The Theory of Money and Credit
15. The Influence of the Size of the Monetary Unit and its Sub-divisions on the Objective Exchange-Value of Money
The assertion is often encountered that the size of the monetary unit exerts a certain influence on the determination of the exchange ratio between money and the other economic goods. In this connection the opinion is expressed that a large monetary unit tends to raise the money prices of commodities while a small monetary unit is likely to increase the purchasing power of money. Considerations of this sort played a notable part in Austria at the time of the currency regulation of the year 1892 and were decisive in causing the new krone, or half-gulden, to be substituted for the previous, larger, unit, the gulden. So far as this assertion touches the determination of wholesale prices, it can hardly be seriously maintained. But in retail trade the size of the monetary unit admittedly has a certain significance, which, however, must not be overestimated.54
Money is not indefinitely divisible. Even with the assistance of money substitutes for expressing fractional sums that for technical reasons cannot conveniently be expressed in the actual monetary material (a method that has been brought to perfection in the modern system of token coinage), it seems entirely impossible to provide commerce with every desired fraction of the monetary unit in a form adapted to the requirements of a rapid and safe transaction of business. In retail trade, rounding off must necessarily be resorted to. The retail prices of the less valuable commodities—and among these are the prices of the most important articles of daily use and those of certain services such as the carriage of letters and passenger transport on railways and tramways—must be adjusted in some way to the available coinage. The coinage can only be disregarded in the case of commodities whose nature allows them to be subdivided to any desired extent. In the case of commodities that are not so divisible, the prices of the smallest quantity of them that is offered for independent sale must coincide with the value of one or more of the available coins. But in the case of both groups of commodities, continual subdivision of quantities for retail sale is hindered by the fact that small values cannot be expressed in the available coinage. If the smallest available fractional coin is too large to express exactly the price of some commodity, then the matter may be adjusted by exchanging several units of the commodity on the one hand against one or more coins on the other. In the retail market for fruit, vegetables, eggs, and other similar commodities, prices such as two for three heller, five for eight heller, and so on, are everyday phenomena. But in spite of this there remain a large number of fine shades of value that are inexpressible. Ten pfennigs of the currency of the German Reich (equivalent to 1/27900 kg. of gold) could not be expressed in coins of the Austrian krone currency; eleven heller (equivalent to 11/328000 kg. of gold) were too little, twelve heller (equivalent to 3/82000 kg. of gold) were too much. Consequently there had to be small differences between prices which otherwise would have been kept equal in both countries.55
This tendency is intensified by the circumstance that the prices of particularly common goods and services are usually expressed, not merely in such fractions of the monetary unit as can be expressed in coins, but in amounts corresponding as nearly as possible to the denominations of the coinage. Everybody is familiar with the tendency toward “rounding off” which retail prices exhibit, and this is based almost entirely on the denominations of money and money substitutes. Still greater is the significance of the denominations of the coinage in connection with certain prices for which custom prescribes payment “in round figures.” The chief examples of this are tips, fees, and the like.
