Money and the Mechanism of Exchange
By William Stanley Jevons
In preparing this volume, I have attempted to write a descriptive essay on the past and present monetary systems of the world, the materials employed to make money, the regulations under which the coins are struck and issued, the natural laws which govern their circulation, the several modes in which they may be replaced by the use of paper documents, and finally, the method in which the use of money is immensely economized by the cheque and clearing system now being extended and perfected.This is not a book upon the currency question, as that question is so often discussed in England. I have only a little to say about the Bank Charter Act, and upon that, and other mysteries of the money market, I refer my readers to the admirable essay of Mr. Bagehot on
“Lombard Street,” to which this book may perhaps serve as an introduction. [From the Preface]
First Pub. Date
New York: D. Appleton and Co.
Westminster (authorized) edition.
The text of this edition is in the public domain. Picture of William Stanley Jevons: Photogravure after a photograph of W. Stanley Jevons, taken by Maull & Co., London., courtesy Liberty Fund, Inc.
- Chapter I. Barter
- Chapter II. Exchange
- Chapter III. The Functions of Money
- Chapter IV. Early History of Money
- Chapter V. Qualities of the Material of Money
- Chapter VI. The Metals as Money
- Chapter VII. Coins
- Chapter VIII. The Principles of Circulation
- Chapter IX. Systems of Metallic Money
- Chapter X. The English System of Metallic Currency
- Chapter XI. Fractional Currency
- Chapter XII. The Battle of the Standards
- Chapter XIII. Technical Matters Relating to Coinage
- Chapter XIV. International Money
- Chapter XV. The Mechanism of Exchange
- Chapter XVI. Representative Money
- Chapter XVII. The Nature and Varieties of Promissory Notes
- Chapter XVIII. Methods of Regulating a Paper Currency
- Chapter XIX. Credit Documents
- Chapter XX. Book Credit and the Banking System
- Chapter XXI. The Clearing-House System
- Chapter XXII. The Cheque Bank
- Chapter XXIII. Foreign Bills of Exchange
- Chapter XXIV. The Bank of England and the Money Market
- Chapter XXV. A Tabular Standard of Value
- Chapter XXVI. The Quantity of Money Needed by a Nation
One monetary question which can hardly be said to be satisfactorily solved as yet, is that of selecting the best possible material for coins of small value, called in English
pence, in French
monnaie d’appoint. The fractional coins should be equal in value to about a tenth part of the silver ones, coin for coin, but it unfortunately happens that there is no suitable metal of which the value is now one-tenth part of that of silver. In the time of the Romans, gold was about ten times as valuable as silver, and silver about ten times as valuable as copper, so that there would then have been no difficulty in constructing a perfect decimal system of money.
To throw light upon this subject, I have drawn out the following table, in which are shown the weights of the principal commercial metals which are of equal values at present. The numbers in such a table must of course be subject to perpetual fluctuations, according to the changes in the market prices of the metals. In some cases, too, it is difficult to find any accurate quotations at all, and the price often depends greatly upon the manufactured state of the metal. Gold and silver are taken as of standard fineness, and gold forms the unit.
|Equivalent Weights of the Principal Metals.|
|Gold . . . .||1||Tin . .||. 942|
|Platinum . . .||3½||Copper . . . .||1,696|
|Aluminium . .||7||Lead . . . .||6,360|
|Silver . . . .||16||Bar Iron . . . .||15,900|
|Nickel . . . .||71||Pig Iron||50,880|
It may be worthy of notice that when we thus draw out what may be called the
commercial equivalents of the metals, they are found to form a series very rudely approximating to a geometrical series with the common ratio 3. Silver, however, is an exception. There is, too, one term missing between nickel and tin, and as tin is not a coinable metal, there is a wide interval between nickel and copper, and a still wider one between silver and copper. At present silver is almost exactly one hundred times as valuable as copper; hence copper pence must either contain in metallic value but a fraction of the nominal value, or else they must be very heavy and bulky. When a new copper coinage was issued in England from the mint of Boulton and Watt in 1797, the coins were made nearly of standard weight, at the rate of an ounce avoirdupois for each penny. There was a double inconvenience in this. Sixteen pence actually weighed a pound avoirdupois, at which rate the people would now be carrying three tunes as great a weight in their pockets as with our bronze currency. Moreover, the price of copper having risen, Boulton’s pence became more valuable as metal than as coins, and were used as material in spite of their beautiful execution.
