¹ Although the terms "medium of payment" and "medium of exchange" usually are used interchangeably, we recognize that there exist instruments for effecting exchange which are not instruments with which payment can be made. A good example is the modern credit card. Throughout this essay, we shall refer to media of payment. Where the term "currency" is used for stylistic reasons, it is as a substitute for medium of payment. The distinction between media of payment and exchange is discussed more fully in the section on convertibility theory below.

² E. Shapiro, E. Solomon, W.L. White, in Money and Banking, 5th. ed., New York, Holt, Rinehart and Winston, 1968, write: "Money, therefore, may be defined as anything that has a fixed and unvarying price in terms of the unit of account and is generally accepted within a given society in payment of debt or for goods and services rendered," p. 9. See also the references in note 4, p. 9.

³ Webster's New World Dictionary, College Edition, Toronto, Nelson, Foster, and Scott, 1966.

⁴ Adam Smith, Wealth of Nations, (1776), Homewood, Richard D. Irwin, 1963, p. 18.

⁵ W.S. Jevons, in Money and the Mechanism of Exchange, New York, Ap pleton, 1900 (1875), writes: "In order that money may perform some of its functions efficiently… it is important that it should be made of a substance valued highly in all parts of the world, and, if possible, almost equally esteemed by all peoples. There is reason to think that gold and silver have been admired and valued by all tribes which have been lucky enough to procure them. The beautiful lustre of these metals must have drawn attention and excited admiration as much in the earliest as in present times." (p. 33), and, "Of gold and silver especially we may say, with Turgot, that, by the nature of things, they are constituted the universal money independently of all convention and law" (p. 52).

⁶ E.W. Kemmerer writes: "The fact, however, that, although gold is found almost everywhere throughout the world… it usually can be obtained in sub stantial quantities only by much effort and that nature is very niggardly in her offering of gold to man… makes gold a very scarce commodity. A universal demand for gold for ornament and a widespread demand for gold for monetary uses, coupled with this very limited supply, spell scarcity and high values." (italics added), Money, New York, Macmillan, 1935, p. 76.

The same argument has been applied to token currencies: "Why are people willing to accept these coins in payment at values far above the value of the materials out of which they are made? The fundamental reason is that the quantity of these coins is deliberately limited by the government… By appro priate limitations on the supply of these coins it can maintain their monetary value well above their commodity value." Lester V. Chandler, The Economics of Money and Banking, 3rd. ed., New York, Harper, 1959, p. 21.

⁷ Or, as it is usually put, into a "true" money where acceptability derives from some other commodity theory. Historically, convertibility arguments have been concerned with the role of paper money and the possibility of replacing full-bodied coin currencies with paper. A detailed survey of English and French economic thought on the question is found in: Charles Rist, History of Monetary and Credit Theory, New York, Augustus Kelley, 1966 (1938). Rist's point of view is given by: "Convertible paper and inconvertible paper are merely legal claims; metallic money is a good desirable in itself… Being legal claims, paper money, like all claims, has only the value of the objects in which it is redeemed. Convertible paper can at any moment be exchanged against gold; it therefore has the value of the gold for which it can be exchanged, that value being fixed on the world market, where gold is always in demand." p. 148.

⁸ As Brunner and Meltzer point out, lack of coincidence of wants does not imply necessarily the need for money; barter credit can cope with a lack of want coincidence. Karl Brunner, Allan H. Meltzer, "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review, Dec., 1971, pp. 784-805, especially note 4, p. 785.

⁹ This is not to be construed as a definition of social convention but merely as one aspect thereof. Nonetheless, much of our behavior is predicated on expectations of certain patterns of behavior on the part of others.

¹⁰ Such an economy would appear to an external observer to be a barter economy; all he could perceive would be commodity trades. Nothing would suggest to him that it was a money economy.

¹¹ Ideally, it should be the lowest valued commodity if we wish to avoid situations in which we must take more than one unit of a good, or none; two bubble gum for one cent may not be an optimal solution to a constrained utility maximization problem.

¹² For a discussion of the workings of Gresham's Law, see Jevons, op. cit., pp. 79-84. Although typically employed to explain international specie move ments, Gresham's Law is equally applicable to a closed economy. It is worth noting, furthermore, that economists are most familiar with the law in a truncated form; as Jevons points out (p. 80), the full formulation is "… that bad money drives out good money but that good money cannot drive out bad money."

