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Money and Coinage

MONEY AND COINAGE.

1. Money defined.

2. The chief requisite of a money-measure.

3. The need of a general medium of exchange.

4. Money is a go-between; a means, not an end.

5. Importance of money in discharging future obligations.

6. Prices not affected by money under ordinary conditions.

7. Less money is needed than formerly, because it circulates more rapidly.

8. Money circulates more rapidly in some places than in others.

9. The effect is the same as an additional supply.

10. Banks are the most effective agencies for circulating money.

11. The use of credit lessens the need of money.

12. The use of economizing expedients in production.

13. Their use in making payments.

14. The use of bills of exchange in paying for merchandise. 15. Same subject.

16. By the use of such bills commodities are exchanged.

17. This is the chief mode of exchanging commodities between leading nations.

18. Payment of the checks given for the bills above men tioned.

19. They are paid by exchanging them.

20. As effectively as by paying money, and thus lessen the use for money.

21. The use of credit lessens the demand for money.

22. It is a measure of a superior civilization.

23. Money affects prices when its value is unstable.

24. Also when credit is withdrawn and the demand for money is suddenly and greatly increased.

25. But does not affect prices under other conditions.

26. Prices may be indirectly affected by an increase of credit or supply of money.

28. Recent movements in gold have not affected prices.

29. A large increase in the gold supply will not affect prices. 3o. Ought the purchasing power of money to be lessened? 31. Debtors have not suffered to the extent imagined.

32. Should they ever be relieved by diminishing the value of money? 33. A better remedy.

34. Causes tending to diminish the value of gold.

35. All kinds of coined metal are money.

36. Coined silver.

37. Kinds of notes issued by the government.

38. Legal-tender notes.

39. Silver certificates. 4o. Silver treasury notes.

41. National bank-notes.

42. Gold certificates.

43. The notes described serve in most respects as money.

44. Importance of understanding their real nature.

45. Nature of the metallic money in 1789.

46. Gold and silver were then in circulation.

47. Standard of the weight and fineness then adopted.

48. Adoption of two standards.

49. Their legal relation.

5o. Their legal relation or value corresponded with their market value.

51. But varied afterward.

52. Exportation of coins forbidden. Reduction of gold in the coin.

53. Amount of the reduction.

54. The reduction was too great.

55. Purchase of bullion for silver coinage.

56. Revision of the coinage laws in 1870.

57. History of the passage of the revised law.

58. The discontinuing of the coinage of the silver dollar excited no attention.

59. Revival of the coinage of it. 6o. Passage of the Sherman Act.

61. The government's option to pay gold or silver. Danger of paying silver.

62. The silver certificates are a mixed form of currency.

63. Repeal of the law authorizing the purchase of silver.

64. Opposition to its repeal.

65. Profit on coined silver.

66. Present market value of the coined silver.

67. Seigniorage.

69. Same subject.

70. Same subject.

75. Payment for gold deposited for coinage.

72. Summary of all kinds of money and substitutes.

73. Legal-tender qualities of silver coins.

74. And of the legal tender notes.

75. Silver certificates.

76. Treasury notes.

77. National bank-notes.

78. History of issuing legal-tender notes and providing for their redemption.

79. The measure adopted for resuming specie payments.

1. As this topic is closely related to finance, we shall endeavor to explain very briefly the nature and functions of money, beginning with a definition of the term. The most common of all definitions is, money is a measure of value and a medium of exchange. Each of these phrases may be briefly explained.

2. Every one knows what is meant by a measure of weight, a means or instrument for ascertaining a definite quantity. When the early traders in Pennsylvania first bought furs of the Indians no measure of value was used ; for their furs the Indians received no gold or silver, but blankets, knives and various articles. After a time some silver money pieces were given in payment, but as these, though having the same name, differed in value, the In dians soon learned to dislike the white man's money, and wanted none of it. They were not sure when receiving silver pieces, how much they could afterwards get for them. A white man is as unwilling as an Indian to re ceive any kind of money possessing a varying value, what ever may be the causes of variation. There was nothing peculiar in the Indian's conduct. Certainty of value is an essential of good money.

3. Money is also a medium of exchange. Exchanges. are made between persons to supply their wants. A is a chairmaker and wants shoes. B is a shoemaker and wants chairs. Each exchanges his products for those of the other, and the wants of both are satisfied. If A could al ways exchange the things he did not need for the things he needed, with others who wanted them and could give A what he wanted in return, there would be much less use for money. In most cases, however, persons cannot thus exchange directly. What, then, can they do? If there is anything which all desire, it is practicable for per sons to exchange what they do not need, the hatter, his hats for example, for the thir,•g desired by all, and after wards exchange this for the chairs he does want. Any thing that all desire may serve as a medium ; and many things have been used as money by different nations. It should be remembered that the hatter when exchanging his hats for money desired chairs quite as much as he did when he exchanged his hats directly for them ; and he would never make two exchanges, first his hats for money and afterwards this for chairs, if he could get them by direct exchange. Usually, he cannot exchange hats for chairs directly, and so the money taken in the first ex change—the medium that he intends to use for getting chairs—is in truth a great economizer of his time, as he can readily exchange this for them. Another fact is clearly seen in this transaction, the hats possess only a lim ited purchasing power; in other words, not every one wants them and is willing to give money for them ; while money possesses a general purchasing power, almost every one is willing to take it in exchange for other things. So the millions of mankind are eagerly trying to get money, not to retain long, but to use as a means for getting the things they need to eat, wear or keep.

4. Money, therefore, is simply a go-between to get other things. No one wants it as an end, as a permanent possession. The bloated bondholder, of whom so much has been said, has very little money, for his bonds are not money, but only the titles, the certificates of ownership of lands, houses, railroads, ships or other things of which he is a part owner. These are the things he is trying to ac quire. No one tries so hard to get rid of his money by ex changing it for something else. Many of the richest men study in advance of receiving their income how to invest it; in other words, how to exchange it for bonds, stocks and other kinds of wealth, as quickly as possible.

