8: Determinants of Objective Exchange Value
Modern value theory recognizes that the price at which a commodity is traded reflects the subjective evaluation of individuals involved in trade. The current market price falls within a range defined by the highest price bidders are willing to offer and the lowest price sellers are willing to accept. There is also the notion of the subjective value of money, which is derived from the value of the commodities that can be purchased with it.
And while value can be observed only historically (past exchanges can be observed, but future exchanges cannot be predicted), it remains true that historical prices impact present valuations, which in turn impact future exchanges: today's prices consider the prices paid yesterday, and tomorrow's prices will consider the prices paid today.
Origin of Value of Money
In terms of commodity money, the value of money derives from the value of a commodity in trade before the market began to use the commodity as money. For example, if a given market uses salt as money, there was a period in which salt was merely a commodity used in direct exchange, and its value when it became money is based on the value it had just prior to its acceptance as such.
This is also true of credit and fiat monies, as they are indirectly linked to a physical commodity they are meant to represent. That is, if a currency represents goods in a treasury, or goods to be produced at a future date, then its value is derived from the value of those goods.
Continuity and Change in Value
As mentioned previously, there is a continuity among prices: when the market opens, the price will be influenced by yesterday's closing price, and when the market closes, the price at that time will be considered when the market opens the following day.
That is not to say that the price will not change as a result of negotiation - buyers and sellers are not locked into yesterday's price, but it has the tendency to influence expectations - given that X was the price that was acceptable yesterday, both buyers and sellers have a reasonable expectation that the same price will be acceptable today, provided there is no dramatic change in conditions.
The "conditions" include both human needs, which are fairly stable (a person needs food in the same quantity each day, and is unlikely to double their consumption from one day to the next) and the availability of goods, which is also unlikely to undergo dramatic change overnight (unless a warehouse burned down or a new supplier arrived during the night, the supply of goods is not much changed).
As such, prices in the market change slowly. The notion of "price inertia" is particularly apt, in that they tend not to change by any appreciable degree without the influence of an external force.
This, in itself, carries the implication that the forces that act upon price can, with some examination, be identified: that one can not only explain the present price by reference to past events that have influenced it, but also consider present events and predict the influence they will have on future prices. Such is the practical application of economics.
It is likewise to be derived that the exchange value of money is likewise subject to external forces, which can also be predicted. This practice enables the buyer to predict the amount of money he will need to bring to market in order to obtain the goods he seeks to purchase.
Marginal Utility Theory
Another factor that influences the value of money, like any other commodity in trade, is the volume available to the individual. For any good, the greater the amount that an individual has, the less value he places on each unit.
As such, variations in pricing depend not only on the individuals' evaluation of need, but on the quantity of a commodity they have to trade in exchange for their needs. This varies among individuals, and varies for an individual over time.
In direct trade, the marginal utility of the quantity traded influences the degree to which they value it - the more of it they have, the lower unit value they place upon it, and the greater quantity they are willing to relinquish to obtain the item they receive in return.
It can therefore be reasoned that the value placed upon money, as any other commodity, is considered to have less value to an individual who has more of it at his disposal - i.e., a person with little money will seek to get as much for it as he can (an will negotiate for a lower price) whereas a person with a great deal of more will be less concerned (and will be willing to agree upon a higher price).
As such, the value of money in the marketplace derives from the wealth of the individuals engaged in trade: the greater wealth exists, the lesser the value if money, and the higher the amount of money offered in trade.
(EN: Von Mises considers several theories based on marginal utility, and in the end it's difficult to discern where he stands on the topic. My sense is that while marginal utility holds true in general, it is still a matter of subjective valuation: a person who is wealthy may a miser, and a person with little money may be a spendthrift - so while it's an interesting notion, it cannot be considered to be a universal "law" affecting human behavior in the marketplace.)
Exchange Value
Determining the exchange value of money is an extremely complicated problem, in that a separate set of factors influence the value an individual will place on any commodity and, in direct exchange, one must consider the factors that influence each commodity in trade.
When bartering wheat for salt, the trader must determine which of the commodities he prefers, and by what degree, and engage in negotiation with another party who makes the same consideration by his own subjective assessment, given the factors that influence his need and interest.
While this is true of money as it is of any other good in an exchange, the value of money, like any other good, is derivative of the particular good in exchange. A trader will be willing to give more money for some goods than others, his preferences may change daily, and his preferences will be different to anyone else's.
