Money originally metallic - Always a commodity in itself - True functions of Money - Banking and Currency - Adam Smith's doctrine - Its merits, and the departure from the state of things upon which it was developed.

The circulating medium of a country is some substance or token of property adopted for general convenience, to measure or indicate the value of one commodity when exchanged for another. In the early ages of civilization, sheep and oxen - and, amongst the ruder nations of modern times, shells and salt - have been used for this purpose. Thus we read in Homer that the armour of the great warriors of antiquity cost so many oxen. In Mungo Parks Travels in Africa there is a clear account to be found of the manner in which circumstances lead a people to fix upon what is commonly called a "standard of value," and possess themselves of the advantages derivable from a circulating medium. Something of the same sort has, no doubt, occurred at a period more or less remote to the inhabitants of every country. The following is the passage: - "In bartering one commodity for another, many inconveniences must necessarily have arisen at first, from the want of coined money, or some other visible and determinate medium, to settle the balance or difference of value between different articles; to remedy which, the natives of the interior make use of small shells, called couries. On the coast, the inhabitants have adopted a practice which I believe is peculiar to themselves. In their early intercourse with Europeans, the article that attracted most notice was iron. Its utility in forming the instruments of war and husbandry made it preferable to all others; and iron soon became the measure by which the value of all other commodities was ascertained. Thus, a certain quantity of goods, of whatever denomination, appearing to be equal in value to a har of iron, constituted, in the trader's phraseology, a bar of that particular merchandise. Twenty leaves of tobacco, for instance, were considered as a bar of tobacco; and a gallon of spirits (or rather half spirits and half water) as a bar of rum; - a bar of one commodity being reckoned equal to a bar of another commodity. As, however, it must unavoidably happen, that, according to the plenty or scarcity of goods at market, in proportion to the demand, the relative value would be subject to continual fluctuations, greater precision has been found necessary; and, at this time, the current value of a single bar of any kind is fixed by the whites at two shillings sterling. Thus, a slave, whose price is 151., is said to be worth 150 bars."

The imperfections of such a mode of dealing as this would evidently be felt in every country, as soon as its commerce began to grow in extent and multiplicity of transactions. Hence we find the use of metals adopted in the form of coin at early periods; hence, too, money, as the word is now understood, was originally metallic. This point is worth remarking, because it will tend to explain a thing sufficiently simple in itself when neither encumbered nor obscured by useless verbiage or the affectation of too much learning - I mean money itself - that strangest of all things, which to look at does not seem at all strange - which when we have and use, we fully understand; but which when we come to write about, to treat formally of, and raise to the dignity of scientific matter or philosophy, seems to be possessed of some such subtle constitution, and properties so peculiarly out of the way and so mysteriously salient - that it is almost impossible to get two men, however sensible and well-informed in other respects, to agree together to any extent upon it.

Our first remark was, that money originally was metallic: our second remark is, that all metals, as well those which are most common as those which are most rare and valuable, are themselves commodities. The labour of man produces them, and his ingenuity fashions them, in the same manner and with precisely similar results as happens with every other article for which the wants of society provide a market. The case is no more different with regard to a shilling or a sovereign, than with regard to a tea-cup or a chair; a bag of flour, a piece of cloth, of cotton, or of silk. We should always bear this simple truth correctly in mind when we make use of such phrases as "measure," or "standard of value," "medium of exchange," etc, because much confusion of ideas has arisen from the introduction of this phraseology, and the want of definite ideas as to its application. There is no such thing as a standard or measure of value, abstractedly speaking. You cannot affirm, with any pretensions to correctness, that gold or silver are things by which we can positively regulate the price of all other articles. When we buy a sheep, a sack of flour, a coat, or a gown, we exchange for it so much gold or so much silver; and the quantity we give of the latter invariably bears its proportion to the supply in the market as truly as is the case with every other article of trade or commerce. In our common every-day form of speech, we use the words buying and selling when alluding to any purchase made, and properly so: we do buy and sell. One buys flour or meat, the other sells it; but this is not all, - there is a counter-act, and metal is exchanged or bartered for both, just as flour might be exchanged or bartered for meat or anything else. Such, however, is the force of habit, that this is seldom present to the mind at the moment the act is performed. When we sell a thing we seldom reflect that we buy gold or silver for it. Such, nevertheless, is the fact, and thus it is we may plainly perceive that the function of money in all transactions of business is this, and no more - the price or value of the article having been first determined, according to natural laws, coin, supplied by government for the general convenience, of a certain weight and quality, is made use of to save the parties trouble and expedite their operations. Thus do extremes meet. The perfection of our monetary system has varied nothing in its essence and true characteristics from the rude practice of barter which is found amongst the savages of Africa at the present day, as of old it doubtless prevailed amongst the progenitors of our own cultivated European races.