5. The need of having something possessing cer tainty of value and desired by all becomes still greater whenever payments or exchanges are not immediately completed. Future payments might indeed be made in some specific thing, wheat, iron, cotton and the like, but the difficulties in the way of making them are apparent. So long as something exists having a stable value, agree ments may be safely made that are to be fulfilled months or years afterward, by the payment of the thing specified, and when the time comes for paying, either to deliver that or some other thing of an equivalent value which the creditor is willing to take. If nothing existed that could be readily exchanged possessing an essentially fixed value the entire world of exchange would be a scene of uncer tainty and confusion. Persons would be afraid to sell or lend, not knowing how much would be returned ; others would be afraid to buy or borrow, for they would not know how much they ought or would be required to pay.

6. Prices are the values of things expressed in money. These are determined by the most familiar of all economic principles, supply and demand and cost of production. The first principle determines their momentary value ; the other their more remote one. If there were no money the value of commodities would exist and fluctuate as they now do. Money is a price-making factor only when un usual conditions exist that will soon be explained. Serv ing as a mere go-between, so long as there is enough for this purpose, it is a mere neutral ingredient in the process of exchanging one thing for another. People have the same wants now as they had before the invention and use of money, and they would have the same wants if it dis appeared. The price of wheat is much higher than it was a few months ago, but no one contends that the rise is caused by any monetary change. The world's quantity and quality of money during the corresponding period has not been much affected by any event. Wheat was wanted by just as many people last year as want it now, but the present supply is smaller. Consequently, their eagerness to buy is shown by their willingness to pay a higher price.

7. Less money is needed than formerly in making ex changes, compared with the total of them, for two rea sons ; first, because it circulates more rapidly, and, sec ondly, because substitutes play such an important part. If, with $ioo in the possession of the people in village A, twice as many payments are made among them in the same space of time as $2oo in village B, the $ioo in vil lage A is twice as effective, accomplishes twice as much work as the $200 among the people in the other.

8. It is unquestionably true that money circulates with far more rapidity in the City of New York than among the sparsely settled districts of the frontier. Conse quently, the people in New York in transacting a similar amount of business would not require as much money as the same number of people on the frontier. This must be evident without further explanation.

9. The effect, therefore, of circulating money more rapidly is the same as an increased supply. If money cir culating in New York, equal in amount to that circulat ing in Arizona, does twice as much work, it is just as ef fective as twice the amount would be circulating at Ari zona speed.

TO. Of all the agencies that have the effect of quicken ing the circulation of money, banks are the most effective. A bank dislikes to keep any more money around than pru dence requires. Its profits are made by lending money not by keeping it. Of course, enough must be kept to an swer all demands ; but every wideawake banker, after making due provision of this kind, desires to lend, if possi ble, the remainder. A bank does not keep money in its vaults, as an individual keeps money in his pockets, day after day, before making any use of it. A working man receives his months' wages, and during the month he con tinues to part with his money ; and it may be that at the end of thirty days all is gone ; but a bank usually keeps money no such length of time. If money, which a bank thinks will not be demanded at once, is deposited, the same is lent as soon as possible, to-day or to-morrow. Money in possession of a banker is restless, and like the waters of the sea is kept in constant motion. The consequence is that through the agency of these institutions less money is needed than otherwise would be to effect the exchanges of business. This is the third great principle affecting the value of money and determining how much is needed— the rapidity of its circulation.

The use of credit lessens the use for money. If a merchant buys a large bill of goods on credit, of course no money is needed for the purpose of making the pur chase. It may be asked, will not money be needed at a later period, when the credit expires, as much, in truth, as though no credit had been given? Is not the effect of the transaction simply to delay the payment of money, and not to lessen the use of it? Less money will be needed, as will be soon shown.

12. We are all familiar with the wonderful machinery for economizing the use of labor. American inventions for plumbing, seeding, cultivating, reaping, threshing and for almost every other task of the farmer have been car ried to a high degree of perfection and are generally used by American farmers. Their effect in economizing the use of labor none will deny. This fact is one of the most common of daily life.

13. Another fact is equally true, that modern com merce has found a way of making payments that dispenses with the use of money in all except a small percentage of the entire volume of transactions. Consequently, the use of silver and gold and money of every kind is becom ing less needful. The service that silver would have per formed in making payments had its coinage been con tinued, is insignificant compared with the use of its sub stitutes. What are these ; how do they work? 14. A Pennsylvania farmer sells a quantity of wheat to an agent for a wheat merchant in New York. The merchant sells it to an English purchaser living in Liver pool. How is the New York merchant paid? He draws an order or a bill on the Liverpool buyer for the amount. This order may direct the Liverpool buyer to pay the amount due to the seller, to a third person or to himself. The obligation is the same in either case. The New York merchant, however, wishing to use the amount mentioned in the bill at once, goes to a house that deals in bills of exchange and sells it, getting a check for the amount on a New York bank. What becomes of the bill? It is sent to Liverpool for collection, and at the time of its maturity is presented for payment and a check for the amount is given on an English bank. Is that check collected in money and the amount sent to this country? What is the everyday answer? 15. Another merchant in New York has bought woolen goods in Bradford, England, and he must pay for them. He can do this in two ways. Either he can send gold for the amount, or he can go to a house that deals in foreign bills of exchange and buy a bill, perhaps this very one given for wheat or another, for the amount of his purchase, that is owed by some person in England, and sends this to his creditor in payment of his goods. The English seller accepts the bill and his American buyer is discharged. Suppose the amount of the American buy er's purchase of goods is the same as the English buyer's purchase of wheat, what has happened ? No gold has been sent to either country to pay these debts, and yet both have been paid. The American goods buyer no longer owes the English seller; nor does the English wheat buyer owe the American seller. The debt on each side has been actually paid ; and yet not a dollar in money has been paid by anyone; no gold or any other kind of money has gone across the sea. These facts no one can dispute.

16. The transaction may be followed two steps farther. The Bradford goods seller, by accepting the bill drawn on the Liverpool wheat buyer releases the New York buyer just as fully as though he had sent gold to him, and the Liverpool buyer, by paying the Bradford goods seller, has just as fully discharged his obligation to the New York wheat merchant or the banking house that bought the bill of him as though he had sent gold to him. And yet, we repeat, no money has been used on either side. What, then, has happened in this double transaction ? The answer is very evident. An exchange of commodities has taken place ; the wheat has been exchanged for the woolen goods.

