Money.

Money. The term money is used, both in matters of business and in economic theories, in such very different ways that it is impossible to cover them all with a simple definition. Standard coins, bars of bullion which can at once be converted into standard coins, token coins, convertible bank-notes, inconvertible notes, are all included under 'money,' although they present essential differences. In modern societies one of the most important forms of money is 'bank money,' or the money of the money-market, which for the most part consists of neither coin nor notes. The whole of the banking system of the United Kingdom, for example, as well explained in Bagehot's Lombard Street, really rests upon the reserve kept by the Bank of England, and every bank receives deposits of 'money,' and makes advances of 'money,' with the use of a very small proportion of coins or bank-notes. A brief survey of the development of the complex monetary system of modern societies from its rudimentary forms will give the best explanation of this uncertainty in the meaning of this familiar word, and also bring out in the clearest way the principal functions of 'money.'

Exchanges first take place by means of barter, but the difficulties of simple barter are obviously very great. A coincidence of mutual wants at the same time and place is the first condition of any exchange, and it is plain that a common medium of exchange will obviate one of the principal difficulties of direct barter. If there is some one thing which every one is willing to take, it follows that anything else can be bought or sold against this particular commodity. Accordingly the first function of 'money' is to provide (1) a medium of exchange, and its first forms consist of things which are generally desired in simple states of society. Skins, cattle, shells, corn, pieces of cloth, mats, salt, and many other commodities have at different times and places been used as 'money,' in the sense of a common medium of exchange. The commodity chosen, however, will be of little advantage unless it can be used both in large and small quantities. This consideration leads to another primary function of money—viz. (2) as a measure of value. Not only is it necessary that things can be exchanged against a common substance, but the rates of exchange must be measured. Finally, as society advances, a basis for (3) deferred payments, and also a method of (4) storing 'values' without deterioration, become of importance. In order that these four primary functions may be fulfilled, the substance chosen for money must have certain properties, of which the principal are portability or great value in small bulk, durability, sameness of quality, divisibility, stability of value, and cognisability. It was soon discovered that these qualities are possessed in the highest degree by gold and silver. Other metals have been used at different times even for standard money, but all of them fail in one or more of these particulars. Iron is liable to rust, lead is too soft, tin too brittle, and copper too heavy. It may be observed that the importance of the qualities varies according to circumstances. Thus, when, as in modern societies, the greater part of wholesale transactions are effected without the intervention of material money, portability is of comparatively small importance, whilst on the other hand stability of value is of the greatest importance in all kinds of deferred payments. It is not necessary that all the primary functions of money should be fulfilled by the same thing. In Saxon times, for example, and for long after in England the standard measure of value was the pound-weight of silver, but the actual medium of exchange consisted of silver pennies. At present the actual medium of exchange consists to a great extent of bits of paper—bank-notes, cheques, and various instruments of credit—whilst the standard measure of value is a piece of gold.

So long as the attention is directed to material money, the principal questions that arise are in connection with coinage. At first, after the introduction of the precious metals, it was left to the parties concerned to test their weight and fineness with caveat emptor for the rule, and the present unsatisfactory state of the English gold coinage is mainly due to the survival in law of the presumption that it is the duty of the receiver of money to see that it is of full value. But the essential object of coinage is that a responsible authority should affix its stamp to small ingots of metal, in such a way as to signify their weight and purity. Simple and important as this duty appears, history is full of examples of the debasement and deterioration of coins by governments with the view of making a petty gain. It is worth noting, however, that from the earliest times (with the exception of the reign of Henry VIII.) the English silver was kept of the same fineness. It is true that the weight of the coins became gradually less, but it was probably in most cases the recognition of an accomplished fact (through ordinary wear and tear), and was not an attempt to defraud. The evils which arise from the natural or artificial debasement of coins have been well described by Macaulay in his account of the recoinage in the reign of William III. Since the primary object of coinage was simply to furnish a mark of weight and fineness, all metallic money was at first exactly what it professed to be. Thus, the old English silver pound was coined into 240 pennies; and this fact is preserved in the Troy table—20 pennyweights = 1 oz., 12 oz. = 1 pound. In process of time the actual weight of the penny became less than a pennyweight, but the same numbers were still supposed to go to the pound. Finally, a certain amount of gold of a certain fineness was declared to be equal in value to a 'pound of silver,' or rather to 240 pennies. This is historically the answer to Sir Robert Peel's famous question, 'What is a pound?' The technical answer to the question is now given by the Coinage Act of 1870 (in substance the same as that of 1816). The act declares the precise weight of the sovereign in grains, and the proportion of alloy in standard gold. Nominally, any one can take standard gold to the mint and get it coined into sovereigns or half-sovereigns free of charge; 20 pounds-weight Troy being coined into 934 sovereigns and one half-sovereign. Practically the time and trouble involved in going direct to the mint induced people to sell their gold in preference to the Bank of England, and at first (within certain narrow limits) the price varied. Now the bank is compelled to purchase all standard gold at £3, 17s. 9d. per oz., and, as it obtains from the mint £3, 17s. 10½d., there is a small profit by way of brokerage. Allowing for this small difference, it will be seen that the mint price of gold—viz. £3, 17s. 10½d.—simply refers to the number of standard coins made out of a certain amount of standard metal. It follows that this mint price is fixed and invariable so long as the law remains unchanged. Thus, if gold became as plentiful as blackberries, or as scarce as diamonds, the mint price would remain unaffected. At the same time, however, the value of gold in the sense of its purchasing power over commodities would change according to the variations in the quantity, though the precise nature and extent of the change would depend upon other elements. In some cases government makes a definite charge for coinage—that is to say, practically the weight of the coins returned is so much less than the weight of the bullion brought. This charge is called seigniorage. So long as this charge is paid, however, there is no restriction on the quantity of metal which may be converted into full standard coin.