Naturally, this frustrates efforts to attach a fixed value to money that will hold true of all individuals, at all times, against all other commodities.
Quantity Theory
From a layman's perspective, money is valued more than currency. That is, a coin made of gold had intrinsic value (by virtue of the gold it contains) and can be accepted as sound by that virtue, whereas the token coin of fiat or credit currency is of lesser value because it contains no actual gold, merely the promise that the gold it represents may be obtained in exchange for the token - which bears the risk that the token may not be redeemable.
When token currency is accepted in commerce, this difference is erased: the acceptor of the token currency acknowledges its value. As such, currency is accepted by virtue of its monetary function. Strictly, currency is not money, but may function as such. And as such, there is a tendency to dismiss the difference between the two so long as currency is widely accepted.
The difference between the two is notable when any national bank is released from its obligation to redeem currency, as has happened at various times in history.
At such times, economists clung to the notion that the currency was still valued because the suspension of redemption was accepted to be temporary, and individuals accepting token currency still held it to be of value because it might eventually be redeemed.
Von Mises dismisses this notion in comparing non-redeemable currency to non-redeemable government bonds. Specifically, in 1884, Austrian Government suspended the redemption of its currency. At the same time, bonds were issued that paid 5% but could not be redeemed by the bearers - and these bonds traded at an amount lower than their face value. In effect, traders valued an interest-bearing bond as being of less value than non-interest-bearing currency that was also non-redeemable.
The explanation for this difference were that the bonds were not used in commercial exchange - one could not trade a bond for goods - whereas the currency could be used in exchange. This is a clear indication that currency is valued for its monetary function and not merely its redemption value.
This discomfits the quantity theory of money, which bases its assumptions entirely upon the value of money as derived entirely from the use-value of the commodity that currency represents.
This also discomfits the economic notion of supply and demand as the primary, if not sole, determinant of value, as a currency that is non-redeemable no longer represents a supply of anything. Money is not valued as a certain weight of precious metal, but as a token of exchange.
A distinction here is made between quantity and stock: the quantity of a commodity in the market represents the amount that is available from all traders as an aggregate. The stock of the commodity pertains to that which is held by a single trader. And it is reasoned that, in the execution of each trade, a trader's consideration is limited not to the total quantity, but merely to his own stock.
As such, the traders' stocks of money remain a valid consideration in the valuation of money, but as one factor among many
The Stock of Money and Demand for Money
Supply and demand are considered when determining the exchange value of goods in the marketplace, but are themselves rooted in the subjective valuations of traders in the marketplace, which is more a matter of psychology than economics.
It must also be considered, as previously shown, that money is differentiated from any other commodity in that its value is not intrinsic - it is not valued because of its use in the fulfillment of human needs, but as a medium of exchange by which other goods may be obtained.
Hence one of the factors that determines the need for money is for an individual or organization to have a stock of currency that can be used in trade to obtain their present and future needs. This, too, is a subjective evaluation, as each individual will have a subjective assessment of their needs and a different notion of how far into the future they wish them to be covered. It is also subjectively evaluated by suppliers, who will have the need to hold money in different denominations (for making "change" in small commercial transactions), which is likewise relatively small at the individual level, but very significant when aggregated.
(EN: The example that comes to mind is the amount of cash a person holds. Some people choose to hold just a little money, others quite a bit more, and the aggregate demand of hundreds of millions determine the amount of cash in circulation - or more aptly, the amount of cash people wish to have in circulation. However, even that is becoming a historical example as payment cards decrease demand for physical currency: people no longer carry cash, as a plastic card can be used in commercial transactions, which probably wreaks havoc on the demand for currency, if not money itself.)
The amount of "cash" held by an individual need not consist entirely of money, but can also consist of money substitutes, provided such can be tendered in place of money. As such the demand for money can be taken in a narrow sense (the need for hard currency) or in a broad sense (the need for money and any monetary substitute that can be used in trade).
From the perspective on the individual, the difference between having money and having money substitutes is influenced by a relatively small number of factors: primarily, his belief that a cash substitute will be accepted in trade, that the cash substitute will be accepted as being equal in value to hard currency, and that some level of interest is forfeit for his preference of having hard currency (as opposed to a bank balance, which draws interest).
