ot kept within the proper limits and they went
down to their bullion value. The only way a further profit could be
made in this way was to debase the coin again. By successive steps the
coinage came to consist almost entirely of cheaper alloy.

Sec. 8. #The gold-exchange standard.# In a number of silver-using
countries and colonial dependencies near the end of the nineteenth
century, the fluctuations of the value of silver in terms of gold was
a constant source of difficulty in the payment of foreign obligations
to gold standard countries. Yet there were strong reasons in the
habits of the people and in the industrial conditions of the country
to forbid the adoption of gold and the disuse of silver as the actual
money in circulation. The method adopted, that of the gold-exchange
standard, involved these features.

(1) Closing the mints of the country to the free coinage of silver, as
was done most notably in India in 1893 and in Mexico in 1904.

(2) Adoption of a fixed ratio of exchange between the silver coins in
circulation and some gold coin which is made the standard of value in
all transactions (as the dollar or the pound sterling), the money in
circulation thus being all or nearly all of a fiduciary nature.

(3) Regulation and limitation of the amount of money in circulation so
that a fixed parity between it and gold may be maintained (a) by the
limited issue of coins only on governmental account, (b) by the sale,
at a fixed rate, of foreign exchange bills payable abroad in the
standard unit, the money paid for the bills being withheld from
circulation in a special reserve, (c) by the purchase of foreign bills
of exchange at a fixed rate, thus paying out and putting again into
circulation some of the fiduciary money in the special reserve.

These monetary changes furnish numerous illustrations and
demonstrations of the quantity theory of money as applied to the
entire circulating medium of a country.[8]

Sec.9. #Nature of governmental paper money.# The problem of seigniorage
presents itself in its most extreme form when money is made of paper.
Paper money is issued either by a government or by a bank. We will
consider governmental notes here, reserving until Chapter 7 the case
of bank notes.

The issue of paper money in some cases grew out of the practice of
debasing metal. However this may have been, governmental paper money
may be looked upon as money for which a seigniorage of one hundred per
cent is ch