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of every other commodity, and thus enables us to compare the value of each commodity with that of
This is an immense convenience. It leads every one to think and speak of the values of things in terms of a money known to everybody. All lists of values of goods are given as lists of prices and everybody understands these prices and can compare the prices in one list with those in another. Money may then be said to have two chief functions. It serves as
(1) A medium of exchange.
(2) A common measure of value. But it is important to remember that, though money thus acts in a very useful and peculiar way, it never ceases to be a commodity. Its value is subject to the laws of supply and demand already stated (section 73); if the quantity of money increases, its value is likely to decrease, so that more money is given for the same commodity, and vice versa.
79. What Money is made of. As already remarked almost any commodity may be used as money, and in different ages all kinds of things such as wine, eggs, olive oil, rice, skins, tobacco, shells, nails, have actually been employed in buying and selling. But metals are found to serve much the best for several reasons, and gold and silver are better for the purpose than any of the other metals. The advantages of having gold and silver money are evident. Such metals are portable, because they are so valuable that a small weight of metal equals in value a great weight of corn or timber or other goods. Then they are indestructible, that is, they do not rot like timber, nor go bad like eggs, nor sour like wine; thus they can be kept for any length of time without losing their value. Another convenience is, that there is no difference in quality in the metal itself; pure gold is always the same as pure gold, and though it may be mixed with more or less base metal, yet we can assay or analyse the mixture, and ascertain
how much pure metal it contains. The metals are also divisible; they may be cut or coined into pieces, and yet the pieces taken together will be as valuable as before they were cut up. It is a further advantage of gold and silver that they are such beautiful, brilliant substances, and gold is also so heavy that it is difficult to make any counterfeit gold or silver ; with a little experience and care, every one can tell whether he is getting real money or notwhen the money is made of gold or silver. Finally, it is a great convenience that these metals do not change in value rapidly. A bad harvest makes corn twice as dear as before, and destructible things, like eggs, skins, &c., are always rising or falling in value. But gold and silver change slowly in value, because they last so long, and thus the new supply got in any one year is very little compared with the whole supply or stock of the metal. Nevertheless, gold and silver, like all other commodities, are always changing in value more or less quickly.
80. Metallic Money. Almost all the common metals—copper, iron, tin, lead, &c.—have been used to make money at one time or other, besides various mixtures, such as brass, pewter, and bronze. But copper, silver, and gold have been found far more suitable than any of the other metals. Copper, indeed, being comparatively low in value, is wanting in portability. It was formerly the only money of Sweden, and I have seen a piece of old Swedish money consisting of a plate of copper about two feet long and one foot broad. A merchant making payments in such money had to carry his money about in a wheelbarrow. Now we use copper only for coins of small value, and to make the copper harder, it is melted up with tin and converted into bronze.
In the Saxon times English money was made of silver only, but this was inconvenient both for very large and for very small payments. The best way is
to use gold, silver, and bronze money according as each is convenient. In the English system of money, gold is the standard money and the legal tender, because no one can be obliged to receive a large sum of money in any other metal. If a person owes a hundred pounds, he cannot get rid of the debt without tendering or offering a hundred pieces of coined gold to his creditor. Silver coin is a legal tender only to the amount of forty shillingsthat is, no creditor can be obliged to receive more than forty shillings in a single payment. Similarly, bronze coin is a legal tender only up to the amount of one shilling in all.
81. What is a Pound Sterling? In England people are continually paying and receiving money in pounds, but few could say exactly what a pound sterling means. No doubt it is represented by a coin called a sovereign, but what is a sovereign ? Strictly speaking, a sovereign is a piece of gold coined, in accordance with an Act of Parliament, at a British mint, still bearing the proper stamp of that mint, and weighing not less than 122 grains. On the average the sovereigns issued from the mint ought to weigh 123.274 grains, but it is impossible to make each coin of that exact weight, and if this were done, the coins would soon be lessened in weight by wear. A sovereign is legal tender for a pound as long as it weighs 122 1/2 grains or more, and is not defaced; but, in reality, people are in the habit of paying and receiving sovereigns which are several grains less in weight than the law requires.
Twenty silver shillings are by law to be received as equal in value to a pound. This is necessary, in order that we may be able to pay a fraction of a pound, for a coin made of gold equal to the twentieth part of a pound would easily be lost, worn, or even blown away. But the silver in twenty shillings is not equal in value to the gold in a pound; its value varies with the gold price of silver, and, at present, twenty shillings
are only worth about sixteen gold shillings and eightpence, that is, 5 of a pound. It is necessary to make the silver coin thus of less value than it is taken for, in order to render it unprofitable to melt the coin. In the same way, the metal in a bronze penny is worth only about the sixth part of a penny, so that people would lose a great deal by melting up or destroying pence.
82. Paper Currency. Instead of using actual coins of gold, silver, or bronze, it is common to make use of paper notes containing promises to pay money. When the sum of money to be paid is large, a bank note is much more convenient, being of far less weight than the coins, and less likely to be stolen. A five-pound bank note is a promise to pay five pounds to any person who has the note in his possession, and who asks for five pounds in exchange for the note at the office of the bank issuing the note. A convertible bank note is one which actually can be thus changed into the coins whenever it is desired, and so long as this is really the case, it is evident that the note is just as valuable as the coins, and is more convenient. The only fear is that, if a banker be allowed to issue these bank notes, he will not always have coins enough to pay them when presented. Very frequently banks have been obliged to stop payment; that is, to refuse to perform their promises. Nevertheless, when there is no other currency to be had, the bank notes often go on circulating like money. They are then called inconvertible notes, and there is said to be a paper money. A person is willing to receive paper currency in exchange for goods, if he believes that other people will take it from him again. But such paper currency is very bad, because its value will rise or fall according to the quantity issued, and people who owe money will often be able to pay their debts with less value than they received. The subject of bank notes and paper money, however, is too difficult for us to pursue in this Primer.
CREDIT AND BANKING.
83. What Credit means. It is very important for those who would learn political economy to understand exactly what is meant by credit. John is said to give credit to Thomas when John leaves some of his property in the use of Thomas, expecting to have it returned at a future time.
In short, any one who lends a thing gives credit, and he who borrows it receives credit. The word credit means belief, and John believes that he will get back his property from Thomas, though this, unfortunately, does not always prove to be the case. John is called the creditor, and Thomas the debtor.
It is not common, indeed, to speak of credit in the case of most articles : when a man borrows a horse, a book, a house, an engine, or other common article, and
pays for its use, he is said to hire it, and what he pays for the use is called the hire, fare, or rent. In some countries, where coins are not yet used, people lend and borrow corn, oil, wine, rice, or any common commodity which all like to possess. In the parts of Africa where palm oil is produced in great quantities, people give and take credit in oil. But in all civilised countries it has become the practice to borrow and lend
If a man needs an engine, and has nothing to buy it with, he goes and borrows money enough from the person who will lend it on the lowest terms, and then he buys the engine where he can get it most cheaply. Frequently, indeed, the man who sells the engine will give credit for its price, that is, will lend the sum of money to the buyer, just sufficient to enable him to buy it.
Credit is a very important thing, because, when properly employed, it enables property to be put into the hands of those who will make the best use of it. Many people have property but are