In France, because of a still greater supply of money, $1 will buy 10 pounds of the same commodity; price of one pound = $.10.

Should such a state of affairs exist, at once the English buyers will buy in the United States rather than in England, because they can get more for their money, and the French buyers will buy in England and in the United States rather than in France, for the same reason.

On the other hand, the United States sellers will sell in England and better still in France rather than in the United States, because their goods will bring higher prices in those countries. At home, the United States seller will have to give 20 pounds for $1; in England he need give but 15 for the same $1; in France, he need give but 10 pounds for the same $1. Trade will tend to bring about in these countries a level of money supply and of prices.

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To quote from Walker (Money, Trade, and Industry, p. 43): 'Just as the bubble in the spirit-level runs out of sight so soon as the surface on which it is placed departs in the smallest degree from the horizontal, even before the practiced eye of the mason or carpenter could detect the inclination, so gold and silver commence to flow from a country where they have less purchasing power than in surrounding regions, before the most accomplished statistician or banker would be able to say that such a condition of prices had been reached."

A qualification of this movement will result from the cost of transportation.

II. GRESHAM'S LAW

Statement of Gresham's Law. We now come to the discussion of a very important subject in connection with money. It is a law known by the name of Gresham's law.

Where a metal coin is the standard of a country, it will after a time come to pass that certain portions of the issue will become abraded and worn and consequently of less weight. This will not be noticed much by ordinary traders, and the coins whether heavy or light will continue to pass current. But there are

certain classes of people who take note of this loss of weight and consequent loss of value of coins, and because of these people, after a certain time, the following fact will be observed: the new, bright, unworn pieces of coin will disappear from circulation, and the worn, chipped, light pieces will remain.

Again, if the government should establish two metals as legal tender, gold and silver, and if the metallic value of one coin should be less than the metallic value of the other, the same phenomenon will be observed, viz., the more valuable coin will disappear from circulation and the less valuable coin will remain. Again, if the government issues paper as legal tender, irredeemable notes, greenbacks, as was done in 1862 in the United States, it will be found that after a time the gold and silver will disappear and the paper money alone will remain in circulation.

This fact was noticed as far back as the time of Elizabeth, by Sir Thomas Gresham, and by him was formulated into the saying: "Bad money drives out good money, but good money cannot drive out bad money." The principle here expressed has become known as Gresham's law.

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How Money Disappears. It be asked: How does the good money disappear? Where does it go to? There are three modes of disappearance, - hoarding, foreign payments, and sale by weight.

(1) Hoarding. When people wish to provide against the future, they store away those things which have the greatest value. Of two gold pieces, they will select the heavier, the newer, the more perfect, for hoarding, while they will use the more worn, the lighter, for current expenses. Of gold and silver coins, they will hoard that which has the higher value. Of metal and depreciated paper they will hoard the metal.

Employers who are inclined to hoard, will store away the heavier coins, or the metal money as compared to paper, and will pay their business debts, their employees, their household debts in the less valuable money.

It is to be understood that the several kinds of money are all legal tender in the country. The gold dollar, the silver dollar,

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the paper dollar, are each worth 100 cents. If you go to the market, you can get as much for the paper as you can for the silver dollar, as much for the silver as you can for the gold dollar. But the intrinsic value of each of these pieces of money may be very different. The 23.22 grains of gold in the gold dollar may be worth in weight 100 cents, but the 371.25 grains of silver in the silver dollar may be worth in weight but 50 cents, and the paper dollar may have no intrinsic value. Still each of these dollars may by law be made legal tender within the country.

If one wants to hoard money, he will naturally put aside that kind of money which has intrinsic value rather than that which depends on some extrinsic factor, viz., the law of the land, which, as it has been made by the will of the legislator, may be again unmade by the same will.

(2) Foreign Payments. - This is by far a more rapid means for the disappearance of good money. Foreign payments are made in gold specie, which passes not on its face value but by weight.

When, therefore, payment is to be made abroad by bankers, commission merchants, and others who deal with foreign countries, those coins which are heavier will be chosen, while the lighter coins will be kept at home and turned back into circulation, where they pass on their face value and are not objected to.