¹³ If diminutions of the money stock are offset by the monetary authority, rather than a decline in the stock of money there will be an overall decline in its quality.

¹⁴ Paul Einzig, Primitive Money, London, Eyre and Spottiswoode, 1948, pp. 507-9.

¹⁵ See, for example: Paul Samuelson, Anthony Scott, Economics, 3rd. Cana dian Edition, Toronto, McGraw-Hill, 1971, p. 68.

¹⁶ Einzig, op. cit., writes, with respect to medieval Ireland: " In documents it is often expressly stated that payment fixed in kugildi (cattle) was actually to be made in metallic money or in other form." (p. 270).

¹⁷ For a discussion of the payment of blood money and tribute in various societies, see: Ibid., pp. 386-91. For references to societies in which payments were made both in money and in kind, see: Ibid., p. 227.

¹⁸ Ibid.

¹⁹ Ibid., p. 263.

²⁰ There are at least two explanations of the connection between the Latin moneta and the English word mint. One is furnished by E.V. Morgan: about 268 B.C., "…legend has it that the Roman authorities, in financial difficulties, sought the advice of the goddess Juno. They were assured that, if they waged war rightly, money would not fail and, in pious gratitude, they gave the goddess the title of ‘moneta,' and installed a mint in her temple on the Capitol." (A History of Money, Middlesex, Penguin, 1965, p. 16). Another, and more likely, explanation is that a mint was established in Juno's temple follow ing the successful defense of the Citadel against the Gauls whose attack caused the sacred geese of Juno to cackle, thereby warning the defenders. Prior to this, it is probable that, following Roman custom, a portion of the treasury was kept in the temple of Juno. See: Livy, Book V, XLVII, 2 - 7. Upon estab lishment of a mint in her temple, Juno was called Juno Moneta; moneta is a derivative of monere, meaning to warn.

²¹ For a further discussion of the nature of monetary units, see: Karl Olivecrona, The Problem of the Monetary Unit, New York, Macmillan, 1957, especially pp. 165-69 in which Turgot's sheep unit is examined.

²² R.A. Radford, "The Economic Organization of a Prisoner of War Camp," Economica, 1945, reprinted in: T.E. Reid, Contemporary Canada: Readings in Economics, Toronto, Holt, Rinehart & Winston, 1969, p. 118.

²³ Ibid.

²⁴ Intrinsic, correctly defined, means according to the dictionary, "… belonging to the real nature of a thing; not dependent on external circumstances; essen tial; inherent." (Webster's New World Dictionary). Intrinsic value, therefore, means value inherent in a thing and in no way dependent on something external to the thing itself; i.e., gold is valuable because it is gold.

²⁵ Although counterfeits usually are identified by their technical imperfections, the crime of counterfeiting consists in usurping the coinage prerogative of the state. The act of counterfeiting has, at various times, been described as sacrilege, treason, and, more recently, fraud. Possibly the most interesting coun terfeiting episode is the Portuguese Banknote Case in which the illegal notes were in all technical aspects genuine, having been printed by the firm which supplied the Bank of Portugal on the misapprehension that the order for the illegal notes was placed by Portuguese officials. For a discussion of this case and laws pertaining to counterfeiting, see: Arthur Nussbaum, Money in the Law, Chicago, The Foundation Press, 1939, pp. 29-35, 93-99.

²⁶ For a brief history of the use of cowries, see: Karl Polanyi, "Archaic Economic Institutions: Cowrie Money," in George Dalton, ed., Primitive, Archaic and Modern Economics, Essays of Karl Polanyi, Garden City, Anchor Books, 1968, pp. 280-305.

²⁷ Jevons provides a classic statement of the desirable qualities of monetary materials in Money and the Mechanism of Exchange, op. cit., pp. 29-39.

²⁸ Ibid., pp. 43-4.

²⁹ Einzig, op. cit., pp. 268-9 cites several instances in the 12th and 13th centuries when European princes issued leather monies which he considers forerunners of modern paper currencies.

³⁰ "The right to coin money has always been and still remains the surest mark and announcement of sovereignty." Alexander Del Mar, History of Monetary Systems, New York, Augustus Kelly, 1969 (1895), p. 107.

³¹ Ibid., pp. 113-19.

³² The £, s, d system, while associated with post-Norman British monetary history, is in fact much older, dating possibly from the first century A.D. See: Del Mar, op. cit., pp. 133-50.

