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
The Metals as Money
It need not be pointed out in detail that, though the numerous commodities mentioned in Chapter IV. possess, in a greater or less degree, the qualities essential to the material of money, they cannot for a moment compare in this respect with many of the metal. Some of the metals seem to be marked out by nature as most fit of all substances for employment as money, at least when acting as a medium of exchange and a store of value. Accordingly, we find that gold, silver, copper, tin, lead, and iron have been more or less extensively in circulation in all historical ages. So closely have silver and copper become associated in people’s minds with their use as money, that we find their names adopted as the names of money. In Greek,
means equally silver, silver coin, and money generally; in Latin,
aes is copper, bronze, or brass, and also money and wages; in French,
argent is both silver and money. The same association of meanings could be pointed out in many other languages, including our own. Though our pence are now of bronze we still speak of them as
With the exception of iron, the principal metals are peculiarly indestructible, and undergo little or no deterioration when hoarded up or handed about. Each kind of metal is approximately homogeneous, piece differing from piece in nothing but weight, the differences of fineness being ascertained and allowed for in the case of gold and silver. The metals are also perfectly divisible, either by the chisel or the crucible, and yet a second melting will always reunite the pieces again with little cost or loss of material. Almost of them possess the properties of cognizability and impressibility in the highest degree. Each metal has its characteristic colour, density, and hardness, so that it is easy for a person with very slight experience to distinguish one metal from another. Their malleability enables us to roll, cut, and hammer them into any required form, and to impress a permanent design by means of dies. With the exception of porcelain coins, which have been used in Siam, I am not aware that coins have ever been made of any substance except metal.
In respect to steadiness of value the metals are probably less satisfactory, regarded as a standard of value, than many other commodities, such as corn. From the earliest ages metals must have been most highly valued, as we may learn from the way in which they are esteemed by savages in the present day. But their value has suffered and is suffering an almost continuous decline, owing to the progress of industry, and the discovery of new mechanical and chemical means for their extraction. Even the order of their values becomes changed. According to Mr. Gladstone, iron was, in the Homeric age, much more valued than
chalkos, or copper, which latter was then the most common and useful metal. Lead was little known or valued, but gold, silver, and tin held the same place at the head of the list which they hold at the present, day.
Proceeding to consider briefly each of the more important metals, the statements of Aristotle, Pollux, and other writers prove that iron was extensively employed as money in early times. Not a single specimen of such money is now known to exist, but this is easily accounted for by the rapidity with which the metal rusts. In the absence of specimens, we do not know the form and size of the money, but it is probable that it consisted of small bars, ingots, or spikes, somewhat similar to the small bars of iron which are still used in trading with the natives of Central Africa. Iron money is still, or was not long since, used in Japan for small values; but its issue from the mint has been discontinued.
The use of pure iron coins in civilized countries at the present day is out of the question, both because of the cheapness of the metal, and because the coins would soon lose the sharpness of their impressions by rusting, and become dirty and easily counterfeited. But it is quite possible that iron or steel might still be alloyed with other metals for the coining of pence.
Lead has often been used as currency, and is occasionally so mentioned by the ancient Greek and Latin poets. In 1635 leaden bullets were used for change at the rate of a farthing a piece in Massachusetts. At the present day it is still current in Burmah, being passed by weight for small payments. The extreme softness of the metal obviously renders it quite unfit for coining in the pure state. It is one of the components of pewter, which has frequently been coined.
Tin has also been employed as money at various times. Dionysius of Syracuse issued the earliest tin coinage of which anything is certainly known; but as tin was in early times procured from Cornwall, it can hardly be doubted that the first British currency was composed of tin. In innumerable cabinets may be found series of tin coins issued by the Roman emperors; the kings of England also often coined tin. In 1680 tin farthings were struck by Charles II., a stud of copper being inserted in the middle of the coin to render counterfeiting more difficult. Tin halfpence and farthings were also issued in considerable quantities in the reign of William and Mary (1690 to 1691). Tin coins were formerly employed among the Javanese, Mexicans, and many other peoples, and the metal is said to be still current by weight in the Straits of Malacca.
Tin would be in many respects admirably suited for making pence, possessing a fine white colour, perfect freedom from corrosion, and a much higher value than copper. Unfortunately its softness and tendency to bend and break when pure are insuperable obstacles to its employment as money.
