Chapter 8: Money as the Measure of Value and Medium of Exchange
Measures of value and measures of quantity
We now consider money as:
- The measure of value, and then
- The medium of exchange.
- When people deal in many kinds of goods, one of them must be considered as the measure of value.
- Suppose there were only three commodities, sheep, corn, and oxen.
- We can easily remember them comparatively.
- But if we have 100 different commodities, there are 99 values of each, arising from a comparison with each of the rest.
- These cannot easily be remembered.
People naturally use a common standard to compare the rest.
- This will naturally at first be the commodity with which they are best acquainted.
- Accordingly, we find that black cattle and sheep were the standard in Homer’s time.
- The armour of one of his heroes was worth nine oxen.
- That of another was worth 100.
- Black cattle was the common standard in ancient Greece.
- In Italy, and particularly in Tuscany, everything was compared with sheep,their principal commodity.
- This is the 'natural measure of value'.
Similarly, there were natural measures of quantity, such as fathoms, cubits, inches.
- These were taken from the human body's proportions.
- These were used before in every nation.
But they found that:
- one man’s arm was longer or shorter than another’s, and
- one was not to be compared with the other.
Therefore, wise men tried to fix some more accurate measure, so that equal quantities might be of equal values.
- This method became absolutely necessary when people came to deal in many commodities in big amounts.
An inch was inconsiderable when their dealings were confined to a few yards.
- More accuracy was required when they came to deal in some thousands.
The remains of this inaccuracy can be found in countries with small dealings.
- The accuracy of the balance is not important in their coarse commodities.
Generally, metals seemed best to answer this purpose.
- Of these metals, the value of gold and silver could best be ascertained.
- The temper of steel cannot be precisely known.
- But the amount alloy in gold and silver can be exactly known.
- Gold and silver were therefore:
- fixed as the most exact standard to compare goods with, and
- considered as the most proper measure of value.
In consequence of gold and silver becoming the measure of value, it also came to be the instrument of commerce.
- It soon became necessary that goods should be carried to market.
- They could never be cleverly exchanged unless the measure of value was also the instrument of commerce.
In the age of shepherds, it might not be too inconvenient that cattle should be the medium of exchange.
The butcher and shoemaker might at times have no use for each other’s commodities.
- The expense of maintaining them was nothing.
- The whole country was considered as one great common.
- But when lands became divided and the division of labour introduced, this custom would create very big inconveniences.
To remedy this, those materials which were before considered as the measure of value, came also to be the instrument of exchange.Gold and silver had all the advantages.
- The farmer very often cannot maintain one cow.
- It would be a very great hardship  on a Glasgow merchant to give him a cow for one of his commodities.
However, gold and silver do not get their whole utility from being the medium of exchange.
- They can be kept without expense.
- They do not waste.
- They are very portable.
At first, their balances were not very accurate.
- They never had been used as money.
- But they are more valuable than any other metal.
- They have a superior beauty.
- They are capable of a finer polish.
- They are more proper for making any instrument, except those with an edge.
- This is why gold and silver became:
- the proper measure of value, and
- the instrument of exchange.
- But to make them more proper for these purposes, their weight and fineness needed to be ascertained.
To facilitate exchange therefore, they needed some expedient to ascertain the accuracy of weight and fineness.
- Therefore, frauds were easily committed.
- However, this was remedied gradually.
- But common business does not allow the needed experiments to precisely fix the degree of fineness.
- They looked pure even if they had a lot of alloy.
- Coinage most effectually secures these.
- A stamp was put on certain pieces so that whoever saw them might have the public faith that they were of a certain weight and fineness.
- This would be first marked on the coin, as being of the most important.
Accordingly, the coins of every country bore the weights corresponding to them.
- The British pound sterling seems to have been originally a pound weight of pure silver.
Gold could be easily exchanged into silver.
- Silver always came to be the standard or measure of value.
- There cannot be two standards.
- In most purchases, silver is necessary.
- We say a man is worth so many pounds, not guineas.
The measure of quantity has always increased, while the measure of value has decreased.
It is the baker and brewer's interest to make the measure of quantity as small as possible.
- The British pound's original value was 63 shillings.
- It has now decreased to less than 1/3, while the measure of quantity has considerably increased.
