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MONEY (OF. moneie, monoie, monnoye, Fr. monnaie, from Lat. moneta, money, mint, from Moneta, an epithet of Juno, in whose temple at Rome money was coined, from monere, to warn, connected with meminisse, to remember, Gk. μέριμνος, merimnos, anxious, Skt. smar, to remember). The medium of exchange and measure of value. Whatever fills these functions, however crudely, is money. Of all the substances which have been used as money, gold and silver take the first place, and the discussion of money usually has these in view. It is well to remember, however, that some of the humbler functions of money are to-day performed by nickel and copper, and that in times past not only other metals, tin, lead, iron, and platinum, have been used as money, but also, especially among primitive peoples, a wide variety of other objects. Jevons enumerates among other things, furs, skins, leather, sheep, cattle, wampum, cowries, grains, olive oil, tobacco, and salt, as being in use at one time or another for this purpose. Primitive as these may be, the enumeration seems to emphasize the fact that it is not a substance per se that we designate as money, but a substance invested with a certain utility.

So important is this function in modern life that we cannot readily conceive of a society without some mechanism to perform it. And indeed from the earliest days of recorded history we find references to money, and there are few among the primitive peoples of our own time which do not possess it in rudimentary form. The difference between the highly civilized nations of modern Europe and America and their early progenitors or the savage tribes of Africa does not consist so much in the fact that we use money and they do not, as in the extent to which it is used. Even though money is recorded as known among the most primitive peoples, it is then of only occasional use, it does not penetrate into every relation of social life. Peoples whose social organization is based upon slavery and patriarchal conditions have little need for money, nor is the need great among a pastoral or agricultural people when there is little differentiation of occupation. On the other hand, among highly organized industrial peoples where nearly all produce not for individual needs, but for sale in the market, money is in constant and universal demand.

The primary function of money is that of a medium of exchange; and, if in the theory of money to-day this characteristic receives scant notice, it is not because it is not fundamentally important, but rather because it is comprehended with comparative ease. Other functions are all derived from the primary function, medium of exchange.

Whatever the substance used as money may be it becomes an object of universal desire. In primitive society the most widely desired object came to be used as money. The fact that an object is universally desired fits it in the first instance for use as money, but after it acquires that function it is desired not chiefly for its own sake, but for its command over other things. At an early date the desire for personal adornment singled out the precious metals as money par excellence, but at the present time it is not because gold is beautiful that we desire it, but because as money it procures for us whatever we may desire.

In the second place, money is the measure of value. The acts of buying and selling fix upon the objects bought and sold relative values, and it was only a slight step to extend the conception of value to things not sold or bought, or which are not intended for sale. All things capable of sale can be valued in terms of money. All credit operations depend upon this fact. Since the value of the money in use in any society is insignificant as compared with its total wealth valued in terms of money, it has been argued that the function of money as a measure of value is far more important than its function as a medium of exchange. And in fact the further we get away from primitive conditions of trading, the more important does this derivative function become. When all wealth is valued in terms of money barter of a higher order becomes possible. In the new form of barter, however, the exchange of commodities is indirect. Modern commerce is largely based upon it, and while it is most apparent in international trade, where balances only are settled by the transfer of money, it is no less widespread and fundamental in domestic trade. See Credit; Bank, Banking.

From the function of a measure of value is derived a subordinate function of the greatest practical importance, namely the function of money as a standard of value. A standard of value is simply a measure by which values at different periods are compared. The measure of value contemplates the estimation of commodities at the same time; the standard of value, their estimation at different times. The standard of value is often called the standard of deferred payments. Credit organization involves future payments. These payments are expressed in money and present goods are transferred for a promise to pay money in the future. In the ordinary transactions of mercantile life the futurity contemplated is not far distant, but in many operations, both public and private, a lapse of years is contemplated. In such contracts stability in the value of money is of the highest importance; and were it not that money has been subject to certain variations, it is quite possible that it would not have been found necessary to differentiate this function from that of a measure of value.

