Henry George
The Science of Political Economy
Book V, Money -- The Medium Of Exchange and Measure of Value

Chapter VI
The Two Kinds of Money

[Showing That One Originates In Value From Production, The Other In Value From Obligation]*

[Money peculiarly the representative of value -- Two kinds of money in the more highly civilized world -- Commodity money and value from production -- Credit money and value from obligation -- Of credit money -- Of commodity money -- Of intrinsic value -- Gold coin the only intrinsic value money now in circulation in the United States, England, France or Germany.]**

01

While value is always one and the same power, that of commanding labor in exchange, there are as we have seen, with reference to its sources, two different kinds of value -- that which proceeds from production and that which proceeds from obligation. Now money is peculiarly the representative of value -- the common medium or flux through which things are exchanged with reference to their value, and the common measure of value. And corresponding to and proceeding from this distinction between the two kinds of value, there are, we find, two kinds of money in use in the more highly civilized world today -- the one, which we may call commodity money, originating in the value proceeding from production; and the other, which we may call credit money, originating in the value proceeding from obligation.

02

This distinction has of course no relation to differences of denomination, such as those between English pounds, French francs and American dollars. These are but differences of nomenclature. Nor yet does it coincide with differences in the material used as money, as for instance that between metal money and paper money. For while all paper money is credit money, all metal money is not commodity money. What I understand by commodity money is money which exchanges at its value as a commodity, that is to say, which passes current at no more than its "intrinsic value," or value of the material of which it is composed. Credit money is money which exchanges at a greater value than that of the material of which it is composed. In the one case the whole value for which the money exchanges is the value it would have as a commodity. In the other case the value for which the money exchanges is greater than its commodity value, and hence some part at least of its exchange value as money is given to it by credit or trust.

03

For instance, a man who exchanges ten dollars' worth of wheat for a coin containing ten dollars' worth of gold makes in reality a barter. He exchanges one commodity for an equal value of another commodity, crediting or trusting nobody, but having in the coin he has received a commodity which, irrespective of its use as money, has an equal value to that he gave. But the man who exchanges ten dollars' worth of wheat for a ten-dollar note receives for a commodity worth ten dollars what, as a commodity, has only the value of a bit of paper, a value practically infinitesimal. What renders him willing to take it as an equivalent of the wheat is the faith or credit or trust that he can in turn exchange it as money at the same valuation. If he drops the coin into the sea, he loses value to the extent of ten dollars, and the sum of wealth is lessened by that amount. If he burns the paper note, he suffers loss to the value of ten dollars, but he alone; the sum of wealth is only infinitesimally lessened. Paper money is in truth of the same nature as the check or order of an individual or corporation except (and in this lies the difference that makes it money) that it has a wider and readier credit. The value of the coin of full intrinsic value, like the value of the wheat, is a value that comes from production. But the value of the paper money is, like the value of the check or order, a value from obligation.

04

The first money in use was doubtless a commodity money, and there are some countries where it is still the principal money, and places perhaps where it is the only money. But in the more highly civilized countries it has been very largely superseded by credit money. In the United States, for instance, the only commodity or intrinsic value money now in circulation is the gold coinage of the United States. Our silver dollars have an intrinsic or commodity value of only some fifty cents, and the value of our subsidiary coinage is still less. That they circulate in the United States at the same value as gold shows that their exchange value has no reference to their intrinsic value. They are in reality as much credit money as is the greenback or treasury note, the difference being that the stamp, which evidences their credit and thus secures their circulation, is impressed not on paper, but on a metallic material. The substitution of what is now the cheapest of metals, steel, or the utter elimination of intrinsic value, would not in the slightest lessen their circulating value. What is true of the United States in this respect is also true of England, of France, of Germany, and of all the nations that have adopted gold as the common measure of value. Their only commodity money is certain gold coins; their other coins being token or credit money. In the countries that have retained silver as the common measure of value the standard coin is generally commodity money, but the subsidiary coins, having less intrinsic value, are in reality credit money.

* Merely the title in this heading appears in MS. -- H.G. JR.

** Ibid