The expenses of coinage are paid in two different ways. Sometimes individuals are permitted to bring gold or silver bullion to the mints and have it transformed into coin absolutely free of charge. In such a case the expenses of coinage are paid out of the ordinary revenues of the government and are a charge upon the nation as a whole in the same sense as other ordinary public expenditures. Sometimes, however, governments exact payment for coinage in the form of the retention of a certain percentage of the bullion brought to the mint by private individuals. This practice is entirely similar to that frequently employed by millers in rural districts. Farmers who take wheat to the mill usually receive in flour something less than the full product, the miller retaining a certain amount as payment for his services and the use of his mill. In the same way when private individuals bring gold and silver to the mint, governments sometimes exact a toll in the form of a certain percentage of the metal deposited. The amount thus exacted is called seigniorage, and the practice of meeting the expenditures of coinage in this way is ordinarily known as the taking of seigniorage.
At the present time the amounts exacted are usually sufficient simply to pay the actual expenses of the process, but formerly it was common to take much larger sums. During the Middle Ages persons who possessed the right of coinage not infrequently retained a considerable portion of the metal which was brought to them. On account of the peculiar notions of that day regarding the power of monarchs to fix arbitrarily the value of money this practice was not considered in any sense improper, and was not supposed to involve any particular injury to the public. Indeed, the business of minting was looked upon as a proper source of public revenue, and as much as possible was made out of it.
In order to distinguish between the practice of merely paying necessary expenses by means of this toll and of exacting an additional amount for purposes of gain, a French writer, M. Chevalier, has proposed that the former practice be known by the name of brassage and the latter by the name of seigniorage. M. Chevalier's suggestion, however, has not been generally followed, and the term seigniorage has ordinarily been employed to apply to both practices. It would be better, however, not to use the term seigniorage to apply to certain gains accruing to the government from coinage. It is now the universal practice to refuse to private individuals the right to have silver transformed into subsidiary coins, and since their intrinsic value is always less than the value at which they circulate, a considerable gain may accrue to the government from their manufacture. The amount of profit thus derived, however, is diminished and may be entirely offset by their redemption in standard money, to which the government is usually obligated by law. In any case, the gain cannot properly be classed as a charge made to cover the expenses of coinage, and should, therefore, be separately considered and not confused with seigniorage. It is questionable also whether certain other gains sometimes arising from coinage should be classed as seigniorage. Our government, for example, has derived some profit from the manufacture of silver dollars, coins which until recently could not be classed as subsidiary. To put such profits in the same class with tolls exacted from persons who bring gold to the mint is to confuse two very different things, and such confusion is almost sure to arise when the term seigniorage is applied to both. In view of the fact that this term is often used to mean things so very different, the student should always identify the sort of charge or profit referred to, and consider it separately and on its own merits.
Whether or not it is desirable to take seigniorage is still a moot question. It is claimed, on the one hand, that coins perform a special service, and, therefore, possess a higher degree of utility than the bullion they contain, and that this should be represented by an increase in their value equal at least to the expense of their manufacture. It is frequently said that there is no more reason why a coin should represent the exact value of the material out of which it is made than that a steel rail should have the same value as the iron it contains. It is also urged that the taking of seigniorage acts as a check upon the melting-down and exportation of coin. In case the government freely transforms bullion into coin, metalworkers are quite as apt to secure the gold and silver needed for their purposes by the melting-down of coins as by the purchase of bullion upon the open market. Whenever for any reason, too, there is a demand for gold for exportation, coins are quite as apt to be sent as bullion, if their market value is precisely the same. If no seigniorage is charged, it is urged, the government is thus obliged to incur an unnecessary expense in the manufacture of coins which in many cases remain in circulation for only a short period; and since coins are designed for purposes of circulation only, it is urged that some check should be placed upon their illegitimate use.
The advocates of free coinage, on the other hand, emphasize the importance of a perfectly free movement of the precious metals from country to country and from the arts to the mints and vice versa. A proper distribution of the precious metals throughout the world demands that they should flow freely from one country to the other whenever there is even a small difference in value between two markets. Any obstruction of this free movement is sure to produce an artificial level of prices, and thus to contribute to a lack of stability in the business world. It is equally important, it is claimed, that a proper distribution of metals between their various uses should take place, and, hence, that no more gold should take and retain the form of coin than is necessary for the economical transaction of the commerce of the world. Every encouragement possible, therefore, should be given to the melting-down of coins for use in the arts whenever for any reason their quantity is excessive. In reply to the argument that the people should not be burdened with the expense of minting coins which are destined for the melting-pot or for exportation, it is said that the government is quite as much justified in furnishing the community with good metallic money at the general expense as in furnishing a good judicial system or any other public service.
In order properly to weigh these arguments a number of considerations are necessary which must be deferred to later chapters of this book. It is possible here, therefore, only to state clearly the nature of the questions involved. First of all, it should be noted that at the present time the problem of seigniorage concerns only standard coins, There is no difference of opinion among economists or statesmen regarding the proper treatment of subsidiary coins, and, as we have already said, it is questionable whether the term seigniorage should be applied to the gains arising from the minting of these. That gold is the standard of value of the most important nations of the present day and that its more extended use in this capacity is probable are facts which also affect the question, especially when the constantly increasing use of credit money is considered. Since gold is suitable only for coins of large denominations, and since many forms of paper money can, therefore, be conveniently substituted for it in the ordinary circulating medium, the chief use of this metal tends to a greater and greater extent to be come that of paying balances between different coun tries and between different localities in the same coun try. For this purpose properly assayed and stamped bars of bullion can be used quite as well as coins. The nature of the question has also changed somewhat on account of the increasing importance of the freedom and ease of movement of gold which is involved in its more extended use in the payment of balances. For these reasons the importance of the seigniorage question has somewhat diminished, and the power of governments to greatly enhance the value of coins by such a charge is also much less than formerly.