ORIGIN AND NATURE OF MONEY 1. Origin of money. ˘ 2. Money as a tool. I 3. Money defined. I 4. Qualities of the original money-good. I 5. Industrial changes and forms of money. § 6. The precious metals as money. ˘ 7. Varying extent of the use of money. § 8. Relative importance of money.
9. Standard-commodity money. I 10. Commodity money without coinage. § 11. The money-material in its commodity uses.
§ 1. Origin of money. Everywhere in the world where the beginnings of regular trade have appeared, some one of the articles of trade soon has come to be taken by many traders who did not expect to keep or use it themselves, but to pass it along in another trade' This made it money, for money is whatever comes to be used as a general price-good. The character of a general price-good clearly distinguishes money from goods bought and sold by a particular class of merchants, such as grain, cattle, etc., to be sold again. It is only in so far as a particular good comes to be taken by persons not specially dealing in it, taken for the purpose of using it as a price-good to get something else which they de sire, that a thing has the character of money. The thing called money thus is a durative good passing from hand to hand in a community, and completing its use in turn to each possessor of it only as he parts with it in exchange for something else.
The use of money is of such social importance that it would be impossible for modern industrial society to exist without it. The discussion of money touches many interests; it raises many questions of a political and of an ethical nature. There I See Vol. 1, pp. 15-16, 50-53, and 262-264,for an introductory state ment of the origin and functions of money.
11 are perhaps more popular errors on this than on any other one subject in economics, but the general principles of money are as fully understood and as firmly established as are any parts of economics.
§ 2. Money as a tool. Money is often, by a figure of speech, called a tool. A tool is a piece of material taken into the hand to apply force to other things, to shape them or move them. Figuratively, this is what money does : it moves things into one's control. A man takes it, not to get enjoy ment out of it directly, but to apply force, to move something, and that which he moves is the thing he buys. Money thus (as money) is always an indirect agent. Adam Smith aptly likened money to the roads and wagons that transport goods, thus gratifying desires by putting goods into more convenient places. The fundamental use that money serves is to appor tion one's income conveniently as it accrues and as it is spent. The use of money increases the value of goods by increasing the ease with which trade can take place. Like any tool or
agent, money is valued for what it does or helps to do. It en hances the value of the goods that it buys and sells by divid ing them into. quantities convenient for use and by making them available at the right times.
It has been said that the service performed by money is to overcome the difficulty in barter of the double coincidence of wants and possessions. For example, a man may possess a horse that he is willing to sell, and he wants in place of it not just one thing, but a group of things, say a cow, a bag of flour, a pair of shoes, and several other small commodities, perhaps preferring not to have them all at once, but distributed over a period of some days or some weeks. Now, it is not likely that these things would exchange at such ratios in the market that the horse would just be of equal value to the group of other goods. Little less than a miracle would be needed to find a man desiring a horse, and who at the same time pos sessed just that group of goods to exchange for it. So, either no trade at all could take place, or there must be a series of trades in which the man takes some of the things he wants (say a cow) and other things "to boot," in the hope that later these may be traded for the right things. Evidently, when the "possession" is one large thing and the "wants" are many (or vice versa), the coincidence required is much more than double. In the light of the principles of diminishing gratifi cation and of time-preference, it is clear that the amounts in which and the times at which goods are available have an essential bearing on their values. Money is the most suc cessful device ever discovered for distributing the supplies of a journey along its course and the goods of daily need over a period of time. The use of money as a storehouse of value by hoarding it is merely a more extreme case of keeping income until a time when it will have a greater value to the owner than it has in the § 3. Money defined. Money may be defined as a material means of payment and medium of trade, passing from hand to hand and generally accepted as the most usual price-good. The definition contains several ideas. Trade means the taking and giving of things of value. Money passes from hand to hand, is a thing that can be handled and is, or can be, bodily transported. The words "generally accepted" imply that money has a peculiar social character, is not an ordinary good. As a price-good, money itself must be a thing having value; otherwise it could not be accepted.