organization of modern society, marked by liberty of labor and by free competition, is based entirely on the postulate that men will under all circumstances prefer the articles that are of the best quality and that best satisfy their wants. Why, then, should men act differently when money is the article in question?

Our astonishment ceases when we reflect that money is not destined, like other wealth, either for our consumption or for production, but solely for exchange. Of two fruits, we prefer the more luscious; of two watches, the one that keeps the better time. But of two pieces of money, unequal in quality, it matters little to us whether we use the one or the other; they are not for our personal use, but only employed to pay our creditors and our tradesmen. Hence it would be foolish to use the better money for this purpose; on the contrary, it is to our interest to choose the worse, and this is precisely what we do. Our choice is of course conditioned upon the assumption that the creditor or tradesman shall not have the right to refuse the inferior money; in other words, the bad money must have paying power as well as the good. When this is the case, i.e. whenever both kinds of money are legal tender, Gresham's law is applicable.

This explains why bad money continues in circulation, but not why good money disappears. Where does the good money go? It disappears in three different ways: by hoarding, payments abroad, and sale by weight.

(1) Hoarding. When people want to put money aside for possible emergencies, i.e. when they wish to keep it for themselves, they do not pick out the bad pieces to save. On the contrary, they choose the best, because these offer the most security. The panic-stricken people who wished to hoard money during the French Revolution did not waste their time by saving depreciated paper money, the so-called assignats, but laid aside good gold coins. The contemporaries of our own Revolutionary War did not save the next to worthless "continental" paper money, but whatever

metallic money they could get hold of. Banks do the same thing, preferring to increase their supply of good rather than that of poor money. In this manner a considerable amount of the good money may disappear from circulation. This first cause of the disappearance of good money, however, is only temporary.

(2) Payments abroad. These are more important in their effect than the preceding cause of the disappearance of good money. Although a country never pays in coin for more than a small part of its imports, yet it is always necessary to send a certain amount of specie abroad. Now, although we may legally pay our debts to our compatriots with bad money as well as with good, so long as both are legal tender, we do not have this alternative in paying for purchases made abroad. As the foreign creditor is by no means compelled to accept our national money, he takes it only for the weight of fine metal it contains, i.e. for its commercial value. Therefore we cannot send him light money. We keep the light money for use at home, where it is as serviceable as good money, and we reserve the good money for foreign commerce.1

(3) But good money disappears most rapidly from circulation because of its sale by weight. Selling money by weight appears to be a peculiar occupation in which to engage, and its usefulness does not seem easily demonstrable. Nevertheless, it is very simple. As soon as a rise in the value of gold gives gold coin an intrinsic value higher than its legal value, as soon as gold money is worth more as metal than as coin, it is clearly profitable to stop using it as money, and to regard it as bullion. It is, therefore, withdrawn from circulation, and finds its way to the market for precious metals. Should the value of bronze, for example, rise con

1 Professor Leroy-Beaulieu has very well summarized this whole matter in the formula: local money drives out universal money.

It is noteworthy that Aristophanes observed the two facts that the public, which prefers to use bad money in exchange, nevertheless employs good money "in its own houses" and "abroad," i. s. for hoarding and for foreign trade.

siderably, is it not almost certain that numerous bronze articles, such as bells, cannons, and statuettes, would be melted for the value of the metal they contain? Or again, if the value of paper increased very greatly, would not many books be taken down from our library shelves and sold by weight as so much paper? It is just the same with money. When a precious metal rises in value, the pieces of money coined from that metal lose their character of money and become simple commodities that men can sell at a profit.

Gresham's law is applicable in the following cases :

(A) Whenever worn money is in circulation together with newly coined money. It was in this case that the law was first discovered by Sir Thomas Gresham. New coins had been struck to take the place of those in circulation, which were greatly depreciated (far more by clipping than by wear); and it was noted with dismay that the new coins speedily disappeared, while the old ones seemed to be more abundant than ever. Unless a government resorts to frequent recoinages, it will encounter great difficulties in replacing old and worn-out coins by new ones.