It is necessary now to notice the distinction between standard money, in the proper usage of the term, and token money. The chief characteristics of the former are that, as just explained, it is coined to an unlimited extent, and further, that for any money contracts it is unlimited legal tender. In 'token' money these two characteristics are absent. The nature and uses of token money are also best explained historically. In the middle ages silver was very scarce, and prices were extremely low. The silver penny was originally about the size of the present threepenny-piece; consequently for the low range of prices then current it was inconveniently large and valuable. In a petition of the date of 1330 it was pointed out that 'beer is one penny for three gallons,' and that a penny is the smallest coin, and the petitioners pray that smaller coins may be struck to pay for their little purchases, and 'for works of charity.' The great practical difficulty, however, was to make very small coins of full standard value. So much was the need of small change felt, however, that by the time of Elizabeth the people had resorted largely to 'tokens' of lead, tin, and even leather. These 'tokens' were at first private issues, and practically were like very small promissory-notes. It was soon found that they were forced into circulation by unfair means, and then the issuers refused to change them for goods or sterling money. The remedy adopted in 1613 was to give a monopoly of striking copper or brass farthings to certain persons for a consideration. This privilege, however, was so much abused, that in many parts of the country, including London, there was hardly any gold or silver left—the whole circulation being brass farthings. The patentees tried to force these farthings on the American colonies, but it is recorded of Massachusetts—'March 4, 1634, at the General Court at New Town, brass farthings were forbidden, and bullets were made to pass for farthings.' These 'royal' tokens were no sooner suppressed, owing to the abuses which they had caused, than they were again replaced by private tokens, and it is said that over 20,000 different kinds were in use between 1648 and 1672. Evelyn in his Diary speaks of the tokens issued by every tavern, 'passable through the neighbourhood, though seldom reaching farther than the next street or two.'

From this slight historical sketch the principles which should regulate the issues of 'token' money stand out clearly. The smallest coins cannot be made of the precious metals of full value—e.g. a silver farthing would be less than one-tenth of the present threepenny-piece—and, accordingly, baser material must be used. Here, however, the danger arises of going to the other extreme and making the coins too large. But this is only a minor difficulty compared with the necessary condition that the token coins must bear a fixed relation to the standard coins in value. Thus we arrive at the fundamental principles of 'token' coins; they should be issued in limited quantities, be legal tender to a limited extent, and their so-called intrinsic value should be less than the nominal value. Even those nations which use both gold and silver as standard money (see BR-METALLISM) are compelled to use token coins for small values, whilst nations which have a gold standard must make all their silver coins 'tokens.' With the progress of civilisation 'representative' money, as it has happily been styled by Jevons, became of more and more importance. The Romans, for example, had a highly-developed banking system, which, however, was broken up on the disruption of the empire. In the early mediæval period bills of exchange were used for foreign payments; and that they were considered as 'representative money' is shown by the fact that in England, up to the Tudor period, their value was regulated by the Royal Exchanger, a high official connected with the mint. The development of banking in the modern sense was very slow. The earliest banks in Italy were finance companies which provided governments with loans, but the great banks of the north of Europe were expressly designed to provide good money to meet the payment of bills of exchange (see Adam Smith's account of the origin of the Bank of Amsterdam, Wealth of Nations, book iv.). The money in the great trading centres was drawn from various countries, and was in general debased and worn. The banks took this bad money from the merchants and gave them good bank money in return. The merchants, however, allowed the money to remain in the bank, and handed one another transfers. It was soon discovered that a small amount of actual coin was sufficient to meet all liabilities, and, accordingly, the remainder was lent. In this manner 'bank money' has in process of time come to consist of a large mass of representative money supported on a metallic basis. See BANK.

Compare, on the difficulty of defining 'money,' Sidgwick's Principles of Political Economy, book ii. chap. iv.; on the history of material money, Rudg's Annals of the Coinage, Dana Horton's Silver Pound, Kenyon's Gold Coins of England, Hawkins' Silver Coins of England; on tokens, Boyne's Tokens in the Seventeenth Century; on the 'money market,' Bagehot's Lombard Street; on the general principles, Jevons' Money, Professor F. A. Walker's Money, Professor Nicholson's Money and Monetary Problems, Ridgeway's Origin of Metallic Currency (1892). See also BULLION, CURRENCY, WEIGHTS AND MEASURES, CROWN, DOLLAR, Groat, GUINEA, NUMISMATICS, SHILLING, VALUE, &c.