From the perspective of the market, the advent of money substitutes changes the supply of money, insofar as some portion of money substitutes that are used in the market are not backed by actual cash (e.g., credit money that cannot be redeemed until a certain date). The author defines a few terms:
- Money Certificates - Are money substitutes that are completely covered and can be redeemed on demand
- Fiduciary Media - Are money substitutes that are not covered by reserves of actual money and cannot be immediately redeemed
While there exist money substitutes that represent both values (e.g., a note that can be redeemed now for a lesser value or held until maturity to be redeemed for a higher value, such as a savings bond), such items are rarely used in trade, and their value is negotiable (if it is considered to be worth its current redeemable value, it functions as a money certificate; if it is considered to be worth a future value, it functions as fiduciary media).
The net effect is that the use of fiduciary media increases the money supply by creating a money substitute, the actual cash value of which is based on money that is itself in circulation in the market. For example, a bank that issues notes of credit to be redeemed in future need not have the cash on hand presently to redeem them, hence both the notes and the actually currency remain in circulation in the market, which effectively doubles the supply of "money" in the marketplace without doubling the amount of money proper (physical assets that back currency).
Returning to the perspective of the individual: the amount of money available to the individual is determine to a large degree by his stock of money.
If his stock of money exceeds his perceived needs, he will seek a way to dispose of the "excess" money in way that benefits him. He may seek to invest it to enlarge his own business, or at least invest it in some interest-bearing security to better provide for his needs in future, beyond the period for which he seeks to cover with money. (EN: This is sound reasoning, but ignores irrational behavior - some people, possibly quite many, who have more money than they need will find a way to waste it on unneeded goods, My sense is that everyone is guilty of this behavior to some degree, as an otherwise-rational person, given an excess of money, will buy more luxury goods rather than remain at their current standard of living and invest the "excess" money.)
If a person's stock of money is less than his perceived need, he will take steps to achieve the desired level of purchasing power by other needs. He may seek to borrow money to cover his needs, to sell certain of his possessions to obtain more money.
A more lasting shortage of money exists when individuals cannot obtain credit and cannot exchange physical goods for it. In effect, the money that is presently available is considered to be precious to holders of it, such that they will not part with the money they have now in exchange for a greater sum I (principal and interest earned) in future, and are unwilling even to trade it for physical goods in excess of the absolute necessities.
The typical response to a "money shortage" is merely to create more money - such that having money now becomes of less interest because there is an ample supply of it, such that individuals have more than they need and are less miserly with their stock. However, this is an erroneous conception, in that the shortage of money is not created by money itself, but by the goods available for trade in the market. Creating more money without creating more goods does not create an economic benefit.
(EN: My sense is that this takes a long-term perspective based by differences in knowledge. Individuals who do not realize the money supply has been artificially increased will continue to value money by its previous value-basis until hey become aware, over time, the currency has less value. When this occurs, they will raise their demand for money, in effect, increasing prices for consumer goods to reflect the decreased value of money, resulting in inflation until the market at large adjusts to consider the fair value of currency.)
At end-of-section, Von Mises addresses the contrary argument about loans, which suggests that when one person lends money to another, it does not change the value of money because it merely transfers the purchasing power from one to another. This is only true in the case of a physical commodity - a man who loans out ten pounds of silver can no longer trade that silver in the marketplace. However, when credit money is accepted, the individual who writes a note that represents ten pounds of silver still has the physical silver to trade, until such time as the note of credit is due and the physical silver must be relinquished.
Furthermore, it is in the interest of those in the business of lending to seek to keep money on loan perpetually (only when the money is lent out do they earn a profit, in the form interest for loaning it). As such, they will seek to perennially renew loans and even increase the amount of money they loan to others, which keeps "credit money" in the marketplace perpetually, and in increasing degree.
So one cannot dismiss the notion of a loan as a mere temporary displacement of purchasing power: those who loan money effectively increase the supply of "money" to the market, and do so on an ongoing and increasing basis.
Increase in Quantity of Money in Excess of Demand
A number of economists have terrorized about the effect of an increase in the supply of money to an entire market (not just an individual), and the author means to consider certain theoretical points that strike him as significant.
In the case of commodity money, which is based on physical goods, an increase in money means an increase in the economic wealth of the society. There are more goods in circulation. However, if the money in question is fiat or credit money, the increase in the amount of money in use does not reflect any increase in economic wealth: there are not more goods in circulation, only more currency.
From a mathematical standpoint, it would seem that doubling the supply of money, without doubling the quantity of goods to be had in exchange, would result in suppliers wanting twice as much for their goods - such that the equation would balance out more or less immediately. However, it seems highly unlikely that this would be played out.