- This is because the government's interest requires this.
All our measures taken from the Roman foot, fathom, and inch, are now much more.
- Therefore, inspectors were appointed to always settle the quantity a little higher when it is brought down.
Accordingly, averdupois (avoir du poise), or heavy weight, was settled at 13 ounces.
- 'Troy weight' was from Troy, a town in Champaigne where then the greatest commerce was carried on.
- Troy weight gave rise to a heavier weight, because there was usually given the cast of the balance along with it.
- This rendered dealings inaccurate.
- It was necessary that this cast of the balance should be determined.
- This number was not easily divided.
- It was settled at 16, the ounces being proportioned to it.
Thus the measure of quantity has been increasing.
When the government takes the coinage into its own hands, the expenses naturally fall on it.
- We shall next show how the coin decreased.
The government took the task upon themselves.
- If any private man coins, he must lessen the value or have nothing but his labour for his pains.
- Besides, no man’s authority can be so great as to make his coin pass in common payments.
- He must forge the stamp of the government.
- To prevent frauds, they would try to prevent:
- counterfeiting the king’s coin, and
- encroaching on his prerogative.
- Besides, the public faith was engaged.
- It was necessary to prevent all kinds of fraud, because it was likewise necessary that people should be obliged to receive the coin according to its denomination.
- If any refused it after a legal tender of payment was made:
- the debtor should be free, and
- the creditor guilty of felony.
In rude and barbarous periods, the government was laid under many temptations to debase the coin, or, according to the mint language, to raise it.
Many operations of this kind have been performed in every country.
- For example, when on any important occasion, such as paying of debts, or of soldiers, it needed 2 millions, but only has 1 million, it calls in the coin of the country.
- It mixes more alloy with it to come out as 2 million, as like as possible to what it was before.
- But England, from the freedom which it has almost uninterruptedly enjoyed, has been less troubled with this than any other nation.
- In England, it has only fallen to 1/3.
- But in many other countries it is not 1/50 of its original value.
The inconveniences of such practices are very great.
People keep their goods from the market because they do not know what they will get for them.
- The debasement of the coin hinders commerce, or, at least, greatly embarrasses it.
- A new calculation must be made how much of the new coin must be given for so much of the old.
Nobody will lend any sum to the government, or bargain with it because he might be paid with half of it.
- Thus, a stagnation of commerce is created.
- Besides, the debasing of the coin takes away the public faith.
However, this scheme serves its purpose for a short time.
- This is a fraud committed by the government.
- Every subject must be allowed to do the same and pay his debts with the new money, less than he owed.
When the coin is debased, a debt of 20 shillings is then paid with 10 shillings.
- Money has two uses:
- The payment of debts
- The buying of commodities
To prevent this loss, the French and all other nations on a like occasion, when they double the money by edict without re-coinage, make the augmentation after the money is called in, and before it goes out, and a reduction is made before next term of payment.A reduction is always worse than an augmentation.
- But if the new coin is carried to a foreign market, it will give the old value.
- All day-labourers are paid in the new coin.
- Life's necessities must be sold at what most people can give.
- Consequently, their price will for some time be reduced.
- The king himself gains in the meantime, but loses much.
- His doubling it is a present advantage.
- But it reduces his revenue, because all his taxes are paid in the new coin.
If I owe 10 pounds and am obliged to pay 15, common industry must be excessively embarrassed.
- An augmentation injures the creditor.
- A reduction injures the debtor, who should always be favoured.
The coins of most countries are either of copper, silver, or gold.
The different coins are regulated by the market price of gold and silver, not by the government's caprice.
- We are obliged even to receive payment in sixpences.
- This sometimes causes confusion and loss of time.
Guineas have been valued between 20-22 shillings.The gold rises more in proportion in Britain than anywhere else.
- The proportion of gold and silver is settled according to this market price.
- This proportion sometimes varies a little.
Silver buys more gold abroad than at home.
- It makes the silver of less value.
- This causes a real inconvenience.
Some time ago, a proposal was given in to remedy this.
- By sending abroad silver, they bring gold in return.
- This gold buys more silver here than abroad.
- Through this, a kind of trade is made.
- The gold coin increases and the silver diminishes.
- But it was thought so complex a case that they resolved not to meddle with it at that time.