labor, consumption and production are automatically organized into a system. In a world composed of such communities the organization, while complete, appears crude and inexact; for there is quite likely to be a surplus of certain products in some communities and a dearth of them in others. Accordingly an exact adjustment of goods and wants, of production and consumption, is possible only under an extended economic order. But here the articulation of a myriad of productive agencies and as many consumptive activities into a single coherent scheme is a task of great magnitude. In the case of each good, demand and supply must approximately correspond; while, for the whole, resources must be used in the production of those particular goods which satisfy wants pecuniarily most potent. Fortunately the "pecuniary unit" enables this adjustment to be made with sufficient precision. It enables each good and the satisfaction of each want to have placed upon it a "price," or a quantitative expression of its value in terms of the "pecuniary unit." Price is a flexible medium through which demand and supply are adjusted to each other. As we have learned elsewhere, an increase in demand raises the price and stimulates increased production, and an increase in supply lowers price and discourages production; while decreases in demand and supply have antithetical effects. Thus the "pecuniary unit," through "price," brings the demand and supply of a particular article into harmony. But as, impelled by its price, the demand or supply of an article is changed, it becomes more or less advantageous economically to produce or consume other articles. Accordingly, through price-changes, the demand and supply of other articles are affected. They, likewise, in the end, will harmonize, though likely at new prices and in changed amounts. Thus the demand for and supply of each article are intimately associated through price with those of a large number of other articles. Hence a larger view reveals an extremely complex and intricately organized system for the "production and consumption of wealth," supported by a vast and harmonious complex of pecuniary values. At the basis of this intricate and gigantic, yet orderly, "price-structure" lies the "pecuniary unit."

6. It gives stability to the economic order.-If the economic order were a gigantic mechanism, composed of unchangeable elements, a static price-structure would preserve it. But the elements of our system are quite variable: population may increase, the technical system may change, industrial equipment may be augmented, the

nature of institutions may vary, or popular caprice may affect new wants. Confronted by one of these contingencies, a static scheme of prices would introduce elements of disintegration into the system. But the "pecuniary unit," stable itself, allows prices to change in response to changed circumstances. Thus it induces the necessary adjustments between production and consumption and leaves the price-structure capable of sustaining a society as highly integrated as before. Naturally, changed prices introduce inconsistencies into the price-structure, but in time these tend to disappear. Since change is constantly occurring, the system always possesses a degree of inconsistency. This is the very purpose of the "margins" allowed to interlocking businesses.

Paradoxical as it may appear, money must be inconspicuous in itself if it would best fill the rôle of economic organizer. If it be heavy, or impure, or if it otherwise entail cost in making exchanges, it restricts by so much the development of a highly organized society. When economical substitutes are used in actual exchanges, and money ceases to be a "medium of exchange," it becomes a more exact measure of value and a more efficient organizer of economic activities. Likewise, the more certain its value, the more effective its work in sustaining the economic order. Since it is associated with some such commodity as gold, the "pecuniary unit" cannot be exact. But inexactness, either actual or anticipated, has always threatened chaos. There have been times when we were uncertain as to what was to be the "standard for deferred payments" or "the definition of the unit of value." There have been times, for instance periods of great gold production, when the amount of value in "the unit" was being radically changed. Both were accompanied by a partial disarrangement of the price-structure and a corresponding disintegration of the industrial system. In such periods it is particularly difficult to measure present and future values in terms of each other, and economic judgments which guide the system as a whole are not sufficiently rational. This tendency to disintegration will remain until an "inflexible unit of purchasing power" is established. When that is done, questions of monetary theory will have only academic interest and money will perfectly perform its organizing function.

The organizing function of the pecuniary unit is not confined to the present economic order. The pecuniary unit is a fit companion for such institutions as private property, free contract, pecuniary competition, and individual initiative. But its service would be equally

indispensable in a society quite unlike ours. Under socialism, for instance, even though the state took the initiative in production, to guide its economic judgment it would require a means for determining the quantities in which its varied goods were to be produced. This would require a means for exact valuation, such as could be found only in a proper accounting system, for which the "pecuniary unit" must furnish the basis. Accordingly we may conclude that the "pecuniary unit," the principal manifestation of money, is an agency of prime importance in establishing and maintaining a complex economic order.

II

THE ORIGIN AND DEVELOPMENT OF MONEY

Introduction

The institution of money is of venerable age, evidence of its existence in one form or another going back as far as recorded history. Its beginnings being thus shrouded in antiquity, the nature of its origin. is consequently more or less a matter of numismatical speculation. The study of the use of money among primitive tribes of our own time, however, has thrown considerable light on the subject, and a number of different theories have been advanced for its development. The chief of these are set forth in the selections below.

In connection with these readings it is important to differentiate carefully the various functions of money and to ascertain in each case what particular function, or combination of functions, has been performed by the various kinds of currency enumerated. It will be seen that in many cases the money in use has not performed all the functions discussed under Chapter i. Indeed, the various functions did not develop simultaneously, the standard of deferred payments, for instance, being of relatively late origin. In regard to its functions. as a medium of exchange and a common denominator of value, there has been much discussion over the question of priority.

At different times and among different peoples a great variety of commodities has been used as money, but gradually with the evolution of commerical civilization the precious metals, gold and silver, have come to be almost exclusively used as the bases of monetary systems. The reasons for this evolution are shown in the selections under Section C. It is particularly important to study the table of the production of the precious metals in connection with the adoption of gold and silver for monetary use.

It will be observed that one of the most important reasons for the universal adoption of the precious metals as money is their adaptability to coinage, thereby furnishing a uniform system of currency. The development of a good system of coinage, however, has been a long and tedious process; for although money appears to have been

minted after a fashion in very ancient times it was not until quite recently that a really satisfactory method of coining money was perfected. The consequences of a bad system of coinage have been disastrous from every standpoint; and for centuries the perpetually "unfortunate state of the currency" was a very serious barrier to commercial progress.

32.

A. Origin of Primitive Money

THE ORIGIN AND USE OF MONEY1
BY ADAM SMITH

In order to avoid the inconvenience of barter every prudent man in every period of society, after the first establishment of the division of labor, must naturally have endeavored to manage his affairs in such a manner as to have at all time by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.

Many different commodities, it is probable, were successively thought of and employed for this purpose. In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity. Metals can not only be kept with as little loss. as any other commodity, scarcely anything being less perishable than they are, but they can likewise without any loss be divided into a number of parts, and by a fusion of those parts can easily be reunited again, a quality which no other equally durable commodities possess, and which more than any other quality renders them fit to be the instruments of commerce and circulation.

33. ORNAMENTATION AND MONEY'

By W. W. CARLILE

Let us get rid, once for all, of the idea that a commodity owes its "adoption" as money to any "convention" tacit or explicit entered into with each other by the members of primitive communities. The criticism at once suggests itself with reference to Adam Smith's explanation of the origin of money, that if the prudent man could Adapted from The Wealth of Nations, Book I, chap. iv.

I

2

Adapted from The Evolution of Modern Money, pp. 225-70. (The Macmillan Co., 1901.)