By hand-to-hand money is meant those 'ele ments of the medium of exchange which per form their service by mere transfer from hand to hand without endorsement or any other formality. In the United States at the present time it includes all our coins, several varieties of governmental notes and •bank notes. Under the head of written or printed orders to pay specified sums to specified persons belong bank checks- and drafts, postal money orders, ex press money orders -and other similar devices. Some of these can be transferred between other than the original parties by the formality of endorsement. Book accounts ate- widely used and constitute much the most important element of the medium of exchange of modern nations.. Any book account serves as a medium of exchange if directly or indirectly it enables purchases and -sales of commodities to be bal anced against each other, for example, that of a grocer who credits farmers with the proceeds of eggs, butter, vegetables, and other produce purchased and debits them with their purchases from him, or that of the farmer himself who credits his hired man with the wages agreed to be paid for his services and debits him with house rent, milk, eggs, potatoes, wood and other produce advanced him. In directly the checking accounts of commercial banks balance against each other on a large scale the purchases and sales of individuals, communities and nations, and thus. constitute the largest element of the medium of exchange of all highly developed commercial nations.
The second of the above classifications is based in part upon the form and in part upon the source of the medium of exchange. The metallic element of the medium ,usually takes the form of coins, though bullion is also used. Government notes are those issued by the gov ernment and for the payment of which it is responsible, while bank currency originates with banks, which are responsible for meeting the obligations involved in its issue. The name paper money is frequently applied to govern ment and hank notes to distinguish them from coins. Coins may be sub-classified on the basis of the metals employed in their manufacture into gold, silver, nickel, or amalgam and copper, and on the basis of their relation to each other, into standard and subsidiary.
The basis of the third classification is the presence or absence of the element of credit. Standard .coins, that is, those made from the standard of value, are the only ones.in which this element is entirely absent. All other coins, all paper elements of the currency and all book accounts which serve as a medium of ex change contain the element of credit in some degree. Our silver coins, for example, are actually worth as bullion much less than the amount stamped upon them and government and bank notes are in and of themselves worth practically nothing. People them
at the value indicated by the stamp upon them only because somebody in whom they have confidence is under obligation to make that value good, the government in some cases, banks in others, specified persons or corporations in others. The term credit cur rency is appropriately applied to all elements of the medium of exchange which circulate at a, value greater than the market value of the substance of which they are made because the credit of some government or hank or person or corporation is an essential factor in such circulation.
The maintenance of a medium of exchange consisting of coins made of different substances and of paper elements issuing from different sources is only possible when complete elimi nation has been made of the interest of any body and everybody to discriminate in favor of one element and against others. If such discrimination is for any reason profitable, those elements which alone can with profit be used as a medium of exchange All soon the only ones so used The others will be de voted to other uses which are more profitable and on this account will disappear from circula tion. This fact was observed in the 17th cen tury by Sir Thomas Gresham, director of the English mint, and stated in the form of a law winch has since borne his tame. "Bad money,* h. said, "drives good money out-of circulation." This law has been brought into operation many times by the circulation in large quan tities of worn and dipped coins. When the proportion of such coins becomes large, full weight coins will either be melted down and sold as bullion 'or clipped and sweated. It was cases of this kind which Sir Thomas Gresham had in mind when he used 'the adjectives good and bad in the statement of his law, bad money referring to worn and clipped coins and good money to full weight coins.
The operation of this law has also been frequently illustrated by the substitution of sil ver for gold coins and vice versa. In the early part of our history five silver dollars contained 15 times as many grains of silver as did a five-dollar gold piece grains of gold, 15 to 1 in 1793, at the time these coins were first minted, being about the relative values of the same weight of silver and gold. Subsequently the value of silver relatively to gold fell so that it required nearly 16 ounces of silver to sell upon the markets for as much as an ounce of gold. The result was that gold coins com pletely disappeared from circulation, because they were worth more as bullion than as coin. For the opposite reason, silver remained in circulation and silver bullion was taken to the mint and coined. Later still in our history, on account of a great fall in the value of gold relative to silver, gold coins took the place of silver, the latter being melted down or exported and sold as bullion.