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NOTE 11.11. Monetary Attributes of Goods

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11. Monetary Attributes of Goods

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a. Quasi-Money

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We saw in Chapter 3 how one or more very easily marketable commodities were chosen by the market as media of exchange,

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thereby greatly increasing their marketability and becoming more and more generally used until they could be called money.

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We have implicitly assumed that there are one or two media that are fully marketable, always

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saleable, and other commodities that are simply sold for money. We have omitted mention of the

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degrees of marketability of these goods. Some goods are more readily marketable than others,

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and some are so easily marketable that they rise practically to the status of quasi-moneys.

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Quasi-moneys do not form part of the nation's money supply.

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The conclusive test is that they are not used to settle debts, nor are they claims to such

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means of payment at par.

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However, they are held as assets by individuals and are considered so readily marketable that

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an extra demand arises for them on the market.

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Their existence lowers the demand for money, since holders can economize on money by keeping

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them as assets.

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The price of these goods is higher than otherwise because of their quasi-monetary status.

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In oriental countries, jewels have traditionally been held as quasi-moneys.

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In advanced countries, quasi-moneys are usually short-term debts or securities that have a

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have a broad market and are readily saleable at the highest price the market will yield.

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Quasi-moneys include high-grade debentures, some stocks, and some wholesale commodities.

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Debentures used as quasi-moneys have a higher price than otherwise and therefore a lower

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interest yield than will accrue on other investments.

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B. Bills of Exchange

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In previous sections we saw that bills of exchange are not money substitutes but credit instruments.

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Money substitutes are claims to present money, equivalent to warehouse receipts.

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But some critics maintain that in Europe at the turn of the 19th century,

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bills did circulate as money substitutes. They circulated as final payment in advance of their

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their due dates, their face value discounted for the period of time left for maturity.

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Yet these were not money substitutes.

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The holder of a bill was a creditor.

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Each of the acceptors of the bill had to endorse its payment, and the credit standing of each

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endorser had to be examined to judge the soundness of the bill.

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In short, as Mises has stated, the endorsement of the bill is in fact not a final payment.

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It liberates the debtor to a limited degree only.

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If the bill is not paid, then his liability is revived in a greater degree than before.

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Hence, the bills could not be classed as money substitutes.