The substances which at various times in the world's history have fulfilled these several functions have not performed the office equally well, and gradually all except gold, silver, certain minor metals, and paper have been eliminated among advanced nations. The selection of the precious metals for this purpose is due in part to certain physical characteristics and in part to economic conditions. In the first place, they are durable, and while it is true that there is always some loss through abrasion, the process is a remarkably slow one. Secondly, they are homogeneous and divisible. If a given quantity be divided into parts, those parts will be absolutely alike, and the sum of the parts will equal the whole. Finally, they are portable, since relatively to their weight they are of high value. Other objects such as precious stones excel the metals in portability, but they do not present the other necessary qualities of divisibility and homogeneity. Furthermore, it should be remarked that the metals are relatively stable in value, a result of their durability, since the existing stock is always so much greater than the annual output that violent fluctuations in supply are avoided. Some writers have insisted that the money substance should itself possess value, and have gone so far as to speak of the necessity of ‘intrinsic’ or inherent value. The use of the word ‘intrinsic’ evidently indicates a confusion of thought. These writers mean that the money substance should possess a ‘utility’ apart from that which it gains by virtue of its money function. It may be true that no substance without utility could have become established as money, but this initial primary utility is insignificant after it has acquired the greater utility which attaches to it as a medium of exchange and measure of value.

It has already been noted that besides the precious metals which possess in a high degree the qualities named, other substances, minor metals and paper, are used as money among advanced peoples. The role of the former is quite subordinate. For use in minor exchanges they are sufficiently portable and they possess the other physical qualities named. Since their quantity is limited, and provision is usually made for convertibility into money made of the precious metals, their value is not less stable than that of gold and silver. The problems of paper money are more complicated, since it is used in far greater quantities and for large payments. In portability it excels the metals, and, while it is not literally indestructible or divisible, the case of replacement of old notes by new, or one denomination by another, is a substitute for these qualities. Its ‘intrinsic value,’ i.e. its utility for non-monetary uses, is of course a negligible quantity. Far more important is the question of the stability of its value. This question we can answer only after an investigation of the laws which govern the value of money.

There are two explanations of the value of money, one that it is fixed by the law of supply and demand, the other that it is fixed by the costs of production. These are the general explanations of value and are complementary rather than antagonistic. The first is the law of market value, the second of normal value. In the case of freely reproducible goods, while market value may at a given moment vary from normal value, it cannot maintain such variation for any length of time. Money is in a less degree freely reproduced than most of the other goods with which it can be compared. We should, therefore, without neglecting the influence of the cost of production, expect to find that in the fixation of the value of money supply and demand are the dominant factors.

Before discussing what the supply of money and the demand for it are, it may be well to call attention to the way in which the value of money is expressed. The values of all commodities are expressed in money as prices. Conversely, the prices of commodities express the value of money. We speak of prices as high or low, but we might as well speak of money as cheap or dear. Money is cheap when prices are high, and is dear when prices are low. When wheat rises from 50 cents a bushel to $1 a bushel, we say it has risen in value, but we might also say that the wheat price of money has fallen, because in the first instance it required two bushels of wheat to secure a dollar in exchange and in the second instance only one bushel. Wheat in our illustration stands for commodities in general, and, while the rise in price of one commodity does not mean that money has fallen in value, yet if all commodities rise in price we cannot escape the conclusion that it has so fallen. Prices and the value of money are therefore reciprocals.

The supply of money is the amount of money in existence. This has led some writers to say that the value of money depends upon its quantity. Other things being equal, this is true; but it does not in itself furnish an adequate explanation of the value of money. Assuming that no other influences are at work, it must be admitted that any increase in the quantity of money will lower its value and that any decrease will enhance it. There is a certain money work to be performed, a certain volume of exchanges to be transacted. If the units of money are numerous, each transaction will call for a larger number of units than when the money units are relatively few. Every increase in the world's money supply has been followed by a rising in prices or a fall in the value of money. If the fall is not commensurate with the increase in amount, it is because the quantity of money is not the exclusive factor in fixing the value of money. Monetary legislation endeavors to adjust supply to demand by providing an automatic regulation of the quantity of money. Under a metallic currency system we usually find provisions for the free coinage of the standard money metal. Should money increase in value, i.e. should prices fall and thus reveal an inadequate supply, free coinage will in a measure correct this by attracting to monetary use such supplies of the metal as are available for this purpose. So far as nations using the same standard are concerned there is a natural flow of the metals from one country to another which prevents any undue deficit or redundancy in any one of the countries involved. This adjustment takes place automatically through the course of trade. When currency is redundant in any country, prices will be high in that country and imports will be large relatively to exports. The settlement of the resulting unfavorable balances will diminish the currency of the country where it was formerly redundant and so diminish prices. If money is scarce in any country, prices will be low, exports large relatively to imports, and the resulting favorable balances will bring gold into the country. It is obvious, therefore, that international trade speedily corrects any local excess or deficit. A general excess or deficit in the money supply carries with it a certain correction also, but the operation is slower. If prices rise, showing a fall in the value of money, mining enterprises become less profitable, and the additions to the volume of money will tend to grow less. On the other hand, if prices fall, showing a rise in the value of money, mining enterprises become correspondingly profitable and capital will seek employment in them. This is likely to increase the production of the metals and by increasing the supply to check the rise in value. These effects will not be immediate, as capital has great inertia, and its withdrawal from one line of activity and transfer to another cannot be instantaneous.

