The Theory of Money and Credit - Ludwig von Mises [28]
Admittedly, for the numismatist and the technologist and the historian of art there is very little difference between the five-franc piece before and after the cessation of free coinage of silver, while the Austrian silver gulden even of the period 1879 to 1892 appears to be fundamentally different from the paper gulden. But it is regrettable that such superficial distinctions as this should still play a part in economic discussion.
Our threefold classification is not a matter of mere terminological gymnastics; the theoretical discussion of the rest of this book should demonstrate the utility of the concepts that it involves.
The decisive characteristic of commodity money is the employment for monetary purposes of a commodity in the technological sense. For the present investigation, it is a matter of complete indifference what particular commodity this is; the important thing is that it is the commodity in question that constitutes the money, and that the money is merely this commodity. The case of fiat money is quite different. Here the deciding factor is the stamp, and it is not the material bearing the stamp that constitutes the money, but the stamp itself. The nature of the material that bears the stamp is a matter of quite minor importance. Credit money, finally, is a claim falling due in the future that is used as a general medium of exchange.
4 The Commodity Money of the Past and of the Present
Even when the differentiation of commodity money, credit money, and fiat money is accepted as correct in principle and only its utility disputed, the statement that the freely mintable currency of the present day and the metallic money of previous centuries are examples of commodity money is totally rejected by many authorities and by still more of the public at large. It is true that as a rule nobody denies that the older forms of money were commodity money. It is further generally admitted that in earlier times coins circulated by weight and not by tale. Nevertheless, it is asserted, money changed its nature long ago. The money of Germany and England in 1914, it is said, was not gold, but the mark and the pound. Money nowadays consists of "specified units with a definite significance in terms of value, that is assigned to them by law" (Knapp). "By 'the standard' we mean the units of value (florins, francs, marks, etc.) that have been adopted as measures of value, and by 'money' we mean the tokens (coins and notes) that represent the units that function as a measure of value. The controversy as to whether silver or gold or both together should function as a standard and as currency is an idle one, because neither silver nor gold ever has performed these functions or ever could have done so" (Hammer). [10]
Before we proceed to test the truth of these remarkable assertions, let us make one brief observation on their genesis—although it would really be more correct to say renascence than to say genesis, since the doctrines involved exhibit a very close relationship with the oldest and most primitive theories of money. Just as these were, so the nominalistic monetary theories of the present day are, characterized by their inability to contribute a single word toward the solution of the chief problem of monetary theory—one might in fact simply call it the problem of monetary theory—namely that of explaining the exchange ratios between money and other economic goods. For their authors, the economic problem of value and prices simply does not exist. They have never thought it necessary to consider how market ratios are established or what they signify. Their attention is accidentally drawn to the fact that a German thaler (since 1873), or an Austrian silver florin (since 1879), is essentially different from a quantity of silver of the same weight and fineness that has not been stamped at the government mint. They notice a similar state of affairs with regard to "paper money." They do