Part I.—: Metallic Money, Sect. I.—: Circumstances which led to the use of Money. Principal properties which all Commodi

Money (Gr. Μονητα, [Editor: illegible character]μισμα; Lat. moneta, pecunia, nummûs; Fr., monnaie,) the name given to the commodities or articles which the people of different countries universally accept, either voluntarily or by compulsion, as equivalents for their services, and for whatever else they may have to dispose of.

Were the division of labour unknown, and did individuals or families directly supply themselves with the articles required for their subsistence and accommodation, there would be no exchanges, and, consequently, no money. But, after this division has been established, the employment of money becomes necessary, or, at least, highly advantageous. A small part only of a man’s wants is then directly supplied by his own exertions. The greater part is indirectly supplied by his exchanging services, or articles belonging to him, for such services or articles rendered by or belonging to others as he has occasion for, and they are willing to furnish. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.

“But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former, consequently, would be glad to dispose of, and the latter to purchase, a part of this superfluity. But, if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each be willing to purchase a part of it; but they have nothing to offer in exchange except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange can, in this case, be made between them. He cannot be their merchant, nor they his customers; and they are all of them thus mutually less serviceable to one another. To avoid the inconveniency of such situations, every prudent man, in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.”

This commodity, or Marchandise banale, as it is termed by the French, whatever it may be, is money.

Different commodities have been used as money in different countries and states of society. Those nations which chiefly subsist by the chase, such as the ancient Russians, and the greater part of the Indians who occupy the unsettled portions of America, use the skins of wild animals as money. In pastoral societies cattle are sometimes used for that purpose. Homer tells us that the armour of Diomed cost only nine oxen, whilst that of Glaucus cost a hundred. The etymology of the Latin word (pecunia) signifying money, and of all its derivatives, would seem to prove that cattle (pecus) had been the primitive money of the Romans. And that they had been used as such by the ancient Germans is obvious; for their laws uniformly fix the amount of the penalties to be paid for offences in cattle. In remoter ages corn was very generally used in agricultural countries, as money; and even now, nothing is more common than to stipulate for corn rents and wages. Other articles have been used in other countries. Salt is said to be the common money of Abyssinia. Cowries, a species of shells gathered on the shores of the Maldive Islands, are used in smaller payments throughout Hindostan, and form the only money of extensive districts in Africa. Dried fish serves as money in Iceland and Newfoundland; and Adam Smith mentions that, at the period of the publication of the “Wealth of Nations” (1776), it was customary in a village in Scotland for workmen to carry nails, as money, to the baker’s shop and the alehouse.

But these articles universally want some of the principal properties which money ought to possess. Products must frequently be brought to market which are worth only part of an ox and part of a skin; but as an ox could not be divided, and as the division of a skin would most probably deprive it of part of its value, they could not be exchanged for such money. Divisibility is not, however, the only indispensable quality in a commodity used as a medium of exchange. It is farther necessary that it should admit of being kept for an indefinite period without deteriorating; that it should, by possessing great value in small bulk, be easily carried about; and that one piece of money of a certain weight and fineness, should be precisely equivalent to every other piece of money of the same weight and fineness. But none of the commodities specified above, as having been used as money, possesses these properties. Though cattle had been sufficiently divisible, they could neither be preserved, nor transported from place to place, without a great deal of trouble and expense; while, owing to the difference in their qualities, one ox of a superior might be worth two or three oxen of an inferior variety. It is plain, therefore, that they could not serve as money except in a very rude state of society, when the arts were almost unknown, and the rearing of cattle formed the principal employment. Corn is sufficiently divisible; but its bulk is far too great in proportion to its value to admit of its easy transportation, and it also is of very different and not easily appreciated qualities. Salt, shells, and fish, are all open to insuperable objections. Equal quantities of all of them differ very greatly in their values; some of them cannot be divided, and others cannot be preserved or transported without much loss.

