The Nature and Uses of Money

Section 2: The Material of Money

If money were employed as a mere intermedial object of exchange between an object in possession and the object of desire, the choice of its material is of no great importance.

Money is not desired as an object of food, of household use, or of personal covering, but for the purpose of re-sale, as it were, and re-exchange for some object of utility, after having most universally received in like manner by other people in their turn.

been originally received in exchange for one such already.

Money is, therefore, not an object of consumption; it passes through the hands without sensible diminution or injury; and may perform its office equally well, whether its material be gold or silver, leather or paper.

We need not, then, be surprised, that almost all the commercial nations of the world should have selected metal to per- form the office of money; when once the more industrious and commercial communities had declared their choice, all the rest had an evident inducement to follow their example.

Yet, to enable it to execute its functions, it must of necessity be possessed of inherent and positive value; for no man will be content to resign an object possessed of value, in exchange for another of less value, or of none at all. At times, when the metals now most abundantly produced were yet rare, people were content to make use of them for the purpose.

The legal currency of Lacedmemon was of iron; that of the early Romans, of copper. In proportion as those metals were extracted from the earth in greater quantity, they became liable to the objection above stated in respect to all products of too little comparative 238 value; and it is long since the precious metals, that is to say, gold and silver, have been almost universally adopted. To this use they are particularly applicable:

There are some other less essential requisites, which add to its efficiency. A material, wherein these are not combined, is unfit for the purpose, and cannot hope to engross its func- tions either generally or permanently.

Homer wrote that the armour of Diomede had cost 9 oxen.

A warrior, that wished to arm himself at half the price, must have been puzzled to pay four oxen and a half. Wherefore, the article employed as money must be capable of being readily and without injury apportioned to the differ- ent objects of desire, and subdivided in such manner, as to admit of exchanges of the exact amount required.

1. As being divisible into extremely minute portions, and capable of re-union, without any sensible loss of weight or value; so that the quantity may be easily apportioned to the value of the article of purchase.

Again, we read, that in Abyssinia, they make use of salt for money. If the same custom prevailed in France, a man must take a mountain of salt to market to pay for his weekly provisions. Wherefore, the commodity employed as money must not be so abundant, as to make it necessary to transfer a large quantity, on each recurring act of exchange.

2. The precious metals have a sameness of quality all over the world. One grain of pure gold is exactly similar to an- other, whether it came from the mines of Europe or America, or from the sands of Africa. Time, weather, and damp, have no power to alter the quality= the relative weight of any specific portion, therefore, determines at once its relative qual- ity and value to every other portion= two grains of gold are worth exactly twice as much as one.

At Newfoundland, it is said, that dried cod performs the office of money, and Smith makes mention of a village in Scot- land, where nails are made use of for that purpose. 237

Besides many other inconveniences, that substances of this nature are subject to, there is this grand objection, that the quantity may be enlarged almost at pleasure, and in a very short space of time, and thereby a vast fluctuation effected in their relative value. But who would readily accept in exchange an article, that might, perhaps, in a few moments, lose half or 3/4 of its value?

Wherefore, the commodity employed as money must be of such difficult acquisition, as to ensure those who take it, from the danger of sudden depreciation.

3. Gold and silver, especially with the mixture of alloy, that they admit of, are hard enough to resist very considerable friction, and are therefore fitted for rapid circulation, though, indeed, in this respect, they are inferior to many kinds of pre- cious stones.

4. Their rarity and consequent dearness are not so great that the quantity of gold or of silver, equivalent to the generality of goods, is too minute for ordinary perception; nor, on the other hand, are they so abundant and cheap, as to make a large value amount to a great weight. It is possible, that in progress of time, they may become liable to objection on this score; especially if new and rich veins of ore should be dis- covered= and then mankind must have recourse to platina, or some other yet unknown metal, for the purpose of currency.

In the Maldives and in some parts of India and Africa, shells, called cowries, are employed as money, although they have no intrinsic value, except that they serve for ornament to some rude tribes. This kind of money would never do for nations that carry on trade with many parts of the globe; a medium of exchange of such very limited circulation would offer insuperable objections. It is natural for people to receive most willingly in exchange that article, which is the Lastly, gold and silver are capable of receiving a stamp or impression, certifying the weight of the piece, and the degree of its purity.

Although the precious metals used for money have generally some mixture of baser metal, generally of copper, by way of alloy, the value of the baser metal, thus incorporated, is reck- oned for nothing. Not that the alloy is itself destitute of value; but because the operation of disuniting it from the purer metal would cost more than it would be worth, after it was extracted. For this reason a piece of coined gold or silver, mixed with alloy, is estimated by the quantity of precious metal only con- tained in it. 239

perhaps three-fourths of the whole stock of it on hand, in this new way cannot fail to render the whole more scarce and dear. 241

Were the actually existing stock of silver and gold applied to no other use than the fabrication of plate or ornament, the quantity would be abundant and much cheaper than it is at present; that is to say, whenever they were exchanged for other commodities, more of them would be given or received in proportion to the value obtained in exchange. But a large portion of these metals being destined to act as money, and exclusively occupied in that way, there is less remaining to be manufactured into jewellery and plate, and the scarcity of course adds to the value. On the other hand, if they were never used in plate or jewellery, there would be more of them ap- plicable to the purpose of money, and money would grow cheaper, that is to say, more of it would be necessary to pur- chase an equal quantity of goods. The employment of the precious metals in manufacture makes them scarcer and dearer as money; in like manner as their employment as money makes them scarcer and dearer in manufacture. 242