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
Technical Matters Relating to Coinage
In this chapter I propose to consider several minor points relating to the construction and regulation of metallic currency. Although the first principles of money are simple, it is surprising how many little details have to be considered before we can attain the maximum of convenience. We have already discussed the selection of metals to be employed, the modes in which they may be combined into a system, the regulations as to issue, etc. In this and the following chapters we still have to consider the character of the alloy which is best adapted for coining; the most convenient sizes for coins; the method of counting large numbers of coins; the cost at which the currency is maintained; the advantages and disadvantages of international currency of money; the difficulty of selecting a single standard unit; the best series of multiples and submultiples of the unit. At the, most I cannot in this work attempt to give more than a slight sketch of the complicated questions of detail which have to be considered before making any change in the currency.
The Alloys in Coin.
Although we commonly speak of money as consisting of gold or silver, the coins actually used contain alloys either of silver and copper, or of gold and copper, or of gold, silver, and copper. Money struck in nearly pure gold has indeed been issued both in early and recent times, and among such gold coin may be mentioned the ancient bezant, the recent Austrian ducat, containing 986 parts of gold in 1000, the six-ducat piece of Naples, containing 996 parts, or the Tuscan sequin, which is said to be almost pure gold, namely, 999 parts in 1000. Pure gold and silver are, however, soft metals, so that even if they were found naturally in the pure state, it would be desirable to add copper, which communicates hardness and reduces very much the abrasion of the coins. The proportion of copper to be adopted has been a matter of frequent discussion, and is determined partly on historical, partly on scientific grounds.
The exact alloy employed in England appears to have been decided by the system of weights used. Silver was weighed by the troy pound of 12 ounces, of which 11 oz. 2 dwts. were to be pure silver, and 18 dwts. copper. This proportion, which, even in 1357, was called the “old right standard of England,” has, in spite of temporary depreciations, been maintained to the present day, and corresponds to the proportion of 925 parts in 1000. Gold having been weighed by the ancient and curious system of
carat weights, said to be derived from the seeds of an Abyssinion plant, the unit weight of gold was 21 carats, of which 22 were to be of pure gold and two of alloy. This ratio, which has existed for many centuries, is decimally expressed by 916.66 parts in 1000.
The degrees of fineness employed in one country or another at different times are infinitely various. Silver has been coined of only 200 or even 150 parts in 1000, and gold of 750 or 700 parts; and coins exist of almost every fineness from these limits up to nearly pure metal. The only standards of fineness which it is needful to discuss in the present day are those of 900 and 835 which are proposed for general adoption in international money. A few years ago, indeed, the Berlin government contemplated the adoption of a standard German crown, consisting of ten grams of pure gold and one grain of alloy, which would give a fineness of 10/11 or 909.09. This scheme had no apparent advantages, and was fortunately abandoned in favour of the present German coinage, which is, both as regards gold and silver, of the fineness of 900 parts in 1000. This simple decimal proportion was adopted by the French in the time of the Revolution; it has been extended over the countries belonging to the Monetary Convention of 1865, and over Spain, Greece, and other countries which have more or less imitated the French system. It was long ago adopted by the United States, and has been recently introduced into the gold currency of the Scandinavian kingdoms. The German government, having now decided to accept it, the simple decimal fineness is established in all the more advanced countries, excepting England and some of her colonies, and a few nations, such as Russia, Portugal, and Turkey, which have imitated the English currency and coined gold at 916.66.
In a chemical and mechanical point of view the exact degree of fineness is not a matter of importance. The difference between 11/12 and 9/10 is only 1/60, and though the often-quoted experiments of Hatchett were said to show that our standard was slightly better than that of the French, the difference is so slight and questionable as to afford no ground for preference. The late Master of the Mint, Professor Graham, was quite willing to accept the standard of 900, both for gold and silver, and there are really no reasons, except prejudice and traditional usage, why we should not do so as soon as we make any change at all. Uniformity in the practice of nations is desirable in this and many other points, and the French economists lay great stress upon this question of fineness. It appears to me, however, that the exact degree of fineness is altogether a matter of secondary importance. If we were now to make our sovereign nine-tenths fine, we should have to raise its weight from 123.274 grains to 125.557 grains, and the mixture of old and new coins would entirely frustrate the method of counting gold money by the scales adopted in all banks. We must certainly, therefore, postpone a change of fineness in gold until we make a more considerable monetary reform. I see no reason, on the other hand, why the mint should not at once be authorized to coin silver of the decimal fineness of nine-tenths. This would merely involve an imperceptible increase in the thickness of the coins, which would, in the case of the smaller ones, be advantageous.