The value of money, as of any other commodity, is immediately dependent upon supply and demand. The supply of money admits of easy definition; but the demand for money cannot be so precisely stated. It has been paraphrased as the amount of money work to be done, but this money work cannot be expressed in statistical statements. The elements which enter into it can, however, be stated. The most important and the positive element in the case is the volume of exchanges to be accomplished. Whatever increases the volume of exchanges increases the demand for money; whatever diminishes the volume diminishes the demand. Division of labor and the evolution of a money economy are the most important factors in this increase of the money demand. Without a commensurate increase of supply, prices under such conditions must fall. A diminution in the world's demand for money is not likely, but a diminution in the local demand, effecting a temporary rise of prices before the correcting influence of international trade is felt, may and does occur.

But the volume of the exchanges is only one of several elements in determining the demand for money. The first of these is the rapidity of monetary circulation, the second the use of credit, both of which economize the use of money. It is obvious that all simultaneous cash transactions require the use of different pieces of money. But the transactions of a day or a year are not simultaneous and the same piece of money may fill its functions as a medium of exchange many times. When the circulation is sluggish the demand for money for a given volume of exchanges is far greater than when it is rapid. Savings banks, for example, serve to increase the rapidity of circulation. They gather up the savings of the poor which would otherwise be locked up, and restore this money to circulation. In countries where savings take the form of private hoards, as is largely the case in France, more money is required per capita than in Great Britain or the United States.

Far more important in its effect upon the money demand is the use of credit (q.v.), balances only being paid in money. The country storekeeper who takes from the farmer butter and eggs on account, paying in supplies as his customer's needs arise, furnishes a homely illustration of the way in which credit minimizes the demand for money. In the larger business world the trade relations are rarely of such great simplicity, but by the mechanism of centres of credit or banks the transactions of a town or of even larger areas are reduced to a mutual exchange of goods and debts are canceled without the intervention of money. Banks and clearing-houses (see those articles) are the agencies by which credit is organized.

Supply and demand as affecting the value of money are not wholly unrelated phenomena, and the explanation of monetary changes cannot he found in one element without the other. An excess of supply stimulates demand, and prevents prices from rising as high as they otherwise would. A diminution of supply slackens demand and prevents prices from falling as much as they otherwise would. This interaction of supply and demand prevents changes in the money supply from producing effects in the increase or decrease of prices commensurate with the changes in the volume of money. It modifies but does not obliterate the significance of such changes.

Having considered what fixes the value of metallic money, we are now ready for the question what determines the value of paper money. Despite differences of detail, there are for the purpose of this discussion but two classes of paper money—convertible and inconvertible. The first is secondary money, representing metallic money, and deriving its value from the latter; the second is itself primary money, and, like all primary or standard money, derives its value from the relation of supply and demand.

Paper money in the first instance was purely secondary or representative money. It was practically a storage receipt for gold and silver. Such receipts calling for metallic money on demand could and did serve in lieu of the latter in making exchanges. Such money offers no theoretical difficulties. Its circulation is that of metallic money in another form. The advantage of such money is that it forms a convenient mode of avoiding the cumbersomeness of metallic money. This is the function of the gold and silver certificates issued by the United States Government, each of which represents a corresponding quantity of metal in the United States Treasury, and whose presence in the monetary circulation does not in the slightest degree affect its volume.

