This is particularly evident in the case of interna tional trade, where the payments made are for the dif ferences in the trade balances established by the na tions. The foreigner wants moneY with which to buy things, and so long as he can buy with drafts based upon the credits established by the sales of his coun try's products in foreig,n lands his purchasing power is established. A balance one way or the other must be settled in the international money, gold.
Here we have one important explanation for the withdrawal of gold from circulation and its hoard ing for reserve purposes in the banks. The banks in their turn protect their gold reserves by raising the rate of discount, and if this reaches too high a point the gold moves into the country from other lands and reestablishes the equilibrium. It is evident from this brief comment that a country cannot lose its money stock.
18. .3Ionetary circulation of the United States.— On the first of each month the Secretary of the Treas ury issues a statement of the monetary stock and monetary circulation of the United States. The fol lowing is a condensed statement in million dollars for October 1, 1917.
this table reveals three main forms of money in the general stock, gold, silver and paper, it pre sents a somewhat bewildering variety of money issues in actual circulation. One form, moreover, is not ac counted for, namely, the minor coinage, which for some reason is always omitted from the Treasury statements.
19. United States gold money.—It appears from our table that somewhat more than half of the mone tary stock of the United States consists of gold or full-standard money. This favorable oondition of affairs has been reached only gradually since the re sumption of specie payments in 18:78. Of this gold only a comparatively small part circulates in the form of coin, the great mass of it coming into use in the form of certificates. The gold coin held in the Treas ury as the reserve against such certificates does not appear in the table as a Treasury holding. While the table tells us that in the form of coin or certificates there is over two billion dollars in circulation it is not to be understood that any considerable portion of this amount is the pocket money of the people. Some of it is perhaps hoarded, but the largest amount which is traceable is locked in vaults of banks.
The reason for preferring the certificate to coin lies not only in the greater ease of handling notes and the smaller storage space required, but also in the denominations. Approximately one-third of
the value represented by the certificates is in denom inations of $10,000, and another third is in denomina tions of $50 and less than $10,000. Only one-third of the value of such certificates is represented by de nominations no larger than the coins themselves.
20. United States silver from the silver token coins, which are designated as subsidiary silver in the table and require no further comment, the silver money of the United States appears to con sist of silver dollars, silver certificates and treasury notes. The small amount of the last named now out standing is practically silver certificates as they are represented in the Treasury by standard silver dol lars and not by bullion as was originally the case. The preference in the case of silver for the certificates rests upon their more convenient form.
When the bulky silver dollars were first coined in 1878 it was found impossible to force their use upon a, people accustomed for years to a currency composed exclusively of paper money. No sooner did they leave the Treasury than the channels of trade brought them back. At no time does it appear to have been possible.to circulate more than eighty millions of these dollars in metallic form. The silver certificate solved the problem of circulation. At the present time these certificates do a large part of the work for issues of $5 and less. Of the total value outstanding less than one-fifth is represented by certificates of a larger denomination than $5.
We owe the presence of this money in our circula tion to the attempt of our government to bolster up the price of silver with a view to reestablishing, if possible, the ratio to gold of 16 to 1 which had pre vailed in our legislation prior to. the Civil War. Un der the Bland-Allison Act Of February 28, 1878, the government was directed to purchase from $2,000,000 to $4,000,000 worth of silver each month and coin it into standard silver dollars. The government never bought more than the minimnm, but as silver was declining in price it added considerably more than $24,000,000 annually to our circulation. This act was superseded by the Sherman Act of 1890 under which the government bought monthly 4,500,000 ounces of silver and issued the Treasury notes of 1890 for the purchase price.