In a town, one shoe store is established, supplying the demand which is placed at the figure 5000. The expenses may be estimated at $12,000, including rent, taxes, wages, insurance, and the 5000 pairs of shoes to supply the demand, and may be considered as the cost the trader is put to in order to place the 5000 pairs of shoes on the market. The cost to him of each pair of shoes is, therefore, $2.40. He would have to fix the price of his shoes at $2.40 merely to cover expenses. If he is content to make twenty cents on each pair of shoes, he will sell his shoes for $2.60.

Now let us suppose two shoe traders in the town, each supplying half the demand, or 2500 each. The expenses for each may be fixed at the figure $8000. It will be less than in the former case, because there is less to pay for wages, the smaller demand requiring fewer employees, and for shoes, since the supply will need to be but half of what it was before. The expenses will be more than half of what they were in the former case, because certain items of expense, such as rent, insurance, etc., will not vary much in either case. The cost of placing the shoes on the market will be $3.20 a pair. Now if the shoe dealers are to make twenty cents on each pair over and above what may be here called the cost of production, they must charge the consumer $3.40 for a pair of shoes.

If three shoe dealers are established in the town and each supplies one third of the trade, we find by the same reasoning that the price of the shoes per pair might be $3.80.

It will be evident that the increase in the number of retailers of shoes will raise the price of shoes.

Transportation. — Another factor which enters into exchange and has an effect on the expense attendant on it is Transportation.

Exchange may indeed apply to the transfer of the title of ownership in things immovable, or to pure speculation, where no actual transfer is made of the commodities dealt in; but, ordinarily, exchange or trade implies the transference of the commodity exchanged from one place to another. This entails a great expenditure, and of course has an immediate influence on the price of the article.

The greater the difficulty of transportation, the greater the expense. The difficulties arise from (1) distance, (2) the nature of the commodity, and (3) the condition of the ways of communication..

I. It will be necessary at times to transfer certain commodities a great distance before a profitable market can be found for them.

2. In transporting articles we must consider their weight, their size, their fragility, and the difficulty of preserving them while in transit. The progress made in comparatively recent years in fast railways and fast steam vessels, and in the means of preserving perishable goods, has lessened difficulties which in the past were insurmountable.

3. All the various ways of travel offer more or less difficulties. Conveyance by country roads is ordinarily very costly. The rate for freightage by railroad is sometimes low and sometimes high. Transportation by sea is usually less expensive. (See Transportation, p. 277.)

QUESTIONS

1. What are the advantages of exchange?

2. What vast mechanism is originated by exchange?

3. Who are the middlemen? What advantages do they bring to society? 4. Explain by example how middlemen may increase the prices of com

modities.

5. How does transportation affect the expense of exchange?

CHAPTER V

MONEY

I. ORIGIN AND DEFINITION OF MONEY

Development of Money. Money has been brought into use by exchange. Before the introduction of money the exchange of goods was carried on by barter. Barter is a system by which the various things capable of exchange, as, for example, commodities and services, are compared one with another and the transfer of one for another effected.

The system of barter obtained universally in the past and endures even to-day in countries where the use of money has not been introduced. The inconveniences and the difficulties of such a system are easily conceivable. Great as the annoyances would be while commerce remained in its most primitive stage, they would have increased immeasurably upon the multiplication of occupations and the variation of products which modern advance has brought about. A new system was evidently needed, and as peoples rose higher in the scale of civilization, they soon abandoned barter and made use of some medium of exchange. Some object was taken which had a value recognized by all the community. That object became a standard of value. The values of all exchangeable objects were estimated by the standard, and it became an easy matter to determine the amount of one commodity that should exchange for another. The admitted standard was called money.

Money is to be conceived as a generic term embracing any object which serves as a medium of exchange and a measure of value. In the earliest times among the Greeks and Romans

money consisted of cattle. Hence the word pecus (cattle) has given rise to the derivatives pecunia (money), "pecuniary," "peculation."

Oxen were used as money in the old Homeric days. Sheep were used among the Italians; cattle among the Scots and Welsh at the time of the abandonment of Britain by the Romans. Rice was used as money in Japan, squares of pressed tea in Central Asia, furs in North America, glass beads in Africa, salt in Abyssinia, oil in the Ionian Islands, wampum in New England, tobacco in Virginia.

At an early date, the metals came into use as money. The earliest metallic Roman money was the as, a copper piece. Iron was used in Lacedemon; lead, tin, silver, and gold were all used in early times.

All the various kinds of objects, all the several metals even, used at one time or another as money, have been gradually superseded by gold and silver. People have been led to the choice of these metals because of their physical properties, their luster, their malleability, their durability, and their high value. There are not wanting some who declare that there was a sort of providence which directed men to the choice of gold and silver as the money of the world. Nature apparently supplied these two metals that they might be used as money. Others with more apparent reason declare that the choice of gold and silver was a purely fortuitous, arbitrary act on the part of man. And they point to the history of money throughout the world. The precious metals were chosen as a universal medium only in comparatively recent times. Peoples were attracted at first by the physical qualities possessed by these metals, just as some were attracted by the glass beads and the wampum, which became valuable because they were sought after as a means of personal adornment.

The metals were first made up in ingots and were weighed and assayed. Money dealers were obliged to carry about with them their scales and balances for weighing and their chemicals for testing the value of metals offered to them.

Later the ingots were cut into some kind of regular form, and their weight and standard were marked on them by some official stamp. Money was counted, not weighed as before. It is probable that money was first coined by a king of Lydia, a successor of Gyges, between 700 and 650 B.C.

Finally, the ingots were made into pieces like those now in use, small disks stamped on both sides and milled.

Properties of Gold and Silver as Money. Gold and silver have special economic properties which fit them for the purpose of money. These properties are:

1. Facility of transportation. Great values can be transported in comparatively small volume, and the cost of transportation is much less for gold and silver than for other species of merchandise.

2. Durability. They endure for a long period of time and when joined to alloys may pass for years in circulation without any great loss of material.

3. Identity of quality. As they are simple elements, chemically, they are the same the world over. Wheat, on the contrary, to make use of an object for comparison, differs in quality from section to section of the country in which it is raised.

4. Difficulty of counterfeiting. Gold and silver are recognizable by color, weight, and metallic ring, and their imitation is difficult.

5. Divisibility. Divide a piece of gold or silver in halves, and each half has half the value of the whole, while the two halves together are equal to the whole. Each fractional part has a fractional value proportionate to its weight, and all the fractional parts put together are equal to the original whole. (Gide, Principles of Political Economy, 1905 edit., p. 214.)

Definitions of Money. Stanley Jevons defines metal money thus: "Coins are ingots of which the weight and fineness are guaranteed by the government, and certified by the integrity of the designs impressed on the surfaces of the metal."

Walker (Money, Trade, and Industry, p. 4) defines money thus: Money is that which passes freely from hand to hand through