Sect. IV.—: Expense of a Currency consisting of the Precious Metals.

A moderate seignorage has but an inconsiderable effect in reducing the expense of a metallic currency. This, which is much greater than is generally imagined, is not occasioned by the coinage, which is comparatively trifling, but by the value of the gold and silver vested in coins. If, for example, the currency of the United Kingdom consisted wholly of gold, it would amount to at least sixty millions of sovereigns; and if the customary rate of profit were 6 per cent., it would cost £3,600,000 a-year: for were this sixty millions not employed as money, it would be employed in branches of industry in which, besides affording wages to numerous individuals, it would yield 6 per cent., or £3,600,000 a-year, nett profit to its possessors. And this is not the only loss. The sixty millions would not merely be withheld from the great work of production, and the country deprived of the revenue derived from its employment, but it would be perpetually diminished. The wear and tear of coins is by no means inconsiderable; and supposing the expenses of the coinage were defrayed by a moderate seignorage, the deficiency in the weight of the old worn coins, on their being called in to be recoined, falls on the public. There is, besides, a constant loss from shipwreck, fire, and other accidents. When due allowance is made for these causes of waste, it may not, perhaps, be too much to suppose, that a country, which had sixty millions of gold coins in circulation, would have annually to import and coin the hundredth part of this sum, or £600,000, to maintain its currency at its proper level.

Thus it appears that, were the customary rate of profit in the United Kingdom 6 per cent., it would cost £4,200,000 a-year to maintain sixty millions of gold coins in circulation. A reduction of the rate of profit would no doubt proportionally reduce the amount of this expense; but the reduced expense might still bear the same proportion to the total income of the country that the higher expense did, and if so, the cost of the currency would not be at all diminished. The case of France furnishes a striking example of the heavy charges attending the general use of a metallic currency. The gold and silver currency of that kingdom has been estimated by M. Fould at 2,200 millions fr., and by others at 2,500 millions. Now, supposing the lowest estimate to be the more correct, and taking the rate of profit at 6 per cent., this currency must cost France a hundred and thirty-two millions fr. a-year, exclusive of the wear and tear and loss of the coins, which being taken, as before, at the hundredth part of the entire mass, will make the whole annual expense amount to a hundred and fifty-four millions fr., or to about six millions sterling. This heavy expense forms a very material deduction from the advantages resulting from the use of a currency consisting entirely of the precious metals, and has doubtless been the chief cause why all civilised countries have endeavoured to fabricate a portion of their money of less valuable materials. It has not, however, been the only cause. It is obvious, were there nothing but coins in circulation, that the conveyance of large sums from place to place would be a very laborious process; and that even small sums could not be conveyed without considerable difficulty. Of the substitutes, calculated alike to save expense and to lessen the cost of carriage, paper is in every respect the most eligible, and has been by far the most generally adopted. By using it instead of gold, we substitute the cheapest for the most expensive currency; and enable the society to exchange all the coins which the use of paper renders superfluous, for raw materials, or manufactured goods, by the use of which its wealth and enjoyments are increased. It is also transferred with the utmost facility. Hence, since the introduction of bills of exchange, most great commercial transactions have been adjusted by means of paper only; and it also is used to a very great extent in carrying on the ordinary business of society.