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
It is clear that the metals far surpass all other substances in suitability for the purpose of circulation, and it is almost equally clear that certain metals surpass all the other metals in this respect. Of gold and silver especially we may say, with Turgot, that, by the nature of things, they are constituted the universal money independently of all convention and law. Even if the art of coining had never been invented, gold and silver would probably have formed the currency of the world; but we have now to consider how, by shaping weighed pieces of these metals into coins, we can make use of their valuable properties to the greatest advantage.
The primitive mode of circulating the metals, indeed, was simply that of buying and selling them against other commodities, the weights or portions being made rudely estimated. Some of the earliest specimens of money consist of the
aes rude, or rough, shapeless lumps of native copper employed as money by the ancient Etruscans. In the Museum of the Archiginnasio at Bologna may be seen the skeleton of an Etruscan, half embedded in earth, with the piece of rough copper yet within the grasp of the bony hand, placed there to meet the demands of Charon. Pliny, moreover, tells us that, before the time of Servius Tullius, copper was circulated in the rude state. Afterwards copper, brass, or iron were, it is probable, employed in the form of small bars or spikes, and the name of the Greek unit of value,
drachma, is supposed to have been derived from the fact that six of these metal spikes could be grasped in the hand, each piece being called an
obolus. Such is supposed to have been the first system of money which was passed purely by
tale, or number of pieces.
Gold is most readily obtained from alluvial deposits, and then has the form of grains or dust. Hence this is the primitive form of gold money. The ancient Peruvians enclosed the gold dust for the sake of security in quills, and thus passed it about more conveniently. At the gold diggings of California, Australia, or New Zealand, gold dust is to the present day sold directly against other goods by the aid of scales. The art of melting gold and silver, and fashioning them by the hammer into various shapes was early invented. Even in the present day the poor Hindoo, who has saved up a few rupees, employs a silversmith to melt them up and beat them into a simple bracelet, which he wears in the double character of an ornament and a hoard of wealth.
Similarly, the ancient Goths and Celts were accustomed to fashion gold into thick wires, which they rolled up into spiral rings and probably wore upon their fingers until the metal was wanted for trading purposes. There can be little doubt that this ring money, of which abundant specimens have been found in various parts of Europe and Asia, formed the first approximation to a coinage. In some cases the rings may have been intentionally made of equal weight; for Cæsar speaks of the Britons as having iron rings, adjusted to a certain weight, to serve as money. In other cases the rings, or amulets, were bought and sold by aid of the balance; and in certain Egyptian paintings men are represented as in the act of weighing rings. It is probable that the necessity for frequent weighings was avoided by making up sealed bags containing a certain weight of rings, and such perhaps are the bags of silver given by Naaman to Gehazi in the Second Book of Kings (v. 23). Ring money is said to be still current in Nubia.
Gold and silver have been fashioned into various other forms to serve as money. Thus the Siamese money consists of very small ingots or bars bent double in a peculiar manner. In Pondicherry and elsewhere gold is circulated in the form of small grains or buttons.
The Invention of Coining.
The date of the invention of coining can be assigned with some degree of probability. Coined money was clearly unknown in the Homeric times, and it was known in the time of Lycurgus. We might therefore assume, with various authorities, that it was invented in the mean time, or about 900 B.C. There is a tradition, moreover, that Pheidon, King of Argos, first struck silver money in the island of Ægina about 895 B.C., and the tradition is supported by the existence of small stamped ingots of silver, which have been found in Ægina. Later inquiries, however, lead to the conclusion that Pheidon lived in the middle of the eighth century B.C., and Grote has shown good reasons for believing that what he did accomplish was done in Argos, and not in Ægina.