The first and most obvious course was to reduce the weight of the penny, making it purely a token coin. The old pennies of Victoria weighed about 290 grains each, instead of about 433 grains, as in the coinage of Boulton and Watt, a reduction of about one-third part. The bronze penny has been still further reduced, and ought to weigh 145.8 grains.
There are two inconveniences which may arise from too great and sudden a reduction in the weight of token currency. There is a risk of the population rejecting the new coins as fraudulently light. This was the case with the new copper five- and ten-centime pieces, struck in France in 1794 by the Revolutionary Government, at the rate of one gram for each centime, which was half the previous rate. The government was obliged to call in the light coin and issue it again at the old weight, and only in the time of Napoleon III. could coins of one grain per centime be put into circulation. The people, then, must be educated to receive very light tokens, and the reduction must be made by moderate steps.
In the second place, if the metal is easily coined or manipulated like copper, if it fails to retain a very good impression, and if there is a considerable margin for profit, the temptation to false coiners might become strong. I am not aware that this has ever happened in regard to the English copper coinage, but counterfeit sous used to be manufactured on a large scale in the Faubourg Saint Antoine, in Paris, almost under the eyes of the government.
At the best, too, pure copper makes indifferent coin, being deficient in hardness, so that it soon becomes disfigured; it has a disagreeable odour which it communicates to the fingers; and when exposed to damp air it becomes covered with verdigris, which is both unsightly and poisonous. I proceed to consider the various ways in which it has been attempted to substitute for copper coin some more convenient currency.
Pennies and twopenny pieces, if now made of standard silver, like the Maundy money, would be too small and light for use, weighing respectively 7¼ and 14½ grains. Even the threepenny pieces, now so abundant in England, and weighing 21.8 grain each, are inconveniently small. In England, for a very long time, no silver has been coined of less fineness than the old standard of 925 parts in 1000. In many continental countries the smaller currency has been made of a very low alloy of silver and copper, called
billon. Such coins were at one time current, to a certain extent, in France, the metal containing only one part of silver in five of alloy, but they have long been recalled. In Norway the small currency now consists partly of half-skilling and one-skilling pieces in copper, the skilling being nearly equal in value to an English halfpenny, but principally of two, three, and four-skilling pieces, composed of billon, containing, according to an analysis performed for me at the Owens’ College chemical laboratory, one part of silver and three of copper. These billon pieces are very convenient in size, and, being for the most part newly issued, are clean and neat. Billon is still being coined in Austria.
It is in the states now forming the German empire that billon coins have been most extensively used, especially in pieces of three, four, and six kreutzers, the so-called
scheidemünze now being recalled. This consists of silver alloyed with three, four, or more times its weight of copper. Before such base silver is passed through the coining press, it is usual to dissolve the copper from the surface of the blank pieces of metal, so as to produce a film of pure white silver upon the surface. This operation, called
colouring, gives a fine bright appearance to the coins when new, and they are easily put into circulation. But after a little time the silver film is worn off, and the coins assume a very patchy aspect. Billon coinage seems to have, too, an extraordinary power of accumulating a layer of dirt of a very disagreeable character, with which all travellers in Germany in past years must be well acquainted. Moreover, it offers great facilities to the counterfeiter, and for several sufficient reasons cannot be recommended for adoption.
It is said that Saint Louis, the great King of France, finding much want of small money to pay his soldiers, caused little pieces of silver wire, weighing nine and eighteen grains, to be fixed on pieces of stamped leather, and circulated for one- and two-dime pieces. The silver gave the value, and the leather served as a case or handle to preserve the small bit of metal from being lost. In recent times, composite coins, having a centre piece of silver and a rim of copper, were constructed on similar principles. A model penny of this kind has an agreeable appearance and a convenient size, but seems to be subject to several objections. The cost of coinage would be considerable; the coins could hardly be made so perfect that the centre would not come out sometimes; the contact of dissimilar metals would set up electrochemical action, and the copper would be corroded; and, lastly, it would be difficult to detect counterfeit silver pieces inserted by the forger. Composite coins of a similar character were struck in France under Napoleon I., about the year 1810, but were never circulated. Pennies formed of a copper centre with a brass rim have been employed in England, and tin pence, halfpence, or farthings, with a copper plug inserted near the centre, were long used, and are plentiful in numismatic cabinets.
