Value is usually defined as "ratio of exchangeability." Transposed into common language, this means that the value of anything is what it will fetch. Unlike utility, value can be accurately measured and expressed; for instance, the value of gold bullion in relation to silver bullion is, say, 37 to 1, in other words an ounce of gold will bay thirty-seven ounces of silver. You can express the value of any article in terms of any other article, but it is obvious that in a very early stage of civilisation mankind would realise the advantage of having some single article by which to measure the value of other articles. If one man measured the value of his vendible commodities in corn, another in beef, and a third in cloth, and so on, endless confusion and dispute would infallibly ensue. This common measure of value is money, and value when expressed in terms of money is called "price." The distinction between value and price should never be overlooked, especially since the terms are somewhat loosely used in ordinary language. The value of gold to silver bullion we stated to be, roughly, 37 to 1; but the price of silver bullion is, say, 2s. 3d. an ounce. It is an economic error to speak of the value of wheat as being 30s. a quarter; thirty shillings is the expression of the value of a quarter of wheat in terms of money and is therefore its price.

As civilisation advanced beyond its early stages the necessity for the third function of money began to gain in importance. When a settled form of government was gradually evolved and commerce and industry became organised, men entered into contracts to be fulfilled at some future time, and the necessity of a standard of value arose. In arranging a monetary contract the parties to it would naturally wish that it should be fulfilled under the same conditions, so far as possible, as those under which it was entered upon. If a man borrows a thousand pounds to be repaid at the end of twenty years, it will be a serious matter for him if the value of the pound, as regards commodities generally, has risen at the end of the twenty years to three times its original proportions, for in effect he will have to repay three times the amount he borrowed. Money, therefore, since it has to fulfil the function of a standard of value, should be so far as possible stable in value, that is, its value with regard to other articles generally should change as little as possible.

Bearing in mind these three functions or duties which money is required to fulfil, we shall be easily able to enumerate and understand those attributes which a perfect system should possess. Jevons(a)

(a) Money and the Mechanism of Exchange, chap. 5. mentions the following seven qualities as necessary :

(1) Value of material;

(2) Portability;

(3) Indestructibility;

(4) Homogeneity;

(5) Divisibility;

(6) Stability of value;

(7) Cognisability.

Money as a medium of exchange demands the second, third, fourth, fifth and seventh attributes. It must be portable and, so far as possible, indestructible. The material of which it is made must also be homogeneous, that is, any one unit of it must be of the same value as any other unit of the same size and weight. Any substance which differs in value in the mass would be unfit for use as money because of the action of Gresham's law, as we shall see later.

Obviously again the material of which the medium of exchange is to be made must be capable of being divided without losing its value. Precious stones, for instance, possess many of the necessary attributes, but not this one of divisibility. If you cut a diamond into four equal portions, not only does it lose weight in the process, but the four portions are each worth perhaps not an eighth of the original value of the stone. Lastly, the medium of exchange must possess the quality of cognisability; it must be of some substance easily recognisable as such without pert knowledge, and which cannot readily be counterfeited. None of our money possess this attribute in perfection, and the counterfeit coiner still carries on his lucrative, if risky, profession, but it is not easy to turn out a counterfeit gold coin which will defy a close examination.

Money as a measure of value must, according to Jevons, possess the first attribute, that is, it must be made of some material which possesses value apart from its use as money. At first sight this may seem undoubtedly true, but a little reflection forces us to modify Jevons's statement. He is quite right in Urging that such archaic forms of money as the West African "cowries" did possess some value as ornaments, but it is quite possible that money may be made of a comparatively valueless material and yet possess value as money. Sir John Maundeville, in his highly interesting book of travels, speaks of the Emperor of Tartary as follows : "He spendeth and maketh no money but of imprinted leather or of paper; . . . . they make no money either of gold or of silver and therefore he may spend enough and outrageously." Perhaps Sir John is not a sufficiently trustworthy chronicler to be quoted in a book on an economic subject, but we can find other examples nearer home. A Bank of England note is made of paper, the value of which as paper can be disregarded. Of course, the value of the note is due to the fact that it can be changed at will for a certain fixed number of sovereigns; but under certain circumstances, which we shall examine in a later chapter, this power of demanding gold for a note may be, and frequently has been, suspended, and yet the value of the note has remained practically unchanged. Given certain conditions, an inconvertible paper currency may retain its value with regard to other commodities for an indefinite period, and for this reason, Jevons's dictum that value of material is an essential attribute of money, must be regarded as inconclusive.

Money, as regards its third function, that of a standard of value, demands more especially the sixth attribute, stability of value; and this attribute, which is possibly the most necessary and important, is certainly the most difficult of attainment. A stable standard of value has hitherto proved an impossibility, and we seem no nearer to it now than at any time in monetary history. All we can do is to accept the best substitute for a perfect material. All civilised nations have in historic times agreed in the choice of gold and silver as the nearest approach to perfection, with copper, bronze and nickel for the coins of smaller denomination. But both gold and silver have varied widely in their value as regards commodities generally; they are neither of them sufficiently portable to meet the requirements of modern conditions, for the cost of transmitting even gold for long distances is a heavy item which is never incurred when it can be well avoided. Neither are they indestructible, as can be easily proved by a cursory examination of any English silver coin dating back for twenty years or more; and lastly, as many know to their cost, they are not always recognisable and are capable of being counterfeited.