The Functions and Attributes of Money

In the author's time (1905), transactions in the marketplace were conducted using a variety of media - coins and various forms of paper money - and transactions among merchants were likewise conducted with various notes of credit, bills, promissory notes, and such. And while they largely proclaimed a common standard (a certain sum of silver or gold), certain of these items were valued at varying degrees less than their face value by discerning parties. Strictly speaking, the precious metals are "money" and all papers and tokens representing (but not containing) the metals themselves are merely "currency" that is passed from hand to hand until the time and place it is redeemed for the money it represents.

It's also noted that government became involved in the monetary system to stabilize currency and to protect citizens against fraud - and the very actions of government have led to the depreciation of currency and to perpetrate acts of fraud itself. And moreover, it is clear from the annals of English law that government's attempts to protect currency have met with little success at their original goals.

When money (or currency) is functioning properly, it serves as a stable and nonperishable medium of exchange that provides a standard of value against which all other goods are priced. It eliminates the tedium of bartering goods against other goods (how many eggs are equal in value to a pound of meat) and enables workers and creditors to be paid in a medium whose value is dependable and predictable.

An aside on prices and values: they are subjective and represent what an item is worth to a person who wishes to consume it. Buyers are willing to pay different prices for things and the price merely reflects what was last paid by the buyer with the greatest desire to a seller who was willing to part with it a that bid. It would be more accurate to say that "was" the price, rather than "is" the price because the next deal may be struck at a different amount. Also, goods have no intrinsic value or natural price, but buyers offer different amounts at various moments. The belief that the value or price of goods is ever fixed at a certain amount has led to much confusion.

In more advanced civilizations, there is a need for money to transport value across time. That is, a seller who collects money for a sale today may not spend that money until the next day, the next month, or twenty years hence. Likewise, a buyer may obtain a good he needs in exchange for a promise to hand over the money at a future date (if the seller is willing to extend him credit). In each of these instances, one party gains value in the present that was created in the past or will be created in the future.

Because of this time-shifting ability, it is important to both buyers and sellers for money to maintain its value over time. A man who borrows a thousand pounds expects to pay back that amount and his creditor expects to receive it. When this transaction is made in specie, a thousand pounds of silver will always be a thousand pounds of silver. When it is done in currency, there is the risk that the money that will buy a given weight of silver today will command less in future due to its debasement and depreciation, hence the lenders must add a measure of interest to compensate themselves for that loss in addition to the profit they wish to make of the loan. And when the future value is uncertain, lenders err on the side of discretion to the disadvantage of the borrower.

Sykes then considers some of the properties that make money functional: it must be portable, have high value at low weight, be indestructible, homogeneous, divisible, and assessable. He goes into detail about each of those properties and its importance to the function as money, but this is largely self-evident and has been described in other sources. And he arrives, as most do, as the notion that precious metals are better suited to use as money than other commodities, and as such gold and silver were ultimately selected as the money commodity of most civilizations, with metals such as copper, nickel, and bronze serving for smaller denominations.