pay for a street-car ride. These are extreme instances,
of course, but the principle is important. To be really
satisfactory, the money commodity should be capable
of being divided into small portions for small exchanges.
It must, therefore, possess the quality of divisibility.
There are many substances which possess all of the
above attributes and yet which lack another necessity
of a good money commodity. In regard to the last-
mentioned quality divisibility there are difficulties
with certain easily divisible objects. Precious stones
have sometimes been used as money, and every one
knows that precious stones are divisible. But in
dividing a stone we lose some of its value. If we take
a ten carat diamond, for example, and divide it into
THE EVOLUTION OF MONEY 165
two diamonds of five carats each, the value of the two
diamonds together will not equal that of the original
stone from which they were cut. Size itself is an ele-
ment in the value of the precious stone. In order to
be satisfactory, therefore, the commodity should not
only be divisible, but should not suffer any loss in value
by being divided.
4. Homogeneity Another difficulty arises in con-
nection with the use of certain substances which can
be divided. In the case of skin-money, for example,
it is quite possible to cut the skin into two parts, each
of which weighs half of the original skin. But the
value of one part is not the same as that of another.
The half which contains the head may be used as an
ornament; at least, some people consider the stuffed
head of an animal an ornament. The other half is
practically worthless. Again, in the case of dead cattle,
if the animal is so divided that one part containing
most of the bones weighs as much as the other part
containing most of the meat, the values of the two
parts are by no means equal. This is also the case
with the living cattle. A buyer will try to pay with
the poorest of his herds and a seller will stipulate for
the fattest of the animals. Indeed the laws of old
Egypt expressly stated that thin cattle would not be
accepted in payment of taxes. Government, even in
those early times, knew enough not to accept cheap
money. From this difficulty we see that another
quality is necessary in the material to be used as money.
It must be homogeneous. That is, it must lose nothing
of its characteristics by being divided into small por-
tions. One part by weight should be exactly equal to
166 AN INTRODUCTION TO ECONOMICS
another part of the same weight. And not only so,
but when a piece of the material is divided into two
equal parts, the sum of the values of the parts should
equal the value of the original piece. Precious stones
are undoubtedly homogeneous. A diamond is simply
a piece of crystalline carbon and it does not cease to be
so when cut into smaller pieces. But as size is an ele-
ment in its value it cannot be used satisfactorily.
5. Portability The next quality which we find to
be desirable is that of portability. Some forms of
goods which answer satisfactorily all of the require-
ments enumerated so far are unsatisfactory in that
they can only be transported at comparatively great
expense. It is true that cattle may be regarded as
portable in that they carry themselves, but they do not
do so without expense. The further they have to be
transported the greater is the cost in time for their
care, and in food for their support on the journey.
Hence if the cattle are to be used as a payment for
goods bought from some person who lives a considerable
distance away, the expense of transportation may be
so great as to make the purchase not worth while.
Even some of the early forms of metallic money were
not free from this defect. At the present time, as we
shall see in a later chapter, gold itself is expensive to
transport, and the cost of transportation has a material
influence upon the value of the metal.
6. Durability If we suppose that a herd of cattle
has been accepted in payment of a certain purchase and
has to be transported for a distance before reaching the
seller of the goods, there may be more difficulties en-
countered than even the expense of feeding and caring
THE EVOLUTION OF MONEY 167
for the cattle on the journey. If they have to traverse
a country which has only sparse pasture or in which
water is lacking, it is quite possible that the cattle will
deteriorate very greatly during the journey. Some
will die and will be worth practically nothing even if
the carcasses can be carried to the end of the journey.
Again, if eggs happen to be the money material and
any length of time elapses between the bargain and
the payment, it is quite within the bounds of possi-
bility that the eggs will lose in flavor before they reach
their final owner. A quality to be desired in our money
commodity, therefore, is that of durability without loss
of value.
There is no commodity which is absolutely durable,
in the sense that it cannot wear out. But there are
undoubted degrees of durability, and if one commod-
ity satisfies most of the requirements for use as money
and is also fairly durable in use, it is so much the
more to be desired.
