The Institute of Bankers.

APRIL, 1895.

C. T. MURDOCH, Esq., in the Chair.

THE MERITS OF MONOMETALLISM.

By THOS. B. MOXON, Esq., Fellow of the Institute.

[Read before the Institute on Wednesday, March 6th, 1895, at 6 p.m.]

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HE position of the monometallist is easily stated. claims that as the measures of length, weight and quantity are clearly defined by reference to fixed standards, so the measure of value, money, should also be clearly defined by reference to a fixed standard. The theory does not require that this standard should be gold, or silver, or any other metal. Its requirements were fully satisfied when oxen were the standard of value among the patriarchs, when brick tea was the standard in Tartary, or hand-made nails in the Scotch village mentioned by Adam Smith. All it requires is that in a bargain there shall be no misunderstanding as to what is to be given and what received. If a purchaser buys a yard of flannel he expects to receive flannel, and so if he promise to pay a sovereign the person to whom the promise is made expects to receive a sovereign. There is no law which compels any one to sell his commodities for gold, he may if he likes sell them for silver, for corn, or for whatever else he chooses, all that the law requires is, as stated in the Coinage Act (33 Vict., c. 10), that 66 every contract transaction or matter relating to money "shall be made or done according to the coins which are current and "legal tender in pursuance of this Act unless the same "be made, executed, entered into, done or had according to the currency of some British possession or some foreign state." The law further provides that the English sovereign, the standard of value, shall consist of 123-27447 grains of English standard gold (fine).

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This is all the law does for money. It defines the weight of gold to be put into a sovercign and the fineness of it--but as it would be impossible for each man to be an efficient assayer and accurate weigher of the metal, the Mint is provided. This is open to everyone. Any person having as much gold as would make 20,000 sovereigns may take it to the Mint and, after the time necessary

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for the conversion of it into coins, will receive back the full weight of the gold in gold coins of the realm, without any charge beyond the charges for assaying the metal to test its purity, &c.

To talk then of the price of a sovereign is a mistake. In an ounce of gold there are 3.89375 sovereigns, which for convenience sake we state as £3 178. 104d. but that has nothing to do with the price of a sovereign, it only relates to its weight.

Thus it has always been. In the oldest record we have, the book of Job, we read "neither shall silver be weighed for the price of it," and again it is recorded of Abraham, "and Abraham weighed to "Ephron the silver four hundred shekels of silver,

66 current with the merchant.'

Monometallists, in theory at any rate, have no objection to the existence of several independent standards. They only insist that each standard must stand alone on its own merits, and that it is as unjust to pay a man in silver when he has contracted for gold, as it would be to deliver a bushel of peas in place of a bushel of wheat. Here they are met by the bimetallic heresy which asserts that gold and silver stand out prominently from the earliest times as the metals selected for money, that they have circulated concurrently, and that they have been and can be linked together by the operation of law so as to form one united currency. It is true that the two metals have been used at the same time as money, but it is not true that they have always been linked together by a fixed ratio, and it is quite untrue to say they have when thus linked together, circulated together in one united currency. France is usually presented as an example of what bimetallism can do, we may therefore profitably consider the Report of the French Monetary Commission of 1867-(Shaw's History of the Currency, p. 188) "It is well known by all that this "ratio (of 1803) by the simple reason of its being fixed could not "remain correct. There was quickly a premium on gold, and silver "remained almost alone in circulation until near 1850. The dis"covery of the mines of California and Australia suddenly changed "this situation. By the side of this force there was another which "occasioned a rise in silver the needs of the extreme

"East had grown in unusual proportions, and as silver is alone in "favour there, it was exported in enormous masses. There was a 'premium on silver to the extent of 8 per mille, and it disappeared "almost completely from circulation, yielding place to gold.

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"The exportation of silver continued and if the disappearance of "5-franc pieces was not remarked, because they were replaced by "gold, it was not the same with the scarcity of pieces of a smaller "value employed in petty payments."

This precisely proves the monometallic assertion that bimetallism does not increase the metallic circulation of a country, but that, wherever and whenever it has been attempted, the overvalued metal has become the actual standard of value, whilst the undervalued

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metal has disappeared from circulation, so that the only effect of a bimetallic ratio is to make the country which adopts it, the dumping ground for the cheaper metal, which, when it becomes valuable, is again replaced by the new cheap metal-always at the cost of the country which offers such facilities. Mr. Shaw goes on to quote the words of the same French Commission on the intentional aspect of the Latin Union, which then had not been formed two years. "This "convention (the Latin Union) places in the front rank gold money "and reduces the pieces of silver of two francs and less to the rôle of "token money. It therefore definitely determines (consacre) the ascendency of the gold francs and solves the practical difficulties "arising from the double standard." Without quoting further from this monumental work,* a careful study of the hard facts presented by the writer, compels one to acknowledge the truth of his summary in the Preface. "The modern theory of bimetallism is almost the "only instance in history of a theory growing not out of practice but "of the failure of practice; resting not on data verified, but on data "falsified and censure-marked. No words can be too strong of condemnation for the theorising of the bimetallist who, by sheer imaginings tries to justify theoretically what has failed in five centuries of history, and to expound theoretically what has proved "itself incapable of solution save by cutting and casting away."

6.

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Our subject being money we may profitably spend a few minutes in tracing its origin.