(B) Whenever depreciated paper money is in circulation together with metallic money. Under these conditions, if the depreciation of the paper is at all considerable, coin is driven out of circulation on a very large scale. During the whole period of the depreciation of United States notes (1862-1879), we were exporting gold in large quantities. This left at home only paper money, because our paper money would not circulate beyond the borders of the nation.1

(C) Whenever light money is in circulation together with good money, or even when good money is in circulation to

1 Similarly, of late years, nearly all good Italian money was driven into France. Vainly did the Italian government adopt various measures to cause its return, and to obtain from the French government a prohibition of its circulation in France, where it is accepted equally with French gold and silver money. But Italy succeeded only by attacking the evil at its foundation- by withdrawing her paper money, or at least by depriving it of the quality of legal tender.

gether with heavy money. drives out the other.

In this case the lighter money

Of the three cases here enumerated, the last is by far the most important; it occurs in almost all countries which have adopted both a gold and a silver coinage. This case will be investigated in the discussion of monometallism and bimetallism, which we purpose to study in the following sections.

VII. The Necessity of employing Several Metals, and the Difficulties which result therefrom

The discussion which has long been waged on this celebrated subject does not turn, as might be supposed, on the question whether a country should employ several metals or only one metal in its monetary system. That question does not even arise. For it is evident that every civilized country is obliged to employ, simultaneously, coins of gold, of silver, and of copper or some similar metal. We could scarcely think of using gold alone. The one-dollar gold pieces authorized to be coined in 1849 are now no longer issued because they are too small to be used conveniently. And if these pieces, weighing only 25.8 grains, are too small, a gold cent would be a mere impalpable atom! Nor can we employ copper exclusively, unless we are willing to revert to the days of early Rome; for a piece of copper worth five dollars weighs about thirty-five pounds. Silver, though less inconvenient because its value is considerably higher than that of copper, would not suffice by itself. Our silver dollars are almost too large and cumbersome, and our silver three-cent pieces, not coined since 1873, are too small for ordinary use. We are therefore compelled to use all three metals simultaneously. But there is no need to use all three as legal tender. In fact, one of them-copper-never possesses that quality; it is always simply token money or small change. Only the other two, therefore, are of interest in

this connection. Should both precious metals receive the character and attributes of legal tender, or should only one be thus employed? This question, formerly called that of the single or double standard, is now more correctly termed the problem of monometallism or bimetallism.

If we confer the rank of legal tender on only one of the two say gold- there is no difficulty. In this event silver coinage, with copper coinage, is relegated to the rank of token or subsidiary money; a purely conventional value is given it, but no one is obliged to take it in payment. When gold coinage is the only legal money, it alone needs have perfectly equal legal and intrinsic values.

If we allow both silver and gold coins to assume the character of legal tender, the situation becomes far more complicated. For a better understanding of the difficulties which may arise in the actual employment of both metals simultaneously as legal money, let us briefly review the monetary history of the United States.

In 1792 our statesmen, following the example of the countries of Europe, adopted the double standard of gold and silver. At Hamilton's instance the legal ratio was fifteen grains of silver for one grain of gold. Soon afterward, silver cheapened so that 15.61 grains were required in the bullion market to purchase one grain of gold. As a result, gold went out of circulation, and the country was thrown practically upon a silver basis. Gold, which had begun to grow scarce in 1810, entirely disappeared in 1817. In 1822 Mr. Raguet, an economist of the period, wrote to the National Gazette that "although the coinage of gold continues to be large ($1,319,030 in 1820), not a gold coin is anywhere to be seen in circulation." The facilities of the Mint were simply used by merchants to certify the weight and fineness of gold for exportation.

In view of these facts, various projects for a change were brought forward in Congress, and in 1834 the so-called Gold Bill provided for a ratio of 1 to 15.60; but when it came up for discussion an amendment was moved making the ratio