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By Root 1377 0

along with notes, checks, and giro transfers, chiefly in silver coins, which are partly relics of the time of the silver standard, and partly minted by the government for the account of the state and to the benefit of the Treasury, which receives the considerable profits of the coinage. A conversion fund, which is set up and administered by the government, exchanges these silver coins at a fixed ratio for gold, gold securities, or other claims to money, payable on demand, while, on the other hand, it issues such silver coins in exchange for gold in unlimited quantities at the same rate, allowance being made for the expenses of storage, transportation, etc. The minor details of this arrangement differ in different countries; but the differences in its legal or banking technique are insignificant as far as its nature is concerned. It is, for example, of no further significance, whether or not the silver coins are converted on the basis of a legal obligation. All that matters is whether the conversion actually does take place on demand. [11]

There exists no fundamental difference at all between the currency system of these Asiatic and American countries and that that the European gold-standard countries once had. Under both systems, payments are made without the actual transference of money by the aid of the surrender of fiduciary media. The fact that in England and Germany the actual transference of money also played a certain part for medium-sized payments, whereas in India and in the Philippines the number of actual transfers of money is scarcely worth mentioning, or that in the former countries the proportion of the circulation that was not covered by money was smaller than in the latter, is quite inessential; it is a difference that is merely quantitative, not qualitative. Of no great relevance is the circumstance that the fiduciary media were in the one case predominantly banknotes and checks and are in the other case predominantly silver coins. The silver rupee is in truth nothing but a metallic note, for the conversion of which its issuer, the state, is responsible. [12]

Following up a train of thought of Ricardo's, who was the first to develop the plan of this monetary system more than a hundred years ago,[13] it is customary to speak of it as the gold-exchange standard. The aptness of this designation can only be conceded if it is intended to stress the peculiarities in banking and currency technique that characterize the system. But it is a name that must be rejected if it is intended to indicate the existence of a fundamental difference from what used to be the English and German type of gold standard. It is not correct to assert that in these countries gold functions merely as a measure of prices while the silver coins are used as a common medium of exchange. We know what little justification there is for speaking of a price-measuring function of money. In Ricardo's sense, it was possible to speak of measurement and measures of value; from the point of view of the subjective theory of value these and similar concepts are untenable. In India and Austria-Hungary and in all other countries with similar currency and banking systems, gold is or was just as much a common medium of exchange as in prewar England or Germany; the difference between the two systems is only one of degree, not one of kind.

4 Fiduciary Media in International Trade

The practice of making payments by the writing off or reciprocal balancing of claims is not restricted by the boundaries of states or countries. It was in fact in trade between different areas that the need for it was earliest and most strongly felt. The transportation of money always involves not inconsiderable cost, loss of interest, and risk. If the claims arising out of various transactions are liquidated not by the actual transference of money, but by balancing or offsetting, then all these expenses and dangers can be avoided. This provided an extraordinarily effective motive for developing those methods of making payments over long distances which saved the transference of