At first coins were very rude and easily counterfeited and it was necessary to inflict severe penalties to guard against this danger, but even these penalties failed to deter the counterfeiting, mutilation, and clipping of coins, which was made very easy by the practical absence of all protecting devices and designs, which at the present day tend to make the simulation of a well minted coin so difficult and expensive as to deprive it of any profit.

One of the commonest and best known laws governing coins is that in order to keep a coin in circulation the bullion value of that coin should be a little less than the face value, in fact enough less, that no probable fluctuation in the market price of the metal of which it is composed will render the commodity value of the coin greater than its face value; otherwise as soon as it becomes so, it is immediately profitable to put the coin into the melting pot and convert it again into bullion.

Another principle is, that a superior coin will not circulate side by side with an inferior one. The superior coin being of greater value is either hoarded up and retired. from circulation, or, on account of the inferior coin becoming the real measure of value, is converted into bullion. The reason of this is very plain, as no debtor will pay his creditor in a better or more valuable coin when he can legally pay him in an inferior and less valuable one. Used as money the value of the superior coin is no greater than that of the inferior coin, whereas it is greater when used as bullion. This principle is known as Gresham's law and furnishes an explanation of the difficulty we have had during the last few years in keeping gold in circulation side by side with silver.

The working of this principle had been previously illus trated in this country quite as clearly at the time of the discovery of gold in California, when, owing to the enor mously increased production of gold, its relative value to other commodities was diminished, and the prescribed

ratio between gold and silver fixed by the government remaining unchanged, silver, the production of which had remained practically stationary, was undervalued. Many of our citizens who at that time possessed silver coin. exported it or had it melted up and converted into household articles; and silver coins went practically out of circulation.

It must, however, be borne in mind that while an inferior coin if sufficient in quantity will drive the superior out of circulation, it will only circulate at about its real value, unless the difference between its face value and its real value is guaranteed by some responsible government.

Fiat Money. This is money issued by a state with presumable power to enforce its acceptance as a legal tender in payment of obligations.

In this sense, of course, all money issued by the state is fiat money, but in the more restricted view only money possessed of no intrinsic value, or of a less intrinsic value than its face value, is fiat money. And as a large quota of money is not possessed of intrinsic value to the amount of its face value, the difference between the two values is fiat money. Paper money issued by a government is wholly fiat money, whether secured by a deposit of securities or of bullion.

The issue of banks, unless made legal tender by the government, is not fiat money.

Paper Money.-While this subject should be properly treated under the head of "Credit," yet for the purpose of convenience, and because as currency it acts in lieu of real money, it has been decided best to discuss it here.

Until within the last few hundred years, a comparatively recent date in the history of money, paper money was not used in Europe, although the Chinese are supposed to have used it even before the Christian era.

Unlike coined money, the issue of paper money or credits was never held to be a sovereign prerogative, nor

did governments arrogate to themselves the sole power of the issue of credits in this form and the consequent restriction of its use by their subjects.

In the early European history of paper money its issue seems to have been exercised almost exclusively by individuals and corporations.

If individuals and corporations could issue their promises to pay and exchange the same for marketable values, why could not a government do the same? Many of the European governments, on account of the frequent wars in which their rulers were engaged, the incidental depletion of their treasuries, and the necessity of raising money with which to support large armies and procure supplies, and having exhausted practically all other resources, were compelled sooner or later to resort to this as a last relief, although most have since funded such issues of paper money in the shape of bonds.

The necessities of the European states, which compelled the making or rather forcing of frequent loans from their bankers, gradually created the device of the governments issuing paper money; but even yet governments did not deem it necessary to restrict the issue by their subjects of credits in this form, and it is only as an extreme measure that any civilized government has ever issued or compelled the acceptance of this paper money as legal tender, thereby making a forced loan and compelling the persons accepting such loans to part with a value without receiving any interest for its use.

All of the great European nations, with a few exceptions, while reserving to themselves this right, in case of extreme necessity, as a great war, do not at present exercise it, but have practically done no more than to restrict its use to certain corporations complying with conditions prescribed by them.

In this country the early issues of paper money by the colonies previous to and by the confederated colonies

during the War of Independence were attended with such disastrous results that the Federal power issued no paper money of its own until the early part of the late Civil War.

Up to the enactment of the National Banking Act in 1863, with the exception of the time during which the United States Bank existed, all of our paper money was issued by State banks, the different States delegating the power of issue to banks complying with certain conditions, generally the maintenance of a certain percentage in bullion to the notes issued, etc.

In every representative government it must be borne in mind that this right of issue of credits is one inherent in the individual, and which he, through his representatives, has delegated to the state or national government for various purposes, chief among which is the securing of greater uniformity of value and regularity of issue, under conditions sought to make the acceptor of such credits as safe as possible in receiving them.

After an experience of some seventy years it was proven that even States, owing to lack of uniformity of requirements and conditions imposed by them upon the banks within their borders, could not ensure a uniform and sound currency. Not but that many of the State laws were models in themselves, but they lacked uniformity. And while some were admirable and furnished an excellent groundwork for the National Bank Act, yet others were very illy conceived and even worse enforced; some States allowing their banks to issue circulating notes against real estate and various personal and other kinds of security.

It did not take long to establish the fact that land was not a proper security for paper money; for the reason that all issues of paper, in order to circulate freely, must purport on their face to be redeemable in coin, and while the land might be of ample value to secure the notes, yet it could not always be immediately converted into coin. This fact was so generally recognized that all of the more

conservative and successful State systems required the maintenance of a metal reserve and a thorough State supervision of banks issuing circulating notes (see State Banks).

Paper money to be of any value must be secured by some value, and when so secured it is a mortgage on that value, and thereby restricts its use, and takes from the channels of trade the amount of the particular commodity by which it is secured, whether it be metal, some other commodity, or real estate.

As the amount of paper money must be greatly in excess of the metal reserve by which it is secured, to make its issue of any use, if proper safeguards are thrown around such issue, on account of the increase in volume (if needed), it may greatly facilitate commerce and trade; but while the currency has increased in volume it has deteriorated in quality, and no more value has been created; and the question narrows itself down to whether it is better to have $100,000,000 in metal in active circulation, or to tie that amount of metal up as a reserve to secure the issue of say $300,000,000 of paper.

The theory of course on which paper money, secured by a deposit of metal, is made to circulate, is that all its holders will not wish its redemption in coin at the same time.

Additional value and security are given to such money when a government agrees to accept it in payment of a certain class, or of all debts and dues to it; and this additional value and security is necessarily measured by the proportion the entire issue bears to the amount receivable in payment of such debts, and the ability of the government to continue to receive such money in this way.

As yet we have only considered paper money payable in coin on demand. Now we must consider inconvertible paper money issued by a government, or paper which is simply a promise to pay, without any or a very small metal reserve to secure it.