But such certificates are not the only form of representative paper money, nor the most important. The history of banking shows that the depositaries of metallic money soon learned that under normal conditions coin would not be demanded 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 the term by which the currencies of the colonies were compared. In retail trade the shilling as a division of the dollar has persisted to our own day. Furthermore, as the Spanish dollar was common to all the colonies, it was the term in which later the common obligations were expressed by the Continental Congress, and thus became the basis of our national coinage.

Of even greater importance in fixing the monetary habits of the people was the issue of paper money. The first issue was in 1690 in Massachusetts, and was made to meet the expenses of an expedition against the French in Canada. The notes were received with reluctance by the people, and fell to a discount, which was removed by an act of the Colonial Legislature, which placed a premium on them, as compared with coin, in the payment of taxes. Then South Carolina issued bills in 1712, and in the first half of the eighteenth century all the colonies followed these examples. Issued at first to meet extraordinary expenses of the governments, the public clamor for more money became so great that notes were issued later without any such plea in extenuation. In the situation of the colonies the plea for more money to make trade easy was urged with peculiar force. In Massachusetts a series of issues had taken place; and in 1749 exchange upon London, which was normally 133 pounds colonial for 100 pounds sterling, had risen to 1100 pounds for 100 pounds sterling. Parliament having voted £138,649 to reimburse the colony for its share in the expedition against Louisburg, this sum was used by the colony to redeem its paper issues at the rate of 11 to 1, and from that time onward Massachusetts was on a specie basis. Some of the colonies, as for example Rhode Island, North and South Carolina, had issued paper money far more extravagantly than Massachusetts; while others, notably Pennsylvania, had pursued a more conservative policy. In the latter colony there were two kinds of bills, exchequer and loan bills. The first were issued by the colonial treasury in anticipation of taxes, but the amount outstanding is said not to have exceeded the probable receipts of two or three years. There were no sudden issues of large quantities and the amount of the issue was kept fairly uniform. The loan bills were issued to individuals on landed security, plate, or other valuable assets. With such security there was comparatively little danger of an overissue, and the records show that there were comparatively few bad debts.

In 1751 Parliament forbade the further issue of notes by the colonies, and more or less successful efforts were made by them to redeem their outstanding notes. When, however, the colonies united for their struggle with Great Britain, the only fiscal resource which seemed open to them was the issue of paper money. The first issue was in August, 1775, for 300,000 Spanish dollars. Elaborate provision was made in the law for the redemption of this currency, and the amount fixed for which each colony was held responsible. Other issues followed in rapid succession, and the pretense of redemption provisions was soon dropped. As much as nine millions was issued before any depreciation took place, but with the constantly expanding volume of the currency this could not last long. The following figures tell the story of the rapid multiplication and depreciation of this money:

Price of a Spanish silver
dollar in Continental
currency
Issued  1776   20,064,464  January 1,  1777    1 ¼
Added 1777  26,426,333 1778   4
1778  66,965,269 1779   9
1779 149,703,856 1780  45
1780  82,908,320 1781 100
1781  11,408,095 1782 500

357,476,337

In the meantime every device known to the law was tried in vain to prevent the depreciation. The most stringent penalties enacted against those who refused to receive Continental money at its face value failed utterly to arrest the fall in value. Such enormous issues together with those of the several State governments practically destroyed the value of the paper money. As this paper was never redeemed, it was in effect a tax upon the people which caused much suffering and distress.

After the collapse of the Continental currency the circulation of the country consisted of specie, largely obtained through foreign loans, State notes, and, to a very limited extent, bank notes. In 1782 the Bank of North America, at Philadelphia, was chartered by the Continental Congress. It was a private institution with a large Government subsidy and issued notes. It rendered important services to the nation, but its note issues amounted to only $400,000. Before the Federal Constitution was adopted banks of like character had been chartered in Boston, New York, and Baltimore, and bank issues acquired a recognized place in our monetary circulation.

The Federal Constitution vested the power to coin money in the Central Government, and forbade the States making anything but gold and silver a legal tender for the payment of debt. This eliminated State issues, and from this time until the Civil War the monetary circulation consisted of United States specie, foreign specie, and bank notes.