The mode in which the invention happened is sufficiently evident. Seals were familiarly employed in very early times, as we learn from the Egyptian paintings or the stamped bricks of Nineveh. Being employed to signify possession, or to ratify contracts, they came to indicate authority. When a ruler first undertook to certify the weights of pieces of metal, he naturally employed his seal to make the fact known, just as, at Goldsmiths’ Hall, a small punch is used to certify the fineness of plate. In the earliest forms of coinage there were no attempts at so fashioning the metal that its weight could not be altered without destroying the stamp or design. The earliest coins struck, both in Lydia and in the Peloponnesus, were stamped on one side only. The Persian money, called the
larin, consists of a round silver wire, about six centimetres long, bent in two, and stamped on one part which is flattened for the purpose. It is probably a relic of ring money. The present circulation of China is composed to a considerable extent of the so-called Sycee silver, which consists of small shoeshaped ingots, assayed and stamped, according to some accounts, by the government.
What is a Coin?
Although, in rings, grains, or stamped ingots, we have an approximation to what we call coin, it is plain that we must do something more to make convenient money. The stamp must be so impressed as to certify, not only the fineness and the original weight, but also the absence of any subsequent alteration. To coin metal, as we now understand the art, is to form it into flat pieces of a circular, oval, square, hexagonal, octagonal, or other regular outline, and then to impress designs from engraved dies upon both sides, and sometimes upon the edges. Not only is it very costly and difficult to counterfeit coins well executed in this manner, but the integrity of the design assures us that no owner of the coin has tampered with it. Even the amount of ordinary wear and tear, which the coin has suffered, may be rudely inferred from the sharpness or partial effacement of the designs, and the roundness of the edges. “Pieces of money,” says M. Chevalier, “are ingots of which the weight and the fineness are certified.” There is nothing in this definition to distinguish coins from Sycee silver, or from the ordinary stamped bars and ingots of bullion. I should prefer, therefore, to say,
coins are ingots of which the weight and fineness are certified by the integrity of designs impressed upon the surfaces of the metal.
Various Forms of Coins.
From time to time coins have been manufactured in very many forms, although circular coins vastly predominate in number. Among the innumerable issues of the German states may be found octagonal and hexagonal coins. A singular square coin, with a circular impress in the centre, was issued from Salzburg by Rudbert in 1513. Siege-pieces have been issued in England and elsewhere in the form of squares, lozenges, etc. Some of the most extraordinary specimens of money ever used are the large plates of pure copper which circulated in Sweden in the eighteenth century. These were about three-eighths of an inch in thickness, and varied in size, the half-daler being 3½ inches square, and the two-daler piece as much as 7½ inches square, and 3½ pounds in weight. As the whole surface could not be covered with a design, a circular impress was struck near to each corner, and one in the centre, so as render alteration as difficult as possible.
Among Oriental nations the shapes of coins are still more curious. In Japan, the principal part of the circulation consists of silver
itzibus, which are oblong, flat pieces of silver, covered on both sides with designs and legends, the characters being partly in relief and partly incised. The smaller silver coins have a similar form. Among the minor Japanese coins are found large, oval, moulded pieces of copper or mixed metal, each with a square hole in the centre. The Chinese
cash are well known to be round discs of a kind of brass, with a square hole in the centre to allow of their being strung together. The coins of Formosa are similar, except that they are much larger and thicker. All the copper and base metal coins of China, Japan, and Formosa are distinguished by a broad flat rim, and they have characters in relief upon a sunk ground, somewhat in the manner of Boulton and Watt’s copper pence. They are manufactured by moulding the metal, and then filing the protuberant parts smooth. Such coins stand wear, and preserve their design better than European coins, but they are easily counterfeited.
The most singular of all coins are the scimitar-shaped pieces formerly circulated in Persia.
The best Form for Coins.
It is a matter of considerable importance to devise the best possible form for coins, and the best mode of striking them. The use of money creates, as it were, an artificial crime of false coining, and so great is the temptation to engage in this illicit art that no penalty is sufficient to repress it, as the experience of two thousand years sufficiently proves. Thousands of persons have suffered death, and all the penalties of treason have been enforced without effect. Ruding is then unquestionably right in saying, that our efforts should be directed not so much to the punishment of the crime, as to its prevention by improvements in the art of coining. We must strike our coins so perfectly that successful imitation or alteration shall be out of the question.
