The Principles of Political Economy

Henry Sidgwick

Book III

Chapter IV

Section 5

§5. Metallic Currency. The claims of the State to the monopoly of coining have been so generally admitted that the most uncompromising advocates of laisser faire have rarely thought it needful even to explain why they have not questioned it: however, the abstract economic reasons for it may be stated as follows. In the first place the ordinary advantage to the community from competition, in the way of improving processes of manufacture, is hardly to be looked for in the case of coin. It is the interest of the community that coins should be as far as possible hard to imitate, hard to tamper with, and qualified to resist wear and tear; but the person who procured the coins from the manufacturer---who would want, of course, to pass the money, and not to keep it---would not be adequately impelled by motives of self-interest to aim at securing excellence in these points.

Secondly, the admitted governmental duty of giving protection against fraud would under any circumstances have to be performed with special vigilance in the case of coin, owing to the extremely transitory interest that each individual has in the quality of the money he uses; and though this might conceivably be managed, if free coinage were allowed---by making it criminal to issue coins of the kind ordinarily used, containing less than the ordinary weight of metal---still the prevention of fraud would be far more difficult than it is at present, when all coining is illegal and all coins of the same value uniform in shape.

A supplementary argument in favour of governmental coining---in the abstract---lies in the difficulty of otherwise securing a fair allotment of the loss through wear and tear of standard coins. The convenience of circulation would in any case lead to the establishment---by common agreement if not by governmental regulation---of an allowable margin of deficiency in weight: but coins reduced through wear and tear below this margin would ultimately have to be rejected: and it is obviously unfair that the consequent loss should fall on the individual who, in the passage of a coin from hand to hand, happens to possess it at the exact point of the process of gradual attrition at which it falls below the accepted standard of weight. There seems, however, no effectual way of avoiding this result except that Government should undertake the loss and regularly call in light coin.

It is to be noted that if coinage were left to private enterprise, the expenses of producing coins would not really fall on the consumer: since, in fact, they would not fall on any one: they would merely have the effect of raising the exchange value of the coin proportionally above the value of the metal contained in it. Hence primâ facie, the same result ought to be brought about, where coinage is monopolized by Government: since, if Government bears the cost, the public loses collectively, without any corresponding gain to the members of the community. On the other hand the advantages of gratuitous coinage are (1) that it guards against the danger of slight fluctuations in the value of coin relatively to bullion, through temporary over-coinage and stoppage of mint; and (2) that otherwise merchants engaged in foreign trade---where coin is merely used as certified bullion---would necessarily lose the mint charge in exporting the coins, and would therefore have to raise the price of foreign goods in order to transfer the loss to consumers. But I know of no evidence from experience to show that danger (1) is considerable: and as regards (2) there does not appear to be any general reason why foreign trade should be thus specially subsidized at the public expense---in fact, as Jevons urges, the argument rather shows the desirability of establishing an international currency, if it be possible.

The general considerations, therefore, seem to be in favour of defraying the whole cost of coining by reduction in the weight of the coins; and, for the reason before given, this cost ought to include the loss through wear or tear, which should be borne by Government calling in the coins that have become too light through use---provided that fraudulent removal of the metal can be adequately prevented.

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