The fact that the material of which the money is made is, in one instance, of great cost, and, in the other, of little or no cost, is of minor consequence. The minting of gold and silver into coin may, or may not, add to its value; it really transforms it into another commodity—money—and its value is thenceforth determined by the law of supply and demand as applied to money. The same is true of paper money, the low cost in the production of which is not an element in determining its value, for its production is always a monopoly. There is no reason, then, for not considering paper currency as money, and in using the term we will consider its meaning to be that given by Professor Walker,—which is also its popular significance,—and as including both paper money and coin.
It should be considered, whether of one material or of several circulating concurrently, as a single commodity created for the purpose it fulfils, and as separate and distinct from the material of which it is made. In short, as that commodity to which, by common consent and usage, generally sanctioned by law, all other commodities are referred as a measure of value, and by means of which exchanges are effected.
The Functions and Requirements of Money.
Professor Jevons, in his valuable work, "Money and the Mechanism of Exchange," gives to money the following threefold functions, viz. as:—
A medium of exchange.
A measure of value.
A standard of deferred payments.
He also inquires if it does not perform a fourth function as a 'store of value.'
All authorities give the first two of the above as the principal money functions. Some include one or both of the others, and some omit both.
Prof. F. A. Walker objects to the use of the term "measure of value," on the ground that value, being a relation, cannot be measured but can only be expressed. He proposes, instead, the term, "common denominator of value." It is not quite clear why a relation or ratio cannot be measured,—the measure, of course, being a similar ratio,—nor does there seem to be anything gained by the change, while the term proposed seems less clear and correct than the one in general use. Money, or the value of the unit of money, is used as a measure in comparing the values of other things just as a yardstick, or the length of a yard, is used in comparing the lengths of other objects.