This metal is in many respects well suited for coining. It does not suffer from exposure to dry air, possesses a fine distinct red colour, and takes a good impression from the dies, which impression it retains better than the majority of other metals. Accordingly, we find that it has been continually employed as currency, either alone or in subordination to gold and silver. The earliest Hebrew coins were composed chiefly of copper, and the metallic currency of Rome consisted of the impure copper, called
aes, until B.C. 269, when silver was first coined. In later times copper has not only been generally used for coins of minor value, but, in Russia and in Sweden, a hundred years ago, it formed the principal mass of the currency. Its low value now stands in the way of its use. A penny, if made so as to contain metal equivalent to its nominal value, would weigh 870 grains, or more than an ounce and three-quarters troy. Its value is also subject to considerable fluctuations. Moreover, it is unlikely that copper in a pure state will be coined for the future, since bronze is now known to be so much more suitable for coinage.
I need hardly say that silver is distinguished by its exquisite white lustre, which is not rivalled by that of any other pure metal. Certain alloys, indeed, such as speculum metal, or Britannia metal, have been made of almost equal lustre, but they are either brittle, or so soft as not to give the metallic ring of silver. When much exposed to the air silver tarnishes by the formation of a black film of silver sulphide; but this forms no obstacle to its use as currency, since the film is always very thin, and its peculiar black colour even assists in distinguishing the pure metal from counterfeit. When suitably alloyed, silver is sufficiently hard to stand much wear, and next after gold it is the most malleable and impressible of all the metals.
A coin or other object made of silver may be known by the following marks:—(1) a fine pure white lustre, where newly rubbed or scraped; (2) a blackish tint where the surface has long been exposed to the air; (3) a moderate specific gravity; (4) a good metallic ring when thrown down; (5) considerable hardness; (6) strong nitric acid dissolves silver, and the solution turns black if exposed to light.
Silver has been coined, it need hardly be said, in all ages since the first invention of the art, and its value relatively to gold and copper suits it for taking the middle place in a monetary system. Its value too remains very stable for periods of fifty or a hundred years, because a vast stock of the metal is kept in the form of plate, watches, jewellery, and ornaments of various kinds, in addition to money, so that a variation in the supply for a few years cannot make any appreciable change in the total stock. Productive silver mines exist in almost all parts of the world, and wherever lead is produced, a small but steady yield of silver is obtained from it by the Pattinson method of extraction.
Silver is beautiful, yet gold is even more beautiful, and presents indeed a combination of useful and striking properties quite without parallel among known substances. To a rich and brilliant yellow colour, which can only be adequately described as golden, it joins astonishing malleability and a very high specific gravity, exceeded only by that of platinum and a few of the rarest or almost unknown metals. We can usually ascertain whether a coin consists of gold or not, by looking for three characteristic marks: (1) the brilliant yellow colour; (2) the high specific gravity; (3) the metallic ring of the coin when thrown down, which will prove the absence of lead or platinum in the interior of the coin.
If there remain any doubt about a metal being gold, we have only to appeal to its solubility. Gold is remarkable for its freedom from corrosion or solution, being quite unaffected and untarnished after exposure of any length of time to dry, or moist, or impure air, and being also insoluble in all the simple acids. Strong nitric acid will rapidly attack any coloured counterfeit metal, but will not touch standard gold, or will, at the most, feebly dissolve the copper and silver alloyed with it.
In almost all respects gold is perfectly suited for coining. When quite pure, indeed, it is almost as soft as tin, but when alloyed with one-tenth or one-twelfth part of copper, becomes sufficiently hard to resist wear and tear, and to give a good metallic ring; yet it remains perfectly malleable and takes a fine impression. Its melting point is moderately high, and yet there is no perceptible oxidation or volatilization of the metal at the highest temperature which can be produced in a furnace. Thus old coin and fragments of the metal can be melted into bullion at a very slight loss, and at a cost of not more than one halfpenny per ounce troy, or little more than one-twentieth of one per cent.