7. Stability Then there arises the question of the
stability of value of the commodity. We have already
shown some of the influences which are exerted in the
determination of value, and of those influences one of
the most important is that of supply. Other things
being equal, we may say that the greater the supply
the less is the value of the commodity. Now, if the
supply of a commodity varies within wide limits, the
probability is that its value will also vary. A money
commodity is used not only as a means of exchange,
but also as a measure of value. For the sake of sim-
plicity we are accustomed to estimate the values of
different goods according to the amount of the money
168 AN INTRODUCTION TO ECONOMICS
commodity for which they will be exchanged. If the
money commodity is constantly fluctuating in value
itself, it becomes almost useless as a measure of value.
Suppose we use wheat as the money material. One
day the worth of a bushel of wheat may be represented
as a couple of pounds of butter or five pounds of coffee
or half a dozen watermelons. Now if we say that two
pounds of butter are worth a bushel of wheat we are
stating the price of butter in terms of wheat. If the
value of wheat, owing to a sudden increase in the avail-
able supply, suddenly falls, the exchanges will not
take place in the same ratio. Hence two pounds of
butter will no longer be equal in value to a bushel of
wheat; they will be greater. Similarly the values
of the coffee and melons will be altered when stated
in terms of wheat. Hence it is always advisable to
choose a commodity which does not vary much in
value from time to time.
8. Cognizability The final quality which we shall
consider as an element in the money material is that
of cognizability. The money should be easily recog-
nized for what it is without any undue investigation
into its character. A little thought on the conditions
of our present money supply will show the reasonable-
ness of this requirement. We become at once sus-
picious of any money with which we are not familiar.
The familiar money we know and can recognize ; the
unfamiliar we must scrutinize carefully. There are
parts of the United States where the use of coined
money is much greater than in others where paper
equivalents are more frequently seen. The paper is
scrutinized more carefully in those districts where its
THE EVOLUTION OF MONEY 169
use is not so frequent than in those where it is common,
and vice versa.
Before we consider what is the basis of the modern
money materials it will be well to sum up in tabulated
form the requirements of a perfect money material.
1. Commodity Value
2. Acceptability
3. Divisibility
4. Homogeneity
5. Portability
6. Durability
7. Stability
8. Cognizability
Metals as Money Of all substances which have
been used at different times as money the metals
possess the above attributes in the greatest degree.
At all times the metals have been desired for their own
value apart from any uses as measures of value or means
of exchange. At first, probably, they were used as
ornament, and later on came their use in industry and
for weapons of war. There was hardly ever a time
when metals were not generally acceptable. They
possess the quality of divisibility, without loss of value,
in a high degree. A piece of copper which weighs a
pound is of the same value as two pieces which weigh
half a pound each. And one piece of copper is exactly
the same as another piece of the same weight. It is
homogeneous. The metals are portable also, with
comparatively small expense. It is true that to use
the older Greek iron money for modern payments and
with our present valuation of iron, would involve high
170 AN INTRODUCTION TO ECONOMICS
costs for transportation of any considerable sum.
That would not hold good in the days of iron money,
for its value was much greater then than now. The
metals are exceptionally durable also, although there
are, of course, variations in their degrees of durability.
Iron money is not so durable as copper if continually
exposed to the elements. Copper on the other hand
will wear out by friction quicker than iron. Gold and
silver also are soft metals and liable to lose by constant
use some of their weight. No commodity is per-
manently durable, however, and consequently all we
can ask is a comparatively high degree of durability,
and that is possessed generally by the metals. Again
it may be said that no material is absolutely stable in
value. But the fluctuations of metals are, taking
everything into consideration, less than most other
materials. Finally, especially in primitive times, the
metals were easily recognized.
