whole stock of them on hand, as money, necessarily renders the whole more scarce and dear. In a word, the employment of the precious metals in manufacture makes them scarcer and dearer as money; and, in like manner, their employment as money makes them scarcer and dearer in manufacture.

There is a larger demand for silver in the arts, and for purposes of ornament, than for gold; and this larger consumption of silver makes its value higher in comparison with gold than it would be if their respective values were determined solely by the comparative quantity of each which is produced or can be obtained. Silver plate, in greater or less quantity, is in almost universal use; gold plate, from its greater expensiveness, is hardly at all in use, except by crowned heads, or persons of immense fortunes. Silver-plated ware is also manufactured in great quantities, while comparatively few articles are coated with gold, except in the form of gold-leaf, which is very cheap on account of its marvellous tenuity and fragility. Silver spoons are to be found in almost every house; and the consumption of this metal for watches and trinkets is also very great. The consequence is, that, though 45 times more silver than gold existed, and was annually produced from the mines, the value of silver was to that of gold, not as 1 to 45, but as 1 to 16. Its cheapness enlarged its use; and the extensiveness of its use, on the other hand, counteracted its cheapness, or rendered it dearer.

If we apply this principle to the depreciation of the value of gold, which is now taking place on account of the recently enlarged supplies of that metal, we see at once a new limit to that depreciation, or a reason why it cannot go so far as it otherwise would. To double the present amount of gold bullion in the market would not be to sink gold coin to half of its present value, As its value fell, the use or consumption of it would be greatly increased. Gold plate would become fashionable, gold trinkets would be far more common, and gold would even be applied to certain purposes in the arts, for which it is admirably fitted by its ductility, great specific gravity, and power of resisting oxidation or corrosion, uses from which it is now excluded by its high cost. Also, in its use as money a larger quantity would be required. 200 millions would be needed to effect exchanges that are now made with 100. The discovery of America increased the supply. of gold and silver tenfold; but they were thereby reduced, not to one tenth, but only to one fourth, of their former value.

In former centuries, governments, when heavily in debt, often had recourse to a depreciation of the coin as a means of relieving themselves from their embarrassments. It was beyond their power to effect an actual change in the market value of gold and silver bullion, such as would result from an enlarged or diminished supply of these metals from the mines. But their debts were contracted in a certain denomination of coin, just as a debtor at the present day is bound to pay a certain number of dollars, under an implied, but not an express agreement, that the dollar shall retain its present amount of metal, that is, 345.6 grains of

silver, or 23.2 grains of gold. If the government should decree that the dollar in future should contain only 172.8 grains, hẹ might nominally release himself from his debt by paying only half of what he had really contracted to pay. This is a very rude expedient, — an actual license of universal bankruptcy, all claims being released on a payment of 50 per cent. It has not been tried in modern times, for even the courts of law would afford a remedy against so gross a fraud. But it was frequently resorted to in the Middle Ages, and a curious monument of the fact is preserved to us in the names of certain coins. The English pound sterling, in the time of Edward I. contained a pound Troy weight of silver of known fineness; and the English penny was then a real pennyweight of silver, the twentieth part of an ounce, or the two hundred and fortieth part of a pound Troy. Even the word shilling seems to have been originally a denomination of weight, or another name for an ounce. By successive depreciations of the coin, the pound, shilling or ounce, and pennyweight of Money have come to contain only a third part of the silver which their names indicate. A pound sterling contains less than four ounces Troy of silver. The Scotch pound has only a thirty-sixth part, and the French livre, or pound, only a sixty-sixth part, of their original weight of silver.

This mode of depreciating the metallic currency was called, by a singular abuse of language, "raising the standard." It has not been tried in modern times, as I have said, because it is so palpable a fraud that the courts of law would probably afford a remedy against it. But these courts give no redress, as we all know, against a depreciation of paper currency precisely similar in its character and effects.

CHAPTER XIII.