The fineness of 835 parts in 1000 was adopted by France, as already stated (p. 76), in order to reduce the two-franc and smaller pieces to the rank of tokens, without making any change in their weight and appearance. There is no special objection to this alloy, which is perfectly coinable and of good colour; but it is not likely that it will be adopted by the English government, instead of the present fineness of 925 parts in 1000 of our silver coinage; and does not. need further discussion. It may be added that, in former years, the alloy contained in gold coins consisted in part of silver, which is always present in a greater or less quantity in native gold wherever it is found. The yellow appearance of guineas, and also of many Australian sovereigns, was due to this silver alloy; but all such silvery gold coins are rapidly withdrawn now by gold refiners, who can profitably separate the silver. The very remarkable invention of Mr. F. B. Miller, of the new Melbourne mint, enables this separation to be effected with great ease, and at small cost, almost on the gold fields. It is only requisite to melt the silvery gold, and pass a current of chlorine gas into it, to obtain the silver in the state of chloride, which is readily separated from the gold and reduced to the metallic state. It is a further advantage of this simple process that all gold so treated is freed from accidental impurities, and rendered perfectly malleable and fit for coining. One of the great difficulties of mint masters, the brittleness of gold, has thus been entirely overcome. A full description of the process, as employed at the English, Australian, American, Norwegian, and other mints, will be found in the First Annual Report of the Deputy Master of the English Mint (p. 93), and in the Second Report (p. 33), or in the specification as printed by the Patent Office.
The Size of Coins.
There appear to be pretty well defined limits of size within which we should confine ourselves in the striking of money. Coins must not be so small that they can be easily lost, or can with difficulty be picked up. The rule seems to be that the coin should cover the whole area of contact between the points of the thumb and first finger; and though, of course, this area will differ with men, women, and children, we should err rather in excess than defect. On this ground I should condemn the English threepenny silver piece as too small, and, on the same ground, the Swedish ten-öre piece, the American one-dollar gold piece, the former Papal one-scudo piece, must be pronounced inconveniently small. The French five-franc gold piece of the later type, the English fourpenny piece, the Canadian five-cent piece, or the new silver piece of twenty pfennigs, now being introduced into the German Empire, must be considered the smallest coins to be tolerated. The thickness of the coins, however, must be taken into account as well as the diameter. The moneys issued from the United States mint are thicker than usual, and though this tends to give some of the coins a clumsy appearance, yet they seen to me all the more convenient to use. The French have gone to the opposite extreme, the five-franc gold piece being very thin, and having a diameter of nearly seventeen millimetres, while the American dollar, which is more valuable, has a diameter of little more than thirteen millimetres. The maximum size of coins has probably been determined chiefly with regard to the practical difficulty of coining. The largest coin which has been very widely circulated is perhaps the Maria Theresa dollar, measuring 1.6 inches, or 41 millimetres, in diameter; the other most common species of dollar are somewhat smaller, such as the Spanish dollar of 1858, measuring 37 millimetres; the American dollar, 1846, the Spanish dollar, 1870, the Mexican dollar, 1872, measuring from 37 to 38 millimetres. The average diameter of the dollars which I have examined is 38½ millimetres, or almost exactly an inch and a half. In their larger gold coins, the Americans maintain unusual thickness. Thus the double eagle, though in value equal to more than four pounds, has a diameter of only 34 millimetres, or 1 1/3 inch. The beautiful four-ducat piece of Austria has a larger diameter than the double eagle, though it contains less than half the quantity of fine gold.
The Wear of Coin.
Some attention must be given to the abrasion which coins suffer in use. In the case of gold coins the loss of metal thus occasioned is of importance, and leads, as we have seen (p. 111), to a gradual depreciation of the currency. As coins pass frequently from hand to hand, the amount of metal abraded will be nearly the same as regards each coin of the same type, and each year of circulation. The loss will be proportional to length of wear. Now the English law allows a sovereign to be legal tender so long as it weighs 122.5 grains, or more; and the difference between this and the full standard weight, or 0.774 grain, represents the margin allowed for abrasion. Now, from experiments described in a paper read to the London Statistical Society in November, 1868 (“Journal of the Statistical Society,” Dec., 1868, vol. xxxi. p. 426), I estimated the average wear of a sovereign for each year of circulation at 0.043 grain (0.00276 gram). It would follow that a sovereign cannot in general circulate more than about eighteen years without becoming illegitimately light. This length of time, then, would constitute what may be called the
legal life of a sovereign. It has since been shown by Dr. Farr, that certain considerations overlooked in my calculations would reduce this estimate of the legal life to fifteen years. Mr. Seyd, on the other hand, thinks that twenty years might be adopted as the legal age of the sovereign.