Remedies for Defects in Metallic Money It is in
the last three qualities that the metals are least satis-
factory, especially the common money metals, gold,
silver, and copper. But much can be done to remedy
their defects in these respects. In regard to dura-
bility, for example, while it is true that gold is par-
ticularly liable, when pure, to loss irom friction in
use, it can be made much less so by the admixture of a
small proportion of cheaper metal, without thereby
losing much in value. The alloys of gold are much
harder and so less liable to loss from wear than is
pure gold. The same is true of the other metals.
Hence we do not, in our coinage, use pure gold or pure
copper.
THE EVOLUTION OF MONEY 171
Coined Money The greatest advantage of our
modern coined money is, however, its cognizability.
There are many cheap imitations of gold and of silver
which might easily pass with the unsophisticated for
the real article. Even in America people have been
known to accept " gold bricks " in the belief that they
were pure gold. This fact of the possible imitation
and also the variations in the amount of " base " metal
used in the alloys have made it necessary that there
should be some indication, on the metal itself, of the
nature of its purity.
The development of the imprinting of some stamp
on the surface of a piece of metal, by some person
whose reputation was good, has resulted in the evo-
lution of the modern coin. Originally, probably some
king or duke or other person in authority placed his
seal on the flat piece of metal, thereby indicating
that it was of standard purity. The seal would not,
at first, cover the entire surface of the piece of metal,
and partly through wear and tear, and partly through
the efforts of early economically minded merchants,
the surplus metal outside the seal would tend to be
gradually removed, and before long the shape would
approximate to that of the seal. In order to avoid such
loss by clipping, at any rate, the habit grew of making
the metal the same size and shape as the seal, and as the
ultimate shape of any flat piece of metal, constantly
used, tends to be circular, so these pieces of metal came
to be made circular. In order to prevent filing of the
edges the latter were " milled " or some design was
stamped upon them so that any attempts at filing would
be obvious.
172 AN INTRODUCTION TO ECONOMICS
1 Definition of a Coin Now all this work placed
on the metal was made necessary only by the desire to
make it cognizable for what it purported to be, that
is, a piece of metal of a standard weight and fineness.
And that is all that a coin is. To define a coin, then,
we may say that it is a piece of metal upon whose
surfaces have been placed stamps or designs by some
one in authority, the designs indicating that the metal
is of a certain weight and purity. Because it is shaped
in this way it does not lose its characteristics as a com-
modity. It is essential that these should still exist
in order to satisfy the requirements which we have
studied in the earlier part of this chapter.
Debasement of Coinage It is obviously of great
importance that the stamp placed upon the coin should
be placed by a person whose reputation is good. No
one would place any reliance upon the certificate of
value issued by an unknown merchant. It might be
good, but, on the other hand, it might not. In feudal
times the right of coinage rested in the hands of the
feudal barons, except when the king retained the sole
right himself. Unfortunately for the subjects, the
king did not always justify their faith in his certificates.
Just as it is possible for a commercial company to
cheat the public by selling adulterated goods, at least
for a certain time, so was it possible for kings to adulter-
ate their money, by increasing the proportion of base
metal in the coin. There would appear to be a certain
advantage to the king in so doing, in that he seemed to
be getting a coin which was of greater value as a coin
than as metal. But the advantage was only temporary,
and its consequences were serious to the people who
THE EVOLUTION OF MONEY 173
were compelled to use the coinage, especially if they
were poor. It soon becomes known if the coins are
being depreciated, and the more intelligent merchants
then realize that the commodity value has been re-
duced and hence the ratio at which they will exchange
their goods for this money decreases. If a certain coin
of full fineness is worth a bushel of wheat, then the
coin which is not of full fineness will not be accepted
in payment of a whole bushel. If the coin is suf-
ficiently depreciated, it will buy only half a bushel.
But as the name of the coin, whether it be crown, noble,
pound, or dollar, remains the same, the number of coins
to be paid for the bushel of wheat is now two. In
other words, the price of wheat has been doubled.
And the case is similar with other commodities.
