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NOTE 3.04. The Monetary Unit

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4. The Monetary Unit

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We have seen that every good is in supply if it can be divided into units, each of which

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is homogeneous with every other. Goods can be bought and sold only in terms of such units,

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and those goods which are indivisible and unique may be described as being in a supply

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scales that each unit is convertible into every other, thus one pound equals 16 ounces

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and one ounce equals 437.5 grains or 28.35 grams. Therefore, if Jones sells his tractor

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for 15 pounds of gold, he may also be described as having sold the tractor for 240 ounces

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of Gold, or for 6804 grams of gold, etc.

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It is clear that the size of the unit of the money commodity chosen for any transaction

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is irrelevant for economic analysis and is purely a matter of convenience for the various

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parties.

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All the units will be units of weight, and they will be convertible into pounds, ounces,

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et cetera, by multiplying or dividing by some constant number, and therefore all will be

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convertible into one another in the same manner.

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Thus, one pound of gold will equal 16 ounces, and will of course exchange for 16 ounces

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should such an exchange be desired on the market.

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The economic irrelevance of the names or sizes of the units may be seen from the following

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example.

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Suppose that the residents of Texas use in their exchanges a unit known as the Houston

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equaling 20 grains of gold, while the residents of Massachusetts use the Adams equaling 10

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grains.

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The citizens of the respective areas may make their exchanges and calculations in these

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terms.

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For example, Jones sells his car for 2,000 Houston's of gold, or more simply 2,000 Houston's.

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or Jones might consider the money price of eggs as being one half Houston per dozen.

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On the other hand, Smith might buy a house for 10,000 Adamses.

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It is obvious that the use of the different names will complicate matters, but it is economically

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insignificant.

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The Houston is still a unit of weight of gold and is a shorthand name for 20 grains of gold.

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It is clear that on the market, one Houston will exchange for two Adamses.

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The names of the units can be and have been anything conceivable, depending on custom,

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language, etc.

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Such names as dollars, francs, marks, shekels are examples.

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The dollar originated as the generally applied name of ounce-weights of silver coined by

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the Count of Schlieck in Bohemia.

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The Count, who lived in Joachim's Valley, or Joachimstal, began coining ounces of silver

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in 1518, and their uniformity and fineness earned a reputation throughout Europe.

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They became known as Joachimstalers, finally abbreviated to Tallers.

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The name Dollar is derived from Taller.

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To avoid unnecessary complications and to clarify the analysis, therefore, the names

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of the monetary units in this work will be in terms of universally acceptable units of

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weight, such as ounces, grams, etc., rather than in terms of accidental names of only

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local significance, such as dollars or francs.

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Obviously, the more valuable the units of a commodity are, the smaller the size of the

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The form in which a unit weight of any commodity is traded depends on its use of money.

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The Theory of Money and Credit The Theory of Money and Credit

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Gold, for example, has been traded as money in the raw form of nuggets, as gold dust in

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sacks or as jewelry and other ornaments.

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One interesting example of a money shape was the iron money of Central Africa.

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Iron was a valuable commodity, in use as hoes.

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The money form was made to be divisible into two parts, easily shaped into hoes.

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In recent centuries, large bars of gold or silver have been used for storage, or for

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exchange in larger transactions, while smaller, circular pieces, known as coins, are used

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for Smaller Transactions.