When a drastic the supply in money to a market occurs, it invariably begins with a few individuals, who enter into a market where less money had been in circulation and the prices demanded for goods represent the former level of currency supply. Specifically, there is no instance in which all members of the market benefit from an increased amount of money, all at once.
(EN: This is not altogether true. The Reagan tax cuts of the 1980s and, to a lesser degree, the Bush tax "rebates" of the early 21st century, both created conditions in which, by virtue of decreasing taxes, gave all citizens and businesses an increased supply of money, all at once. The former had a dramatic effect on not only the American economy, but also the world economy, for almost three decades, and the latter had no effect at all, being significantly smaller.)
The immediate effect of an increase to a few individuals is twofold: first, it gives them greater buying power in the market, and second, it grants them a quantity of money that exceeds their immediate needs, hence causes them to value the excess amount less, by virtue of decreased marginal utility, hence they are willing to offer more money in exchange for goods.
The immediate response to this change is that the trading activity of these individuals will impact the market, driving prices upward and decreasing the value of money in exchange value against consumer goods, not only for the individuals who have the surplus of money, but for all traders in the market.
A precipitating effect is that individuals who sell goods in the market will enjoy an increased income, by virtue of the increased amount of money they receive in exchange for their goods, which will in turn increase the amount of money they are able and willing to pay for the goods (including labor) that enable them to bring their merchandise to market.
Meanwhile, those individuals in the market who are not direct or indirect recipients of the "new money" will find that their overall purchasing power has diminished: prices in the market have risen, but their supply of currency remains unchanged. As such, they will become more miserly in trade, which creates a counterbalancing effect that encourages prices of goods downward.
(EN: It is an error, I think, to speak of "goods" in the aggregate. My sense is that the price of staple goods would be largely unaffected. Except in very poor societies, a person who gets more money does not seek more staples, but instead seeks to obtain more luxury goods. This may explain the "steak-spam phenomenon" in growing economies: as the supply of money increases, the price of steak increases, but the price of spam decreases. The steak represents those with more money having higher demand for luxury goods and driving prices up; the spam reflects the miserliness of those whose purchasing power has diminished and led them to negotiate more aggressively for staple goods. I jumped the gun on this note, as the author considers this a few pages later.)
The phenomenon, however, is temporary, as the increased money supply for a few individuals is spread to a larger number of individuals (retailers who sell goods to them), then to an even larger number of individuals (manufacturers of goods), and then to an even larger number of individual (laborers in the manufacturing sector).
However, this does not happen as uniformly as theory would have us believe, nor are the effects quite as temporary, as actions in the marketplace occur faster than changes in society: an increase in wages does not follow immediately upon an increase in prices, nor does a factory of farm come into existence or vanish from existence at will.
Even entertaining the notion of a simultaneous increase in personal stock of money - conceived in Hume's consideration of a miraculous event in which every Englishman woke up to find they had an extra five pounds (EN: When "five pounds" was quite a lot of money, probably well in excess of $100K in today's market) - the immediate effect is not a uniform rise in the price of all commodities, but merely a rise in the price of luxury goods, as a poor person's tastes change drastically when his money supply undergoes a drastic change.
That is, they have the immediate means and desire to obtain a higher quality (luxury) of goods, and seek to fulfill those needs in the market. In effect, this depletes the stock of luxury goods in the market, and the shortage of those goods causes them to be worth more in trade, and prices to rise. The impact on standard goods (staples) is not as intense, hence their prices may remain the same, or at the very least would fail to increase as significantly, compared to luxury goods.
Another factor to consider is the ability of money to store wealth for future disposal. That is, if a rational person has more money than he needs to accommodate his present needs, he does not necessarily seek to waste it by purchasing goods for which he has no use, but instead seeks to invest it (in businesses or financial markets) to accommodate his future needs. As a result:
- Not all of the increase of money is brought to the marketplace, where it will affect the prices of goods, which will offset the equation.
- Some of the money not brought to market will be invested in capital markets - i.e., loaned to individuals who need money and did not benefit from the surplus - affecting credit availability and interest rates
- Some of the money will be invested in second-level goods, the factors of production, which will in time lead to an increase in the amount of material goods in the market.
