COMMODITY MONEY AND THE QUANTITY THEORY 1. Coinage and seigniorage. f 2. Technical features of coinage.
6. Concept of the community's monetary demand. 7. Quantity of money and prices. f 8. The quantity theory of money. f 9. Inter pretation of the quantity theory. 10. Practical application of the quantity theory.
§ 1. Coinage and seigniorage. Very early it became the practice of governments to shape and stamp pieces of metal to be used as money, so as to indicate their weight and fineness. The act of shaping and marking metal for this purpose is called coinage.' The coinage by government had notable ad vantages in giving to the monetary units uniformity of size, fineness, and value, with the stamp that was readily recog nized. But in its simplest form coinage in no way changed the value of the money, and any other mark equally plain put upon it would have served equally wall, if only it had carried with it equal assurance of the quality and weight of the metal.
Coinage, as practised by early governments and rulers, came to be a function of great importance politically as well as eco nomically. The right to issue money' came to be one of the most essential prerogatives of sovereignty. The prince, king, or emperor stamped his own device or portrait upon the coin; From the French coin, in turn from Latin owneus, wedge, suggestive either of an earlier wedge-shaped piece, or of a wedge-shaped mark on the piece. The German word Mince is from the Latin moneta (as is the English mint, the place where coins are made), which meant money, that name being taken from the temple Juno, called Moneta, where coins are made.
25 hence the term seigniorage from seignior (meaning lord or ruler). Seigniorage meant primarily the right the ruler, or the estate, has to charge for coinage, and hence it has come to mean also the charge made for coinage, and often, in a still broader sense, the profit made by the government in issuing any kind of money with a value higher than that of the ma terials (whether metal or paper) composing it. Coinage is
rarely without charge, and often has been a source of revenue to the ruler. In antiquity and in the Middle Ages this right was frequently exercised by princes for their selfish advan tage to the injury and unsettling of trade. This introduced a very great problem of value into the use of money.
The coinage is said to be gratuitous when no charge is made for coinage. Coinage is said to be free if the subject or citizen may take bullion to the mint whenever he pleases, paying the usual seigniorage. Coinage is limited if the gov ernment or ruler determines when coinage is to take place. Thus, coinage may be both free and gratuitous, when citizens are allowed to bring bullion whenever they please and have it converted into coins without charge or deduction. But coin age is free without being gratuitous when any citizen may bring metal to the mint, whenever he chooses, to be coined subject to the seigniorage charge.
§ 2. Technical features of coinage. For each kind of metal money there is an established ratio of fineness for the more precious material, wlich is mixed with baser metals used as alloys. In the United States all gold and silver coins are made nine tenths fine ; in Great Britain, eleven twelfths. The established weight of the gold dollar in the United States is 25.8 grains of standard gold which contain 23.22 grains of fine gold. The limit of tolerance is the variation either above or below the standard weight or fineness that a coin is allowed to have when it leaves the mint. This is different for each of the principal coins, being about one fifth of one per cent on a gold eagle. The par of exchange between standard coins of different countries is the expression of the ratio of fine metal in them. Thus the par of exchange between the American dollar and the English sovereign (the "pound") is 4.866 ; that is, that number of dollars contains the same amount of fine gold as an English gold sovereign. The embossed design is to make the coins easily recognizable and difficult to counterfeit ; and milled or lettered edges are to prevent clip ping and otherwise abstracting metal from coins.