These commodities were also deficient in a still more important particular. Their value was not sufficiently invariable to permit of their being advantageously used as money. They were not durable or lasting, nor was it possible to adjust their supply so as to avoid sudden fluctuations of price. The occasional abundance and scarcity of pasture has a powerful influence over the price of cattle, which is still more seriously affected by the occurrence of epidemical diseases, and other contingencies. The fluctuations in the price of corn, arising from variations of the seasons, are too frequent and obvious to require to be pointed out. And in the islands where cowries are picked up, a strong gale from a particular point of the compass has frequently, in a few hours, sunk their value considerably. It was not, therefore, to be expected that such commodities should be either generally or permanently used as money in civilised societies. Parties would very frequently be unwilling to buy, or barter produce for articles which might, in a few weeks, or even days, lose a third or a half of their value.

The desire of uniting the different qualities of invariability of value, divisibility, durability, facility of transportation, and perfect sameness, doubtless formed the irresistible reasons which have induced all civilised communities to employ gold and silver as money. Though far from invariable, the value of these metals changes only by slow degrees; they are readily divisible into any number of parts, which may be reunited, by means of fusion, without loss; they do not deteriorate by being kept; their firm and compact texture makes them difficult to wear; their cost of production, especially of gold, is so considerable, that they possess great value in small bulk, and can, of course, be transported with comparative facility: and their identity is perfect, the pure gold and silver supplied by Russia and Australia having precisely the same qualities with that furnished by California and Peru. No wonder, therefore, when almost every property necessary to constitute money is possessed in so eminent a degree by the precious metals, that they have been used as such from a very remote æra. Their employment in this function is not ascribable to accident, to the genius of any individual, or to any peculiar combination of circumstances. It grew naturally out of the wants and necessities of society, on the one hand, and the means of supplying them possessed by these metals, on the other. They became universal money, as Turgot has observed, “not in consequence of any arbitrary agreement among men, or of the intervention of any law, but by the nature and force of things.”

A considerable period must necessarily have elapsed, after the introduction of the precious metals into commerce, before they were used generally as money. But, by degrees, the various qualities which so peculiarly fit them for this purpose would become obvious; and, in consulting their own advantage, individuals would endeavour to exchange some portion of their produce for commodities which could be easily concealed or carried about, which did not deteriorate by being kept, and of which they could give a portion that would be equivalent to, and readily accepted for, any article they might afterwards wish to obtain. When first brought to market, gold and silver, like copper, iron, or any other metal, were in an unfashioned state, in bars or ingots. Sheep, oxen, corn, cloth, &c., were then bartered for gold or silver, exactly as they were bartered for iron, copper, tin, or anything else. The parties having agreed upon the quality and quantity of the metal to be given for the goods, the latter was ascertained by weight. Nor is this a mere conjectural statement, advanced in a later age to explain appearances, and resting on probability only. Aristotle and Pliny tell us, that such was, in fact, the method by which the precious metals were originally exchanged in Greece and Italy; and the sacred writings present us with a remarkable example of the prevalence of the same primitive practice in the East. We are there told that Abraham weighed four hundred shekels of silver, and gave them in payment of a piece of ground he had purchased from the sons of Heth. It is also mentioned that this silver was “current money with the merchant,” an expression which evidently refers to its quality only; for, had it been coined, or marked with a stamp, indicating its weight and fineness, it would have been unnecessary to weigh it. These ancient practices still subsist in various countries. In many parts of China, gold and silver do not circulate as coin under the authority of a public stamp. When exchanged, they are cut into pieces, supposed to be nearly proportioned to the value of the article they are to be given for; and the pieces are then weighed to ascertain their precise value. This practice is also prevalent in other countries.

Before the art of metallurgy was well understood, the baser metals were frequently used as money. Iron was the primitive money of the Lacedemonians, and copper of the Romans. But these metals deteriorate by being kept; and, besides this defect, the rapid improvement of the arts, and the consequent reduction of their price, speedily rendered their bulk in proportion to their value much too great to permit of their continuing to serve as money. Copper, however, is still advantageously used in the form of tokens, convertible into silver in very small payments. In Great Britain, copper pence and half-pence are rated far above their real value. But as their issue is exclusively in the hands of government, and as they are legal tender to the extent of one shilling only in any one payment, this over-valuation has not, for reasons which will be afterwards explained, had any bad effect.

