From the function of a measure of value is derived a subordinate function of the greatest practical importance, namely the function of money as a standard of value. A standard of value is simply a measure by which values nt dif ferent periods are compared. The measure of value contemplates the estimation of commodi ties at the sante tune; the standard of value, their estimation at different times. The standard of value is often called the stand ard of deferred payments. Credit organization involves future payments. These payments are expressed in money and present goods are trans ferred for a promise to pay money in the future. In the ordinary transactions of mercantile life the futurity contemplated is not far distant, but in many operations, both and private, a lapse of years is contemplated. In such contracts stability in the value of money is of time highest importance; and were it not that money has been subject to certain variations, it is quite possible that it would not have been found necessary to differentiate this function from that of a meas ure of value.
The substances which at various times in the world's history have fulfilled these several func tions have not performed the office equally well. and gradually all except gold. silver, certain minor metals, and paper have been eliminated among advanced nations. The selection of the previous for this purpose is slue in part to certain physical characteristic's and in part to economic conditions. in the first place, they are durable. and while it is true that there is always some loss through abrasion, the process is a re markably slow- one. Secondly. they are homo geneous and divisible. If a given quantity he divided into parts, those parts will be absolutely alike. and the sum of the parts will equal the whole. Finally. they are port able. since relatively to their weight they are of high value. Other objects such as precious stones excel the metals in portability, but they do not present the other necessary qualities of divisibil ity and homogeneity. Furthe•unore, it should be remarked that the metals are relatively stable in value, a result of their durability. sinee the existing stock is always so much greater than the annual output that violent fillet oat ions in supply are avoided. Some writers have in sisted that the money substance should itself 1111S value, and have gone so fa• as to speak of the necessity of 'intrinsic' o• inherent value. The use of the word 'intrinsic' evidently indicates a eon fusion of thought. These writers mean that the money substance should possess a 'utility' apart from that which it gains In• virtue of its money function. It may be true that no sub stance without utility could h:n•e become estab lished as money, but this initial primary is insignificant after it has acquired the greater utility which all:wiles to it as a medium of ex ehange and measure of value.
It has already been noted that besides the precious metals which possess in a the qualities names!, other substances, minor metals and paper. are used as money among ad
vaneed peoples. The ride of the former is quite subordinate. For use in minor exchanges the? are suffeiently portable and they possess the outer physical qualities 11:1111ed. their quantity is limited, and provision is usually made for convertibility into money made of the pre vious metals. their value is not less stable than that of gold and silver. The problems of paper money are more complicated. since it is used in far greater quantities and for large payments.
In portability it excels the metals. and. while it is not literally indestructible or divisible, the ease of replacement of old notes by new, or one denomi nation by another, is a substitute for these quali ties. Its 'intrinsic value,' i.e. its utility for non. monetary uses, is of course a negligible quan tity. Far more important is the question of the stability of its value. This question we can answer only after an investigation of the laws which govern the value of money.
There are two explanations of the value of money, one that it is tiXed by the law of supply and demand, the other that it is fixed by the costs of production. These are the general ex planations of value and are complementary rather than antagonistic. 'I•he first is the law ref market value, the second of normal value. In the case of freely reproducible goods, while mar ket value may at a given moment vary from nor mal value, it cannot maintain such variation for ally length of time. :Motley is in a less degree freely reproduced than most of the other goods with which it can be compared. We should. there fore, without io.glecting the influence of the cost of production, expect to find that in the fixation of the value of money supply and demand arc the dominant factors.
ltefo•e discussing what the supply of money and the demand for it are, it may be well to call attention to the way in which the Value of money is expressed. The values of all commodities are expressed in money as prices. Conversely, the prices of commodities express the value of money. We speak of prices as high or low, hut we might as well speak of money as cheap or dear. Anicy is cheap when prices are high, and is dear when prices are low. When wheat rises from 50 vents a bushel to $1 a bushel, we say it has risen in value, but we might also say that the wheat price of money has fallen. because in the first instance it required two bushels' of wheat to secure a dollar in exchange and in the second instance only one bushel. Wheat in our illustration stands for commodities in general, and, while the rise in price of one commodity not mean that money has fallen in value, yet if all commodities rise in price we cannot escape the conclusion that it has so fallen. Prices and the value of money are therefore reciprocals.