THE MONEY PROBLEM

Chapter X.

THE MATERIAL EXISTENCE
OF MONEY



ECONOMISTS tell us that the precious metals seem to be specially designed by nature as the material out of which to coin money.  Thus Prof. Jevons says, “ some of the metals seem to be marked out by nature as most fit of all substances for employment as money.  Accordingly, we find that gold, silver, copper, lead and iron have been more or less extensively in circulation in all ages.  In almost all respects gold is perfectly suited for coining.1

Nevertheless, he confesses that when used in a pure state they are too soft and rapidly wear away.  “ When quite pure, indeed, gold is as soft as tin.”  Hence alloys are formed, and these so-called “precious” metals, specially designed by nature for man’s use as a medium of exchange, need adulterating to render them at all serviceable.  In other words, nature seems to have made a bad job in her attempt to furnish mankind with a satisfactory medium of exchange, and man has had to bring his art to her assistance.  But the combined forces of art and nature have failed to make a perfect metallic medium, for this alloy is not proof against the gradual disintegration and death of the coin.  From the time a coin starts upon its journey its dissolution commences.  If there be any purpose or design in nature regarding the precious metals, it would seem to point to their final destruction, in common with man.

Gold and silver are no more ordained by nature to serve as money than a man’s body is ordained to perpetual life.  “Every year,” says the governor of the Bank of England, “ a fresh class of sovereigns become too light.  The class which one year passes with full weight, loses enough by wear and tear to draw the scales next year against it.  During their currency coins wear away, some more and others less.  Name and substance, nominal weight and real weight, begin their process of separation.  Coins of the same denomination become different in value because they are different in weight.  The weight of gold, fixed upon as the standard of prices, deviates from the weight which serves as the circulating medium, and the latter thereby ceases any longer to be a real equivalent of the commodities whose prices it realizes.  The history of coinage during the middle ages, and down into the 18th century, records the ever renewed confusion arising from this cause.2

The natural tendency of circulation to convert coins into the mere semblance of what they profess to be, and to reduce the weight of metal they are officially supposed to bear, is recognized by modern legislation, which fixes the loss of weight sufficient to demonetize a gold coin, or to make it no longer legal tender.  “ It is the theory of the present English law,” says Professor Jevons, “ that every person weighs a sovereign tendered to him, and assures himself, before accepting it, that it does not weigh less than 122 5-1o grains.  In former days, it was not uncommon for people to carry pocket scales for weighing guineas, and such scales may be seen in the old curiosity shops.  But we know the practice has been entirely given up, and that even the largest receivers of coin, such as the banks and railway companies, and even the tax offices, post office, etc., do not pay the least regard to the law.  Only the Bank of England, its branches, and a few government offices, weigh gold coin in England.  The result is that a large part of the gold coinage is now below the least current weight, and all persons of experience avoid paying old sovereigns into the Bank of England.  Only ignorant and unlucky persons or else large banks and companies, which cannot otherwise get rid of light coin, suffer loss.  The quantity of light gold coin withdrawn by the Bank, did not many years exceed half a million a year ;  during the last few it has varied from 700,000 to 950,000.  As the average amount of gold coined annually is four or five millions, and the coins melted or exported are for the most part new and of full weight, it follows necessarily that the currency is becoming more and more deficient in weight.”  He also says :  “ In 1869 I ascertained, by a careful and extensive enquiry, that 31 1-2% of the sovereigns, and nearly one-half of the 10s. pieces were then below the legal limit.”3

Was there ever a more complete exposure of the failure of a thing to perform its functions ?  And yet the writer thinks he sees, in the supply of gold, an all-wise provision of nature for supplying man with a medium of exchange !  This substance specially prepared by nature, and assisted by the art of man, bolstered by legislative enactments, supported by authority of the State, fails to carry out what it is decreed to do, and the loss caused by its failure is allowed to fall upon the “ignorant and unlucky.”  Well does John Stuart Mill write :  “ But though governments or nations can in some measure determine what institutions shall be established, they cannot arbitrarily determine how these institutions shall work.”  Apart, therefore, from the fluctuations in exchange power, gold and silver are physically unfitted to be used as money.  Macleod says :  “But when we consider the purposes for which money is required, it is easily seen that no substance possesses so many advantages as a metal.  The use of money being to preserve a record of services due its possessor for any future time, it is clear that money should not alter by time.  All civilized nations, therefore, have adopted a metal as money ;  and of metals, gold, silver and copper have been chiefly preferred.”4  If the chief use of money is to preserve the record of services due to its possessor, nothing would appear so serviceable as good parchment paper.  One fact alone should, however, suffice to convince us of the unsuitableness of using gold and silver for money, viz., their extreme cost.  Prof. Jevons has computed the cost to England involved by the use of gold, silver and bronze money.  He says :  “ The cost of the currency is made up of four principal items :  the loss of interest upon the capital invested in the money, the loss by the abrasion of the gold coin, the expenses of the mint, and lastly the casual loss of coins.  The last item is of wholly unknown amount.”  He estimates these items as follows :—

Three and one-half per cent. on gold coin
in circulation, bullion in Bank of England,
silver and bronze coin, total - 131,125,000
Loss of interest ... ... 4,262,000
Wear of coin ... ... 48,000
Mint estab. ... ... 42,000
Total ... ... ... 4,352,000

This, however, is only one part of the loss.  If gold and silver were relegated to the arts, where they properly belong, the demand for them would immediately decline, and a vast amount of labor now employed uselessly, would be released to follow more productive channels.  I have, however, shewn in discussing the Gresham Law, that the cheapest substance (providing it is suitable and will perform satisfactorily the work) is the best substance for money uses as for everything else.

In the arts, we do not use silver when copper will answer our purpose as well, nor brass when iron is as serviceable.  A sewing-machine, constructed of nickel and bronze, would not be any more useful than one of cast iron and steel ;  and this steel pen with which I write is quite as useful as one of gold.  Now experience has demonstrated that paper is the most serviceable of all substances for money purposes.  It combines all the so-called advantages of a metal currency, and has none of its disadvantages.  It is cheap, useful, durable, easily engraven, made cognizable and portable, can represent any denomination of value, is not subjected to loss by abrasion, nor to commodity fluctuations, is readily and inexpensively replaced when lost, and finally is not liable to resolve itself into a commodity and leave the country when it is most needed.

The vast importance paper money has been to the world, it would be impossible to over-estimate.  As Macleod says :  “ Paper money has had incomparably more influence in the world than all the gold and silver.  Credit and paper now form the great circulating medium or currency of the world, and amounts to at least fifty times the quantity of specie in this country.”  In the United States, at least 98 per cent. of the entire business and commercial transactions of the country is done upon a credit and paper basis, without the intervention of specie.  Experience, therefore, unites with the great law of philosophy in declaring cheap money to be the best money.  The nearer it approaches the ideal, the more perfectly will money perform its functions.  “ So long as nations continue in a low state of civilization, all the money or credit is made of some material substance.  But when they advance in civilization, they make use of credit in another form.”5




1 “ The Mechanism of Exchange.”—Prof. Jevons.

2 “ The Mechanism of Exchange.”—Prof. Jevons.

3 “ Money the Mechanism of Exchange.”

4 “ Theory of Credit.”

5 H. Spencer, “ Social Statics.”