The Evolution of Small Change: Beliefs, Experiments, and ...

6 Introduction
should be tokens backed by a government standing ready to exchange it
for full bodied large denomination coins or currency.
In 1900, J. Laurence Laughlin (1900, 113-4) described the standard
formula and alluded to the adaptive process that invented it:
“As now understood and practiced, a correct system of token
money would conform to the following principles: 1. such a reduction
in weight and value below the standard unit as would prevent
exportation and yet not place a premium on counterfeiting. 2.
Coinage only on government account; that is, no free coinage. 3.
Limited legal-tender power. 4. Protection against excessive quantity
by direct redemption on presentation in proper amounts, which also
maintains its face value. As a matter of course, countries have not
always had clear conceptions regarding this kind of money, so that
the principles just enumerated have come forth only by a process of
evolution out of experience.”
We shall see how the evolution of monetary doctrines about small change
was an important part of the process by which a managed fiat currency
system came to be understood and implemented. Apart from the inessential
detail of the substance on which a ‘promise’ is printed, a token coin is like a
government or privately supplied paper bank note. After a long process of
theorizing and experimenting, most governments eventually monopolized
the issuing of bank notes and token coins. The process of thinking about
small change and the feasibility of a system of token small coins uncovered
and refined the quantity theory of money.