It was known, even in prehistoric times, that a small quantity of tin communicated hardness to copper, and the ancient nations were familiar with the use of bronze thus manufactured. The French Revolutionary Government melted up the bells of the churches seized by them, and the
sous de cloche, as they were called, made from the bell metal, were superior to coins of pure copper. Yet curiously enough no modern government thought of employing a well-chosen bronze for small money, until the government of the late Emperor of the French undertook the recoinage of the old sous in 1852. This recoinage was carried out with great success.
Between the years 1853 and 1867 coins to the nominal value of about two millions sterling, consisting of 800 millions of pieces, and weighing eleven millions of kilograms (10,826 tons) were struck, in addition to a subsequent issue of about 200 millions of pieces. The experiment was in almost every way successful. The ten and five-centime pieces now circulating in France are models of good minting, with a low but sharp and clear impression. They were readily accepted by the people, although only weighing as much as the sous rejected in the time of the Revolution, namely, one gram per centime, and they are wearing well.
The bronze used consists of 95 parts of copper, four of tin, and one of zinc. It is much harder than copper, yet so tough and impressible that it takes a fine impression from the dies, and retains it for a long time. It cannot be struck except by a press of some power, and thus counterfeiting is rendered almost impossible. It can hardly be said to corrode by exposure to air or damp, and merely acquires a natural
patina, or thin dark film of copper oxide, which throws the worn parts of the design into relief, and increases the beauty of the coin.
Bronze has since been coined by the governments of England, the United States, Italy, and Sweden, and it seems probable that it will entirely take the place of copper. The German government is now using bronze for the one-pfennig pieces.
English Bronze Coin.
The old copper coinage of the United Kingdom was replaced, from ten to fifteen years ago, by a much more convenient and elegant series of pence, half pence, and farthings, struck in exactly the same kind of bronze as the French centime pieces. The English coins, though far from being so well executed as the French ones, are clean, and likely to wear well. The only great objection which can be raised to them, is that they are still of considerable size and weight, although less than the old copper coins. As all the latter are now withdrawn, and few of the new ones can yet be lost or destroyed, we know very accurately the amount of the English fractional currency. The whole amount issued in the years 1861 to 1873 is as follows:—
|Nominal value in
|Pennies . . .||1,585||170,419,000||£710,082|
|Halfpennies. .||918||164,505,000||342, 119|
|Farthings . .||149
Including a small amount issued before 1861, the whole value of the bronze coin put into circulation up to the end of 1873 was £1,143,633. It is remarkable that the quantity of small coins used in England is much less than in France, where at least 1000 million of pieces, chiefly of ten and five centimes, are in use. Thus while the English, Scotch, and Irish seem to be sufficiently supplied with 8½
d. per head, the French employ on the average 1 franc 60 centimes (15 pence), the Belgians, 2 francs 26 centimes (2½ pence), and the Italians as much as 3 francs 10 centimes (29½ pence).
Weight of the Currency.
It is curious that the weights of the several kinds of currency vary inversely as their nominal values; thus, taking the paper circulation of the United Kingdom at 40 millions, the gold roughly at 100 millions, the silver at 15 millions, and the bronze as above, I find the weights to be approximately as follows:—
|Paper currency . . . . . .||16||tons.|
|Gold ” . . . . . .||786||“|
|Silver ” . . . . . . .||1670||“|
|Bronze ” . . . . . . .||2652
It is impossible to give a satisfactory reason why the least valuable part of the currency should be so much the most weighty. A tendency thus arises for the pence to accumulate upon the hands of retail traders, especially publicans, omnibus proprietors, and newspaper publishers. At one time the London brewers had such large quantities of bronze coins thrown upon their hands from the public-houses which they own, that the mint had eventually to arrange to buy it from them, instead of coining more. In large towns, arrangements have to be made for getting rid of the accumulating pence with the least trouble and loss; the coin is transferred weekly to mills and factories, where it is used in paying wages. Bankers refuse to have anything to do with bronze coin beyond the amount of a shilling, for which it is legal tender, and it is usual for persons to object to receive more than 2
d. or 3
d. of change in pence.
