall.
Likewise if silver should become dearer, gold would be more
extensively used in making payments instead of silver, thus
bringing the two metals nearer an average of value and main-
taining that uniformity which is so important as a measure of
value. The bi-metallists contend that the uniformity of value
of our standard is of far more vital importance than having the
two metals circulate together, and that the lack of one metal in
circulation can be supplied by other forms of money if necessary.
The question may yet be regarded as an unsettled one among
nations, with the tendency principally in the direction of the gold
standard. The countries now having the double standard are
France, Italy, Belgium and Switzerland, constituting what is
known as the "Latin Union/' Spain, Greece, and a few South
American states.

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