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. A. Origin of Primitive Money 32. THE ORIGIN AND USE OF MONEY' 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. Adapted from The Evolution of Modern Money, pp. 225-70. (The Macmillan Co., 1901.) find any commodity that few would refuse in exchange for their products, then money was already virtually established. The very thing that we want to know is, how did first one commodity, then another, and finally gold and silver, attain such a degree of universal acceptability as ensured their being refused by none in exchange for their products? It may be worth while, first, to take note of those characteristics which render a commodity conspicuously unfit for its choice as money. The eminent German historian, Mommsen, observes: "The commodity that becomes money must over all things not be one that is indispensable for the supply of the most urgent material needs." The reason that prime necessities of life never become money is plainly that the desire for them is dependent upon bodily appetites, and is therefore liable at any moment to satiation. If a man had not more than enough of wheat, for example, to satisfy present hunger, he would not part with any of it. If, on the contrary, he and the rest of the community had enough of it for present wants, together with such provision for future needs as they regarded as adequate, then any man who had a superfluity of it would not be able to barter away any part of it on any terms whatsoever. No one would take it off his hands. The only circumstances in which wheat could conceivably assume a position anything like that of money would be in the event of there being an export outlet for it. It was such an export outlet that gave currency to tobacco in Virginia. "Since tobacco. was in unfailing demand for shipment abroad it was always readily taken at the country store." When, however, we take the world as a whole, or any self-contained section of it, like Europe in the early Middle Ages, there can evidently be no outlet constantly open for any commodity, so far as the conditions of space are concerned. There may, however, be an outlet in time, that is to say, the whole surplus of some commodity which is not required to supply present needs may be absorbed for the purposes of provision for the future; and this, as a matter of fact, is what happens with regard to the monetary commodity. The origin of money is thus essentially connected with that stage in human development when men begin to "look before and after," to make provision for the future. The commodity which would best secure a man's future wellbeing would not be so much the commodity best adapted for immediate use by himself or his dependents as the commodity which would be most efficient in securing for him the services of his neighbors or of strangers unconnected with him. We find, moreover, and not without surprise, that the commodity of greatest direct utility is not the most useful in procuring the services of others, or in making provision for the future. On the contrary, the commodity most highly prized is usually one which could easily be dispensed with. "Wherever we come across man on the surface of the globe," says M. Babelon, "we find that it is the superflous which by instinct seems to him the most necessary; man has scarcely learnt the use of clothes before he hangs onto his neck, his arms, his legs, his ears, necklaces, bracelets, rings, and pendants of every shape, in the manufacture of which the precious metals are always and everywhere preferred. Ever since the beginning of the world, the pursuit of gold and silver has dominated everything; ages before the invention of money and the appearance of the legislator nations made war with each other for the possession of the precious metals, organized for their acquisition large and perilous expeditions, which have left their memory in history and in fable, such as the expedition of the Argonauts in search of the Golden Fleece, the adventures of Hercules in the Garden of the Hesperides, and the voyages of the ships of Tyre and Sidon to the country of Pharsis." These precious metals which were thus passionately sought for purposes of adornment naturally became the means of making provision for the future, and of reckoning wealth. They served at one and the same time the purposes of ornament and of money. The possession of gold and silver ornaments gave distinction and social prestige to the owners. Everyone prized the precious metals, therefore, and in consequence their general acceptability made them most desirable commodities for monetary purposes. 34. THE ORIGIN OF MEDIA OF EXCHANGE1 It has long been the subject of universal remark in centers of exchange, that for certain commodities there existed a greater, more constant, and more effective demand than for other commodities less desirable in certain respects. The person who wishes to acquire certain definite goods in exchange for his own is in a more favourable position if he brings commodities of this kind to market than if he visits the market with goods which cannot display such advantages, I Adapted from "The Origin of Money," Economic Journal, II (1892), 247–52. or at least not in the same degree. Thus equipped he has the prospect of acquiring such goods as he finally wishes to obtain, not only with greater ease and security, but also, by reason of the steadier and more prevailing demand for his own commodities, at prices corresponding to the general economic situation-at economic prices. Under these circumstances when anyone has brought goods not highly salable to market, the idea uppermost in his mind is to exchange them, not only for such as he happens to be in need of, but, if this cannot be effected directly, for other goods also, which, while he did not want them himself, were nevertheless more salable than his own. By so doing he certainly does not attain at once the final object of his trafficking, to wit, the acquisition of goods needful to himself. Yet he draws nearer to that object. By the devious way of a mediate exchange he gains the prospect of accomplishing his purpose more surely and economically than if he had confined himself to direct exchange. Now in point of fact this seems everywhere to have been the case. Men have been led, with increasing knowledge of their individual interests, each by his own economic interests, without convention, without legal compulsion, nay, even without any regard to the common interest, to exchange goods destined for exchange for other goods equally destined for exchange, but more salable. With the extension of traffic in space and with the expansion over ever longer intervals of time of provision for satisfying material needs, each individual would learn, from his own economic interests, to take good heed that he bartered his less salable goods for those special commodities which displayed, besides the attraction of being highly salable in the particular locality, a wide range of salableness both in time and place. These wares would be qualified by their costliness, easy transportability, and fitness for preservation (in connection with the circumstance of their corresponding to a steady and widely distributed demand) to insure to the possessor a power, not only "here" and "now," but as nearly as possible unlimited in space and time generally, over all other market goods at economic prices. When the relatively most salable commodities have become "money," the event has in the first place the effect of substantially increasing their originally high salableness. Every economic subject bringing less salable wares to market, to acquire goods of another sort, has thenceforth a stronger interest in converting what he has |