It is worthy of inquiry whether this tendency of the fractional currency to stagnation would not be remedied by the substitution of a much lighter and more elegant currency of nickel, or of some alloy yet to be invented. In France, it is found that the bronze coinage circulates much more freely than the old copper and bell-metal sons, which tended to accumulate in certain localities. Our bronze pence are much better than the old copper pence, but it does not follow that we have in any degree approximated to perfection. Coins of about half the weight of those in circulation would be much more convenient.
Nickel, Manganese, Aluminium, and other Metals and Alloys.
The employment of nickel in the manufacture of small money has already been referred to (p. 49), and if the conditions of supply and demand of this metal were more steady we should perhaps want nothing better. The alloy of nickel and copper generally used is hard and difficult to coin, but it takes a fine impression which it will probably require long wear to efface. Nickel coinage is thus very unlikely to be counterfeited, and its peculiar nondescript colour renders it easily distinguishable from silver or gold money. The progress of metallurgy, however, is making us acquainted with several new metals and many new alloys, and it is quite likely that some new material for fractional money will eventually be found. Dr. Percy, having regard to the rising price of nickel, suggests that manganese should be employed instead, as it gives alloys of similar character, and can be procured in greater quantities.
Dr. Clemens Winkler strongly recommends aluminium as suited for monetary purposes. Trial pieces, marked “¼ real, 1872,” have been struck, and one of them may be seen in the Monetary Museum at the Paris mint. This metal has a characteristic bluish white colour, but its great advantage is its low specific gravity. The trial pieces in question, of which a specimen was furnished to me by Mr. Roberts, the chemist of the English mint, is two centimetres, or 0.79 inch, in diameter, a little wider than a sixpence and much thicker, and yet weighs only one grain, or 15½ grains. Were our pence and halfpennies as light and convenient as this coin, we could carry many of them in the pocket without discomfort. The chief difficulty in adopting such a new metal would arise from the uncertain price at which it can be produced. It is unknown, too, how it would wear. Even if pure aluminium were found to be unsuitable for coining, some of its remarkable alloys might be employed instead. Mr. Graham, the late Master of the Mint, had a series of trial pieces of one to ten cents struck in the so-called “aluminium bronze.”
I may suggest that one of the best possible materials for small money would be steel, provided it could be prevented from rusting. Steel coins would be difficult to strike, but when once struck could be hardened, so as to be almost indestructible. The cheapness of the material would allow of their production on a large scale at small cost, while they could not possibly be imitated by the false coiners with any profit. Hence it would be needless to pay any attention to the metallic value of the coins, which might be struck of the most convenient sizes, probably those of the sixpence and shilling. Now it has been pointed out by Sir John Herschel (Physical Geography, reprinted from the “Encyclopædia Britannica,” §320, p. 289), that steel appears to be protected from rusting by being alloyed with a small quantity of nickel; this at least is the effect in the case of meteoric iron. It is much to be desired that such an alloy should be fairly tried. I am informed by Mr. Roberts, that silver also alloys well with iron or steel, and that such mixtures have been proposed for coining purposes. An alloy of silver, copper, and zinc has already, indeed, been fully tested in Switzerland, where it is used for twenty, ten, and five-centime pieces. These coins are convenient in size, but have a poor yellowish white appearance. They have not been adopted, so far as I know, by any other country; and there seems to be no use in putting silver into them, as it would probably be easy to produce a similarly coloured alloy without silver.
It is a misfortune of what may be called the science of monetary technology, that its study is almost of necessity confined to the few officers employed in government mints. Hence we can hardly expect the same advances to be made in the production of money as in other branches of manufacture, where there is wide and free competition. Moreover, it is very difficult to get an opportunity of testing any new kind of coin; in a large currency, like that of the United Kingdom, it is almost impossible to execute experiments. But it may be suggested that the English mint, in supplying coins for some of the smaller British colonies and possessions, enjoys an admirable opportunity for testing new proposals. This need not involve any cost to such colonies, as the English government, in striking a few hundreds or thousands of pounds’ worth of small coin for a colony, might readily engage to withdraw them at its own cost if found unsuitable after a certain number of years.