The trouble and inconvenience attending the weighing of the metal in every exchange of gold or silver for commodities, must have been early experienced. But the greatest obstacle to the use of unfashioned metals as money, would undoubtedly be found in the difficulty of determining their quality, or the degree of their purity, with sufficient facility and accuracy. The operation of assaying is one of great nicety and delicacy; and, notwithstanding all the assistance derived from modern art, it is still no easy matter to ascertain the precise degree of purity of a piece of metal. In early ages, such an operation must have been performed in a clumsy and bungling manner. It is most probable, indeed, that when the precious metals were first used as money, their quality would be appreciated roughly by their weight and colour. A very short experience would, however, be sufficient to show the inexactness of conclusions derived from such loose and unsatisfactory criteria; and the devising of some method by which the fineness of the metal offered in exchanges might be easily and correctly made known, would very soon be felt as indispensable to the general use of gold and silver as money. Such a method was not long in presenting itself. It was early discovered that the purity of the metal would be indicated, and the trouble and expense of weighing it avoided, by marking each piece with a public stamp, declaring its weight and fineness. Such seem to have been the various steps which led the ancients, at a very remote æra, to the introduction of coined money. It was an invention of the greatest utility, and has powerfully contributed to facilitate commerce, and to accelerate the progress of civilisation and the arts.

“Without some article of known exchangeable value, such as coin, readily received as an equivalent for other things, the interchange of commodities must have been very limited, and consequently the divisions of labour very imperfectly established. Now, money obviates these evils, and by a twofold operation, augments production. In the first place, it saves all that time and labour which, while the intercourse between man and man is carried on by barter, must frequently intervene before a person can be supplied with the quantity of the commodity which he wants. In the second place, and in consequence of its saving the time and labour which must otherwise be spent in effecting exchanges, it multiplies the transactions of mercantile industry, and thus allows the divisions of employment to be more thoroughly established. By the first operation, it disengages a very considerable portion of labour from an unproductive occupation, and enables it to receive a more useful direction. By the second operation, it increases in a very high degree the productive powers of the labour already usefully employed. It assists every man in availing himself of the skill and dexterity which he may have acquired in any particular calling, and promotes cultivation in a manner suitable to the climate and soil or different districts, and of different countries. And by both these operations, coined money increases to an extent, not easy to be calculated, the wealth of civilised communities.”

But however great the advantages attending the use of coins, their introduction did not, in any degree, affect the principle of exchanges. Equivalents are still given for equivalents. The exchange of a quarter of corn for an ounce of pure unfashioned gold bullion, is undeniably as much a barter as if the corn were exchanged for an ox, or a barrel of beer. But supposing the metal to be formed into a coin, that is, impressed with a stamp indicating its weight and fineness, that circumstance would evidently make no change in the terms of the barter. The coinage saves the trouble of weighing and assaying the bullion, but it does nothing more. A coin is merely a piece of metal of a known weight and purity, and the commodities exchanged for it are always held to be of equal value. And yet these obvious considerations have been very generally overlooked. Coins, instead of being viewed in the same light as bullion or other commodities, have been regarded as something quite mysterious. They are said to be both signs and measures of value. But a sovereign is not a sign, it is the thing signified. A promissory-note payable on demand, or at some stated period, may not improperly be considered as the sign of the specie to be paid for it; but that specie is itself a commodity possessed of real exchangeable worth. It is equally incorrect to call money a measure of value, at least in the peculiar sense in which that phrase is commonly understood. Gold and silver do not measure the value of commodities, more than the latter measure the value of gold and silver. Everything possessed of value may either measure, or be measured by, everything else possessed of value. When one commodity is exchanged for another, each measures the value of the other. If the quartern loaf sold for a shilling, it would be quite as correct to say, that a quartern loaf measured the value of a shilling, as that a shilling measured the value of a quartern loaf.

The quality of serving as a measure of value is, therefore, inherent in every commodity. But the slow degrees by which the precious metals change their value, renders them peculiarly well fitted for forming a standard by which to compare the values of other and more variable articles. To this standard reference is almost always made in estimating the value of products in civilised countries. We do not say that one man is worth a thousand acres of land, and that another is worth a thousand sheep, but we ascertain for how much gold or silver the land and the sheep would respectively exchange, and then say that their proprietors are worth so much money. But in this there is nothing mysterious. We merely compare the value of one commodity with the value of another. And as coin or money is the most convenient standard of comparison, the value of other commodities is usually estimated or rated in it.