This is one of those comparatively rare metals which have been known only in recent times. Its extremely high melting-point, and low affinity for oxygen, render it one of the most indestructible of all substances, whilst its white colour, joined to its excessively high specific gravity, are marks which cannot be mistaken. As it seemed in these respects well suited for currency, the Russian government, which owns the principal platinum mines in the Ural mountains, commenced to coin it, in 1828, into pieces intended to have the values of twelve, six, and three roubles. Several objections to this use of the metal soon presented themselves. The appearance of platinum being inferior to that of silver or gold, it is seldom or never employed for purposes of ornament, and its only extensive use is in the construction of chemical apparatus. Hence there is no large stock of the metal kept on hand, and the localities where it is found being few, the supply is incapable of being much increased, so that any variation of demand is sure to cause a great change in its value. Moreover, the cost of making the coins was very great, owing to the extreme difficulty of melting platinum, and the worn coins could not be withdrawn and recoined without much additional cost. Platinum being thus found to be quite unfitted for currency, the scheme was abandoned in 1845, and the existing coins withdrawn from circulation.
Great improvements having been lately made in the modes of working platinum, it was proposed by M. de Jacobi, the representative of Russia at the International Monetary Conference held at Paris, in 1867, that platinum should be employed for the coinage of five-franc pieces. It is not likely that such a suggestion will be adopted.
This metal was formerly regarded as the bane of the metallurgist, but has recently assumed an important place in manufacturing industry, and even in monetary science. It is used only in alloy with other metals, and for the purposes of coinage it is usual to melt up one part of nickel with three of copper. Some of the coins of Belgium, and the one-cent pieces of the United States have been made of this material and seem to be very convenient. In 1869 and 1870-1, pence and halfpence, to the value of £3000, were executed in the same alloy, at the English mint, for the colony of Jamaica. These are some of the most beautiful coins which have ever been issued from Tower Hill, and are in most respects admirably suited for circulation. But they were unfortunately made much too large and heavy; not only were they thus rendered less convenient, but when in 1873, the Deputy Master of the Mint was requested to supply a further quantity of the same coins, he found that the price of nickel had risen very much, so that the materials for the coinage alone would cost more than the nominal value of the coins to be produced. This rise in price was due partly to the small number of nickel mines yet worked, and partly to the great demand for the metal occasioned by the German government, which has chosen the same alloy for the ten and five-pfennig pieces of its new monetary system. These coins, which are now being issued, are of a convenient size, rather less than a shilling and sixpence respectively, and appear to be in every way admirably suited to their purpose. The German empire will soon possess the best instead of the worst fractional currency in the world. The variableness in the price of nickel, which is at present a cause of embarrassment, may after a time become less serious, when the stock in use and the annual produce become larger.
The metals yet mentioned are but a small number of those now known by chemists to exist, and it would be unwise to assume as certain that money must always be made in the future of the same materials as in the past. It is just conceivable, on the one hand, that in the course of time, some metal still more valuable than gold may be introduced. Roughly speaking, the order in which the metals have hitherto acted, as the principal medium of exchange, is (1) copper, (2) silver, (3) gold; as a general decline in the values of the metals took place, the more valuable replaced the less valuable, and the more portable gold is now rapidly taking the place of silver. Some still more valuable metal, such as the scarce and intractable iridium or osmium, or the remarkable metal palladium, might possibly take the place of gold. This, however, is barely more than a matter of scientific fancy.
On the other hand, many metals exist which might be produced more cheaply than silver, such as aluminium or manganese. It may be well worthy of inquiry whether in such metals may not be found the best solution of the fractional currency difficulty, to be afterwards more fully discussed (p. 132).
Alloys of Metals.
At one time or another an immense number of different alloys or mixtures of metals have been coined. It would be strictly correct to say, indeed, that metals have seldom been issued except in the state of alloy. Even gold and silver, as usually coined, are either alloyed with each other or with copper. The latter metal, too, has generally been employed in union with other metals. The Roman
as consisted, not of pure copper, but of the mixed metal
aes, an alloy of copper and tin, partially resembling the bronze which has quite recently been introduced for small money in France, England, and other countries. Brass was largely coined by some of the Roman emperors. In many cases, no doubt, the early metallurgists in smelting an ore obtained a natural alloy of all the metals contained therein, and being unable to separate them were obliged to use the mixture. Thus we may explain the curious metal containing from sixty to seventy parts of copper, twenty to twenty-five of zinc, five to eleven of silver, with small quantities of gold, lead, and tin, which was employed to make the
stycas, or small money, of the early, kings of Northumbria.
Monarchs or states in difficulty have often coined the metal which they could most easily obtain. The Irish money issued by James II. was said to have been coined from a mixture of old guns, broken bells, waste copper, brass, and pewter, old kitchen furniture, and in fact any refuse metal which his officers could lay their hands upon. He attempted to make pewter crowns circulate for the value of silver ones.