Convertible and Inconvertible Notes

Representative Money

Coinage is the process of manufacturing bullion into money of proper form, weight and fineness. This is done only by the government, at its mints. Private individuals are not permitted to coin money, owing to the inducement which would exist for the practice of fraud and the ease with which it could be practiced. In ancient times kings (notably Henry VIII, the first Defender of the Faith) debased the coin of the realm and thus cheated their subjects to enrich themselves, but in modern times money is as accurately coined as human skill is capable.

Gold and silver circulate between different countries by weight, simply as merchandise, the risk of being defrauded by inferior quality or adulteration being left entirely to the receiver of the metals, but in domestic commerce the majority of people have not the skill nor facilities for weighing or determining the value of coin received in every transaction, hence the enormous convenience to have each coin certified as of proper weight and fineness by the highest authority.

Within the sphere of the subject of coinage Congress must: 1. Fix upon the metal to be the standard of legal money. 2. Establish a unit of value. 3. Fix the weight and fineness of the unit and of other pieces, its fractions and multiples. 4. Choose proper inscriptions for the various coins. 5. Determine the weight, fineness and value of all coins of other metals used as money, compared with the standard. 6. Decree how much money shall be coined. In passing upon these questions at different times, our Congress has finally established gold as the standard, one dollar as the unit, 25.8 grains as the weight, and nine-tenths pure as the fineness, and made its coinage free and unlimited; that is to say, all who bring gold bullion can have it coined by paying the mint charge, or seigniorage. Congress has decreed that a silver dollar shall consist of 412 1/2 grains of silver nine-tenths pure, and that its coinage shall be restricted.*

It is customary to attribute most of our financial ills, such as depression in trade, "hard times," lack of employment and low prices to a scarcity of money, and to believe that relief lies in starting the mints to work or the printing presses to turning out bills. With a desire to be useful to their constituents our legislators often undertake to cure the afflictions and poverty of the people by tampering with natural laws in the financial world, with the result, however, that they only aggravate the difficulty. The question then properly rises, how much money does a nation really need? To answer this is exceedingly difficult, since a number of elements enter into the problem, some of which are very difficult to ascertain. First of all, the volume of money which a nation needs will depend upon the size of its population, since the greater the number of persons engaged in trade the greater the amount of money required to conduct that trade. Then again the amount of money must depend to a considerable extent on the commercial activity of the people. A highly organized nation will require more money per capita than one of fewer activities. The more business done, goods manufactured, bought and sold, the more money a people will require as an instrument of trade and commerce. The value of the goods also will affect the question, and the higher the price of the goods the more value changes hands, and hence the more money will be required to represent that value and affect its changes. Now the amount of a nation's foreign commerce is easily ascertained since it must pass through the ports of entry, but the volume of inland traffic, the innumerable transactions carried on between citizens of the same country (and this is by far the larger part of a nation's commerce) cannot be estimated accurately. Hence some of the data which enters into the question of the volume of a nation's money cannot be supplied.

•At this point let the student ascertain what amount of silver is now being coined and under what restrictions.

Volume of Money

It is also apparent that the rapidity with which money circulates has an important bearing upon the question of volume. A "nimble penny" will do more business than a sluggish dime. A dollar which changes hands ten times serves as a medium of exchange equal to ten dollars in one exchange. In these days of quick transportation of goods and rapid interchange of commodities and information among the people, the volume of money would necessarily need be very large were it not for the substitutes which have been devised to take its place.

The substitutes for money in a modern, highly civilized nation are checks, drafts, money orders, certificates of deposit and promissory notes. These are representatives of money, and by their use an immense volume of business is transacted without the handling of any real money. The general intelligence of the people by means of which they are able to properly and safely use the various forms of business papers, an extensive banking system by which every town of any importance is provided with banking facilities, the bank clearing houses in all of our large cities whereby the exchanges between banks are effected with the use of but a very small fraction of actual monev - all these, the machinerv of finance - combine to reduce the need for a large volume of the circulating medium.

Rapidity of Circulation

Substitutes for Money

The average daily transactions in the Bank Clearing House of London is £34,000,000 which if paid in gold coin would weigh about 364 tons, and would require fifty heavy, two-horse drays to transport it. If paid in silver it would weigh 5,150 tons. The clearings in the New York Clearing House average daily about $250,000,000, and yet this vast volume of transactions is settled by the use of less than 5 per cent of the amount in actual coin or legal tender notes, and even this amount, except for sums less than $5,000, is often paid by means of clearing house certificates.

When business is prosperous, that is when a large volume of sales are made or goods manufactured, so that a greater quantity of money is required to carry on the commerce of the country, gold is attracted from abroad, and like other commodities, seeks the place of strongest demand. Like water, it seeks its level. On the contrary, the history of the past teaches us that when trade slackens and a smaller volume of the circulating medium only is required, if the several kinds of money are founded on gold as a standard, or are redeemable in gold, there will be an outflow of gold until the excess is relieved. But if on the other hand the circulating mediums are not upon a gold basis but are in the nature of fiat money, there will be a general depreciation of the whole volume of the currency. Thus the law of supply and demand affects to a certain extent the quantity as well as the value of a nation's money. Then again the volume of money in circulation affects the prices of all other commodities. A scarcity of gold means low prices of all commodities measured by gold, because the scarcity of any commodity makes it dearer, and the dearer gold is the greater its purchasing power - the more things it will buy. And the more plentiful gold is, or other money equivalent to or redeemable in gold, the lower will be the prices of all other commodities, because money will be cheaper, and will purchase less. Fluctuations to any considerable extent in the volume and value of the money of a country, especially if sudden, must necessarily be very injurious to the welfare of the people, because they unsettle values and make the future of time contracts uncertain.

Self-Regulating