It is obvious, from this statement, that the exchange of one commodity, or set of commodities, for another, may sometimes be adjusted by referring to money, without any money being actually in the possession of either of the parties to the exchange. If a horse, for example, commonly sold for £10, an ox for £5, and a sheep for £1, the animals might be exchanged in this proportion without the intervention of money. The frequent recurrence of transactions of this kind seems to have given rise to the notion of an abstract or ideal standard of value. Thus, instead of saying that a horse is worth £10, an ox £5, &c., it has been contended that it might as well be said that they are respectively worth 10x, 5x, and 1x; and, since the comparative values of commodities may be as clearly expressed in this way as in sums of money, that the latter may be discarded as a standard, and a set of arbitrary terms adopted in its stead. But those who argue thus completely mistake the nature and functions of a standard. Its object is not merely to mark the known relations between different commodities, but also to enable those which are unknown to be readily discovered. And although a series of arbitrary terms may serve well enough for the first of these purposes, it is quite impossible that it can ever serve for the second. This, however, is the principal object of a standard; and it is sufficiently plain that nothing can be used as such unless it possess the same properties as the things with which it is to be compared. To measure length, a standard must have length; to measure value, it must have value. The value of commodities is ascertained by separately comparing them with money, and we express their relation to each other by stating the result of our inquiries; that is, by mentioning the number of dollars, of pounds, or of fractions of a pound, they are respectively worth. And, when any new commodity is offered for sale, or when any change is made in the cost of an old one, we ascertain its relation to the rest, by comparing it with a dollar or a pound. It would be impossible, however, to do this, were the terms dollar or pound purely arbitrary, and referable to no really valuable article. We might as well try to estimate distances by an imaginary inch or an imaginary foot, as to estimate prices or values by an imaginary shilling or an imaginary sovereign. When we say that an ox is worth £5 and a sheep £1, we not only mean that each is worth a certain amount of gold or silver, but also, that when an ox and a sheep are compared together—that is, when the one serves as a standard by which to estimate the value of the other—one ox is worth five sheep. But suppose that we wish to ascertain what is the relative value of some other commodity—a hat, for example—to oxen or sheep. Of what use would it be to be told that one ox was worth five sheep, or that when the value of an ox was represented by the term “5x,” the value of a sheep was represented by the term “1x”? It is not the relation between oxen and sheep, but the relation between these animals and hats, that we are desirous of learning. And, though this relation may be learned by comparing the cost of oxen and sheep with the cost of hats, or by ascertaining for how much of some other really valuable commodity an ox, a sheep, and a hat will respectively exchange, it is obvious it will never be learned by comparing them with x or z, or other arbitrary term or symbol. It would not, in truth, be more absurd to attempt to ascertain it by comparing them with the hieroglyphics on an Egyptian sarcophagus. Nothing that will not exchange for something else can ever be a standard or measure of value. Commodities are always compared with commodities, and not with abstract terms. Men go to market with real values, or their equivalents, in their pockets. And it is to something possessed of real worth—to the gold contained in a sovereign, and not to the word sovereign—that they always have referred, and must continue to refer, in estimating value.

This principle has been neatly and perspicuously stated by Locke:—“Men, in their bargains,” says he, “contract not for denominations or sounds, but for the intrinsic value; which is the quantity of silver (or gold) by public authority, warranted to be in pieces of such denominations. And it is by having a greater quantity of silver (or gold) that men thrive and grow richer, and not by having a greater number of denominations; which, when they come to have need of their money, will prove but empty sounds, if they do not carry with them the real quantity of silver (or gold) that is required.”

In common mercantile language, the giving of money for a commodity is termed buying, and the giving of a commodity for money, selling. Price, unless when the contrary is particularly mentioned, always means the value of a commodity rated in money.

Having thus endeavoured to explain the circumstances which led to the introduction of money, and to show what it really is, and what it is not, we proceed to investigate the laws by which its value is regulated. It is chiefly from the prevalence of erroneous opinions on this subject, that the theory of money has been so much misunderstood.