MONEY, a term used to describe the medium of exchange of standard value of any country. Gold, silver, nickel, copper are the coinage of modern nations, but baser metal coinage, and shells, grains, sheep, wampum, furs, and other commod ities have been the medium of exchange among primitive people. Money is the measure of value, and buying and sell ing not only apply relative values to things bought and sold, but to all things that could be sold for money, all credit being dependent on this fact. By standard of value we mean a measure of comparing values at different periods. The measure of values considers the esti mation of commodities and at the same time the standard of values at different periods; often called the standard of de ferred payments. Credit organization calls for future money payments, goods being transferred for a promise to pay, and as this may cover a considerable period stability in money value is of first importance. Precious metals as a medi um were chosen by advanced nations for physical characteristics and also for economic conditions, and because they are durable, portable, and easily divided into parts and are relatively of stable value which rarely fluctuates. Inferior metals have much the same advantages as a medium. With paper, used in greater quantity than metals, the stability of its values is the most important question. All money value is established by the law of supply and demand, or by the costs of production, that is, the law of market value, and of normal value. The values of money are expressed in money as prices, and conversely. To say that prices are high, or low, is to say that money is cheap, or dear. Prices rule high when money is cheap, and low prices prevail when money is dear. We say wheat has gone up in price when it is sold for a dollar a bushel, and was previously 50 cents; but on the other hand the wheat price of money has dropped, because it took two bushels of wheat to obtain a dollar, and then only one bushel. The value of money depends on the quantity in existence, but under normal influences an increase in the quantity lowers its value, while a decrease in the supply raises it. All increase in the world's money supply raises prices caused by loss of value. The purpose of monetary laws is to adjust supply to demand, providing automatic regulation of the amount of money. Free coinage—generally pro vided for in a metallic currency system — by attracting supplies of metal for that purpose, will to some degree cor rect and adjust conditions. Between na
tions using the same standard, metal passes back and forth so that there is never either a lack or a redundancy. Abundant money means high prices and then imports exceed exports. Payment of unfavorable balances will cut down the money supply and lower prices. Scarce money brings low prices, and exports surpass imports and the favorable bal ance brings gold into the country—thus international trade adjusts and corrects local money prices.
The value of money depends on supply and demand as with all other commod ities. Increased demand for money is caused by whatever increases the volume of exchanges, the demand diminishing as the volume diminishes. The demand for money is also determined by rapid monetary circulation, and use of credit, each economizing the use of money. Sav ings banks quicken the circulation of money by collecting the hoards of poor people and putting the money into cir culation. Credit is of first importance in influencing money demand, as only balances are paid in money. The coun try storekeeper who takes farm supplies on an account and pays in goods illus trates how credit lessens the demand for money. Where there is an abundance of anything the demand increases. A re duced supply lessens the demand and prevents prices from falling.
Paper money is of two classes, con vertible and inconvertible. Convertible is secondary money, deriving its value from, and representing, metallic money, its value deriving from the relations of supply and demand. Convertible money is a receipt for gold and silver, and cir culates like metallic money in another form. There is also a paper money called bank money. Depositors of metal lic money discovered that coin would not be demanded at any given time for the full amount of outstanding notes, and thus a much larger sum than the metal lic reserve could be kept in circulation. Notes were therefore issued in excess of the reserve, but convertible into coin. Bank money increases the volume of monetary circulation, and as it saves metal saves value to the community. When a government or bank fails to re deem their paper, it falls in value and coin rises. Monetary circulation for trade needs have created composite money systems. Under a single gold standard, paper is used for large and sil ver for small sums. Under a single sil ver standard, gold might well be used for large payments except for its expense, and payments could also be made in paper, as was the case in Germany in 1875.