legal tender should be kept convertible on demand into standard money, as a condition necessary to the maintaining of standard money in its place. This then constitutes one of the most important uses, indeed the most important use, to which the stock of standard money is put, viz., making up the reserves from which legal tender inferior moneys are redeemed, and so keeping standard money in its place.

We have just seen that the most important uses of standard money in any system are to maintain the parity of inferior moneys and to maintain standard money in its place. These functions might be called systemic or organic, that is, their business is to keep the money system as a whole in good running order. But it must not be supposed from this that standard money never does any of the ordinary, regular, work of money as a medium of exchange. In some European countries and in certain parts of this countryon the Pacific Coast particularly-gold is still employed as a common medium of exchange and means of payment for transactions needing money of the middle denominations, say from about two dollars to twenty. But by all odds the most important case where standard money is still employed for ordinary monetary purposes is in international trade, where it is the usual means of payment between international bankers. The explanation of this point needs a new paragraph.

In general there is in international trade very little direct payment with money between buyer and seller. What happens is that the seller turns over to his banker his claim for money on the buyer, or the buyer turns over to the seller a claim gotten from his banker on some bank in the seller's country. In either case, the seller gets his pay from a bank in his own country, while the buyer makes payment to a bank in his own country. This leaves some banks in the buyer's country in debt to some banks in the seller's country. Naturally this one debt will not be settled by itself; since there will be sales of goods in the opposite direction producing debts in the opposite direction, and these two

*At least one inferior legal tender money.

opposing debts can easily be offset against each other, thus making unnecessary the sending of money either way. What happens to these two debts tends to happen to all the reciprocal claims of two countries on each other. That is, those on each side will get into the hands of bankers and will be offset against those on the other side, thus tending to eliminate all use of money in this sort of trade. But it will turn out at times that the balance between the bankers of one country and the bankers of some group set over against it, persists in going one way for some weeks; that is, the country is continuously a creditor or continuously a debtor. In such a case it will usually be necessary that the money itself should be sent one way or the other. But for this purpose none of the subordinate moneys of any country will answer; for their value being largely fictitious, due to laws or customs which are merely local, the bankers of other countries will not accept them, but insist on receiving money which has metallic value and receiving such money at a rate corresponding to its metallic value. Standard metallic money, therefore, is employed for this purpose.

Having disposed of standard and quasi-standard money, the remaining kinds may be grouped together as Circulation Money. As the name indicates, these are moneys specially fitted, and almost exclusively used, to serve as the everyday medium of exchange. They are being passed from hand to hand in payment for goods or services or are being held ready for this use in the near future.* In general, circulation money needs to show very great variety as respects denomination; since, being actively employed in effecting all sorts of transactions, it needs to be available in almost every imaginable amount. Of course we can not attain this

* It must not, however, be supposed that the moneys already considered, standard and quasi-standard, are never used for circulation purposes. They still perform this function in some measure, but they are not specially adapted for the purpose,-are in some cases intentionally made unfit for the purpose, and tend to leave the work of circulation to specially devised moneys.

by having an infinite number of denominations. Instead we make up irregular amounts by effecting the proper combination among several different denominations. Still this necessitates a considerable variety. Again, because circulation money must show variety in denomination, it must also show variety in composition. We can not very well make cents out of gold or dollars out of copper. For smaller moneys we employ cheap metals, using three different ones for denominations under twenty-five cents. For larger denominations gold is used more or less, but, generally speaking, nothing will do in this country but paper.

Classified in a somewhat superficial way, the circulation moneys of the United States, excluding standard and quasistandard moneys, are three, (1) bank notes for larger denominations ($10 and upwards), (2) fiat silver or its certificates for the medium denominations (one dollar to five), and (3) base or subsidiary coin (including fractional silver, nickel, and bronze), for the small denominations The first of these, bank notes, we can not well consider in detail, at this stage of our study. Their general character, however, is plain enough. They are credit money, promises to pay lawful money on demand or at sight, issued by banks, and commonly used as money. The second kind of circulation money, fiat silver, is more or less an anomaly, an accident, a fifth wheel. In function and nature it most resembles base or subsidiary coin; hence its peculiarities will be most easily explained after we have considered subsidiary coin. We begin, then, with the latter.