Among the first acts of Congress was to declare the values at which foreign coins should circulate and be received at the Government offices. Of these foreign coins the most common was the Spanish dollar, which as late as 1857 was received in all payments at the post-offices of the United States. In 1792 a law was passed establishing a national gold and silver coinage. In the history of money prior to the gold discoveries of California specie played a subordinate part, its chief function being for small change and as a reserve for banking operations. We may therefore glance at the history of bank-note issues before taking up that of metallic currency.

While the Constitution debarred the States from issuing money, it did not prevent them from establishing banks and giving to the latter the power to issue notes as they might see fit. After the adoption of the Constitution State banks multiplied rapidly. In 1791 the Bank of the United States was chartered with a capital of $10,000,000. Its notes were received everywhere and were the natural medium of payments between different parts of the country. The bank acted as a controlling agent over the State banks, since by receiving or refusing to accept their notes, it could make or mar their credit. When in 1811 its charter expired the State banks were unrestrained in their issue of notes. In 1811 Gallatin estimated the note circulation of these banks at $46,000,000, but in 1814 it had swelled to $100,000,000, while trade was crippled by war, and specie was drained from the country. Great embarrassment was felt by the Government from the fact that as the only medium of exchange such State bank notes could hardly be refused in payments, while with the suspension of specie payments by the banks their value depended upon the vagaries of bank management. This state of affairs called loudly for a remedy, and the reorganizatiim of the Bank of the United States was planned. It was eventually accomplished in 1816, and for twenty years it exercised on the whole a salutary influence upon the monetary circulation. When in 1836 its charter expired, State bank notes again ran riot and precipitated the disastrous panic of 1837. In the days of depression which followed the States generally put their banking systems in order. So long, however, as any State countenanced the loose methods which had formerly brought the whole system into disrepute, some were bound to suffer from such iniquity, but the mass of suffering was greatly reduced. This was in part due to the gold discoveries of California, which furnished the nation with a larger supply of metal than had ever been known, and made it comparatively easy for the banks to maintain an adequate reserve. When the Civil War broke out the State bank system was at its best, and the agitation which culminated in 1863 in the national banking system had its origin more in the fiscal necessities of the Government than in any immediate need of reform of the State banks.

The unit of value adopted in the act of 1792 mentioned above was a dollar of 371¼ grains of pure silver—practically the Spanish dollar then current—or a gold dollar of 24.75 grains, thus providing a bimetallic system with free coinage of the two metals at a ratio of 15 to 1. There had not been for many years any material change in the production of the precious metals, and the ratio adopted corresponded fairly well with the market ratio. While no great quantity of metal was coined in the mints of the United States for the first twenty years of our history, and as before the outbreak of the War of 1812 the tide of importation was in our favor, the system worked satisfactorily. With the war and the heavy importations of merchandise which followed an export of specie began and it was found that gold was favored. This change in the market ratio was largely due to the outbreak of the revolt against the Spanish domination in South America and the slackening of supplies of silver from that region. Agitation began for a new ratio, which did not culmimite in legislation until 1834. At this epoch the United States mined no silver, while a certain amount of gold, considerable for that time, was being drawn from the Appalachian gold region. When, therefore, the new ratio was adopted it was deemed wise to be upon the side of favoring gold rather than silver. Laws of 1834 and 1835 changing the weight and fineness of the coins established the ratio of 15.988 to 1, familiarly 16 to 1, although the market ratio was 15.625 to 1. The divergence was, however, too slight to affect materially the supply of silver, but in 1849 gold was discovered in California, resulting in a decreased value of gold as compared with silver. Moreover, a metallic surplus appeared in our own markets, and silver began to be exported. As all the silver in circulation was divisionary coin, it was feared that a dearth of small change would result. The exportation of silver had already seriously depleted the stock of half dollars, the largest silver coin in use, and had begun to threaten the quarter dollars when in 1853 Congress reduced the fineness of silver coins less than one dollar from 900 to 835 and made them tokens to be issued only on Government account. In so doing it did not affect the status of the silver dollar, for which as before free coinage existed—an empty privilege, since the silver dollar had a higher bullion value than the gold dollar. From the establishment of the mint until 1850 the aggregate coinage of the United States was $190,000,000, and in this total gold and silver were about equally represented. In the next ten years, 1851-60, no less than $403,000,000 were coined, of which less than $48,000,000 were silver. Such a change denotes not only that gold predominated in the metallic circulation of the period, but also that the metallic circulation itself became a thing of moment in the community.