It is noted that equilibrium is, in time, restored to the market, even if it is in a lopsided manner. The actual amount of money makes little difference to the wealth of nations, as money merely represents exchange value against a pool of goods - and whether a given society has half the amount of money it previously did, or double the amount, there is no difference to the standard of living. Prices are higher or lower, accordingly, but the quantity of goods does not change, hence the real wealth and standard of living does not significantly change.
Finally, the increase in money is contrasted with the increase in a consumer good: if the supply of wheat to the market increased tenfold, prices of wheat would fall, by virtue of its surplus: a seller's goal is to earn money, and would be required to lower the quantity of money demanded per unit of wheat in order to be competitive with other sellers in the marketplace. Society at large would gain the economic benefit of more bread - or given that they can only consume so much of it (wheat being a staple and not a luxury), they would spend less of their wealth on bread and use more of it to obtain other goods, increasing their use-value and economic benefit.
Meanwhile, there would be a detrimental counter effect to the suppliers of wheat, in that they cannot earn as much money for the wheat they produce. When the price of wheat falls to the point that suppliers can no longer cover the cost of manufacturing, they will be disinclined to produce additional wheat at an economic loss, but instead will seek to supply to the market only so much wheat as can be sold at a profit, and sow their fields with some other crop the following year.
However, the net effect of the change in economic wealth is more permanent: unless another dramatic change occurs, society will benefit from having as much wheat as they desire at the lowest price possible to cover the suppliers' cost of manufacture.
In effect, increasing the supply of a commodity creates greater societal wealth (individuals gain greater use-value from the presence of additional goods); but increasing the supply of money does not (money having no use-value, but only exchange-value, which must seek a balance with the quantity of goods available to the market).
Hoarding
A separate argument takes the converse perspective: that the action of hoarding money could be detrimental to trade. The base of this notion is that a hoard of money is a sleeping giant.
But the weakness of this argument is fundamentally the same: the amount of money in circulation does not determine economic wealth. Only the abundance or scarcity of actual goods has an impact on economics. It also overlooks the fact that economic behavior is rational - there is a reason that money is being hoarded (stocked to satisfy future needs), and money will be hoarded only so long as this reason remains true.
It's also noted that the notion of hoarding is entirely subjective. It is not uncommon for an individual to set aside money for future use, and does not spend every cent the moment he receives it. Nor is it uncommon for an individual to accumulate money over time for a large purpose. At which point storing money constitutes "hoarding" is a matter of opinion.
It's also noted that the desire to store money itself constitutes a demand to have money, no different from the demand for money for immediate use.
A popular view in the banking industry is that the demand to store money is relative to the total demand for money. That is, when money is not in demand, individuals store it for future use at a time at which it will be n demand. This view is "entirely mistaken," in the demand for money is independent of the supply of money, but is instead dependent of the need or desire of individuals to engage in trade. A person does not have excess money because there is a great deal of it in circulation, merely because he has obtained more money (by supplying value to the market) that he requires to obtain the goods he needs or desires from the market.
As such, decreasing the amount of money in the marketplace by hoarding is more likely to occur in reality that a sudden and unexpected increase in the amount of money in trade - but ultimately, has no effect on the actual value of goods in exchange.
(EN: I tend to wonder if this holds entirely true. Seems to me that the entire practice of the Federal Reserve is managing the amount of money in circulation - printing more bills to increase the money supply, or selling bonds to decrease the money supply - and thereby influence the rate of inflation in the price of consumer goods. But then, this may have to do with the price of goods, in terms of currency, rather than the value of goods, in relation to other goods demanded in exchange.)
Decreased Demand for Money
One notion that has not been given much attention is the consequences of a decrease in the demand for money, without a corresponding change in the quantity of money - largely, because there is no historical case for such a situation. In effect, it would mean that people in general found that they had more money than was needed to obtain the goods they desire.
A decrease in demand for any consumer good would result in an increase in its exchange value against other goods - but it would be a mistake to apply the same rationale to money, as it has no use-value, merely exchange value.
As money has merely exchange-value, a decrease in the demand for money would result from decrease in overall economic activity. That is, individuals need fewer consumer goods (because they produced what they needed for themselves, and did not need to engage in trade to serve their needs). However, the causation is clear: a decrease in trade causes a decrease in the demand for money, not vice-versa.
Historically, it has been more common for there to be decrease in demand for a particular kind of money, which generally occurs when the medium of exchange shifts from one commodity to another: when people stopped using silver as money in favor of gold, the value of silver decreased - and though it did not become entirely worthless (there is a use-value to silver), it is not today "worth" as much in comparison to other goods as it was when it was used as money.
