Money may be classified as standard, token, credit, and representative. Standard money is money to the value of which the values of other kinds of money are referred. Standard money is further classified as commodity money and fiat money. Commodity money is subject to free coinage and its supply is regulated automatically. Gold coin will serve as an example in the United States. There is a parity between the value of commodity money and the value of the commodity out of which the money is made. Fiat money is money the value of which is regulated artificially by regulating its supply. Its value is independent of the value of the material out of which it is made. The greenbacks during and for some time after the Civil War were fiat money. As soon as provision was made for their redemption they became credit money. Token money, also called subsidiary money, is small change. In the United States it includes pennies, nickels, dimes, quarter dollars, and half dollars. Credit money is money redeemable in standard money on demand. Representative money is a sort of warehouse receipt certifying that the money upon which it is based is withdrawn from circulation and can be had upon demand. In the United States the gold certificate and the silver certificate are of this character. They certify that gold and silver, respectively, have been deposited in the United States Treasury and are payable to the bearer on demand. Representative money does not increase the quantity of money. It merely furnishes a more convenient form for handling the money already in circulation.

120. Credit Money Should Be Elastic

Credit money is an especially useful form of money in that it furnishes, or should furnish, the element of elasticity essential to a good money system. Because of fluctuations in the volume of business transacted at different seasons of the year there is a fluctuation in the demand for money at different times. This fluctuation in demand for money tends to produce a constantly altering demand for the importation or exportation of gold. With a properly regulated system of credit money, the volume of which would increase or decrease as the demands for money increased or decreased, the need of importing or exporting gold would be largely obviated.