The first requisite in any commodity which is to serve as money is that it shall be something in unfailing demand, something having wide acceptability. It must exist in sufficiently large quantities to meet the needs of exchange or trade, yet not so abundantly as to lose its desirability. Money should be durable so that it will not lose its exchange power through decay or deterioration. The notes issued against tobacco in Virginia could not be kept safely for more than a year owing to the deterioration in the value of the stored tobacco. The commodity to serve as money must admit of division into small units in order that it may be used in transactions involving small amounts. Many commodities of varying values are constantly being offered in exchange for money. It must be able to accommodate itself equally to the purchase of a paper of pins and of a horse. The medium of exchange should be homogeneous or uniform, that is, all parts or units of it should have uniform value. It should also be portable; it should have large value in small bulk so that considerable amounts of it can be carried conveniently from place to place. The lack of this quality of portability was one of the chief drawbacks to the use of the beaver pelts of New England and the tobacco money of Virginia. There was a difference of as much as ten shillings per hundredweight in the value of tobacco notes, according to the location of the warehouse where the tobacco was stored. Another requisite of a good medium of exchange is cognizability. It must be something that is easily recognized by its color, form, weight, or other distinctive qualities. Metal coins which can be stamped or certified as containing a certain weight of metal of a certain fineness meet this requirement fairly well. Originally gold and silver coins passed by weight, but the stamping of coins with their money value saves weighing and examination at each transfer and makes it more difficult to circulate counterfeit money. Finally, a good medium of exchange should have stability of value, so that when contracts are made involving the payment of money in the future, both parties will feel assured that they will have the same absolute and relative position to each other at the end of the contract as they had at its beginning. Most commodities that have been used as money have lacked this important quality of stability. Even gold fails to retain perfect stability of value. It is subject to less fluctuation in value than most other commodities, however, and so is best suited to serve as standard money.
Long experience has shown that gold and silver possess these desirable qualities in a larger measure than other commodities; consequently they have come into universal use as money. Because of their beauty and luster they have always been in demand for ornamental and decorative purposes. Gold and silver are fairly durable; and their durability as coins is increased by mixing with them some harder metal, such as nickel or brass. They are readily subdivided to make coins of different denominations, and they are easily recognized. They have large value in small bulk and can be carried about on the person or be transported in large amounts with little difficulty or expense. Finally, gold and, to a lesser degree, silver have a greater stability of value than most other commodities because of the comparatively limited supply and the elasticity of demand for them. Though great quantities of gold and silver are produced each year, the cost of production remains comparatively high and the annual addition to the world's total supply is comparatively slight. On the other hand, the demand for gold is very elastic. In addition to the world-wide and constant demand for it as money, it is widely used in the arts, in dentistry, book-making, and for other non-monetary purposes. Doubtless "the continued use of gold and silver for money rests very largely on convention, not on the intrinsic factors of beauty and scarcity. Once established as the money metals, they retain their position to a great degree by force of custom. . . . The fact that gold and silver are used as money keeps up their value; the fact that they are valuable gives them utility for display; and this in turn serves to sustain their value for monetary as well as for non-monetary uses."1