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3. The Proper Qualities of Money

Which commodities are picked as money on the market? Which commodities will be subject to a

spiral of use as a medium? Clearly, it will be those commodities most useful as money in any given society.

Through the centuries, many commodities have been selected as money on the market. Fish on the Atlantic

seacoast of colonial North America, beaver in the Old Northwest tobacco in the Southern colonies, were

chosen as money. In other cultures, salt, sugar, cattle, iron hoes, tea, cowrie shells, and many other

commodities have been chosen on the market Many banks display money museums which exhibit various

forms of money over the centuries. [p. 7]

Amid this variety of moneys, it is possible to analyze the qualifies which led the market to choose that

particular commodity as money. In the first place, individuals do not pick the medium of exchange out of thin

air. They will overcome the double coincidence of wants of barter by picking a commodity which is already in

widespread use for its own sake. In short, they will pick a commodity in heavy demand, which shoemakers

and others will be likely to accept in exchange from the very start of the money-choosing process. Second,

they will pick a commodity which is highly divisible, so that small chunks of other goods can be bought, and

size of purchases can be flexible. For this they need a commodity which technologically does not lose its quotal

value when divided into small pieces. For that reason a house or a tractor, being highly indivisible, is not likely

to be chosen as money, whereas butter, for example, is highly divisible and at least scores heavily as a money

for this particular quality.

Demand and divisibility are not the only criteria. It is also important for people to be able to carry the

money commodity around in order to facilitate purchases. To be easily portable, then, a commodity must have

high value per unit weight. To have high value per unit weight, however, requires a good which is not only in

great demand but also relatively scarce, since an intense demand combined with a relatively scarce supply will

yield a high price, or high value per unit weight.

Finally, the money commodity should be highly durable, so that it can serve as a store of value for a

long time. The holder of money should not only be assured of being able to purchase other products right now,

but also indefinitely into the future. Therefore, butter, fish, eggs, and so on fail on the question of durability.

A fascinating example of an unexpected development of a money commodity in modem times

occurred in German POW camps during World War II. In these camps, supply of various goods was fixed by

external conditions: CARE packages, rations, etc. But after receiving the rations, the prisoners began [p. 8]

exchanging what they didn’t want for what they particularly needed, until soon there was an elaborate price

system for every product, each in terms of what had evolved as the money commodity: cigarettes. Prices in

terms of cigarettes fluctuated in accordance with changing supply and demand.

Cigarettes were clearly the most “moneylike” products available in the camps. They were in high

demand for their own sake, they were divisible, portable, and in high value per unit weight. They were not very

durable, since they crumpled easily, but they could make do in the few years of the camps’ existence.1

In all countries and all civilizations, two commodities have been dominant whenever they were

available to compete as moneys with other commodities: gold and silver.

At first, gold and silver were highly prized only for their luster and ornamental value. They were always

in great demand. Second, they were always relatively scarce, and hence valuable per unit of weight. And for

that reason they were portable as well. They were also divisible, and could be sliced into thin segments without

losing their pro rata value. Finally, silver or gold were blended with small amounts of alloy to harden them, and

since they did not corrode, they would last almost forever.

Thus, because gold and silver are supremely “moneylike” commodities, they are selected by markets

as money if they are available. Proponents of the gold standard do not suffer from a mysterious “gold fetish.”

They simply recognize that gold has always been selected by the market as money throughout history.

Generally, gold and silver have both been moneys, side-by-side. Since gold has always been far

scarcer and also in greater demand than silver, it has always commanded a higher price, and tends to be

money in larger transactions, while silver has been used in smaller exchanges. Because of its higher price, gold

has often been selected as the unit of account, although [p. 9] this has not always been true. The difficulties of

mining gold, which makes its production limited, make its long-term value relatively more stable than silver.