return, no income; but if invested in stocks, bonds, real estate, or grain it yields a profit. So men keep as a store habitually only as much money as they expect to need for immediate use.

12. Standard of deferred payments.-Money or the monetary unit serves not only as a measure of value for the present, but also as a standard for future payments. It is a medium for credit transactions or deferred payments. Most contracts are payable in terms of money and they often run for long periods of time. Justice between borrower and lender requires that the contractual payment shall have the same value at maturity as at the beginning of the contract. It is important, therefore, that the standard shall possess comparative stability of value. But no commodity, not even gold, has perfect stability of value. Since every commodity is subject to changes in the conditions affecting its production, it is impossible to find a perfect standard of deferred payments. And yet some standard must be chosen. Owing to their durability and to the comparatively small annual addition to the world's supply the precious metals are least prone to vary in value on account of changes affecting themselves. Through a long period of evolution the great commercial nations have come to regard gold as the commodity best fitted to serve as a standard. From time to time, however, various proposals have been made to establish a more stable standard of deferred payments. Of these proposals, bimetallism has received most attention.

13. Bimetallism.-Bimetallism is a monetary system in which the standard money is composed of gold and silver, the two metals that civilized nations have used as standards of value in modern times. It is known also as the "double standard" as distinguished from the "single standard," where only one commodity is used as the standard of value. Under a bimetallic system the mints are open to the unlimited coinage of both metals at a fixed ratio of exchange established by law and both metals are legal tender in unlimited amounts, thus giving people the option

of making payments in either gold or silver. Bimetallism means, then, not the mere use of both metals as currency, but the use of both as standard money.

Bimetallism necessitates the fixing of a definite ratio of the weight of gold in the dollar or monetary unit to the weight of silver in the unit, but since both metals fluctuate in response to market conditions, the values of the two coined metals refuse to coincide at any fixed ratio for long at a time. It must be understood that the stamp of the government or of the mint upon standard coins does not give them value; the stamp is simply the certification that these coins contain a certain weight of coin of a specified fineness. Under our coinage system the silver dollar contains 371 grains of pure silver, or 412 grains of silver 9/10 fine; the gold dollar, if actually coined, would contain 23.22 grains of pure gold, or 25.8 grains of gold 9/10 fine. Their weights are then approximately as 16 to 1. The silver dollar contains sixteen times as much pure metal by weight as the gold dollar, and this is known as the coinage or mint ratio. The ratio of the two metals as bullion in the open market is spoken of as the market or bullion ratio. Official coinage laws have generally fixed the mint ratio of gold and silver at the market ratio prevailing at the time, but without providing a practicable method of changing the official ratio to conform to changes in the market ratio.

Now, if the legal ratio between gold and silver is fixed at 16 to 1, that is, if the mint coins 16 ounces of silver into as many dollars as 1 ounce of gold while an ounce of gold bullion sells in the open market at the same price as 17 ounces of silver, people will not take gold to the mint. At the mint they can get for an ounce of gold only as many dollars as for 16 ounces of silver, but in the market they can exchange it for 17 ounces of silver. Obviously a profit can be made by exchanging the gold for silver bullion and taking the latter to the mint to be coined into dollars. Furthermore, it will be profitable under these conditions to melt existing gold coins into bullion and exchange it for silver to be sent in turn to the mint.

If, on the other hand, the market price of 15 ounces of silver bullion is equivalent to 1 ounce of gold, while the mint ratio is 16 to 1, no one will take silver to the mint. It will be more valuable as bullion than as coin, and silver coins will disappear from circulation just as in the other case gold coins disappear. When the mint ratio and the actual market ratio of the two metals do not agree, and as a consequence one of them is withheld from the mint, it is said to be undervalued, while the other is overvalued. Experience has shown that a small variation between these ratios will cause the undervalued metal to be withheld from coinage, while the overvalued metal will be presented freely to the mints to be coined and in time will drive the other out of circulation.

