value; the fact that they are valuable gives them utility for display; and this in turn serves to sustain their value for monetary as well as for non-monetary uses.” 1

8. Coinage. The practice of coining money began some hundreds of years before the Christian era, probably about 900 B.C. It is supposed that the first coins consisted of a certain quantity or weight of metal stamped with some seal or symbol indicating their weight so that they would not have to be weighed at each exchange. The English pound sterling was originally a pound weight of silver. Other familiar examples of coins which represent weights are the Greek talent, the Jewish shekel and the French livre. The earliest coins were stamped only on one side, and they were not so designed as to prevent alteration. Accordingly, unscrupulous merchants began to stamp smaller quantities of the metal and to pass it as full weight. This deception and the practice of clipping or otherwise subtracting parts of the coin lead to more careful and elaborate coinage. The whole face of the disc was stamped on both sides and the name of the authority certifying the weight was inscribed on the coin. Strict laws were enacted forbidding the mutilation of coins. About the middle of the seventeenth century England began to serrate the edge of coins, a process called "milling."

At first pure metal was used in gold and silver coins. In this form, however, they abraded or wore away rapidly with frequent handling, so it became customary to add to the pure metal some harder metal called "alloy." Dishonest traders then began to make coins with less of the precious metal and more of the cheap alloy. Hence, it became necessary to indicate in some authoritative way the fineness of the metal as well as its weight. Most countries now make their gold and silver coins nine-tenths fine, that is, nine parts of pure metal to one part of alloy, usually copper. Gradually the right to coin money was restricted to a few reputable persons, and finally it was brought under governmental control. Even when the right of coinTaussig: Principles of Economics, Bk. I, p. 229.

1

age was restricted to the sovereign, abuses continued. For many centuries the royal authority debased the coinage by reducing the weight and increasing the amount of alloy of the coins issued under royal decree. Thus, the English pound sterling, which originally contained a pound of silver, was reduced finally to about half that amount.

The early American colonists were greatly embarrassed in their business transactions by the lack of "change" or coin. The small supply of coin they brought with them was soon drained off to Europe to pay for imports. Wampum, the currency of the Indians, was clumsy and poorly adapted to the purposes of general trade. They had to resort largely, therefore, to barter or to the use of staple commodities, called "country pay." To establish a basis of value in exchange, the General Court of Massachusetts fixed the price of all commodities by law, which led to great confusion and dispute as to the value of different articles.

After the colonists had begun to trade with the West Indies, Spanish dollars current in all the possessions of Spain, were imported and came into wide circulation. The Spanish dollar or "piece of eight," as it was called, was subdivided into eight reals, valued at 123 cents. These eoins, however, were not of uniform value in the different colonies. The eighth part of a dollar was a shilling in New York, 9 pence in New England and Virginia, and 11 pence in Pennsylvania. Moreover, these coins had been debased by clipping and sweating, and when they were sent to England in exchange for goods, they were received only at the actual value of the metal in them. The coins that remained at home consisted largely of debased and depreciated pieces so poor that people were loath to accept them at all.

To remedy this difficulty, the General Court of Massachusetts in 1652 established a mint for the coining of shillings, six-penny and three-penny pieces. One side of the shilling was stamped with a pine tree, hence the name "pine tree shilling." The colony did not operate this early

mint, but contracted for the minting of the coins. The mint master was required to coin all the silver offered, retaining as his pay fifteen pence out of every twenty shillings coined. The mint was closed in 1686 by order of the English government. The pine tree coinage did not greatly relieve the need for money, and country pay and Spanish coins continued to have wide circulation. When our Constitution was adopted in 1789 Congress was given the right "to coin money and regulate the value thereof."

READING REFERENCES

Bullock: Essays on the Monetary History of the United States, Pt. I, Chs. II, III.

Selected Readings in Economics, Ch. XIV.

Conant: Principles of Money and Banking, Vol. I, Bk. I, Chs. II, III, IV, IX.

Jevons: Money and the Mechanism of Exchange, Ch. IV. Kinley Money, Chs. II, III.

Materials for Elementary Economics (University of Chicago), Ch. X.

Moulton: Principles of Money and Banking, Pt. I, pp. 5-44, Ch. IV.

:

White Money and Banking (5th ed.), Bk. I, Chs. I, II, VI. Report of the Monetary Commission of the Indianapolis Convention (1898), pp. 78-108.

CHAPTER II

FUNCTIONS OF MONEY

9. Medium of exchange.-In tracing the evolution of money we have seen that primarily it performs two important functions-as a medium of exchange and as a measure or standard of value. Its function as a medium of exchange is to serve as a go-between in the exchange of commodities. The medium of exchange of most modern countries is quite complex and of various kinds adapted to different scales of payment. Generally the medium of exchange comprises coins of different metals and denominations issued by the government; paper money issued by the government or by the banks, or by both; and credit instruments, such as checks, drafts, bills of exchange, letters of credit and the like issued under private or public authority. Some of these media are widely and freely current throughout the community, passing freely from hand to hand in settlement of exchanges large and small. To this class belong metallic money or coins both standard and subsidiary, coin certificates, government notes and bank notes. This hand-tohand money, however, constitutes only a small part of the medium of exchange of a highly developed commercial country. Of much larger importance, though having but limited circulation, are such media as checks and drafts which represent bank deposits and which are transferred between other than the original parties only by indorsement. This group includes also commercial bills of exchange, domestic and foreign, representing goods; and

postal and express money orders, travelers' cheques and letters of credit. Book accounts by means of which purchases and sales are balanced against each other, directly or indirectly, constitute the most important element of the medium of exchange.

10. Measure of value.-Closely linked with the service of money as a medium of exchange is its function as a measure of value. In its earliest forms money was a commodity desired by everyone, something that all were glad to accept because it could be exchanged at any time for the necessaries of life. The article which came to be agreed upon as best fitted to serve as a medium of exchange was also used as a measure of value. Accustomed to exchange things for money, people gradually learned to appraise all commodities in terms of money, and to adjust all exchanges by comparing the money values of the articles exchanged. Thus money came to be the common denominator, the standard by which the value of all other commodities is measured. Not only commodities, but rents, wages and all kinds of payments are expressed in terms of money.

Some writers insist that a wide distinction must be made between the function of money as a standard and its function as a medium of exchange.1 A standard is used to measure value; a medium of exchange is used to transfer value. It is quite possible, of course, that one kind of money may be used as a medium of exchange while an other serves as the standard or measure of value. In colo, nial days the values of commodities, labor and rent were expressed in terms of English money-pounds, shillings and pence; but Spanish coins formed the bulk of the actual circulating medium.2 At the present time the gold dollar is the money standard of this country, yet no gold dollars are coined or used in our circulation; our actual medium of exchange comprises a variety of coins, made from dif. ferent metals, several kinds of paper money, and credit

1 Scott: Money, p. 35; Laughlin: Principles of Money, p. 14. 2 Money which serves as a measure of value, but which is not actually in use is called "money of account."