17. In the exchanges between the leading nations this is the mode of making them. The debts incurred on the one side and on the other are discharged by offsetting other debts against them. The debts first incurred are not carried along in a new form ; they are actually paid, as truly as though money had been used. Let this fact, therefore, be remembered, that in international payments very generally no money of any kind is used ; the transac tions consisting really in an exchange of commodities. When these are not of equal value the difference is some times paid in gold ; often the indebtedness runs for a considerable period and then the tide of trade runs in the other direction and an equalization takes place ; sometimes settlements occur by taking securities, bonds, stocks and the like ; sometimes purchases are made of other prop erty.

18. It may be asked, Are there not a couple of checks around somewhere that have not been paid ? Is not money required to pay them ? In tracing out their course it will be seen what a small part money plays in our trans actions at home. Returning to the New York wheat mer chant who has drawn a bill on the Liverpool buyer and sold it to the New York banking house dealing in bills of this nature, he gets a check for the amount on a bank in that city. Of course, the merchant could go to the bank and get the amount, but usually he deposits it in the bank on which it is drawn, or in another. If he deposits the check in the bank on which it is drawn, that bank credits the depositor and charges the drawer with the amount and the transaction is ended. No money is paid ; the drawer of the check has so much less to his credit, the depositor as much more. The money that may or may not be in the possession of the bank is not in the least dis turbed by the transaction ; a little bookkeeping has been done, nothing more.

19. Suppose the check is drawn on another bank, what then ? The depositor puts it in his bank for collection. Does the bank get money for it? Perhaps, but more fre quently it does not. Why not ? Suppose the check, de posited in the Broadway Bank, is drawn on the Arctic Bank, and is presented either directly or through the Clearing House for payment? The Arctic Bank admits that the check is perfectly good, but says it has a check deposited with it for the same amount on the Broadway Bank. The one offsets the other. It would be folly for each bank to demand money of the other; the easier and common-sense way is for each bank to exchange checks, which is done, and the debts are cancelled. The amount of the check received from the Arctic Bank is chargeable to the depositor who drew it, and a similar amount is credited to the merchant who deposited the check in the Broadway Bank for collection. This in effect is the na ture of these transactions. No money is used in this case any more than in the other. And yet these checks are paid by offsetting one against the other. Both of the checks represent sales ; the one was given for a bill of ex change, the other, perhaps, for merchandise. The entire circle of transactions has been completed, and without using a dollar. And the check given by the Liverpool wheat buyer has run the same course.

20. The fact cannot be denied, that in buying and selling stocks, lands, goods, almost everything, less and less money is constantly used in the more civilized coun tries where banks are most numerous, and the agencies above described are most highly perfected. In many sales only a very small percentage of money is used. Off sets are daily made to the amount of many millions through the clearing house ; and a small sum of money is sufficient to complete them. Nor are the debts thus brought together carried along in a new form, requiring money at sometime or other to settle them. The debts are actually set off against each other, and discharged ; they no longer exist in legal or in any form; they are as much out of the way as though money had been paid.' 21. The use of credits, therefore, greatly lessens the demand for money. As the more rapid circulation of money has the same effect as an increase of the supply, so the use of credit, by lessening the demand for money, has the same effect as an increase of the supply. This truth may be shown in another way. Not infrequently the superstructure of credit suddenly gives way, and then the need of more money to supply its place is instantly felt. Banks are unwilling or unable to lend ; and then the pro cess of hoarding money begins. The dearth of money is everywhere apparent. A few days before, no one ever imagined there was a lack ; everybody was supplied ; the rates of interest were low ; every person having good credit could readily borrow. What has happened? Credit has vanished. Even an enormous increase of money would not be enough. Not having an adequate supply the business world to a large extent is paralyzed. It is then seen more clearly than ever what a potent element is credit. As soon as it is restored, the deserted paths of commerce are once more filled with life.

22. Credit, too, is a measure of a superior civilization. Its roots start in human confidence and ability. And where it can be effectively used in place of money why should any costly go-between be prepared and used for that purpose ? But it must be worthy of its name; other wise it is utterly unfit for its work. And, though unfit, again and again it has been forced on the people. Of all the disastrous uses of credit, its use as money, when not possessing the confidence of the people is the worst.

23. Thus we come in sight of a very important princi ple affecting prices, namely, money when it possesses an unstable value. Illustrations of this truth are numerous. The value of the notes issued by the Continental Congress soon after their introduction began to decline, which was registered by the ascending scale of prices. The people distrusted the maker. At last, their confidence in it en tirely disappeared. They would not take them in ex change for anything. During the Civil War the Southern Confederacy issued a paper currency, which ran the same course. One day an officer was riding along on a fine horse that attracted the attention of another officer, and immediately he wished to buy the steed. "How much will you give ?" "Three thousand dollars." "Oh ! h—I !" said the owner, "I have just paid that much to get him shod." Across the military line was a much better currency, and the payment of a very small part of that sum sufficed for shoeing a horse. To-day the price in Massachusetts for doing the work does not vary much from that in South Carolina, because the currency used for making payments in both places is the same.

24. Again, prices are affected by the sudden with drawal of credit and a great demand for money to sup ply its place. The most apt illustration of this is the sale of stocks pledged for loans. When these are suddenly called, and cannot be renewed with other lenders the pledged securities must be sold, and the large supply, coupled with the inability of persons who would gladly purchase them if they could command the means to pay for them, seriously affects their prices. In general, a col lapse of credit works this result, because there is a lack of means or facilities for making payments. The supply of money is inadequate ; commodities must be sold to pay debts, and persons are unwilling to contract fresh obliga tions, through fear of their inability to meet them ; the in evitable consequence is a fall in prices.

25. Lastly, prices may be directly affected by a very large increase in the quantity of money of unquestioned quality. This may happen, but rarely can an enhance ment of prices be traced to a change of this kind.

26. Once more prices may be indirectly affected by an increase of credit or supply of money. Thus, if one can borrow readily of a bank and in large quantities, he may engage in undertakings, building and the like, and this great demand for material, occasioned by his new supply of money or use of credit, may affect prices.

