manded at any one time for the full amount of the outstanding notes or certificates, and that a considerably larger sum could be kept in circulation than the metallic reserve. They began, therefore, to issue notes in excess of the reserve without infringing upon the characteristics of convertibility in coin on demand. Such money is called by the economists bank money, and it is immaterial whether it is issued by banks or by the Government. Such money derives its value from the metallic currency upon which it is based, but, unlike the certificates already described, it enlarges the volume of the monetary circulation. The issue of such money economizes the use of the metals, and in so far as it substitutes an inexpensive for an expensive substance as money is a saving of wealth to the community.
If the principle of convertibility is not maintained, bank money becomes paper money pure and simple. It has usually been by the failure of banks or of governments to maintain the promise of redemption that such money has arisen. When this takes place paper money falls in value, or, as it is usually expressed, coin is at a premium. This would not of itself cause a disappearance of coin, but it usually happens that paper money is so multiplied in volume that coin disappears and paper becomes the sole standard. This substitution takes place by virtue of Gresham's law (q.v.). Such changes from a metallic to a paper currency are not effected without violent convulsions and much suffering; but there can be no doubt that, however ill it does the work, paper money under such circumstances performs all the functions of a medium of exchange, a measure of value, and a standard of deferred payments. Its value, like that of other money, depends upon its quantity in relation to the demand for money. As its quantity is likely to be increased without reference to the demands of trade in response to the fiscal necessities of the Government, its value is unstable and uncertain. But this is not inherent in the nature of paper money; and there may be conditions, as in Austria during the greater part of the nineteenth century, under which paper money maintains a relative stability in value.
The adjustment of the monetary circulation to the needs of trade has given rise to composite money systems, in which, whatever may be the standard, gold, silver, and paper are usually combined. Under a single gold standard paper is generally used for larger payments, while silver is used for the smaller. Both are representative money in such cases. Silver is issued as token coinage. A token coin is one whose bullion value is less than its face value and whose legal power to pay debts is limited. Such coins are issued by Government authority only, and pass current at their nominal values by virtue of legal enactment. In a well-ordered system, provision is usually made for the redemption of such coins in standard money when presented in specified quantities. Of such nature are the fractional silver coins of the United States and the minor coinage.
Under a single silver standard there is no theoretical reason why gold tokens should not be used for larger payments, but there is the practical reason that gold is expensive and that it is not absolutely necessary for such payments to be made in metal. Under such a standard as prevailed in Germany before 1873, paper is used for larger payments, and it was one of the objections to such a silver standard that it afforded so wide a scope for the issue of paper money.
Before the introduction of token coins nations had for centuries endeavored to secure the concurrent circulation of gold and silver under a system of bimetallism. Under such a system, if the market ratio between the two metals diverged from the legal ratio one of the metals was certain to be exported. When this occurred it always occasioned much distress if the silver were the metal exported, for it robbed the people of the small change of daily life. Hence we find among the nations which clung the longest to the bimetallic theory, that before it was abandoned measures had been taken to reduce the minor silver coins to the character of tokens in order that they might not be withdrawn from the country for export. With the introduction of token coinage and the adoption of the plan of issuing certificates to represent the larger coins the discussion of bimetallism assumed quite a different aspect. The arguments drawn from the difficulty of insuring the circulation of silver were almost entirely excluded from the discussion, which then centred upon the question whether gold alone or gold and silver in combination, provided the combination could be kept intact, furnished the better standard of value. See Bimetallism.
History of Money in the United States. The situation in which the early colonists in America found themselves was such that they could draw little from the monetary experience of the mother country. During the colonial period they took from the mother country the designations pounds, shillings, and pence. Having no mines, their stock of money had to be imported, and since they drew more wealth from England than they could export to that country, it was quite impossible to accumulate a monetary stock in this way. The little that was brought over by the colonists soon found its way back to the mother country, and, in the early days especially, resort was had to various shifts to remedy the dearth of money. Various articles of food and produce were made receivable for taxes and other purposes. Of these the most widely known was the tobacco currency of Maryland and Virginia. In some of the colonies resort was had to the wampum currency of the Indians. But far more important in their effects were the measures taken to prevent coin from leaving the country and the issue of paper money. One of the early devices resorted to was to give the English currency a higher nominal value than its face value. It was argued that, if in the colonies a shilling piece circulated as one and a half shillings, it would not be exported. This process of rating coins had been used frequently in England for the gold coinage. The different colonies acting independently rated the shilling at different values, and the result was a series of colonial pounds differing from each other and from the English pound. In 1706 a proclamation of Queen Anne put a stop to this practice and fixed the nominal value of the pound in each of the colonies at the existing rate. While the money of account was for each colony a colonial pound, the actual money in circulation was a motley collection of coins of English, French, Portuguese, and Spanish origin. The Spanish dollar was the most widely known and circulated, and it thus became