Effects of Depreciated Coinage The effect of a
depreciation in the coinage, therefore, is at first a rise
in prices. But if the amount of depreciation is not
the same with each coin, the tendency arises for the
stamp on the coin to be disregarded entirely and the
coin is accepted by merchants only upon an assay, and
then by weight of the pure metal calculated according
to the results of the assay. Even the government
itself sometimes refused to accept at face value for
taxes the coinage in circulation. At one period of
English history, when the coinage was considerably
debased, the face value of the coins was ignored by the
government tax collectors. When the sheriffs brought
to the exchequer the sacks of coin in payment of the
tax levies on their districts, the actual commodity
value of the coinage was tested by an assay of a sample
of the coins. Part of the sacks of coin was tested and
174 AN INTRODUCTION TO ECONOMICS
the whole of the sacks averaged according to the results
of the assay. The bulk was then weighed and the
taxes paid by the weight of gold contained in the sacks.
The merchants who received payments in large
amounts, received payment by weight and not by
" tale," that is, by nominal value. The poorer classes
were compelled to receive their payments of wages
by tale and, as the depreciation caused increase of
prices, the actual amount of goods that they received
as a return for their services (what we shall later term
" real wages ") was very much reduced.
CHAPTER XIV
SOME MONEY PROBLEMS
Seigniorage The coinage of money is not con-
ducted without expense. In the feudal days, when the
right of coinage was confined to the lord of the manor,
or the seignior, it was customary for the latter to
charge a certain amount to pay for the cost of turning
the metal into coins. This charge, which varied ac-
cording to the greed or generosity of the seignior, ranged
from a bare charge sufficient to cover expenses to as
much as the people could be forced to pay. Such a
charge is known as seigniorage. At the present time
in some countries it is still the custom to charge seignior-
age. In others the government bears the whole of the
cost. The latter is the case in the United States. In
cities where no mint exists, it is customary, however,
to charge a small percentage of the value of the gold to
cover the cost of assaying the gold. In England one
ounce of gold makes coinage to the extent of 3-17-10^.
The Bank of England, which supplies all the gold to
the mint, is allowed to buy gold at 3-17-9. The
difference of three cents (one and one-half pence) an
ounce compensates the bank for the loss of interest on
its expenditure for gold, for a certain time must elapse
before the gold coin can be turned out from the mint.
Gresham's Law In the last chapter some of the
difficulties in connection with a depreciation of the
175
176 AN INTRODUCTION TO ECONOMICS
coinage were indicated. In order to avoid these dif-
ficulties it is advisable always to keep the money at
proper standard value ; that is, the value of the metal
as a commodity and as coin should be kept equal. Now
in reforming the coinage some special difficulties al-
ways arise. One of these is of great importance, for
it gives' us one of the fundamental laws of money.
If there are two kinds of coinage in existence of
different commodity value, but of the same nominal
value, we shall always find that there is a tendency
for the better class of money, the class which is of
equal value as commodity and as coin, to go out of
circulation. The reason for this is not difficult to ap-
preciate. Suppose a merchant has a supply of what
we may call " good " money on hand, coined into the
same denominations as the bad money. He will be
inclined to charge for his goods on the basis of the
value of the depreciated coinage. If his good coins
contain twenty per cent more pure gold than the bad
ones, he will be inclined to sell the good coins to the
goldsmiths as bullion, receiving in payment the bad
coins. He will, of course, receive more money, nom-
inally, than the coin value of the money he has sold.
To put it in concrete figures, suppose he has one thou-
sand dollars, nominally, in good money. This money
he sells for its gold value to" a goldsmith. But prices
have gone up in terms of the bad money. He sells, as
far as the goldsmith is concerned, not coins, but gold.
The gold price, like anything else, stated in terms of
the depreciated currency, has gone up. Hence the
merchant receives twelve hundred dollars in the cheaper
coinage for the gold coins he has sold to the goldsmith.