27. Thus money affects prices in three ways : First, when its quality or value is distrusted ; secondly, when credit vanishes and a greatly in creased supply of money, needed to take its place, is not forthcoming; thirdly, and remotely, when the quantity even of good money, under the normal condi tions of trade and society, is enormously increased. Under other conditions money is a neutral element having no immediate influence on prices. The remote consequence from a change in the quantity, even though the quality is not distrusted, is rarely of sufficient importance to affect business, and surely not the myriad of contracts or other undertakings that are soon to be fulfilled. The quantity is so large that its value is not easily disturbed. Only when some great change happens, like the debasement of its quality, or the destruction of credit giving rise to a sudden enormous demand, is its value affected. It may be added that when prices thus suddenly recede from a collapse of credit they sometimes as suddenly revive, not by reason of any great enlargement of the monetary sup ply, but from the revival of credit, or from the expecta tion that enough money, even though there be no new in crease, can be obtained without difficulty to discharge in debtedness ; in other words, that the hoarders of money will cease to hoard, and again put it into circulation. Again, after such a panic or collapse prices sometimes re main stagnant, not because the holders of money still hoard it, or less is circulating than before the panic, but because the demand for nearly everything has lessened. The continued shrinkage of prices cannot be traced to a monetary origin, but can be clearly traced to diminished buying. And whenever their origin can be thus traced, the diagnosis reveals at once the kind of treatment that is required to restore them. A fresh demand must spring up, and this must have its origin, not in the use of such an artificial piece of mechanism as money, but in the wants of the people for the actual use of many things. This is the true cause of every revival in production and ex change.

28. It is true that some persons contend that gold is appreciating in value in consequence of the accumulations by the various nations to establish and maintain a gold standard of payment.' The decline in prices of late years has not been traced to this movement, though many have tried to connect the decline with this cause. As most, if not all persons would admit, the prices of commodities de pend primarily on the demand and supply. Though the standard of payment is gold, payments themselves are made chiefly by checks, which are settled through the Clearing House, and only a small balance is ever paid in money. Furthermore, as a medium of making payments the gold of the world includes all of its representa tives. These are just as effective in carrying on the busi ness of the world and making settlements as gold itself. Now the quantity of gold and its representatives, used for monetary purposes, is greater than ever. Since this is so, we cannot perceive how its value has been affected by the recent action of a few governments in withdrawing a small portion from active circulation. Look into the sub ject ever so closely and the fact will be seen that the quan tity of gold in a commercial sense, remains unchanged, or rather has been increased. The gold withdrawn from circulation has been more than supplied by other currency equally effective for making payments. This event, there fore, is without significance to business.

29. On the other hand, a large increase in the supply of gold will not have the slightest appreciable effect on prices. The golden reservoir is so immense that even the large additions from the Klondyke and South African mines will not, for many years, if ever, affect prices. They might ultimately, just as the vast metallic additions of the New World finally affected the prices of Europe. But the rise was slow and harmless. Money is an open sesame, and unlike other commodities, its magical power may not be a whit imapired by even a large increase in quantity.

3o. Is the existence of such a thing, measuring value and possessing a general purchasing power, a calamity? Should the purchasing power of money be lessened? Would the people be better off if 75 cents instead of 35 cents were required to buy a bushel of corn ? This cer tainly is the belief of many. In truth, would any one be the gainer were the value of money to decline? Of what consequence is the fact to the farmer that now he can get only 35 cents a bushel for his corn, instead of 75 cents, if with the smaller sum he can buy just as much as he could with the larger a few years ago? The debtor class only is seriously affected by any change in the value of money. To debtors it must be admitted that a decline in the value of money would lessen their burden.

31. It is true that, in many cases, their loss from the decline in the prices of their products is not as great as some imagine, because the cost of producing them is less ; they can raise two bushels of corn as cheaply as they could raise one bushel a few years ago. But this does not apply to all, and without delaying to consider this point further, we readily admit that the debtor class in general suffers by reason of the sustained purchasing power of money and its substitutes.

32. Ought, then, the general purchasing power of money to be impaired for the purpose of aiding debtors? This has been often said in times of depression, and an affirmative answer is the doctrine which many at such times have preached. Two answers may be given ; first, if this change were caused by increasing the quantity of money and its substitutes fairly and honestly, so that it would be less generally desired compared with things given in exchange, no serious objection could be made. Suppose, for example, that the production ofgold should greatly increase (and nothing is more certain) in the immediate future, and that the various methods of using credit should be perfected, so that it would play a still more important part in the world's commerce, no one, we think, could justly complain over the change ; but if the impairment in the purchasing power of money and its substitutes were effected by issuing paper money, and compelling the people to take it against their will, as they were compelled to take the legal-tender notes when first issued by the national government; or if the gold in our coins were deliberately debased, by using more alloy or lessening their weight, these methods of impairing the value of the currency would be indefensible. To do such things would be a violation of all principles of honesty and good governing.

33. But there is another and more practical way—by diminishing the production of other things given in ex change for money. Whenever excessive production has caused a marked departure from the former relation between money and the commodities given for it, this relation may be resumed by decreasing their quantity. A diagnosis of the recent depression clearly shows that this was the proper remedy. To even up the ex cess in corn, wheat, iron and other commodities by creating an excess of money is indeed a very ex traordinary remedy. Yet in the final analysis this is precisely the remedy which many desire to apply. This is to set at naught all experience whenever a surplus has been produced. Even were large additions, of unquestioned value, made to the money and credits of the country, the effect of such additions on prices might be very different from what many imagine. If these were to come first into the possession of the exchanging class, prices might not be advanced at all. This class generally is we'l supplied with money and credit and they could largely Extend their purchases if their decision simply turned on the answer to the questions of means to pay for them. But this is not the important question usually with the exchanging class. It is whether, if they do buy, they can sell at a profit, and the answer to this question turns on the desires and ability of consumers to buy. Now, how can consumers get more money except by exchang ing something they have, chiefly labor, for it? If the ex changing class, if investors who have large means, if the fortunate few who are conducting a profitable business to day decline to employ labor, though possessing ample means to pay for it, would even a large increase of their means quicken their disposition to spend more? In other words, has an increase of money and credit the same vivi fying power under all conditions? Experience says "No." 34. Two causes tend to diminish the value of gold, the rapidly increasing supply and the extension of credit.

