§ 4. #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 proved itself a few centuries ago 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.
§ 5. #Gold-using countries#. At the beginning of the nineteenth century nations were divided, in accordance with the metals they used as standards, into two great groups, silver- and gold-using. Since that time, and more rapidly after 1850, gold has displaced silver as the standard money. In a higher degree than any other one material, gold has the qualities of a good standard for rich and industrially developed communities. England for a long period practically has had gold as its standard money; the United States since 1834 (except for the period of paper money from 1862 to 1879); France since about 1879, having shifted gradually from silver, after 1855, under the working of the bimetallic law; Germany since 1873; and Japan since the later nineties. Other countries have been striving to attain it. 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. There are now left but a few silver-standard countries, the most important being China. There are, however, numerous countries, notably in South America and Central America, which have fiduciary paper-money standards.[2]
§ 6.# Varying extent of the use of money#. Trade by the use of money at no time has become the exclusive method. Barter still lingers to-day.[3] The extent to which, on an average, money is used in different parts of the world differs widely. The use of money in Siberia is less than in European Russia, and its use is less there than in western Europe. The use of money as compared with barter is generally much greater in the cities than in the rural districts. In the cities of Mexico not only money, but banks and credit agencies are in general use; whereas the rural districts are more backward and make far more use of barter than is the case in the United States. At the ports in the cities of China, India, and South America the use of money may be very like that in European cities; but go a little way into the interior of these countries and conditions as to the use of money change greatly.
However, the comparative per capita amounts of money (in terms of American dollars) in circulation in different countries is far from being a true index of their industrial development or of their commercial activity. Indeed, beyond a certain point the larger average amount of money in circulation in a country may indicate backwardness in the development of banks and other credit agencies rather than greater amount of wealth or of business. Notice, for example, the medium position of the great commercial countries, Germany and the United Kingdom, as compared with other countries above and below them in the following list.
PER CAPITA CIRCULATION OF MONEY IN LEADING COUNTRIES DECEMBER 31, 1912.
France………………$48.91 America (U.S.)……….$32.98
Australia…………… 38.45 Portugal……………. 29.46
Canada……………… 33.57 Netherlands…………. 26.86
Switzerland…………. 24.32 Mexico……………… 9.17
Germany…………….. 21.36 Finland…………….. 8.38