Thus, also, if the intrinsic value of a silver dollar is only 50 cents, the silver dollar will be worth only 50 cents abroad, and one will not pay a foreign bill with silver dollars, since he would have to pay twice the amount. He will exchange his silver dollars for gold dollars, and with these discharge his foreign debt. The silver dollar is worth 100 cents at home, because the law makes it legal tender; it is worth 50 cents abroad, because abroad only its intrinsic value is regarded.

(3) Sale by Weight. This has been a still more frequent and more rapid means for the disappearance of good money in countries having a bimetallic standard.

When both gold and silver are legal tender and both are admitted to free coinage, the values of the two kinds of money,

silver and gold, may vary relatively to each other. Gold and silver are metals and commercial commodities. They have a commercial value, which will follow, as in the case of other commodities, the law of supply and demand. The 23.22 grains of gold contained in the gold dollar may, at one time, be worth one silver dollar. In that case, no profit could be made by melting gold dollars and selling them by weight. Should, however, a scarcity of the gold metal occur, the value of gold would appreciate relatively to silver. The 23.22 grains in the gold dollar might be worth 102 cents estimated in silver, and it would then be profitable to melt the gold dollars and sell them by weight. The legal value of the gold coin remains the same, but its commercial value as metal has risen. The silver dollar would remain in circulation, the gold would disappear.

Historical Instances. History furnishes many instances of the operation of Gresham's law. Towards the close of the reign of Elizabeth, in 1601, the ratio of silver and gold was II to I. In 1606, under James I, gold had risen in value, and it began to be exported and melted to such an extent that it became necessary to diminish the weight of the gold coins. The new ratio was 12 to 1.

In 1612, gold again acquired greater value than silver, and again it began to disappear. The ratio was changed to 13 to 1. This, however, gave silver a greater value than gold, and at once silver began to disappear. No new rating was made, but in 1614, a proclamation was issued prohibiting the exportation of the precious metals. It had no effect. Another proclamation appeared in 1618. Still no effect. In 1622 and in 1624, other similar proclamations followed. No effect. In 1636, seven persons accused of melting and exporting gold were arrested and fined over $40,000 and imprisoned until the fines were paid. Nothing that the government could do could stop the disappearance of the precious metals. It was in this instance stopped by the gradual rise of the market price of gold until gold and silver were at par.

The same trouble arose later, and as gold or silver rose in

value, it began to disappear. This fact, causing immense worry to England's financiers, led England finally in 1816 to adopt the gold standard and to debase silver into mere token money. Operation of Gresham's Law. The application of Gresham's law will take place in the following cases:

1. When a worn metallic money is in circulation with a newly coined money. This was the case that brought the phenomenon under Gresham's notice.

2. When a light money is in circulation with a good money, or a right money with a heavy money.

3. When a depreciated paper money is in circulation with metallic money. Our own history furnishes many instances of the operation of the law in this third case. In 1820, there existed 307 banks which were allowed to issue bank notes. They did so "without regard to capital or specie holdings." (Hepburn, Contest for Sound Money, p. 77.) As a result, the country was flooded with paper money, which depreciated rapidly. Boston and New England notes alone were at par with specie. Elsewhere paper notes were discounted at rates varying in different years, as follows: 1814, 10 to 20 per cent; 1815, 2 to 21 per cent; 1816, 12 to 23 per cent. In 1823, some Kentucky bank paper reached as high as 75 per cent discount. As a result of this depreciation of paper money, metallic money disappeared through hoarding, and banks were obliged to suspend payments.

Again, in 1837 and following years, owing to unsatisfactory banking laws and the power of the banks to issue unlimited paper, the same result was brought about and metallic money was nowhere to be had. (Hepburn, Ib., p. 123.)

During the Civil War both the Confederacy and the United States offered instances of the withdrawal of specie due to the existence of depreciated paper money. (White, Money and Banking, p. 173.)

The amount of paper currency in the Confederacy in 1863 was $700,000,000. One gold dollar was worth in November and December, 1861, $1.10 and $1.15 in Confederate paper