On the other hand, trade is constantly increasing, which tends to preserve its value. Again, gold circulates in a representative form, the two, gold and its representative, circulating as though they were a single thing and consti tuting a single fund or medium, so that any addition of either does not directly affect the value of anything for which it is given in exchange, so long as no doubt exists concerning the redemption of the representative.

35. The way is now prepared for looking a little more closely into the various instruments or things taken in payment or discharge of indebtedness, and for consider ing which of them fall within our definition. There is no question concerning gold and silver, because they possess a value quite independent of their use as money. They are not redeemable in anything, but are absolute payment. What is meant by absolute payment? That a debtor who has discharged a debt by giving his creditor the required number of dollars has no further obligation to perform, either morally or legally. All kinds of coined metal are regarded as money because the law declares that they may be used as a final discharge of indebtedness.

36. It is true that the silver in circulation, intrinsically worth only one-half its legal value, cannot be regarded as money in the same sense as gold, which is not thus de based, and which is readily taken for all it purports to be worth in gold-using countries. If silver dollars could not be exchanged for gold dollars, creditors, unless required by law, would take them only for their real value, namely, about half they purport to be worth but as they can be ex changed or redeemed for gold dollars, they pass readily for the amount they represent. The truth of this asser tion will appear more clearly after we have described the nature of the different kinds of paper obligations in circu lation.

37. Are the notes issued by the government that are in general circulation money? There are three kinds of them, and their difference may be briefly explained.

38. First, the notes known as legal-tender notes or greenbacks, which were authorized in 1861. This is a mere promise or obligation issued by the government to give the holder just what it specifies. Such a note is not money in the sense that the dollars which can be received for it are money, for when a person has received them the transaction is ended. Their receiver ceases to have any relation whatever with their payer. But when he has re ceived legal-tender notes he still has a close relation to the government or maker of them until it has fulfilled it/ promise and given him the dollars it has promised to pay. Suppose that the value of gold should suddenly decline, the government v,orle be under no obligation to make the loss good to anyone ; nor would any person who had paid gold to another be under an obligation to do this ; and for the simplest of all reasons, that the gold is final payment; there is no promise of any kind attaching to it. The re ceiver gets exacth what was promised to him ; he is satis fied and can claim no more. But when a person receives a note in discharge of an obligation it is not final pavmen:. It may be indeed as between the receiver and the person from whom he takes it; but the receiver still has a claim against the issuer or maker, which is not made good until the note is paid.

39. Another kind of note (in active circulation) issued by the government is known as a silver certificate. They are what they purport to be, receipts for silver in the pos session of the treasurer, which can be redeemed at any time on presentation. They, therefore, are not money, but merely certificates.

4o. A third kind of money is known as treasury notes, or silver treasury notes. In 1890 Congress enacted a law providing for the purchase of 4,300,000 ounces of silver per month, at a price not exceeding $1.29 per ounce. To pay for these purchases silver treasury notes were author ized. They are redeemable at the option of the Secretary• of the Treasury in either gold or silver coin. In other words, the government bought silver from the miners and gave them its notes in payment.

41. A fourth kind of note in circulation is issued by the national banks. These are redeemable over the coun ter of the issuing bank. This obligation, therefore, is a note of the issuer, and is not money.

42. Finally, mention may be made of gold certificates, which circulate to some extent, especially among the banks. They are issued for gold, deposited with the as • sistant treasurer of the United States. Like the silver certificates, they are receipts for gold, which is left with the government, and must be given up when demanded to certificate holders.

43. All of these various kinds of notes and certificates are in circulation among the people, and serve in almost all respects the same functions as money. In other words, they are daily used in payment of obligations. And yet the clearest distinction exists between them and metallic money ; they are merely notes, and are not final payments until they have been redeemed. They are pay ments indeed as between their receivers and the persons from whom they were taken ; but they are not payments as between their holders and makers or issuers until pay ment has been made in whatever form has been promised.

44. We are not so much concerned with the question whether others shall regard all of these paper instruments the same as money, as we are that all shall understand clearly the difference between them and gold and silver— the different functions they perform ; the fact that they are notes, while gold and silver are not, because when they are received the receiver cannot expect anything more.

43. When the government was established in 1789, some notes of the Bank of North America were in circu lation. The metallic money was all foreign, and the piece of money better known than any other in circulation was the Spanish dollar, a silver coin which had been imported in large quantities from the West Indies in payment for merchandise. There were other coins, English and French ; but the Spanish dollar was the most familiar piece. At an early date all realized the necessity of hav ing some kind of money which could be used in making payments and which persons could be legally required to take. The foreign pieces varied greatly in value ; many of them were badly worn; and great difficulties were daily experienced in taking them.

46. Both gold and silver were then in circulation, and in establishing and determining what should be used as money several investigations were made by Hamilton, the Secretary of the Treasury, by Jefferson, the Secretary of State, and by others. One of the important questions was whether gold or silver or both metals should be used. Hamilton favored the use of both metals, without giving a preference to either. He reasoned that if a preference was given to either metal, the value of the other would be impaired or destroyed. It would become, he feared, mere merchandise. So, instead of establishing gold or silver as the sole kind of money, the government deter mined to coin pieces of both metals.

47. The eagle was to be the piece of greatest value, "ten dollars or units," and to contain 247 4-8 grains of pure or 270 grains of standard gold. In other words, the standard gold was not pure gold, but a metal containing nine parts gold and the other part an alloy. This is the meaning of the phrase "standard gold"—gold of a purity fixed or determined by law. "Dollars or units" were also to be coined, "of the value of a Spanish milled dollar" then current, and to contain 3714-16 grains of pure, or 416 grains of standard silver. Other pieces were to be coined of silver, the half and quarter dollars, dimes and half dimes containing the same proportions of silver. Cents were also to be coined of copper of the value of one one-hundredth part of a dollar, and also half cents.