³³ With reference to the Medieval use of the Roman pound, or Libra, Elgin Groseclove writes: "The Roman pound, or libra, survived as a conception of weight,…and when it was revived the libra became different things in different localities." (New York, Frederick Ungar, 1961, p. 56). Groseclove cites two French versions of the pound, the livre of Paris and the livre of Tours and variations in them plus two English pounds, the pound avoirdupois and the pound tower (pp. 57-9). Einandi, op. cit., provides details of the use of these terms as monetary units at the same time as they were employed as units of weight.

³⁴ Jevons, op. cit., p. 77, writes: "By far the greater number of the people possess no means of learning the metallic, or even the legal, value of an unfamiliar coin. Few people have scales and weights suitable for weighing a coin, and no one but an assayer or analytical chemist can decide upon its fineness."

³⁵ The touchstone, used by money lenders and changers, was a stone on which streaks were made with coins of "known" fineness, the streaks differing in color. The color of streaks left by coins being assayed were then compared to the standard streaks.

³⁶ Jevons, op. cit., notes: "It is those who are going to melt, export, hoard, or dissolve the coins of the realm… who carefully select for their purposes the new heavy coins… the standard coins, as issued from the mint, should be as nearly as possible of the standard weight, otherwise the difference will form a profit for the bullion-broker and exporter."

³⁷ Except, of course, to those who dealt in precious metals.

³⁸ Jevons, op. cit., p. 110.

³⁹ W.W. Carlile, The Evolution of Modern Money, New York, Augustus Kelly, 1969 (1901), p. 121.

⁴⁰ See: the section "Money and the State" in Nussbaum, op. cit., pp. 23-36 for a discussion of the place of state authority and law in sustaining the circulation of currencies. Not surprisingly, there is an intimate connection between the obligation in law to accept money issued by the state and laws respecting counterfeiting.

⁴¹ Einzig, op. cit., pp. 251-2, notes the discovery in India of crude coins dating from ancient times which bear sun, moon and star symbols.

⁴² Del Mar, op. cit., pp. 107-32, devotes a chapter to "The Sacred Character of Gold."

⁴³ J.D. Gould, The Great Debasement, Oxford, Clarendon Press, 1970, p. 16.

⁴⁴ Perhaps the most notable of these debates surrounded the Bullion Report of 1810. For a lively, if biased, discussion of the question of "real" versus "substitute" money, see the chapter "Thorton, Ricardo, and the Bullion Report" in Rist, op. cit., pp. 131-79.

⁴⁵ On the role of authority, the classic work is: Georg Friedrich Knapp, The State Theory of Money, London, Macmillan, 1924 (original German edition 1905).

⁴⁶ Don Patinkin, in Money, Interest and Prices, 2nd. ed., New York, Harper and Row, 1965, writes: "… the existence of a barter economy implies the existence of Say's Identity. For in such an economy it is physically impossible to ‘sell' one commodity or bond without ‘buying' another…". (p. 194). Sir John Hicks, Critical Essays in Monetary Theory, Oxford, Clarendon Press, 1967, writes: "The numeraire is not money; it is not even a partial money; it is not even assumed that it is used by the traders themselves as a unit of account." (p. 3). See also: Robert Clower, "A Reconsideration of the Microfoundations of Monetary Theory," Western Economic Journal, December, 1967, pp. 1-8.

⁴⁷ This is not to imply that gold or silver had absolutely no utility in consumption or production; to do so would be to fly in the face of the facts. Nonetheless, the non-monetary uses of the precious metals have not, until recently, been of much importance as a determinant of their demand. Indeed, many of the decorative uses of gold and silver, particularly by the Church, may have been a device for safekeeping; by reconstituting bullion as icons, its theft became something more than just theft, it became blasphemy. See: Del Mar, op. cit., pp. 107-32.

⁴⁸ Clower, op. cit.

⁴⁹ Marc Bloch, "Natural Economy or Money Economy? A False Dilemma," in: Sylvia L. Thrupp, ed., Early Medieval Society, New York, Appleton-Century-Crofts, 1967, p. 199.

⁵⁰ Clower, op. cit.

⁵¹ R. Clower, "The Keynesian Counter-Revolution: A Theoretical Appraisal," in F. Brechling, F. Hahn, eds., The Theory of Interest Rates, London, Mac millan, 1965, and Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes, London, Oxford, 1968.

⁵² But not necessarily equalize risk. It is simply that the fortunes of individuals within a community fluctuate, while maintaining relative status, as the whole community's fortunes rise and fall.