Coinage Metallic money may circulate by weight or by count. In its earliest form it circulated by weight, but the practice was very inconvenient. So long as money circulated by weight, there was no misapprehension as to the nature of money—it was a commod ity exchanged in kind for other commodities, and the barter na ture of the operation was clearly evident. To introduce circula tion by count, it was necessary for an authoritative person or institution to issue pieces of the metal uniform in size, content, and design, and attest to this uniformity by the imprint of his or its stamp. Such pieces had to be so designed as to maintain their full weight. When they were so designed, any reduction by ero sion, sweating, clipping, and the like, being easily detected, would render their acceptance improbable except by weight. The act of manufacturing uniform coins and stamping them in some way as a guaranty of their purity and of their weight is termed " coinage." The confidence of the commercial public in these coins is much greater if the general government does the coining, although there is no reason why a private coiner cannot coin as competently. The state's duty of enforcing contracts and imposing penalties, and the requirements of revenue, caused the state to safeguard the manufacture of a sound and reliable medium of payment. Coinage has therefore become a state monopoly, and the legisla tive body defines the name, weight, purity, and metal of the different coins; and in order to maintain the public confidence in these coins, it proscribes all private coinage and prosecutes counterfeiting. Quite the world over, coinage is vested in the state.
Legal Tender One of the necessary functions of government is the adjudica tion and final settlement of contested rights and contracts; an other is the levy and collection of revenue and the quittance of the revenue payer from obligation. To perform these functions, it is necessary for the state to legislate as to which coins of the realm are legal tender in payment of debts contracted in terms of money, and which are acceptable to the state in settlement of revenue obligations and court decrees.
A legal-tender law determines the debt-paying power of coins and has no reference to their purchasing power, which may differ from their debt-paying power. A legal-tender law, moreover, pertains only to debts contracted or decrees handed down in terms of the money in general, and does not prevent contracting parties from naming the specific money in which payment is to be made. If a debtor offers a legal tender in settlement of his debt, the creditor is obligated to accept this or receive nothing. The legal-tender quality may be defined in law as to its extent, that is, it may be full and unlimited, or limited. For example, certain foreign coins may be made legal tender at a specified dis count from their face amount, or, as is the case in the United States, silver half-dollars may be made legal tender for $5 or less in one payment.
Brassage and Seigniorage The coinage laws of a state also determine the charges for coinage and the freedom with which the state will coin for an individual any bullion he may have and wish coined. Since coins are manufactured articles, the actual expense of coinage appears to be a legitimate charge to the person bringing bullion for coining. Such charge is called "brassage." The state, how ever, sometimes uses its monopolistic position to charge more than this actual cost. The profit to the government in such a case (including the brassage) is called "seigniorage" and may be so fixed as to bring large returns to the government. The charge of high seigniorage amounts to a depreciation of the coinage to that degree, if the government coins and puts into circulation this seigniorage. If the state charges no brassage, it is said to have "gratuitous" coinage.
Charging seigniorage has been resorted to for several purposes. Kings have been known thus to depreciate the currency for fiscal purposes. To stop persons from melting coins, a seigniorage charge is effective, since an ounce of coined metal is then worth more in exchange than an ounce uncoined. Likewise, to prevent its exportation, a seigniorage charge suffices, since the coins are acceptable in the foreign country at only the market value of their metal content. To keep down the size of a coin made from low value metal, a high seigniorage is effective, thus rendering copper cents and other such coins convenient in size and economical in manufacture.
To the degree that the nominal value of a coin represents seigniorage, it becomes a fiduciary form of money. The holder then depends upon the government, and no longer upon the market, to maintain the value of his coin. In this respect there is no essential difference between a silver dollar, which represented in 1920 about 25 per cent seigniorage, and the greenback, which represents ioo per cent seigniorage. This phase of the subject is treated in Chapter III.
The state may proclaim itself ready to coin any amounts of bullion brought to it by individuals. This freedom conferred by the state is "free" coinage. Under free coinage the state may or may not charge brassage; the United States has, at different times in the past, tried each plan. Neglecting interest loss, free coinage with no brassage or seigniorage imposed renders the price of bullion and coins practically the same, since conversion from one to the other is open and free.
Bimetallism versus Monometallism Up to and well into the last century the coinage systems of progressive nations were bimetallic. That is, there were: (r) free and unlimited coinage of both gold and silver at a fixed legal ratio of weights of the gold and silver coins, and (2) the full legal tender of both at these ratios. The mint or legal ratio was fixed between 15:1 and 16:i, and conformed roughly to the market ratio pre vailing at the time of legislation.