48. Thus it will be seen that the two principal pieces authorized to be coined at the beginning of our govern ment were a gold eagle and a silver dollar. Each was to perform precisely the same office, to be a legal-tender in payment of all debts ; in other words, debts could be legal ly discharged by paying them. No creditor could refuse to receive them, and if he did, his debtor was under no ob ligation to give anything else to discharge his debt. Nei ther had any priority over the other.

49. As an ounce of gold was much more valuable than an ounce of silver, the question was very important, What should be the legal valuation between the two? It was determined to fix a relationhip of fifteen to one; or more fully expressed, fifteen ounces of standard silver was re garded as possessing the same legal value as one ounce of standard gold.

5o. At that time the legal valuation of the two metals or the legal relationship thus established between them corresponded with the relation or valuation that existed in the business world. In England, France and other countries a quantity of gold was worth fifteen times as much as the same quantity of silver. Indeed, for several years after establishing the mint, and thus regulating the coinage, the market value of gold and silver abroad and at home corresponded with the valuation given by law to the two metals, so that they both readily circulated with out any objection on the part of receivers. Neither had any priority or precedence over the other. Neither was worth more for exportation or for any other purpose. An eagle and ten dollars were convertible terms. Either was given at the banks at the option of the holder.

51. But within thirty years the fact clearly appeared that a change had taken place in the relative valuation of gold and silver. An ounce of gold was worth more than fifteen ounces of silver. When remittances of coin therefore, were made from the United States to England, gold was preferred to silver, for the reason that a gold eagle, which could be obtained here for ten silver dollars, could be converted in London into more pounds, shillings and pence than ten silver dollars.

52. The first remedy proposed was to prohibit by leg islation the exportation of coins. This plan did not work. The fact became well known, and other remedies were proposed. Reports were made by committees of Con gress ; at length, in 1834, Congress acted. The eagle was reduced to 232 grains of pure gold, and 25.8 grains of standard gold, and the smaller coins in proportion. The act further provided that these coins should be taken in all payments when of full weight, determined by their re spective values, and when they were not of full weight there should be a corresponding diminution of their legal values.

53. Thus it will be seen that the quantity of pure gold was reduced from 247 4-8 grains to 232 grains, and the quantity of standard gold from 270 to 258 grains.

54. As the quantity of silver in the silver dollar was not diminished, the effect of diminishing the quantity of gold in the gold pieces was to make sixteen ounces of sil ver equivalent to one ounce of pure gold. But in apply ing this remedy Congress made another mistake ; it un dervalued silver, for sixteen ounces was really worth more than an ounce of gold. Consequently, silver disappeared from circulation. Later, the golden riches of California and Australia were discovered, and the effect of these dis coveries was to diminish the value of gold, and silver shrunk still further out of sight. So completely did the silver coins, especially the smaller ones, disappear from the channels of circulation, that in 1853 there was a new adjustment of the coinage, and the weight of all silver coins of less denomination than the dollar was reduced enough to secure their presence in circulation ; but their legal-tender function was limited to $5.

55. In order to procure bullion for coining these pieces, the treasurer of the mint, with the approval of the director, was authorized to buy bullion. He was required to charge himself with the gains arising from the coinage of the bullion into coins of a nominal value exceeding their intrinsic value, and was to be credited with the dif ference between their intrinsic value and the price paid for the bullion.

56. In 1861 all specie payments were suspended, and not much was heard about gold or silver except some small coins until 1870, when a bill was adopted for revis ing the coinage laws. No revision had been made since 1837, and the Secretary of the Treasury requested the Deputy Controller of the Currency to revise them. In the spring of 1870 he completed the task, and the re port was sent to the House. Among other amendments proposed was the discontinuing of the coinage of the sil ver dollar. The reason given for the amendment was that the legal ratio of sixteen to one, existing between the two metals, made the silver dollar worth a premium of about 31 per cent., consequently it was no longer employed in making payments.

57. The bill was first reported by the Finance Com mittee of the Senate, discussed twice and passed, and then sent to the House. Mr. Kelley, of Pennsylvania, who was chairman of the Coinage Committee, recommended the passage of the bill. He said that it had received as care ful attention as he had ever known a committee to be stow on any measure. "We proceeded, with great delib eration, to go over the bill, not only section by section, but line by line, and word by word." An exhaustive discus sion followed, and Mr. Hooper, of Boston, delivered an elaborate speech, in which he thoroughly explained each section. Reaching that relating to the silver dollar, he said : "This dollar, by reason of its intrinsic value being greater than its nominal value, long since ceased to be a coin of circulation, and is melted by manufacturers of sil verware. It does not circulate in commercial transactions with any country, and the convenience of these manufac tureres, in this respect, can better be met by supplying small stamped bars of the same standard, avoiding the useless expense of coining the dollar for that purpose." Mr. Kelley also added : "It is impossible to retain the double standard. The values of gold and silver continually fluctuate. * * * * Hence all experience has shown that you must have one standard coin which shall be a full legal tender, and then you may promote your domestic conveniences by having a subsidiary coinage of silver which shall circulate in all parts of your country as a legal tender for a limited amount." The bill passed the House by a vote of 110 to 13, and, after further discussion and amendments by the Senate was referred to a cimmittee of conference, whose report was adopted. Thus the meas ure received much more careful attention than most meas ures. Congress did not act blindly in discontinuing the coinage of the silver dollar. Congress merely put in legal form the previous action of the people.' 58 This revision of the coinage laws, whereby, among other changes, "the dollar of the fathers" was banished from the list of coins, excited at that time no attention among the people. After a short period, however, won derful changes occurred in the fortunes of silver. In 1870 Germany was the victor in the Franco-Prussian war, and compelled the conquered to pay a gigantic war indemnity of $1,000,000,000 and used the opportunity to substitute gold for silver as money for Germany. Between 1871 and 1874 nearly every country in Europe closed its mint to the coinage of silver. The demand for silver in the countries of the East, India and China, which for centures, almost, had been constant, greatly slackened. The production of silver between 1868 and 1878 not only doubled, but trebled and quadrupled. All of these cir cumstances contributed to lessen the value of silver. A new effort was now put forth, especially by the silver producers, to restore through public action the value of silver. To this end it was demanded that silver dollars should be recoined and put into circulation.