SOME MONEY PROBLEMS 177
As practically every merchant is doing the same
thing, in a comparatively short time there will be none
of the good coinage left and all that remains in circula-
tion will be the cheap money. Sir Thomas Gresham,
who became Master of the Mint when Queen Elizabeth
was reforming the debased coinage instituted by her
venerable father, formulated this argument into what
is now known as Gresham's Law. Stated briefly this
law is that " Bad money drives out good." In other
words, where there are two forms of money in circula-
tion, the commodity value of one being greater than
that of the other, there will be a tendency for the coin-
age of higher commodity value to go out of circulation,
leaving the cheaper to be used in trade.
Subsidiary Coinage. Token Money So far we
have spoken as if the only coinage in circulation in
any country consisted of one metal. We know, how-
ever, that there is more than one metal in circulation
in the United States. We have gold coins, silver,
nickel, and bronze. If the statement contained in
Gresham's Law be true, how is it that the gold has not
been driven out of circulation by the silver and the
silver in turn by the nickel ?
The reason is that we have, in reality, only one
form of standard money. Consider for a moment the
difficulties that would arise if all payments had to be
made in gold. W r hat sort of coin would we have to
use to pay for a street-car ride ? It would be so small
as almost to require a microscope to see it. Gold, we
have already noted, is divisible ; but for very small pur-
chases, considering the value of gold, gold is not suit-
able. Hence there must be some substitute. We
178 AN INTRODUCTION TO ECONOMICS
substitute silver and nickel for the purpose of making
small payments. There is no relation between the
value of the silver coins as silver and their value as
coins. They obtain their value as coins from an en-
tirely different source. According to our currency
laws gold may be used in payments to any extent. If
we offer coined gold eagles in payment of a debt within
the country and the creditor refuses to accept them,
the debt is canceled. But this is not true of the sub-
sidiary silver and nickel coins. They are only to be
used for payments of ten dollars or less. The creditor,
for a sum greater than ten dollars, may refuse payment
in silver coins.
How, then, do the subsidiary coins retain their face
value in the smaller purchases? The United States
Treasury is ready at any time to redeem silver and
nickel and bronze coins, provided they are offered in
amounts not less than twenty dollars' face value, in
gold. In reality, such subsidiary coins are not true
money. They are tokens of true money and hence
are commonly known as token money. Their function
is to facilitate small payments, and the law definitely
restricts their use as money to the payment of small
sums. Of course, there is nothing to prevent any one
accepting subsidiary coins in payment of any sum if
he so wishes, but the law does not compel him to ac-
cept them for sums over a certain amount.
Bimetallism This brings us to a subject which
has caused an immense amount of discussion in almost
every country. Is it possible or desirable to use at
one and the same time two different metals as standard
money ? It is beyond the scope of the present book to
SOME MONEY PROBLEMS 179
consider this rather difficult question in detail. But
it is worth while to point out the probable results of
such an attempt, particularly as most experience shows
that these probable results become actual in practice.
Suppose we use the two metals, silver and gold, and
coin them into standard money. If, at the time of the
coinage, an ounce of gold is worth fifteen ounces of
silver, then the silver dollar must contain fifteen times
as much metal, by weight, as the gold dollar. Every-
thing will be satisfactory so long as the fluctuations
in the value of the two metals, as compared with general
commodities, follow one another in the same ratio.
That is, there will be no difficulty if a rise of five per
cent in the value of gold is accompanied by a rise of
five per cent in the value of silver. But that is very
seldom the case. The conditions which affect the
value of gold have no direct bearing upon those which
affect the value of silver. Hence before long the ratio
of exchange of the two metals as commodities will
change from fifteen to one, to, let us say, sixteen to one.
In this case gold has evidently become more valuable.
Gresham's Law will at once begin to operate to drive
gold out of circulation. If the ratio change in the
other direction, then silver will become comparatively
more valuable than gold. Gresham's Law will then
work to drive silver out of circulation and leave the
gold.
Position of Silver Dollars Now it is true that the
silver dollars which circulate in this country are stand-
ard money as far as the law is concerned. They are
legal tender for any amount. As a matter of fact,
however, there are so few in circulation, comparatively,
180 AN INTRODUCTION TO ECONOMICS
at any rate, that they do not affect 'the gold coinage.