THE

THE DISTRIBUTION OF THE PRECIOUS METALS THROUGHOUT WORLD SUBSTITUTES FOR MONEY AND MEANS OF ECONOMIZING ITS USE BILLS OF EXCHANGE: THE DECLINE IN THE VALUE OF MONEY.

substitutes which

METALLIC currency, we have seen, is a safe but costly means of effecting exchanges. It is safe, because it is not subject to such ruinous fluctuations of value as have recently taken place in the paper currency of this country. It is costly, because the expense of keeping it in repair, and the loss of profits on so large an amount of what may be called "dead capital," amount, in this country, to at least eleven per cent. It then becomes important to know what are the substitutes for its use, we may expect to find less safe, but also far less expensive, than metallic money. And as a preliminary to this inquiry, we wish to know how much currency is needed in each country; rather, since its numerical amount cannot be ascertained with any precision, how the quantity needed is affected by the growth of the population, the extension of commerce, the progress of opulence, and the general state of civilization; and also, by what law the whole quantity now in existence is distributed among the various nations of the earth, and in what way it preserves its equilibrium among them.

or

In every exchange, the two values which are exchanged for each other are supposed to be equal. Every exchange is a barter of a quantity of merchandise for a certain sum of money which is its equivalent. But it does not follow that there must be as much money as there is merchandise; for as the money is not consumed by effecting this one exchange, it is ready immediately to effect another. The same piece of money may be exchanged successively for any number of articles of merchandise of the same value; in other words, any sum of money can purchase successively quantities of merchandise worth an indefinitely larger sum.

The circulation of money and of merchandise bears some analogy to the momentum spoken of in physical science, which is composed of the velocity multiplied by the mass; the momenta are equal, though the velocity should be increased tenfold, provided

that the mass is but one tenth part as great. So, also, the momentum of wealth is its value multiplied by the rapidity of its circulation. As money circulates far more rapidly than merchandise, it is evident that the quantity of money may be as much less than the quantity of merchandise as the circulation of the money is more rapid than the circulation of the merchandise. If the value of the merchandise which changes hands in a year is a thousand millions, and the circulation of the money is ten times as quick as that of the merchandise, a hundred millions of money will effect all the exchanges. Let the quickness of the money circulation be doubled, and fifty millions will suffice.

"If we assume,” says Mr. Mill, "the quantity of goods on sale, and the number of times those goods are resold, to be fixed quantities, the value of money will depend upon its quantity, together with the average number of times that each piece changes hands in the process. The whole of the goods sold (counting each resale of the same goods as so much added to the goods) have been exchanged for the whole of the money, multiplied by the number of purchases made on the average by each piece. Consequently, the amount of goods and of transactions being the same, the value of money is inversely as its quantity multiplied by what is called the rapidity of circulation. And the quantity of money in circulation is equal to the money value of all the goods sold [including all the resales as additional goods], divided by the number which expresses the rapidity of circulation."

Stating the matter algebraically, we have

g s = m r;

where gquantity of goods on sale;

s = number of times the goods are sold;

m= quantity of money in circulation;

r=number of purchases effected by each piece of money. Of course, any three of these quantities being given, the fourth can be deduced from them. Thus,

which is the principle just enunciated. It is also evident, that the value of money will be inversely as its quantity; for if we suppose the quantity of money to be doubled, we still have

gs = 2 m r;

that is, 2 m are worth only the same value which was formerly

represented by m.

This calculation really includes all exchanges that are directly effected by barter, or into which money does not enter; and these, as we shall afterwards see, constitute a large part of mercantile transactions. The formula professedly represents, it is true, only money purchases. But to economize the use of money is the same thing as to increase its rapidity of circulation. If, on an average, one thousand exchanges of merchandise are effected with one hundred dollars in money, and if means should be found to carry on half of all trade without any money, then the one hundred dollars will suffice to effect two thousand exchanges. Observe, however, that this economy relates solely to the use of money as a medium of exchange, and not at all to its other function as a measure of value.

"The phrase, 'rapidity of circulation,'" continues Mr. Mill, requires some comment. It must not be understood to mean the number of purchases made by each piece of money in a given time. Time is not the thing to be considered. The essential point is, not how often the same money changes hands in a given time, but how often it changes hands in order to perform a given amount of traffic. We must compare the number of purchases made by the money in a given time, not with the time itself, but with the goods sold in that same time. If each piece of money changes hands on an average ten times while goods are sold to the value of a million sterling, it is evident that the money required to circulate those goods is £100,000."

"Rapidity of circulation being a phrase so ill adapted to express the only thing which it is of any importance to express by it, and having a tendency to confuse the subject by suggesting a meaning extremely different from the one intended, it would be a good thing if the phrase could be got rid of, and another substituted, more directly significant of the idea meant to be conveyed. Until an appropriate term can be devised, we must be content to express the idea by the circumlocution which alone conveys it adequately, namely, the average number of purchases made by each piece in order to effect a given pecuniary amount of transactions."