In the earliest ages wealth consisted of cattle, and the very words we still employ are survivals of this condition. Our farmers speak of head of cattle, our merchants of "capital," our lawyers of chattels and our professional men of "fees," a derivative from the AngloSaxon "feoh," which survives in the German "vieh," still the term for cattle. Whilst pure barter was the only method of exchange, undoubtedly animals were the standard of value. Indeed, in the patriarchal days when communities were self-contained, and all, or nearly all, the needs of the family were supplied by its own members, there was little need for what we call money. Of course, difficulties would arise when the payment, whether for goods or labour, did not amount to the value of an animal, but probably a system of tallys was early devised similar to the tallys of our Exchequer which were in use so long.

As the patriarchs, however, increased in wealth and became less isolated the liking for gold and silver, which appears to be so firmly implanted in mankind, found opportunity for development, and they exchanged a portion of their cattle for the precious metals, probably from love of show, for in that oldest record, the book of Job, we read that, “every man gave him an earring of gold." The point to be

*The History of the Currency, 1252 to 1894, by W. A. Shaw, M.A., late Berkeley Fellow of the Owen's College. Wilson & Milne, London.

noticed here is that they gave up their reproductive wealth for something that was unproductive, and at that early time useless except for

ornament.

These people must have possessed a considerable amount of wealth, as estimated in their day, before they could have indulged in this luxury—for even now we find in new settlements a dearth of money, all available capital being invested in reproductive articles. In fact, whilst we must carefully guard against the old "mercantile theory, that no trade is profitable that does not result in an increase of the coin in a country; we may lay it down as an axiom that any people who can afford year after year to purchase the precious metals are in a prosperous condition.

We have seen that in the earliest times, the precious metals were purchased in exchange for reproductive wealth. The next step towards money would be the payment of agreed weights of these metals in exchange for commodities or services. You will notice that this introduces a new factor in trade. The farmer who sold his labour or produce for oxen, thereby secured an instrument which he could at once employ in the creation of further wealth, but when he was paid in metal he obtained that which indeed was a store of value, but was useless to him until he could convert it into something needful for his sustenance or for the development of his business. That is to say money is useful only as a means for the purchase of other articles. This is a point we must keep clearly before us. In striving so persistently and constantly to "make money," we are apt to forget that our object is not the massing of money, but money's worth. No merchant is satisfied to have his money locked up uuremuneratively, and it is not to the advantage of any nation to hold a greater store of metal than is necessary to settle its engagements to the outside world, and keep the exchanges at par.

It is only in countries where centuries of oppression, misrule, extortion and plunder have created an inherent dread of robbery that money is hoarded and secreted. In fully civilised countries the tendency is to use less and less coin in internal transactions, and to-day in England and America not more than 5 per cent. of the transactions passing through the banks are in coin, whilst all the wholesale transactions are effected without the use of any coin at all. Some countries, whose progress cannot be denied, have adopted a currency almost dispensing with the use of coin, except as fractional currency. Take, for example, Scotland with its one-pound notes, or Norway and Sweden with notes for as little as five kroner (= 58. 6d.). These countries have solved the problem of working their trade with a minimum waste of capital, and could one rely on the integrity and intelligence of rulers, imperial or democratic, they might be held up as examples to be followed. Unfortunately, history, even down to the present time, is too full of warnings to permit us to do more than instance them as what can be done in the way of economising floating capital.

Perhaps the most interesting example of what can be done without coin is the well-known case of the building of the Market Hall at Guernsey. Notes were issued to the extent of £3,000-with these notes the builders and labourers were paid, the notes were legal tender in the island, and were redeemed out of the surplus revenue derived from the buildings. Not one coin was used, yet labourers were employed, materials purchased, and a handsome and useful building erected.

We have spoken of wholesale transactions being settled without the use of coin. It is hardly necessary to remind you that by the aid of the Clearing Houses which have been established, not only in London and several other cities in the United Kingdom, but in almost all the large towns in the United States of America, these transactions every year are more and more settled by simple book entries, bank notes not even being used to settle the final balances. Yet all these transactions are estimated in money-what then is money? In our opinion half of the difficulties which have presented themselves to the students of currency questions have arisen through the contracted signification they have attached to the term "money."

We submit the following definition as one which is scientifically correct, and accords with everyday experience: "Money is that "commodity which is selected by a community or by communities as 66 a common measure of value, or whatever entitled the holder to that "commodity on demand." Being a common measure of value it naturally becomes the medium of exchange.

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The merit of this definition consists in its agreement with actual facts; bank notes and cheques are everywhere treated as coin and fulfil exactly the same purpose. Unfortunately our economic studies have remained too long under the influence of writers to whom cheques were unknown, and in whose experience bank notes were so unreliable that naturally they had a feeling of hesitation in classifying them with good solid tangible money.

In principle, however, the possibility that a note may be bad no more affects its right to be classed as money than the equal possibility that a coin itself may be a counterfeit.

To-day the man who has a bank note, or a cheque, or a credit at his bankers entitling him to draw a cheque, goes to market with as much confidence as though he were weighted down with the finest coins of the realm; and not only are all wholesale transactions in trade, in fully civilised countries, carried through without the use of a single coin, but year by year the use of cheques for the payment of retail transactions increases, and now cheques are freely used for amounts so small that a banker of the good old times would consider them quite intolerable.

For internal trade no coins are required except for "small change," and, in the abstract, the most perfect currency, because the most economical, would be one in which all the currency, down to the