59. Congress, acting on this demand, in 1878 passed another bill, authorizing the coinage of the silver dollar, and requiring the Secretary of the Treasury to purchase not less than $2,000,000 nor more than $4,000,000 worth of silver monthly, and coin it into standard dollars. He was also authorized to issue certificates for the payment of it, which were to be receivable for customs, taxes and all public dues, and when thus received might be reissued. By this act 291,272,018 fine ounces of silver were pur chased, costing $308,279,260.71.

6o. This legislation, proving ineffective to sustain the price of silver, another act, increasing the amount of sil ver purchases, was passed in 189o. This is known as the Sherman act, and provided for the purchase of 4,500,000 ounces of silver monthly as might be offered for sale at prices below $1.29 per ounce, and the issue of Treasury notes in payment. It was clearly seen by the most intelli gent silver mine owner that this act would have precisely the opposite effect from that anticipated by many who urged its passage ; that, instead of enhancing the price of silver, it would, by stimulating production, more than neutralize the effect of the increased purchases by the government. And this was the effect of the law. The value of silver continued to descend.

61. As the government has the option of paying silver certificates as well as Treasury notes in gold or saver, it could fulfill its legal contract by paying silver on presenta tion, but it was clearly seen that by adopting this course their actual or market value would decline immediately, and correspond with the market value of the metal given in payment. In other words, if they were to be regarded as mere receipts for silver, and only silver could be ob tained for them, they would be worth no more than the silver represented ; furthermore, if it could be exchanged for gold only at its actual market or real value, then the certificates representing it would have a corresponding valuation. To preserve or maintain their value, the gov ernment adopted and has continued the policy of redeem ing silver certificates in gold.

62. Silver certificates, therefore, or the silver they rep resent, may be regarded as a mixed form of currency, consisting partly of faith and partly of intrinsic value.

At the present time silver dollars contain in intrinsic value about so cents, yet they circulate readily at their nominal value, for the reason that the government receives them at their face value from its debtors. Consequently, the silver notes have readily circulated, and so have the silver pieces, without depreciation. Instead of regarding them as final payment, they may be ranked with the legal ten der and other notes which readily circulate, because the government is willing to redeem them in accordance with its promise.' 63. The amount of gold, however, which the govern ment had in its possession for redeeming them was com paratively limited, and in 1894 fell below $ioo,000,000. The silver notes increased, and with the legal tender notes amounted to nearly $1,000,000,000. It was feared that the government, whatever might be its good intention, would not be able to continue its policy of redeeming all of them in gold. This fear grew until in 1893, when the law au thorizing the purchase of more silver and issuing Treas ury notes, was repealed.° The government had bought by authority of that law 168,674,682 fine ounces of silver at the cost of $155,931,0°2.25.

64. Especially those interested in mining silver, and all who believe in a cheaper currency, the poorer the bet ter, were opposed to the repeal of this law ; and the con flict between the two classes is not shdwing any signs of cessation.

65. Since 1873, when the government began to pur chase silver in considerable amounts and coin it into money, there has been a gain to the government arising from the difference between the price paid for the silver and its legal or coined value. For example, the govern ment bought silver in 1873 at $1.321 per ounce fine, but when this was coined into money it represented $1.381, a gain of $o.o6 per ounce. The seigniorage thus accruing to the government from coining silver to March 1, 1897, is $82,978,978.97.' 66. The entire quantity of silver purchased by the gov ernment since 1878 is 496.984,889 ounces fine, which was worth on the first of March, 1897, at 631 cents per fine ounce, $315,585,405. Its actual cost was $508,933,975. On these purchases the government has lost $193,348,570.

67. When the government first began to coin gold and silver it charged nothing to the persons who brought either metal to the mint to be coined. The government was anxious to create a new coinage of its own, and to stimulate its growth, made this offer to the owners of gold and silver. The bill of this service is known as seignior age, and is sometimes charged by governments.

68. Whether the government ought to charge any thing for coining the precious metals into money is a question not easily answered. Some claim that as an ad ditional value is given to the metals in a coined form, their owners ought to be willing to pay for their conver sion into money. On the other hand, it is contended that gold and silver coined is worth no more than it was before, and, as the government has added no value, it should exact nothing for performing the service.

69. Leaving silver out of present consideration in con sequence of its fluctuations of late years, let us look at the coinage of an eagle. If the quantity of gold contained therein would bring just as much in an uncoined form, surely the government adds no wealth to its owner by coining his metal. As no charge is now made for coining gold, if an eagle should fall into the fire and be melted a person could take the lump of gold to the mint and ex change it for another eagle, and consequently not a penny would be lost by the accident. Suppose the govern ment did charge a sum for coinage, would that lump of gold have just the same value as an eagle? We should say in reply that if other mints were open to the coinage of gold it would have just the same value, less the ex pense of transferring it to the coinage place. If all the mints were closed to free coinage, however, what then? We should probably say that there would be a slight dif ference, but perhaps too small to make any calculation. In other words, by putting gold into a coined form it is more easily circulated.

70. It is more readily taken than gold in an uncoined form, because the people know its weight and fineness, nothing more. If a person believed that a lump of gold was an eagle that had fallen into the fire and been melted, and that any other person almost would think so, too, he would be willing to take it just as readily as he would an eagle ; but ordinarily people would not be so certain, pos sibly a small portion might be lost in the fire ; conse quently it would not circulate as readily as a coined piece of the same weight. The coining of the precious metals, therefore, adds to their circulatory power, and thereby adds something to their value. If this something is enough to have an appreciable value, then it is just for the government to take that addition in exchange for the service it performs in transforming bullion into coined forms.

71. At different times in the history of the govern ment a charge has been made for refining gold and silver into bars, and also a charge for converting them into coins. The government, as we have seen, has been pur chasing silver since 1853 for the minor coins, while no one carried the silver to the mint to be coined into dollars be cause its legal value after coinage was worth less than the price it commanded in the market. At one time the gov ernment charged one-fifth of 1 per cent. for coining gold, but since 1874 there has been no charge for this service.

