4. The Monetary Unit
We have seen that every good is in supply if it can be divided into units, each of which
is homogeneous with every other. Goods can be bought and sold only in terms of such units,
and those goods which are indivisible and unique may be described as being in a supply
scales that each unit is convertible into every other, thus one pound equals 16 ounces
and one ounce equals 437.5 grains or 28.35 grams. Therefore, if Jones sells his tractor
for 15 pounds of gold, he may also be described as having sold the tractor for 240 ounces
of Gold, or for 6804 grams of gold, etc.
It is clear that the size of the unit of the money commodity chosen for any transaction
is irrelevant for economic analysis and is purely a matter of convenience for the various
parties.
All the units will be units of weight, and they will be convertible into pounds, ounces,
et cetera, by multiplying or dividing by some constant number, and therefore all will be
convertible into one another in the same manner.
Thus, one pound of gold will equal 16 ounces, and will of course exchange for 16 ounces
should such an exchange be desired on the market.
The economic irrelevance of the names or sizes of the units may be seen from the following
example.
Suppose that the residents of Texas use in their exchanges a unit known as the Houston
equaling 20 grains of gold, while the residents of Massachusetts use the Adams equaling 10
grains.
The citizens of the respective areas may make their exchanges and calculations in these
terms.
For example, Jones sells his car for 2,000 Houston's of gold, or more simply 2,000 Houston's.
or Jones might consider the money price of eggs as being one half Houston per dozen.
On the other hand, Smith might buy a house for 10,000 Adamses.
It is obvious that the use of the different names will complicate matters, but it is economically
insignificant.
The Houston is still a unit of weight of gold and is a shorthand name for 20 grains of gold.
It is clear that on the market, one Houston will exchange for two Adamses.
The names of the units can be and have been anything conceivable, depending on custom,
language, etc.
Such names as dollars, francs, marks, shekels are examples.
The dollar originated as the generally applied name of ounce-weights of silver coined by
the Count of Schlieck in Bohemia.
The Count, who lived in Joachim's Valley, or Joachimstal, began coining ounces of silver
in 1518, and their uniformity and fineness earned a reputation throughout Europe.
They became known as Joachimstalers, finally abbreviated to Tallers.
The name Dollar is derived from Taller.
To avoid unnecessary complications and to clarify the analysis, therefore, the names
of the monetary units in this work will be in terms of universally acceptable units of
weight, such as ounces, grams, etc., rather than in terms of accidental names of only
local significance, such as dollars or francs.
Obviously, the more valuable the units of a commodity are, the smaller the size of the
The form in which a unit weight of any commodity is traded depends on its use of money.
The Theory of Money and Credit The Theory of Money and Credit
Gold, for example, has been traded as money in the raw form of nuggets, as gold dust in
sacks or as jewelry and other ornaments.
One interesting example of a money shape was the iron money of Central Africa.
Iron was a valuable commodity, in use as hoes.
The money form was made to be divisible into two parts, easily shaped into hoes.
In recent centuries, large bars of gold or silver have been used for storage, or for
exchange in larger transactions, while smaller, circular pieces, known as coins, are used
for Smaller Transactions.