Page:The Economic Journal Volume 1.djvu/327

Rh however, between two different metals, the coins of the different metals may be performing quite different work. The 'driving out' process in this last case must consequently be a different one, when it takes place, from what it is in the case of bad versus good coins of the same metal. The same with inconvertible paper versus metal. The metal and the paper may be required for different purposes, and, so far as that is the case, the paper does not drive out the metal from the same cause or in the same way, or proportions, as bad coins drive out good coins of the same metal. Gold is actually used less or more in currency in every country whether gold or silver is the standard, or whether there is a bimetallic standard with silver as the overrated metal; and gold, and sometimes silver, is also used in inconvertible paper countries in the same way, although the paper is the standard money.

What is true is that the overrated metal and the inconvertible paper in the cases supposed drive the metal they compete with, the underrated metal, out of circulation as standard money. As there can only be one standard, the overrated metal or the inconvertible paper, as the case may be, becomes the sole standard. But the underrated metal is not thereby physically driven out of the country at all. It depends upon circumstances whether it is exported or not and how much the export is. Three things happen (besides export, or the chance of it).

1. The underrated metal may be hoarded. This is largely the case, I believe, in almost all cases of inconvertible paper. There were, no doubt, hoards of gold in this country in the inconvertible paper period at the beginning of the century, in the United States during the inconvertible paper régime which began in the civil war, and more recently in Italy, when it had inconvertible paper; and there are hoards of gold at the present day in Austria, Russia, and the Argentine Republic, which are inconvertible paper countries.

2. The underrated metal may be used in actual circulation at a market ratio different from the legal ratio. Locke's proposal was that, as there would always be a market ratio different from the legal ratio, a legal ratio was superfluous or worse. Harris proposed that a legal ratio should be fixed, but changed from time to time as found convenient, the market being followed. But practically in a bimetallic system, although the proceeding is encumbered and inconvenient, the underrated metal can be, and is, commonly used to some extent at a ratio different from the legal ratio. No. 2.—. I