The Civil War introduced new elements into our monetary circulation—paper money and the national bank note. Soon after the outbreak of hostilities specie payments were suspended. The Government seemed to have exhausted every device of borrowing when it grasped the dangerous expedient of paper issues. Treasury notes bearing interest had several times in the history of the nation been resorted to, but it was not until the act of February 25, 1862, was passed that non-interest-bearing notes were issued. One hundred and fifty million dollars of notes were authorized and they were declared a legal tender for all debts, public and private, except duties upon imports and interest upon the public debt. Subsequent issues in July, 1862, and March, 1863, brought up the aggregate amount authorized to $450,000,000. This flood of paper money drove gold to a premium and swept away the silver subsidiary coinage. It became necessary to supply the place of the latter, and small notes called postage and later fractional currency were authorized in 1862 to the extent of $50,000,000. From the highest denominations down to three cents, the monetary circulation of the nation was paper only, the issues of the United States Government and the issues of the banks. In 1863 the national banking system was organized, but few banks availed themselves of the privilege of a national charter until after March 31, 1865, when a tax of 10 per cent. on the circulation of State banks outstanding after August 1, 1866, was enacted. This doomed the State bank notes, and banks which clung to the note-issuing privilege organized under the national law.

When peace had been declared the condition of the currency received attention. The volume of paper outstanding was reduced to $356,000,000 before 1868. In that year the fear of a monetary stringency due to contraction of the currency caused Congress to abandon this policy, and this postponed the day of redemption. In 1873 additional issues were made and the amount outstanding raised to $382,000,000, which limit was fixed as a maximum. In 1875 the Resumption Act was passed providing for a return to specie payments January 1, 1879. Some slight progress toward a metallic basis had already been made by calling in the fractional currency. The Resumption Act authorized the Secretary of the Treasury to sell bonds for the purpose of providing a gold supply sufficient to redeem the notes. It also removed the restriction which had previously rested on the volume of the national bank currency, and provided that when additional bank notes were issued an amount of legal-tender notes equal to 80 per cent. of such issues should be retired. The fear of contraction which had dictated a bill to repeal the entire Resumption Act, which failed only through the President's veto, succeeded in May, 1878, in abolishing this retirement provision, but not before the volume of notes had been reduced to $346,681,016, at which point the issue stands to-day. Much trepidation was felt lest resumption should not succeed and lest the applications for the redemption of notes should exhaust the reserve provided. But these fears proved groundless, and resumption was effected quietly and without difficulty. From 1879 the notes have been convertible into gold upon demand. No fixed reserve of gold for this purpose was prescribed by law, but the practice of the Treasury has been to keep on hand nominally at least $100,000,000 for this purpose. Whenever the reserve fell below this limit, grave concern was felt, and more than once resort was had to the issue of bonds to sustain the reserve. The law of 1900 provides a reserve of $150,000,000 for the redemption of these notes, and provides more effective and more expeditious means for its replenishment.

Before 1862 the centre of interest and discussion in our monetary circulation lay in the notes of banks. It was then transferred to the paper issues of the Government, and after 1876 to silver. During the Civil War period the United States began to produce silver as well as gold in considerable quantities, but as all our money was paper this did not affect the monetary circulation. In 1870 a revision of the coinage laws was undertaken with the purpose of codifying existing law. One of the features of the codification was the omission of the silver dollar from the list of coins. The measure was an executive one and there was considerable difficulty in securing for it the attention of Congress, which listened impatiently while its provisions were being explained. Between 1870 and 1873, when it became a law, it had been thoroughly discussed in Congress and should have been well understood. The omission of the silver dollar made the United States theoretically a gold standard country. This law which effected the demonetization of silver was the famous ‘crime of 1873,’ concerning the passage of which the wildest statements were current at a later date. The simple fact is that at the time no one was aware of the significance of the demonetization of silver.