A more recent example was the value of Confederate money after the American Civil War. As the notes were no longer used as money, they were worthless in trade. Regardless of the quantity available, no-one would accept them.
How Market Forces Affect the Exchange Value of Money
It's noted that there is a constant perception that the cost of living is ever increasing, and it can be observed that the prices of items have indeed increased from one generation to the next.
The various theories that attempt to explain this phenomenon tend to miss the mark due to their basis in the concepts of direct exchange, which are predicated on the misconception that money behaves as a consumer good - but the value of money (how it is valued by the individuals who consent to trade it) is based not on a use-value, but one exchange value of money as an instrument of indirect exchange.
In a transaction to obtain a consumer good, a trader evaluates the value of goods offered according to his use-value of them against the price he must pay to obtain them. But in a transaction in which a trader seeks to obtain a good that has only exchange value, the buyer considers the value based not on the benefit of using the good, but on the benefit of trading the good (in this instance, money) for other things.
This has a pronounced effect on the manufacturing and wholesaling industries, which purchase goods with the intention of reselling them to others. When acting as a buyer, such traders are influenced not by the value of the good obtained, but by their estimation of the price others might be willing to pay. Hence, they are less inclined to flatly reject a seller's demands as being overpriced, and more likely to pay the asking price and pass along the mark-up to their own customers, based on his assumptions of what they will be willing to pay for a given good.
Extreme increases in price will still provoke the intermediate buyer to reject an offer - if the price increase is too dramatic, he believes his own customers will not purchase the goods and he will not be able to recoup the money he has spent to obtain them. This would explain the gradual nature of price increases.
There is an aside about cartel behavior, or price fixing by governments, in that such actions are ultimately detrimental to trade due to their one-sided nature. Price fixing restricts the price at which a seller can trade his goods, but they do not restrict the price that he must pay to obtain them. As such, price-fixing does not protect the small merchant, as it is supposed, but the larger one, whose economies of scale grant him the ability to obtain higher profits due to operational efficiencies that reduce the cost he must pay.
There is also an aside about "greed" among merchants - the notion that the merchant will attempt to charge the highest price possible of a consumer to maximize his profit. I'm not entirely clear on whether Von Mises objects to this notion, but it would stand to reason that greed is mitigated by competition. What prevents a merchant from selling at whatever price he feels the market will bear is that others will attempt to under price him to obtain a greater overall profit. This mitigates, but does not eliminate, price increases from the desire for increased profits.
The point here seems to be that the rise or fall of consumer prices has nothing to do with the quantity of money: neither buyer nor seller gives much consideration to the total stock of money, but merely considers the amount he is willing to pay, or is capable of gaining, in the context of each trade in which he participates.
Influences of the Size and Subdivisions of the Monetary Unit
There is an assertion that monetary units influence the determination of the exchange ration between goods. In effect, that prices of the least expensive goods are fixed by the smallest available subdivision of the monetary unit. For example, if the smallest coin is a penny, the cheapest goods must be traded for a penny, as there is no smaller denomination that can be traded if the value of a good is less.
In effect, the prices of the cheapest goods are rounded up, and this rounding-up ripples upward in the market to increase the price of all goods.
Von Mises does not seem to dismiss this notion, but indicates that there are two countermeasures. First, if there is widespread need of a denomination for smaller purchase, it will be created: the pound is subdivided to shillings, which are subdivided to pence, and there even exists a half-penny coin. Second, the quantity of goods offered in exchange for money can be increased to better reflect its value. If an item is worth less than a penny, a merchant can offer two for a penny.
Naturally, these countermeasures are imperfect. In the first case, the introduction of a new denomination requires a significant amount of activity (at the very least, smaller denomination coins must be minted); and for the second case, there are instances in which having a quantity of items is not desirable (few people would be interested in buying forty loaves of bread if that was the amount given in exchange for the smallest coin).
It is also conceded that there is a tendency in markets for prices to be "rounded" to accommodate denominations in money. If the exchange-value of an item is worth 95 cents, it might be sold instead for a dollar simply to make the exchange more convenient - the buyer needs to present fewer coins, and the seller has no need to make change. But it is just as likely that a sum would be rounded down as rounded up: an item that might be traded for $1.05 could be sold for a dollar, for much the same reasons.