CHAPTER XIV

MONEY

THE vast system of valuation and exchange, which is the most characteristic single feature of present-day economy, rests upon the use of money. Some economic writers have pictured an imaginary primitive state of "barter economy," in which, before the use of money, goods were exchanged directly for goods. But what little definite information there is on this point leads to the belief that about as soon as men began to exchange things, and consequently to attach exchange value to them, they began to use some kind of money-some commodity or commodities for which things were generally exchanged, and in terms of which the values of other things were generally measured.

These earliest forms of money were crude and simple, but they sufficed to meet simple needs. As exchange economy has advanced through the growth of individual and industrial specialization and the localization of industry to the present complex division of labor, the monetary system has developed pari passu, the most conspicuous feature of this development in modern times being the growing importance of credit as a means of effecting exchanges. Industrial and commercial progress has led to monetary progress, and has, in turn, been stimulated and made possible by it.

Various Meanings of the Word "Money." —The word "money," like so many other terms with which economics has to deal, has in common usage no restricted technical meaning, but may denote any one of a number of different things. It sometimes means individual wealth of any sort. A "monied" man is simply a wealthy man. This is, however, only a colloquial and purely derivative meaning. A second, and very common, use of the word is in the sense of generally exchangeable purchasing power, whether

this be embodied in concrete forms of money, or exist only in the intangible form of credit. Money in this sense is synonymous with "money funds." The "money market" is the market for loanable money funds. When we speak of "money income," "money expenditures," "money investments," etc., we refer to this exchangeable purchasing power.

Other meanings of the word "money" suggest that, for some purposes, a distinction may he made between "money" and credit instruments. But to look for any definite line of demarcation, consistently followed in common usage, or even in economic writings, would be a vain search. The element of credit is found in most forms of money, even, as we shall see, in some kinds of metallic money. A useful and important distinction, however, is made by the very common practice of restricting the term "money" to those instruments of general acceptability which pass freely from hand to hand as media of exchange. The particular things included in this third concept of money vary for different periods and for different countries. In the United States this freely exchangeable medium includes the metallic and paper money issued by the federal government, together with national bank notes. Checks drawn by individuals upon their bank accounts are not money, or money instruments, in this sense, because they do not pass freely from hand to hand as media of exchange. They can be used only in making payments to persons who know and have confidence in the drawer, indorser, or holder of the check.

This third meaning of the word "money" possesses, as has been suggested, the sanction of a very common and prevalent usage; it corresponds, moreover, to the technical definition given to the word by many economic writers, and to the official usage of the United States Treasury. Some writers, however, have drawn the line between money and other means of payment somewhat differently, either refusing to count bank notes as money, thus limiting the term to money instruments issued by the government, or narrowing the application of the term yet further by using it to denote only metallic money, all other media of exchange being counted only as promises to pay money.

Yet another, and still more restricted, meaning is attached to the

word when it is employed to denote only that part of the stock of metallic money which serves as a standard of value as well as a medium of exchange. Although this extreme limitation of the meaning of the word "money" is neither common nor justifiable, the distinction suggested by it is a fundamental one. For, as we shall see presently, the value of all other media of exchange is determined by their relation to what is best distinguished by calling it standard money.

All these different uses of the word "money "imply distinctions of greater or less significance, but for purposes of economic analysis the most important concepts are the second, third, and last in the foregoing enumeration. Recognition of the fact that exchangeable purchasing power, money instruments of general acceptability, and the standard of value are different things is indispensable to clear thinking in this field. In this chapter the word "money" will be employed in the sense of money instruments of general acceptability.

