[CHAPTER III.]
EXISTING MONETARY SYSTEMS.
Various substances have been used as money in the past. The "survival of the fittest" has, however, eliminated all but three (omitting fractional coins), and these are used, singly or in combination, at present in all the civilized nations of the world. These three are gold, silver, and paper. Gold and silver are generally used in the form of coins of definite weight and fineness. Paper money is a promissory note issued by the government, or by authorized banks, promising to pay the bearer, on demand, the amount of coin specified on its face.
Where this promise is kept, and coin is paid on demand, the paper is said to be convertible. Where, for any reason, the promise is not kept, and the amount of coin specified will not be given on demand, the paper is called inconvertible or irredeemable.
As the coins which are used, and which are promised to be given in exchange for paper, may be either of gold or silver, or both, the system is said to be a gold standard or a silver standard, according to which one is used, or a bi-metallic standard if both are used under certain conditions. At present, as will be explained in considering that system, there is no country that is really using a bi-metallic standard.
Where the paper money is inconvertible, the coin on which it is based does not circulate with it (for reasons which will appear later), and such a system must be regarded as distinct from the others, no matter whether the basis be gold or silver. Three systems are therefore in use,—the gold standard, the silver standard, and the inconvertible paper. The characteristics of each of these will be considered separately, but, taken as a whole, some facts should first be noted.
Money in all countries is at present essentially a creature of the law. Not only does the government fix the weight and fineness of the coins, but it assumes the right to make the coins, and in some cases to limit the coinage to a certain amount, or to stop coining altogether. It also, in most cases, issues the notes or paper money, and where it does not it controls the issue by laws regulating the banks that do issue them. It controls therefore in all cases the volume of money issued, both by specifying that it shall be made of certain metals which are scarce, and perhaps limiting the coinage of those, and by limiting the amount of paper money that is generally used, to a greater or less extent, in all systems.
There is no international coin or money. Gold and silver when shipped from one country to another go as so much bullion; their value is practically the same whether coined or uncoined. As Walter Bagehot observes, in his work "Lombard Street":—
"Within a country the action of a government can settle the quantity, and therefore the value, of its currency; but outside of its own country no government can do so. Bullion is the cash of international trade; paper currencies are of no use there, and coins pass only as they contain more or less bullion."