Page:Encyclopædia Britannica, Ninth Edition, v. 16.djvu/759

owing to the habits of the people not having been attended to. Some writers have, however, misconceived the principles of currency and extended this influence to cases where it does not apply. Thus it has been sought to explain the adoption of gold as the principal English coinage after 1696 by assuming that the English deliberately preferred that metal.^[1] The fact of different nations possessing different currencies, as the prevalence of gold in England and of silver in France during the 18th century, is to be otherwise accounted for. The great mass of a population, it is true, take and give money without particularly observing it. It is enough if the coin conforms to the usual type. There exists, however, in all mercantile communities a class of dealers in money^[2] who make a profit by selecting the best coins for exportation, or, if two metals are in concurrent use, the coins of that metal which is undervalued in the proportion fixed. The mode in which self-interest thus operates produces an effect which may be briefly formulated by saying that bad money drives out good money. It is often now called “Gresham's law,” from a former master of the English mint,^[3] who observed it. The illustrations of its working are numerous. Under its action the gold which was overvalued relatively to silver in England in 1696 became the main English coinage, as above stated. And in order to meet the want of silver coins, Sir I. Newton advocated, and secured, the reduction of the guinea from 21s. 6d. to 21s. The exportation of metallic money when an over-issue of inconvertible paper takes place is another case of the theorem. By means of this principle we can easily explain the tendency of currency to depreciation, for when once, either by wear or by the issue of inferior coins, a currency has become debased, no reformation is possible unless the debased coins are removed from circulation, as otherwise they will be preferred for payments by dealers, and will not be melted down or exported. All demands for foreign trade will be met from the best part of the coinage. An argument in favour of state coinage has been founded on Gresham's law. It is argued that private coinage would lead to the issue of depreciated money.^[4] It is, however, overlooked in this argument that the action of the law arises from the fact that the depreciated currency is legal tender; were it not so, coins less than the proper weight would be at once rejected. It may be added that

Greek monetary history bears out this view.^[5]

Having disposed of these elementary questions, the general groups into which all currency systems fall may now be stated. The simplest form of currency seems to be that in which the state coins ingots of different metals, and allows them to circulate freely, without any ratio being fixed. This, which is the lowest form of currency proper,^[6] has arisen in many countries through the introduction of coins of various other nations. Turkey is a European example. Many of the South American republics possess a currency of this description. A theoretical form of this system has been advocated in France. It is proposed to issue coins of one, two, five, and ten grammes of gold, and to allow the present silver coins which are multiples of the gramme to circulate along with them. The difficulties of this plan are so obvious that there is no likelihood of its being adopted. The arguments in its favour are of little force, since it is hardly correct to contend that it is a natural system, when it has never been willingly adopted by any country. The next system to be noticed is that of a single metal being fixed as legal tender. This in early times is the really natural arrangement, and has been widely adopted. It is needless to recapitulate the instances which have already been given in dealing with other matters. There is, however, a difficulty which soon arises under this system. If the metal chosen is not very valuable, it is too cumbrous for large payments; if, on the other hand, it possesses a high value, it is hard to coin pieces suitable for small transactions. Thus, even silver would be too bulky for such payments as frequently occur. £100 in silver at its present value would weigh nearly 40 ℔, while it would be impossible to coin gold pieces of the value of a penny or even a shilling. This system thus naturally leads to the use of other metals besides the standard one, and when the state fixes the ratio between these metals a new system has come into existence, which has been called the multiple tender system. In it the ratios between the metals are fixed, either once for all, or until changed by state authority. This system was in force in England from 1257 (or rather 1344) to 1664, the ratio between gold and silver being fixed from time to time by proclamation. France, too, adopted it during the Revolution, the ratio of 15$\scriptstyle {\frac {1}{2}}$ to 1 being that fixed between gold and silver. The fluctuation of currencies arranged on this method, owing to the action of Gresham's law, has led in England and Germany to a modified system, which seeks to combine any advantages of the multiple standard with the principle of the single standard. By this method one metal is fixed as the principal legal tender, while the smaller coins are made of a less valuable material, and circulated at a nominal value somewhat above their real one, or, in other words, as token coins, but they are only legal tender to a limited amount. This has been called the composite legal tender system.^[7]

For further details reference may be made to Tables II. and III., and the notes appended. Every currency system requires the existence of subsidiary coins, and, as stated before, this want is met by using a less valuable metal, generally silver, and for smaller payments copper or bronze. But, apart from the question of the material of the smaller coins, it is important to determine the best ratio between them. The simplest of all would be the binary. In it each coin would be the half of the next highest one, and double the one immediately below it. Nothing, apparently, is plainer or simpler than this scale, but the objection to it is the great number of coins that would be required, as well as the want of conformity with the general arithmetical scale. In a modified form it does prevail in many countries. Thus in England we have the penny, half-penny, and farthing. At a higher stage we have the florin, shilling, sixpenny piece, and threepenny piece, and, again, the sovereign, half-sovereign, five-shilling piece,^[8] and half-crown. The coinages of the Latin and Scandinavian Unions, as also those of Germany and the United States, have several binary series in their coins.^[9] There is, however, no completely binary system known. The old English scale was partly duodecimal, and the arguments in favour of this arrangement are by no means weak. At present the shilling is duodecimally divided. It is urged in favour of this scale that the main divisions of time (year and month, day and hour, are duodecimally related, and that time is one of the elements in all questions of value.^[10] Another argument is that 12 is capable of being resolved into several factors (2 and 6, 3 and 4), and therefore

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1. R. Giffen, Essays in Finance, p. 303.
2. The Jewish and Lombard merchants discharged this function in the mediæval period; Hallam, Middle Ages, iii. p. 369, note t.
3. Aristophanes (Ran. 719–733) appears to recognize this principle. Grote (vol. iii. 116 note) has misunderstood him, and seems to deny the principle stated.
4. Jevons, Money, p. 82.
5. See p. 726, above.
6. In his discussion of this subject Prof. Jevons, on whose excellent work much of this section is based, mentions currency by weight as the simplest form, but it is hardly correct to regard this as a currency system; it is rather a primitive stage, closely akin to barter.
7. This system came into existence in England accidentally, through silver being overvalued by the mint regulations, but its theoretical basis was given by the often-quoted work of Lord Liverpool, Coins of the Realm (1805), which contains even now the best explanation of its principles.
8. This piece is now almost extinct.
9. For instance, the 20-franc, 10-franc, and 5-franc pieces, and, again, 2-franc, 1-franc, and 50-centime pieces in France, &c.; 20-kroner and 10-kroner pieces, and 4-kroner, 2-kroner, 1-krone, 50-öre, and 25-öre pieces in Denmark, &c.; 20-, 10-, and 5-mark pieces, and 2-mark, 1-mark, and 50-pfennige pieces in Germany; while the United States have eagle, half-eagle, and quarter-eagle, and also dollar, half-dollar, and quarter-dollar.
10. See S. Laing, Notes of a Traveller, pp. 57–59.