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 private persons often exercised the privilege of coining. The very large number of the autonomous cities of Greece, which possessed the right of issuing money, was the cause of the competition between different currencies, each having legal tender power only within its own city. In its practical outcome this “free coinage” system proved beneficial, for it compelled the maintenance of the true standard in order to gain wider circulation. With the establishment of larger states the control over the issue of money grew more stringent. In the later Roman Empire the right of coining was reserved to the emperor exclusively. After the fall of the empire the traditions of prerogative passed on to the medieval kings, a right carefully guarded by the English sovereigns. In France and Germany the principal nobles claimed this seignorial right, but in the modern state the regulation money has been definitely vested in the supreme authority, i.e. the sovereign.

One reason for the close connexion of money with the state is the fact that there is one attribute of currency which comes within the area of work specially allotted to the public authority. Money ought to have the power finally to close a transaction, i.e. to say it should be “legal tender.” This “liberating power,” as the French call it, might be regarded as one of the money functions. Those who look on money as a purely legal institution naturally take this view; it seems, however, better to take the economic conditions as the really fundamental ones. It is only on account of their economic effects that legal regulations require consideration. These effects are, indeed, very far-reaching. By prescribing the standard and amount of penalties, by their power of selecting the substances to be used as money, and by their frequent interferences with existing currencies, the governments of the world have guided—as well as very often disturbed—the normal course of development. What Aristotle regarded as the “unnatural” character of money is mainly attributable to state intervention. But it is important to remember that the sphere of governmental action in respect to money is limited. A currency system is never an arbitrary creation; it must grow slowly out of the habits and customs of the community, and must subserve its economic needs. No sudden change at the caprice of the state is likely to continue. Further, it is clear that no government can determine the results of its interference; these will depend on the existing conditions and will conform to economic law. Monetary history is rich in examples of the failure of legal enactment to direct the course of events, and of the disasters that have followed on the ill-advised measures of public authority.

One result of the close connexion of the state with the business of coining has been the establishment of regulations in reference to the expense of the process. As coins are manufactured articles it seems evident that a charge sufficient to cover the cost may rightly be imposed. Such a charge is described by the term (q.v.). It has in many cases been so fixed as to bring in a large profit to the government; but then it amounts to a depreciation of the currency; for the levy of a charge on coining is the same as the substraction of so much metal from the coins issued. English policy is peculiar in its adoption of gratuitous coinage of gold, an anomaly due in its origin to the prejudices of the mercantile doctrines, but defended on the ground of the convenience to trade from the equivalence of gold bullion and coin. The heavy seigniorage on the silver coins—at present over 60%—is a source of considerable profit; in some years exceeding £800,000. All other countries levy moderate charges on their gold coinages, and make profit on their silver issues, though in different ways. As it has become the duty of the state to maintain the currency in a sound condition, it has to deal with the question of its expense. This is composed of several elements viz. (1) the cost of manufacture, just mentioned; (2) the loss through the wear which money undergoes in the work of circulating; and (3) the interest on the capital sunk in the monetary stock. A country with a metallic circulation of £100,000,000 incurs a loss of the interest which that amount of capital would produce by investment, i.e. at 4% £4,000,000. The expense is amply justified by the services that a good currency renders; but, at the same time, it proves the desirability of any economies that do not detract from efficiency. The great economizing agency is the use of representative money and the various forms of credit, in which so much of the latest advances consist.

6. Representative Money; its Introduction and Development. The Mode in which Credit is used as Money.—Economy in the employment of the precious metals is naturally suggested by ordinary experience; but the way in which states have profited by the expedient of depreciation affords a special inducement to follow what is practically the same course, and issue paper documents in place of the more costly metallic medium. In theory, as Ricardo explained, a paper currency is one in which the whole value has been appropriated as seigniorage. The cost of keeping a stock of valuable money is obviated, and the new instrument of exchange is supported by state authority. Here the action of economic conditions is instructively illustrated; for though a government can set up a paper currency, it is not within its power to prescribe its value. The quantity theory

(§ 2) is confirmed by the inevitable decline in value when issue passes a definite point. The only effective mode of preventing depreciation is by limiting the amount of paper money to that of the metallic money previously in circulation. The easiest way to accomplish this is to leave the use of the paper currency optional by making it convertible into coin at the will of the holder. The amount of the circulation is thus automatically fixed by the action of the community. An evident disadvantage is the necessity of keeping an adequate reserve of coin to meet actual and prospective demands. For ideal security the whole amount of paper issue should be covered by an equal value of metal. In practice the reserve may be much smaller; but so far as it is required, it means a deduction from the gain of issue. The temptation to reduce the reserve to an inadequate amount and then to escape the difficulty by resorting to the expedient of refusing to pay coin for notes, i.e. making the notes inconvertible, has proved too strong for nearly all governments at times of pressure. The history of state dealings with paper money may broadly be described as a history of inconvertibility. Hard-bought experience has only now forced on the notice of governments the loss that follows from a disturbance of the standard used in ordinary payments. They are evident to all careful observers, and may be concisely summarized as consisting in: (1) the injustice to creditors through being paid in a much lower standard than that in which they lent; (2) the disturbance to trade, both domestic and foreign, by the fluctuations in the value of money; (3) the pressure on the working classes from the slower rise of money wages, in contrast with the quicker movement of the prices of commodities, resulting in a fall of real wages; and (4) the check to dealings in relation with the international money market, due to the risk of exchange fluctuations. The only gains are the temporary stimulus to certain branches of trade, and the advantage to the state by contracting a forced loan without paying interest.

The origination of paper money by state direction is the easiest to consider and explain. It does not follow that it is the most important or the earliest kind of representative currency. As W. Bagehot has pointed out, the real origin of economic institutions is often very different from the apparent one. In truth, representative money seems to have grown up out of the elementary contrivances of early credit. A claim could be expressed and transferred by a document, which might be used for facilitating exchanges. The rigid formalism of early law hindered the extensive use of this convenient machinery. It was not till the institution of banking that the coining of credit was made easy. Thus the bank-note comes into use, resting, not on the fiat of the state, but on the repute of the issuer. At this stage the history of the two distinct forms of representative money becomes mixed, owing to the control exercised over banks by government and to the fact that banking companies were in many cases the agents by which what was virtually state money was issued. There is, however, the fundamental difference that bank money finds its way into use through the ordinary system of granting credit; while government money is used in the purchase of commodities and the hire of services. The former, therefore, returns in a short time; the latter remains in circulation and displaces metallic currency. In the long controversy over the Bank Charter Act 1844 this distinction was brought into prominence. Since that date the extraordinary development of deposit banking in both Great Britain and the United States has furnished these countries with by far the most flexible form of currency yet known in the cheques that transfer claims on the capital held by the banking institutions. The confusion so often shown regarding the relation of credit to money is connected with this latest progress. When it is remembered that in its origin money is only an instrument to facilitate exchange—we might even say to render it possible—it follows that from its earliest to its latest form the ruling influence is the need of society for the best mechanism of exchange.

7. Production and Consumption of the Precious Metals in their Economic Aspects.—In considering various monetary questions it is essential to have some acquaintance with the economic 