14. Gresham's Law. This tendency of an overvalued money to displace one undervalued is known as Gresham's Law, so called from Sir Thomas Gresham, master of the English mint under Queen Elizabeth. He first clearly formulated the principle, which, however, had long been recognized, that bad money drives good money out of circulation, or that "the cheaper money drives out the dearer." By bad money he meant worn and clipped coins, while good money referred to full-weight coins. The tendency to retain the bright new coin and to pass on to someone else the worn and underweight coin is familiar to everyone. But the law operates also, às illustrated by the early monetary history of this country, under the bimetallic system. When the coinage system was established in 1792 the law provided for the coinage of gold and silver at the ratio of › 15 to 1. This ratio differed, however, from the market ratio, which was about 15 to 1. Gold being thus undervalued at the mint was not presented for coinage, while silver, being overvalued, was freely offered and became the sole metallic coin in circulation. In 1834 the legal ratio was changed to 16 to 1, but at this ratio gold was overvalued and soon gold coins displaced silver, the latter being melted down or exported and sold as bullion.

The operation of Gresham's Law has frequently been

demonstrated also by the disappearance of coin as the result of the circulation of depreciated paper money. During the Civil War both the Federal and Confederate governments issued treasury notes to circulate as money. Such quantities were issued that they depreciated rapidly in value. Gold and silver coins disappeared from circulation because people could melt them down and exchange the bullion for these notes at their depreciated value. This process netted a substantial gain, since a dollar note would buy as many things as a silver or a gold dollar. These depreciated legal tenders thus became not only the sole medium of exchange, but also the standard of value, all prices being quoted in legal tenders instead of gold. Prices still depended, however, upon the value of gold. The value of the notes themselves, that is, what people were willing to pay for them, was quoted in terms of gold.

15. Advantages claimed for bimetallism.-The advocates of bimetallism claim for it various advantages, of which the most important, perhaps, is the greater stability of value of a double standard. They claim that since gold and silver are produced under different conditions and are used for different purposes, fluctuations in their respective values are as apt to be in opposite directions as in the same direction; that gold may be cheapening while silver is enhancing in value, and that these movements in opposite directions tend to keep the two metals from varying greatly from the legal ratio. It is undoubtedly true that the relative values of gold and silver under a double standard tend toward the established ratio. If gold is overvalued it is attracted to the mint and less of it is offered on the market, with the result that its value tends to rise. On the other hand, if it is undervalued it will be melted down to be sold as bullion on the market, and the increase there would tend to lower its value. Thus, says the bimetallist, any tendency of gold either to rise or fall in value would be automatically checked. As pointed out by Dr. Scott, "The weakness of this argument is the assumption involved of the unlimited interchangeability of gold and silver coins

for monetary purposes."1 Gold is best suited for coins of high denominations and silver for small denominations, and neither can well take the place of the other. Without this interchangeability of the coins the "compensatory action" of bimetallism would fail to work. As a result there would be a frequent change of the standard of value from one metal to the other, debtors choosing the cheaper one as the basis for payments, and prices would be quoted in that metal. "Instead of ridding us of the evils of a fluctuating standard, therefore, bimetallism would substitute one kind of fluctuation for another, namely, that involved in changing from a dearer to a cheaper standard for that involved in changes in the value of gold." Finally, it should be noted that even if the values of gold and silver could be maintained at a fixed ratio to each other, it would not solve the problem of a stable standard of deferred payment. Though thus tied together they would not always maintain the same exchange relations and the same level of prices with all other commodities, the cost of which is constantly changing.

Despite some more or less successful experiences with bimetallism, notably the experience of France in the last century, it is now generally conceded that no nation could independently maintain the double standard under existing conditions of a large and fluctuating production of gold and silver and of an enormous international trade. From time to time conferences have been held to discuss the establishment of international bimetallism, that is, the adoption by the leading nations of the double standard at a ratio determined by international agreement. The possibility of maintaining an actual bimetallic system, even if it could be agreed upon by the leading nations, has always been open to doubt. The extraordinary increase in the production of gold in recent years has set at rest, for the present at least, the double standard controversy.

England was one of the first countries to reach the conclusion that gold and silver cannot be kept in current cir1 Scott: Money, p. 85.