§ 3. Coined commodity money. When coinage is free and gratuitous the standard money is a commodity. Such coin age is essentially but the stamp and certificate that the coin contains a certain weight and fineness of metal. Where coin age is free and gratuitous 2 each coin will be worth the same as the bullion that is in it, as far as the citizens exercise their choice. They will not long keep uncoined metal in their pos session when it is worth more in the form of money, nor will they long keep money from the melting-pot when it is worth more as bullion. Yet there may be a slight disparity between the bullion value and the monetary value before the metal is converted into coin or the coin melted down into metal.
Let us take a case where gold is in general use as money, and where for some time there has been no noticeable change in the amount of business and in methods of trade. What would happen when new gold-mines were found that were much easier to operate, and gold began to be produced at a much more rapid rate than formerly? The amount of gold as com pared with other forms of wealth evidently would be increased. If all the increased amount went into the industrial arts, the value of gold in its industrial uses would fall below its value in monetary uses. Then a part of the increased amount must be diverted to monetary uses. When any man, by reason of the increasing gold supplies, gets a larger stock of money than he had before, the proportion formerly existing between his 2 This means actually gratuitous, for any real difficulty in getting metal to or from the mint operates as a cost in the conversion of bullion into money, or vice versa; e. g., the gold may be in Australia and the mint in London.
use for money and his monetary stock is altered. He has more money than meets his monetary demand at the existing prices. As he seeks to reduce his stock of money to due proportions by buying more goods, he thereby distributes a part of the ex cess of money to others. This bids up the price of goods further until the total value of goods exchanged again bears the same ratio as before to the average monetary demand of each individual.
§ 4. Concept of the individual monetary demand. Let us now seek to get in mind the idea of an individual monetary demand, as that amount of money which at any time is re quired by an individual to make his purchases in expending his income. Every man may be thought of as having an aver age monetary demand, or his average individual cash re serve, throughout a period. A man with a salary of $50
a month paid monthly has ordinarily a maximum monetary demand of $50. If his expenditures are made in two equal parts, the one on pay-day, the other thirty days later, his average monetary demand during the month is a little over $25. If most of his purchasing is done in the first week of the month, his average monetary demand may be per haps $10. Many a workman purchases on credit, running ac counts at the stores for a month. Then on pay-day he spends his entire month's wages the day he receives it, and goes without money for the rest of the month. His average monetary demand throughout the month would then be about equal to one day's wages. Evidently any person's cash re serve may be expressed as that proportion of his income that is to him of more value retained in money form for any period than if at once expended.
Every moment beyond the average time that any one keeps money increases his monetary demand. If he delays a day, a week, or a month in spending the money, waiting until he can buy in some other market or until a better time to buy, he thus increases insomuch the amount of money needed to make the trade (on that scale of prices). It requires more slow dollars than swift dollars to make a given volume of pur chases.
§ 5. Factors influencing individual monetary demand. In this conception of the individual monetary demand must, however, be included not merely the demands of retail pur chasers, made by themselves, but also those of all agencies, such as merchants, bankers, and transportation companies, serving the needs of ultimate consumers of goods. The use of money may be necessary several times before a commodity completes its journey from producer to consumer.
Of two persons whose expenditures of money are of the same kind and made at the same rate, the one having the larger amount of purchases to make has the larger monetary demand. Ent the amount of purchases does not always vary directly with the amount of real income ; 3 for example, a farmer and a village mechanic may have at their disposal incomes equal in the quantities of goods, such as food, fuel, clothing, and house-uses (worth, let us say, $1000 for each), but the farmer would be getting a larger part of his goods directly from his farm and by his own labor, while the mechanic would be getting first a money income to be expended afterward for food, clothing, and rent. The mechanic would in this case have an average monetary demand much larger than the farmer.