72. A summary will now be given of the different kinds of money and substitutes therefor, and their legal tender value. There are four gold coins, the double eagle, the eagle, the half eagle and quarter eagle. The double eagle is the largest, of the value of $20, and was author ized to be coined in 1849. The eagle is the oldest of all the gold pieces, and was authorized in 1792. All of the gold coins are a full legal tender, that is, they can be ten dered in discharge of debts whether public or private, and to any amount.

73. The silver coins are the dollar, which was author ized in 1792, but discontinued by the act of February 12, 1873, reauthorized five years later, and finally discon tinued by the act of 189o. By that act, however, it was provided that after the first day of July, 1891, as much silver bullion should be coined as was necessary for the redemption of the Treasury notes that had been issued for its payment, and the gain or seigniorage arising there on was to be paid into the Treasury. The other silver pieces still coined are the half dollar, quarter dollar and dime. The silver dollar is a full legal tender in payment of debts, but the other silver pieces are a legal tender only to the amount of $1o. The minor coins consist of the nickel five-cent piece and the bronze cent. The five-cent piece was authorized by the act of May, 1896, and is a legal tender to the amount of 25 cents. The bronze cent was authorized two years later, and is a legal tender for the same amount.

74. The legal tender properties of the various notes issued by the government and the National banks may also be explained. The greenback or legal tender note was first authorized in 1861, and is a legal tender for all debts, public and private, except duties on imports. The gold certificates issued by the government as already ex plained, are truly indicated by their name.

75. The silver certificates authorized by the law of 1878, when the coinage of the standard silver dollar was resumed, are a legal tender for customs, taxes, and all public dues, and when so received may be reissued. They are not a legal tender between individuals, but only be tween individuals and the government.

76. The treasury notes issued by authority of the Sherman act of 1890 are a legal tender in payment of all debts, public and private, except when otherwise express ly stated in the contract, and shall be received for cus toms, taxes and all public dues, and when so received may be reissued ; and such notes, when held by any national banking association, may be counted as a part of its lawful reserve.

77. "Every national banking association shall take and receive at par for any debt or liability to it any and all of the notes and bills issued by any lawful organized bank ing association." They are therefore a legal-tender be tween the banks, but cannot be forced on individuals by any national banking association. On the other hand, every national bank must take from an individual any na tional bank-note tendered to it in pyment of a debt.

78. The government has issued at various times $450, 000,000 legal-tender notes. It was the expectation, as soon as the war closed, that some steps would be taken for reducing this quantity, and of resuming payments in specie, which had been suspended since the beginning of 1862. Congress finally authorized the Secretary of the Treasury to refund the various notes of the government as they should be presented by their holders in interest bearing bonds. Not more than ten millions were to be re funded within the first six months after the enactment of the law, and thereafter at no greater rate than four mil lions a month. Mr. McCulloch, who was then Secretary of the Treasury, was desirous of having authority to re fund them when presented, without any restriction on the amount, but Congress was unwilling to invest him with so much authority. The work of refunding them was begun ; after a short time the business of the country be came depressed, the people ascribed the change to the con traction of the currency, and the Secretary ceased to con tinue the policy. The amount withdrawn by the 31st of December, 1868, was $142,439,958. The amount of legal-tender notes still outstanding was $356,000,000. At a later period the amount was increased $26,000,000, though many claimed that the addition was contrary to law.

79. Finally, in 1875 a measure was adopted for resum ing specie payments on January I, 1879, providing, among other things, for the retirement of some of the legal-tender notes. Whenever $10o of national bank notes were issued, $8o of legal-tender notes were to be withdrawn until the amount was reduced to $300,000,000. This feature of the measure, however, did not remain long in operation ; for when the amount had been contracted from $382,000,000 to $346,681,o16, Congress forbade the Secretary of the Treasury from going further, and de clared that thereafter the amount then outstanding should be kept in circulation. And so they continued to circulate, a debt against the government, payable on demand, which must be immediately renewed by delivering them to other creditors until 19oo, when Congress provided for their permanent redemption and retirement on presentation by the holders.

'See Ann. Rep. Controller of the Currency, 1896, p. 92, on the increase of the use of credit instruments; also Ann. Rep. 1894, p. 17. Much information is continued in the earlier reports.

'The Future of Gold, R. E. Preston, 160 N. Am. 195.

'Documentary History of the Coinage Act of February 12, 1873. Senate Misc., Doc. 41, Cong. 2 Sess. No. 132. Reprinted in 1896.

'The cost of circulating paper.

Contract price of distinctive paper per 1,000 sheets $5.22 Expenses at the mill .729 Express charges .259 Expenses of handling at the Treasury Department 1.11 Total cost per 1,000 sheets 7.318 Cost of engraving and printing per 1,000 sheets of perfect work delivered to Treasurer of the United States.. 40Life of certificates on average, 3 years; cost per year $100, 18 cents.

Life of $1 certificates, 2 years; cost per year per $100, 60 cents.

Cost of coining silver dollars, 1 to per cent.

Cost of coining subsidary coins, about the same.

Average life of coinage, about 15 years.

Average loss on recoinage, 6 per cent.

Total cost, per cent., or $7.25 per $100 for 16 years.

Cost of maintenance per year, 48 cents per $100.

About 1/2 of 1 per cent. This table is taken from 34 Cong.

Record, 2773.

'Aug. 28.

'Amount, cost, average price and bullion value of the silver dollar purchased under the acts of Feb. 12, 1873; Jan. 14, 1876; Feb. 28, 1878, and July 14, 1890.

Av'ge cost Bullion price per value ofFine fine a silver Acts. ounces. ounce. dollar.

Feb. 12, 1873 5,434,282.00 $7,152,564.00 $1.3169 $1.0180 Jan. 14, 1875 31,603,906.00 37,571,148.00 1.1888 .9194 Feb. 28, 1878 291,272,018.66 308,279,260.71 1.0583 .8185 July 14, 1890 168,674,682.53 155,931,002.25 .9244 .7150 Totals 496,984,889.09 508,933,974.96 $1.0240 .7920 'See Mint. Rep., 1896, p. 26.

silver, gold, value, notes and amount