The currency of every important commercial nation at the present time is composed partly of metallic and partly of paper instruments. The metallic portion consists of coins and may be classified as follows: (a) from the standpoint of the materials employed in its manufacture, as gold and silver coins and those of cheaper metals; and (b) from the standpoint of the relation between its various elements, as standard and subsidiary coins. The paper portion may be classified as government currency and bank currency. The currency of the United States, for example, consists: (a) of gold coins of the denominations twenty, ten, five, and two-and-one-half dollars; (b) of silver coins of the denominations one dollar, fifty, twenty-five, and ten cents; (c) of a coin made of nickel of the denomination five cents; and (d) of copper coins of the denominations two cents and one cent. Our paper currency consists of several varieties of notes issued by the national government, for example, of greenbacks, Sherman notes, silver certificates, gold certificates, etc.; of notes issued by national banks, and of several other varieties of bank paper, of which checks, drafts, and bills of exchange are the most important. England, Germany, France, Italy, and in fact most of the other nations of the world, likewise have gold, silver, and copper coins and government and bank paper of various sorts. In subsequent chapters we shall describe in detail each of these forms of currency, and, hence, at this point it is necessary only to explain why we need both metallic and paper money and so many varieties of each.

A. The utility of several varieties of coins. - The first characteristic of a good currency described above explains why we need coins of different denominations. Payments of all sizes, both large and small, are necessary and several varieties of coins are needed in order that they may be made accurately and conveniently. If the silver dollar were the only coin we possessed, it would be impossible to pay for purchases of the value of a few cents, and accurate payments of any size which involve fractions of a dollar could not be made. Moreover, in large payments the weight of the silver would be burdensome and expensive, and the counting of it would require time which the existence of money of larger denominations might save.

The need for coins of large and small denominations explains the use of gold, silver, and cheaper metals in their manufacture. Convenience demands that coins of large denominations should be manufactured from some metal the value of which is very high. For this reason, the world over, gold is used for coins of higher denominations than our dollar. In our country, as we have seen, twenty-, ten-, five-, and two-and-one-half-dollar coins are of gold; in England the sovereign and half-sovereign are made from this metal; in Germany the twenty- and ten-mark pieces, and in France the twenty- and ten-franc pieces. On account of its much lower intrinsic value, silver is well suited for coins of denominations ranging from ten cents to one dollar. Accordingly England uses silver for the manufacture of her sixpences, shillings, florins, half-crowns, and crowns; Germany in the manufacture of her five-, two-, and one-mark and her fifty-pfennige pieces, and France in the manufacture of her five-, two-, and one-franc and fifty-centimes pieces. For coins of lower denominations than ten cents, fifty pfen-nige, or fifty centimes silver is not well adapted, because the coins are so small as to be extremely inconvenient. Holland has two silver coins of lower denomination than our ten-cent piece, but they are so tiny that they are difficult to handle, easy to lose, and hard to distinguish. Experience has led to the abandonment of such small silver coins in nearly all nations, and to the use instead of copper or bronze for the smallest coins, and of nickel for the coins intermediate between the smallest and those of about the value of our ten-cent piece. The practice of the great nations regarding these smaller coins is not identical except in the one point that they use metals cheaper than silver in their manufacture.

Besides their value several other qualities should be noted in any attempt to give a complete explanation of the selection of gold and silver as the chief monetary metals of the world. Among these the most important are the durability, divisibility, and homogeneity of these metals and their adaptability to the art of coinage. When slightly hardened by the admixture of small quantities of other substances, gold and silver coins will endure the wear and tear of modern commercial usage with but small loss of substance, and are but slightly, if at all, affected by the atmospheric elements which cause other metals to rust, and subject them to chemical changes which in time result in their complete destruction. They are also capable of being refined to such a degree and are so easily divisible that coins exactly alike in weight, fineness, and form can be made from them. In the form of coins they can also receive and retain a stamp which is easily recognizable. As compared with other metals, moreover, the value of gold and silver has been remarkably steady throughout long periods of time. In fact, no other metals are known which possess in the same degree of perfection as these the peculiar combination of qualities required in the manufacture of coins.

