§ 4. Qualities of the original money-good. The selection of any money-commodity has not been made by chance, but has been the result of that object being better fitted than others to serve as a medium of exchange. The main qualities that affected the selection of primitive forms of money were as follows:

1.  Marketability (or salability); that is, it must be easy to sell. The first forms of money had to be things that every one desired at some time and many people desired at any time. That was the essential quality that made any one ready to take it when he did not wish its direct use himself. Many kinds of food and of clothing are very generally desired goods. But few of these classes of goods have in a high measure certain other important qualities, now to be named.

2.  Transportability; that is, the money material must be easy to carry; it must have a large value in small bulk and weight. To carry a bag of wheat on one's back a few miles requires as great an effort ordinarily as does the raising of the wheat; and the cost of carriage for fifty miles, even by wagon, will often equal the whole value of the wheat. Cattle, while not comparatively very valuable in proportion to weight, and not possessing the other qualities of money in the highest degree, have the advantage that they can be made to carry themselves long distances, and therefore they have been much used as money in simpler economic conditions.

3.   Cognizability; that is, the money-good must be easy to know, and to judge as to quality. If expert knowledge or special apparatus is needed to test it in order to avoid counterfeits, few could be ready to take it, and trading would be a costly process.

4.  Durability; that is, the money-good must be easy to keep without much loss in amount or in quality, perhaps for long periods, until it can be passed on in trade. Few kinds of food answer very well to this last requirement, being organic and perishable. But all four qualities above named were pretty well embodied in primitive times in rock-salt, in rare flints and bits of copper suitable for tools and weapons, in furs in northern countries, and in many articles of personal adornment, such as beads, feathers, jewels, and metal ornaments.

5.  Divisibility; that is, the quality in the monetary material that permits it to be divided easily into smaller amounts and then to be united again into larger masses at little cost and without loss in amount or in quality. This quality is present only when the material is homogeneous throughout the whole mass, a condition fulfilled more completely by the metals than by any other goods. This quality makes it possible to put the governmental stamp upon the money material, and to produce pieces some of which are exact duplicates and some exact multiples, of others. In this manner pieces of money are provided suitable for transactions of different magnitudes, down to small fractional amounts. A monetary system of this kind aids greatly the development of the sense and habit of exact estimation of price.

§ 5. Industrial changes and the forms of money. The money use, as has just been shown, is a resultant of a number of different motives in men. The changing material and industrial conditions of society change the kind of money that is used. Things that have the highest claim to fitness for money with a people at one stage of development have a low claim at another. The final choice of the money-good depends on the resultant of all the advantages. Shells are used for ornament in poor communities, but cease to be so used in a higher state of advancement, and thus their salability ceases. Furs cease to be generally marketable in northern climes when the fur-bearing animals are nearly killed off and the fur trade declines. When tobacco was the great staple of export from Virginia, everybody was willing to take it, and its market price was known by all. It served well then as the chief money; but, as it ceased to be the almost exclusive product of the province, it lost the knowableness and marketability it had before. In agricultural and pastoral communities where every one had a share in the pasture, cattle were a fairly convenient form of money; but in the city trade of to-day their use as money is impossible. Thus, in a sense, different commodities compete, each trying to prove its fitness to be a medium of trade; but only one, or two, or three at the most, can at one time hold such a place.

While industrial changes and conditions affect the choice of money, in turn money reacts upon the other industrial conditions. If a new and more convenient material is found or the value of the money metal changes to a degree that affects the generalness of its use, industry is greatly affected. The discovery of mines in America brought into Europe in the sixteenth century a great supply of the precious metals, and this change in the use of money reacted powerfully upon industry. Money, being itself one of the most important of the industrial conditions, is affected by and in turn affects all others.

§ 6. The precious metals as money. Certain of the metals early began to show their superior fitness to perform the monetary function. The metals first used as money were copper, bronze (an alloy of copper with nickel), and iron. These were truly precious metals in early times, for they were found only in small quantities in a few localities. They, therefore, were widely sought and highly valued as ornaments and for use as tools and weapons. But as the great ancient nations emerged into history, these materials were already being displaced in large measure. Their value fell greatly as a result of greater production due to somewhat regular mining. As wealth grew, as trade increased, as the use of money developed, as commerce extended to more distant lands, the heavier, less precious metals failed to serve the growing monetary need, especially in the larger transactions. Silver and gold, step by step, often making little progress in a century, became the staple and dominant forms of money in the world, while copper and nickel still continued to be used for the smaller monetary pieces. Every community has witnessed some stages of this evolution. In this contest silver had, up to the end of the Middle Ages, proved itself to be, on the whole, the fittest medium of exchange for most purposes, though gold was at the same time in use in larger transactions and in international trade among the leading commercial countries.

Gold discoveries in California in 1848, and in Australia, two years later, caused the production of gold to increase enormously,3 and gold became a relatively larger part of the monetary stocks of western European and North American countries.

In a higher degree than any other one material, gold has the qualities of the main monetary material for rich and industrially developed communities. England was first to give to gold the chief place in its monetary system; the United States did so in 1834, and has continued to keep gold in that place (except for the period of paper money from 1862 to 1879) ; France did so about 1879, having shifted gradually from silver, after 1855, under the working of the bimetallic law; Germany in 1873; and Japan since the later nineties. Other countries have been moving in the same direction. Since about 1890 some states (including Mexico) and some of the colonial possessions of the great nations (including India and the Philippines) have adopted the plan of the "gold-exchange standard." By this plan gold is the standard price unit, while silver continues to be used all but exclusively as the material in circulation, its amount being controlled and its value regulated on principles to be explained below under coinage, seigniorage, and foreign exchange.

3 See chart of gold production, ch 5, Fig. 2.

The most important of the countries in which silver is still the chief form of money is China. There are, however, numerous countries, notably in South America and Central America, in which paper notes have long been almost the only form of money; and in the period of the Great War every one of the belligerent countries excepting the United States approached or reached that condition where neither gold nor silver was actually in circulation.