were not the most useful or desirable forms of wealth—that they could, in fact, hardly be considered as wealth at all except in their monetary capacities of instruments devised for a special object, the proposal to abandon one of the metals hitherto utilised as money met with a very different reception. There could be practically no objection to the scheme from the standpoint of the new theory. If the householder found it, for private reasons, inconvenient to use simultaneously both silver and gold pots or pans, what objection could there be to his cooking his victuals in pots of either gold or silver as he preferred? Just as these utensils were made for a special object-cooking victuals -so money was made for a special object— facilitating exchanges. And consequently, if England found it inconvenient to employ simultaneously both gold and silver money to facilitate her exchanges, there could be no sound reason why one of the metals should not be cast aside. Gold money, with the aid of tokens to represent fractions of the gold pieces, would serve to facilitate exchanges in exactly the same way. as silver and gold together had done before. The alteration was but an improvement in the device employed to circulate those commodities in which the wealth of the nation actually consisted, and it could not, therefore, affect (except for the better) the accumulation and distribution of that wealth.

Such reflections as these must of necessity have influenced both rulers and ruled; indeed, to this day the great majority of Englishmen are not only satisfied that money plays the part of an instrument that facilitates exchanges, but further, that England's present monetary system is the best that can be devised for the wants of the people of the United Kingdom.* To its success in overcoming the currency difficulties encountered by our statesmen in the past, reference has already been made; and we can be but little surprised that this success attracted the attention of foreign governments, who were still experiencing similar difficulties with their respective currencies; the more especially as England's commercial progress during the first half of the present century was perhaps more marked than at any previous period of her history. Under such circumstances it is to be expected that Continental statesmen would attribute this progress, in some degree, to the novel monetary system adopted by England in 1816, as indeed they did; and in consequence some of the greatest nations of the Western world very soon followed in England's footsteps.

Portugal, after repeated efforts to keep both precious metals in circulation, adopted gold in 1854.

Germany followed in 1871-3; about

* Vide Sir William Harcourt's reply to the address of certain of the London Bankers (Gold Standard Defence Association) of 20th May, 1895.

the same time Holland, Belgium, Sweden, Norway, Denmark, and the United States of America also discarded silver, and decided to establish a one-metal currency with a basis of gold. Although France, Italy, Switzerland, and Greece were not at the moment prepared to admit the soundness of these moves, they closed their mints to silver in 1878, an expedient which India deemed prudent to imitate in 1893. In the meantime Austria-Hungary has established a gold standard, and Russia and Japan * are said to be desirous of following suit at the earliest convenient opportunity.

It has been shown in a former chapter that the greater part of the value of the precious metals is derived from that legislation which confirms their use as money. In face of this fact we should not be surprised to find a material change in their relative values as soon as the leading nations of the world decided to demonetise silver and use only gold as their principal monetary instrument. That such a change has actually occurred is common knowledge. In the eyes of the peoples of the East, gold has increased considerably in value since 1873: whilst to the nations of the West, silver appears to have correspondingly diminished in value. We shall presently endeavour to trace the results of this alteration in the relative values of the precious metals upon the commerce of the world; but

*Japan has now (March, 1897) decided upon a gold standard.

before approaching this portion of our subject it will be necessary to examine the theory of money propounded by Adam Smith, developed by John Stuart Mill and others, and very generally accepted at the present day. For this is the theory, be it remembered, which, in supporting the proposals made by the first Lord Liverpool for improving England's currency, paved the way towards the establishment of the monetary system we now employ.

CHAPTER IV.

The modern theory of money-The generally accepted functions of money-How those functions are considered in England's currency laws.

HE theory of money propounded by the

THE

great economists of the latter half of the eighteenth century, afterwards developed by Ricardo, McCulloch, and Mill, and finally completed by Bagehot, Jevons, and other modern writers on currency, is based on the hypothesis that money, in its essence, is a "medium of exchange," an instrument that facilitates those transactions of life that have always taken place, and that would continue to take place even if there were no such a thing as money. That the invention is very useful in other ways than in minimising the inconveniences of barter is universally acknowledged, but that it is essentially a MEDIUM OF EXCHANGE is the great fact that Adam Smith succeeded in bringing home to the minds of the people of England.

To understand how the modern theory of money has been constructed, we cannot do better than picture to ourselves what must have