B. The utility of paper currency. - The characteristic feature of paper currency is the fact that it does not contain in its own substance the value expressed by the figures or statements on its face, but simply represents the obligation of some public or private corporation or of some person to pay the amount indicated. The secret of its circulation has already been suggested.* If people have entire confidence in the ability and willingness of the issuing party to pay the obligations on demand, and if they meet a real currency need, they will circulate. The measures necessary to secure and maintain the confidence of the public in this sort of currency will be discussed under the appropriate heads in succeeding chapters. We shall here point out simply its superiority for certain purposes over other forms of currency.

The comparative inexpensiveness of paper currency is obvious. It costs only the value of the paper and the labour of printing. Compared with the expense involved in the mining and assaying of the metal and in the minting and the wear and tear of coins manufactured from such valuable materials as gold and silver, this is significant, to say nothing of the loss involved in withdrawing immense quantities of these valuable metals from ordinary consumption. When considerable sums need to be transported from one part of the country to another or from one country to another, the economy of paper currency is still more apparent. If it were necessary to transport several millions of dollars from Chicago to London, the express charges on the necessary amount of gold or silver would be very high, while a draft for the amount can be sent in a letter for five cents.

* Chapter I, pp. 12 and 13.

While not so obvious, the superiority of credit currency, under certain circumstances, in the respects of convenience and safety is important. In the making of large payments it is much more convenient to write a check than to hand to your creditor the requisite amount of gold or silver or even of bank-notes or government notes, and it is more convenient to hand him banknotes or government notes of large denominations than coin. When one is making a long journey and on this account finds it necessary to carry on his person considerable sums, he appreciates the superior convenience of paper currency. The claim of superior safety cannot be made for all forms of credit paper, but it can be made for checks and drafts and certain forms of notes issued by express companies, post-office departments of governments, etc. The loss of a check or a draft or of certain forms of money orders through theft or other means does not involve the loss of the sum indicated on its face. Being made payable to a definitely specified person, and careful records being kept by the issuing parties, duplicates are obtainable. Moreover, the use of credit currency in its various forms obviates the danger that would otherwise be involved in carrying about large quantities of gold and silver. The police force of every large city would needs be largely increased if the actual transfer of coin of the required value were necessary in every transaction. Every railway and steamship company and every private mercantile establishment would also need to provide itself with heavy safes and a small army of police for purposes of protection. The temptation to robbery thus occasioned would doubtless largely increase crime, and thus diminish the general security of the community.

Certain forms of paper currency also possess the very desirable quality of elasticity; that is, the quantity in circulation automatically adjusts itself to the needs of commerce, increasing when more money is wanted and decreasing when the need that called it into existence has passed away. An element of this sort is essential to a perfect currency because the need for money varies greatly from year to year and in different seasons.

In the United States the needs of different sections of the country are subject to seasonal variations, and the volume needed for the entire nation is larger in times of great commercial activity, and smaller during periods of depression. No one has sufficient foresight to be able to predict the degree of these changes, and only occasionally, as in the case of certain of them which depend upon crop movements, can the dates be even approximately fixed. It is necessary, therefore, that certain forms of currency should, as it were automatically, move from place to place and increase and decrease in quantity. As will appear in later chapters, only certain varieties of paper currency possess this desirable quality. The movements of coin in both the directions indicated are far from automatic, its entrance into and withdrawal from circulation requiring considerable time and the manipulation of the machinery of government.

The superiority of credit currency in the respects mentioned accounts for its extended use in all modern commercial nations, and for its increasing use as commercial operations grow in extent and magnitude. It must not be forgotten, however, that its superiority is confined to certain of the uses of a medium of exchange, and does not extend to all. In retail trade and for the making of change and for small payments everywhere coins still excel in convenience and safety, and there is no reason to expect that their use will ever cease.