When we compare the currencies of different countries, it becomes evident that the rate of abrasion will depend partly upon the rapidity and constancy of circulation, partly upon the size and character of the coins. According to the inquiries of M. Feer-Herzog in Switzerland, the average loss of the twenty-franc piece amounts to 200 millionths of the full weight in each year, while with the ten and five-franc gold pieces, the corresponding amounts are 430 and 620 millionths. My own weighings of English gold show that the sovereign loses about 350 millionths in each year of wear, and the half-sovereign no less than 1120 millionths, or more than one-tenth per cent. per annum. As the English coins are heavier than the napoleon and half-napoleon, they should suffer less loss in proportion. M. Feer-Herzog attributes the excessive loss manifested by English money to the softer character of the English alloy of eleven-twelfths. This cause may contribute something to the effect observed, but it is probable that the greater rapidity of the circulation in England is the main ground on which so great a difference can be explained.
The rate of wear of a coin depends greatly, it will be seen, upon its size. A large coin, like an English crown, a French silver écu, or an American double eagle, suffers comparatively little wear, because the surface increases much less rapidly in proportion than the contents of the coin. The slight degree of abrasion of the various silver dollars may be one cause of their popularity in the East. Smaller silver money loses much more. Thus, according to experiments made at the mint in 1833, the loss per cent. per annum on half-crowns is about 2
d., on shillings 4
s., and on sixpences 7
d., or decimally .125, .200, and .375 per cent. respectively. This loss becomes considerable in the course of years, as may readily be seen in the case of worn sixpences. The average loss of weight of the old silver coins melted at the mint, seems to be about 16½ per cent., but this loss is more than covered by the profit upon the issue of new silver coin. Experiments were made at the mint in 1798 upon the weight of English silver coins then in circulation. It was found that the deficiency amounted in crowns to 3.31 per cent., and in half-crowns, shillings, and sixpences respectively, to 9.90, 24.60, and 38.28 per cent. In the recent withdrawal of the old silver money of South Germany, it was found to have lost on the average about one-fifth part of its weight.
To reduce the loss arising from the wear of gold coin, it might seem to be desirable to issue large gold pieces. The Americans used to have a great circulation of eagles and double eagles, the latter especially being very handsome medal-like pieces. In former days many large gold coins, such as the carlino, dobraon, doubloon, quadruple pistole, and the double ryder were current. A serious objection, however, to such coins as a double eagle, one-hundred franc piece, or five-pound piece, is that they can readily be falsified. Small holes can be drilled through them, and then concealed by hammering. The application of the file, the sweating bag, or cylinder, or of chemical reagent, would probably be safer with large than with small coins. In some cases a double eagle has been completely sawn into two flat discs, which were afterwards neatly soldered together again with a plate of platinum between to give the requisite weight. It might have been thought that the labour and skill required to effect such falsification would have been better remunerated in some honest employment; but, according to the reports of the Director of the United States Mint, there is evidence to show that the practice is profitable. It is proposed to prevent this falsification by reducing the thickness of the double eagle, and also making it somewhat dish shaped; but it would be better to abandon the issue of such large gold money, as has long been done in England and France. Experience shows that sovereigns, napoleons, half-eagles, and gold coins of the same size are not fraudulently treated, nor are silver coins ever debased in the way described.
In order to diminish the abrasion of coins as far as possible, the design and legend should be executed with the least possible relief consistent with perfect definition, and the head of the monarch, or other personage, should not protrude. In this and most other respects the sharply defined flat design upon the English florin is much superior to the high rounded ornaments of the old crown, half-crown, and shilling. Tic French mints seem to be very successful in the execution of dies, all the coins, gold, silver, and bronze struck by them having flat yet admirably executed devices. Perhaps the most beautiful recent coin which I have seen is the new twenty-franc gold piece struck during 1874 for Hungary, the engraving of the die being excellent. The new Scandinavian gold pieces of five-specie dollars, or twenty kroner, are also well executed.
Methods of Counting Coins.
To count large quantities of coin by tale, piece after piece, is not only a tedious operation, but very uncertain as regards accuracy. Several methods have been devised to facilitate the operation. In mints, the Bank of England, and other establishments, where vast quantities of coin are treated,
counting boards are used. Similar boards have, indeed, been used from time immemorial in some parts of India by money-changers and tradesmen. These consist of simple flat trays, with several hundred depressions regularly arranged, and of such a size that one coin will exactly fit into each depression. Handfuls of uniform coins are thrown on to the board, and shaken over it, until most of the holes are filled; the remaining holes are then filled up one after another by hand. The number contained upon the board is then known with infallible accuracy, and at the same time it is very easy to examine the coins, and detect any counterfeit, defective, or foreign pieces. By the use of such boards, bags of equal numbers of any coinage are readily made up with great certainty.
