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If we summarize what has been said, we come to the conclusion that the commodity that has become money is also the commodity in which valuations answering the practical purposes of economizing men and in which accumulations of funds for exchange purposes can most appropriately be made provided that no impediments founded upon its properties stand in the way. Metallic money (which writers in our science always have primarily in mind when they speak of money in general) actually answers these purposes to a high degree. But it appears to me to be just as certain that the functions of being a “measure of value” and a “store of value” must not be attributed to money as such, since these functions are of a merely accidental nature and are not an essential part of the concept of money.

4.

Coinage

From the preceding exposition of the nature and origin of money, it appears that the precious metals naturally became the economic form of money in the ordinary trading relations of civilized peoples. But the use of the precious metals for monetary purposes is accompanied by some defects whose removal had to be attempted by economizing men. The chief defects involved in the use of the precious metals for monetary purposes are: (1) the difficulty of determining their genuineness and degree of fineness, and

(2) the necessity of dividing the hard material into pieces appropriate to each particular transaction. These difficulties cannot be removed easily without loss of time and other economic sacrifices.

The testing of the genuineness of precious metals and their degree of fineness requires the use of chemicals and specific labor services, since it can be undertaken only by experts. The division of the hard metals into pieces of the weights needed for particular transactions is an operation which, because of the exactness necessary, not only requires labor, loss of time, and pre-

financiers du XVIIIe Siècle, Paris, 1843, p. 895). In Germany it was revised by T.A.H. Schmalz, (Staatswirthschaftslehre in Briefen, Berlin, 1818, I, 48ff.), and in England recently by Henry Dunning Macleod, (The Elements of Economics, New York, 1881, I, 171ff.).

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cision instruments, but is also accompanied by a not inconsiderable loss of the precious metal itself (because of the loss of chips and as the result of repeated smelting).

A very penetrating description of the difficulties that arise from the use of the precious metals for monetary purposes has been given us by the well-known traveler27 in southeastern Asia, Bastian, in his work on Burma, a country where silver still circulates in an uncoined state.

“When a person goes to market in Burma,” Bastian relates, “he must take along a piece of silver, a hammer, a chisel, a balance, and the necessary weights. ‘How much are these pots?’ ‘Show me your money,’ answers the merchant, and after inspecting it determines a price at this or that weight. The buyer then asks the merchant for a small anvil and belabors his piece of silver with his hammer until he thinks he has found the correct weight. He thereupon weighs it on his own balance, since that of the merchant is not to be trusted, and adds to or takes away from the silver on the scales until the weight is right. Of course a good deal of the silver is lost as chips drop to the floor, and the buyer therefore usually prefers not to buy the exact quantity he desires but one equivalent to the piece of silver he has just broken off. In larger purchases, which are made only with silver of the highest degree of fineness, the process is still more complicated, since first an assayer must be called who determines the exact degree of fineness, and who must be paid for this task.”

This description furnishes us a clear picture of the difficulties involved in the trade of all peoples before they learned to coin metals. Frequently repeated experiences with these difficulties must have made their removal seem most desirable to every economizing individual.

The first of the two difficulties, the determination of the degree of fineness of the metal, seems to have been the one whose removal appeared to be first in importance to economizing

27Menger does not give references to the passages he quotes from Bastian and we were unable to find them in the published works of Adolph Bastian that were accessible to us. It is possible that Menger’s information was based on an unpublished lecture or on a personal communication from Bastian.—TR.

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men. A stamp impressed by a public official or some reliable person on a metal bar guaranteed, not its weight, but its degree of fineness, and exempted the possessor, when he passed the metal on to other persons who appreciated the reliability of the stamp, from the burdensome and expensive assay test. Metal so stamped still had to be weighed, as before, but its fineness required no further examination.

In some cases at the same time, and in other cases possibly somewhat later, economizing men appear to have hit upon the idea of also designating the weight of the pieces of metal in similar fashion, and of dividing the metals from the beginning into pieces that were reliably marked with their weight as well as their fineness. This was naturally best accomplished by dividing the precious metal into small pieces corresponding to the needs of trade, and by marking the metal in such a way that no significant part could be removed from the pieces without the removal becoming immediately apparent. This aim was achieved by coining the metal, and it was in this way that our coins came into being. Coins are thus, in their very nature, nothing but pieces of metal whose fineness and weight have been determined in a reliable manner and with an exactness sufficient for the practical purposes of economic life, and which are protected against fraud in as efficient a manner as possible. The fact of coinage makes it possible for us, in all transactions, simply to count out the necessary weights of the precious metals in a reliable manner without irksome assay tests, division, and weighing. The economic importance of the coin, therefore, consists in the fact that (apart from saving us from the mechanical operation of dividing the precious metal into the required quantities) its acceptance saves us the examination of its genuineness, fineness, and weight. When we pass it on, it saves us from giving proof of these facts. Thus it frees us from many irksome, wearisome, procedures involving economic sacrifices, and as a consequence of this fact, the naturally high marketability of the precious metals is considerably increased.