There are four principal objects at which we should aim in deciding upon the exact design for a coin.
1. To prevent counterfeiting.
2. To prevent the fraudulent removal of metal from the coin.
3. To reduce the loss of metal by legitimate wear and tear.
4. To make the coin an artistic and historical monument of the state issuing it, and the people using it.
For the prevention of counterfeiting, our principal resource is to render the mechanical execution of the piece as perfect as possible, and to strike it in a way which can only be accomplished with the aid of elaborate machinery. When all coins were made by casting, the false coiner could work almost as skilfully as the moneyer. Hence, in the Roman Empire, it was difficult to distinguish between true and false coin. Hammered money was a great improvement on moulded money, and milled money on hammered money. The introduction of the steam coining press by Boulton and Watt was the next great improvement; and the knee-joint press of Ulhorn and Thonnelier, now used in nearly all mints, except that on Tower Hill, forms the last advance in the mechanism for striking coin.
The utmost attention ought to be paid to the perfect execution of the milling, legend, or other design, impressed upon the edge of modern coins. This serves at once to prevent clipping or tampering with the coin, and to baffle the skill of the counterfeiter. The coins of ancient nations were issued with rough, unstamped edges, and the first coin marked with a legend on the edge was a silver coin of Charles IX. of France, issued in the year 1573. The English coinage was first grained or marked on the edge in 1658 or 1662, when the use of the mill and screw was finally established in the mint. All the larger coins now issued from the English, and, indeed, from most other mints, bear a milled or serrated edge, produced by ridges on the internal surface of the collar which holds the coin when being struck between the two dies. These collars are difficult to make, and useless when made except in the coining-press, and the counterfeiter cannot imitate the milling by hand work, it being almost impossible to use a file with sufficient regularity.
The French five-franc pieces bear a legend on the edge in raised letters, the words being “Dieu protége la France.” Such raised letters are quite beyond the art of the counterfeiter. The English crown has a legend, “Decus et Tutamen,” and the year of the reign in incised letters, which could obviously be imitated by the use of punches. The new German gold coins are issued with smooth edges, the ten-mark piece having only a few slight incised marks, and the twenty-mark piece bearing the legend, “Gott mit uns,” in faint letters; this is surely a far less satisfactory protection than the milled edge adopted in most other mints. It may be worthy of inquiry, whether the milled edge might not be combined with a legend or other design in relief, so as to render imitation still more difficult. One or two centuries ago, silver coins used to have a kind of ornamental beading on the edge. Elaborate patterns, produced by machinery with perfect regularity, and altogether incapable of imitation by hand, might now be substituted.
Coins as Works of Art.
I have in the previous section considered the best form of a coin as regards the prevention of counterfeiting. The falsification of coins, the loss which they undergo by abrasion, and the best means of avoiding these evils will be treated in Chapter XIII. Of the use of coins as artistic medals it would not be appropriate to speak at any length. I must however remark that many of the coins still issued from the English mint are monuments of bad taste. It is difficult to imagine poorer designs than those upon the shilling and sixpence, descending from a time when art in many branches was at its apogee in England. As our architecture and art manufactures of many kinds are regenerated by the efforts of private persons, is it too much to hope that a government department will follow? The florin is indeed an immense advance upon the shilling, being in some respects a reversion to the style of old English money. A very beautiful pattern crown piece was produced in 1847, in a somewhat similar style, but never issued. Mr. Lowe, when Master of the Mint, gave us back the old George and Dragon sovereign, which is much superior to the shield and wreaths. I think, however, that the time has come for a general improvement in our coins.
Some states have utilized their coins as monuments of important events, such as conquests, jubilees, the accession of monarchs, etc. The German states, especially Prussia, have struck a long series of beautiful coins down to the Krönung’s Thaler of 1861, and the Sieges Thaler of 1871. Some of these coins are at once treasured up in cabinets in the manner of medals. If it is possible to conceive literature destroyed, and modern cities and their monuments in ruins and decay, such medallic coins would become the most durable memorials, and the history of the kings of Prussia would be traced out by future numismatists as that of the great dynasties of Bactria has lately been recovered.
