Chapter 4: The origin and use of Money
When the division of labour is established, each person can only supply a very small part of one's wants.
- He supplies the rest of his wants with the produce of the labour of others.
- Everyone lives by exchanging and the society grows into a commercial society.
But when the division of labour first began, this power of exchanging was frequently very much clogged and embarrassed in its operations.
To avoid this inconvenience, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have tried to always have:
- One man has more goods than he himself needs while another has less.
- The former would be glad to dispose of, and the latter to buy some of this excess.
- But if the latter has nothing that the former needs, no exchange can be made between them.
- The butcher has more meat in his shop than he himself can consume.
- The brewer and the baker would be willing to buy some of it.
- But they only have beer and bread to offer and the butcher already has all the bread and beer which he needs.
- In this case, no exchange can be made between them.
- He cannot be their merchant, nor they his customers.
- All of them are thus mutually less serviceable to one another.
- his own produce, and
- some commodities that few people would refuse in exchange for their produce.
Probably many different commodities were thought of and used for this purpose.
- In the rude ages of society, cattle was the common instrument of commerce.
- They must have been a most inconvenient one.
- But in old times things were frequently valued according to the number of cattle exchanged for them.
- Homer says that:
- the armour of Diomede cost only nine oxen
- the armour of Glaucus cost an hundred oxen.
- The following were the common instrument of commerce:
- Salt in Abyssinia;
- a species of shells in some parts of the coast of India;
- dried cod at Newfoundland;
- tobacco in Virginia;
- sugar in some of our West India colonies;
- hides or dressed leather in some other countries;
- To this day, a worker in a village in Scotland can carry nails instead of money to the baker's shop or the ale-house.
However, men in all countries were finally determined by irresistible reasons to prefer metals above every other commodity.
- Metals can be kept with little loss.
- Scarce anything is less perishable than the.
- They can be divided without any loss
- They can be reunited again by fusion.
- No other equally durable commodity has this quality.
- This makes them fit to be the instruments of commerce and circulation.
- For example, the man who wanted to buy salt but could only give cattle must have had to buy salt to the value of a whole ox.
- He could seldom buy less than this.
- Because his cattle could seldom be divided without loss.
- If he wanted to buy salt more than the value of one ox, he must buy two or more oxen.
- But if he had metals to give, he could easily give an amount of metal for the precise amount of the commodity which he wanted.
Different metals have been used by different nations for commerce.
- Iron was used by the ancient Spartans.
- Copper by the ancient Romans.
- Gold and silver by all rich and commercial nations.
Those metals were originally in the form of rude bars, without any stamp or coinage.
- Pliny says:
- According to Timæus, an ancient historian, the Romans had no coined money until the time of Servius Tullius.
- They used unstamped bars of copper which was their money back then.
These rude bars had two major inconveniences:
- The trouble of weighing
The trouble of assaying them
- In the precious metals, a small difference in their amount makes a great difference in the value.
- Very accurate weights and scales are needed, particularly in the weighing of gold.
- In the coarser metals, a small error in would be of little consequence.
- Less accuracy is needed.
- Yet it would be very troublesome, if a poor man had to weigh a farthing each time he bought or sold a farthing's worth of goods.
- Assaying is still more difficult and tedious.
- Unless a part of the metal is fairly melted in the crucible, with proper dissolvents, any conclusion that can be drawn from it, is extremely uncertain.
- Unless they went through assaying, people before coined money was instituted were always liable to the grossest frauds and impositions.
- Instead of a pound weight of pure silver or copper, they might receive an adulterated composition of the coarsest and cheapest materials which resembled those metals.
- Improved countries found it necessary to affix a public stamp on particular metals for buying goods in order to:
- prevent such abuses
- facilitate exchanges, and
- thereby encourage all sorts of industry and commerce.
- This is how coined money and public offices called mints began.
- Mints are institutions exactly of the same nature as the aulnagers and stampmasters of woollen and linen cloth.
- Through a public stamp, they ascertain the amount and uniform goodness of those commodities when brought to market.
The first public stamps affixed to precious metals were intended to ascertain the goodness or fineness of the metal.
- Their goodness and fineness was most difficult and most important to ascertain.
- The stamps resembled:
- the sterling mark currently affixed to silver plates and bars, or
- the Spanish mark sometimes affixed to gold ingots.
- It is only struck on one side
- It does not cover the whole surface.
- It ascertains the fineness, but not the metal's weight.
- Abraham weighed the 400 shekels of silver which he had agreed to pay to Ephron for the field of Machpelah.
- However, they were said to be the current money of the merchant.
- Yet they are received by weight and not by tale, in the same way as gold ingots and silver bars currently are.
- The revenues of the ancient Saxon kings of England were paid, not in money but in kind, as victuals and provisions of all sorts.
