The continued circulation of “bad” money along side of “good” money (light-weight along side of full-weight coins), so long as the total number of coins is not in excess of the money demand for full-weight coins, is explained thus on just the same principle as is the circulation at parity of a light-weight fractional coinage, in the preceding section.

Sec. 6. #A general seigniorage charge on standard money.# The fiduciary coinage problem presents itself under a some-what different guise in case a seigniorage charge is made on all coinage, even of that metal used as the standard unit.  In this case coinage is free but not gratuitous.  In this case no bullion is brought to the mint unless the coined pieces the owners receive have a value equal to the bullion value plus the seigniorage charge.  The power to impose a seigniorage charge is a monopoly power.  Artificial limitation is present.  Evidently, the number of coins that can be issued without depreciation is limited to that number which would circulate if they were made full weight without a seigniorage charge.[7] This number of pieces of full-weight metal is the saturation point of the money demand of the country.  If more than that could in any way be put into circulation it would become worth less as money than as bullion, and would be melted or exported.

Assume that this full supply of money at a given moment is 100,000 pieces or dollars; then consider the effect of imposing a seigniorage charge of ten per cent on further coinage.  The government alone having the right of coinage, the need of money would give the circulating medium a monopoly value.  The value of the money would rise.  When it had risen until the coin would buy any more than one-ninth more bullion than was in it, the citizens would begin to take metal to the mint.  After the ten per cent charge was taken out they would receive a coin which, the containing one-tenth less bullion, would be worth very nearly the same as the metal taken to the mint.  No considerable depreciation could take place unless the volume of business fell off so that less money was needed than before.  In that case there would be no outlet for the excess of coins until they fell to their bullion value, i.e., till they lost the entire value of the seigniorage, the monopoly element in them.  Melting or exporting them before that point was reached would cause to the owner the loss of whatever element of seigniorage value they contained.  We thus have arrived at the general principle of seigniorage:  when the number of coins issued is limited to the saturation point, a seigniorage charge does not reduce their money value; they are worth more as money than as bullion.  And this holds good of a large seigniorage charge as well as of a small one, even up to the extreme limit of a charge of 100 per cent.  In this last case the government would retain the whole of the bullion brought to it and would give in return a piece of money made of material (metal or paper) with a negligible value.