The existence of base or token or subsidiary money has its explanation in two facts. First, as long as a metal of any considerable value is chosen as the standard, coins made of that metal will be too small for convenient use where small denominations are wanted, and so some representative or substitute money will be needed. Secondly, paper money is too frail to be suitable for the work which small denomination money has to do. Accordingly, the moneys of small denominations need to be representative or substitute moneys made of cheap metals other than the standard metal. That is, we need in the circulation one or more metallic moneys-coined moneys-different from the stand

ard money as to their composition, yet all the time subordinate to standard money, not displacing it, and having their value fixed by it. Such moneys are properly called subsidiary. In the United States they include bronze cents, nickels, silver fractional coins (to which name subsidiary coin is most strictly applied), and silver dollars when circulating as coin. In essence, then, subsidiary money is a metallic representative, or substitute, money used chiefly for purposes of circulation.

Let us now give a more detailed account of the characteristics which belong to this kind of money in the United States at the present time. As the first characteristic we have the fact already brought out, viz., its manufacture from some metal different from standard metal. But this first characteristic naturally leads to one or more others. If subsidiary money is made of some substance different from that used in standard money, there will always be some chance that such subsidiary money will get to be different in value from standard money, with more or less disastrous consequences. Thus the metal of which money of this sort is made might rise in value, till the coins became worth more as metal than their nominal value as coins. This condition would naturally cause money of this sort to be withdrawn from circulation and sold as bullion, thus depriving the country of this very necessary form of currency. Precisely this happened in the United States about 1850. At that time in law both silver and gold had the status of standard money; they were full legal tender and freely coined. But the new supplies of gold from California had cheapened gold, as compared with silver. Gold consequently became the standard, as will be explained in Chapter V; and silver half-dollars, quarters, and dimes commanded a premium of two or three cents on the dollar, and soon disappeared from circulation. How did we remedy the matter? Simply by making these coins lighter. Instead of 412.5 grains of silver to the dollar, we used 384 grains.* This made the silver in a dollar's worth of coins worth about 96 cents; and, so, no one cared to melt them for the

* In 1853.

silver they contained. This gives us the second characteristic of subsidiary money, shortness in weight, or being overrated.

But, as in so many other cases, a device for meeting one difficulty creates new ones of its own. We steer away from Scylla only to strand upon Charybdis. If subsidiary money is made short in weight, what is to hinder its becoming less valuable than standard money and, as a consequence, ceasing to be current as money or, if remaining current, causing endless trouble and risk or even usurping the place of standard money? These are serious difficulties; but the best ways of meeting them had been largely worked out in the experience of Great Britain before the United States made the change; so that all we had to do was to employ the methods which had already proved efficacious. In order to keep our subsidiary coins at par and, in doing so, to shut out the chance of their displacing standard money, the amount issued was strictly limited; and to insure this limitation they were issued only on account of the government, i. e., the mint stopped manufacturing these coins for private persons altogether. Still further to guard against the possibility that this inferior money would usurp the place of standard money, its tender was limited to a comparatively small amount, which provision also insured individuals against the inconvenience of having excessive amounts of small money forced upon them. Finally, in 1871 and 1879, to perfect the system, placing parity beyond question and guarding individuals and communities against any possibilities of excessive stocks of this kind of money, we provided for its redemption in lawful money at the treasury of the United States, just as if these coins were demand notes.

We have, then, as the characteristics of a fully developed subsidiary money (1) being composed of some metal inferior to the standard metal, (2) being short in weight or overrated, (3) having the status of universal legal tender, (4) having their legal tender limited as to amount, (5) being issued in strictly limited amount, (6) being issued on government account only, and (7) being kept redeemable in lawful money at the pleasure of the holder.

In the above account of subsidiary money, I have de