- William the Conqueror introduced the custom of paying them in money.
- However, this money was received at the exchequer, by weight and not by tale for a long time.
The inconvenience and difficulty of weighing those metals precisely gave rise to to the institution of coins.
- The stamp entirely covers both sides of the coin and sometimes the edges.
- It was supposed to ascertain the metal's fineness and weight.
- Therefore, such coins were received by tale as today, without the trouble of weighing.
The denominations of those coins originally expressed the weight or amount of metal in them.
- Servius Tullius first coined money at Rome
- During his time, the Roman As or Pondo had a Roman pound of good copper.
- It was divided into 12 ounces just like our Troyes pound.
- Each had a real ounce of good copper.
- In Edward I's time, the English pound sterling had a Tower weight pound of silver.
- The Tower pound was more than the Roman pound but less than the Troyes pound.
- The Troyes pound was introduced into the mint of England in the 18th of Henry VIII.
- In Charlemagne's time, the French livre had a Troyes weight pound of silver.
- Back then, the fair of Troyes in Champaign was frequented by all European nations.
- Its weights and measures were generally known and esteemed.
- From the time of Alexander the First to that of Robert Bruce, the Scots money pound had a pound of silver of the same weight and fineness with the English pound sterling.
- English, French, and Scots pennies also originally had a real pennyweight of silver, 1/20 of an ounce, and the 1/240 of a pound.
- The shilling too originally stood for a weight.
- An ancient statute of Henry III says:
- When wheat is at 12 shillings the quarter, then wastel bread of a farthing shall weigh 11 shillings and 4 pence.
- However, the proportion between the shilling and the penny or the pound was not so constant and uniform as that between the penny and the pound.
- During the first race of the French kings, the French sou or shilling contained 5, 12, 20, and 40 pennies on different occasions.
- Among the ancient Saxons, a shilling at one time had only five pennies.
- It might have been as variable among them as among their neighbours, the ancient Franks.
- From the time of Charlemagne among the French and from that of William the Conqueror among the English, the proportion between the pound, shilling, and penny, was uniformly the same as now.
- But the value of each has been very different.
- In every country of the world, the avarice and injustice of princes and sovereign states abused the confidence of their subjects.
- They gradually reduced the real amount of metal in their coins.
- In the latter ages of the Republic, the Roman As was reduced to 1/24 of its original value.
- Instead of weighing a pound, it came to weigh only half an ounce.
- The English pound and penny currently have around 1/3 only;
- the Scots pound and penny about 1/36;
- the French pound and penny about 1/66 of their original value.
- Through those operations, the princes and sovereign states were able to pay their debts and to fulfill their engagements with fewer silver.
- But it was in appearance only.
- Their creditors were really defrauded of a part of what was due to them.
- All other debtors in the state were allowed to pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old.
- Therefore, such operations were always favourable to the debtor and ruinous to the creditor.
- They sometimes produced a greater and more universal revolution in the fortunes of private persons, than any great public calamity.
In this way, money became the universal instrument of commerce in all civilized nations.
- It intervenes to exchange goods for one another.
12People naturally observe rules in exchanging goods either for money or for one another. These rules determine the 'relative' or 'exchangeable' value of goods.
13'VALUE' has two different meanings.
- It sometimes expresses utility
- This is called value in use
- It sometimes expresses the power of purchasing other goods that object conveys.
- This is called value in exchange
- The things which have the greatest value in use have frequently little or no value in exchange.
- Things which have the greatest value in exchange have frequently little or no value in use.
- Nothing is more useful than water:
- but it will buy scarce anything, and
- scarce anything can be exchanged for it.
- On the contrary, a diamond, has scarce any value in use.
- But a many goods may frequently be had for it.
14-17To investigate the principles which regulate the exchangeable value of commodities, I shall try to show:
- 15The real measure of this exchangeable value; or, wherein consists the real price of all commodities.
- 16The parts of which this real price is composed or made up.
- 17The circumstances which:
- sometimes raise some or all of these different parts of price above, and
- sometimes sink them below their natural or ordinary rate;
or, what are the causes which sometimes hinder the market price, that is, the actual price of commodities, from coinciding exactly with what may be called their natural price.
18I shall try to explain those three subjects in the three following chapters.
- I very earnestly entreat the reader's:
- patience and
- His patience in order to examine a detail which may perhaps in some places appear unnecessarily tedious
- This is to understand what might remain somewhat obscure after the fullest explication I can give.
- I am always willing to run some hazard of being tedious to be sure that I am perspicuous.
- After taking the utmost pains that I can to be perspicuous, some obscurity may remain on a subject which is extremely abstracted in its own nature.
Next: Chapter 5: Real and Nominal Price