In English banks it is requisite to count out considerable sums in gold coin with rapidity for the payment of cheques over the counter, or to verify the number of sovereigns paid in on deposit. For this purpose balances are employed, with weights prepared so as to be equivalent to 5, 10, 20, 30, 50, 100, 200, and 300 sovereigns. Any sum which is a multiple of five sovereigns can thus be rapidly, and almost infallibly, weighed out in a few seconds, provided that the coins are not too old and worn. An error of a sovereign is sometimes possible in a large sum, on account of deficiency of weight. In the case of half-sovereigns, this process is seldom to be depended upon, owing to the very considerable lightness of the coins. This uncertainty in weighing is one of several serious inconveniences which arise from the defective state of our gold coinage.
Half sovereigns, however, and in fact all coins which are approximately equal to each other on the average, can be rapidly counted on the balance by the ingenious
method of duplication. Any convenient number, for instance, fifty coins, being counted into one scale, an equal number may be made to balance them, without counting, in the other scale. The two equal lots being united, one hundred more coins may be made to counterbalance them, and by a second union we get two hundred coins. We may repeat this duplication, if the balance will bear the weight, and afterwards, using one lot of coins as the fixed weight, may go on counting out lot after lot equal to it in weight and number.
When neither balance nor counting board is available, coins may be counted out into little piles of ten, fifteen, or twenty. Placing these piles alongside each other on a flat board, it is easy to detect any inequality of height by the unassisted eye, or by a straight edge laid along the top. A mistake in counting will thus be generally made manifest.
Cost of the Metallic Currency.
Calculations of some interest may be made as to the cost which falls upon the public in one way or another, owing to the use of metallic money. Speaking first of the subordinate coins of silver and bronze, the government make a profit by their manufacture, owing to the reduced weight at which they are issued as tokens. Standard silver can usually be bought by the mint for 5
s. per standard ounce. It is issued to the public at the rate of 5
d. per ounce, so that the government receives a seignorage of at least nine per cent. on the nominal value of the coin issued. The average coinage of silver at the English mint during the last ten years has been £546,580, upon which the seignorage 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 the cost. of the mint establishment. At present the price of silver is not above 4
d. per ounce, so that the seignorage is about 12 per cent., and the profit on coining silver proportionately greater.
We may look at this matter in another way, by regarding the seignorage as so much money funded to bear interest, to meet the cost of withdrawing the coin, when worn out, say thirty years subsequently. Now a pound bearing 3¼ per cent. compound interest, becomes in thirty years 2.61 pounds, so that the 9 per cent. of seignorage will have multiplied to 23.5 per cent. But the actual deficiency of weight of the silver coin withdrawn is, on the average, only 16½ per cent., so that, without taking into account the considerable number of coins which must be lost, exported, melted, hoarded, sunk in the sea, or otherwise finally withdrawn from circulation, there is a profit on the issue of the silver coin under the present regulations.
In the issue of bronze money there has been, as before stated, a profit of £270,000, against which must be set off the possible, but uncertain, cost of recoining a light token currency at some future time.
The cost of the currency is made up of four principal items: the loss of interest upon the capital invested in the money, the loss by the abrasion of gold coins, the expenses of the mint, and lastly the casual loss of coins. The last item is of wholly unknown amount; the other items may be estimated as follows. We may, roughly speaking, assume the gold currency of the kingdom to consist of 84,000,000 of sovereigns and 32,000,000 of half-sovereigns, the total value being 100,000,000 sterling. The sovereigns lose annually on the average 0.043 grain each, giving an annual loss of about £30,000; the half-sovereigns lose 0.069 grain each, producing a loss of £18,000. The loss of interest, however, is a far more serious matter. The whole value of the metals employed in the currency is, roughly speaking, as follows:—
|Gold coin in circulation . . . .||100||millions.|
|Bullion in the Bank of England . .||15||“|
|Silver coin . . . . . . . .||15||“|
|Bronze coin . . . . . . . .||1 1/8
|Total . . . . . . . . .||131 1/8||millions.|
The interest on this sum at 3¼ per cent. is no less than £4,262,000.
The cost of the mint establishment is about £42,000 annually. The following statement, then, show the aggregate cost of the metallic currency so far as it can be estimated.
|Loss of interest . . . . . .||£4,262,000|
|Wear of coin . . . . . . .||48,000|
|Mint establishment . . . . .||42,000
From this amount ought to be subtracted the profit which the mint makes out of the seignorage upon silver and bronze coins; but we may set off this profit against the wholly unknown amount which the public loses by the accidental dropping of coins.