Metallic Money. The earliest and simplest forms of money were commodities. Particular commodities came to serve as money, not because they were arbitrarily designated as such by king or chieftain, but because they possessed some properties which made them exceptionably exchangeable. In some cases a primitive community came to use a commodity as money because it was something for which they had a dependable "foreign market". something, that is, which they customarily sold to other communities in exchange for their products. In other cases a commodity which a community did not itself produce, but which it got only in the course of trade with other communities, became the money commodity. Or, if for any reason a particular commodity came to be particularly esteemed as a mark of wealth or a badge of social prestige, it was very apt to be used as money. But whatever the original ground of the choice, a commodity which a community once began to think of as money had its exchangeability, and consequently its suitability for monetary uses, increased in cumulative way, just as to-day most of us are willing to accept anything as money which we think we can use as money.

A great variety of commodities have at one time or another been

used as money. Some typical examples are cattle, grain, furs, oil, salt, tobacco, ivory, shells, and tea. But with the advance of political and economic civilization the metals have, through the process of the survival of the fittest, proven themselves everywhere to be preeminently and indisputably the best money commodities. Copper, silver, and gold have each in turn been chosen as the principal money metal of the civilized world, the transition from the cheaper to the dearer metals indicating the growth of exchange and the consequent need of larger money units.

Metals, and especially the precious metals, have certain qualities that give them a peculiar fitness to serve as money. They are durable, easily recognized and tested, and may be divided into homogeneous units of convenient form and weight. Moreover, as compared with most other commodities, the precious metals are relatively stable in value a fact that arises in part from their durability, for any one year's supply output of the mines makes but a comparatively small addition to the total stock of metallic money.

Coinage. When metals were first used as money, they passed from hand to hand simply by weight, or, in some cases, in the form of ornaments. Coinage speedily developed, however, as a convenient way of certifying to the weight and fineness of money units.1

Such a guarantee is naturally of little avail unless it is generally. recognized as authoritative. On this account the coinage of money has almost universally been regarded as a prerogative of the sovereign. In England, even under the divided sovereignty of the middle ages, the coining of gold and silver was generally a privilege belonging to the king alone. The lesser feudal lords and the chartered cities issued token coins, made of the baser metals, and intended especially for local use, but if they possessed the right of coining the precious metals, it was through a special grant of the king.

Seigniorage. Sovereigns have in the past very often viewed the monopoly of coinage as an opportunity for personal profit. By

The names of many ancient coins and of some modern ones are also the names of weights, although it has generally happened that through successive debasements of the coinage these names have lost their original significance. The Greek talent, the Jewish shekel, the Roman as, the English pound, and the French livre are familiar examples.

are the same, but it means this: where we have sharp competition, the gains are in proportion to expenditure of economic energy, using that term "economic energy" as a composite term implying a certain output of economic force, whether this takes the form of labor or capital or business management.

Each one of the business units will make a specialty of some one line of commodities upon certain days. Special prices will be offered; but that means something very different from the class price which we have considered in our discussion of monopoly. Every one will agree that that is the case. The consumer considers very generally the prices charged as a whole. He knows very well when he goes to one retail establishment that for a certain particular article he may be paying a little bit more than he would pay in some other store; but the retail purchaser as a general rule does not consider each individual price, but he considers all the prices that he pays. It is intolerable for the consumer to go about a town searching for the lowest price of every little commodity, to buy a paper of pins at one place because it is a little cheaper than at any other place, to buy a pound of butter at one place, a pound of sugar at another. People do not ordinarily do that.

Now each retailer looks upon his business as a unit. He tries to derive from the business as a whole the greatest profit. Each one is putting his capacity into the business. One says, "I can do better if I sell this article at cost, or if I sell that article somewhat below cost." It was not very long ago that a large department store in New York City sold the popular magazines at less than was paid for them. That was not a class price in any sense of the term. That was a certain expenditure for advertising purposes.

To some extent people do go about and try to get all the special prices in each particular establishment, but that is not done usually, so far as purchases as a whole are concerned. On the other hand, there is a limitation very often in the arrangement that a store will sell only so much

one pair of gloves or so many yards to one customer. But we are dealing here with a different sort of phenomenon from class price.

of silk at a special price