On the Economy of Machinery and Manufactures

by Charles Babbage

167. These coins are liable to two inconveniences: they may be manufactured privately by individuals, of the same quality, and similarly stamped; or imitations may be made of inferior metal, or of diminished weight. The first of these inconveniences would be easily remedied by making the current value of the coin nearly equal to that of the same weight of the metal; and the second would be obviated by the caution of individuals in examining the external characters of each coin, and partly by the punishment inflicted by the State on the perpetrators of such frauds.

168. The subdivisions of money vary in different countries, and much time may be lost by an inconvenient system of division. The effect is felt in keeping extensive accounts, and particularly in calculating the interest on loans, or the discount upon bills of exchange. The decimal system is the best adapted to facilitate all such calculations; and it becomes an interesting question to consider whether our own currency might not be converted into one decimally divided. The great step, that of abolishing the guinea, has already been taken without any inconvenience, and but little is now required to render the change complete.

169. If, whenever it becomes necessary to call in the half-crowns, a new coin of the value of two shillings were issued, which should be called by some name implying a unit (a prince, for instance), we should have the tenth part of a sovereign. A few years after, when the public were familiar with this coin, it might be divided into one hundred instead of ninety-six farthings; and it would then consist of twenty-five pence, each of which would be four per cent. less in value than the former penny. The shillings and six-pences being then withdrawn from circulation, their place might be supplied with silver coins each worth five of the new pence, and by others of ten-pence, and of twopence halfpenny; the latter coin, having a distinct name, would be the tenth part of a prince.

170. The various manufactured commodities, and the various property possessed by the inhabitants of a country, all become measured by the standard thus introduced. But it must be observed that the value of gold is itself variable; and that, like all other commodities, its price depends on the extent of the demand compared with that of the supply.

171. As transactions multiply, and the sums to be paid become large, the actual transfer of the precious metals from one individual to another is attended with inconvenience and difficulty, and it is found more convenient to substitute written promises to pay on demand specified quantities of gold. These promises are called bank-notes; and when the person or body issuing them is known to be able to fulfil the pledge, the note will circulate for a long time before it gets into the hands of any person who may wish to make use of the gold it represents. These paper representatives supply the place of a certain quantity of gold; and, being much cheaper, a large portion of the expense of a metallic circulation is saved by their employment.

172. As commercial transactions increase, the transfer of bank-notes is, to a considerable extent, superseded by shorter processes. Banks are established, into which all monies are paid, and out of which all payments are made, through written orders called checks, drawn by those who keep accounts with them. In a large capital, each bank receives, through its numerous customers, checks payable by every other; and if clerks were sent round to receive the amount in banknotes due from each, it would occupy much time, and be attended with some risk and inconvenience.

173. Clearing house. In London this is avoided, by making all checks paid in to bankers pass through what is technically called The Clearing House. In a large room in Lombard Street, about thirty clerks from the several London bankers take their stations, in alphabetical order, at desks placed round the room; each having a small open box by his side, and the name of the firm to which he belongs in large characters on the wall above his head. From time to time other clerks from every house enter the room, and, passing along, drop into the box the checks due by that firm to the house from which this distributor is sent. The clerk at the table enters the amount of the several checks in a book previously prepared, under the name of the bank to which they are respectively due.

Four o'clock in the afternoon is the latest hour to which the boxes are open to receive checks; and at a few minutes before that time, some signs of increased activity begin to appear in this previously quiet and business-like scene. Numerous clerks then arrive, anxious to distribute, up to the latest possible moment, the checks which have been paid into the houses of their employers.

At four o'clock all the boxes are removed, and each clerk adds up the amount of the checks put into his box and payable by his own to other houses. He also receives another book from his own house, containing the amounts of the checks which their distributing clerk has put into the box of every other banker. Having compared these, he writes out the balances due to or from his own house, opposite the name of each of the other banks; and having verified this statement by a comparison with the similar list made by the clerks of those houses, he sends to his own bank the general balance resulting from this sheet, the amount of which, if it is due from that to other houses, is sent back in bank-notes.

At five o'clock the Inspector takes his seat; when each clerk, who has upon the result of all the transactions a balance to pay to various other houses, pays it to the inspector, who gives a ticket for the amount. The clerks of those houses to whom money is due, then receive the several sums from the inspector, who takes from them a ticket for the amount. Thus the whole of these payments are made by a double system of balance, a very small amount of bank-notes passing from hand to hand, and scarcely any coin.