The best guarantee of the full weight and assured fineness of coins can, in the nature of the case, be given by the government itself, since it is known to and recognized by everyone and has the power to prevent and punish crimes against the coinage.

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Governments have therefore usually accepted the obligation of stamping the coins necessary for trade. But they have so often and so greatly misused their power that economizing individuals eventually almost forgot the fact that a coin is nothing but a piece of precious metal of fixed fineness and weight, for which fineness and full weight the honesty and rectitude of the mint constitute a guarantee. Doubts even arose as to whether money is a commodity at all. Indeed, it was finally declared to be something entirely imaginary resting solely on human convenience. The fact that governments treated money as if it actually had been merely the product of the convenience of men in general and of their legislative whims in particular contributed therefore in no small degree to furthering errors about the nature of money.28

Originally the money metals were undoubtedly divided into pieces that corresponded to the weights already in general use in commerce. The Roman as was originally a pound of copper. In the time of Edward I, the English pound sterling contained a pound, Tower weight, of silver, of a certain fineness. Similarly, the French livre in the time of Charlemagne contained a pound of silver according to Troyes weight. The English shilling and penny were also weights customarily used in commerce. “When wheat is at twelve shillings the quarter,” says an ancient statute of Henry III, “then wastel bread of a farthing shall weigh eleven shillings and four pence.”29 It is also known that the German mark, schilling, pfennig, etc., were originally commercial weights But the repeated debasements of the currency that were brought about by the masters of the mints soon caused the ordinary weights of bullion and the weights according to which the precious metals were used in trade (counted out as coins) to become very different in most countries. This difference in turn contributed not a little toward causing money to be regarded as a special “measure of exchange value,” even though the standard coin in every natural economy is nothing but a unit of weight defined by the weight according to which the precious metals are traded. Frequent attempts have been

28The next paragraph appears in the original as a footnote appended at the end of the previous paragraph.—TR.

29See Adam Smith, op. cit., p. 26.

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made in recent times to bring the unit of weight of bullion again into accord with the coinage unit, as in Germany and Austria where the Zollverein pound was chosen as the foundation of the coinage system.

The principal imperfections of our coins are that they cannot be made in perfectly exact weights, and that even the exactness that could be achieved is not attempted, for practical reasons (because of cost), in the customary manufacturing processes employed in the mints. The imperfections with which the coins originally leave the mint are augmented during their circulation by use, with the result that a perceptible inequality easily arises in the weights of coins of the same denomination.

Obviously these defects are more pronounced the smaller the quantities into which the precious metals are divided. The coining of the precious metals into pieces as small as retail trade requires would lead to the greatest technical difficulties, and even if it were done with moderate care, it would require economic sacrifices that would be out of all proportion to the face value of the coins. On the other hand, everyone familiar with trade can easily understand the difficulties to which a lack of coins of small denominations would lead.

“A smaller coin than 2 Annas,” Bastian reports, “did not exist in Siam. Anyone wishing to buy anything below that price had to wait until the addition of a new want justified the expenditure of such a sum or join with other would-be buyers and split the purchase with them. Sometimes small cups of rice served as money substitutes, and it is said that in Sokotra small pieces of ghi, or butter, served as small change.” In Mexican cities Bastian was given pieces of soap, and eggs in the country, as small change. In the highlands of Peru it is the custom of the natives to have a basket ready which they have divided into compartments. In one compartment there are sewing needles, in another spools of thread, and in others candles and other objects of daily use. They offer a selection of these things equal to the amount of small change needed. In upper Burma, lumps of lead are used for the smallest purchases, such as fruit, cigars, etc., and every merchant has a large case full of these lumps in his shop. They are weighed on a larger balance than that used for silver. In villages where one does not expect to get change for silver,

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a servant must follow with a heavy sack of lead for small purchases.

In most civilized countries, the technical and economic difficulties of coining the precious metals into very small pieces are evaded by coining pieces of some ordinary metal, usually copper or brass.

Since, as a matter of convenience if for no other reason, no-one will needlessly keep any sizeable part of his wealth in these coins, they have merely a subsidiary position in trade, and can be coined harmlessly at half weight, or even less, for the greater convenience of the public, provided only that they can, at any time, be exchanged at the mint for coins made of precious metals, or that only such small quantities of subsidiary coin are issued that they remain in circulation. The first is, in any case, the more correct method and at the same time a more certain protection against government abuses arising from the profit accruing to government from the issuance of these coins. Such pieces of money are called subsidiary coin. Their value is greater than the materials from which they are made, the additional value being attributable to the fact that a certain number of the subsidiary coins can be exchanged at the mint for a coin of larger denomination, and to the fact that anybody can use them to discharge his obligations to the issuing government and to any other person up to the amount of the smallest full-weight coin. Because of the greater convenience of subsidiary brass or copper coins, the public in this case readily tolerates the small economic anomaly, since the advantages of easier transportability and convenience are more important than fullness of weight in the case of coins that are never the center of important economic interests. In a similar manner, even lightweight silver coins are minted in many countries. This is not harmful as long as they are limited to denominations for which, for technical or economic reasons, no suitable full-weight coins can be made.