MONEY. Money is a term used to describe the standard of value and a very important part of the medium of exchange of a country. By a standard of value is meant any commodity, which is used to measure and express the ratios in which other commodities exchange for each other. For example suppose wheat has been traded for wood, cattle, sheep and plows on the following terms: 1 cord of wood for 5 bushels; 1 ox for 50 bushels; 1 sheep for 20 bushels;. and 1 plow for 10 bushels. The figures 5, 50, 2Q and 10 express the market values of these commodities and the ratios at which they should exchange for each other, and, since each refers to bushels of wheat, wheat may be called the standard of value.
Standards of In a community in which barter was the only method of exchange each person would trade the commodity he produced or the service he rendered for the other commodities and services herequired, and would express their values in of the com modity or service thus bartered, no other method of expressing their values being available to him. Standards of value in such a community would therefore be individual and would be as numerous as the individual traders, and ciffi culty would be experienced in discussing values because each person would speak a language not intelligible to others or only intelligible after a mathematical calculation. • For example, one man would express the value of a given com modity, say a horse, as so many bushels of wheat, another as so many cords of wood, an other as so many yards of cloth, another as so many days of labor, etc. The only method of removing this difficulty would be the acquisi tion by each member of the community of the ability and the habit of quoting values in terms of the same commodity; that is, by the acquisi tion of a community standard.
Such community standards were early estab lished in every trading group of which history furnishes any record. and, as trade developed between different communities, standards com mon to wider and wider areas and to larger and larger groups appeared, until, with world wide trade we have standards common to many Indeed, ndeed, at the present time all the, nations in which commerce has been highly developed use the same standard, gold, and only two standards, gold and silver, are used throughout the civilized world.
Only a commodity which possesses a high degree of utility for purposes of ordinary con sumption can serve as a community standard since only for such a commodity would every person barter his commodities or services, and such barter, as we have seen, is a condition necessarily precedent to service as a community standard. Since several commodities in the
same community and at the same time, how ever, may possess this essential quality of uni veral exchangeability, other qualities are also important in the determination of a community's standard. These are high value in proportion to bulk, divisibility, durability, fitness for coin age and steadiness or stability of value. The first four of these are important, because, as will appear later, it is desirable that the stand ard of value should serve as an element in the medium of exchange, and the fifth because of the relation between the standard of value and prices which will also be explained later. Among several commodities, therefore, for which every person has frequently bartered his commodities or services, the one which pos sesses these other qualities in the highest degree, of perfection will become the community stand ard. This fact explains the almost universal use of gold and silver for this purpose, and the possession of the first of these qualities, relatively high value in proportion to bulk, and possibly the last one, steadiness and stability of value, in a higher degree than silver, account for the use of gold as a standard in the most important commercial nations of the world.
The numerical expression of the ratios in which goods exchange for the standard of value is called prices. Thus in the United States when we say that the price of a bushel of wheat is one dollar, we express the fact that wheat is exchanging on our markets for stand ard gold at the ratio of one bushel of the former for 25.8 grains of the latter, which amount of gold has been declared in our stat utes to constitute a dollar. This being the case, the causes of changes in prices may be grouped under two heads, namely, those affecting the value of the standard commodity and those affecting the value of the commodity the price of which is under consideration, value in this connection meaning not ratio of exchange, but that quality of a commodity which is changed in magnitude by changes in the relations be tween its demand and supply. The price of wheat, for example, will change when the rela tion between its demand and supply changes, or when the relation between the demand and supply of gold changes, unless the change in the value of one commodity exactly offsets that in the value of the other.