In 1842 M. Anténor Joly brought before the French legislative chambers a scheme for a system of historical money, and he renewed his proposal in 1852. M. Ernest Dumas has also suggested the issue of twenty-centime bronze pieces, which should serve either as money or as historical medals. Such schemes have not been carried out in France, and in England no coins of the sort have been struck. Except the mere expense of a new set of dies, I see no objection to the issue of historical money.
The Royal Attribute of Coining.
Every civilized community requires a supply of well-executed coins, and there arises the question, how shall this money be provided? The coins of each denomination must contain exactly equal weights of fine metal, and must bear an impress proving that they do so. Can we trust to the ordinary competition of manufacturers and traders to keep up a sufficient supply of such coins, just as they supply buttons or pins and needles? Or must we establish a government department, under strict legislative control, to secure good coinage?
As almost every opinion finds some advocate, there are not wanting a few who believe that coinage should be left to the free action of competition. Mr. Herbert Spencer especially, in his “Social Statics,” advanced the doctrine that, as we trust the grocer to furnish us with pounds of tea, and the baker to send us loaves of bread, so we might trust Heaton and Sons, or some of the other enterprising firms of Birmingham, to supply us with sovereigns and shillings at their own risk and profit. He held that just as people go by preference to the grocer who sells good tea, and to the baker whose loaves are sound and of full weight, so the honest and successful coiner would gain possession of the market, and his money would drive out inferior productions.
Though I must always deeply respect the opinions of so profound a thinker as Mr. Spencer, I hold that in this instance he has pushed a general principle into an exceptional case, where it quite fails. He has overlooked the important law of Gresham (to be explained in the next chapter), that better money cannot drive out worse. In matters of currency self-interest acts in the opposite direction to what it does in other affairs, as will be explained, and if coining were left free, those who sold light coins at reduced prices would drive the best trade.
This conclusion is amply confirmed by experience; for at many times and places coins have been issued by private manufacturers, and always with the result of debasing the currency. For a long time the copper currency of England consisted mainly of tradesmen’s tokens, which were issued very light in weight and excessive in number. In Mr. Smiles’ “Lives of Boulton and Watt” (p. 391), there is printed an interesting letter, in which Boulton complains that in his journeys he received on an average at the toll-gates two counterfeit pennies for one true one. The lower class of manufacturers, he says, purchased copper coin to the nominal value of thirty-six shillings for twenty shillings in silver, and distributed it to their work-people in wages, so as to make a considerable profit. The multitude of these depreciated pieces in circulation was so great, that the magistrates and inhabitants of Stockport held a public meeting, and resolved to take no halfpence in future but those of the Anglesey Company, which were of full weight. This shows, if proof were needed, that the separate action of self-interest was inoperative in keeping bad coin out of circulation, and it is not to be supposed that the public meeting could have had any sufficient effect. In China the current small money called
le, is commonly manufactured by private coiners, and the consequence is that the size, quality, and value of the coins have fallen very much.
In my opinion there is nothing less fit to be left to the action of competition than money. In constitutional law the right of coining has always been held to be one of the peculiar prerogatives of the Crown, and it is a maxim of the civil law, that
monetandi jus principum ossibus inhæret. To the executive government and its scientific advisers, who have minutely inquired into the intricacies of the subject of currency and coinage, the matter had better be left. It should as far as possible be removed from the sphere of party struggles or public opinion, and confided to the decision of experts. No doubt, in times past, kings have been the most notorious false coiners and depreciators of the currency, but there is no danger of the like being done in modern times. The danger lies quite in the opposite direction, that popular governments will not venture upon the most obvious and necessary improvement of the monetary system without obtaining a concurrence of popular opinion in its favour, while the people, influenced by habit, and with little knowledge of the subject, will never be able to agree upon the best scheme.