The agitation for the resumption of specie payment brought forward the contest between contractionists and inflationists. The latter failed in their efforts to balk the resumption policy, but the general feeling on which their argument rested, that a healtliy currency must expand with the needs of the country, had to be reckoned with. This led in 1876 to the appointment of the Monetary Connnission (q.v.), whose report presented in 1877 favored the free coinage of silver and thus began the long battle for that ideal. Germany had adopted the gold standard and was selling silver, the mines of the United States continued to increase their output, and silver was falling in the market below the legal ratios established by long usage in bimetallic countries. A bill for the free coinage of silver passed the House of Representatives in 1878. The Senate, however, was unwilling to accept for the United States alone the whole burden of the rehabilitation of silver, and a compromise resulted in the Bland-Allison Act, which was passed over the President's veto, February 28, 1878. It provided that not less than $2,000,000 worth of silver nor more than $4,000,000 worth should be purchased monthly and coined into standard silver dollars (412½ grains of silver 900 fine), which should be a full legal tender for all debts, public and private, without exception. It also authorized the President to call an international conference for the adoption of international bimetallism at a common ratio to be agreed upon. It also permitted the issue of silver certificates in sums of $10 and upward for standard silver dollars deposited in the Treasury. No relief came from the international conference, and the coinage went on increasing in volume as the price of silver fell. Soon embarrassment was caused by the tendency of these dollars to return to the Treasury, as less than $60,000,000 were absorbed by the circulation. There was no difficulty, however, after a law of 1886 permitted the issue of certificates in denominations of $1, $2, and $5. While the number of dollars in circulation is not large, there is no obstacle to the circulation of silver certificates.

Under the law of 1878, which continued in force until 1890, $378,000,000 were coined. The price of silver continued to fall and with it the price of other commodities. International bimetallism as a remedy for falling prices continued to gain favor among economists, and the agitation for free silver coinage in the United States grew in strength. In 1890 again the House of Representatives passed a free coinage bill, but a compromise worked out in the Senate was finally accepted and became law. This provided for the purchase of 4,500,000 ounces of silver monthly and the issue of Treasury notes for the cost price thereof. These notes were a legal tender, and the privilege was given to the Treasury Department to coin the silver thus purchased and replace the notes with silver certificates. The embarrassments of the Treasury and the difficulty of keeping the growing mass of silver money at a parity with gold led in 1893 to the repeal of the compulsory silver purchase provision. Under this law 168,000,000 ounces of silver had been purchased and Treasury notes to the amount of $155,000,000 issued. The repeal of the act in 1893 took place only after a severe struggle, and the friends of silver did not give up the fight. The Presidential contest of 1890 was fought out on the free coinage question and resulted in the signal defeat of the Silver Party. In 1900 a new currency law was passed which squarely defined the gold dollar as the standard of value in the United States. It provided, as already stated, a larger reserve for the redemption of the legal-tender notes. The attempt to make silver dollars redeemable in gold was, however, unsuccessful. The same measure favored the expansion of the national bank note issues by permitting note issues to the amount of the par value of the bonds deposited and by reducing the tax upon the circulation of banks.

See articles Bank, Banking; Bimetallism; Currency; Foreign Money; Gresham's Law; Latin Union; Monetary Commission; Monetary Conferences.

Bibliography. The mass of literature relating to money is so enormous that the selection of references must be confined chiefly to those which deal with the question from the American viewpoint. Reference should, however, be made to the Reports of the International Monetary Conferences of 1867, 1878, 1881, and 1892, and the Reports of the English Commissions on the Depression of Trade, on the Relative Value of Gold and Silver, and on the Indian Currency. Among works which deal with the theory of money, mention may be made of: Jevons, Money and the Mechanism of Exchange (New York, 1894); id., Investigations in Currency and Finance (London, 1884); Nicholson, Money and Monetary Problems (3d ed., ib., 1895); Walker, Money (New York, 1878); id., Money, in Its Relation to Trade and Industry (ib., 1883). In reference to the money question in the United States, the following works may be consulted with profit: Gouge, Paper Money and Banking in the United States (Philadelphia, 1833); Sumner, History of American Currency (New York, 1878); Knox, United States Notes (ib., 1884); Laughlin, History of Bimetallism in the United States (ib., 1886); Taussig, The Silver Situation in the United States (1893); Laughlin, Report of the Monetary Commission of the Indianapolis Conference (Chicago, 1898); Noyes, Thirty Years of American Finance (New York, 1898); Watson, The History of American Coinage (ib., 1899); Bullock, The Monetary History of the United States (ib., 1900); White, Money and Banking (2d ed., Boston, 1902).